Update to the Takeovers Panel's Guidance Note on Schemes of Arrangement
On 17 August 2018, the Takeovers Panel released an updated guidance note on schemes of arrangement and amalgamations under Part 15 of the Companies Act 1993 (Guidance Note).
The updated Guidance Note reflects the Takeovers Panel’s view as to the appropriate treatment of equity securities other than shares under, or in connection with, a scheme and how the Takeovers Panel will approach a scheme where it is proposed that shareholders will receive differential consideration. These updates are discussed below.
Treatment of equity securities other than shares
The Guidance Note now clarifies that – in addition to the treatment of shareholders – the Takeovers Panel will consider the treatment of other equity security holders when considering an application for a no-objection statement. This is of particular relevance given the broad definition of "equity security" for the purposes of the Takeovers Code (being more expansive than the definition of "equity security" in the Financial Markets Conduct Act 2013, and capturing performance rights settled in equity, options, certain convertible notes and other types of financial product).
The Takeovers Panel suggests the protections appropriate for equity security holders other than shareholders will vary from case to case. As part of its assessment of these protections, the Takeovers Panel may consider whether information is of the same standard as the information provided to shareholders. The Guidance Note explains that this includes information relating to approving a scheme, accepting an offer for the securities of equity security holders other than shareholders that is connected to the scheme, and otherwise responding or taking any action in relation to the scheme.
In addition to the information that is provided to shareholders, supplementary information, including advice from an independent adviser, may also be required to be provided to other equity security holders. For example, a report similar to a Rule 22 report may be required where an offer is made to other equity security holders that is conditional on the scheme proceeding (or these matters may need to be addressed in the Rule 21-equivalent report being prepared for the purposes of the scheme).
Differential consideration in schemes
The updated Guidance Note makes it clear that the Takeovers Panel will consider issuing a no-objection statement in situations where shareholders may receive differential consideration under a scheme. This is despite Rule 20 of the Code (which provides that an offer must be made on the same terms and provide the same consideration for all securities belonging to the same class of equity securities).
When deciding whether to grant a no-objection statement in circumstances where shareholders will receive differential consideration, the Takeovers Panel states that it will likely consider the terms of the scheme (with a view to ensuring that the interests of relevant shareholders are appropriately protected) and the adequacy of disclosure relating to the differential consideration.
When reviewing the terms of a scheme, the Takeovers Panel will look initially at the composition of interest classes. The Takeovers Panel notes that it may be possible for shareholders to vote in the same interest class, despite there being differential consideration offered to shareholders, if shareholders can sensibly consult with each other in relation to the scheme (for example, where there are a limited number of sophisticated and/or professionally advised shareholders, who opt to receive less consideration or less advantageous terms under the scheme than other shareholders, and who meet certain other criteria). However, where it would not be possible for shareholders to sensibly consult as a result of the differential consideration, shareholders will likely be divided into separate interest classes.
In terms of disclosure, the Guidance Note states that the Takeovers Panel will expect the scheme booklet to contain all material information about the differential consideration and for the differential consideration to be addressed in the independent adviser's report (assuming the Takeovers Panel requires one to be prepared for the purposes of the scheme).
The updated Guidance Note can be viewed here. The Takeovers Panel has also provided a compare against the previous version of the Guidance Note (dated 30 August 2017), which is available here.