The Code Committee of the Takeover Panel (the “Panel”) recently published its response statement to its consultation paper reviewing certain aspects of the regulation of takeover bids. Prompted by negative commentary during Kraft’s hostile bid for Cadbury earlier this year, the review was designed to reduce the perceived tactical advantage the operation of the Takeover Code (“the Code”) provided to hostile bidders and redress the balance in favour of the target company.
For AIM companies, given their typical size, stage of development and available resources relative to their Main Market-listed counterparts, many of the proposals contained in the response are particularly welcome. Among the recommendations are proposed changes to the “put-up or shut-up” regime, a general prohibition on “break fees”, public disclosure of all advisory costs of both parties to the bid, and increased disclosure of the bidder’s intentions in respect of the target and its employees, the bidder’s financial information and its financing arrangements, even on cash offers.
Perhaps most helpful for AIM companies is that under the proposals, bidders would be required to be named in announcements following an approach and would then have a period of four weeks in which to “put up or shut up”, ie make a firm offer announcement or announce that it does not intend to make an offer. By accelerating the bid timetable, it should reduce the often lengthy periods where AIM companies find themselves under “siege” by potential bidders who could otherwise remain anonymous and have no real incentive to declare its intentions, while at the same time subjecting the target company to no frustrating action restrictions under Rule 21 of the Code. Such situations are common and are not only enormously distracting for target boards but an unnecessarily drain on the company’s limited resources.
At the same time, the Panel chose not to recommend further action be taken in respect of certain other suggestions such as increasing the success threshold to beyond 50% plus one, revoking or restricting voting rights attaching to shares acquired during the offer period, reducing the share interest disclosure threshold to 0.5% from the current 1%, and requiring bidder shareholder approval.
The rationale for this approach was that in many cases it was felt that such changes were more appropriately made within company law rather than in the Code, which reinforces the unfortunate reality that the Panel, no matter how comprehensive or well-intentioned, cannot address all of the prevailing concerns which have been raised in the wake of Kraft-Cadbury on its own.
An issue of particular concern to the AIM market which was not addressed in the Panel review is that the Code either in its current form or as proposed to be revised does not apply to a significant number of AIM companies at all. It is often overlooked that, unlike the Main Market where the Code applies to all listed companies, the Code generally only applies to AIM companies which are both incorporated in, and have their central mind and management within, the UK, the Channel Islands or the Isle of Man. This means that not only the multitude of overseas companies on AIM are outside the jurisdiction of the Code but also an increasing number of UK plc’s whose mind and management is located abroad often without shareholders being aware that the Code does not apply. At a minimum, the AIM Rules should be amended to require better disclosure on this issue, but some consideration should also be given by AIM, together with the Panel, as to whether it would be beneficial to AIM companies, their shareholders and the integrity of the market as a whole for the Code, or at least certain aspects of it, to apply to all AIM companies.
Whatever the outcome of the Panel’s review of the Code, it is clear that there needs to be a more coordinated response taking into account appropriate changes not only to company law, but potentially also to competition and tax law as well as the AIM Rules themselves in order to achieve the most effective regulatory takeover regime for companies listed on AIM.