An extremely important point to remember about the Panel is that it is not concerned with the financial considerations of any deals – it doesn’t take a view on whether a good offer is being made or not – it simply makes sure everyone is treated fairly and that the process is transparent. Download the PDF version of this guide for a flowchart which helps explain when an announcement is required. Mergers of a certain size and stature attract the attention of numerous authorities which are tasked with overseeing the deals: some to protect competition in the market, some to protect shareholder interests, and those concerned with national interests. A Scheme of Arrangement helps a company in the restructure of its debt, and aids recovery from financial distress. If a hostile bid is to go through then it ultimately comes down to either securing enough acceptances or winning enough votes of target company shareholders during a meeting. 1. Joshua Warner @JoshWarner_IG Writer, London, Publication date : 2018-09-27T17:58:46+0100. when the target company has announced that it is seeking one or more potential bidders by means of a formal sale process, where a hostile firm offer has been announced, the target company can agree to pay a break fee to a recommended "white knight" (i.e. For investors that find their business out shopping, they have to consider how any deal would impact the company’s finances and outlook, essentially weighing up if the purchase helps or hinders their investment. The announcement of a firm intention to make an offer is a significant event and will commit the bidder to proceed with the offer and to post its offer documentation within 28 days. The value of the Contact phone number field is not valid. However, another way for a deal to be proposed to investors is through a scheme of arrangement which sees the management of the target company propose the offer to its own shareholders on behalf of the bidder. More often than not a phase two investigation results in remedies and undertakings being implemented, rather than an outright ban on any deal whatsoever. This demonstrates the importance of the thresholds set. There are two ‘investigations’ that are conducted by the CMA to determine whether it approves a deal and one carries a lot more risk than the other. Jurisdiction over the regulation of takeovers and investigations of M&A activity in Europe is complex. > A ‘trust scheme’ can be used only for a friendly acquisition of a trust, and is frequently used to effect 100% acquisitions. Some of the key differences include the following. The key bodies that are often involved in the UK M&A process are: Find out what Brexit could mean for the markets and how a For example, General Electric (GE) merged its oil and gas business with Baker Hughes, forming the second biggest player in the market to take on leader Schlumberger. because the required acceptances or approvals are not obtained), the bidder will not be able to make another takeover offer for the same company for at least 12 months (subject to certain exceptions). The procedure for Schemes is contained in Part 26 of the Companies Act 2006 (the “CA 2006”), which states that a company may make a compromise or arrangement with its members or creditors (or any class of them) about (in theory at least) anything which the parties may agree on. They were then allowed to make a second bid which they then responded to a third a final time: the higher of which wins. These offers can be harder to evaluate as the value lies in the shares of the bidding company, and investors have to decide whether they want to hold shares in said company. We work hard to make sure Burges Salmon is a great place to work. For instance, it may not announce a firm intention to make an offer or possible offer for the target company for six months. Both of these methods could be used for a cash offer and, if relevant, a securities exchange offer (or a combination of both). The City Code does not apply to offers for open-ended investment companies. A scheme requires approval by at least 75% in value of each class of the members or creditors who vote on the scheme, being also at … Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The restrictions apply to the person making the no intention to bid statement and any person who acted in concert with them. Once an approach has been made then the target company will consider its answer and negotiate. directors of the bidder, companies in the same group or a party’s financial adviser), unless the contrary is established. However, the CMA, or the companies being investigated by the CMA, can refer the deal in question to the EC, which then conducts its own evaluation and ruling. But how does the M&A process work, and what do you need to know about takeovers in the UK? Download the PDF version of this guide for a flowchart which will help companies and advisers work with the "put up or shut up" regime. This guidance is for companies effecting a takeover or merger using a transfer scheme of arrangement or a contractual offer and stamp tax on shares is payable. Through a secure web portal, Comcast and Fox made a first bid which was then revealed to one another. However, if the bidder does not possess any inside information other than the knowledge that it expects to make an offer for the target, it should still be possible for the bidder to acquire shares before the announcement of the offer without breaching the relevant insider dealing legislation. New client: 0800 1953100 or newaccounts.uk@ig.com, IG | Sitemap | Terms and agreements | Privacy | IG Community | Cookies | Investors | Modern slavery act. For many, the CMA process is a necessary but more procedural one, but for some (usually the largest ones) the CMA’s approval is crucial as it has the power to prohibit a deal if it deems it detrimental to competition. Timing issues (Rules 30 and 31) 22 4. M&A is not all takeovers and acquiring entire businesses but also about businesses investing in others, either for strategic or financial gain. While no "material adverse change" conditions are often included in announcements and offer documents, the Panel has confirmed that, for a bidder to invoke a material adverse change condition, the bidder must demonstrate to the Panel that circumstances have arisen affecting the target which could not have reasonably been foreseen at the time of the announcement of the offer and which are of an entirely exceptional nature – something of the kind which would frustrate a legal contract. No representation or warranty is given as to the accuracy or completeness of this information. By continuing to use this website, you agree to