The UK Takeover Code Committee has published a response statement (RS 2022/2) to the consultation paper (PCP 2022/2) published in May 2022 concerning proposed amendments to the presumptions within the definition of ‘acting in concert’ as well as related matters. The response statement sets out a number of changes to the Takeover Code that take effect from 20 February 2023.
As defined in the Takeover Code, persons acting in concert are persons who, pursuant to an agreement or understanding (whether formal or informal), co-operate to obtain or consolidate control of a company or to frustrate the successful outcome of an offer for a company. Correctly identifying the existence of a concert party is important given the implications under the Takeover Code (both during and outside an offer period), which treats the concert party effectively as one single person. For example, if a member of a concert party deals in shares in a Code company, that dealing could have consequences not only for that person but also for other persons acting in concert with it.
Under the Takeover Code there are presumptions that certain categories of persons will be acting in concert, unless the contrary is shown. The Takeover Panel (The “Panel”) is now increasing the threshold at which associated companies are presumed to be acting in concert from 20% to 30%, so as to align this threshold with the threshold for “control” in the Takeover Code. The Panel is also making it explicit that the threshold applies to both interests in voting rights and to interests in equity share capital (voting and non-voting), which includes long derivative and option positions.
The existing presumption that applies to group companies will be replaced by two presumptions each of which need to be considered separately when considering whether group companies are acting in concert. If either presumption is engaged, then the companies are presumed to be acting in concert. The presumptions will also apply to individuals, partnerships, trusts, and interests in funds in the same way as they apply to companies.
Under presumption 1 companies (along with other companies under common control) are presumed to be acting in concert if one company “controls” the other, meaning an interest in 30% or more of the voting rights or a majority of the equity share capital. The rationale for presumption 1 is that companies under common control are likely to act in concert as their interests are aligned.
Under presumption 2 companies are presumed to be acting in concert if one company is interested directly or indirectly in 30% or more of the equity share capital in the other. If this test is met, then any companies presumed to be acting in concert with either of them under presumption 1 by virtue of a “controlling link” are also included in the concert party. The rationale for presumption 2 is that a company with a 30% stake is likely to take action to protect its investment and, in turn, the investee company is likely to take action that it perceives to be in the interests of such shareholder.
When considering the chain of ownership through a group structure, voting control and interests in a majority of the equity share capital do not dilute through links in the chain of ownership under presumption 1. This is because control is secured at each link in the chain. For the purposes of presumption 2 however, indirect interests in 30% or more in the equity share capital will dilute through links in the chain of ownership.
Most of the changes effectively codify the Panel’s existing practice in regard to the concert party regime, which is welcome. However, others do represent a change from current practice, the most significant of which is the increase in the associated company threshold to 30%. Setting the threshold at 30% achieves a consistent approach with the concept of “control” that applies throughout the Takeover Code. The response statement also clarifies the application of the concert party regime to funds, which until now has not been clearly stated in the Takeover Code and sets out helpful guidance on the circumstances when presumptions 1 and 2 may be rebutted and the application of the presumptions to joint ventures, portfolio companies of private equity firms and government-owned entities.
