UK Takeover Panel guidance on invoking offer conditions: A helpful update for the market

On 27 October 2023, the UK Takeover Panel (Panel) published a revised version of Practice Statement 5 (New PS5) on the invocation of firm offer conditions and pre-conditions together with a related explanatory note. 

New PS5 more clearly distinguishes between different categories of conditions and elaborates on the Panel’s approach to “no Phase 2” regulatory conditions. It also formalises certain guidance discussed in historic Panel consultations not previously included in the practice statement. 

Some of the key changes are summarised below.

“No Phase 2” conditions

The most significant new guidance relates to the Panel’s approach to the interaction of (a) conditions that relate to there being no “Phase 2” or similar “in depth” review by antitrust or other governmental or regulatory bodies (No Phase 2 Conditions) and (b) general or specific conditions in relation to clearance being received (Phase 2 Clearance Conditions).

It is made clear that a bidder’s ability to invoke a No Phase 2 Condition will not be negatively impacted by the fact it has also included a Phase 2 Clearance Condition or has set its long-stop date to accommodate the timetable for Phase 2 clearance. 

If a bidder waives a No Phase 2 Condition then, unless a general or specific Phase 2 Clearance Condition has also been included, it will be unable to lapse its offer if Phase 2 clearance is not obtained (unless another condition can be invoked).

As a result, and as the Panel notes, where a bidder includes a No Phase 2 Condition, it would normally be prudent to also include a Phase 2 Clearance Condition and careful consideration should be given to the consequences of failing to do so.

The guidance on factors that the Panel will take into account when considering whether to permit a No Phase 2 Condition to be invoked has also been updated (in line with commentary in a previous Panel consultation paper) to refer specifically to the management time, costs and other burdens involved in pursuing clearance.

MAC conditions

New PS5 clarifies that, in the context of determining whether the “material significance” test under R13.5(a) is met (i.e. the requirement for the circumstances to be of “material significance” to the bidder in the context of the takeover), a bidder will only need to demonstrate that the circumstances are “of very considerable significance striking at the heart of the purpose of the transaction” where it is seeking to invoke a “Category 6” condition - i.e. a general protective/material adverse change condition. As previously, it is noted that although this is a high standard, it does not require the bidder to demonstrate frustration in the legal sense.

General factors to be taken into account

The general factors taken into account by the Panel when determining whether to permit a bidder to invoke any offer condition remain substantively unchanged. However, in relation to actions taken by the bidder, the guidance has been expanded to specifically note that the Panel may be less likely to agree to a condition being invoked where the bidder has bought target company shares or has made statements indicating an intention to pursue the offer after the relevant event has occurred. In relation to views of the target board, the wording has also been amended to specifically state that the Panel will be more likely to allow a condition to be invoked where the target company board agrees. These additions both reflect points included in previous Panel consultations rather than any change in approach.

New PS5 also clarifies that, whilst a bidder may want to ensure that as many factors as possible are satisfied or weigh in its favour, they are not a “checklist” and it is not necessary for all of them to be satisfied in order for the Panel to consent to a condition being invoked. 

Our views

Practice Statement No. 5 was last amended in 2021, when it was updated to formalise a number of the additional factors taken into account by the Panel in relation to invocation of conditions generally (foreseeability, actions taken by the bidder, and the views of the target board) and to set out additional areas relevant in the context regulatory conditions. The clarification and expansion of the Panel’s guidance in New PS5 further builds on this and will be welcomed by the market. 

In the context of No Phase 2 Conditions, the confirmation that a bidder will not be disadvantaged simply because the offer is also subject to a condition relating to clearance being obtained is a particularly helpful clarification. However, it also underlines the importance of including a specific or general clearance condition to ensure that, where there is a Phase 2 reference, a bidder that has ultimately decided it would be prepared to continue to pursue the transaction through Phase 2 is not left in a position where, if it waives its No Phase 2 Condition, it would be subject to the risk of having to close the transaction even if clearance was not forthcoming on satisfactory terms (or at all). 

More broadly, the bringing together in New PS5 of additional guidance (including the amalgamation of information previously included in consultation papers and response statements) is helpful in giving market participants a better understanding of the Panel’s general approach to categorisation and invocation of conditions.