1 July 2022 marked the 21st anniversary of the New Zealand Takeovers Code. We reflect on differences arising under the UK approach compared to the NZ Code.
The UK Panel on Takeovers and Mergers, established in 1968, at the end of the “swinging 60s" when London was cultural leader of the English-speaking world, has formed the model for many takeover regimes, including our own.
The UK Panel’s approach is driven by the UK Code, which is deliberately light as it is based around plainly drafted principles and rules that are applied in accordance with their spirit, not just their letter.
UK Panel’s role
A takeover in the UK involves a considerable amount of consultation with the UK Panel if there is any doubt about a course of action. Even legal advice from an experienced lawyer is not seen as a substitute for consulting the UK Panel.
The UK Panel has considerable power in the application of the rules. This includes rights not available to the New Zealand Panel - for example, determining whether or not a bidder may invoke a condition to its offer (see the “MAC Clauses” box below) or determining who are, or are not, “concert parties” of a bidder (“associates” under the NZ Code).
The UK Panel also acts as the arbitrator in a dispute. As a result, litigation on takeovers is very rare.
The hostile takeover by US-based Kraft in 2010 of Cadbury, a beloved English company dating back to 1824, prompted substantial amendment of the UK Code to restore the balance of power in favour of the target, bind bidders to intention statements made in an offer, and ensure more transparency around bid processes.
To avoid a drawn out public process when there is rumour or speculation around a potential takeover or an untoward movement in the share price, the reform requires the release of a “possible offer” announcement naming the potential bidder – after which the bidder has 28 days in which to either formally withdraw or announce a formal bid.
This is the so-call put up or shut up (“PUSU”) obligation. If, at the end of 28 days, the bidder has not shown their hand, they are banned from making an offer for the target for a period of six months.
Once a bidder decides to make a bid – it releases a “firm offer announcement.” This is not an offer itself, but commits the bidder to proceed with the offer or scheme and post its offer document (or arrange for the target to post a scheme document) within 28 days.
Publication of the formal offer document, or scheme document, is largely a formality after this point as the key terms are in the firm offer announcement.
This announcement regime can be difficult to navigate and is not often intuitive to a foreign buyer.
Put up or Shut up in action
Pfizer announced in April 2014 that it had made an indicative offer to acquire UK pharmaceutical darling, AstraZeneca. In the ensuing four weeks, Pfizer upped its offer several times, to £70b, as it sought to secure the recommendation of the AstraZeneca board.
With the PUSU deadline looming – and no recommendation – Pfizer had two choices: announce a hostile offer, or withdraw and stand down for six months. Two hours before the 5.00pm deadline, Pfizer abandoned the deal.
The PUSU requirement was seen as a significant factor in forcing Pfizer’s hand.
Bidders in the UK may announce a bid only after an independent financial adviser has confirmed that they can finance the offer – known as having “certain funds”.
For a leveraged offer, that means having binding loan documentation prior to announcement. This is a significant workstream, and cost, leading up to a firm offer announcement.
In New Zealand, by contrast, “confirmation that resources will be available” to complete – which in practice is a much lesser standard than confirming “certain funds” - is only required at the time the offer document is published. And it is the bidder itself that provides the confirmation. No external validation is required.
Schemes of arrangement
In both jurisdictions, schemes of arrangement are governed by relevant company law and are ultimately decided by the Courts.
However the UK Code includes detailed timing for a scheme process, information requirements for the scheme booklet circulated to shareholders, and announcement requirements following key events in a scheme. The UK Panel also has an adjudicatory role throughout – including with respect to changes in timetable, treatment of target shareholders and invoking of conditions.
In New Zealand, the Panel’s role is to issue a no objection statement to the Court after reviewing the scheme documents in draft to ensure that the shareholders have adequate information and protections (vs using an offer structure). Aside from that, the parties are largely left to determine their own timeframe.
In a world of increasingly dense and prescriptive regulation, the UK Code stands out with its “principles-based” regime, and the UK Panel stands out as an active guide and adjudicator as to the application of those principles.
This doesn’t deliver the certainty conferred by clearly worded statute and developed case law or the light-handedness of a regulator that only intervenes when necessary. However, the UK achieves these through repeated practice and a Panel executive of highly skilled practitioners.
For now, it seems to work.
Two high profile transactions in early 2020 – one in New Zealand, the other in the UK – shed light on the differences between the UK and the NZ regimes.
EQT announced its intention to acquire Metlifecare in December 2019, just after Christmas. By late April 2020, with New Zealand still in level 4 lock-down, EQT sought to terminate the scheme implementation agreement, claiming failure to fulfil the no “material adverse change” or “MAC” condition. Metlifecare disagreed, and the transaction was headed towards litigation until a new deal was struck.
Meanwhile, in the UK, in March 2020 - with markets already oscillating violently as COVID-19 started to spread through Europe – Brigadier (a company controlled by the owner of Crew Clothing) announced a firm intention to make an offer for Moss Bros, a men’s formal wear retailer.
By April 2020, when it was evident that the economic impact of COVID-19 in the UK would be far worse than anticipated, Brigadier asked the UK Panel for a ruling that it could invoke the material adverse change condition in its offer announcement, and withdraw from the offer.
The UK Panel declined to provide that ruling.
The MAC clause in question had been drafted in general terms – there could be “no material adverse change and no circumstance having arisen which would reasonably be expected to result in any material adverse change in the business, assets, financial or trading position or profits, operational performance or prospects of any member of the [Moss Bros group] which is material in the context of the [Moss Bros group] taken as a whole.”
It is hard to imagine a worse situation for a men’s formal wear retailer than the pandemic. And yet, the UK Panel was not prepared to allow Brigadier to let the offer lapse, instead confirming - yet again - that it imposes an extremely high materiality threshold to invoke a MAC condition. The circumstances must be “of very considerable significance striking at the heart of the purpose of the transaction.” In practice, it is unheard of for the UK Panel to permit a bidder to withdraw from an offer except for failure to receive certain regulatory clearances. Recent changes to the UK Code and related UK Panel practice statements have reinforced this.
The transaction proceeded to completion in June 2020 and - less than six months later - Moss Bros went into voluntary administration.
Difference between regimes
In New Zealand, whether or not a condition can be invoked is a matter of contract law, typically depending on the wording in the “bid implementation agreement” or “scheme implementation agreement.” A dispute would be decided by the Courts.
In the UK, the wording is less important than the specificity of the condition, how it is disclosed to shareholders, and generally, the UK Panel’s views on invoking such conditions.
Our thanks to Alex Franks for writing this note. Alex is a senior associate based in Auckland. Alex returned to New Zealand in 2020 following six years at magic circle firm Clifford Chance in London and Sao Paulo, and two years working as an independent legal consultant in Africa. In London, he had a leading role on a number of takeovers, including Informa PLC’s acquisition of UBM PLC (£3.8bn), CYBG PLC’s acquisition Virgin Money PLC (£1.7bn), and the takeover of Imagination Technologies Group plc (£550m).