UK Takeover

8/2/2019 UK Takeover

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Introduction 1

Antitrust and regulated industries 2

Barriers to acquiring control 3

Access to information 4

Preliminary issues 6

Announcement obligations 11

Share dealings 12

Offer structure 14

Terms of the offer 16

Share consideration 18

Timing 18

Information for target shareholders 20

Financing 22

Role of the target board 23

Role of the financial adviser 24

Mandatory offers 25

Minority squeeze-out 25

Appendix 1 26

Appendix 2 27

Appendix 3 28

For further information

please contact

Edward Braham

65 Fleet Street

London EC4Y 1HS

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+44 20 7832 7084+44 20 7108 [email protected]

Stephen Hewes

65 Fleet Street

London EC4Y 1HS

+44 20 7832 7323+44 20 7108 [email protected]

Julian Long

65 Fleet Street

London EC4Y 1HS

+44 20 7832 7027+44 20 7108 7027

[email protected]

freshfields.com

This document is a guide to the regulations governingpublic takeovers in the UK. It forms part of a series

covering countries where Freshfields BruckhausDeringer has an established M&A practice. The series isaimed at those with an interest in acquiring or advisingon an acquisition of a public company in the differentEuropean jurisdictions.

This material is for general information only and is notintended to provide legal advice.

Freshfields Bruckhaus Deringer LLP 2008


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The UK market has a long history of public takeovers both recommendedand hostile. There have also been a significant number of take-private offersmade with the backing of US and European private equity funds and, morerecently, public offers made by funds based in the Middle and Far East,sometimes as part of a consortium of investors. The frequency of publicoffers may partly be explained by the fact that shares in UK listed companiestend to be widely held by pension funds, insurance companies and otherinstitutions with a tradition of accepting takeover bids, frequently againstthe wishes of management. It is also very difficult for UK listed companies

to set up takeover defences; poison pills and shareholder support clubs areextremely rare.

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Takeovers in the UK are governed by the City Code on Takeovers andMergers (the City Code). The City Code is administered by the UKTakeover Panel (the Panel). The Panel is the supervisory authority fortakeovers in accordance with the EU Takeover Directive (the TakeoverDirective).

Following implementation of the Takeover Directive in the UK, the CityCode applies to offers for, and other transactions involving a change of

control of, companies with their registered offices in the UK, the ChannelIslands and the Isle of Man (if any of their securities are admitted to tradingon a regulated market in the UK or on any stock exchange in the ChannelIslands or the Isle of Man). It also applies to offers for other companies withtheir registered office in the UK, the Channel Islands or the Isle of Man thatare considered by the Panel to be resident in one of those jurisdictions. TheCity Code does not apply to private companies unless there has been somemarketing of their shares to the public in the previous 10 years. As requiredby the Takeover Directive, the Panel will share jurisdiction with a takeoverregulator in another European Economic Area (EEA) member state wherean offer is made for: (i) a company with its registered office in the UK but

with its securities admitted to trading on a regulated market in another EEAstate (and not the UK); and (ii) a company with its registered office inanother EEA state and with its securities admitted to trading on a regulatedmarket in the UK but not the other EEA state.

The City Code is a set of rules developed by the Panel to reflect some40 years practical experience of takeovers. It has statutory effect followingimplementation of the Takeover Directive. The City Code consists of sixgeneral principles and 38 detailed rules. The general principles (set out inappendix 1) are essential to an understanding of how the City Code works.The most fundamental principle is that all shareholders must be treatedequally.


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A number of other statutory rules also apply during takeovers. For example,there are criminal restrictions on insider dealing, making misleadingstatements and market manipulation. There is also a civil prohibition onmarket abuse.

The Financial Services Authority (FSA) is the competent authority in theUK. Its Listing, Prospectus and Disclosure and Transparency Rules may alsobe relevant.

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Even when it was a non-statutory body, the Panels rulings were invariablycomplied with. Following implementation of the Takeover Directive, thePanel has new disciplinary and enforcement powers. The Panel prides itself(justifiably) on its speed, efficiency, consistency and confidentiality. Itsstanding has been reinforced by the UK courts decision not to interferewith Panel rulings or decisions during the course of a bid. Accordingly,while it is theoretically possible for there to be judicial review of Panelrulings, there is virtually no litigation in the context of UK takeovers. A newmarket abuse regime was introduced in the UK in 2001 (this was amendedin July 2005 to implement the EU Market Abuse Directive), increasing thescope for litigation during bids. However, the FSA, which enforces themarket abuse regime, regards the Panel as the prime regulator during bids.

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Merger control in the UK is regulated by the Enterprise Act 2002 in casesnot governed by the EC Merger Regulation. The Enterprise Act establishes atwo-stage administrative procedure for merger control involving the Officeof Fair Trading (OFT) and the Competition Commission. The OFT has aduty to refer mergers (anticipated or completed) to the CompetitionCommission if it believes that there is, or may be, a relevant mergersituation that has resulted or may be expected to result in a substantiallessening of competition (SLC). On a reference to it, the CompetitionCommission must decide whether a relevant merger situation has or will becreated and, if so, whether the situation results, or may be expected toresult, in an SLC within any market in the UK. If the Competition

Commission decides (two-thirds majority) that there is an anti-competitiveoutcome, it must decide how to remedy, mitigate or prevent the adverseeffects. The Competition Commission has up to 32 weeks to publish areport on the merger from the date of reference.

A relevant merger situation will exist if two or more enterprises cease to bedistinct (ie they are brought under common ownership or commoncontrol) and the merger creates or enhances a share of supply (or demand)of goods or services in the UK of 25 per cent or more (the share of supplytest), or the value of turnover in the UK of the enterprise being taken overexceeds 70m.


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Notification is voluntary under the Enterprise Act and there are no bars tocompletion of a takeover while it is being considered by the OFT. However,the City Code includes provisions that effectively amount to a waitingperiod, as an offer that falls within the statutory provisions for possiblereference to the Competition Commission (or is within the scope of the ECMerger Regulation) will lapse if there is a reference or if the EuropeanCommission initiates Phase II proceedings before the first closing date orthe date when the offer becomes unconditional as to acceptances, whicheveris later. An offer must lapse if referred to the Competition Commission andit then becomes unlawful to acquire further shares in the target without theCompetition Commissions consent.

^=~=====~\=Different rules are in place for water mergers, public interest cases(involving national security or newspaper/media considerations) and specialpublic interest cases (which cover those relating to government contractorsinvolved in defence issues and newspaper/media mergers). The rules allowthe Secretary of State for Business, Enterprise and Regulatory Reform tointervene in the last two cases. Also regulatory consent is required before acontrolling interest can pass in banks and insurance companies.

A number of previously state-owned companies still have golden sharesthat permit the UK government to prevent a change of control.

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There are no restrictions on overseas investment in the Enterprise Act andthe UK has no exchange control regime. However, the Industry Act 1975makes special provision for cases involving the acquisition of important UKmanufacturing undertakings by non UK persons. This has never been used.

