[Last updated: 1 January 2025, unless otherwise noted]

2.1 Main legal framework

The main rules and principles of the laws relating to public takeover bids applicable in the UK can be found in the City Code on Takeovers and Mergers ("Takeover Code"). The Takeover Code applies to all offers, however effected, for:

• companies which have their registered offices in the UK, the Channel Islands or the Isle of Man ("UK Code Jurisdictions") if any of their securities carrying voting rights are admitted to trading on a regulated market, e.g., the London Stock Exchange's (LSE) market for listed securities, or a multilateral trading facility, e.g., AIM in the UK, or on any stock exchange in the Channel Islands or the Isle of Man;
• public companies considered by the Panel to be resident in any of the UK Code Jurisdictions. A company will be resident in one of these jurisdictions if it has its registered office there and is considered by the Panel to have its place of central management or control in one of these jurisdictions; and
• private companies resident in one of the UK Code Jurisdictions if, among other things, any of their securities have been admitted to trading on a regulated market or multilateral trading facility in the UK at any time during the last 10 years.

Note, however, that the jurisdiction of the Takeover Code is due to change with effect from February 2025 (see section 2.5 below). In addition, the Takeover Code will apply to other transactions which may effect a change or consolidation of control of the target company.

2.2 Other rules and principles

While the Takeover Code contains the main legal framework for public takeover bids in the UK, there are a number of additional laws, rules and principles that should be taken into account when preparing or conducting a public takeover bid, such as:

• relevant company law (in the UK, this would primarily be contained in the Companies Act 2006);
• the Financial Services and Markets Act 2000 (FSMA) and the numerous items of subordinate legislation and rules created under it, together with the Financial Services Act 2012 ("FSA") regulate dealing in and advising on investments, the contents of listing documents, issues of shares, market abuse and financial promotion in relation to investments and the general supervision and control over UK financial markets;
• the Prospectus Rules, UK Listing Rules and Disclosure Guidance and Transparency Rules made by the Financial Conduct Authority (FCA) under Part VI of FSMA;
• the rules relating to insider dealing and market abuse. In addition to those listed above, these include the EU Market Abuse Regulation (Regulation 596/2014) as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018 ("Market Abuse Regulation") and related EU guidance as well as the Criminal Justice Act 1993 (see 6.2); and
• the rules and regulations regarding merger control and national security. These rules and regulations are not further discussed in this chapter (except for the brief description of foreign ownership restrictions in section 2.6).

2.3 Supervision and enforcement by the Takeover Panel

Public takeover bids are subject to supervision and control by the Takeover Panel. The Panel has a number of powers to supervise and enforce compliance with the Takeover Code, including the power to censure parties publicly for non-compliance and/or to report on offenders' conduct to regulatory authorities, including the FCA, which in turn could take further disciplinary or enforcement action.

In extreme cases, the Panel could publish a statement that, in its opinion, the offender is not likely to comply with the Takeover Code. This could lead to the FCA and certain professional bodies obliging their members not to act for the person in question in a transaction subject to the Takeover Code.

The Panel requires the Takeover Code to be observed in the spirit as well as in the precise wording by all persons engaged in takeovers, including advisers, and applies the Takeover Code flexibly in order to ensure that shareholders are treated fairly, takeovers are conducted in an orderly manner and the integrity of the financial markets is maintained. The Panel strongly encourages early and regular consultation and has the power to grant, in certain cases, exemptions from the application of the rules that would otherwise apply.

2.4 General principles

The following general principles apply to public takeovers in the UK:

• all holders of the securities of a target company of the same class must be afforded equivalent treatment and if a person acquires control of a company, the other holders of securities must be protected;
• the holders of the securities of a target company must have sufficient time and information to enable them to reach a properly informed decision on the bid; where it advises the holders of the securities, the board of the target company must give its views on the effects of implementation of the bid on employment, conditions of employment and the locations of the company's places of business;
• the board of the target company must act in the interests of the company as a whole and must not deny the holders of securities the opportunity to decide on the merits of the bid;
• false markets must not be created in the securities of the target company, the bidder company or any other company concerned by the bid in such a way that the rise or fall of the prices of the securities becomes artificial and the normal functioning of the markets is distorted;
• a bidder must not announce an offer until after ensuring that they can fulfil in full any cash consideration and taking all reasonable measures to secure the implementation of any other type of consideration; and
• a target company must not be hindered in the conduct of its affairs for longer than is reasonable by a bid for its securities.

