This is an extract of our Takeovers document, which we sell as part of our Equity Finance Notes collection written by the top tier of Cambridge And Oxilp And College Of Law students.
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TAKEOVERS Announcements Trigger Rule 2.2(c) Following an approach to the board of the offeree company, the offeree company is the subject of rumour and speculation or there is an untoward movement in its share price. Note 1b to Rule 2.2
[which only applies to this trigger!] clarifies that untoward movement = price movement of 10% or more above lowest price since time of approach. [Be sure to calculate how much share price has risen!]
Rule 2.2(d) Before an approach has been made to the board of the offeree company, offeree company is subject of rumour and speculation or there is an untoward movement in its share price and there are reasonable grounds for concluding that it is the potential offeror's actions which have led to the situation. The Panel should be consulted if there is any rumour or speculation regarding a possible offer (as opposed to the note to 2.2(c)!) Rule 2.2(e) Negotiations or
Announcement Responsibility TALKS ANNOUNCEMENTS Rule 2.4(a) [talks Offeree (Rule announcement]
2.3(c)) - unless and eventually offer unequivocally either Rule 2.7 rejected by the
[firm intention] or offeree, in which case responsibility
2.8 [no intention to reverts to offeror. make an offer]
See below under 'Rule 2.4' trigger.
Consequences Rule 2.4 announcement starts the offer period, triggers announcement under Rule 2.10 (se below). Rule 2.6 requires a 'put up or shut up' announcement [hence, either one under Rule
2.7 or 2.8] on the 28th day following the announcement in which the offeror is first identified, unless an extension is agreed with the Panel.
Rule 2.4(a) [talks announcement]
and eventually either Rule 2.7
[firm intention] or
2.8 [no intention to make an offer]
See above consequences for Rule 2.2(c) trigger.
Rule 2.4(a) [talks announcement]
discussions are about to be extended to include more than a very restricted number of people [more than six people]. Rule 2.4 Talks announcement has been made
Rule 2.2(a) Firm intention to make an offer is notified by an offeror to the board of the offeree company
[irrespective of attitude of offeree board to the offer!]
either Rule 2.7
[firm intention] or
2.8 [no intention to make an offer]
Rule 2.6(a) requires offeror to put up or shut up - i.e. must make an announcement under Rule 2.7 or Rule 2.8 within 28 days of the date after the announcement
Offeror (only offeror knows if it is going to proceed with offer or not)
If Rule 2.8 announcement made, cannot make bid for offeree for 6 months and cannot stakebuild over 30%. Rule 2.4 starts offer period, so see also offeree's obligations under Rule 2.10 below.
FIRM INTENTION ANNOUNCEMENT Before approach to Rule 2.7 - Firm board - offeror intention (Rule 2.3(a)) Following approach to board - offeree (Rule 2.3(c)) Usually made jointly when bid is recommended.
Rule 2.7(b) [also see GP 7] Offer must be made unless pre
condition invoked under Rule 13 (which cannot include 'subjective judgments' or conditions related to financing!) or competing offeror subsequently announces a firm intention to make a higher offer. Offer must be made
[i.e. offer document sent to shareholders]
within 28 days of this announcement (Rule
Rule 2.2(b) Rule 9.1(b) mandatory offer triggered by an acquisition of shares
MANDATORY OFER ANNOUNCEMENT Rule 2.7 [no choice Offeror (Rule here!]
START OF OFFER PERIOD ANNOUNCEMENT Announcement of Offeree May trigger the need Rule 2.10 numbers of for shareholder's relevant securities Offeror if offering disclosures under DTR Offer period has begun offeror shares as
[triggered by a Rule 2.4 in issue part of the or Rule 2.7 consideration See also DTR 5.6.1AR announcement]
(disclosure by issuers) Note: There may be circumstances where a matter is not required to be disclosed under the rules of the Code but triggers an obligation under the DTRs!
Traditional takeover timetable
*Yellow highlights indicate additional stages required for hostile bids.
1. STAGE Due diligence??2.
3. Negotiations with target board
CONSIDERATIONS What are you buying?
What price is appropriate to offer?