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Shares in UK listed companies are almost invariably held in registered form

and are freely transferable. Shareholders can choose whether they hold theirshares in certificated or uncertificated form. The procedure for transferringshares depends on how they are held.

Under the Listing Rules, shares must be freely transferable to be eligible forlisting.

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As mentioned above, some previously state-owned companies retain agolden share that permits the UK government to block a change of control.Also, a small number of long-established companies have split share capital

structures giving the founders weighted voting rights either generally or in


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particular circumstances. The weighted votes are typically held by a smallgroup, making it difficult for outsiders to take control. These companies arevery much the exception and the FSA will no longer list companies with thissort of share capital structure. Recently, institutional shareholders haveexerted considerable pressure on companies to unwind these structures.

With these exceptions, there are generally no provisions that make theacquisition of a controlling interest insurmountable.

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Public companies in the UK have unitary boards of directors, generallycomprising executive and non-executive directors. All directors can beremoved from office at any time by a resolution of shareholders requiring asimple majority. This right to remove directors cannot be overridden bycontract, although directors may be entitled to damages for loss of office.

Most shareholder resolutions require a simple majority. A number ofresolutions, for example to amend the companys constitutional documents,require a 75 per cent majority.

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As a matter of law, it is possible for UK companies to build into theirconstitutional documents various types of takeover defence mechanisms. Inpractice these are rare. In particular, the Listing Rules would usually requireshareholder approval for these types of arrangements. In addition, thestatutory requirement that directors use their powers only for the purposesfor which they were conferred limits the directors freedom to put in placeUS-style poison pill arrangements.

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Companies registered under the UK Companies Acts (the main legislationgoverning the formation and registration of companies) have to make alarge amount of information publicly available. The burden on listedcompanies is even greater because of the requirements of the Listing Rules

and the Disclosure and Transparency Rules. A potential bidder can obtainthe following from the relevant registry without alerting the target to itsinterest:

a companys memorandum of association and its articles of associationshowing, most importantly, its share capital structure;

details of directors; details of issued share capital and shareholders; a companys accounts and the related directors and auditors reports;

any circular, listing particulars or prospectus published by the company;


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any US filings it has made (for example, if it has a US listing) these areoften more comprehensive than other materials available on the target;and

research published by investment banking analysts who follow thecompany (which often contains information obtained from high-levelsources within the company).

There are also numerous online search facilities and internet sourcescontaining corporate information.

Companies with shares admitted to trading on a regulated market in the UKmust release details to the market of any inside information, includingsignificant acquisitions and disposals and material trading developments(for example, an unexpected downturn in profitability). They also have to

release half-yearly financial information, interim management statementsand more routine information such as results of meetings and dividenddetails. This information will also be included or referred to in thecompanys annual information update required by the Prospectus Directive.

When a company produces a prospectus to gain admission to a regulatedmarket for new shares, it must disclose details of material contracts enteredinto in the previous two years and earlier contracts containing any provisionunder which any member of the issuers group has any obligation orentitlement that is material to the group at the date of the document.Material contracts are also disclosable in a takeover offer document.

e=~====~=~=~=~\=A company has to keep open for inspection by third parties its register ofmembers. Anyone can request a copy of a companys share register. Thereare circumstances in which a company can refuse to provide a copy of itsshare register, but these are unlikely to apply in a takeover context. Inaddition, anyone controlling 3 per cent of the total voting rights in a UKlisted company has to notify that interest (and any increase or decrease of awhole percentage point above or below 3 per cent) to the company and theFSA; the information is then reported to a regulatory information service,which makes it public. These notifications look behind nomineearrangements; the ultimate holder of the voting rights must be disclosed.

Certain interests acquired through a holding of financial instruments mustalso be disclosed.

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English law restricts shareholders ability to claim direct remedies against acompany or its directors for information included in its accounts, exceptwhen the information is included in a prospectus. Accountants will notgenerally be liable to shareholders for auditing a companys accounts or to abidder, except if the auditors expressly accept that a bidder is relying on theaccounts.


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There is no legal or City Code requirement for a bidder to negotiate or evenapproach the target before announcing an offer. The only requirement isthat an offer should be communicated in the first instance to the targetboard; in practice this obligation can be satisfied by a telephone callimmediately before the bid is announced.

However, many bids are recommended and these will involve negotiationsbetween the parties and their financial advisers. Negotiations would usuallybe with the target board. Key target shareholders may be approached and

persuaded to commit to accept the offer but there are strict City Codelimitations on the timing of these approaches and on the number ofshareholders that can be approached.

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It is unusual to have an agreement between a bidder and the target about theconduct of a bid (contrary to standard US practice). Merger agreements are,however, usually proposed in the context of a scheme of arrangement (seepage 14) and on cross-border transactions.

However, it is usual to have informal agreement on a recommended bid onsuch matters as board positions, the location of the head office and the new

name of the merged group and for this information to be included in thepress announcement giving details of the offer; this is usually regarded asconstituting a sufficient commitment by the bidder.

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These are very rare. A bidder may seek them from a controlling or dominantshareholder, or from directors who hold an unusually large number ofshares, but warranties would not be included in the general offer sent toshareholders. It is technically possible to introduce deferred consideration toprotect against poor performance, although this is done only occasionallyon public bids.

t~=~=~=~==~====~\=Despite the absence of contractual representations and warranties, directors,financial advisers and other professionals involved in pre-bid negotiationsneed to be aware of the potential liabilities that may arise from statementsmade during these discussions. For example, in one case a firm of auditorsincurred a significant liability to a bidder for confirming the accuracy of atarget companys set of accounts when the bidder made it clear that no offerwould be made without this confirmation. Similar claims have been madeagainst investment banks. The market abuse regime includes a restriction ondisseminating information that gives a false or misleading impression aboutan investment and on behaviour that is likely to give a false or misleading

impression about securities.


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English law is generally considered not to recognise an obligation tonegotiate in good faith and the courts will usually refuse to enforce anobligation to negotiate on the basis that it is too uncertain. Exclusivityarrangements (in which the target agrees not to start discussions with thirdparties) can as a matter of law bind a target provided they have a specifiedduration. However, such a commitment by a target is not relevant to apublic offer because the target is not a party and it does not bind thedirectors in their personal capacities. Very few target directors would agreeto this sort of restriction, arguing that their fiduciary obligations would becompromised.

It is, of course, essential that the parties to pre-bid discussions do notdeliberately mislead each other. For example, if a bidder relies on a

representation that the target is not in discussions with third parties, it maywell have a valid claim for losses suffered if the statement was false ormisleading.

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Confidentiality agreements are common. Due diligence exercises (high levelor detailed) usually start with an exchange of confidentiality agreements.These will tend to cover the fact that a transaction is being discussed as wellas the confidentiality of the information exchanged.

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=~==~=~==\=Confidentiality agreements often include standstill agreements restrictingthe acquisition of target company shares, typically for a period of betweenone and two years, after discussions have broken down. There are no hard-and-fast rules and it is a matter for negotiation on each occasion. Care isneeded where the bidder already has shares in the target and the target seeksto prevent the bidder from accepting a third party bid or agreeing to do so(see Note 4 to the definition of acting in concert in the City Code).

