Conducting A Takeover Bid In Ireland

The purpose of this article is to explain the principles surrounding takeover offers conducted under the jurisdiction of the Irish Takeover Panel. The Irish Takeover Panel Act 1997, the Takeover Regulations 2006 and the Takeover Rules 2007 apply to "relevant companies", i.e. public limited companies incorporated in Ireland whose securities are (or have been within the last five years) authorised for trading on a recognised stock exchange, which are the Irish Stock Exchange, the London Stock Exchange, the New York Stock Exchange, and the NASDAQ.

General Principles

Certain principles applicable to takeover bids are laid down in the European Communities (Directive 2004/25/EC)) Regulations 2006 (the "Takeover Regulations 2006"):-

• All holders of the securities of an offeree of the same class must be afforded equivalent treatment, moreover, if a person acquires control of a company, the other holders of securities must be protected;
• The holders of the securities of an offeree must have sufficient time and information to enable them to reach a properly informed decision on an offer;
• Where it advises the holders of securities, the board of the offeree must give its views on the effects of implementation of the offer on employment, conditions of employment and the locations of the offeree's places of business;
• The board of an offeree must act in the interest of the Company as a whole and must not deny the holders of securities the opportunity to decide on the merits of an offer;
• False markets must not be created in the securities of the offeree, of the offeror or of any other company concerned by the offer in such a way that the rise or fall of the prices of the securities becomes artificial and the normal functioning of the markets is distorted;
• An offeror must announce an offer only after ensuring that he or she can fulfil in full any cash consideration, if such is offered, and after taking all reasonable measures to secure the implementation of any other type of consideration;
• An offeree must not be hindered in the conduct of its affairs for longer than is reasonable by an offer for its securities.

How and when are bids made public?

The Irish Takeover Panel Act, 1997 Takeover Rules 2007 (the "Takeover Rules") set out:-

• The manner in which an offer is to be conducted.
• The timetable for the offer.
• The requirement for secrecy before the announcement of the offer.

Where a person intends to make an offer it must first disclose that intention to the board of the target or to the target's advisors before making an announcement concerning the offer. The disclosure or approach to the board must at the outset disclose the identity of the offeror and if applicable the persons having control of the offeror.

Where there is a hostile takeover, prior notice may consist of a telephone call or letter to the target's board or advisors immediately before the announcement of the bid.

The obligation to make announcements arises:-

• Immediately after a firm intention to make an offer has been notified to the target board, regardless of the attitude of that board.
• Immediately after an obligation to make a mandatory offer – see the description of when such an obligation arises, below.
• Where, following an approach, the target is the subject of rumour and speculation or there is untoward movement in its share price.
• Where, before an approach is made to the target, it is the subject of rumour and speculation or there is untoward movement in its share price and there are reasonable grounds for believing that the bidder's actions or intentions are behind such movements.
• When negotiations or discussions are about to be extended beyond a restricted number of people.

Also, a bidder may only announce its intention to make an offer when it and its financial advisor has decided that the bidder is able, and will continue at all relevant times to be able, to implement the offer.

What does the announcement need to contain?

The announcement must contain, among other information:-

• The terms of the offer and the identity of the bidder, together with details of the identity of those who ultimately control the bidder;
• Details of the shares which the bidder (or any of its concert parties) owns in the target, or in respect of which it has received and a commitment to accept the offer, or which it has contracted to acquire, or over which it has options.

The Rule 2.5 announcement will also need to include the detailed conditions to which the offer is subject, for example, regulatory clearances. Once an announcement of a firm intention to make an offer has been made, the bidder becomes subject to the timetable set out in the Takeover Rules.

Any bid is ultimately made by means of an offer document which sets out the formal contractual offer to the target's shareholders. This would most likely be done either by a scheme of arrangement, or a takeover offer in the case of a hostile bid.

When does the obligation to make a mandatory offer arise?

The Takeover Rules oblige a bidder to make a cash offer for the remaining securities in the target if either:

• the bidder (including any persons acting in concert with the bidder) acquires a holding of 30% or more of the voting rights of the target; or

• the bidder's holding, (combined with any persons acting in concert) of less than 30% of the voting rights increases to 30% or more; or

• the bidder's holding (combined with any persons acting in concert) of 30% or more, but less than 50%, of the voting rights increases by more than 0.05% of the aggregate percentage of the voting rights in the target in any 12 month period.

What is the timetable during the offer period?

The offer period generally commences with the making of an announcement under Rule 2.5. In these circumstances, the bidder, and the target in the case of a recommended bid, posts the offer document within 28 days of the date of that announcement.

Following the posting of the offer document, the offer must initially remain open for acceptance for 21 days following the date on which the offer is posted.

In a hostile bid, the target has fourteen days from the posting of the offer document to advise shareholders of its views of the offer in a "first response" circular.

As above, under the Takeover Rules any bid must be conditional on the bidder acquiring shares carrying more than 50% of the voting rights of the target.

The bidder has up to 60 days from the posting of its offer document to satisfy this condition, unless the timetable is extended by the Takeover Panel, for example in the event of delays in obtaining any necessary regulatory consents.

