UK Public M&A Monthly Activity Update: May 2024

Firm Offers breakdown this month:

Year to date breakdown:

May 2024 Updates:

Consultation on the companies to which the Takeover Code should apply

The Takeover Panel has published a consultation paper (PCP 2024/1) proposing to narrow the types of companies to which the Takeover Code applies, to focus on companies which are registered and listed, or were in the last three years listed, in the UK. The Code currently applies, broadly speaking, to:

• any public company incorporated in the UK, Channel Islands or Isle of Man which has its shares listed on a UK regulated market (e.g. the Main Market of the London Stock Exchange) or a multilateral trading facility (MTF) in the UK (including AIM) or admitted to trading on any stock exchange in the Channel Islands or the Isle of Man;
• any other public company incorporated in the UK, Channel Islands or the Isle of Man which has its place of central management and control in one of those jurisdictions (known as the residency test); and
• certain private companies, such as those whose shares have been traded on a UK regulated market or a MTF, or who have published a prospectus, in the past 10 years – again if they meet the residency test.

The Takeover Panel is proposing the following:

• Companies in scope – The Code will apply to a company if it has its registered office in the UK, the Channel Islands or the Isle of Man and either: (a) its securities are admitted to trading on a UK regulated market, a UK MTF, or a stock exchange in the Channel Islands or the Isle of Man (collectively the Panel is referring to these companies as being “UK-listed”); or (b) the company was UK-listed at any time during the three years prior to the relevant date (being the date of the announcement of an offer or possible offer, or other event which has significance under the Code).
• Companies no longer in scope – The Code will no longer apply to a company which was UK-listed more than three years prior to the relevant date; a company whose securities are, or were previously, traded solely on an overseas market; a company whose securities are, or were previously, traded using a “matched bargain facility”; any other unlisted public company; or a private company which filed a prospectus at any time during the 10 years prior to the relevant date.
• Disclosure on delisting – When a company delists, it will have to make appropriate disclosure to its shareholders about the fact that the Code will cease to apply after three years.
• Transitional arrangements – There will be transitional arrangements for companies that will cease to be subject to the Code as a result of these changes. The Panel is proposing that the Code will continue to apply to those companies for three years from the implementation date of these rule changes. This is to allow these companies to put in place alternative arrangements such as making appropriate amendments to their articles of association or enabling shareholders to exit their investment if they do not wish to be shareholders in the company without the protections afforded by the Code.

The consultation closes on 31 July 2024. The Panel says that it intends to publish a response statement in autumn 2024 and the implementation date will be approximately one month later.

We discuss the Takeover Panel’s proposals in our public M&A podcast series, which you can listen to here.

Updated Practice Statement on private sale processes

Practice Statement 31 sets out the Takeover Panel's approach to formal sale processes, strategic reviews, etc and when, for example, potential offerors have to be named in those situations. It has been updated, as described in Panel Statement 2024/12, to set out the Panel's approach to private sale processes (that is where a company initiates discussions on a private basis with more than one potential offeror and chooses not to announce those discussions).

If a company makes an announcement in respect of what was, until that point, a private sale process (whether voluntarily or in response to rumour or speculation or share price movement), that will commence an offer period in relation to the company, and trigger the requirement to identify any potential offeror with which the company is in talks, or from which an approach has been received (under Rule 2.4(a)). The Panel has updated the Practice Statement to say that where a company is genuinely initiating a private sale process, the requirement to identify any potential offeror may not be appropriate and it may be acceptable for the company to be required to identify a potential offeror only if it has been specifically identified in any relevant rumour or speculation.

Takeover Panel bulletin on statements of intention on an offer

The Takeover Panel has published Panel Bulletin 7 in which it discusses a bidder's statements of intention on a takeover offer, particularly around its intentions for the target business and employees.

Under the Takeover Code, a bidder making a takeover offer must set out its intentions as regards to the future of the target company's business and its employees.

The Panel says in Panel Bulletin 7 that it expects that a bidder will almost always have developed specific intentions in relation to these matters and they must be included in both the announcement of a firm intention to make an offer and in the offer document. If, exceptionally, a bidder has no intention to make any changes in relation to these matters, it must make a statement to that effect.

The Panel sets out a number of arguments that it says are not an acceptable basis for formulating intention statements, including:

• a bidder is not certain about expected synergies and so has not formulated any intentions;
• while some headcount reduction is envisaged, the bidder need not disclose the detail of that intention; and
• the bidder's only intention for the 12 months after an offer has completed is to conduct a strategic review, and that it will only formulate its intentions with regards to the target business after that review has concluded.

