Briefing - BVCA admin

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edmund Tyler and William Holder, partners in SJ Berwin’s corporate practice, look at changes to the
UK Takeover Code
Last month the Takeover Panel - the body that regulates offers for
publicly quoted companies in the UK - made wide-ranging reforms
to the Takeover Code. Despite reassuring noises from the Panel
that the changes are not aimed at the private equity industry, their
effect may be felt most keenly by financial bidders.
For private equity and other financial bidders, the changes that
are likely to have the most impact are those relating to the bid
timetable and process, and the prohibition on “break fees” and
deal protection measures.
The key change to bid timetables is that all potential bidders must
now be named if a target makes an announcement that a bid
is in prospect, and there are just four weeks from that date for
each named bidder to “put up or shut up”. If a prospective bidder
chooses to “shut up” – i.e., to announce that it is not proceeding
with its bid – it cannot bid for the target again for another six
months (unless, for example, there is another bid, or the target
consents).
A target must usually make an announcement if there is a leak
that it is in talks about a possible bid. However, bidders were
rarely identified in these announcements in the past, and financial
bidders in particular may have reputational concerns with being
identified with a series of bids that do not proceed because they
are made public prematurely. To address these concerns, the Panel
may allow a potential bidder to withdraw before it is identified, but
a prospective bidder who chooses this option will not be permitted
to re-approach the target for another six months (except in limited
circumstances – e.g., if another bidder emerges).
For the financial bidder who intends instead to “put up” and
proceed with its bid, but has yet to secure its bid finance, four
Despite reassuring noises from
the Panel that the changes are
not aimed at the private equity
industry, their effect may be felt
most keenly by financial bidders
28 Autumn 2011 BVCA Briefing
Strengthening
the target’s hand
weeks will rarely be enough. Although the Panel has the discretion
to grant an extension to the four week period, it will usually only do
so if the target is willing to seek the extension (so getting the target
board on side at an early stage is critical). The Panel will only give its
decision whether or not to grant an extension shortly before the
four week deadline is due to expire, causing further uncertainty for
any bidder.
To avoid these new timetable pressures, bidders will be heavily
reliant on bid confidentiality being maintained by all parties during
the due diligence and bid financing negotiations. Where this can
be achieved – see for example HG Capital’s bid for Group NBT
plc announced shortly after the new rules came in – the bidder’s
position is much improved.
The other major change that is likely to impact particularly on
private equity firms is the ban on inducement (break) fees, work
fees and all other deal protection measures provided by the target,
with only very limited carve-outs. In the past, these arrangements
provided an element of protection for a prospective bidder where
a competing bid materialised. Their abolition makes bids more
risky for a financial bidder, even in cases where an approach is
actively encouraged by the target. Bidders will need to consider
other ways to protect themselves from the costs of failure, such
as stake-building.
On top of these changes, bidders will have to publicly disclose
more detailed information on debt finance terms and the full
content of financing documentation (although details of the
equity structure will not usually need to be disclosed). Bidders must
also give a complete breakdown of offer-related fees, more detail
on the bidder’s intentions for the target company (and bidders will
be held to their stated intentions for at least a year, if they don’t
specify a timeframe), and provide more opportunity for employee
representatives to make their views known.
How far all this will impact on the ability of private equity houses to
do deals still remains to be seen. The Panel has said (acknowledging
the significance of the changes) that, depending on levels of
bid activity, it plans to review the amended rules at least a year
after implementation, so industry participants should use this
opportunity to feed back their experiences of how the changes
are operating in practice. n