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Practice varies widely over both the scope of due diligence and the way it iscarried out. Any bidder is advised to carry out as much due diligence aspossible because the opportunities to withdraw after announcing a bid arelimited.

The City Code allows a bidder to announce a firm intention to make anoffer only if it has every reason to believe that it can and will continue to beable to implement the offer (Rule 2.5). A bidder will get an unsympathetichearing from the Panel if it tries to withdraw from a bid because it discoverssomething it reasonably ought to have found out before the announcement.

The bidders enthusiasm for a detailed due diligence exercise will betempered by the targets sensitivities and the need to preserve secrecy.


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Target companies often have a natural inclination towards a quick processwith minimal due diligence. They will claim market practice supports them,but there are no hard-and-fast rules.

Target companies will also be worried about the City Code requirement toprovide the same information to any other bona fide potential bidder thatemerges (see page 9). This can be a genuine point and there are manyexamples of targets being faced with information requests from prospectivebidders who are their commercial competitors. However, the point isfrequently overstated and target directors will often concede information toget the best price.

The outcome is normally that due diligence is conducted at a fairly highlevel, usually involving only senior management and in-house counsel. On arecommended bid in which the target is keen to ensure that the bidder is notable to back out, the target will want to disclose matters that may trigger theconditions to the bid. This is because the Panel has to be consulted about abidder relying on certain conditions. It will not allow a bidder to invoke acondition when it knew about the nature and scope of the problem beforethe announcement.

If a significant amount of equity is involved, the target would normallyinsist on reciprocal due diligence on the bidder to verify the assumptionsunderlying the valuation of the bidders shares. If a prospectus is beingissued on the combined group, the due diligence exercise may become moreformal and expansive: in particular, a working capital statement (confirming

that the merged group will have sufficient working capital for its presentrequirements) must be included and confirmed by the bidders financialadviser.

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Under English rules details of information exchanged between the bidderand target do not need to be disclosed (except to rival bidders see below).This is subject to the general principle that shareholders are entitled tosufficient information to allow them to make an informed assessment of thebid. But the fact that detailed information has been exchanged between thebidder and the target or made available to banks or underwriters financing abid does not provide shareholders with a right of disclosure. If, on the otherhand, information is given selectively to particular target shareholders, thereis a strictly enforced obligation under the City Code to make it equallyavailable to other target shareholders.

Additional disclosure of information exchanged in pre-bid negotiations maybe required if the offer is to be made into the US.

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The receipt of information may prevent the bidder from buying shares inthe target if the information amounts to unpublished inside information,but should not prevent it from bidding. Often this restriction will fall away


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once the bid is announced on the basis that, if the bid is made at asignificant premium, the information will no longer be regarded as pricesensitive.

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Under the City Code the target will have to provide any bona fide bidder orpotential bidder with information it has given to any other bidder. This ruleapplies even if the other potential bidder is hostile or a competitor of thetarget. The Panel will, however, permit the target to insist on aconfidentiality agreement.

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It will be difficult for the target to agree to deal protection measures duringpre-offer negotiations because of the City Code, the Listing Rules and thelaw on directors duties. Agreeing to such arrangements could amount tofrustrating action for the purposes of the City Code if the directors believethere may be a bid by a third party. Similarly, agreeing, for example, to thegrant of cross options over share capital or the grant of an option over thetargets assets raises the question of whether the directors of the twocompanies are using their powers for the purposes for which they wereconferred.

The most common and straightforward method of trying to keep otherbidders out of the fray is by tying up as many shares in the target as possiblebefore the offer is announced. This could be outright purchases of target

shares (subject to the rules that restrict market purchases, see page 12) or,more usually, by persuading shareholders to commit to accept the offerwhen it is made. These commitments, known as irrevocable undertakings,mean the relevant shareholder is able to benefit from any increase in theoffer price that the bidder is forced to offer to secure control. Institutionalshareholders have become increasingly willing to give these undertakingsbut usually insist that they fall away if a competing offer is made at morethan a specified price.

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Break fees payable if an offer fails because of a third party intervening arenow very common on UK takeovers.

Current practice is to agree at the formal announcement stage a fee of up to1 per cent of the targets net assets on a market value basis (this level of fee isnot prohibited by the financial assistance rules). Under the City Code abreak fee must normally be no more than 1 per cent of the offer value andmust be fully disclosed in the offer announcement and the offer document.It is also necessary to consult the Panel about any proposed break fee. TheCity Code limit on the amount of any break fee also applies to otherfavourable arrangements with a potential offeror.

The arrangement may be reciprocal on a bid that is effectively a merger ofequals. A target may also be persuaded to agree to a break fee arrangement


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in the pre-announcement stage if the potential bidder wants some comfortthat it will be able to recover some of its expenses if the target board decidesto recommend an offer by a third party.

If the company that agrees to pay the break fee (whether the bidder or thetarget) is a listed company, there are similar limitations in the Listing Rulesand the City Code on the size of the fee.

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The City Code requires absolute secrecy before a bid is announced. If thedeal does leak the bidder may be forced to make an announcement before itis ready. It is not therefore possible to have wide consultation withemployees before an offer is announced.

An employer is required to consult employees before implementing acollective redundancy arrangement. The employer may also have agreed, orhave had imposed on it, wider information and consultation procedures.The Panel accepts that discussions may be needed with employeerepresentatives before an offer is announced, for example if there willbe a simultaneous announcement of a significant restructuring orrationalisation. It will allow discussions with specific individuals on aconfidential basis. If there is a leak, however, an immediate announcementwill have to be made.

Following implementation of the Takeover Directive, the offerdocumentation has to be made available to the targets employeerepresentatives (or employees if there are no representatives).

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Employees of the target have no rights to challenge the offer.

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A bidder has to give details in its offer document of its strategic plans for theofferee and their likely repercussions on employment. It also has to state itsintentions regarding the continued employment of the employees andmanagement of the offeree and its subsidiaries, including any materialchange in the conditions of employment. It is now a criminal offence for abidder not to make the required disclosures regarding employees.

If a cross-border merger is implemented in the UK under the new Cross-Border Merger Regulations (see page 15), it must take into account existingemployee participation arrangements if these exist in one or more of themerging companies. Employees in the UK do not have a statutory right toinvolvement at board level within a company, but if voluntary arrangementshave been put in place that meet the definition of employee participation,these will need to be retained following a merger under the Regulations.


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There are City Code restrictions on contacting private individuals and smallcorporate shareholders seeking irrevocable commitments to accept orrefrain from accepting an offer. There are also statutory rules on financialpromotion, meaning broadly that approaches to non-institutionalshareholders may have to be made by the financial adviser, althoughappropriate exemptions are generally available.

Apart from these, there are no restrictions on approaching target companyshareholders, although a bidder should be careful about triggering anannouncement obligation before it is ready to proceed. The City Codeemphasises the importance of absolute secrecy before any offer is

announced. People may be made aware of the bidders intentions only on aneed-to-know basis and provided they are made aware of the need forsecrecy and that they should not act on the basis of the information.

