The Panel on Takeovers and Mergers (the Panel) released Practice Statement No. 27 of the City Code on Takeovers and Mergers (the Code) on 17 January 2014.
Rule 21.2 of the Code prohibits the target of an offer or persons acting in concert with the target (specifically including the target’s directors) from entering into offer related arrangements (any agreement, arrangement or commitment in connection with an offer, including an inducement fee arrangement) except with the consent of the Panel, other than specified exceptions.
The exceptions include an irrevocable commitment or letter of intent which would customarily be requested by the bidder from directors of the target to oblige the directors to accept the offer in respect of their shares (or in the case of a scheme of arrangement, vote their shares in favour of the necessary shareholder resolutions).
Practice Statement No. 27 makes it clear that irrevocable commitments and letters of intent may not contain any obligations that impact on the duties of the directors as directors (rather than shareholders) whether or not obligation sbe subject to the directors duties to the target.
Bidders for the target will now have even less legal comfort that a Code Offer will proceed as planned.
28 January 2014