Takeovers Panel Guidance Note on insider participation in takeovers (including private equity bids)

The Takeovers Panel has today released Guidance Note 19 in relation to
when the Panel may consider unacceptable circumstances exist where
there is insider participation in control transactions.

The Guidance Note provides takeover market participants with guidance
on situations where there is involvement or potential involvement by
the management, directors or external advisers of a target company with the bidder or participating insiders to in a takeover bid or potential bid for the target company.

The issues which are discussed in
this Guidance Note overlap with directors’ and employees’ duties, employment law
and the duties and terms of engagement of advisers. The guidance
applies to these issues where they affect the principles set out in
section 602 of the Act, including the maintenance of an efficient,
competitive and informed market for a company’s securities where the
company is subject to a takeover bid.

Key guidelines include:

  1. The Panel considers that insiders should promptly inform the
    relevant sub-committee or the board of the target company of any
    approaches that might lead to a change of control proposal being tabled
    and obtain the relevant sub-committee or the board’s consent before
    they provide any non-public information. 
  2. The Panel considers that it would be prudent for companies to make
    such requirements clear to their management and boards, and that
    bidders seeking to gain the support of insiders should also make any
    proposed discussions subject to such requirements.
  3. As soon as the board of a company becomes aware or informed of a
    bid or potential bid for the company, in which there is, or is likely
    to be, participation by insiders, it should establish appropriate
    protocols. Normally this will involve appointing an independent board
    committee (IBC) consisting of those directors who are not
    participating insiders to oversee the application of these protocols
    and the process in the interests of target shareholders. Any directors
    who are participating insiders should not be present at, or participate
    in or vote on, any consideration by the board of the bid or any
    competing bid.

The issues discussed in this Guidance Note are applicable to all
takeover bids (irrespective of the source of funding). However, some of
the issues have recently been brought to prominence by the increase in
the number of private equity bids or other buy-outs which frequently
have features which make the Guidance Note particularly relevant for
such bids.

The Panel has also released a Public Consultation Response
Statement which sets out the main comments that the Panel has received
and the reasons why the Panel has taken up, or not taken up, the
comments or suggestions received (Consultation  Response).

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