scheme of arrangement uk takeover

The bids cast in the first two rounds were reported as being only ‘pennies’ in difference as both Comcast and Fox kept their cards close to their chest until the third and final round with the aim of surprising their rival with an unbeatable offer – the maximum they were willing to pay for the business. New client: 0800 1953100 or newaccounts.uk@ig.com, IG | Sitemap | Terms and agreements | Privacy | IG Community | Cookies | Investors | Modern slavery act. There are no set rules regarding the approach to be taken to due diligence on public takeovers and practice varies considerably. This is typically referred to as the "cash confirmation" exercise. This is because (in most cases) they cannot own more than 30% of the business without having to make an offer for the entire company. Brief description of Schemes. The six general principles are as follows: There are fundamental differences between a public takeover and a private sale of a company in the UK. Schemes of arrangement are typically used for takeovers which are recommended by the board of directors of a target company. TAKEOVER THROUGH SCHEME OF ARRANGEMENT: A CHANGING TREND IN UK VIKALPA • VOLUME 38 • NO 1 • JANUARY - MARCH 201389 Practice has shown that distribution of the company’s assets can be effected more quickly and expeditiously Guide to public takeovers in the UK, (pdf, 2.70MB). This guide provides a general overview of how public takeovers are conducted and regulated in the UK. While the City Code permits bidders to include conditions or pre-conditions, an offer must not normally be subject to conditions or pre-conditions which depend solely on subjective judgements by the directors of the bidder or the target company, or the fulfilment of which is in their control. However, another way for a deal to be proposed to investors is through a scheme of arrangement which sees the management of the target company propose the offer to its own shareholders on behalf of the bidder. The procedure for Schemes is contained in Part 26 of the Companies Act 2006 (the “CA 2006”), which states that a company may make a compromise or arrangement with its members or creditors (or any class of them) about (in theory at least) anything which the parties may agree on. Expanding the business organically is still the main method used to grow, but acquiring another a business (essentially the same as a takeover) can accelerate its efforts. An announcement of a phase two investigation sends a strong signal of doubt that the deal will get clearance as it means the CMA has reason to believe it could harm competition. No representation or warranty is given as to the accuracy or completeness of this information. Any person proposing to contact a private individual or small corporate shareholder with a view to seeking an irrevocable commitment must consult the Panel in advance. Where a party makes a "post-offer undertaking", it must comply with its terms for the period of time specified in the undertaking and complete any course of action committed to by the date specified in the undertaking (unless, of course, a qualification or condition can be relied upon). The general principles underpin the Panel's approach to all issues. Read more whether the Big Six energy suppliers are losing their grip on the UK energy market. Tesco was keen to add its network of smaller store brands, like Londis and Budgens, to its portfolio as customers continue to shun larger warehouse-like stores, but it also gave it control over one of the country’s biggest suppliers. As oil prices sat at new lows at the start of 2016, the downturn started to spill over from the oil giants to those providing crucial engineering and other work. Except with the consent of the Panel, neither the target company nor any person acting in concert with it may enter into any "offer-related arrangement" with either the bidder or any person acting in concert with the bidder during an offer period or when an offer is reasonably in contemplation. Under the Companies Act 2006, bidders making a contractual takeover offer have the right to acquire compulsorily the shares of minority shareholders if they have acquired, or unconditionally contracted to acquire, both 90% of "the shares to which the offer relates" (i.e. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. The 2019 edition of the Herbert Smith Freehills Guide to Takeovers and Schemes of Arrangement has been launched. Takeovers and other M&A transactions are regulated by the Panel. It is not an insolvency process and is utilised under the Companies Act 2006 rather than insolvency legislation, but it must still be sanctioned by court process. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. You can view our cookie policy and edit your settings here, or by following the link at the bottom of any page on our site. The takeover of Sky was in response to its home market being stagnate and the rising competition from streaming services like Netflix and Amazon. For investors that find their business out shopping, they have to consider how any deal would impact the company’s finances and outlook, essentially weighing up if the purchase helps or hinders their investment. Jurisdiction over the regulation of takeovers and investigations of M&A activity in Europe is complex. As mentioned above, the formal offer announcement and offer document on a cash offer both need to contain a confirmation by the bidder’s financial adviser (or other appropriate person) that the bidder has sufficient resources available to satisfy full acceptance of the offer. Cash and shares are the most popular ways of paying for a deal, contractual agreements are usually how they are facilitated, and most are agreed by both parties before going through. A practice note explaining how schemes of arrangement can be used in a recommended takeover as an alternative to an offer. Free Practical Law trial To access this resource, sign up … Who is responsible for making the announcement? Scheme of Arrangement Contractual offer; Certainty of acquiring 100%: Once court-sanctioned, the bidder needs support of 75% of shareholders to be able to secure 100%: Bidder must obtain acceptances from 90% of shareholders to make statutory compulsory acquisition : Timing: Generally quicker: Generally takes longer as it is more of a 'squeeze-out' tactic Where possible offer announcements are made, they are usually very brief. This has seen the incumbents, like Centrica-owned British Gas and SSE, consistently lose customers to new entrants over recent years, open up opportunity for Shell to buy a growing business and enter the market at a much lower price. 