the city code on takeovers fresh fields summer 2006

8/6/2019 The City Code on Takeovers Fresh Fields Summer 2006

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The main principles and rules governing the planning and day-to-dayconduct of a takeover offer for a UK public company are covered by aset of general principles and rules set out in The City Code onTakeovers and Mergers (known as the City Code). The purpose ofthis guide is to provide an introduction to these general principlesand rules.

Other relevant legislation includes The Takeovers Directive (InterimImplementation) Regulations 2006, the Companies Act 1985, theFinancial Services and Markets Act 2000 (the FSMA) and the insiderdealing provisions of the Criminal Justice Act 1993. UK and EUcompetition legislation and the UK Financial Services AuthoritysListing, Prospectus and Disclosure Rules may also apply.


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The City Code is a set of general principles and rules governing theconduct of takeovers and mergers of companies with registeredoffices in the UK, the Channel Islands and the Isle of Man. It alsoapplies to a limited extent to companies in other EuropeanEconomic Area (EEA) countries. The Code is designed principally toensure that shareholders are treated fairly and provides an orderlyframework within which takeovers are conducted. It is issued andadministered by the Takeover Panel, which has been designated asthe supervisory authority to carry out certain regulatory functions inrelation to takeovers under the EU Takeover Directive. The Panel isan independent body made up of representatives from UK financial

institutions and professional associations and other membersappointed by the Panel. The Panels day-to-day business is carriedout by an Executive comprising full-time employees and secondeesfrom the investment banking community, accountancy firms, lawfirms and the civil service. It is headed by a Director General who isusually a director of an investment bank seconded for generally atwo year period.

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Following implementation of the EU Takeover Directive in the UK,the City Code now has statutory effect. The Panel has various

disciplinary powers, can order compensation to be paid in certaincases and can seek enforcement of the Code and its rulings by theUK courts. The Panel can also ask the Financial Services Authority(FSA) to take enforcement action and involve the FSA if a partysbehaviour during an offer amounts to market abuse for the purposesof the FSMA. Sanctions available to the FSA for market abuseinclude unlimited fines. Compliance with the City Code may also berelevant in determining whether criminal or civil liabilities will arise.

It is important to realise that it is the spirit as well as the letter of theCity Code that must be observed. The general principles are

expressed in broad general terms and the Code does not define theprecise extent of, or the limitations on, their application. The greatstrength of the City Code is its flexibility. The application of thegeneral principles and rules may vary from case to case since thefacts of each individual case may be different or new. For this reason,the Executive is available to give guidance and rulings on points ofinterpretation. Accordingly, legal or other professional advice is notgenerally an appropriate alternative to obtaining a view or rulingfrom the Executive.


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The City Code applies to all types of takeover and merger

transactions relating to relevant companies, including offers for onlypart of the share capital.

The City Code applies to all offers:

for companies that have their registered office in the UK, theChannel Islands or the Isle of Man if any of their securities areadmitted to trading on a regulated market in the UK or on any stockexchange in the Channel Islands or the Isle of Man; and

for other companies that have their registered offices in the UK, theChannel Islands or the Isle of Man and that are considered by thePanel to have their place of central management and control in thosejurisdictions (note that it only applies to private companies if theirshares were previously listed on the London Stock Exchange orwhere these have been the subject of certain types of public offeringor trading in the past).

Where a company has its registered office in the UK but its securitiesare admitted to trading on a regulated market in one or more EEAmember states but not in the UK, the Panel will share jurisdiction overthe offer with the takeover regulator in the other relevant state andonly certain Code provisions will apply. This will also be the case if acompany has securities admitted to trading only on a UK regulatedmarket but its registered office is in another EU member state where itdoes not have securities admitted to trading. Shared jurisdiction mayalso apply where a company has its securities admitted to trading onregulated markets in more than one EEA member state (including theUK) but not if the company has securities admitted to trading on aregulated market in its own country.


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The City Code contains detailed rules covering each stage of atakeover or merger. The purpose of this guide is to outline the mainprinciples on which the City Code is based and to set out theprincipal matters of which a potential offeror should be aware whenconsidering making an offer.

The City Code sets out six general principles for the good conduct oftakeover offers. These are reproduced in Appendix 1.

The City Code rules elaborate on and seek to implement the generalprinciples. The rest of this guide deals with the rules relating to themore important of these general principles.


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Many of the City Code rules apply not only to the offeror but also toparties who co-operate to help it achieve control or who have aninterest in the outcome of the offer.

