In what can be considered a thoughtful move, the UK Takeover Panel has sought to address potential friction points on UK takeovers – one a good process evolution in the form of the changes to Practice Statement 31, and the other a consultation process aimed at offering a welcome narrowing of the range of companies within scope of the Code.
Revised Practice Statement 31 (PS 31)
From a PE perspective, the revisions to PS31, which can be found here, are a welcome change to the existing regime for Code-governed sale processes. The approach set out in the amended PS31 will offer greater flexibility to companies considering private sale processes, and provide additional guidance to companies navigating formal sale processes and strategic reviews.
The most significant aspect to PS 31 is the guidance that is given in respect of the application of the Code, where a company wishes to initiate a private sale process. In summary, it is seeking to formalise the dispensation that the Panel has already been granting from naming potential bidders where companies are exploring a private sale, which will offer companies welcome flexibility whilst exploring their strategic options.
From past experience and fully aligned with views of the Panel Executive, many boards of companies that wish to undertake a sale process or otherwise seek potential offerors may be reluctant to do so by means of a formal sale process. Instead, they may prefer to initiate a private sale process, a strategic review (which may include a reference to an offer for the company as a possible outcome) or a public search for potential bidders. In PS 31, the Panel Executive acknowledges that a strict application of Rule 2.4 (which would require a bidder to be named) in the context of a private sale process could operate in an inappropriate (and unhelpful) manner.
The guidance confirms that where a company is genuinely initiating a private sale process, the Panel will normally grant a dispensation from the application of Rule 2.4. As a result, the company would only be required to identify a potential bidder, if it has been specifically identified in any relevant rumour or speculation. This will be helpful to many boards who (mindful of their obligations to shareholders) are rightly seeking strategic alternatives.
Where the Panel has granted these dispensations, the company will need to make an announcement to this effect and state that it is in talks with, or has received an approach from, potential bidders. Similar dispensations will also apply to companies that announce a strategic review process (where an offer remains a possible avenue).
As always, companies and their advisers are expected to consult the Executive before initiating any formal sale process, private sale process, strategic review or public search for potential bidders. This is also worth bearing in mind as a sponsor who may have been running the rule over a target: the target will rightly engage with Executive and is now more likely to do so earlier, given this clear guidance.
Consultation on scope of the Takeover Code
Finally, the last point is a clear tidy up consultation on who falls within the scope of the Code. As many PE Sponsors will know many target companies who weren’t really envisaged to fall within the scope of the Code were definitionally dragged in. This created added cost and in some target cases surprise and confusion. The consultation, which can be found here, focusses on rectifying this and will report back… again a thoughtful move by the Takeover Panel.
Fay Anthony, PSL Counsel, also contributed to this article.
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