City Code on Takeovers and Mergers

Overview

The City Code on Takeovers and Mergers (the Code) establishes the legal framework governing the acquisition of control over businesses operating within the municipal jurisdiction. It aims to safeguard fair competition, protect shareholders rights, and ensure that any restructuring does not adversely affect the public interest.

The Code applies to all corporations, partnerships, joint ventures and other entities that are incorporated, registered, or otherwise conduct business in the city, irrespective of where their headoffice is located.

Key Definitions

• Acquisition of Control The act of obtaining the power to direct the policies or management of a company, typically by holding more than 50% of voting rights.
• Takeover Bid An offer made by a party (the bidder) to purchase shares from existing shareholders on terms that are the same for all holders of the same class of shares.
• Target Company The entity whose securities are the subject of a takeover bid.
• Independent Expert A qualified professional appointed to assess the fairness of the offer for shareholders, as required by the Code.
• Minority Shareholder Any shareholder who does not hold a controlling interest.

Regulatory Framework

The Code is administered by the City Takeover Authority (CTA), an independent statutory body. The CTAs main responsibilities include:

1. Reviewing and approving all public takeover offers.
2. Ensuring disclosure of material information to shareholders.
3. Monitoring compliance with procedural rules.
4. Investigating alleged breaches and imposing sanctions.

The CTA operates under the broader City Competition and Corporate Governance Act, and its decisions may be appealed to the City Court of Administrative Law.

Takeover Procedure

1. Preliminary Notification

The prospective bidder must submit a **PreTakeover Notification** to the CTA within 10 business days of acquiring any interest that would bring them within 5% of the targets voting power. The notification includes:

• Identity of the bidder and any associated parties.
• Details of the shares already held.
• The intention to make a formal offer.

2. Acceptance of Offer

Once the CTA issues an **Offer Acceptance Certificate**, the bidder may publish the formal offer. The offer must be:

• Open for a minimum of 20 business days.
• Equal for all shareholders of the same class.
• Accompanied by an independent expert report.

3. Shareholder Communication

The target company is required to circulate a **Takeover Information Statement** (TIS) to all shareholders, summarising:

• The terms of the bid.
• Financial implications.
• Any alternative proposals.

4. Acceptance and Completion

If the offer meets the minimum acceptance threshold (usually 50% + 1 share of voting rights), the transaction may be completed within 30 days, subject to any conditions precedent contained in the offer.

Prohibited Actions

The Code lists specific conduct that is strictly forbidden during a takeover process:

Enforcement & Penalties

Violations of the Code can result in a range of sanctions, proportionate to the severity of the breach:

• Monetary Fines Up to 5% of the market capitalisation of the target company.
• Prohibition Orders Temporary or permanent bans on the bidder or its officers from participating in any future takeovers.
• Reversal of Transaction The CTA may order unwinding of a completed acquisition if the breach materially affected the fairness of the process.
• Criminal Liability In cases of fraud or severe market manipulation, criminal prosecution may be pursued.

Further Resources

For detailed guidance, consult the following documents:

• CTA Takeover Guidelines (PDF)
• City Competition and Corporate Governance Act
• Full Text of the City Code on Takeovers and Mergers
• Contact the CTA helpline: +18005550199 or email info@cta.city.gov