The principal object of this is to prevent offerors circumventing theCity Code rules, for example by using third parties to purchaseshares in the target.

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Parties who help the offeror achieve control of the target are generallytreated as part of the offerors team and, accordingly, rules that applyto the offeror also apply to them. Such parties are said to be acting in

concert. In particular dealings by those acting in concert are treatedeffectively as dealings by the offeror. Persons acting in concert aredefined as: persons who, pursuant to an agreement orunderstanding (whether formal or informal), co-operate to obtain orconsolidate control of a company or to frustrate the successfuloutcome of an offer for a company. The offeror and persons actingin concert form what is known as a concert party.

Certain persons are presumed to be acting in concert, unless thecontrary is established. A list of these persons appears in Appendix 2.

The existence or non-existence of a concert party and theconsequent aggregation or non-aggregation of their interests isespecially important in deciding whether or not the 30 per centthreshold has been reached, which would require a mandatory bidto be made under Rule 9 of the City Code (see page 14). Also, ingeneral, disclosure requirements and restrictions on acquisitions towhich an offeror is subject will usually apply to concert parties. Theofferor and its advisers should therefore take great care to ensure aconcert party is not created unintentionally and should consult theExecutive if in doubt.

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Associates are defined in the City Code as: all persons (whether ornot acting in concert) who directly or indirectly own or deal in theshares of an offeror or the offeree company in an offer and who have(in addition to their normal interests as shareholders) an interest orpotential interest, whether commercial, financial or personal, in theoutcome of the offer. The definition of associates is wider than thatof persons acting in concert and also includes companies having amaterial trading arrangement with the offeror or the target. A list ofpeople who will normally be regarded as associates is set out inAppendix 3.


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The question of whether a person is an associate or not is mainlyrelevant in determining whether such a person must disclose

dealings in shares and other securities of the target (or in shares orother securities of the offeror in a securities exchange offer, ie if theconsideration offered by the offeror includes securities) by noon onthe following business day under Rule 8 (see page 10).

An offeror may also be required to disclose any arrangements (forexample, indemnity or option arrangements) entered into by or withan associate (see Note 6 on Rule 8).


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It is a fundamental general principle of the City Code that allshareholders of the same class of a target must be treated similarly byan offeror.

A number of rules in the City Code are designed to ensure equaltreatment. In particular, the City Code contains rules to ensure that:

equivalent offers are made to all shareholders; and

the same information is provided to all shareholders.

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An offeror must make comparable offers to the holders of each class

of share capital (Rule 14). An appropriate offer must also be made tooptionholders and holders of convertible securities (Rule 15). Anofferor may not treat any particular shareholder more favourablythan any other; special deals are not allowed (Rule 16).

The offeror must offer the same price to all holders of the same classof shares. Where an offeror (or any person acting in concert with it)acquires an interest in shares of the target within the three monthperiod before the start of the offer period (and in certaincircumstances even before this period), the value of the offer mustnot be less than the highest purchase price paid during this period

(Rule 6.1). (Note that interest is defined very widely and includeswhere a person owns securities, has the right to exercise voting rightsattaching to them, or has entered into an option arrangement orderivative transaction relating to them.) If, after the commencementof the offer period, an offeror (or any person acting in concert withit) acquires an interest in target shares at above the offer price, theofferor must normally increase its offer to not less than that price.This will effectively result in the offeror having to make a revisedoffer (Rule 6.2). Persons who have already accepted the original offerare entitled to be paid the revised price (Rule 32.3).

If an offeror (or any person acting in concert with it) has acquiredfor cash interests in shares carrying 10 per cent or more of thetargets voting rights within a 12 month period before thecommencement of the offer period, or during the offer period, theoffer will normally have to include a cash offer at not less than thehighest cash price paid by the offeror during the offer period and inthe previous 12 months. The Panel has a discretion to apply theobligation to provide cash when, for example, less than 10 per centhas been acquired if it considers this is necessary to ensure that thegeneral principle of equal treatment for all shareholders is upheld(for example, where shares have been purchased from the directors

of the target). Also, if an offeror (or any person acting in concert


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with it) acquires any interest in offeree shares for cash during theoffer period, the offeror will normally have to offer cash to all offeree

shareholders (Rule 11.1).If an offeror acquires interests in shares carrying 10 per cent or moreof the voting rights in exchange for its own shares in the threemonths before and during the offer period, it will have to make ashare exchange offer to all shareholders (Rule 11.2).

Thus under Rule 11 all shareholders of the same class should receivethe same price for their shares and have an opportunity to receivethe same type of consideration.