76% of retail investor accounts lose money when trading spread bets and CFDs with this provider. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. If a target company is required to announce that it has received an approach from a potential bidder, it will also need to name each other potential bidder with which it is in talks or from which an approach has been received (and not unequivocally rejected). Introduction and overview 2 2. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. The City Code outlines the rules and principles that those conducting M&A in the UK must follow. The City Code requires that all persons privy to confidential information, and particularly price sensitive information, concerning an offer or possible offer must treat that information as secret and may only pass it to another person if it is necessary to do so and if that person is made aware of the need for secrecy. It follows an agreement being reached by Intact and the trustees of each of RSA’s UK defined benefit pension schemes. Bidders should also be aware that if they include within a possible offer announcement specific terms on which an offer may be made (e.g. The conduct of takeovers and mergers of UK public companies (and, in certain cases, private companies) is regulated by the City Code on Takeovers and Mergers (the "City Code"). As a takeover bid is driven by the bidder and does not require target consent or co-operation, it can be used for a 'friendly' or 'hostile' acquisition of a target. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. More often than not a phase two investigation results in remedies and undertakings being implemented, rather than an outright ban on any deal whatsoever. It also applies to offers for unquoted public companies which have their registered offices in the UK, the Channel Islands or the Isle of Man and which are considered by the Panel to have their place of central management and control in one of those jurisdictions. However, if such a dispensation is not granted, there is nothing a bidder can do to prevent a target company from making an announcement if required by the City Code. Bidding companies are much more likely to gain the support of target company shareholders if the board recommends it, which tends to make the process quicker and subdue any debate. UK takeovers and mergers: how they work and how to trade them, the Big Six energy suppliers are losing their grip on the UK energy market, Bidder sends offer document to target company shareholders, Target publishes first defence to takeover bid, Offer must be open for minimum of 14 days, First possible closing date/shareholder and court meetings, Last date for target company to announce material new info, Acceptances of an offer can be withdrawn is offer is not unconditional, Day 21-46: revisions to the offer can be made, Last date for offer to be declared unconditional, Unconditional offer must be open min 14 days, All conditions must be fulfilled or the offer will lapse, All offers must be fulfilled within 21 days of becoming unconditional, Last date for the consideration to be paid, Bidder and target company announce scheme of arrangement, Court and general meetings for shareholders to vote, Shareholder meetings must be 21 days after scheme document is published, Court sanctions the scheme of arrangement, Target company shareholders must be paid consideration within 14 days of effective date, Once court-sanctioned, the bidder needs support of 75% of shareholders to be able to secure 100%, Bidder must obtain acceptances from 90% of shareholders to make statutory compulsory acquisition, Generally takes longer as it is more of a 'squeeze-out' tactic, Generally less flexible due to court restraints on timing and requirement to cooperate with target company, Target company controls timing and implementation, Bidder controls contractual offer to target company shareholders, Generally not possible as cooperation with target company is needed, Can be used in a hostile takeover situation, Must disclose upon request by target company, If the bidder is listed on the LSE it may need shareholder approval, Must disclose holding at start of offer period, If bidder buys shares in offer period, that price forms the min for acquisition price, Must disclose dealings in shares during offer period, Must disclose voting rights to target company and the FCA, Chapter 5 of FCA's Disclosure Guidance & Transparency Rules, Must disclose each time holding moves greater than 1% or holding falls below 3%, Ability to make court application to stop public company going private, Power of minority to block compulsory purchase, If the holding was acquired in the 12 months before the offer period or during the offer period, the highest price paid must be equal to the bid price, Classed as a possible merger that could be subject to Phase 2 investigation by the CMA, Power of minority to block special resolutions or a takeover by way of a scheme of arrangement (can arise with smaller stakes), Possible requirement to make a bid for the entire company, Can make an offer unconditional in terms