[Last updated: 1 June 2022, unless otherwise noted]

3.1 Shareholding rights and powers

The table below provides an overview of key shareholder rights and obligations that typically apply to different levels of shareholdings within a UK Plc whose shares are listed on the main market of the LSE. Many of these rights may be modified by the company's articles of association. Although this summary is drafted by reference to the percentage shareholding, in certain cases, e.g., the percentage required to pass an ordinary resolution or a special resolution, the relevant percentages will be the percentages of votes passed at the meeting:

• An ordinary resolution requires a simple majority vote of those members voting. Unless the articles of association provide otherwise, an ordinary resolution gives control over the composition of the board of directors, the ability to appoint auditors, to increase capital, the authority to allot shares, the declaration of dividends and control of the company generally.
• A special resolution, which requires a majority of 75% of members voting, is often required in several situations, usually where constitutional change is involved or the articles require it such as to alter the articles of association, to change the company's name, to permit the issue of new shares otherwise than pro rata to existing members, to reduce capital, to approve a voluntary winding up or to approve a reconstruction, a scheme of arrangement or a merger scheme. Given the levels of attendance at most meetings, it may well be possible to block a special resolution with a stake of less than 25%.

For every successive level of shareholding set out below, the rights and obligations attaching to each level of lesser shareholding also apply.

3.2 Restrictions and careful planning

The Takeover Code contains a number of rules that already apply before a public takeover bid is announced. These rules impose restrictions and hurdles in relation to prior stake building by a bidder (see 6.1), announcements of a potential takeover bid by a bidder or a target company and prior due diligence by a potential bidder. Some careful planning is therefore necessary if a potential bidder or target company intends to start a process that may lead to a public takeover bid.

3.3 Acting in concert

The Takeover Code (and, in different ways, the FCA's Disclosure Guidance and Transparency Rules) contains provisions requiring persons who "act in concert" to be treated as one person. Persons are treated as acting in concert where, under an agreement or understanding (however informal), they co-operate to obtain or consolidate control of a company or to frustrate the successful outcome of an offer for a company. Persons will also be presumed and/or deemed to be acting in concert where they have any of a number of specified relationships with one another (e.g., companies within the same group, their directors and the immediate family of such directors). Therefore, in many cases in the rules, a reference to a person acquiring shares or taking certain other actions includes persons acting in concert with them.

Where the bidder is a specially formed offer company, or a subsidiary company, many of the Takeover Code requirements will apply to the ultimate controller(s) of the bidder as well as to the bidder itself. Where a consortium has been formed to make an offer, careful thought should be given at an early stage as to which members of the consortium will be classified as joint bidders and which might instead be classified as concert parties of the bidder(s). The Panel must be consulted before any acquisition of shares by a consortium. Whilst certain provisions of the Takeover Code will apply similarly to both bidders and their concert parties, there are other provisions which will apply to one but not the other. For example, whilst a bidder who already holds shares in the target falls outside the restrictions on making "special deals" with target shareholders, a concert party of the bidder will be caught by such restrictions. Conversely, the offer document will be required to contain significantly more detailed disclosure on the bidder(s) than on any concert parties.

3.4  Insider dealing and market abuse

Before, during and after a takeover bid, the normal rules regarding insider dealing and market abuse remain applicable (see 6.2). In addition to insider dealing, the rules prohibit, amongst other things, improper disclosure of inside information and misuse of information.

3.5  Secrecy, announcements, offer periods and the "put up or shut up" rule

Before any public announcement of a bid, the Takeover Code requires absolute secrecy. The object of this rule is to avoid the risk of a false market. Agreed code names should therefore always be used for all parties in place of their real names from the moment any takeover is under consideration. Advisers are required to warn their clients of the utmost importance of maintaining secrecy. The Takeover Code requires a bid to be put forward, in the first instance, to the board of the target. The identity of the bidder must be disclosed.

A number of provisions of the Takeover Code apply only during an "offer period". This is the period starting from the first announcement of a bid or of a possible bid until either (i) all announced bids and potential bids have lapsed or been withdrawn or (ii) the bid has completed. The fact that the first announcement will commence an offer period makes the timing of this announcement particularly important.

An announcement is required by the Takeover Code:

• when a firm intention to make a bid is notified to the target board by or on behalf of a bidder, irrespective of the target board's attitude to the bid;
• when a person acquires an interest in shares which takes their aggregate interests to 30% or more and they are obliged to make a mandatory bid (see 4.4);
• when, following an approach by or on behalf of a potential bidder to the target board, there is rumor and speculation or an untoward (generally 5% or more) movement in the target's share price;
• when, after a potential bidder first actively considers a bid but before an approach has been made to the target board, the target is the subject of rumor and speculation or there is an untoward movement in its share price and there are reasonable grounds for concluding that it is the potential bidder's actions (whether through inadequate security or otherwise) which have led to the situation;
• when negotiations or discussions are about to be extended beyond a very restricted number of people, i.e., outside those who need to know in the companies concerned and their immediate advisers; or
• when a purchaser is being sought for an interest, or interests, in shares carrying in aggregate 30% or more of the voting rights of a company or when the board of a company is seeking one or more potential bids, and:
  • the company is the subject of rumor and speculation or there is an untoward movement in its share price; or
  • the number of potential purchasers or bidders approached is about to be increased to include more than a very restricted number of people.

