Q&A
In short, the answer is yes, subject to that shareholder being informed they will become an insider (which will restrict them from dealing); and accepting that they will need to keep knowledge of the potential bid secret and acknowledging the confidential nature of the information.
There are however several legal and regulatory consideration the discloser and the shareholder need to be aware of.
Under the Code, knowledge of the offer must only be communicated if it is necessary to do so (e.g. to gauge support for an offer) and the person is made aware of the need for secrecy. Also, no more than six external parties should be informed of a possible offer unless the Panel consents (the “rule of six”) and a shareholder counts towards the rule of six. Also, the Code prohibits dealings by an insider before the bid is made public and has special rules involving Panel consent where support is sought from private individuals or small corporate shareholders. Finally, if a communication is being made in relation to a possible offer, the Code has formal chaperoning rules which require any such communications to be made under the supervision of a financial adviser or corporate broker who must confirm in writing to the Panel by 12 noon the following day the identity of the person made an insider and the fact that no material new information has been communicated which will not be contained in any subsequent formal offer announcement
Under Market Abuse Regulation (MAR), no inside information should be communicated unless a market soundings process has been conducted. The recipient of the inside information must consent to becoming an insider, be informed they must keep the information confidential and informed how long they can expect to be an insider (during which period, they will be unable to deal in shares). A more formal ‘market soundings’ regime exists (providing a safe harbour) when the shareholder is being sounded out formally for support for the offer (i.e. in order to try and get them to commit to issuing a formal letter of support or an irrevocable undertaking to accept the offer when made). A set process or script must be followed for market soundings and there are prescribed record-keeping requirements which apply for 5 years after the market sounding is made.
An approach to a shareholder for support may be a financial promotion under section 21 of FSMA 2000 (unless an exemption exists, e.g. the approach is to an investment professional). No criminal offence is made where the communication is made by or approved by an authorised person, e.g. a financial adviser or corporate broker.
Under the Criminal Justice Act 1993, offences exist relating to encouraging another person to deal on the basis of inside information, and improper disclosure of inside information.