of acceptances, Ability to de-list a public firm from a stock exchange, Minority shareholders may be entitled to sell their shares, Companies must disclose information (financials, shareholding structure, operational breakdowns etc) in a timely manner through official channels, such as a circular or prospectus, which is made available to all shareholders on an equal basis, Those managing the pension schemes of all companies involved must be notified, Favourable deals for certain shareholders are banned, all must be treated with equal fairness, If a person or business gains control of more than 30% of the voting rights in a business then they must make a cash offer to all other shareholders that is at least equal to the highest paid price in the previous 12 months, If a person or business acquires shares in the target company during an offer period then the price offered to all other shareholders must at least match the price paid, The target company must appoint an independent advisor to provide advice to shareholders on the financial terms of the deal, which often includes the stance of the board and whether they support it or not. See all articles by this author. THE TAKEOVER PANEL SCHEMES OF ARRANGEMENT STATEMENT BY THE CODE COMMITTEE OF THE PANEL FOLLOWING THE EXTERNAL CONSULTATION PROCESS ON PCP 2007/1 . There are a number of important legal and regulatory issues which need to be considered carefully before bidders acquire shares in a target company. Although a possible offer announcement does not commit a bidder to make an offer, it will trigger an automatic 28 day period in which the potential bidder must either announce a firm intention to make an offer in accordance with Rule 2.7 or publicly withdraw its interest (known as the "put up or shut up" deadline). A scheme of arrangement is a court sanctioned procedure that is also required to be approved by the target's shareholders. Whatever level of due diligence is undertaken, it is essential that the due diligence is complete before the bidder formally announces its bid, since the opportunities to withdraw after having announced are extremely limited. Growth often lies at the heart of M&A. See full non-independent research disclaimer and quarterly summary. The rules and consequences of a bidding company holding a particular-sized stake in the target firm before making an offer are detailed in the table below: The 30% threshold is particularly notable. This followed concerns that it had become standard practice in the context of recommended offers for bidders to insist on various deal protection measures which could have had a detrimental effect on target shareholders by, for example, deterring competing bidders from making an offer. 1. The City Code prohibits "offer-related arrangements". The key bodies that are often involved in the UK M&A process are: Find out what Brexit could mean for the markets and how a Investors can find themselves on one of two sides of the M&A coin: either holding a stake in a target company that another wishes to buy, or owning shares in the bidding company seeking to buy another. Takeover through Scheme of Arrangement: A Changing Trend in UK. Persons acting in concert are defined as persons who, pursuant to an agreement or understanding (whether formal or informal), co-operate to obtain or consolidate control of a company or to frustrate the successful outcome of an offer for a company. A party to an offer who proposes to make a statement relating to any course of action that it commits to take (or not take) after the end of the offer period (being, a "post-offer undertaking") must consult the Panel in advance of making that statement. Tesco is the leading supermarket in the UK and its £3.7 billion acquisition of Booker Group saw the company gain more control over the supply chain. Each further 1% increase or decrease in the stake must then be disclosed. Maintained • . This remains true for contested bids, when more than one company vies for a single target, but the process tends to be much longer as investors are not asked for their opinion until after the rival bidders have fought it out. A scheme of arrangement is a statutory mechanism which is an alternative to a contractual offer. After a two-year long bidding war over the UK pay-TV and broadband provider, Comcast finally won the battle for Sky with a £31 billion offer that was well above the one put on the table by rival 21st Century Fox. Mergers and acquisitions in the UK continue to play their role in financial markets, and the amount of cross-border takeovers and domestic ones are at new highs. Approach to representations, warranties and indemnities. This Practice Note discusses the options available for structuring a UK public company takeover and provides a comparison between takeovers by way of scheme of arrangement and takeovers by way of contractual offer. The target then has to notify a regulatory information service before the end of the trading day following receipt of the notification, which will then publish the information. no special arrangements to be made with any particular target shareholders. An announcement that a person does not intend to make an offer for a company will trigger certain restrictions under the City Code for a period of six months. The prohibition on "offer-related arrangements" does not cover: If there is any doubt as to whether any proposed agreement, arrangement or commitment is subject to this prohibition, the Panel should be consulted. Schemes involving Code companies are regulated under sections 236A and 236B of the Companies Act. It is essential reading for anyone who is contemplating a public takeover in the UK. Global activity has picked up this year and is set to hit a new record. It may affect mergers and amalgamations and may alter shareholder or creditor rights. For example, General Electric (GE) merged its oil and gas