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The City Code obliges both offeror and offeree to ensure thatshareholders receive sufficient information to enable them to reach aproperly informed decision as to the merits or demerits of an offerand to enable them to make the decision in good time (Rule 23).The same information must be made available to all shareholders asnearly as possible at the same time (Rule 20.1).

The offeror and offeree are required to provide shareholders andemployees with documents containing specific detailed informationwithin specific time limits; in particular, each company is requiredto disclose detailed financial information about itself (Rules 24 and25) and the offeror must disclose its intentions regarding theofferees business and employees (it is now a criminal offence to failto comply with this last disclosure requirement). Such informationmust be accurate (Rule 19.1) and up-to-date (Rule 27.1). Further,the directors of the offeror and the offeree must state that theyaccept responsibility for the information in such documents (Rule19.2 see page 16).

Competing offerors must also be provided with the same information,even if one offeror is less welcome than another (Rule 20.2).

The information provided during the course of an offer must be

prepared to the highest standards of accuracy (Rule 19.1). Particularrules apply to the issue of advertisements, telephone campaigns andthe giving of interviews (Rules 19.4, 19.5 and 19.6). The principalpurpose of these rules is to ensure that such information is presentedfairly and impartially.

The Panel has also indicated that the City Codes principles of care,responsibility and availability of documentation should apply to offer-related information made available on a companys website. It hasdeveloped a policy on how the City Code should apply in this area.


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In order to ensure a uniform flow of information, the City Code alsorequires an offeror (and others) to disclose the progress of the offer.

There are, in practice, three stages, which are set out below.mJ~=~W=~===

Before an announcement is made, absolute secrecy must bemaintained by all persons involved so as to minimise the chances ofan accidental leak of information; information should be confined tothose within the offeror and (if it is an agreed bid) the target whoneed to know (Rule 2.1). The Panel has indicated, for example, thatat this stage pre-bid talks with trading partners, customers, suppliersand creditors should not take place. The purpose of this rule is toensure that rumours do not give rise to speculation in thecompanies shares before a formal announcement is made.

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On the other hand, there are a number of situations where anofferor will be obliged to make an announcement indicating itsintentions towards the target (Rule 2.2). The object of this rule is toavoid creating an opportunity for speculation and insider dealing. Inthe case where the proposed offer has already been communicated tothe target, responsibility for the announcement will rest primarilywith the board of the target.

In particular, an announcement must be made:

as soon as a firm intention to make an offer has been notified to thetarget;

as soon as an obligation to make a mandatory bid has arisen (seepage 14);

where, for the purpose of pre-announcement discussions, thenumber of persons aware of the offer (and therefore the risk ofinformation leaking) will be increased beyond a very restrictednumber; or

if the target becomes the subject of rumour and speculation or there

is an untoward movement in its share price and there are reasonablegrounds for believing that this results from the offerors actions.

It is vital to consult the Panel if there is any rumour or speculationor if the offerees share price starts to move beyond normal marketmovements. The Panel is particularly vigilant with regards to thisRule and very ready to censure companies and their advisers whodelay making any announcement or consulting them. A party and itsadvisers also risk being in breach of the FSMA market abuse regimeif they fail to make an announcement where one is required by theCity Code, or they delay or avoid an announcement when one is


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required to avoid a misleading impression arising in relation topublicly traded securities.

If an offeror is obliged to make an announcement under Rule 2.2,this may be of a firm intention to make an offer or may be anannouncement that it may make an offer (referred to in the CityCode as a possible offer announcement). A party may also make apossible offer announcement without being required to do so by theCity Code but because, for example, it wants to gauge marketreaction or put pressure on the target board or do extensive duediligence. It is not at this stage committed to make an offer. Therehas been a significant increase in the number of possible offerannouncements. The Panel does police these situations because ofthe uncertainty they may cause in the market. This type ofannouncement also puts a target in a similar position as if a bid hasbeen made but outside a formal Code timetable. A target may askthe Panel to force the potential bidder to clarify its position after acertain length of time (usually six to eight weeks from the date of theoriginal announcement if the target asks early in the process).

Any announcement of a firm intention to make an offer mustcontain all the terms and conditions of the offer (Rule 2.5). Wherethe offer is in cash, or includes an element of cash, the announcementmust include confirmation by the targets adviser that resources areavailable sufficient to satisfy full acceptance of the offer. Further,once such an announcement is made the offeror will normally becommitted to proceeding with the offer (Rule 2.7). Accordingly, anoffer should only be announced if an offeror has every reason tobelieve it will be able to implement the offer. On the other hand, if apotential offeror announces that it has no present intention ofmaking an offer, it will normally be prevented by the Panel frombidding for the target for a period of six months (Rule 2.8).

