CODEWORD

Schedule 1 of the Code prescribes the information that must be included in the offeror’s takeover notice and offer document. Clause 13 of Schedule 1 requires that, where the offer is a full offer for cash or an offer with a cash alternative, the offer document is to include a statement as to whether or not any person intends to acquire equity securities in the target company under rule 36. Clause 19 of Schedule 1 requires the offeror, or where the offeror is a company, the offeror’s Chief Executive Officer, Chief Financial Officer and two directors, to certify that to the best of their knowledge and belief the offer document is “true and correct and not misleading”.

Rule 36 of the Takeovers Code provides that during the offer period:

• the offeror;
• any of its related companies;
• any persons who are acting jointly or in concert with the offeror; and
• the directors of the offeror (together referred to in this note as “the offeror’s related parties”)

must not acquire equity securities in the target company other than under the offeror’s offer except in certain prescribed circumstances. These circumstances are where:

(a) the offeror has made a full offer for cash, or a full offer with a cash alternative; and

(b) the possibility of an acquisition as permitted by rule 36 is disclosed in the offer document; and

(c) the acquisition is made no later than 14 days before the expiration of the offer period; and

(d) the acquisition is made only for cash; and

(e) the acquisition of any equity securities will not result in the offeror’s and the offeror’s associates’ holding or controlling in total more than 20% of the voting rights in the target company (excluding any equity securities in respect of which the offeror has received acceptances of the offeror’s offer) unless the offer has become unconditional; and

(f) the acquisition is notified to the Panel immediately.

Some confusion has arisen because of an apparent inconsistency between clause 13 of Schedule 1, which refers to an intention to acquire, and condition (b) of rule 36 which (referring to clause 13) requires disclosure in the offer document of the possibility of an acquisition under that rule. The question arises whether clause 13 of Schedule 1, by using the word “intends”, requires the offeror to have formed a definite intention, at the time it despatches its offer document, that it or any of its related parties, will acquire, or will not acquire, equity securities using the exception provided in rule 36. Alternatively, does the wording of rule 36, which only requires that disclosure of the “possibility” of an acquisition under rule 36 be disclosed in the offer document, mean that the offeror and its associated parties do not have to have formed a definite intention to acquire or not to acquire securities outside of the offer at the time the offer document is despatched, but can legitimately form such an intention later?

The Panel recognises that while the offeror may not have formed the intention, at the time it despatches the offer document, of acquiring securities outside the offer under rule 36, it may not wish to be precluded from doing so as the takeover runs its course. Circumstances in a takeover can change rapidly, particularly in a contested takeover, and the Panel accepts that parties’ intentions can legitimately change.

The Panel considers that it is permissible for the offeror to satisfy the requirements of clause 13 of Schedule 1, and rule 36, by stating in the offer document that “the offeror has no present intention to acquire equity securities in the target company under rule 36 during the offer period but that there is a possibility that it may do so.”