Rule 2 of the Code sets out when a bidder must announce it is considering an offer.  The Panel has also published a detailed practice note on the subject.  

Key points to note – 

• If the bidder is in ‘active consideration’ and there is then speculation in the media or the target share price increases (for which the starting point for analysis is a movement of 5% at any point during a trading day or 10% from the moment when the bidder started its ‘active consideration’); and the Panel considers that there are reasonable grounds to conclude that the speculation or share price rise resulted from the bidder not maintaining secrecy concerning its consideration of an offer, then the Panel expects the bidder to make an immediate leak announcement confirming it is considering an offer.
• There will often be dispute over whether the bidder is in ‘active consideration’ and the Panel is the ultimate arbiter of this question.  The basic approach the Panel takes is that if external (esp. financial) advisers have been appointed then active consideration has begun.  If on the other hand the potential offer is still an entirely internal desktop project, the Panel will generally rule that active consideration has not started.  This is ultimately a fact sensitive question to determine and expert advice should be sought.
• Not surprisingly, a bidder will often refute the suggestion by the Panel that its actions led to the leak.  However, the Panel has a hair trigger on this question and often the sheer number of individuals who know about the potential offer (within the bidder and amongst its advisers) will cause the Panel to conclude that there are reasonable grounds to conclude the bidder action (or inaction) as resulted in a leak.  The Panel will not take into account the difficulty a premature announcement will cause the bidder.  The Panel’s sole concern is to address the false market which may have been caused by information asymmetry which has led to insider trading.
• There is also often some discussion over how the ‘rule of six’ is interpreted.  The basic approach the Panel takes is that advisers do not count towards the rule of six (i.e. you exclude legal and financial advisers) but target shareholders and potential providers of equity or debt finance count towards the rule of six.   Sometimes the Panel will allow more than six on a one-out one-in basis, i.e. to take a simple example if six parties are approached for finance but they decline, the Panel may allow additional parties to be approached, provided always it is happy that confidentiality is being maintained.
• Finally, situations arise where the bidder has made an approach to the target (in which event the announcement obligation switches to the target) but the target considers that it has unequivocally rejected that approach (in which event the announcement obligation switches to the bidder, assuming it remains in active consideration).  This is ultimately a fact sensitive question to determine and expert advice should be sought.

Cautionary note: always get advice on this area and seek guidance from the Panel.  Early consultation with the Panel, i.e. before there is a price rise which may lead to an immediate announcement obligation (i.e. within minutes) is likely to yield a better outcome from Panel discussions.

Published – 15/04/21