For this reason a potential offeror contemplating making a bidshould take extreme care to ensure secrecy and security during theperiod before an announcement is made. Otherwise, it is quite

possible that it may be forced to make an announcement before it isin fact ready to do so.

The offeree must circulate details of the offer to its shareholderspromptly after the announcement and to the Panel (Rule 2.6). Theofferor and offeree must also make the announcement readilyavailable to their employee representatives or employees if there areno representatives.

Similarly, if an offer is amended an announcement must be madeimmediately (Rule 7.1).


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The City Code places a number of restrictions on a potential offerorwishing to build up a stake before making an offer. The Panelrecently decided that one set of rules designed to slow down the rateat which a potential offeror could acquire shares, so as to allow theboard of the offeree and the offeree shareholders (as well as themarket in general) time to become aware of the potential offerorsinterest, should be abolished. These applied up to a 30 per centthreshold the Panel decided there was no justification to retainthese rules.

This section considers the remaining City Code restrictions onstakebuilding. There are two other very important restrictions totake into account when the offeror has information that is notgenerally known to the market. These are the criminal offence ofinsider dealing and the civil restriction on insider dealing, which ispart of the market abuse prohibition in the FSMA.

Before the public announcement of an offer, only the offeror shoulddeal in securities of the proposed offeree; no other person who isprivy to confidential price-sensitive information concerning apotential offer may deal in such securities (Rule 4.1a).

As noted already, if an offeror acquires an interest in shares in the

target within the three months before the commencement of theoffer period (or in certain circumstances even before this period),the value of the offer, when announced, must be no less than thevalue at which such earlier acquisitions were made (Rule 6.1). If theofferor acquires an interest in shares for cash carrying 10 per cent ormore of the voting rights of the target in the 12 months precedingthe commencement of the offer period or during the offer period, oracquires an interest in any offeree shares for cash during the offerperiod, the offer will normally have to include a cash offer at not lessthan the highest cash price paid during the relevant period (Rule11.1). An offeror must, therefore, exercise care in making any pre-

offer acquisitions. Also on an all share offer, no acquisitions ofinterests in shares for cash at all should be made by the offeror orany concert party during the offer period unless the offeror isprepared to offer cash to all target shareholders.

Although the restrictions that did exist on stakebuilding up to 30 percent have been removed, an offeror cannot build up a significantsecret stake. Under the Companies Act 1985, once any personbecomes interested in 3 per cent or more of a public companysvoting shares an obligation arises to disclose such interest to thetarget within two business days and the target (if it is a listed

company) then has to inform a Regulatory Information Service, who


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will publish the information. Thereafter each further full 1 per centinterest acquired must also be disclosed.

Under the City Code, an offeror is generally restricted (Rule 5.1),before or after the announcement of an offer, from acquiringinterests in shares carrying 30 per cent or more of the voting rightsin the target. However, there are certain exceptions (Rule 5.2):

before announcement of the offer, from a single shareholder if it isthe only such acquisition within any seven day period;

immediately before announcement of the offer, if the offer will berecommended by the target (or the acquisition is agreed to by thetarget) and the acquisition is conditional upon the announcement ofthe offer;

after announcement of the offer, if the acquisition is agreed to by thetarget;

after announcement of the offer, if the offer or any competing offerhas been recommended by the target (even if such arecommendation has subsequently been withdrawn);

after the commencement of the offer, if the first closing date of theoffer (or any competing offer) has passed (usually 21 days after theoffer document is posted) and the relevant UK and EU competitionauthorities have cleared the offer (or any competing offer) or it doesnot come within the scope of the relevant legislation;

after the announcement of the offer, if the offer has becomeunconditional in all respects; or

after the announcement of the offer, if the acquisition is by way ofacceptance of the offer.

Some important stake-building thresholds are set out in Appendix 4.

Note that advisers to an offeree company cannot acquire interests inofferee shares during the offer period.


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One of the most significant City Code rules is the mandatory bidrule (Rule 9). The rule states that if a person acquires an interest inshares that (taken together with shares in which persons acting inconcert with him are interested) carry 30 per cent or more of thevoting rights of a company, the offeror is required to make a cashoffer for the target at the highest price paid by the offeror (or anyperson acting in concert with it) for any interest in target shares inthe 12 months before the offer is announced.