The Panel recognises that a bidder may sometimes wish to state that it will conduct a review of the target's business after completion of the offer. However, it says that such a statement will not, of itself, fulfil the Code requirements, and bidders should disclose what the review is likely to cover and their expectations in relation to it.

We discuss the Panel Bulletin, and the background to it, in our article here.

Updated guidance on National Security and Investment Act

The government has published updated guidance on the National Security and Investment Act 2021 (NSI Act). The guidance comprises an updated “Section 3 statement“, which discusses how the power to call in transactions under the Act is exercised, and Market Guidance Notes which aim to improve understanding of how the regime works.

The NSI Act introduced a new framework for the review of transactions and investments on national security grounds in the UK with effect from 4 January 2022. The government published a Call for Evidence on the scope and implementation of the regime in November 2023 and this latest guidance follow the government’s response to that Call for Evidence (see our blog post here for more information).

Section 3 Statement

Under the NSI Act, where a party acquires “control” of a target, the Secretary of State may issue a call-in notice to investigate the transaction if it raises potential national security concerns (and for these purposes control can arise with a very low shareholding, potentially even lower than 15%). The Section 3 Statement sets out guidance on how the Secretary of State will exercise this call-in power. It has been updated to:

• include more detail and examples of the potential national security risks that the Secretary of State may consider;
• expand the guidance on how “acquirer risk” is assessed and the characteristics of the acquirer which will be taken into account; and
• make clear that outward direct investment could in some instances constitute an acquisition under the NSI regime, for example if there is a transfer of technology, intellectual property or expertise as part of the investment or when forming joint ventures overseas. This is an area which is also picked up in the updated Market Guidance.

Updated Market Guidance

The updated Market Guidance Notes include tips for completing notification forms correctly and more detailed guidance on how long the NSI review process will take in practice, as well as some (limited) guidance on how the NSI regime can apply to outward direct investment.

For further information, see our Competition Notes blog here.

Reforms to UK merger control in the Digital Markets, Competition and Consumers Act

The Digital Markets, Competition and Consumers Act 2024 (DMCC Act), which received Royal Assent on 24 May 2024, will introduce significant changes to the UK’s competition law regime, including new merger control thresholds.

The changes to the UK merger control regime introduced by the DMCC Act include: 

• Jurisdictional thresholds – There are a number of changes to the jurisdictional thresholds under the UK merger control regime:
  • the turnover-based threshold relating to the target of a merger will be raised from the current £70 million to £100 million;
  • there will be a new “small merger safe harbour” which will exempt transactions from merger review where each party’s UK turnover does not exceed £10 million; and
  • under a new acquirer-focused threshold, the CMA will have jurisdiction to review a merger where: (i) one party has an existing share of supply of a category of goods or services of at least 33% in the UK (or a substantial part of the UK), and a UK turnover exceeding £350 million; and (ii) another party has sufficient UK nexus. This is aimed primarily at capturing certain vertical and conglomerate mergers, in particular acquisitions perceived as reducing dynamic competition and risking the development of new products or services.
• Merger control timetable – There will be a new “fast-track” route for parties subject to merger review in the UK, allowing parties to request a fast-track referral to Phase 2 at any stage of pre-notification or Phase 1 (with discretion for the CMA as to whether or not to accept the fast-track referral request).
• Duty to preserve documents – Where a person knows or suspects that an investigation is being, or is likely to be, carried out by the CMA, they must not falsify, conceal, destroy or otherwise dispose of a document (or cause or permit the same) which a person knows, or suspects, is or would be relevant to an investigation. The duty arises from the point a person knows, or suspects, that an investigation is being carried out or is likely to be carried out (e.g. receiving a case initiation letter).

The scope and implications of the DMCC Act are wide-ranging. In addition to merger control, other key reforms introduced by the DMCC Act include implementing the UK’s new digital markets regime, which will see the most powerful technology firms with strategic market status having their conduct regulated by the CMA and being subject to a new mandatory merger reporting requirement, and strengthening the CMA’s role in the enforcement of consumer protection legislation.

Secondary legislation is required to implement the changes, so it is not yet clear when the various changes will take effect.

For more information on the DMCC Act, see our Competition, Regulation and Trade ebulletin here.

We continued to see competitive situations, with two possible competing offers announced in May, while the competitive situation in Hipgnosis continues to play out. We discuss why we are seeing more competitive situations and how the rules of the Code operate where there are competing offers in our public M&A podcast series here.

Useful links

• Herbert Smith Freehills Takeovers Portal.
• Herbert Smith Freehills Public M&A Podcast Series.
• The Takeover Code.
• The Takeover Panel’s Disclosure Table (detailing offeree companies and offerors currently in an offer period).