The City Code requires an immediate announcement if negotiations ordiscussions are about to be extended to include more than a very restrictednumber of people. Also, the bidder will have to make an announcement ifthe target share price increases or there is rumour and speculation in themarket and this is likely to have been as a result of the bidders actions.

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Provided the bidder manages to keep its intentions confidential and thereare no leaks into the market, it will not have to reveal its interest until itformally announces its offer. This formal announcement must state theterms and all of the conditions of the offer and give details of any shares inthe target held or contracted to be acquired by the bidder.

Announcing a firm intention to make an offer changes the bidders positionfundamentally. It becomes obliged to proceed with the offer within a further28 days, irrespective of problems that may arise during that period. The

Panel will strive to prevent a bidder from withdrawing on the basis of, forexample, a problem within the targets business, even if the offer conditionswould technically allow withdrawal, if the bidder could have discovered thisby appropriate due diligence.

In recent years, in the context of these strict rules on announcements, thepractice has developed of issuing pre-conditional announcements. Forexample, if EU Merger Regulation clearance is required, an offer may beannounced on the basis that it will be formally made only if clearance isgiven (recent examples include Linde AGs acquisition of BOC andThomson Corporations merger with Reuters). However, the parties will beexpected to seek clearance diligently and will be required to implement the

offer within a limited period after receiving clearance. This process prevents


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the expense and effort of making an offer that may be blocked and givesmore time for obtaining clearance than the strict City Code timetableallows. The pre-conditional approach can be used only to deal withregulatory hurdles.

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The target will have to make an announcement if, following an approachfrom a potential bidder, it is the subject of rumour or speculation or there isan untoward movement in its share price. A bidder cannot prevent a targetfrom making an announcement even though the bidder may not be ready toproceed.

Increasingly, potential bidders and target companies make possible interestannouncements as a negotiating tactic even when there is no City Coderequirement to do so. These announcements may refer to the fact that anapproach has been made or that discussions have begun and put pressure ona target board. This type of carefully worded announcement can providetactical flexibility. For example, an announcement may be designed to putpressure on the directors of the target company to open negotiations.Another example is if an announcement may be made to permitconsultation about the merits of a merger to take place freely withshareholders. An unwilling target can ask the Panel to impose a time limitfor a potential bidder to clarify its intentions if there is prolongeduncertainty.

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Provided the bidder does not have unpublished inside information, it canbuy shares in the target before announcing an offer. It can also buy shares inthe market during the offer unless its bid includes only non-cashconsideration. Dealings in the targets shares are not suspended during abid. These purchases will count towards achieving the minimum 50 per centacceptance condition required by the City Code.

If the bidder has inside information on the target or information that is notgenerally available, it cannot deal until the information is no longer insideinformation or has become generally available. This is because of thecriminal insider dealing legislation and the civil restriction on insiderdealing (one part of the general prohibition on market abuse). The fact thatthe bidder intends to make a bid is, of course, inside information.Accordingly, its directors, employees and advisers cannot deal before thebid. However, the bidder itself can deal, relying on the deal facilitationexemption that exists in the insider dealing and market abuse legislation.This means it can buy shares to help achieve its objective of acquiring thetarget. This is provided its sole purpose for the purchase is to gain control


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and, in the case of the criminal insider dealing defence, it has no other insideinformation.

Rule 5 of the City Code prevents the acquisition of interests in shares takinga bidders holding to over 30 per cent of the voting rights of a targetcompany unless an exception applies. There are exceptions covering anacquisition from a single shareholder before the offer is announced, anacquisition immediately before or during a recommended offer (or madewith the consent of the target board) and also acquisitions after the firstclosing date of the offer provided an announcement has been made thatthere will be no intervention by the antitrust authorities.

Rule 5 applies to irrevocable commitments by target shareholders to acceptthe offer (see page 9) so can limit the number of shares for which the biddercan obtain irrevocable undertakings.

There are other City Code restrictions on dealings by the advisers to the twosides during the offer. An exempt market maker connected with the bidderor the target cannot deal in shares for the purpose of assisting the bidder orthe target as the case may be (Rule 38). Also the targets advisers cannotacquire interests in the targets shares during the offer period (Rule 4.4).

A UK listed bidder cannot acquire target shares (whether through the offeror outside it) for an aggregate consideration of more than 25 per cent of itsnet assets. Beyond this amount it will need to obtain shareholder approval(over 50 per cent of those voting) in accordance with the Listing Rules.

t~==~=~==~=~\=Under the Disclosure and Transparency Rules anyone who gains control of3 per cent or more of a UK listed companys total voting rights must notifythe target and the FSA within two trading days. The target has to notify aregulatory information service, which will then publish the information.Each further 1 per cent increase or decrease in the stake must be disclosed.

During an offer period the bidder and the target and their associates willhave to disclose dealings in shares or other securities of the bidder or target,however big or small their stake (Rule 8 of the City Code). Rule 8 alsorequires next-day disclosure by shareholders with an interest in 1 per cent ormore of the target shares even if they have no connection with the bidder ortarget.

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No bidder or person acquiring shares in a company has to say anythingabout its future intentions. If the bidder does say anything, it will be held tothis by the Panel. For example, if it says it does not intend to make an offerfor the target it will normally be prevented from doing so for six monthsunless there is a material change of circumstances.


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The offer price cannot be lower than the price paid for any interest in sharesin the three months leading up to the offer announcement. Also if thebidder or any concert party acquires an interest in shares at above the offerprice during the offer it will have to increase its offer to all shareholders.

If the bidder is offering only shares or other securities as consideration itshould not acquire any interest in shares for cash during the offer period. Ifit does, it will have to offer cash to all shareholders. A bidder will also haveto offer cash if it has acquired interests in shares representing 10 per cent ormore of the target companys voting rights for cash in the 12 months beforethe offer. There are similar rules if a bidder has acquired shares in exchangefor its own shares before or during the offer: a bidder now has to make ashare exchange offer available to all shareholders if it acquires interests in

10 per cent or more of the targets securities in exchange for its own shares.

^==~===~=~~\=

General principle 6 of the City Code provides that parties must use everyendeavour to prevent the creation of a false market in the shares of thebidder and the target. It is also a criminal offence to make a misleadingstatement or to create an impression that proves to be false or misleadingabout the market in, or value of, any investments with a view to influencingdealings in those investments. Accordingly, attempts artificially to influencethe market value of the target or bidders shares are outlawed, as are secretinducements to deal. There are also civil prohibitions on manipulatingtransactions and disseminating false or misleading information in theFinancial Services and Markets Act 2000.

l==

t~===~===~=\=

A contractual takeover offer involves the bidder making a general offer to alltarget shareholders on the register of members to acquire their shares.Shareholders are sent an offer document containing information on thebidder and its offer with a form of acceptance or instructions on how toaccept the offer electronically. To succeed with the bid a bidder has to secureacceptances over shares representing at least 50 per cent of the targets share

capital. This 50 per cent can include market purchases.

a==rh=~=~=~==~~\=

An increasingly popular way of achieving a change of control of a publiccompany is to use a statutory mechanism known as a scheme ofarrangement. This is a process involving court approval that allows acompany to change its capital structure and agree matters with itsshareholders; it is not a US or continental style merger where one companyceases to exist. Under a scheme the targets shareholders could agree thattheir existing shares be cancelled and reissued to the bidder, or transferredto the bidder, in consideration for the payment of cash or the issue of new

shares by the bidder.