business with Baker Hughes, forming the second biggest player in the market to take on leader Schlumberger. We work hard to make sure Burges Salmon is a great place to work. from a single shareholder before an offer is announced when it is the only acquisition within a seven-day period, immediately prior to (and conditional on) the announcement of an offer, provided that the offer is recommended by, or the acquisition is made with the agreement of, the board of the target company. These offers can be harder to evaluate as the value lies in the shares of the bidding company, and investors have to decide whether they want to hold shares in said company. It is a formal arrangement between the target company and its shareholders, which is governed by the Companies Act 2006. When the relevant period has ended, the party which made the post-offer intention statement must confirm in writing to the Panel whether it has taken, or not taken, the course of action it stated in the post-offer intention statement that it intended to take or not to take and publish that confirmation via a regulatory information service. Usually, the first announcement will be an unbinding one that simply states a potential offer could be made (sometimes with a guide price but most often not), and who the bidder is. Vikalpa 2013 38: 1, 87-103 ... Takeover through Scheme of Arrangement: A Changing Trend in UK. However, there are exceptions to this rule which permit acquisitions in the following situations: Market purchases should never be considered as independent from the terms of the eventual offer, since they can have a significant impact on both the minimum level of consideration and the form of consideration. The CMA’s final report will outline its findings in detail and make a final decision, sometimes with certain conditions, and its involvement understandably extends the takeover timetable. However, as a general rule, due diligence is often conducted at a more high-level compared to private sales. The City Code is issued and administered by the Panel on Takeovers and Mergers (the "Panel"). However, if an approach is rejected by the target board, the announcement obligation will typically revert back to the potential bidder. It will be effected through a scheme ofarrangement between Lloyds Bank and its shareholders. Companies involved in M&A that are private but have been publicly held within the previous ten years can also find themselves under the Panel’s rule. This sees the bidding company offer a certain amount of shares in the business in return for their existing shares in the target company. This majority must also represent at least 75% in number of those shares which are voted. All trading involves risk. This principle manifests itself in a number of different ways, including a requirement for: The announcement of a firm intention to make an offer (commonly referred to as a "Rule 2.7 announcement") is a significant event and will commit the bidder to proceed with the offer and to post its offer documentation within 28 days. A scheme requires approval by at least 75% in value of each class of the members or creditors who vote on the scheme, being also at … Investors in the target company then decide whether they want to accept the offer or not and, if the bidding company secures enough acceptances, it can be declared unconditional. Professional clients can lose more than they deposit. hard or a soft exit from the EU could affect traders. Found in: Banking & Finance, Corporate, Tax. We use a range of cookies to give you the best possible browsing experience. It … Its primary role is to enforce the City Code, a binding set of rules that applies to publicly-listed companies in the UK like those on the London Stock Exchange (LSE) and since 2013, AIM. An all-cash deal is straightforward: offering a cash sum on a per share basis. a Cayman Islands scheme of arrangement pursuant to Section 86 of the Companies Law (as amended) of the Cayman Islands (the " Law "); or. There are two ‘investigations’ that are conducted by the CMA to determine whether it approves a deal and one carries a lot more risk than the other. if the target company is in serious financial difficulties. The main advantage of a scheme of arrangement is that, if successful, it will bind all shareholders (regardless of whether, or in what way, they voted). The preferred way is to secure the backing of the board. Stakebuilding is the process by which bidders seek to build up a stake in a target company through purchases of shares before or during a takeover offer, with the objective of increasing the likelihood of success of a takeover offer. RSA has formally accepted the takeover offer of £7.2bn from Intact Financial Corporation and Tryg. Bidding companies are much more likely to gain the support of target company shareholders if the board recommends it, which tends to make the process quicker and subdue any debate. a takeover offer utilising the provisions contained in Section 88 of the Law to obtain 100 percent of the Target. Structuring a takeover—offers vs schemes of arrangement Practice notes. Bidders should be very cautious about their ability to invoke conditions and pre-conditions. If a hostile bid is to go through then it ultimately comes down to either securing enough acceptances or winning enough votes of target company shareholders during a meeting. by stating that, if an offer is made, it would be for a price in excess of a certain level or be all cash), then the bidder is likely to be held to those terms if it does proceed to make an offer. Schemes of arrangement originated in England but have since spread to a number of other common law jurisdictions. The operation of the UK takeover regime may be affected by Brexit. The Code applies to takeover and merger transactions, however they are effected, including by way of a contractual offer, statutory merger or