The reason for this rule is that the Panel believes that a holding of30 per cent or more, although not giving legal control, gives theholder effective control over the affairs of the company. The Panelconsiders it is unfair that shareholders should find they have becomeshareholders in a business that may have different management andobjectives and may be less attractive to the shareholders (and themarket) than previously without having the chance to sell theirshares. Accordingly, the Panels view is that this should be treated asa change of control and that the remaining shareholders should begiven the opportunity to sell their shares. Again, the underlyingobjective is to achieve equal treatment for all shareholders. It is alsoa requirement of the EU Takeover Directive that member states havea mandatory offer rule when control passes.

The requirement to make a mandatory bid under Rule 9 can haveserious adverse consequences for an unwary offeror. Not only doesthe City Code oblige it to make an offer for all the shares in thetarget (whether or not that was its original intention), but the CityCode also limits the terms and conditions on which it may do so.Most significantly, a mandatory offer may be conditional only onthe offeror obtaining shares carrying 50 per cent or more of thevoting rights in the target. This level may be lower than the offerorwould like to achieve. In addition, the offeror will lose the protectionof the other conditions on which the offer could have been made

(see page 18).The obligation to make a mandatory offer under Rule 9 will alsoapply if a person who, together with persons acting in concert with it,is interested in shares carrying between 30 per cent and 50 per cent ofthe voting rights of a company and there is an acquisition of aninterest in any other shares that increases the percentage.

It is for the purposes of Rule 9 that the Panel most often has todecide whether persons are acting in concert or not. Generally, greatcare should be exercised to avoid unintentionally giving rise to anobligation to make a Rule 9 offer. Where there is any doubt, an

offeror is advised to speak to the Panel at an early stage.


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Dispensations from the obligation to make a mandatory bid underRule 9 are available from the Panel in certain circumstances

(Appendix 1 to the City Code), for example if an offeror accidentallyacquires an interest in 30 per cent or more of the voting rights of thetarget; in such a circumstance, the offeror would then be required tosell down to below 30 per cent.


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Any document or advertisement issued to shareholders inconnection with an offer must satisfy the highest standards ofaccuracy. The information contained in it must be adequately andfairly presented (Rule 19.1). These standards also apply to any offer-related information a company puts on a website.

The directors of the relevant companies are responsible for ensuringthe accuracy of such documents. Further, such documents,advertisements, and information placed on a website must carry aresponsibility statement (Rule 19.2). A responsibility statement muststate that the directors of the offeror and the offeree acceptresponsibility for the information contained in the document oradvertisement and that, to the best of their knowledge and belief(having taken all reasonable care to ensure that such is the case), theinformation contained in the document or advertisement is inaccordance with the facts and, where appropriate, that it does notomit anything likely to affect the import of such information.

The legal effect of the responsibility statement is that the directorsmay become personally liable to acceptors of the offer if they havefailed to take reasonable care in the preparation (or in overseeing thepreparation) of the document or advertisement. Before anydocuments or advertisements are published, therefore, the directorsmust be satisfied that they comply with the required standards.

Some directors, for example non-executive directors, may forpractical reasons delegate supervision of documents oradvertisements, where appropriate, to a committee of directors. TheCity Code states that they must, however, reasonably believe that thepersons to whom such supervision has been delegated are competentto carry it out and that they must ensure that they disclose to suchpersons any relevant facts known to them and any relevant opinionsthey may have (Rule 19.2, Note 1). This does not absolve them fromthe principle (set out in the Introduction to the City Code) that each

director has a responsibility to ensure, so far as he is reasonably able,that the City Code is complied with in the conduct of an offer.Appendix 3 to the City Code also lays down further detailedguidelines for directors on their responsibilities.


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The City Code recognises that the interests of the board of theofferee and its shareholders may not always be the same. As a result,in keeping with the principle of fair treatment for shareholders, afurther obligation is imposed on the board of the offeree not to takeany action that could frustrate the offer.

Accordingly, the board of the offeree must not, from the time wheneither an offer is communicated to it or it has reason to believe that abona fide offer may be imminent, take any action that may result inany bona fide offer being frustrated or shareholders being denied theopportunity to decide on the merits of the offer, unless itsshareholders approve otherwise in general meeting. Examples offrustrating action are set out in Rule 21 and include:

issuing new shares;

granting options over unissued shares;

creating securities carrying rights to convert into (or subscribe for)target shares;

selling (or acquiring) assets of a material amount; and

entering into contracts otherwise than in the ordinary course ofbusiness.

The offeree can ask the Panel if it can take relevant action withoutshareholder approval if it is in pursuance of a contract entered intoearlier or another pre-existing obligation.


