Latest Thinking

Updates to the UK Takeover Code

The Takeover Panel (the “Panel”) has recently published a consultation on the jurisdictional scope of the City Code on Takeovers and Mergers (the “Code”) and a revised version of Practice Statement 31 (PS31) on formal sale processes, private sale processes, strategic reviews and public searches for potential offerors.

Jurisdiction of the Code

  • The Panel is consulting on narrowing the scope of companies to which the Code applies.
  • The Panel’s primary objective is to refocus the application of the Code to those companies which might expect to be subject to the Code and to provide clarity and certainty as to the Panel’s jurisdiction.
  • Currently, the Code applies to public or private companies that have their registered office in the UK, the Channel Islands or the Isle of Man if:
    • any of its securities are admitted to trading on a UK regulated market, a UK multilateral trading facility or a stock exchange in the Channel Islands or the Isle of Man (“UK Listed”); or
    • the Panel considers them to have their central management and control in the UK, the Channel Islands or the Isle of Man (the “residency test”) but, for private companies, only if certain additional criteria are met.
  • The second limb of this test means that, for example, a UK-registered public company that is not listed, or is only listed outside the UK, the Channel Islands and the Isle of Man, is subject to the Code if it satisfies the residency test.
  • If the Panel’s proposals are adopted, the residency test will be abolished and the Code will apply to a company only if the company has its registered office in the UK, the Channel Islands or the Isle of Man, and:
    • it is UK Listed; or
    • it was UK Listed at any time during the previous three years.
  • Transitional arrangements will apply, for three years from the date of implementation, to companies to which the Code will cease to apply as a result of the proposed changes.
  • The Panel has also clarified that the Code will not apply to companies whose shares or other instruments are traded on crowdfunding platforms, matched bargaining facilities or other private markets (which the HM Treasury is separately consulting on).
  • The consultation is open until 31 July 2024, and a response statement setting out the final amendments to the Code is expected to be published in Autumn 2024, with implementation one month after.
  • We welcome the Panel’s proposals. Abolishing the residency test will provide certainty that English incorporated companies with only overseas listings will not be subject to the Code.

Revised PS31

  • The Panel has published a revised Practice Statement 31 (PS31) setting out new guidance on private sale processes and strategic reviews.
  • The key change to PS31 is to formalise the regime for private sales processes, deemed necessary by the Panel because of a perceived reluctance on the part of company boards to engage in formal sales processes. The Panel acknowledges that a strict application of the Code to private sales processes may be inappropriate and dissuade companies and potential bidders from engaging in private processes, because of the requirement for company boards to identify, in any announcement of such private discussions (either any voluntary announcement or because of market speculation or rumour), any potential bidder with which it is in talks or from which an approach has been received.
  • As such, the updated PS31 now provides that, if the Panel is satisfied that a company is genuinely initiating a private process, it will grant a dispensation such that:
    • any voluntary announcement by the company will not be required to identify any potential bidder with which the company is in talks, or from which an approach has been received; and
    • any announcement will only be required to identify any such potential offeror if that potential bidder has been specifically identified in any rumour or speculation.
  • This change is also welcome and should facilitate companies in considering their strategic options and potential bidders in engaging with company boards in private sales discussions.