our use of cookies. Takeover through Scheme of Arrangement: A Changing Trend in UK. Unlike in other markets, there is no obligation for businesses to inform the CMA before agreeing any deal, although it is common practice to liaise with the body rather than get caught out down the line (it can prohibit and unwind a merger even if it has already been completed). In some jurisdictions schemes have become the mechanism of choice for recommended bids. Bidders should be very cautious about their ability to invoke conditions and pre-conditions. The City Code requires that all persons privy to confidential information, and particularly price sensitive information, concerning an offer or possible offer must treat that information as secret and may only pass it to another person if it is necessary to do so and if that person is made aware of the need for secrecy. Oilfield services group John Wood Group bought smaller peer Amec Foster Wheeler for £2.2 billion, to weather the downturn and prepare for the cyclical upswing in crude prices. The potential impact of M&A and the opportunities on offer differ depending on how the coin lands. no special arrangements to be made with any particular target shareholders. The Code applies to takeover and merger transactions, however they are effected, including by way of a contractual offer, statutory merger or Court-approved scheme of arrangement, as well as Structuring a takeover—offers vs schemes of arrangement Practice notes. Several of the rules implementing the principles of the UK takeover regime, including the mandatory bid rule and the sell-out rule, are designed to protect minority shareholders. Usually, the first announcement will be an unbinding one that simply states a potential offer could be made (sometimes with a guide price but most often not), and who the bidder is. These include, but are not limited to, the following: M&A deals can take very different forms, some of which are far more common than others. Expanding the business organically is still the main method used to grow, but acquiring another a business (essentially the same as a takeover) can accelerate its efforts. Persons acting in concert are defined as persons who, pursuant to an agreement or understanding (whether formal or informal), co-operate to obtain or consolidate control of a company or to frustrate the successful outcome of an offer for a company. As a general but broad rule, if the target company generates over £70 million in annual revenue or if a deal results in the new enlarged business holding more than 25% of any given market then the CMA will conduct a phase one investigation. Over the past decade, schemes of arrangement have become a commonly used acquisition structure in friendly transactions in the UK. Registered address at Cannon Bridge House, 25 Dowgate Hill, London EC4R 2YA. Found in: Banking & Finance, Corporate, Tax. An announcement that a person does not intend to make an offer for a company will trigger certain restrictions under the City Code for a period of six months. The six general principles are as follows: There are fundamental differences between a public takeover and a private sale of a company in the UK. Sports Direct is a good example, having invested material sums in rival high street shops. While the City Code permits bidders to include conditions or pre-conditions, an offer must not normally be subject to conditions or pre-conditions which depend solely on subjective judgements by the directors of the bidder or the target company, or the fulfilment of which is in their control. A scheme of arrangement is a statutory mechanism which is an alternative to a contractual offer. The City Code prevents bidders acquiring an interest in shares which results in the bidder holding 30% or more of the total voting rights in the target. If not, the bidding company has to decide whether to walk away, negotiate to try to win over the target company’s board, or go over their heads and make a hostile bid directly to the target company shareholders. The CMA’s final report will outline its findings in detail and make a final decision, sometimes with certain conditions, and its involvement understandably extends the takeover timetable. The Panel may require a party to an offer which has made a post-offer undertaking to appoint a supervisor to monitor compliance by that party with that undertaking. Read more whether the Big Six energy suppliers are losing their grip on the UK energy market. John Trehey and Michael Gagie examine the differences between Mergers and Schemes of Arrangement and weigh the pros and cons of each to determine which may potentially become the future takeover method of … Certain persons are presumed to be acting in concert (e.g. Any person proposing to contact a private individual or small corporate shareholder with a view to seeking an irrevocable commitment must consult the Panel in advance. CONTENTS Page No. As oil prices sat at new lows at the start of 2016, the downturn started to spill over from the oil giants to those providing crucial engineering and other work. For example, Wood Group was already the market leader in the UK North Sea but the acquisition of Amec gave it too much control in the area, so the CMA only allowed the merger to complete if Amec’s operations were sold-off first. commitments to maintain the confidentiality of information, commitments not to solicit employees, customers or suppliers, commitments to provide information or assistance for the purposes of obtaining any official authorisation or regulatory clearance, irrevocable commitments and letters of intent, agreements, arrangements or commitments which impose obligations only on the bidder or any person acting in concert with it, other than in the context of a reverse takeover, agreements relating to any existing employee incentive arrangement. Schemes of Arrangement. This can be a complicated area and bidders should therefore always seek appropriate legal advice before undertaking stakebuilding. An "offer-related arrangement" is defined widely as any agreement, arrangement or commitment in connection with an offer, including any inducement fee arrangement or other arrangement having a similar or comparable financial or economic effect. It is a formal arrangement between the target company and its shareholders, which is governed by the Companies Act 2006. In some situations, a "possible offer" announcement may need to be made prior to an announcement of a firm intention to make an announcement – for instance, in response to market rumour or speculation. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 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