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The target company would apply to court, which may then convene ameeting of shareholders. At the meeting a majority in number representingthree-quarters in value of members voting must approve the scheme. Thescheme then requires the sanction of the court. Once the scheme has beenapproved all shareholders are bound by it.

A scheme of arrangement has certain advantages over an offer, including thefact that it should avoid a 0.5 per cent stamp duty charge that will be payableon a general offer. Additionally, the bidder is certain to acquire 100 per centof the target company shares. A scheme does, however, require a higherapproval level than an offer, as it requires approval by a majority in numberrepresenting 75 per cent in value of the shareholders voting at the meeting(or the relevant class meeting). On a takeover offer the bidder has only tosecure acceptances over 50 per cent of the voting shares. However, the fact

that a scheme, if successful, will guarantee that all shareholders of the targetare bound is sometimes seen as crucial.

Schemes have traditionally been used only where the bid is recommendedbecause they will generally require the active assistance of the targetsdirectors. Schemes may also be less flexible because of the courtsinvolvement: it is less straightforward to improve the terms, for example if arival bidder appears, than on a conventional offer.

A high number of recommended takeovers, particularly the larger deals, arenow effected by scheme of arrangement. The City Code now has a separateAppendix dealing with the application of its rules to takeovers implemented

by scheme.

^==~=~~===J=~\=

Following implementation of the EU Cross-Border Mergers Directive in2007, the UK now has a further statutory merger alternative. For the Cross-Border Merger Regulations (the Regulations) to apply, the transaction mustinvolve at least one UK company and at least one company governed by thelaws of an EEA state other than the UK, ie there must be a genuine cross-border element to the merger.

The Regulations can apply to mergers by absorption (if a transferor isdissolved without going into liquidation and transfers all its assets and

liabilities to the transferee or, if the transferor is a wholly owned subsidiary,to its parent company) and to mergers by formation of a new company(where two or more transferors are each dissolved without going intoliquidation and transfer all their assets and liabilities to a single transfereeformed for the purposes of the merger).

Broadly, the Panel will consider the City Code to apply to cross-bordermergers implemented under the Regulations if the transferor companywould normally be subject to the City Code (see page 1). This company willbe treated as the target company for the purposes of applying the City Code.

A general meeting of each merging company must approve draft merger

terms, after which the company must seek court approval for the merger.


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The Regulations are expected to have only a limited impact on UK marketpractice given the extended timetable involved. It is thought likely thattakeover offers and schemes of arrangement will remain the prevalentmeans of implementing cross-border mergers in the UK.

t~===rh=~=~==~J~=\=

There are a number of examples of dual-headed structures involving UKcompanies. These structures, involving a synthetic merger of the twoparties, which each retain their respective listings, can be divided into twocategories. In the first category the merged operations of the business aregrouped under one or more holding companies in which the two listedcompanies have equal voting interests. The two listed companies retain theirseparate existence and their shares are traded separately. The holdingcompanies are the main link between the two companies. An example of a

company using this structure is Reed Elsevier.

In the second category the underlying assets are not jointly owned butremain within the ownership of the relevant merger partner. Contractualarrangements are put in place between the two companies, ensuring unifiedmanagement (the companies will have identical boards) and equalisation ofdividend and capital payments to shareholders. Key shareholder decisionsare taken on a joint basis. There is no transfer of shares or assets between thecompanies. Examples of companies using this structure are Unilever,RTZ/CRA and P&O Princess/Carnival Corporation.

A dual-listed company (DLC) merger is subject to the City Code. The Panel

will usually treat the deal as a securities exchange offer and treat the UK plcinvolved in the DLC as the offeree.

q====

t~====~=~====~==\=

The Panels consent is not required before making a bid and nor does itneed to approve the offer price. City Code rules do, however, specify aminimum price in certain circumstances and require certain offers toinclude a full cash alternative.

For example, the offer price cannot be lower than the price paid for any

interest in shares acquired in the three months leading up to the offerannouncement. Also, if the bidder acquires an interest in shares during theoffer period at above the offer price, it will have to increase its offer to allshareholders.

If the offer falls within the thresholds of the Fair Trading Act or the ECMerger Regulation, it has to be a term of the offer that it will lapse if it isreferred to the relevant authority. There are several other standard termsdriven by the requirements of the City Code. For example, shareholdersmust be given withdrawal rights if a bidder does not secure control by acertain date.


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t~==~===\=

A City Code offer has to be conditional on the bidder securing sharescarrying over 50 per cent of the voting rights of the target. Usually, theacceptance condition is set at 90 per cent (because this is the percentage atwhich the bidder will have the right to acquire compulsorily the remaining10 per cent) but with the bidder reserving the right to declare the offerunconditional at any lower level above 50 per cent.

The bidder has 60 days from posting its offer document to satisfy theacceptance condition (see timetable in appendix 2).

An offer will usually also be subject to an extensive set of conditionscovering antitrust and regulatory approvals, approval by the biddersshareholders, the listing of new shares (where appropriate) and conditionsdealing with the state of the targets business. An offer cannot, however, besubject to conditions that depend on the subjective judgement of thebidders directors.

If the offer is a mandatory offer (see page 25), only very limited conditionsare allowed.

e=~====~===~=~~\=

A bidder should announce an offer only if it has every reason to believe thatit is able, and will continue to be able, to implement the offer. It will beallowed not to proceed with the formal offer only if it specifically states thatthe offer is subject to a pre-condition and this is not fulfilled.

Also, even though a bid is usually subject to extensive conditions, a biddercan rely on these only if the relevant event is material and is accepted as suchby the Panel. This is a very high test. The Panels attitude will also dependon whether the bidders due diligence was thorough enough and whether itshould have uncovered the problem at the start. The Panel will not,however, force a bidder to declare its bid unconditional at less than thespecified level of acceptances. This is another reason for a bidderspreference for a 90 per cent acceptance condition it can be used towithdraw if problems have arisen within the target.

f==~===~=~=~=~\=

This is one of the general principles of the City Code and underpins many ofits rules, such as Rule 20.1, which requires information to be made equallyavailable to all shareholders as closely as possible at the same time and in thesame manner. A bidder also cannot make special arrangements withparticular target shareholders or give anyone favourable treatment (Rule 16of the City Code). There is, however, recent precedent for the Panelagreeing, in the context of proposed pre-sale agreements, that certain targetassets may be sold to particular shareholders if it is satisfied that thetransaction is on arms-length terms.


