UK’s Takeover Panel publishes new guidance on private sales processes

On 30 April 2024, the UK’s Takeover Panel (the Panel) published a revised version of Practice Statement 31 (PS 31) on formal sale processes (FSPs), private sale processes (PSPs), strategic reviews and public searches for potential offerors. In it, the Panel sets out new guidance on PSPs and refreshes some existing guidance on other types of sales processes, such as strategic reviews. PS 31 also contains guidance on the circumstances in which a majority shareholder can ask for the normal 28-day “put up or shut up” regime in Rule 2.6 of the Code to be switched off in a sales process or strategic review.

Whilst not formally binding on the Panel, Practice Statements set out informal guidance on the way in which the Panel normally applies the UK’s City Code on Takeovers and Mergers (the Code), so they form an important part of the regulatory framework and market participants pay close attention to them.

New regime for PSPs

The key change to PS 31 is the introduction of new and more formalised regime for PSPs, including dispensations similar to those which already exist for FSPs. This came about as a result of a perceived reluctance on the part of boards of companies to commence FSPs and because of a feeling that the existing rules regarding the naming of potential bidders did not work in a satisfactory manner where a company was exploring a private sale.

In PS 31, the Panel acknowledges that companies may wish to initiate discussions in private with more than one potential bidder. Ordinarily, where a company makes an announcement in respect of such private discussions (either voluntarily or because it is required to do so following rumour or speculation), it would need to name any potential bidder with which it is in talks or from which it received an approach. 

However, the new guidance states that where a company can demonstrate to the Panel that it is genuinely initiating a PSP, the Panel will normally grant dispensations from Rule 2.4 of the Code, such that:

• where a company voluntarily makes an announcement regarding a PSP that was not public knowledge until then, the company will not be required to identify any potential bidder with which it is in talks or from which it received an approach; and
• where the Panel requires an announcement regarding a PSP (e.g., because there has been rumour or speculation), the company will be required to identify a potential bidder with which it is in talks or from which it received an approach only if that potential bidder has been specifically identified in any rumour or speculation.

Where the above dispensations have been granted, this should be made public by the company in question, which should also state whether it is in talks with, or has received an approach from, any potential bidders. However, even where these dispensations have been granted, companies can still voluntarily name potential bidders and any potential bidders that are named will then be subject to the normal 28-day “put up or shut up” regime in Rule 2.6 of the Code.

In other ways, PSPs will look and feel a lot like other sales processes, including a requirement on the company running them to provide periodic updates as to their progress once they have become public. PS 31 also makes clear that companies will be able to convert a private sales process into an FSP (and, therefore, take advantage of additional benefits available when conducting an FSP), if they can persuade the Panel that they are genuinely seeking to sell the company in that process.

Strategic reviews which refer to an offer

Where a company announces a strategic review which refers to an offer for the company as a possible outcome, or announces that it is searching for potential bidders, the same rules as summarised above in relation to PSPs will normally apply, including the possibility for seeking dispensations from Rule 2.4 of the Code from the Panel. The rules for strategic reviews which do not refer to an offer remain largely unchanged.

Companies with majority shareholders

PS 31 states that the guidance on PSPs, FSPs and strategic reviews should apply equally, regardless of whether the relevant process or review is initiated by the company itself or by a majority shareholder holding more than 50% of the company’s voting rights.

However, as an exception to this, such a majority shareholder will be able to ask the Panel to switch off the normal 28-day “put up or shut up” regime in Rule 2.6 of the Code in respect of any particular potential bidder that has been publicly identified (other than where the majority shareholder itself is looking to make an offer).

RIP FSP?

To (mis)quote Mark Twain, the rumours of the death of the FSP are (probably) greatly exaggerated and FSPs will still have an important role to play, as they provide companies with additional benefits which are not available on a PSP or a strategic review. For example, in an FSP companies are able to require participants in the FSP to agree not to request information given to competing bidders under the equality of information provisions set out in Rule 21.3 of the Code. Similarly, companies are also able to enter into an inducement fee arrangement with one FSP participant in the circumstances set out in Rule 21.2 of the Code.

Our views

Hot on the heels of the proposed narrowing of the jurisdictional scope of the Code announced last week, the new PS 31 represents another welcome change, which will make it easier for companies to consider their strategic options.