Takeover panel consultation on post offer undertakings

Simon Staples, partner at law firm Ashfords, examines how new rules could be put in place making it easier to hold bidders to account for the promises made during the heat of a merger battle.

Post offer undertakings and intentions’ statements were recently bought into the limelight following Pfizer proposing specific commitments during its offer for AstraZeneca.

The commitments were intended to deal with concerns that Pfizer could weaken UK pharma research by winding down, and moving, AstraZeneca’s research to the US if its offer was successful.

The commitments were expressed as binding and included keeping scientific leadership, and 20 per cent of the combined group’s R&D workforce, in the UK. Given that an offeror would normally state intentions, and not commitments, for a period of 12 months in an offer document, Pfizer’s statement was unusual.

Commentators also wondered how any such statement could be pro-actively enforced given that the panel does not have any ability to take pre-emptive steps to enforce the Takeover Code.

Note 3 to Rule 19.1 of the Code requires that any course of action stated by a party to an offer, in respect to that offer, in any document, announcement or otherwise published, in the absence of any material change of circumstance, binds that party to such stated course of action for a period of 12 months from the end of the offer period, or such other period as that party has specified.

Rule 24.2 contains a list of those intentions an offeror must make in an offer document and includes, for example, the offer’s intention regarding the target’s future business (plus long term justification therefor), the future employment of the target’s employees, strategic plans for the target, etc.

Following Pfizer’s statement, the panel is consulting over proposed amendments to the Code to deal with the distinction between an offer party making a statement of its post offer intentions (Post Offer Intention Statement) and it giving a post offer undertaking to commit to a course of action or inaction (Post Offer Undertaking).

Post Offer Undertaking

The panel’s suggested amendments require an offer party to comply with a Post Offer Undertaking for any period stated in the undertaking, including completing any action by the date stated.

The stating party would also have to consult the panel before making a Post Offer Undertaking. Such party would also need to expressly state any qualification or condition to that undertaking as well as explicitly confirm that it was making a Post Offer Undertaking. Timescales, such as the period of the undertaking and/or the date any action must be completed, would also need to be set out.

Any qualification or conditions to an undertaking would not be permitted to relate to directors’ duties, a material change of circumstances or imprecise or unspecified force majeure events. The panel would also need to be consulted and consent obtained before any qualification or condition was relied upon and, before so consenting, the panel would be able to seek views from those effected.

Another requirement under the proposed amendments would be for the panel to be able to require a document to be sent to a target’s shareholders, employees and pension trustees as well as persons with information rights where, for example, there was no requirement to despatch a further document.

More on the Takeover Code:

In order to improve the panel’s ability to take pre-emptive action, the panel also suggested that, after an offer period has ended, a party making a Post Offer Undertaking should submit written reports (approved by that party’s board of directors) in a format and at such times as required.

The proposed amendments also seek to give the panel the ability to appoint an independent supervisor to monitor compliance with a Post Offer Undertaking. The supervisor’s costs would be paid by the undertaking party.

The proposed amendments also draw a distinction regarding undertakings given to obtain regulatory or official authorisation/clearance. Such undertakings would not be subject to the proposed amendments to the Code.

Post Offer Intention Statement

The proposals require that any Post Offer Statement of Intention would need to accurately state a party’s intentions (this would be a subjective test) at the time made.  The statement of intention would also need to made on reasonable grounds (an objective test).

The monitoring and enforcement regime suggested by the panel to apply to Post Offer Undertakings would not apply to Post Offer Intention Statements. Although, a Post Offer Intention Statement would give rise to an expectation that it will be complied with.

If within 12 months from the end of an offer period, or the period of time specified in the statement, a party wishes to deviate from its stated intention, it must consult the panel.  In such event, the panel would want to be satisfied that the intention when made was accurate and made on reasonable ground plus it would also want to understand the reason why the party wished to deviate.

In deciding if a stating party had breached the Code by departing from its stated intention, under the proposed amendments, the panel would consider if the deviating party could demonstrate good reasons for so departing.

If the panel concluded that a breach of the Code had occurred, it would consider if it should use its disciplinary powers and impose any sanctions.


The panel’s attempt at distinguishing between undertakings and statements will be welcomed by many, especially the need for undertakings to be more specific.

If the suggested amendments to the Code are made, the parties to an offer should avoid giving Post Offer Undertakings in light of the need to comply with the undertaking and the additional complexity, costs and potential reporting and monitoring requirements.

Such party should also avoid making any Post Offer Intention Statement under the proposed regime not required under the Code given that it will be held to any stated course of action for a period of 12 months, or other stated period, combined with the need to consult with the panel and seek its consent before departing from such course of action.

A party should resist making such statement under the current Code in order to avoid being committed, in the absence of a material change of circumstance, to the stated course of action for a period of 12 months (or such other time period as mentioned).

Hunter Ruthven

Hunter Ruthven

Hunter was the Editor for GrowthBusiness.co.uk from 2012 to 2014, before moving on to Caspian Media Ltd to be Editor of Real Business.

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