Brexit: impact on UK takeovers regime

An overview of the final changes to the UK takeovers regime when the UK exits the EU.

The legislation underpinning the UK Takeover Code (Code) and certain provisions of the Code itself are being updated to address the UK leaving the EU. Most of the changes are technical in nature and do not materially alter the Code. A substantive change is that the shared jurisdiction of certain takeovers with other regulators will end.

The Takeover Panel (Panel) published its response statement (RS 2018/2) in March 2019 with the final proposed changes to be made to the Code when the UK leaves the EU, following its consultation paper (PCP 2018/2).

On 04 April 2019, the Panel published Instrument 2019/3 with the final changes.

The UK Government has also published The Takeovers (Amendment) (EU Exit) Regulations 2019 (Regulations) (and an explanatory memorandum) which make changes to Part 28 of the Companies Act 2006 (2006 Act) which deals with takeovers.

These changes are necessary as the EU Takeover Directive (Directive) will cease to apply in the UK when the UK exits the EU (Exit) and are being made to ensure that the UK takeovers regime operates effectively after Exit.

Timing

All of these amendments take effect on “exit day”.

The UK and the EU have agreed the provisional terms of a draft Withdrawal Agreement which sets out the basis on which the UK will leave the EU and includes a transition period during which EU law would continue to apply in the UK.

If the Withdrawal Agreement is finally agreed and approved by both the UK and EU Parliaments and there is a transition period (as currently proposed in that agreement), it is expected that the changes will come into effect at the end of that transition period which is currently stated as 31 December 2020 (unless extended).

If, however, there is a "no deal" Exit, the changes will take effect on exit day which is currently 31 October 2019 or 01 June 2019 if the UK does not hold EU elections in May 2019.

RS 2018/2 makes it clear that parties to an offer should consult the Panel if they are in any doubt as to the consequences of the proposed amendments.

What are the changes in the Regulations?

These changes remove all references to the Directive, EEA companies and EEA regulatory authorities.

Part 28 of the 2006 Act also currently requires the Panel to make rules which give effect to the Directive. All references to articles of the Directive in Part 28 are replaced with references to provisions in a new Schedule 1C (Schedule) to the 2006 Act which has equivalent provisions to those set out in the Directive.

The Schedule also sets out the General Principles for the Code and replace the ones currently in the Directive.

What are the changes to the Code?

Shared jurisdiction

The Code currently allows for shared jurisdiction of certain takeover offers, so that the Panel regulates certain aspects of a takeover offer and a regulator in another EEA member state regulates other aspects of the takeover offer. The regime currently applies to an offer for a company which has its registered office in one EEA member state but its securities are admitted to trading on a regulated market in another member state (and not also on a regulated market in the member state where it has its registered office).

The changes remove the shared jurisdiction regime on Exit. The Code then no longer applies to an offer for:

  • a company registered in an EEA member state (ie not in the UK) and whose securities are admitted to trading on a regulated market in the UK, or
  • a company with its registered office in the UK and whose securities are admitted to trading on a regulated market in a remaining EEA member state (and not on a UK regulated market) if it does not satisfy the Code’s residency test.

The Code does, however, then apply in full to an offer for a company with its registered office in the UK and whose securities are admitted to trading on a regulated market in a remaining EEA member state (and not on a UK regulated market) if it satisfies the residency test. A company will satisfy the residency test if it has its place of central management and control in the UK. These offers will also potentially be subject to the "dual jurisdiction" of the Panel and the relevant EEA supervisory authority in the member state where the securities are admitted to trading.

What if a shared jurisdiction offer straddles the implementation date?

If the Code will cease to apply to the offer after the implementation date (see Timing), then the Panel’s regulation of the offer will cease on the implementation date, and the takeover documentation needs to make this clear.

If the Code will apply in full to an offer after the implementation date, the Panel will have full regulatory control over the offer (and the company) from that date other than where to do so would have a retrospective effect. This must be made clear in the takeover documentation. The disclosure of interests and dealings provisions in Rule 8 of the Code will also apply from the implementation date.

Introduction to the Code

Various minor amendments have been made to the Introduction to the Code including to:

  • amend certain definitions, for example "regulated market" becomes "UK regulated market" and "multilateral trading facility" becomes "UK multilateral trading facility". (The new definitions are in the Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018.)
  • amend references to "Societas Europea" to "UK Societas" as any UK registered SE will automatically be converted into a new UK corporate form called a UK Societas when the UK leaves the EU remove all references to cross-border mergers and withdraw Practice Statement No.18 as the Code will no longer apply to EU cross-border mergers as UK companies will no longer be able to do them, and
  • amend the basis on which the Panel must co-operate with other supervisory authorities.
General Principles

The General Principles are amended to reflect the principles that are in the Schedule instead of those currently in the Directive. There are a few minor drafting and formatting differences but no change in substance.

RS 2018/2 also makes it clear that the General Principles continue to apply to all transactions to which the Code applies (and not only to transactions which fall within the narrow “takeover bid” definition in the Schedule).

Rules and Appendices

The following amendments are made:

  • Phase 2 European Commission proceedings: once the UK has left the EU, it will cease to be subject to the EU competition regime and the Competition and Markets Authority (CMA) will be the only authority with jurisdiction to review mergers for the effects in the UK. But, mergers that also meet the EU thresholds will still be reviewed by both the CMA and the EU Commission. The Panel have decided, therefore, to keep the references to Phase 2 European Commission proceedings in Rules 12 and 13 but have deleted references to the EU Commission referring matters back to the CMA as that will not be possible.

  • Breakthrough rule: companies can currently opt-in to provisions in the Directive that will allow them, in a takeover situation, to override certain defensive devices that may be put in place by companies. The Code requires the offer document to state the compensation offered for the removal of those rights together with particulars of the way in which that compensation is to be paid and the method employed in determining it. The Panel has retained this rule but amended it to refer to the rights in the Schedule instead of the Directive.

  • Making documents available: the requirement (in Rule 30.4) to make documents, announcements and information available to shareholders and employees in the EEA has been amended to refer only to shareholders and employees in the UK, the Channel Islands and the Isle of Man.

  • Bid documentation offence: s953 of the 2006 Act provides that it is a criminal offence for failure to comply with the contents requirements of the offer document rules (under the Code). The criminal offence also covers non-compliance with the Code's response document rules. The offences remain but the Code rules refer to equivalent provisions in the Schedule instead of to the Directive.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.