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14 August 2019
In 2018 the bidding war between Comcast and Fox for control of Sky proceeded to a Takeover Panel supervised auction process. Comcast won the battle with a superior offer valuing Sky at approximately £30.6 billion. Auctions subject to the Takeover Code are rare and this was the first takeover to proceed to an auction since the introduction of the default auction rules into Appendix 8 of the code on 1 January 2015. Notably, the interested parties agreed to an alternative set of rules rather than the default rules, in which bids would be submitted in private to the panel over a single day and with only three rounds of bidding (for further details please see "Sky takeover – regulating an auction process").
Since June 2019, Universities Superannuation Scheme and Macquarie have been engaged in a competitive takeover battle for KCOM (a telecoms company). As was the case for the Sky takeover, it proceeded to an auction. However, instead of the parties agreeing to their own set of rules for the auction, the panel's default auction rules were used, making it the first time that they have been used for a UK takeover.
On 24 April 2019 Humber (a bidding vehicle for Universities Superannuation Scheme) announced a firm intention to make a recommended cash offer for KCOM at £0.97 per share to be implemented by way of a scheme of arrangement. The scheme document for Humber's bid was published on 9 May 2019.
On 3 June 2019 the KCOM board withdrew its recommendation for Humber's bid and MEIF 6 Fibre (a bidding vehicle for Macquarie Infrastructure and Real Assets) announced a firm intention to make a recommended cash offer for KCOM at £1.08 per share to be implemented by a scheme as well. The scheme document for MEIF's bid was published on 18 June 2019, which stated that the shareholders' meetings for such bid would take place on 11 July 2019.
On 4 July 2019 the panel published Panel Statement 2019/11, which stated that the default auction process set out in Appendix 8 of the Takeover Code would be applied for the purposes of Rule 32.5 thereof.
Rule 32.5 states that "if a competitive situation continues to exist in the later stages of the offer period, the Panel will normally require revised offers to be announced in accordance with an auction procedure", the terms of which it will determine and announce. Specifically, Panel Statement 2019/11 stated that:
One observation on the date of commencement of the auction procedure, for competing offers implemented by way of contractual offers, Appendix 8 provides that the default auction process would normally take place on the business day immediately following Day 46 (being the 46th day following publication of the last bidder's offer document). This was the case for the Sky takeover. For the KCOM takeover, as both offers are by way of schemes, under Note 2 of Rule 32.5, the panel would have had to have been consulted on the timetable. There is no date in a scheme which is directly equivalent to Day 46, as a scheme's timetable (which is agreed with the court) is not subject to the same timetabling requirements as a contractual offer. Specifically, Panel Statement 2019/11 did not explain why the panel chose 7 July 2019 as the relevant date (being four days prior to the date on which the KCOM shareholders' meetings relating to MEIF's bid were meant to be held (ie, 11 July 2019) and 19 days after the scheme document relating to MEIF's bid was published (ie, 18 June 2019).
The default auction rules provide for an open auction (ie, by public bids in the form of regulatory information service announcements to the market) between two competing bidders.
Set out below is a summary of the offers made by the bidders during the KCOM auction process:
On 12 July 2019 the panel announced the conclusion of the KCOM auction process and, unsurprisingly, the KCOM board recommended unanimously that KCOM shareholders vote in favour of the scheme in respect of MEIF's bid in light of it being a superior proposal. On 26 July 2019 the scheme was approved by the requisite majority of KCOM shareholders and on 30 July 2019, the English courts made an order approving the scheme.
This is the first time that the panel's default auction process has been used for a takeover and all five auction days were used to reach a conclusion. One criticism of this default process is that it could be shorter and more streamlined (see the description of the Sky auction process in "Sky takeover – regulating an auction process"). However, this did not stop the KCOM bidders from using the default process, although it is unclear whether they expressly agreed to its use or whether they were unable to agree on an alternative set of rules.
For further information on this topic please contact Will Pearce, William Tong or Joseph Scrace at Davis Polk & Wardwell London LLP by telephone (+44 20 7418 1300) or email (email@example.com, firstname.lastname@example.org or email@example.com). The Davis Polk & Wardwell website can be accessed at www.davispolk.com.
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