What preconditions/conditions will be appropriate?
o Levels of acceptance Will benefit from DTRs because offeree company already have publicly available information If recommended offer, will have access to books of the company (but will have to offer a better price)
Equality of information means board may have to be careful about what they choose to give (preferred) bidders, because under Rule 20.2 they will have to do the same for competing offerors. A potential offeror who wants to make a recommended offer will first approach the board of the offeree on an informal basis to negotiate the terms of the offer.
RULES Rule 20.2 - see also GP 3 (in shareholders' interests for there to be competing bids!)
GP4 and Rule
2.1 (secrecy - preventing false markets!)
However, it is essential during this period that the existence and details of the takeover are kept secret to avoid any obligation to announce the offer prematurely.
See also permitted offer
related arrangements under Rule
Note Rule 2.1 supplements control/disclosure of insider information provisions under the DTRs. If you are concerned with leaks of information, (i.e. trigger event?), you might make a talks announcement.
Rule 2.2(c), (d) and (e) and Rule
2.4 Remember that any announcement will trigger the beginning of the offer period (designed to control share dealings...)
Rule 8 (disclosures at the start of an offer period) During the prefirm intention announcement period, offeror may undertake stakebuilding and due diligence. The offeree will be planning a defence strategy [if hostile bid].
5. Firm intention announcement
Posting of offer document (Day 0)
Once you are sure you're going ahead with the offer, then make a firm intention announcement. (Again, consider trigger event!) If a talks announcement was made under Rule
2.4, offeror has 28 days to 'put up or shut up'. Once you make a firm intention announcement, you are obliged to make an offer. Offeror has 28 days from the firm intention announcement to make this offer. Offer document must contain the information required in Rule 24. Offeror must announce that offer made (Rule
Rule 2.2(a) and Rule 2.7
On a recommended offer, the board's recommendation and other information required to otherwise be in the defence circular will be contained in the offer document.
6. Last day for offeree to send defence document to shareholders and publish on website (Day 14)
Statutory provisions/common law principles relating to false/misleading statements will apply to offer documents, as well as s.21 FSMA (which will not apply to defence documents). If offer is contested. Defence document must contain the information required in Rule 25.
The offeree board must obtain competent independent advice on any offer and the substance of such advice must be made known to its shareholders (Rule 3.1). The offeree board should consider GP3 and Rule 21 [restrictions on frustrating action] as well as their duty under s.172.
7. First closing date (Day 21)
Tactically advantageous for an offeror to post the offer document as soon as possible (to give less time to the offeree board to post its defence circular). Offer must be open for at least 21 days following the date on which the offer document is published. (But remember offer = Day 0, so first closing date is Day 21).
Options on the first closing date:
1. Declare offer unconditional as to acceptances (it must do so if it has received 90% of shares; has discretion if between 50%90%)
2. Extend the offer (even if the offer has become unconditional as to acceptances, practice of keeping offer open until further notice)
3. Revise the offer [see below at 10]
4. Let the offer lapse (very unlikely) Announcement must be made by 8am on the next business day after the first closing date.
Announcement as to level Rule 17.1 of acceptances (whichever option is chosen!)
9. Final date for offeree Board should not publish any material Rule 31.9 board to post defence new information after Day 39 without document with material the consent of the Panel. new information [if any]
(Day 39) Acceptances may be withdrawn 21 days after the first closing date if offer is not declared unconditional as to acceptances (Rule 34) [Day 42]
10 Final date for offeror to Under Rule 32.1, if there is a revised Rule 32.1(c)
. revise or increase the offer, it must be kept open for at least offer (Day 46) 14 days following the date on which the revised offer document is published (i.e. offer doc must be published by Day 46). The increased offer must be available to all shareholders, including those who have already accepted the offer. Shareholders who accepted the original offer will be automatically deemed to accept the terms of the revised offer unless they withdraw (Rule 32.3).
Offer must be declared unconditional as to acceptances or will lapse
[Final closing date] (Day 60)
Offeree board must send a circular containing its opinion on the revised offer to offeree shareholders (Rule
32.6). Acceptances singled out because it's the one thing that would affect the takeover; the other conditions tend not to be controversial. So within this period (Day 21Day 60) they can extend the offer or increase the offer. If offer is unconditional as to acceptances on Day 60, you are entitled to allow the offer to remain open longer. Under Rule 31.2, if the offer is to remain open for
Rule 31.6 Rule 31.2 for extensions Rule 32.1 for revised offers
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