Court-approved scheme of arrangement, as well as This is a theme for both mature sectors that are seeing limited growth and stagnate profitability, and emerging industries that sees the swathe of fragmented, smaller players in the market merge to begin forming larger and market-leading businesses. resident in the UK, the Channel Islands and the Isle of Man and takeovers of certain private companies having public c ompany characteristics. But how does the M&A process work, and what do you need to know about takeovers in the UK? Consequently any person acting on it does so entirely at their own risk. the shares which were not held by the bidder at the time the offer was made) and 90% of the voting rights in the company to which the offer relates. This is important because an increasing amount of M&A deals in the UK are cross-border, with foreign firms buying UK ones and vice-versa. Under the City Code, share dealings by concert parties are treated effectively as dealings by the bidder itself. > A trust scheme resembles a company scheme of arrangement, but without the requirement for court approval. Usually a target company will use a scheme of arrangement because they support an offer. Which companies are subject to the City Code? This has given Tesco increased purchasing power and control over the market, selling not only to the public but to competitors and peers. The CMA has 40 days (unless it extends it) to close the first investigation or launch a phase two investigation, which is an entirely different kettle of fish. agreements between bidders and the trustees of any of the target’s pension schemes in relation to the future funding of the pension scheme. Given that bidders typically aspire to acquire 100% of the voting rights in a target company, it is therefore usual for the acceptance condition to be set at 90% (rather than 50%), but for the bidder to have the option to reduce this threshold to shares carrying over 50% of the voting rights. For Wood Group, it was aiming to combine its services to cut costs and jobs, while acquiring its peer’s stronger position in US shale, in the knowledge that it was a key area to move into before oil prices started to pick up again. Shareholders are sent an offer document containing information on the bid and the bidder. This includes if only one company is UK-based, whether it is being acquired by a foreign company or buying an overseas firm. This could be because the target offers a product or service that would enhance its portfolio, or operates in geographical locations that the other firm wants to break into. Sports Direct is a good example, having invested material sums in rival high street shops. The Panel on Takeovers and Mergers is an independent body established in 1968. It is a fascinating process that acts like a dramatic ending to a long-drawn novel, but one filled with skill and front. This guidance is for companies effecting a takeover or merger using a transfer scheme of arrangement or a contractual offer and stamp tax on shares is payable. Where an offer is for cash, or includes cash, the financial adviser to the bidder will have to confirm in the formal offer announcement and the offer document that the bidder has sufficient funds to satisfy in full the acceptance of the offer. The board of a target company must act in the interests of the company as a whole and must not deny the holders of securities the opportunity to decide on the merits of the bid. Where bidders do not intend to finance an offer exclusively from existing cash resources, a facility providing certain funds will need to be available before the formal offer announcement is made. Once an approach has been made to the target board, the target is responsible for making any announcement. This can often lead to share price volatility. For many, the CMA process is a necessary but more procedural one, but for some (usually the largest ones) the CMA’s approval is crucial as it has the power to prohibit a deal if it deems it detrimental to competition. The holders of the securities of a target company must have sufficient time and information to enable them to reach a properly informed decision on the bid; where it advises the holders of securities, the board of the target company must give its views on the effects of implementation of the bid on employment, conditions of employment and the locations of the company's places of business. [2] It has long been accepted that schemes are a legitimate and useful alternative deal structure to a takeover bi… The City Code prevents bidders acquiring an interest in shares which results in the bidder holding 30% or more of the total voting rights in the target. Through a secure web portal, Comcast and Fox made a first bid which was then revealed to one another. There are numerous regulatory and other bodies that could impact how an M&A deal is completed, including whether it is allowed to be completed at all. The target company must, however, always have a financial adviser. The City Code was amended in 2015 to introduce the concept of "post-offer undertakings" and "post-offer intention statements". If you would like any further information on any of the matters addressed within this guide, please speak to Nick Graves, Dominic Davis, Rupert Weston, Chris Godfrey or your usual contact at Burges Salmon. With neither firm declaring their bid for Sky as best and final, the Takeover Panel launched a three-round bid process. Search Google Scholar for this author. Neeti Shikha. Welcome to the United Kingdom The United Kingdom (“UK”) remains one of the most, if not the most, open takeover markets in the Western world with a number of benefits for investors: • it offers a comparatively speedy, cost-effective and flexible takeover regime; • the UK government and other public authorities do not seek to operate

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