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p~=~=

e=~======~===~=~==~=\=

A bidder will often offer shares or other securities as consideration for theoffer. It may offer shares alone, shares as an alternative to cash or a mixtureof cash and shares. A UK target shareholder would usually expect theseshares to be listed on the London Stock Exchanges market for listedsecurities or traded on the UK Alternative Investment Market. There are,however, increasing numbers of bids in which the consideration includesshares listed on an overseas exchange.

Accepting shares or other paper consideration may have tax advantages fortarget shareholders, who will usually be able to roll over any capital gain

they have made on their shares in the target. A cash offer is oftenaccompanied by a loan note alternative for this reason. Loan notes are aform of unsecured, typically unlisted debenture issued to enableshareholders to postpone their capital gains tax liability.

f=~=~===~==\=

A prospectus must be approved by the competent authority of the biddershome member state. Alternatively the bidder may use a document that isaccepted as equivalent to a prospectus by the competent authority/ies wherethe offer is made.

^==~=~~=\=

The Companies Act requires shares to be valued if they are issued for aconsideration other than cash. On a securities exchange offer, however,there is an exemption from the usual requirement provided the offer is opento all target shareholders. There will, therefore, usually be no valuationrequirement (unless, for example, certain shareholders are denied the rightto receive shares).

If the offer includes unlisted securities the offer document must contain anestimate of their value by an appropriate adviser.

q=

f==~==~==~==~==~\=The City Code sets a strict timetable in which the bidder and target have topost their documents and the bidder must satisfy the acceptance and otherconditions (see timetable in appendix 2). The rules are aimed at preventingtarget management from being subject indefinitely to the distraction ofdealing with a bid and prolonged market uncertainty about the targets fate.

In a contractual offer, the bidder has 28 days from announcing the terms ofits offer to post a document containing the offer to all target shareholders.The bidder then has a maximum of 60 days in which to satisfy theacceptance condition unless the timetable is extended by the Panel (for

example, to deal with competitive bids or regulatory delays). The bidder has


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21 days after satisfying the acceptance condition to satisfy the otherconditions to its offer, such as antitrust clearances. The timetable may beextended if the OFT or the European Commission is taking an unexpectedlylong time to decide whether there should be a referral. The City Code doesnot expressly cover delays caused by other antitrust authorities, for examplethe US Federal Trade Commission.

The Panel may be persuaded to extend the bid timetable. However, if abidder thinks there may be delays, it may well be advised to announce anoffer with an antitrust clearance pre-condition (see page 11).

`~=~====\=

The bidder can revise its offer until 46 days after it is first made. Any revisedoffer then has to be open for 14 days.

An offer may be revised following the release of new information by thetarget. The target cannot issue material new information, including tradingresults, profit forecasts or valuations, after day 39 following posting of theoffer document.

A revised offer usually means an increased offer. Shareholders who acceptedthe original offer must be entitled to the revised consideration. This top-uprequirement does not normally apply to shareholders who sell their sharesin the market.

A bidder may be forced by the City Code to increase its offer. For example,if it buys shares in the market at a price higher than the offer price it will

have to increase its offer.

a=~=~=~=~~=\=

Forms of acceptance usually state that shareholders cannot withdraw theiracceptances once lodged with the bidders receiving agent. The City Code,however, provides that shareholders must be given the right to withdrawtheir acceptances and, for example, accept a rival offer if the original bidderdoes not achieve the necessary level of acceptances to satisfy the acceptancecondition within 21 days of the first closing date (this normally means42 days from first making the offer). Once an offer is declared unconditionalas to acceptances, any rights of withdrawal lapse. However, if the bidder hasto publish a supplementary prospectus before the offer closes, targetshareholders will have withdrawal rights for 48 hours after publication ofthe supplementary prospectus.

If the bid is made into the US, because of US rules target shareholders mayhave to be given more extensive withdrawal rights.

`~=~==~=~======~\=

The offer has failed if the bidder fails to satisfy the minimum 50 per centacceptance condition by day 60 or to satisfy all the other conditions within21 days of satisfying the acceptance condition. Shareholders who haveaccepted the offer are released from any obligation to the bidder. The bidderis left with only the shares it has bought in the market.


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If a bid fails or lapses the bidder will not be able to make another offer forthe same target for at least 12 months. The Panel can consent to an earlieroffer and will normally do so if the second offer is recommended by thetarget board or a competing offer is made.

The Panel will also consent to a new offer if the original offer failed becauseof intervention by the antitrust authorities. If the bid is cleared the bidderwill usually be allowed to make another offer provided this is announcedwithin 21 days of the clearance.

a==~==~===~~=\=

A scheme timetable is generally more flexible than a contractual offertimetable, broadly because a scheme is invariably recommended by thetarget company. A typical scheme timetable is set out in appendix 2.

Often, a bidder will be able to acquire statutory control of the target faster ina contractual offer, because the offer can be declared unconditional as earlyas day 21 after posting. However, 100 per cent control can be acquired morequickly under a scheme than in an offer, because, once effective, a schemewill bind all shareholders whereas minority holdings that have not beenaccepted to an offer will need to be acquired compulsorily under theCompanies Act 2006 (see page 25). This procedure usually takes six weeksfrom reaching the required 90 per cent threshold.

f~==~=~=

t~=~======\=The City Code states that shareholders must be given sufficient informationand advice to enable them to reach a properly informed decision on theoffer. That information will be contained in the formal announcement ofthe offer (this has to be circulated to target shareholders by the target board)and the offer document sent to all target shareholders.

The City Code dictates what information has to be included in both theannouncement and the offer document. The offer document has to containspecified information, including:

the bidders intentions regarding the future business of the target and its

strategic plans (including their likely repercussions on employment andthe locations of the companys business);

the long-term commercial justification for the bid; the bidders intentions regarding continued employment of employees

and management;

details of any securities being offered as consideration; a description of how the bid is being financed; and details of shareholdings and dealings in the targets securities by the

bidder.


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These requirements are all offer document rules giving effect to theTakeover Directive. The bidder, its directors and any holding company riskcommitting a criminal offence if these rules are not complied with.

The offer document must also contain extensive financial information onthe bidder and the target.

The offer document has to be posted to all target shareholders except thoselocated in non-EEA jurisdictions if less than 3 per cent of the target sharesare held by shareholders located there. The offer document has also to bemade readily available to bidder and target employees.

t~=~===~===\=

There is a general requirement under the City Code that shareholders begiven sufficient information and advice to enable them to reach a properly

informed decision.

The target board must circulate its opinion on the bid to its shareholdersand has to provide its shareholders with certain information prescribed bythe City Code. If the bid is recommended this information will be includedin the offer document from the bidder. If the bid is hostile, the target willproduce a separate defence document containing the relevant information.

The target boards opinion on the offer has to cover:

the boards views on the effects of implementation of the offer on thecompanys interests, including, specifically, employment; and

the boards views on the offerors strategic plans for the offeree and theirlikely repercussions on employment and the locations of its places ofbusiness.