2.5 Proposed reforms

1. The Takeover Code

   The Panel regularly issues practice statements to provide informal guidance as to how they normally interpret and apply relevant provisions of the Takeover Code in certain circumstances. In addition, from time to time the Panel issues consultation papers regarding proposed changes to the Takeover Code. Having issued a consultation paper and considered responses, the Panel will then issue a Response Statement setting out the rule changes and their rationale based on the consultation and responses.

2. Narrowing of the jurisdiction of the Takeover Code

   The Panel consulted in 2024 on proposals to narrow the jurisdiction of the Takeover Code such that fewer companies will be subject to the Takeover Code. Following the consultation process, a Response Statement was issued confirming that the changes will take effect from 3 February 2025. With effect from that date, the Takeover Code will apply only to companies with their registered office in the UK, Channel Islands or Isle of Man and whose securities are admitted to trading in the UK, Channel Islands or Isle of Man (referred to as UK-listed companies) or which were previously UK-listed. There will be a two year “run off” period for companies that cease to be listed, and a transitional period at the same time for companies that are currently within the jurisdiction of the Takeover Code but will fall outside the narrowed scope, during which these companies will continue to be subject to the Takeover Code. The transitional arrangements will cease to have effect on 3 February 2027.

2.6 Foreign Investment Restrictions

The UK National Security and Investment Act (NS&I Act) entered into force on 4 January 2022. This legislation introduced a standalone foreign investment review regime for transactions that raise national security issues in the UK. Mandatory notification is required for deals that fall within 17 specified sensitive sectors: (a) Advanced Materials; (b) Advanced Robotics; (c) Artificial Intelligence; (d) Civil Nuclear; (e) Communications; (f) Computing Hardware; (g) Critical Suppliers to Government; (h) Critical Suppliers to the Emergency Services; (i) Cryptographic Authentication; (j) Data Infrastructure; (k) Defense; (l) Energy; (m) Military and Dual-Use; (n) Quantum Technologies; (o) Satellite and Space Technologies; (p) Synthetic Biology (formerly Engineering Biology); and (q) Transport.

The trigger events for mandatory notification are:

• The acquisition of more than 25 per cent, more than 50 per cent, or 75 per cent or more of the votes or shares in a qualifying entity (covers a range of legal structures, including companies, limited liability partnerships and trusts); or
• The acquisition of voting rights enabling or preventing the passage of any class of resolution governing the affairs of the qualifying entity.

For mandatory notifications, clearance must be obtained before the transaction completes. Where a mandatory notification has not been made, the UK Government may call-in the deal for review at any point in the future point.

The trigger events described above in relation to deals that fall outside of the 17 mandatory sectors may be voluntarily notified for approval. In addition, the following trigger events may be voluntarily notified:

• The acquisition of material influence over a qualifying entity’s policy; or

• The acquisition of a right or interest in, or in relation to, a qualifying asset (covers both tangible assets such as land or moveable property, and intangible assets such as IP)) providing the ability to use or control the asset (either entirely or to a greater extent).

Outside of the 17 mandatory sectors, the UK Government has the ability to call in a deal for review up to five years from the trigger event.

At the end of an assessment period, the UK Government will either clear, impose conditions on, or unwind or block an acquisition. The regime has a very broad UK nexus test. Non-UK based target entities can be caught where they (a) carry on activities in the UK or (b) supply goods or services to persons in the UK. Assets outside the UK are covered if they are used in connection with the carrying on of activities in the UK or the supply of goods or services to persons in the UK.