Public takeovers are among the most exciting transformational commercial transactions.
Whist the UK takeover regime is distinctive and nuanced, challenges can be navigated with some forward planning. To help shape your thinking, we set out some of the key features below.
All UK public bids are regulated by the Takeover Panel using the rules set out in the UK Takeover Code ("Code"). The Code is principles-based, but there is also unwritten practice and precedent which guides its interpretation. Experienced UK advisers can therefore add significant value at every stage of a transaction.
Managing leak risk and response
UK leak rules are complex, but essentially, if there is a significant movement in the price of the target's shares, or there is press/market speculation about a possible deal, the bidder's advisers must consult the Takeover Panel about whether an announcement is required. The Takeover Panel must always be consulted, but do not always require an announcement to be made.
The leak response itself also needs to be carefully planned. The Takeover Panel has recently reiterated that announcements are expected to be made within minutes and can't be delayed while messaging is refined. Advisers are expected to be pre-authorised to release a UK announcement with contingency plans in place if clients cannot be contacted. Where deal teams are working across timezones and managing multiple listings, advisers typically prepare a leak protocol including the draft announcements to be released on each exchange.
UK takeover rules limit the ways in which new information about a transaction can be released to shareholders and the public, so advisers should work closely with internal communications teams and PR advisers.
Role of the financial adviser
As well as their core advisory role, UK financial advisers have a specific responsibility to ensure their clients comply with the Takeover Code. From a client perspective, the key reason to appoint a UK financial adviser at an early stage is to ensure that the target company's share price is being appropriately monitored for possible leak triggers. The financial adviser will then liaise with the Takeover Panel to find out if an announcement must be made.
Who do you negotiate with?
Unlike a private sale process, the primary negotiation is with the target company's board, rather than the selling shareholders. The bidder typically approaches the target company's Chair with an initial proposal. A series of discussions between advisers/principals follows, aiming to agree an indicative price, the scope of diligence and any other key gating items required to confirm price and then announce an agreed deal.
Interaction with target shareholders will be limited (particularly before a potential transaction becomes public) and largely focussed on seeking commitments to support the deal. There are various UK Takeover Code and UK securities laws which prescribe the process and content of any discussions, which need to be carefully managed and documented by the bidder's advisers.
Due diligence on a UK public bid is traditionally more limited and focussed than on a private deal, but is a matter for negotiation. Target companies will seek to limit the diligence scope as the UK Takeover Code requires them to share information provided to one bidder with any other bona fide bidder, even if the subsequent bidder is unwelcome. Targets also argue that a bidder can take broad comfort from the continuing obligations requiring a listed company to disclose to the market any information affecting the price of its securities (subject to a very limited ability to delay disclosure).
A target will require the bidder to sign a confidentiality agreement before agreeing diligence access. The terms of the confidentiality agreement are fairly standard and typically include a "standstill" clause which prevents the bidder making a hostile bid or buying target shares without the target's consent.
The diligence process will typically include meetings with management alongside a small online virtual data room. Disclosure is also likely to be phased.
A headline feature of the UK public bid regime is that deal protection measures are prohibited. The prohibition is broad, meaning that bidders cannot negotiate exclusivity or other commitments preventing the target from engaging with other prospective bidders. If the deal fails, a target can't ordinarily agree to pay the bidder a break fee, although there are rare examples of reverse break fees payable by bidders.
Unlike a private deal, the bidder does not get the benefit of any representations, warranties or indemnities on the target group or businesses. There are no contractual commitments to deliver the target's shares or assets.
Buyer protection and conditions
One of the core principles of the UK takeover regime is market certainty and that once announced, investors should have objective certainty . For that reason, buyer protection is very limited and a bidder must only announce its firm intention to proceed with the bid after careful consideration and once it believes it can and will continue to be able to implement the offer.
Although all bids incorporate what appear to be extensive protective MAC-style conditions, in practice, it is exceptionally difficult to rely on those conditions as the Takeover Panel requires the bidder to demonstrate an extremely high level of materiality. Any downside risk must therefore be structured or priced in from the beginning.
Bidders may however take limited comfort from the "frustrating action" rules, which are deliberately wide and essentially prevent a target from taking actions specifically designed to deter or defeat the takeover (e.g. selling key assets/businesses or issuing new shares).
Bidders are also required to have committed or ring-fenced funding available to satisfy all cash consideration payable. The funds must be available from the firm intention announcement until the offer closes.
Implementing the bid
A UK takeover can be implemented through two mechanisms – the most appropriate may depend on a number of tactical considerations.
The majority of recommended transactions are implemented through a Court-approved scheme of arrangement. Target shareholders vote on the transaction, which is followed by a formal process in the commercial courts. If approved, the Court grants an order transferring all of the target's shares to the bidder in exchange for payment of the agreed price. The bidder then attains 100% control.
Hostile transactions (i.e. transactions which have not been recommended by the target company's board) are implemented through a contractual offer, with individual shareholders accepting the offer and transferring their shares to the bidder. An offer is a faster route to majority control, but is incremental and unlikely to deliver 100% control.
Be strategic in your planning
As with any public bid process, UK takeovers require careful preparation and planning. Working through key commercial drivers and scenario planning with advisers will be key and optimises the chances of a successful transaction.
Addleshaw Goddard's Corporate Finance team have extensive experience of UK public bids, including through partner-level secondments to the Takeover Panel, which regulates all UK takeovers. We regularly advise overseas clients seeking to navigate the UK public markets. Members of the team have acted for Fortune 500 clients, constituents of the S&P/ASX 20 and S&P 500.