Takeover Code changes now in force

Changes to the Takeover Code took effect on Monday 11 December 2023. The changes mainly focus on Rule 21.1 on frustrating action, but there are some other miscellaneous changes.

Rule 21.1 restricts the board of a target company from taking any action which may result in an offer or bona fide possible offer being frustrated, unless the company obtains shareholder approval or the consent of the Panel.

The changes are intended to provide increased flexibility for targets and greater clarity as to the actions that are and are not restricted. The key points to note are:

• Period during which the restrictions apply – The restrictions apply from the earlier of: (i) an approach by a potential offeror to the board; and (ii) the start of the offer period, until the end of the offer period or (if there is no offer period) the seventh day following the date on which an approach is unequivocally rejected.
• The actions that are restricted – The restricted actions include – to the extent they are not in the ordinary course of business – issuing, buying back and granting options over shares; disposing of, or acquiring, assets, of a material amount; and entering into, amending or terminating a material contract.

The Notes on the Rule and a new Practice Statement No. 34 discuss the restrictions in more detail, such as when a contract is material and the Takeover Panel’s approach to incentivisation arrangements.

There are also amendments to Rules 21.3 (equality of information to competing offerors) and Rule 21.4 (information to independent directors in buy-outs) to ensure that an offeror or bona fide potential offeror is not denied access to the target company’s information on a technicality and to reduce the administrative burden on the parties to an offer where information is requested.