Takeover Panel publishes 2022-2023 Annual Report

Deal flow

The first half of the year saw a relatively high volume of activity with 29 firm offers announced (33 firm offers were announced in the first half of the year ended 31 March 2022), with a total value of £27 billion. The second half of the year saw a significant decline in activity in the face of inflation and rapidly increasing interest rates with just 19 firm offers announced (27 firm offers were announced in the second half of the year ended 31 March 2022) with a total value of £3 billion.

Code transactions – trends and themes

Formal Sale Processes

The Report notes the increase in the number of formal sale processes ("FSPs") announced during the year under review. FSPs enable companies to seek possible buyers and take advantage of certain dispensations under the Code that would otherwise apply (for example, requirements to name potential offerors and the imposition of the "put up or shut up" deadline on such offerors). During the year under review, 15 FSPs were announced, compared with just 7 in year ended 31 March 2022. Of these 15 FSPs, 14 terminated – 4 concluded with the announcement of a firm offer and 10 concluded without any offer being made (although 3 of those companies went on to announce that they had been able to raise new funds and 2 ended up in administration). The Panel suggests that the increase in FSPs may reflect the more difficult economic conditions that have faced companies during the past year, particularly smaller companies.  

Contractual offers vs schemes of arrangement

Schemes of arrangement continue to be the preferred method for structuring takeover bids, which also speaks to the continuing dominance of recommended bids over hostile approaches. Of the 48 firm offers announced during the year, just 10 (20 per cent.) were structured as contractual offers (compared to 12 contractual offers out of 60 firm offers announced in the year ended 31 March 2022) and 38 were structured as schemes of arrangement (compared to 48 schemes of arrangement announced in the year ended 31 March 2022).

Mandatory bids and whitewashes

Just one of the firm offers announced during the year was a mandatory bid at the time of its announcement. The Executive granted 41 whitewash dispensations in 2022-2023 (a slight increase compared to the 30 whitewashes granted in the year ended 31 March 2022).

Shareholder activism

The Panel noted in the Report that there had been a significant level of active involvement from shareholders in offer processes during the year under review, falling broadly into 3 categories: (i) encouraging boards to seek offers for their companies; (ii) pushing offerors to offer increased value (even where the original offer value had been recommended by the board); and (iii) using their shareholdings to oppose or even vote down recommended offers.

Disciplinary Matters

The Executive issued no letters of private censure and six educational/warning letters.

The Code Committee Report

In the Report the Code Committee - which carries out the rule-making function of the Panel and is responsible for keeping the Code under review and for proposing, consulting on, making and issuing amendments to the Code - reported on its activities during the year under review.

Three Public Consultation Papers and three Response Statements were published by the Code Committee during the year. Of particular note:

• the proposed amendments to the Code relating to the application of the contractual offer timetable in competitive takeover bid situations and miscellaneous code amendments were published, proposing amendments such as 1) providing the Panel with greater flexibility to grant derogations and waivers from the requirements of the Code in exceptional circumstances; 2) the removal of a potential offeror’s ability to avoid announcing a possible offer in circumstances where rumour and speculation or an untoward share price movement is caused by a clear public statement; 3) the adjustment of a mandatory offer price under Note 3 on Rule 9.5; 4) offeree board recommendations and the disclosure of directors’ intentions with respect to their own shares; and 5) the publication of irrevocable commitments and letters of intent (further information about these amendments is provided in our ECM Insight dated 20 October 2022);
• Response Statement 2022/2 set out the final amendments to the Code's definition of 'acting in concert', adopted following the Panel's consultation on its proposals set out in PCP 2022/2 (further details about the changes adopted are set out in our ECM Insight dated 19 December 2022); and
• the Code Committee published PCP 2023/1,which proposes amendments in relation to Rule 21 (Restrictions on frustrating action) and other matters, with a focus on Rule 21.1 and the circumstances in which shareholder approval or Panel consent is required before the offeree board takes certain actions (a summary of these proposals is set out in our ECM Insight dated 22 May 2023). This consultation closed on 21 July 2023 and a Response Statement is expected to be published in the Autumn.

Looking ahead

At the start of the new financial year there was some increase in public M&A activity but the Panel reported that the overall level of takeover activity remained muted.

In our view, this may yet continue for some time, as continuing geopolitical instability caused by the Ukraine-Russia conflict as well as a high-inflation environment are not typically conducive to deal-making. That being said, opportunistic counterparties may well be swayed to bid for code companies trading at discounts and those under increasing pressure to return value to shareholders and/or investigate economies of scale to drive further growth.

If you would like to discuss any public M&A opportunities or find out more about our credentials in this area, or if you have any questions on any of the matters covered in this article, please feel free to get in touch with a member of our takeovers team, at: SHCapitalMarkets@shlegal.com.