With input from our Corporate Finance Committee, comprising senior representatives from across the banking sector with expertise in mergers and acquisitions, we analysed and responded to the Panel’s proposals.

What is a “frustrating action”?

Rule 21.1 of the Code currently restricts the board of an offeree company from taking any action which may result in an offer or bona fide possible offer from being frustrated or taking any of the specified actions unless the offeree obtains shareholder approval, or the Panel gives its consent.

What has been proposed?

The Panel takes the view that for the most part, Rule 21.1 operates satisfactorily and therefore it is not proposing fundamental changes to the Rule. However, the Panel considers that it would be helpful for Rule 21 and the notes on this Rule to be amended to provide increased flexibility for offeree companies to carry on their ordinary course activities.

The Panel has proposed several amendments relating to Rule 21. One of the main proposals is to change Rule 21.1 so that it will not, in general, restrict an offeree board from taking action that is either not material or is in the ordinary course of business. This proposal is made on the basis that such an action is unlikely to frustrate an offer or possible offer and it is inappropriate for the Code to prevent an offeree company from carrying on ordinary course business.

The consultation paper also includes a new draft Practice Statement explaining how the Panel Executive will apply Rule 21.1 if the proposed changes are implemented, including for example how the Executive will determine whether a disposal or acquisition is in the ordinary course of business.

The Panel believes that, while an offeree board will still be required to consult the Executive to determine whether a proposed action would be in the ordinary course of the offeree company’s business, this additional clarity and guidance will reduce the circumstances in which the offeror or potential offeror will have to be consulted before the Executive can conclude that a proposed action by an offeree board is not restricted by Rule 21.1(a).

Our response

Generally, we welcomed the proposals set out in PCP2023/1 and believe they strike an appropriate balance between protecting the legitimate interests of an offeror and allowing an offeree to continue to operate its business in the ordinary course.

We were also delighted to host the Takeover Panel for a roundtable discussion with our members on 9 June to clarify some of the proposals made in the consultation.

In our response, we provided a few suggestions where further clarity from the Panel would be helpful.

Next steps

The consultation closed on 21 July and the Panel expects to publish a Response Statement setting out the final amendments to the Code in Autumn 2023 with amendments to the Code coming into effect approximately one month later.

For more information, please contact: avanthi.weerasinghe@ukfinance.org.uk and  alastair.campbell@ukfinance.org.uk