UK Takeover Code Recent Amendments

1. Background

The UK Takeover Code (the Code) is the set of rules governing public takeovers and related matters in the United Kingdom. It is administered by the Panel on Takeovers and Mergers (the Panel). The Code seeks to ensure fair treatment for shareholders, maintain market confidence and promote competition.

2. Why Amendments Were Needed

The business environment has changed dramatically in recent years:

Increased use of technologydriven platforms for sharebuybacks and tender offers.
Growth of activist investors and shareholder empowerment campaigns.
New forms of financing, especially hybrid instruments and special purpose acquisition companies (SPACs).
Greater scrutiny of ESG (environmental, social and governance) considerations in transaction structures.

These trends highlighted gaps in the existing Code, prompting the Panel to launch a comprehensive review in early 2023. The review concluded with a set of practical amendments aimed at modernising the rules while preserving their core protective purpose.

3. Key Amendments (Effective 1January2024)

3.1 Definition of Offer Inclusion of CrowdFunding Solutions

The Code now expressly recognises crowdfunding platforms as a means of acquiring shares, provided that:

The platform is authorised by the FCA.
All participants receive the same information and are treated equally.
The total amount raised does not exceed 10% of the target companys issued share capital without prior Panel clearance.

3.2 Rules on Partial Offers New 30Day Holding Period

When an offer does not reach the 30% threshold for a mandatory offer, the acquirer must:

Hold any shares acquired for a minimum of 30calendar days before disposing of them.
Provide a written explanation of the intended use of those shares to the targets board.

This amendment curbs flipflop strategies where an entity acquires a small stake, influences management and then quickly sells the shares.

3.3 Disclosure of Hybrid Instruments

Hybrid securities (e.g., convertible preference shares, contingent consideration) now fall under the Sufficient Information requirement. Offerors must disclose:

Conversion triggers and pricing mechanics.
Impact on voting rights and potential dilution.
Any ESGlinked performance targets attached to the instrument.

3.4 Regulation9 Defensive Measures Clarified Scope

The amendment clarifies that a board may only adopt defensive measures if:

The measure is proportionate to the perceived threat.
It does not impede an unavoidable mandatory offer.
It is communicated to shareholders within 24hours of adoption.

The clearer language is intended to limit the use of poison pills that can frustrate bonafide offers.

3.5 Article4 Fair Treatment ESG Materiality Statements

From 2024, firms making an offer must include a concise ESG materiality statement, describing:

How the transaction will affect the targets ESG commitments.
Any material ESG risks identified during due diligence.

The statement must be signed by the offerors senior ESG officer, enhancing accountability.

3.6 Article26 Timing of Offer Documents Digital Delivery

Offer documents may now be delivered electronically, provided that:

The recipient has consented to electronic delivery.
A hardcopy copy is available on request within five business days.

This change speeds up the offer process and reduces paper waste.

4. Practical Implications for Market Participants

4.1 Target Companies

Boards must be vigilant about partialoffer holdings and be prepared to explain the purpose of any stake acquired below the 30% level. The ESG materiality statement also means directors need to conduct more thorough ESG duediligence before responding to an approach.

4.2 Offerors

Offerors will need to expand their documentation to cover hybrid instrument terms and ESG impacts. The new holdingperiod rule may affect strategies that rely on quick accumulation of shares, requiring longerterm capital planning.

4.3 Shareholders

Investors receive clearer information on the potential dilution from hybrid securities and a better understanding of the ESG consequences of a deal. The digital delivery rule offers a faster, more convenient way to access offer documents.

4.4 Legal & Advisory Teams

Advisors must update their checklists to include the new ESG statement and the 30day holding requirement. Model agreements will need clauses that reflect the clarified defensivemeasure rules.

5. Comparison with Other Jurisdictions

Many European jurisdictions (Germany, France, and the Netherlands) have already incorporated ESG disclosures into their takeover rules. The UKs amendment aligns it more closely with the EUs Takeover Directive while retaining the Panels unique fair treatment ethos. In the United States, the HartScottRodino framework still lacks a comparable ESG statement requirement, making the UKs approach a potential benchmark for future reforms.

6. Future Outlook

The Panel has indicated that the 2024 amendments are a first step. Ongoing monitoring will focus on:

Effectiveness of the ESG statement in influencing shareholder votes.
Whether the 30day holding period reduces market manipulation without discouraging genuine takeovers.
Potential refinements to crowdfunding rules as fintech evolves.

Stakeholders are encouraged to submit feedback during the Panels annual review, scheduled for mid2025.