It would be usual in Ireland for the acceptance condition to be set at 90%, as the bidder will need to obtain this level of acceptance in order to rely on the compulsory acquisition procedures under the Takeover Regulations 2006.

Once the acceptance condition has been satisfied, the bidder has a further 21 days to satisfy the other conditions of the offer. This gives a maximum of 81 days, assuming the acceptance condition is not satisfied before the sixtieth day.

The bidder must send the consideration due to the target shareholders who have validly accepted the offer within fourteen days from the date on which the offer has been declared wholly unconditional.

During the course of a bid, the bidder is free to improve the terms of the offer, provided it has not restricted its ability to do so in the initial offer document. A bidder can revise the terms of its offer up to the forty-sixth day after the posting of the offer document.

Do the rules treat hostile and voluntary takeover bids differently?

Where a bid is recommended by the board of the target, the offer document will generally be a joint document that includes the target board's views on the offer. If hostile, the views of the target board will be contained in a separate document issued within fourteen days of the offer document.

In a hostile bid the target can not, without the consent of the Takeover Panel, announce trading results, profit or dividend forecast, an asset valuation, proposal for a dividend payment or other information after the thirty-ninth day following the date on which the offer document is posted.

What conditions are usually attached to a takeover offer?

An offer can be made subject to the satisfaction of pre-conditions which would commonly include:-

What documents do the target's shareholders receive on a hostile bid?

The main documents produced during the course of the bid are as follows:-

In a mandatory offer, how would the consideration be set?

A mandatory bid must be for cash, or include a full cash alternative. The price offered must be equivalent to the highest price paid for any shares in the target, by the bidder or any person acting in concert with it in the previous twelve months prior to the announcement of a firm intention to make the offer and ending on the date on which the offer closes for acceptance.

In a takeover offer are there rules regarding a minimum level of consideration?

There are rules concerning both the type of consideration and the minimum level of consideration.

An offer price cannot be less than the price paid by the bidder (or persons acting in concert with the bidder) for shares in the target in either:-

• The three month period before the commencement of the offer period; or
• The twelve month period before the commencement of the offer period, if the Takeover Panel believe this period is more appropriate in the circumstances and direct accordingly.

Similarly, if during an offer period a bidder, or any person acting in concert with it, requires shares or other securities in the target at a price greater than the offer price, the bidder will have to increase its offer.

A cash offer or cash alternative must be made where a bidder, or any person acting in concert with it, has purchased offer-type securities in the target for cash, during the twelve months before the commencement of the offer period, which confer in aggregate either:-

• 10% or more in nominal value of the issued securities of that particular class; or
• less than 10% in nominal value of the class being purchased in circumstances where the Takeover Panel feels having regard to the General Principles that it is just improper.

The cash offer or cash alternative must be made at a price which is not less than the highest price paid in the relevant period aforementioned.

Defence mechanisms – what actions can a target's board take to defend a hostile bid?

When considering and recommending an offer for a takeover, a director must ensure that he observes his fiduciary duty to the company and that he acts honestly and bona fide in the best interest of the company. Also, any defensive action which the directors take to thwart a takeover bid must be for a proper purpose. This means that the directors must have reasonable grounds to believe that there will be substantial damage to the company's interests as a result of the proposed takeover, such as asset stripping or the company being run into the ground following the takeover. Where the directors take defensive measures simply to retain control of the company, this may be viewed as an improper exercise of their powers.

These common law duties have less of a role to play now that the Takeover Rules restrict the defensive actions which may be taken by the directors of a target company. The Takeover Rules prohibit the directors from engaging in frustrating action. During the course of an offer, or from the time at which the board of a potential target has reason to believe that a bona fide offer may be imminent, many defensive avenues may be closed under the Takeover Rules as they could be deemed to constitute frustrating actions.

Once an unwanted approach has been made, the director could consider not granting access to due diligence information to the bidder. However this would only be possible if a hostile approach was the only approach made as the Takeover Rules provide for equality of information to competing bidders.

Post-bid – can a bidder compulsorily purchase the shares of the remaining minority shareholders?

Yes, the bidder can compulsorily acquire minority shareholdings under Regulation 23 of the Takeover Regulations 2006 if it has achieved a level of acceptance of 90% in value of the voting rights of those shares subject to the takeover bid.

The bidder has three months from the last closing date of the offer in which to give notice to the dissenting shareholders that it intends to exercise its rights under Regulation 23. Once a notice has been served a dissenting shareholder has 21 days to apply to Court.

If a Court application is made, the compulsory acquisition will be delayed until the outcome of that application, including any appeal. There is no time limit within which the Court Application must be dealt with.

If a bidder has failed to obtain control of the target are there any restrictions on making a new offer or buying shares in the target?

Where a bid has failed, been withdrawn or lapsed, the bidder will not be able to make another offer for the target within twelve months, without the consent of the Takeover Panel. During this twelve month period, the bidder is also not allowed to acquire any securities in the target which would give rise to any requirement to make a mandatory offer.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.