Before a potential bidder approaches the target board, the potential bidder is responsible for making any required announcement. Following an approach to the target board, the target will be responsible for making any required announcement unless it has unequivocally rejected any approach (in cases of doubt, the Panel should be consulted).

Such an announcement (known as a "possible offer announcement") need only be a short announcement stating, for example, that the target has received an approach "which may or may not lead to an offer being made for the company". However, any announcement by the target must disclose the identity of all potential bidders who have approached it, unless such approach has been unequivocally rejected, and will specify a 28-day "put up or shut up" deadline by which the potential bidder must clarify its intentions either by stating that it won't make a bid or by making a firm intention announcement committing it to launch a formal bid. This is known as a "2.7 announcement" as it is pursuant to Rule 2.7 of the Takeover Code. While the possible offer announcement could go into more detail, e.g., in respect of the terms of the bid, there may be consequences of doing so under the Takeover Code, e.g., the bidder may be held to those terms, and careful thought will need to be given to the wording and consequences of any announcement.

A potential bidder can generally avoid making an announcement when there is rumor or speculation regarding its intentions by stopping active consideration of the bid (subject to Panel dispensation, which is usually granted). The potential bidder may thereafter not actively consider making a bid for the target for a period of six months, except in certain limited circumstances. However, the Panel can still require an announcement to be made if rumor or speculation continues in relation to the potential bidder.

Once a 2.7 announcement of a firm intention to make a bid has been made, a bidder must (unless it obtains Panel consent to do otherwise) proceed with the bid and publish the full and detailed offer document within 28 days after that announcement. However, the offer document can only be published within the 14 days following the 2.7 announcement if the target board consents to this.

A person making a statement that they do not intend to make a bid will normally be bound by that statement for a period of six months. This is often referred to as a "2.8 statement" as it is subject to Rule 2.8 of the Takeover Code. Any such statement must be clear and unambiguous. It is essential that parties involved in making public bids are aware of this principle.

3.6 Disclosure of shareholdings

There are a number of provisions of English law which may restrict a person's ability to deal in shares in UK listed companies and/or give rise to notification and disclosure requirements relating to such dealings or resulting holdings (see also 6.1 and 6.2). In general, the provisions are extremely broadly drafted in order to try to ensure that these rules capture the full range of activities which they are designed to regulate. In particular, definitions such as "dealings", "relevant securities", "financial instruments", "qualifying investments" and "interests in securities" operate in such a way that a wide variety of instruments, e.g., derivatives and options, and transactions, e.g., voting agreements, hedging transactions and even spread bets, will be caught.

The general rules regarding disclosure and transparency apply before the commencement of an offer period. Pursuant to these rules, if a potential bidder starts building up a stake in the target company, it will be obliged to announce its stake if the voting rights attached to its stake have passed an applicable disclosure threshold. The initial disclosure threshold is 3%, whilst further notification is required when further 1% thresholds are reached or crossed, i.e., 4%, 5%, 6%, etc.

In addition, every UK company may, by a notice under section 793 Companies Act 2006, require any person to confirm and give information about their interests in the company's shares. Failure to comply entitles the company to apply for a court order imposing restrictions preventing the relevant party from transferring or voting its shares or receiving dividends. In many cases, companies also have additional disclosure obligations contained in their articles of association.

Within 10 business days after the commencement of an offer period (or at the same time as the 2.7 announcement, if earlier), each of the target and the bidder must make an "Opening Position Disclosure" announcement. This must set out details of positions held by the discloser and its concert parties in relevant securities of the target and (unless the bidder is a cash bidder) the bidder. Each shareholder with 1% or more of the target must also make an Opening Position Disclosure announcement and the target must write to all such shareholders notifying them of this requirement. In practice, it is therefore important for each of the target and the bidder to consider at an early stage in a possible bid process: (a) exactly which individuals and entities are likely to be its concert parties; and (b) how they would quickly and efficiently be able to elicit the information necessary to be included within an Opening Position Disclosure announcement if required.

3.7  Dealings after the commencement of an offer period

After an announcement of a bid or possible bid, the bidder may not sell shares in the target without the Panel's prior consent and only after 24 hours' public notice of such sale. Sales may not be below the bid price.

If, after a firm intention to make a bid is announced, a bidder acquires any interest in shares at a price higher than the bid price, they must increase their bid to the highest price paid.

During the offer period, any further acquisition of shares, however small, by the bidder or anyone acting in concert with it must be announced.

3.8  Due diligence

Due diligence is an important step in the takeover process and on any bid, the bidder and its advisers should undertake an exercise of reviewing key public information on the target, including to confirm corporate structure, pensions liabilities and fully diluted share capital. Due diligence on non- public information will only be available on a recommended bid and will be a significantly less extensive exercise than in a private acquisition context. However, it is market practice for there to be some level of non-public due diligence on a recommended bid (with appropriate safeguards around confidentiality to address potential issues relating to market abuse). This will be important in particular because opportunities for a bidder to withdraw after announcing a firm intention to make a bid are limited, whilst by that stage the bidder must have arranged for any cash consideration to be available to it on a certain funds basis (see 4.5).

The Takeover Code requires all competing bidders to be given, on request, the same information by the target. This rule also extends to information disclosed other than in writing such as site visits and meetings with the target's management. Accordingly, where there is any possibility of a competing bid, a target's board, even one strongly in favor of the bid, must exercise considerable caution in deciding whether or not to provide any or all of the information requested by the bidder.