Takeovers, mergers and share buy-backs under the Takeovers Code
Takeovers, mergers and share buy-backs under the Takeovers Code
This domain tests the mandatory offer triggers, the terms every offer must contain, the constraints on the offeror and the target board, and how buy-backs interact with the Code.
The triggers
- 30% rule: a person acquiring 30% or more of a company's voting rights must make a mandatory general offer for all remaining shares.
- Creeping control: a holder between 30% and 50% who acquires more than 2% of the voting rights in any 12-month period must make an offer.
- Chain principle: acquiring control of a company whose principal asset is a stake in a listed company can trigger an offer for that listed company.
- Acting in concert: purchases by concert parties count towards both the trigger and the offer price.
The terms
- The offer must be priced at not less than the highest price paid by the offeror or any concert party in the six months before the offer period and during it.
- If 20% or more of the consideration paid in the six months before the offer was cash, a cash offer (or cash alternative) is required (Rule 26.3).
- A mandatory offer may be conditional only on 50% acceptance.
- The offer document must be published within 21 days of the announcement; the offer must stay open at least 21 days and no more than 60 days without the Executive's consent.
- Rule 4 bars frustrating action by the target board without shareholder approval; Rule 13 bars special deals for selected shareholders.
- Squeeze-out requires 90% acceptance of the shares not already held by the offeror and concert parties.
- Share buy-backs: on-market repurchases are capped at 5% above the five-day average closing price and within the 10% mandate; a buy-back that pushes a shareholder through a trigger can require a whitewash waiver approved by independent shareholders.
Worked example
A shareholder holds 28% and buys a further 3%, taking it to 31%. The 30% trigger is crossed, so a mandatory offer for all shares follows. The price must be at least the highest price paid for shares in the six months before and during the offer period, including the 3% purchase itself, and the offer may be conditional only on 50% acceptance.
Traps
- Believing a mandatory offer must be unconditional.
- Forgetting the 2% rule for holders already between 30% and 50%.
- Ignoring concert-party purchases when calculating the offer price.
- Applying the 90% squeeze-out to shares held by the offeror itself.
- Missing the six-month look-back when the announcement price looks generous.