December 22 2004
It is a sure sign that a legal process has come of age when rules are introduced to regulate it. The recent use of the scheme of arrangement as a method of takeover of public companies has to date been largely unregulated in Ireland (other than under general company law). That position is now about to change.
The law on public company takeovers in Ireland is currently regulated by the Irish Takeover Panel Act 1997, the Irish Takeover Panel Act 1997 Rules 2001 and 2002 and the Substantial Acquisition Rules (SARs) 2001. The existing Takeover Rules and SARs were established by the Irish Takeover Panel to regulate the conduct of takeovers of Irish public companies, and provide for high standards of commercial behaviour in the context of mergers and takeovers in Ireland.
A proposed set of new Takeover Rules (the Irish Takeover Panel Act 1997, Takeover (Amendment) Rules 2004) was recently published by the panel along with a proposed set of new SARs (the Irish Takeover Panel Act 1997, Substantial Acquisition (Amendment) Rules 2004). Drafts were posted on the panel's website, with interested parties being invited to make comments by October 31 2004. Only minor comments were received and the proposed amendments are now expected to become effective by the end of January 2005. No material changes are envisaged in respect of the proposed amendments, any such changes being of a minor administrative nature. The 2004 Takeover Rules and the 2004 SARs will amend the existing takeover rules and SARs, and should be read together with them as the Irish Takeover Panel Act 1997, Takeover Rules, 2001-2004. The new rules will not apply to any transaction which commenced prior to the date of their entry into force.
The primary amendments proposed to each of the existing Takeover Rules and SARs relate to their application to schemes of arrangement. Transactions effected by way of scheme of arrangement are becoming an increasingly common method of acquisition in Ireland. Examples of takeover schemes in recent years include the acquisition of Saville Systems by ADC Telecommunications Inc in 1999 and of Warner Chilcott Plc by Galen Holdings Plc in 2000, as well as the merger of Parthus and Ceva in 2002. The acquisition of building society First Active by Royal Bank of Scotland for €887 million, which was the largest M&A transaction in Ireland in 2003, was effected by way of scheme of arrangement.
The most significant changes proposed by the 2004 Takeover Rules are to Rule 41, a very short provision which deals with takeovers of relevant companies effected by way of scheme of arrangement pursuant to Section 201 of the Companies Act 1963. Rule 41 currently provides that the Takeover Panel may make such rulings and give such directions as it sees fit, having regard to the general principles of the Takeover Act, but contains no other specific provisions in dealing with takeover schemes. The purpose of the proposed amendments to Rule 41 (as provided for by Rule 4 of the 2004 Takeover Rules) is to identify clearly the application of the new rules to takeover schemes. The provisions of the existing Takeover Rules and SARs will still apply, with the new rules serving as a means of applying the existing Takeover Rules and SARs to takeover schemes (for the most part without any significant amendment to either of the former).
A new Rule 41.2 will be introduced which will provide that the Takeover Rules (including the new rules) will apply equally to takeover schemes as they apply to takeover offers and, by analogy, any rules which do not apply to takeover offers will not apply to takeover schemes. Rule 41.2 provides that in the case of a takeover scheme, the 'offer' will be deemed to have been made to the shareholders of the company in question at the time when the seller summons the scheme meeting. This would appear to suggest that the offer is made when notice of the meeting approving the scheme in question is served. A number of exceptions to these general guidelines have been set out in Appendix 4 of the new rules, which specifies certain rules pertaining to takeover offers that are inappropriate to takeover schemes.
Rule 17 of the existing Takeover Rules will also be replaced in respect of takeover schemes by a new rule encompassing provisions in relation to the announcement of takeover schemes. The proposed new Rule 17 requires the seller to make a number of different announcements in the case of a takeover scheme to the Stock Exchange and the Takeover Panel. These announcements include:
Finally, notification is required as to whether the High Court has approved the scheme in question and details of any conditions it has imposed. A number of additional textual amendments have also been proposed to various sections of the existing rules to reflect their application to takeover schemes as well as to takeover offers.
Other amendments provided for by the 2004 Takeover Rules include: (i) the broadening of the definition of 'associate' in Rule 2.2 of Part A of the existing rules to include companies controlled by those individuals who can be regarded as associates of the offeror or offeree; and (ii) the insertion of a new presumption as Rule 3.3(g) of Part A of the existing rules to make a number of additions to the definition of persons 'acting in concert'. The additions mean that the definition may now include fund managers, financial and professional advisers, specified close relatives, the trustees of any trust of which any such relative is a beneficiary, and all companies controlled by any such relatives or trustees.
The proposed amendments to the existing SARs are of a relatively minor nature. They are designed to complement the proposed changes to the existing SARs and comprise alterations to various parts thereof to ensure that references to a takeover offer are construed to include references to a takeover scheme where appropriate.
The overall aim of the proposed amendments appears to be to update and clarify the existing Takeover Rules and SARs. The proposed extension of the rules on takeover offers to takeover schemes is indicative of the increasing number of acquisitions which are effected by way of takeover scheme in Ireland in recent times, and will ensure that the same protective provisions applicable in the case of any takeover offer must also be observed in any acquisition by way of scheme of arrangement. The effect of the other changes is to solidify further the protections afforded to shareholders in extending the categories of persons to whom the definitions of associated or connected parties apply and thus to which provisions restricting dealings without the consent of the panel will be relevant.
ILO provides online commentaries as specialist Legal Newsletters. Written in collaboration with over 500 of the world's leading experts and covering more than 100 jurisdictions, it delivers individually requested information via email to an influential global audience of law firm partners and international corporate counsel. Please click here to register for the service.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription. Register at www.iloinfo.com.