UK Take Privates: Recent Changes to the Takeover Code

Spring 2013, Vol. 13, Number 3

The UK Takeover Panel (the “Panel”) has recently announced two sets of changes to be made to the City Code on Takeovers and Mergers (the “Takeover Code”) (which is the principal source of regulation for UK take private transactions). The first change, which came into force on May 20, 2013, requires a bidder to provide more disclosure of the impact of a proposed offer on the target company’s defined benefit pension schemes, and allows the trustees to take a public position on the offer and obliges the bidder to follow through with its statements of intent. These will be followed on September 30, 2013 by an extension of the jurisdiction of the Panel to cover a broader range of public companies i.e., companies that are incorporated in the UK, the Channel Islands or the Isle of Man and whose securities trade on a UK trading facility (such as AIM), in addition to such companies whose securities trade on a regulated market.1 

Changes to Pension Scheme Trustee Rights: Key Points

These changes to the Takeover Code apply only to defined-benefit schemes (not to money purchase or defined contribution schemes) and are designed to provide a target company’s pension scheme trustees with similar rights to those of the target company’s employee representatives. The Panel intends the changes to create a framework in which the effects of an offer on a target’s defined benefit pension schemes can become a negotiated point during the course of an offer.

The key impact of the changes to the Takeover Code for private equity bidders is that a bidder is now required to disclose its plans for employer contributions to the target’s defined benefit pension schemes, including the current arrangements for funding any scheme deficit. A bidder also has to state its intentions for the accrual of benefits for existing members and the admission of new members. Where a bidder does not intend to make any changes in relation to the schemes, it is required to make a statement to that effect. The Panel may hold a bidder to these statements for at least a year after the end of the offer period.

Any agreement between a bidder and the pension scheme trustees on future scheme funding arrangements will need to be summarized in the firm offer announcement and in the offer document. The agreement will not need to be published on a website unless it falls within the definition of a material contract of the bidder under the Takeover Code, in which case publication will be required.

The bidder and the target are required to make all documents that have to be provided to the target’s employee representatives also available to the pension scheme trustees, and pension scheme trustees have the right to have their opinion on the impact of the offer on the pension schemes published.

It is worth noting that these changes do not give the pension scheme trustees or the Pensions Regulator (the UK statutory body with responsibility for all work-based pension schemes) the right to approve or disapprove of the offer. These and various other changes that would have strengthened the negotiating position of the pension scheme trustees were considered but not implemented.

Changes in the Companies Subject to the Takeover Code – Key Points

The Takeover Code applies to any offer for a public company that has its registered office in the UK, the Channel Islands or the Isle of Man, if any of its securities are traded on a regulated market in the UK (such as the London Stock Exchange) or on any stock exchange in the Chanel Islands or the Isle of Man. The Takeover Code currently also applies to any offer for a public company that has its registered office in the UK, the Channel Islands or the Isle of Man (but does not have its securities admitted to trading on a regulated market in the UK, Channels Islands or Isle of Man) where the company is considered by the Panel to have its place of central management and control in the UK, the Channel Islands or the Isle of Man. This central management and control test is often referred to as the “residency test.”  Of particular importance to private equity bidders was that many public companies listed on AIM fell outside the jurisdiction of the Takeover Code because they did not satisfy the residency test.

The Panel has now announced that changes to the Takeover Code, to come into force on September 30, 2013, will remove the residency test in respect of companies with their registered office in the UK, the Channel Islands or the Isle of Man whose securities are admitted to trading on a multilateral trading facility in the UK (such as AIM or the ISDX Growth Market). Companies which meet the registered office requirement but whose securities are not admitted to trading on any market in the UK will continue to use the residency test to determine whether or not the Takeover Code applies.

This will also mean that private equity funds listed on AIM, which have in some cases been able to take the view that they are not subject to the Takeover Code, will no longer be able to do so once these changes come into force.


  1. A regulated market is one that has been designated as such under certain European legislation and included on a list maintained by the FCA.  These include, amongst others, the Main List of The London Stock Exchange, Main Board of the ICAP Securities and Derivatives Exchange (“ISDX”) and the London Metal Exchange.  Other UK-based markets or trading facilities, such as AIM or the ISDX Growth Market, which are not on this list, are not “a regulated market.”