UK Takeover Code Changes Have Entered into Force – What Do You Need to Know?

Following a consultation launched in May 2022[1], the UK Panel on Takeovers and Mergers (the “Panel”) effected changes to the City Code on Takeovers and Mergers (the “Code”) on 20 February 2023[2], including the circumstances in which the Panel will presume that parties are “acting in concert” with each other (referred to herein as “concert parties”).

Why does it matter?

“Acting in concert” is a fundamental concept of the Code. The Code defines persons “acting in concert” as those 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.

The Panel treats concert parties as a single person for the purposes of the Code. Due to this treatment, it is important to accurately identify potential concert parties, as the actions of one party (such as a party dealing in shares) might have implications for other concert parties.

What are the changes?

Most of the changes set out to codify existing Panel practice and clarify the application of certain presumptions; however, some are a change from the current position. The Panel is not amending the definition of “acting in concert” itself, but changes are being made to the “presumptions” around it, i.e., the circumstances where the Code presumes persons to be “acting in concert”.

The Panel replaced the current presumption in relation to groups of companies with two new rebuttable presumptions whereby:

1. a company (“X”) will be presumed to be “acting in concert” with any other company which controls, is controlled by, or is under the same control as X. For the purposes of the Code, “control” is defined as where a company is interested in 30% or more of the voting rights, or a majority of the equity share capital, of the other company (“Presumption 1”); and
2. the following companies will be presumed to be “acting in concert” with each other: a company (“Y”) and any other company (“Z”) where one of the companies is interested, directly or indirectly, in 30% or more of the other company’s equity share capital, together with any company presumed to be “acting in concert” with Y or Z under Presumption 1 (“Presumption 2”).

There are several points to note in connection with these changes:

• a “company” is deemed to include limited partnerships, trusts, individuals and other legal or natural persons;

• in Presumption 1 and Presumption 2, the threshold for a group to be presumed to be “acting in concert” has been raised from 20% to 30%, which results in greater alignment with the Code’s existing definition of “control”; and

• for the purposes of both Presumption 1 and Presumption 2, a reference to a person’s “interests in shares” includes long derivative/option positions as well as fund interests.

What does it mean for you?

The changes concerning “acting in concert” are relevant for determining:

• when a mandatory takeover offer may be required under Rule 9 of the Code;

• the minimum level, or form of consideration to be offered under Rule 6 or Rule 11 of the Code; and

• restrictions on, and the disclosure of, dealings in an offeree company, even outside of an offer.

The changes are particularly relevant to investment entities, government-owned entities, fund managers, private equity portfolio companies, and joint ventures. The response statement[3] provides detailed guidance in respect of these entities.

[1] The Takeover Panel PCP 2022/2 (“Presumptions of the Definition of “Acting in Concert” and Related Matters”).

[2] The Takeover Panel Statement 2022/21 (“Presumptions of the Definition of “Acting in Concert”: Publication of Response Statement and Instrument”).

[3] The Takeover Panel RS 2022/2 (“Presumptions of the Definition of “Acting in Concert” and Related Matters”).