Comment

The Code amendments are designed to address certain issues to have emerged on recent competitive bid situations (arising since the rules on the offer timetable were changed, as from 5 July 2021) where either: 1) one or both of the bids was subject to regulatory conditions that could not be satisfied within the standard 60 day timetable; and/or 2) one of the bids was proceeding by way of a contractual offer whilst the other was proceeding by way of a scheme of arrangement. The amendments provide greater clarity on how the Panel will apply the rules in those two scenarios and it will be important for advisers to digest them fully as they will feed into tactical considerations around bids and potential bids. The Panel's stated intention to consult later in the year on Rule 21 is welcome news, as is their steer that a decision by a target board to proceed with a sanction hearing in respect of an offer being implemented by way of a scheme of arrangement is unlikely to constitute frustrating action.

In depth 

13031. key amendments coming into effect, and concerns addressed, can be summarised as follows.

Timing of auction procedure:

• The Panel will not normally conduct an auction process under Rule 32.5 until after the last regulatory condition has been satisfied or waived by each of the bidders, regardless of whether (if one or more of the offers is proceeding by way of a scheme of arrangement) the shareholder meetings have or have not already taken place.
• If, however, all the parties agree that an auction procedure should take place on an earlier date, the Panel will normally consent to this.
• Concerns were raised in the responses to the consultation as to the prospect of a delay where two offers are proceeding by way of a scheme of arrangement and the current practice would be to have an "early auction" prior to the date of the shareholder meetings. The Panel stressed that it was not seeking to move away from this practice, but wanted to ensure that a framework was in place for situations where the parties are unable to agree on the timing of an auction. The amendments on this are therefore largely being implemented as proposed, though there is a recognition that in "exceptional circumstances" (such as where a regulator is unwilling to review two offers in parallel), the Panel can require the auction to take place at an earlier date.
• Where a scheme of arrangement is published in competition with a contractual offer (which is therefore unlikely to be recommended at that point) and the Panel introduces an auction procedure, Day 39 will normally be the seventh day before the last day for final offers to be announced prior to the auction procedure (unlikely then to be the 21st day before Day 60).
• By contrast, where a scheme of arrangement is published in competition with a contractual offer and the Panel does not introduce an auction procedure, Day 39 will normally continue to be the 21st day before Day 60.

Where one bidder wants to try to complete its offer before any auction procedure - and Rule 21 concerns

• If the "faster" bidder (i.e. the first to satisfy/waive its regulatory conditions) is proceeding by way of a contractual offer and wants to try and complete before any auction procedure, it can make an acceleration statement. If it is competing with a "slower" bidder that is proceeding by way of a scheme, then without an acceleration statement Day 60 would be pushed back.
• If the "faster" bidder is proceeding by way of a scheme and, with target consent, wants to complete the scheme before any auction procedure, the consultation paper stated that the target board must consult the Panel as to whether the sanction of the scheme would, without an additional shareholder vote, constitute frustrating action under Rule 21. The responses to the consultation raised a number of concerns in relation to this. The argument was made that shareholders will already have voted to approve the scheme (potentially in the knowledge of the final terms of a competing offer), whilst a number of other protections then applied in relation to the sanction of the scheme including the fiduciary duties of the target directors and the ability of shareholders to make representations at the sanction hearing.
• The Panel intends to give further consideration to this issue and flagged that they intend to consult further on this as part of a wider consultation on Rule 21 to be carried out later this year. They indicated that in the consultation they would be likely to propose that either Rule 21 should not apply in the context of a scheme sanction hearing, or that it should apply but with the Panel being likely to withhold its consent to the taking of this action only in exceptional circumstances

Framework for target shareholders to decide between competing bids:

• The Panel is focused on ensuring that target shareholders have sufficient time to consider each of the offers (in line with General Principle 2) and is keen to ensure an orderly framework for the resolution of competing offers.
• Accordingly, once each of the bidders has made its final offer (whether as a result of an auction procedure or otherwise), where a contractual offer and a scheme of arrangement are both submitted to shareholders, the sequencing should usually be such that:
  • the date of the shareholder meetings to approve the scheme should precede Day 60 of the contractual offer;
  • there should be sufficient time between the date of the shareholder meetings and Day 60 for target shareholders to make their acceptance decision on the contractual offer in the knowledge of the outcome of the shareholder meetings; and
  • Day 60 of the contractual offer should precede the date of the court sanction hearing.