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The City Code recognises that making a takeover offer may disruptthe normal business activities of a target. The City Code thereforelays down time limits governing the overall period of an offer andthe different stages within it. These rules have to be incorporated inthe offer document as contractual terms of the offer.

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The principal factor determining the success or failure of an offer iswhether or not the offeror obtains sufficient acceptances to give it therequired degree of control over the target. The offeror must make theoffer subject to a condition that a minimum acceptance level isachieved. This is known as the acceptance condition. The minimumacceptance condition permitted is shares carrying over 50 per cent ofthe targets voting rights (Rule 10). If this level is not achieved within60 days from posting the offer document to target shareholders(which must take place within 28 days of the announcement of a firmintention to make an offer, and often occurs much earlier), the offermust lapse unless the Panel agrees otherwise. More often a 90 percent acceptance condition will be specified because once this level isachieved the offeror will usually be able to force the remainingminority shareholders to sell their shares under the compulsoryacquisition procedure set out in the relevant legislation. An offer will

not close unless the acceptance condition is satisfied, at which pointthe offer is said to be unconditional as to acceptances.

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Other conditions may also be attached to the offer. Normally,however, the Panel will not allow subjective conditions (for example,conditions that leave the decision to proceed with the offer solely inthe hands of the offeror) (Rule 13). Other conditions may include,for example, the obtaining of shareholder and regulatory consents tothe takeover. An offeror will only be able to rely on a condition(other than the acceptance condition or a condition relating to UK

or EU regulatory clearance) so as to cause its offer to lapse if thecircumstances giving rise to the right to invoke the condition are ofmaterial significance to it in the context of the offer. This is a veryhigh test.

All other conditions must be satisfied (or waived) within 21 days ofthe fulfilment of the acceptance condition. At this stage the offer issaid to be unconditional in all respects or wholly unconditional.


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A typical outline timetable for a takeover offer is as follows:

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-28 Announcement by offeror of intention to bid for target

0 Last day for posting of offer document1

+14 Last day for posting targets written response to the offer2

+21 First day on which offer may close3

+39 Last day for target to announce material new information (including tradingresults, profit or dividend forecasts, asset valuations or proposals for

dividend payments or for any material acquisition or disposal) (Rule 31.9)

+42 Accepting target shareholders may withdraw their acceptances if offer notunconditional as to acceptances (Rule 34)

+46 Last day for offeror to revise its offer4

+60 Last day for offer to be declared unconditional as to acceptances5

+81 Last day for offer to be declared wholly unconditional6

+95 Last day for paying the offer consideration to target shareholders whoaccepted by day 81 (Rule 31.8)

1 The offer document must be posted to shareholders within 28 days of theannouncement of an intention to make the offer (Rule 30.1). It is often postedwell before the 28 day period expires.

2 The board of the target should advise its shareholders of its views on the offerby means of a circular as soon as possible and normally within 14 days ofpublication of the offer document (Rule 30.2). If it is a recommended offer,the target boards views will normally be contained in the offer document.

3 The offer must initially be open for 21 days (Rule 31.1). There is norequirement to extend the offer after 21 days if the conditions have not beensatisfied by then (Rule 31.3). If the offer is extended, the next closing date mustbe stated (Rule 31.2).

4 If an offer is revised, then it must be kept open for at least 14 days after therevised offer document is posted (Rule 32.1). Because the acceptance conditionmust be met within 60 days, this means that no revised offer document may beposted after day 46.

5 If the acceptance condition is not satisfied by this stage, the offer will lapse(Rule 31.6).

6 All conditions must be fulfilled or waived within 21 days of the date the offer isdeclared unconditional as to acceptances (ie day 60 or before) (Rule 31.7).


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The timetable may be varied under certain circumstances. An offerorwill usually want the offer to remain open as long as possible.

Occasionally, however, an offeror may include a statement that theoffer will not be extended beyond a specified date unless it isunconditional as to acceptances (a no extension statement). Anofferor should generally take great care before including a noextension statement since an offeror will be able to extend its offeronly in wholly exceptional circumstances except where the right todo so has been specifically reserved (Rule 31.5).

A similar rule applies to statements that the offer will not beincreased (a no increase statement). In general this will prevent anofferor increasing the value or type of consideration in its offer otherthan in wholly exceptional circumstances except where the right todo so has been specifically reserved (Rule 32.2).

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The original offerors timetable will cease to apply in the case of acompetitive offer. In this case both the original offeror and newofferor will work to the new offerors timetable (Rule 31.6).

