UK Law and Practice Contributed by: Carly Gulliver, Giles Distin, David Anderson, James Dawson, George Danczak and Elvan Hussein, Addleshaw Goddard
Breadth of transaction agreements The co-operation agreement is much narrower in scope than equivalents utilised in many other jurisdic- tions in which takeovers are common. The Takeover Code significantly limits the protections that bidders (not targets) can seek in such agreements, as further described in Rule 21.2 and Practice Statement No 29 of the Takeover Code. Amongst other things, the target company and its connected parties cannot give representations and warranties to a bidder; instead, a bidder will need to rely on information available in the public domain and on any private due diligence it is permitted to undertake. The target board cannot undertake in any agreements to recommend an offer to its shareholders. Commonly included protections Co-operation agreements will often impose permis- sible “information and assistance” obligations on the target, where regulatory clearances are required to be obtained in connection with an offer. In a co-operation agreement, the target may include a very wide range of protections in its favour in respect of the implemen- tation of an offer (including regarding the treatment of target share options and employee arrangements). 6.7 Minimum Acceptance Conditions 50% Acceptance Threshold Tender offers (ie, contractual takeover offers) are com- monly subject to a condition that the bidder acquires shares under the offer carrying more than 50% of the target’s voting rights (but this threshold is often set higher, at 75% or 90%). This is because a bidder would be able, under the UK Companies Act 2006, to consolidate the target into its group accounts as a “subsidiary” once it owns in excess of 50% of a company’s shares. Whilst this is the minimum, there is often a tactical decision to be made on what the most appropriate acceptance threshold is. 75% Acceptance Threshold At a 75% share ownership threshold, the bidder can usually ensure that the target’s shares can be delisted from the relevant UK stock market on which they are traded and this would be sufficient to pass (“special”) resolutions of the company’s shareholders in respect of various other material matters, including the re- registration of the target as a private limited company.
90% Acceptance Threshold At a 90% threshold, a bidder would normally be able to utilise squeeze-out mechanisms (see 6.8 Squeeze- Out Mechanisms ). 6.8 Squeeze-Out Mechanisms Once a bidder has acquired 90% of the shares to which the offer relates (including 90% of the voting rights attached to a company’s shares), it can squeeze out the remaining dissentient shareholders in a target, through the service of prescribed forms of notice on them within prescribed time periods, subject to the right of dissentient shareholders to litigated objection. Such litigation is very rare. 6.9 Requirement to Have Certain Funds/ Financing to Launch a Takeover Offer Certain funds are required to launch an offer. Rule 2.7 of the Takeover Code outlines that a bidder cannot announce a firm intention to make a cash offer unless it has ensured that it has sufficient resources available to pay for the target’s shares. Public Confirmation of Certain Funds Where an offer is for cash or includes an element of cash, the firm intention announcement and offer docu- ment or scheme circular must include confirmation by the bidder’s financial adviser, or by another appropri- ate third party, that sufficient resources are available to the bidder to satisfy full acceptance of the offer. Due Diligence A bidder’s financial adviser will not provide such con- firmation unless it has undertaken full due diligence on the sources of a bidder’s funds and has ensured that such funds are subject to absolutely minimal con- ditions regarding availability. The bidder makes the offer, not its lenders or equity providers. It is essential that the bidder collaborates with its financial and legal advisers to ensure that the funding structure is on a certain funds-compliant basis. 6.10 Types of Deal Protection Measures Deal protection measures imposing obligations on a target and/or its connected parties – such as break fees, matching rights, force-the-vote provisions or non-solicitation provisions – are prohibited for UK takeover bids, although a target may be permitted to
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