These requirements are response document rules giving effect to theTakeover Directive. The target and its directors risk committing a criminaloffence if they do not comply with these rules. In addition, the target has toprovide its shareholders with:

certain shareholding and dealing information; particulars of any service contracts with more than 12 months to run;

and

details of any material contracts entered into by the target within the lasttwo years.

t=~==~====~\=

All documents issued to shareholders and advertisements published inconnection with a bid have to contain a responsibility statement stating thatthe directors of the company issuing the document take responsibility forthe information included in it. If a subsidiary is used to make a bid, the CityCode requires the directors of the ultimate holding company to takeresponsibility for documentation. The Panel will agree to certaindispensations, for example for directors of a supervisory board.


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^==~=~====~I=~=

~~==~=~==\=

There are particular City Code rules dealing with all these topics.

A profit forecast has to be compiled with scrupulous care and objectivity bythe directors. A forecast, unless made by a bidder offering only cash, mustbe reported on by the relevant companys auditors and the financial adviser.The rules apply not only to forecasts made during the bid but also to anyforecast made previously.

Asset valuations given in connection with a bid must be reported on by anamed independent valuer.

Certain additional requirements of the City Code will normally need to becomplied with on a securities exchange offer if the bidder makes statements

about the expected financial benefits of a proposed bid, particularly if theseare quantified. Most significantly, the bidder may have to publish the basisof its belief supporting the statement and reports by the financial adviserand auditors that the statement has been made with due care andconsideration.

c~=

`~=~===~==~\=

No. The bidder and its financial adviser must be satisfied when a firm bid isannounced that the bidder will be able to settle the offer consideration when

it is due. The bidder must therefore have appropriate arrangements in placeto finance the offer when it formally announces it. If the offer is for cash, orincludes cash, the financial adviser to the bidder will have to confirm in theoffer announcement and the offer document that the bidder has sufficientfunds to satisfy full acceptance of the offer (Rule 2.5 and Rule 24.7 of theCity Code). Accordingly, the financial adviser will review very carefully thefinancing arrangements and in particular the terms of any debt finance.

It may be possible to include a financing pre-condition on a pre-conditionaloffer (see page 11) subject to the approval of the Panel.

`~==~=~==~====~==

==~==\=The Companies Act prohibition on giving financial assistance for theacquisition of a companys own shares makes it difficult to use assets of thetarget to discharge borrowings incurred to finance a bid or to help finance arecommended bid from the start. Section 151 of the Companies Act 1985makes it a criminal offence for the target or any of its subsidiaries to give(directly or indirectly) any financial assistance for the purpose of acquiringshares in the company concerned or for the purpose of reducing ordischarging a liability previously incurred in connection with theacquisition.

Financial assistance is widely defined it can include, for example, certain

forms of break fee and the grant by the target or its subsidiaries of security


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over its assets to secure borrowings incurred by the bidder for the purposesof the offer.

The prohibition may be relaxed following completion of the offer if thebidder acquires more than 90 per cent of the target and is able to implementthe statutory minority squeeze-out procedures (see page 25). The targetcan then be converted into a private company and, by implementing aprocedure that protects creditors (known as the whitewash procedure), canprovide security for its new parent companys borrowings.

Unless the whitewash procedure is used, it would be a criminal offence forthe target to make upstream loans after the offer or to give guarantees orother security to refinance or secure any bid finance arrangements. Thefinancial assistance restriction will not, however, prevent the bidder fromgranting security over the shares it acquires in the target.

From 1 October 2008, the statutory financial assistance prohibition forprivate companies will be abolished and, provided the target is convertedinto a private company before any assistance is given, the whitewashprocedure will no longer be required.

o===~=~=

t~=~=====~=~\=

Directors of a target company have a statutory duty to promote the successof the company for the benefit of its members; to act in accordance with the

companys constitution and to use powers only for the purposes for whichthey were conferred; and to exercise independent judgement. Theseprinciples are reinforced by the City Code, which requires target directors toact in the interests of the company as a whole; they must not deny theholders of securities the opportunity to decide on the merits of the bid.

The target directors are obliged by the City Code to circulate their views onany offer to shareholders and to obtain independent advice.

t~====~=~==~==~=~=\=

The directors of the target are not allowed to take any action that couldfrustrate the making of a bid. This applies from the time the directors

reasonably believe a bid may be imminent (Rule 21 of the City Code).What the Panel will regard as frustrating action goes beyond what may beexpected. Not only will poison pill type contractual arrangements andmaterial disposals or acquisitions be covered but also issues of shares oroptions and contracts otherwise than in the ordinary course of business.Entering into or amending directors employment contracts is also regardedas frustrating action.

The target board can, however, invite shareholders to approve what wouldotherwise be frustrating action. The philosophy of the City Code is that it isup to target shareholders to decide the outcome of an offer and shareholders

can therefore be asked to approve any defensive action the board thinks


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appropriate. Institutional shareholders are, however, generally reluctant toagree to any measure that would eliminate the possibility of a bid.

o===~~=~=

j===~=~=~~=~\=f==~===\=

The bidder is not normally required by the City Code to have a financialadviser to make the bid but the market will expect it to have one. If thebidders shares are listed in London it must have a sponsor if it is issuingnew shares and has to produce a prospectus. A sponsor is also required if thebid needs the approval of the bidders shareholders under the Listing Rulesand the bidder has to produce a shareholder circular. The sponsor has togive certain confirmations to the FSA about the prospectus or circular. Thesponsor would usually be the companys financial adviser.

The City Code also requires a bidders financial adviser to report on anyprofit forecast or asset valuation either contained in the offer document oron the record at the time the bid is announced.

j==~=~=~=~~=~\=f==~===\=

A target must have a financial adviser. The target board must obtaincompetent independent advice on any offer and make the substance of thisknown to shareholders (Rule 3.1 of the City Code).

f==~===~=~==~~=\=

It is accepted practice for the bidder and target to agree a formal

engagement letter with their financial adviser setting out the scope of theadvisers duties. It will invariably include an indemnity in favour of theadviser for losses incurred while it is carrying out the engagement unlessthese arise as a result of the advisers negligence or default.

t==~~=~=~===~=====\=

The financial adviser to the bidder does not have to give any sort of opinionon the offer to target shareholders. If the bid requires the approval of thebidders shareholders under the Listing Rules, the directors have torecommend the voting action that shareholders should take and state in theshareholder circular whether the proposed bid is in the best interests ofshareholders as a whole. This opinion is generally given with reference to the

advice from the financial adviser.

The financial adviser to the target does not give an opinion on the bid to thetargets shareholders. If the target board is recommending the offer, itsopinion will refer to the advice given by the financial adviser. The opinionwill also state that, in providing advice to the target board, the financialadviser has taken into account the commercial assessments of the targetsdirectors.


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j~~==

^==~===~====~==~=~===~==~\=

If a person, or group of persons acting in concert, acquires an interest inshares resulting in the person (or concert party) being interested in sharescarrying 30 per cent or more of the voting rights of a target company, theacquirer must make a mandatory cash offer for the rest of the shares (Rule9). The offer must be at a price equivalent to the highest price paid for anyinterest in the 12 months before the announcement of the offer.

A similar obligation arises if a person (or concert party) has an interest inshares of between 30 per cent and 50 per cent of the voting rights andacquires any further interest.