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If the offer is referred to the Competition Commission, or theEuropean Commission initiates proceedings, before the first closingdate or the date the offer is unconditional as to acceptances

(whichever is the later), the offer must automatically lapse (Rule12.1). If the offer is cleared the Panel will usually consent to theofferor making a new offer within 21 days of clearance (see page 21).


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Where an offer has either been withdrawn or has lapsed, neither theofferor (nor any person who acted in concert with the offeror) norany person who subsequently acts in concert with any of them maywithin 12 months from the date of withdrawal or lapse of such offerdo the following, except with the consent of the Panel (Rule 35.1):

make an offer for the offeree;

acquire any interest in shares leading to a requirement for amandatory bid under Rule 9; or

acquire any interest in offeree shares that would take his aggregateinterest to 30 per cent or more.

Consent will usually be given if an offer has lapsed under Rule 12.1because of a reference to the Competition Commission that hassubsequently been cleared or if a favourable decision has been givenby the European Commission. This will also be the case if the newoffer is recommended by the target or a competing offer has beenmade for the target (notes on Rules 35.1 and 35.2).


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1 All holders of the securities of an offeree company of the same classmust be afforded equivalent treatment; moreover, if a personacquires control of a company, the other holders of securities mustbe protected.

2 The holders of the securities of an offeree company must havesufficient time and information to enable them to reach a properlyinformed decision on the bid; where it advises the holders ofsecurities, the board of the offeree company must give its views onthe effects of implementation of the bid on employment, conditionsof employment and the locations of the companys places of business.

3 The board of an offeree company must act in the interests of thecompany as a whole and must not deny the holders of securities theopportunity to decide on the merits of the bid.

4 False markets must not be created in the securities of the offereecompany, of the offeror company or of any other companyconcerned by the bid in such a way that the rise or fall of the pricesof the securities becomes artificial and the normal functioning of themarkets is distorted.

5 An offeror must announce a bid only after ensuring that he/she canfulfil in full any cash consideration, if such is offered, and aftertaking all reasonable measures to secure the implementation of anyother type of consideration.

6 An offeree company must not be hindered in the conduct of itsaffairs for longer than is reasonable by a bid for its securities.


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^=OW==~=

Without prejudice to the general application of the definition, thefollowing persons will be presumed to be persons acting in concertwith other persons in the same category (ie the same paragraph),unless the contrary is established:

a company, its parent, subsidiaries and fellow subsidiaries, and theirassociated companies, and companies of which such companies areassociated companies, all with each other (for this purpose ownershipor control of 20 per cent or more of the equity share capital of acompany is regarded as the test of associated company status);

a company with any of its directors (together with their close

relatives and related trusts); a company with any of its pension funds;

a fund manager (including an exempt fund manager) with anyinvestment company, unit trust or other person whose investmentssuch fund manager manages on a discretionary basis, in respect ofthe relevant investment accounts;

a connected adviser with its client and, if its client is acting inconcert with an offeror or with the offeree, with that offeror or withthat offeree company respectively, in each case in respect of the

interests in shares of that adviser and persons controlling, controlledby or under the same control as the adviser (except in the capacity ofan exempt fund manager or an exempt principal trader); and

directors of a company which is subject to an offer or where thedirectors have reason to believe a bona fide offer for their companymay be imminent.


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Without prejudice to the generality of the definition, the termassociate will normally include the following:

an offerors or the offeree companys parent, subsidiaries and fellowsubsidiaries, and their associated companies, and companies of whichsuch companies are associated companies (for this purpose ownershipor control of 20 per cent or more of the equity share capital of acompany is regarded as the test of associated company status);

connected advisers and persons controlling, controlled by or underthe same control as such connected advisers;

the directors (together with their close relatives and related trusts) ofan offeror, the offeree company or any company covered by the firstbullet point;

the pension funds of an offeror, the offeree company or anycompany covered by the first bullet point;

any investment company, unit trust or other person whoseinvestments an associate manages on a discretionary basis, in respectof the relevant investment accounts;

an employee benefit trust of an offeror, the offeree company or anygroup company referred to in the first bullet point above; and

a company having a material trading arrangement with an offeror orthe offeree company.


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3 per cent Obligation (Companies Act 1985) to disclose interest in shares to

target within two business days. Target must inform a RegulatoryInformation Service. Obligation to disclose each further full

1 per cent interest acquired.

30 per cent Mandatory offer triggered (Rule 9). Restrictions in Rule 5 of theCity Code relevant. If offeror has interest of between 30 per cent

and 50 per cent (usually as a result of an unsuccessful previous

offer) mandatory offer triggered if any further interest acquired.

