One of the highest profile public M&A transactions of 2018 was the competitive takeover battle between Comcast and Fox for control of Sky, against the backdrop of Disney's proposed merger with Fox. This article looks at the post-offer commitments given by each of the bidders in connection with their competing offers.
One of the highest profile public M&A transactions of 2018 was the competitive takeover battle between Comcast and Fox for control of Sky, against the backdrop of Disney's proposed merger with Fox. As the first competitive process to proceed to an auction since the introduction of the default auction rules into Appendix 8 of the Takeover Code in 2015, the auction for Sky has been watched closely by public M&A practitioners.
One of the highest profile public M&A transactions of 2018 was the competitive takeover battle between Comcast and Fox for the control of Sky, against the backdrop of Disney's proposed merger with Fox. As Disney was proposing to merge with Fox and one of Fox's assets was a 39% stake in Sky (which is subject to the Takeover Code), the Takeover Panel Executive had to consider whether to apply the chain principle to Disney if it successfully acquired Fox.
The UK Takeover Panel recently published Public Consultation Paper 2018/1, which sets out several proposed amendments to Rule 29 of the Takeover Code relating to asset valuations. Given that the consultation paper largely seeks to codify current market practice and the approach of the panel to asset valuations, if the code is amended in line with the proposals, such amendments are unlikely to have a material impact on transactions.
It is not always possible for a buyer to meet a seller's valuation, especially where the seller is seeking upfront value for expected rather than actual revenue or profit. In these circumstances, the buyer and seller may attempt to bridge the gap and agree the terms of an earn-out. Under a typical earn-out structure for a private M&A transaction, the buyer will make an initial payment of consideration at completion and one or more deferred contingent payments over a specified period following completion.
For the sale of a company using a European-style share purchase agreement governed by English law, the use of a 'locked box' as the seller's preferred pricing mechanism is now more commonplace than the traditionally popular closing accounts. The 'locked box' is an alternative pricing mechanism to closing accounts, under which the parties agree a price payable for the target based on a balance sheet that is drawn up and settled between the parties on an agreed date in advance of signing.
Driven by private equity sellers seeking a clean break and no post-closing liability for a breach of business warranties or under a tax covenant, and by buyers requiring a source of meaningful financial recourse, warranty and indemnity insurance is now a common feature of most private M&A transactions governed by English law. Cover is available for up to the full amount of consideration under a share purchase agreement if required.
The Court of Appeal recently confirmed that a company was entitled to use and benefit from the EU cross-border merger regime for its corporate reorganisation, even though the only cross-border element was the inclusion of a single, dormant foreign entity solely to allow the otherwise domestic reorganisation to benefit from the cross-border rules. The court's purposive approach to the interpretation of the rules may be relevant in a broader context when determining the effectiveness of corporate actions.
The existing framework for the regulation of statements governing a bidder's intentions for a target and its business was introduced to the City Code on Takeovers and Mergers in January 2015. The panel recently published Response Statement 2017/2 to its September 2017 consultation on statements of intention and post-offer undertakings. The resulting amendments to the code set out in this response statement took effect on January 8 2018.
The Takeover Panel recently published Response Statement 2017/1 to its July 2017 consultation on the sale of a target's assets in competition with a takeover offer and related matters. The amendments to the Takeover Code set out in the response statement took effect on January 8 2018 and include measures to prevent a bidder from circumventing the application of the Takeover Code by purchasing a target's significant assets and a target's board from taking any action which may result in an offer being frustrated.
The Department for Business, Energy and Industrial Strategy recently published a green paper setting out the government's proposals to reform and strengthen its powers to scrutinise investments in critical businesses and infrastructure which could provide opportunities for foreign investors to "undertake espionage, sabotage or exert inappropriate leverage". The proposals aim to ensure that any national security issues can be considered in a clear, consistent and proportionate way.
UK groups with members in at least two member states of the European Economic Area can use Societas Europaea or cross-border mergers to redomicile to another European jurisdiction. Both regimes may be helpful to a group looking to redomicile entities to other parts of Europe in the context of Brexit, although both have been the subject of recent judicial decisions regarding the form of transactions which are considered permissible.
The EU Directive on Cross-Border Mergers of Limited Liability Companies, implemented by the Companies (Cross-Border Mergers) Regulations 2007 (as amended), has proven to be a popular means of reorganising European group structures and has been occasionally used in arm's-length cross-border transactions. However, recent transactions have tested the boundaries of the sorts of structure that may be permitted under the regulations, which could reduce the popularity of the procedure.
A cross-border merger is a transaction involving a true merger of European entities, in which one or more of the participants ceases to exist. In the United Kingdom, cross-border mergers are governed by the Companies (Cross-Border Mergers) Regulations 2007. The procedure has been frequently implemented in connection with solvent reorganisations of group structures. Arm's-length cross-border transactions involving UK companies have also incorporated cross-border mergers.
For a public company with a premium listing in the United Kingdom, certain M&A transactions – including acquisitions and disposals of shares, businesses or assets – may be subject to Listing Rule 10 and ultimately require prior shareholder approval. In 2016 over 15 acquisitions or disposals where the consideration was £100 million or more were announced by premium listed companies and required shareholder approval under Listing Rule 10.
The UK Takeover Panel recently published Panel Statement 2017/1, in which it declared the 'cold shouldering' of two defendants to be a breach of the Takeover Code. The statement is helpful in understanding the panel's approach to 'cold shouldering', as the penalty has been imposed on only two previous occasions. Further, the statement is a helpful reminder of the need for thorough and robust 'concert party' analysis in relation to the Takeover Code.
The UK Takeover Panel recently published Panel Statement 2016/9 prescribing new checklists and supplementary forms to be completed and submitted to the panel by the financial adviser to the bidder or the target (as appropriate), together with the documents required to be sent to the panel under Rule 30.5 of the Takeover Code.
The Takeover Panel recently published the 12th edition of the Takeover Code, replacing in its entirety the previous edition published in the wake of Kraft's takeover of Cadbury. The new edition includes the final text of the amendments that took effect in September 2016 relating to the communication and distribution of information during an offer, including in regards to the equality of information, advertisements and the use of videos and social media and the chaperoning of meetings and communications.
Recent English case law regarding material adverse change (MAC) conditions suggests that parties to acquisition agreements governed by English law should expect provisions to be construed narrowly and as a backstop against significant unforeseen events. A buyer's prospects of protection from adverse changes should be increased if specific and objectively quantifiable criteria are included in the MAC definition.
As a result of ongoing uncertainty around the future of the United Kingdom's relationship with the European Union, a number of M&A transactions with a UK nexus may be affected pending Brexit negotiations. However, with significant fluctuations in exchange rates and share prices, the dislocation in the markets may encourage both opportunistic and defensive M&A transactions.