Rule 9 can be triggered during an offer if the bidder acquires an interest of30 per cent or more. It must then relaunch its offer as a Rule 9 offer.

Rule 9 offers must be in cash and can only be conditional on 50 per centacceptances and antitrust matters. A bidder cannot therefore rely on theusual conditions to protect itself against problems subsequently uncoveredabout the target.

Acting in concert covers a wide category of persons and is also subject to theinterpretation of the Panel.

j=J=a=rh=~=~=~=====~=

=~=~=\=

The Companies Act 2006 provides a procedure for the compulsoryacquisition of the shares of any minority shareholders following a takeoveroffer. Provided the bidder secures at least 90 per cent acceptances of theshares to which the offer relates, representing at least 90 per cent of thevoting rights attributable to that class (excluding shares held by the bidderor its associates at the time the offer document is posted), it will have theright to compulsorily acquire or squeeze out the remaining shareholders.

Once the bidder achieves the 90 per cent level, it may give notice inaccordance with the Companies Act 2006 that it wishes to purchasecompulsorily those shares on the same terms (ie identical form ofconsideration) as the original offer. Subject to certain minority rights,completion of this statutory procedure takes six weeks.

Shareholders have the right to object to the acquisition of their shares byapplying to the court within six weeks of the date the relevant notice wasgiven. In practice, however, this right is rarely exercised and is almost neversuccessful.


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^=N=

d~====`=`==q~=~=j=1 All holders of the securities of an offeree company of the same class must beafforded equivalent treatment; moreover, if a person acquires control of acompany, the other holders of securities must be protected.

2 The holders of the securities of an offeree company must have sufficienttime and information to enable them to reach a properly informed decisionon the bid; where it advises the holders of securities, the board of the offereecompany must give its views on the effects of implementation of the bid onemployment, conditions of employment and the locations of the companysplaces of business.

3 The board of an offeree company must act in the interests of the company asa whole and must not deny the holders of securities the opportunity todecide on the merits of the bid.

4 False markets must not be created in the securities of the offeree company,of the offeror company or of any other company concerned by the bid insuch a way that the rise or fall of the prices of the securities becomesartificial and the normal functioning of the markets is distorted.

5 An offeror must announce a bid only after ensuring that he/she can fulfil infull any cash consideration, if such is offered, and after taking all reasonablemeasures to secure the implementation of any other type of consideration.

6 An offeree company must not be hindered in the conduct of its affairs forlonger than is reasonable by a bid for its securities.


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^=O=

`~~=~==~==~=~==

p= a~= l=

Announcement of scheme. -28 Announcement of offer.

First court hearing. Court orders shareholder meeting to beheld.

-4

Post scheme document (normally 20-24 days afterannouncement).

0 Post offer document (normally 10-14 days afterannouncement).

Last date to revise terms of scheme. +10

+14 Target to have published its response to the offer.

+21 Minimum period an offer is to be kept open. An unwelcomebidder cannot normally acquire an interest of 30 per cent or

more until this date; if it does at this stage, this will trigger anobligation for it to make a mandatory cash offer with verylimited preconditions.

Usual date to hold court and shareholder meetings toapprove the scheme.

+24

+39 Last date for material new information (including trading

results, profit forecasts, material acquisitions or disposals) to

be released by the target.

+42 Target shareholders can withdraw their acceptances if theoffer is not unconditional as to acceptances (assuming day 21is the first closing date).

Court hearing to grant order sanctioning the scheme. +44

Court order filed and becomes effective once registered byrelevant registry. Bidder acquires 100 per cent control.

+45

+46 Last date for posting any revised offer from the bidder.

Last date for consideration to be posted (assuming scheme

became effective on day 45).

+59

+60 Last date for offer to be declared unconditional as toacceptances.

+74 Offer normally to remain open for a minimum of 14 daysafter it is declared unconditional as to acceptances.

+81 Last date for all conditions to be satisfied (21 days after theoffer is unconditional as to acceptances).

+95 Last date for consideration to be posted (14 days after theoffer is wholly unconditional).


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^=P=

`=`=~==This list sets out certain key points on the City Code for companies andtheir advisers involved in a bid for a UK public company.

d~==

Secrecy is paramount, particularly before the announcement of the offer. There must be no dealings in the bidders or targets shares, options or

related derivatives by the bidder, the target, their directors, their familiesor anyone else who may be regarded as a concert party or an associatewithout prior clearance by the relevant financial adviser and the legaladvisers. Share repurchases may have to be stopped.

Information should be made equally available to all shareholders. Be very careful in any discussion with the media. Particular areas of

sensitivity include future profits and prospects (including earningsguidance and any unaudited results figures), asset values, merger benefitsstatements and the likelihood of an increased offer. Generally, take carenot to make statements that may mislead the market or shareholders.Contact with the press needs to be strictly controlled.

Ensure that a representative of the financial adviser is present at anymeetings with shareholders, analysts or stockbrokers of bidder or target.No material new information should be provided at such meetings.

Generally, the publication of advertisements is prohibited. There areexceptions, including: product advertisements not bearing on the offer; and corporate image advertisements that have been cleared by the Panel

if in doubt, consult the financial adviser.

Ensure that proper arrangements are in place to enable the whole boardto monitor the conduct of the bid (day-to-day decision making may restwith one or two directors).

All documents must be prepared and verified to prospectus standards.

No relevant information should be withheld. Any decision to avoid or delay an announcement if one is required to

avoid a misleading impression could amount to market abuse. This isalso the case if any release or announcement creates a misleadingimpression.

_==

There must be no special deals, ie no arrangements with targetshareholders, or with any other person, to deal in the targets shares ifthere are favourable conditions attached that are not available to allshareholders.


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Be careful not to issue misleading statements while not inaccurate theymay mislead (eg stating that you may raise your offer withoutcommitting yourself to doing so and specifying the increase).

You must disclose your intentions regarding the future business of thetarget and strategic plans for the target and their likely repercussions onemployment. It is now a criminal offence not to comply with theserequirements.

Avoid making no increase or no extension statements about the offer.q~==

The board must keep a close watch on its share price if there isuntoward movement or rumour and speculation, an announcement maybe required.

The boards opinion on the offer must deal with the effect of the offer onall the companys interests, including, specifically, employment and thebidders disclosures of its intentions regarding the target. It is now acriminal offence not to comply with these requirements.

In advising shareholders, the directors must not have regard to personalor family or other shareholdings and directors must not enter into anycommitment restricting their ability to advise shareholders. Independentfinancial advice on any offer must be obtained.

No action should be taken by the target board, without shareholderapproval, that could frustrate an offer or deny shareholders theopportunity to decide on its merits. Similarly there should be no issues ofshares or options or material acquisitions or disposals without priorapproval. Do not do anything outside the ordinary course of business.

Remember that information given to one bidder must, on request, begiven equally and promptly to a less welcome offeror.


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Freshfields Bruckhaus Deringer LLP is a limited liability partnership registered in England and Wales with registered number OC334789. It is regulated by the

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UK Takeover

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