Takeover and mergers panel – a game of two halves
Until 2006 the Panel’s rulings could only be enforced by itself through private and public censures. While this had been very effective in regulating public takeovers, Parliament put the Panel and its rules (the City Code on Takeovers and Mergers) on a statutory footing and allowed their decisions to be enforced by the courts. The Code applies to public company mergers and acquisitions.
Panel of Takeovers and Mergers v King
On 22 December 2017 in Panel on Takeovers and Mergers v King the court ordered Mr David King to make an offer for the shares in Rangers International Football Club. Mr King and associated companies and persons had purchased shares resulting in them owning more than 30% of Rangers. This required them under the Code to make an offer for the remaining shares in Rangers. The Panel had ruled that Mr King should make such an offer.
However, the Panel did not have it all its own way. It had argued that the court was required to “rubberstamp” its decision and had no discretion to refuse to do so. The court ruled against this saying it could, in very rare cases, not order compliance.
Among Mr King’s arguments that he shouldn’t have to comply the court considered were:
- He did not have the financial resources to make the offer. In dismissing this the court said that it would be too easy for the requirement to make an offer to be circumvented if this argument succeeded undermining the role of the Code.
- An offer would not be accepted by shareholders as the price the shares were trading at exceeded the offer price. The court said this was irrelevant, the obligation was to make an offer and it was not for Mr King to decide if it would be accepted or not.
What does this mean?
The vast majority of advisers and businesspeople operating in the public company arena abide by the Code and the rulings of the Panel. This ruling (subject to any appeal by the parties) shows the Panel has teeth and is prepared to use them were the Code is not complied with.
It does also show however that the court will not just grant orders on application of the Panel. It will not look to retry the case but it will consider it before granting an order.
The Panel has also shown that Rule 9 (the rule that requires an offer to be made once 30% or more of a public company has been acquired) will be enforced. Lack of funds or the perceived irrelevance of an offer will not protect a person.
It will still be a rare occasion that the Panel will seek to enforce a ruling through the courts and I do not foresee many occasions that they will do so. Public companies, their directors and shareholders need to understand their obligations under the Code and take specialist advice in this area. This is particularly important in relation to unlisted public companies as it is often forgotten that the Code applies to them.