Summary of Takeover Code changes on dual class share structures, IPOs and share buybacks

1. Application of mandatory offer requirement to a DCSS 1 company where shareholder’s percentage of voting rights is increased by a trigger event: such shareholder should not normally be required to make a mandatory offer (e.g. above 30% under Rule 9) unless the trigger was a foreseeable event (such as a time sunset) or, at the time it acquired ordinary shares, the shareholder had reason to believe that a trigger event would take place.
2. Acceptance condition: to a contractual offer (i.e. needing to reach >50%) for a DCSS 1 company is subject to two tests (both of which must be satisfied), taking account of the voting rights position immediately (i) before and (ii) after, the relevant Class B or special shares convert or are extinguished.
3. Requirement to consult Panel: on any proposed offer which relates to Class B or special shares, to ensure that no “special deals” are offered.
4. IPO disclosures: new provisions require a company to make disclosures in respect of the Code and any controlling shareholders (and their concert parties) on an IPO, and to consult the Panel for guidance on that disclosure. The Panel’s longstanding practice of granting a "Rule 9 dispensation by disclosure" at the time of an IPO, has also now been codified. It also applies a similar approach for a third party shareholder who would otherwise be under an obligation to make a mandatory offer upon the occurrence of a time sunset (or other trigger event) (as noted at 1 above), provided that there (i) is sufficient disclosure in the IPO admission document and (ii) has been no increase in the percentage of voting rights held by the third party between admission and the trigger event.
5. Share buybacks: the amendments make the (i) provisions relating to share buybacks clearer and more concise and (ii) “disqualifying transactions” regime simpler by removing certain restrictions on a company carrying out a share buyback under an annual shareholder authority. The practice whereby the Panel may treat as an "offer" a share buyback which could result in all (or most) of the company's shares being held by one person or group acting in concert, has also been codified.

HL opinion: Although the Panel’s changes to accommodate DCSS structures are helpful, only time will tell as to how the rules are applied in practice and evolve, as and when more DCSS examples come to market.

Authored by Daniel Simons, Francesca Parker, and John Holme.