50 per cent Minimum acceptance condition under the City Code. Controleffectively passes.

90 per cent Enables compulsory acquisition of remaining 10 per cent.


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A M S T E R D A M Apollolaan 1511077 AR Amsterdam

T + 31 20 485 7000F + 31 20 485 7001

B A R C E L O N A Mestre Nicolau 1908021 Barcelona

T + 34 93 363 7400F + 34 93 419 7799

B E I J I N G 3705 China World Tower Two1 Jianguomenwai AvenueBeijing 100004

T + 86 10 6505 3448F + 86 10 6505 7783

B E R L I N Potsdamer Platz 110785 Berlin

T + 49 30 20 28 36 00F + 49 30 20 28 37 66

B R A T I S L A V A Laurinsk 1281101 Bratislava

T + 421 2 5413 1121F + 421 2 5413 1123

B R U S S E L S Bastion Tower

Place du Champ deMars/Marsveldplein 51050 Brussels

T + 32 2 504 7000F + 32 2 504 7200

B U D A P E S T Oppenheim s TrsaiFreshfields BruckhausDeringer1053 BudapestKrolyi Mihly u. 12.

T + 36 1 486 22 00F + 36 1 486 22 01

C O L O G N E Heumarkt 14

50667 CologneT + 49 221 20 50 70F + 49 221 20 50 79 0

D U B A I 42nd floorEmirates TowersPO Box 31303Dubai

T + 971 4 319 7427F + 971 4 319 7474

D S S E L D O R F Feldmhleplatz 140545 Dsseldorf

T + 49 211 49 79 0F + 49 211 49 79 10 3

Mailing addressPostfach 10 17 4340008 Dsseldorf

F R A N K F U R T A M M A I N Taunusanlage 1160329 Frankfurt am Main

T + 49 69 27 30 80F + 49 69 23 26 64

H A M B U R G Alsterarkaden 2720354 Hamburg

T + 49 40 36 90 60F + 49 40 36 90 61 55

Mailing addressPostfach 30 52 7020316 Hamburg

H A N O I #05-01International Centre17 Ngo Quyen StreetHanoi

T + 84 4 8247 422F + 84 4 8268 300

H O C H I M I N H C I T Y #1108 Saigon Tower29 Le Duan BoulevardDistrict 1Ho Chi Minh City

T + 84 8 8226 680F + 84 8 8226 690

H O N G K O N G 11th floorTwo Exchange SquareHong Kong

T + 852 2846 3400F + 852 2810 6192

L O N D O N 65 Fleet StreetLondon EC4Y 1HS

T + 44 20 7936 4000F + 44 20 7832 7001

M A D R I D Fortuny 628010 Madrid

T + 34 91 700 3700F + 34 91 308 4636

M I L A N Via dei Giardini 720121 Milan

T + 39 02 625 301F + 39 02 625 30800

M O S C O W Kadashevskaya nab 14/2119017 Moscow

T + 7 495 785 3000F + 7 495 785 3001

M U N I C H Prannerstrasse 10

80333 MunichT + 49 89 20 70 20F + 49 89 20 70 21 00

N E W Y O R K Freshfields BruckhausDeringer LLP520 Madison Avenue34th floorNew York, NY 10022

T + 1 212 277 4000F + 1 212 277 4001

P A R I S 2 rue Paul Czanne75008 Paris

T + 33 1 44 56 44 56 F + 33 1 44 56 44 00

R O M E Piazza di Monte Citorio 11500186 Rome

T + 39 06 695 331F + 39 06 695 33800

S H A N G H A I 34th floorJinmao Tower88 Century BoulevardShanghai 200121

T + 86 21 5049 1118F + 86 21 3878 0099

S I N G A P O R E Freshfields Drew & Napier20 Raffles Place #18-00

Ocean TowersSingapore 048620

T + 65 6535 6211F + 65 6533 5007

T O K Y O Ark Mori Building 18F1-12-32 AkasakaMinato-kuTokyo 107-6018

T + 81 3 3584 8500F + 81 3 3584 8501

V I E N N A Seilergasse 161010 Vienna

T + 43 1 515 15 0F + 43 1 512 63 94

W A S H I N G T O N Freshfields BruckhausDeringer LLP701 Pennsylvania Avenue, NWSuite 600Washington, DC 20004-2692

T + 1 202 777 4500F + 1 202 777 4555

15139

the city code on takeovers fresh fields summer 2006

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