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Introduction Antitrust and regulated industries Barriers to acquiring control Access to information Preliminary issues Announcement obligations Share dealings Offer structure Terms of the offer Share consideration Timing Information for target shareholders Financing Role of the target board Role of the financial adviser Mandatory offers Minority squeeze-out Appendix 1 Appendix 2 Appendix 3 1 2 3 4 6 11 12 14 16 18 18 20 22 23 24 25 25 26 27 28
T F E W T F E T F E

For further information please contact Edward Braham 65 Fleet Street London EC4Y 1HS

+44 20 7832 7084 +44 20 7108 7084

edward.braham@freshfields.com Stephen Hewes 65 Fleet Street London EC4Y 1HS +44 20 7832 7323

+44 20 7108 7323

stephen.hewes@freshfields.com Julian Long 65 Fleet Street London EC4Y 1HS +44 20 7832 7027

+44 20 7108 7027

julian.long@freshfields.com freshfields.com
This document is a guide to the regulations governing public takeovers in the UK. It forms part of a series covering countries where Freshfields Bruckhaus Deringer has an established M&A practice. The series is aimed at those with an interest in acquiring or advising on an acquisition of a public company in the different European jurisdictions. This material is for general information only and is not intended to provide legal advice.
Freshfields Bruckhaus Deringer LLP 2008

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The UK market has a long history of public takeovers both recommended and hostile. There have also been a significant number of take-private offers made with the backing of US and European private equity funds and, more recently, public offers made by funds based in the Middle and Far East, sometimes as part of a consortium of investors. The frequency of public offers may partly be explained by the fact that shares in UK listed companies tend to be widely held by pension funds, insurance companies and other institutions with a tradition of accepting takeover bids, frequently against the wishes of management. It is also very difficult for UK listed companies to set up takeover defences; poison pills and shareholder support clubs are extremely rare.
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Takeovers in the UK are governed by the City Code on Takeovers and Mergers (the City Code). The City Code is administered by the UK Takeover Panel (the Panel). The Panel is the supervisory authority for takeovers in accordance with the EU Takeover Directive (the Takeover Directive). Following implementation of the Takeover Directive in the UK, the City Code applies to offers for, and other transactions involving a change of control of, companies with their registered offices in the UK, the Channel Islands and the Isle of Man (if any of their securities are admitted to trading on a regulated market in the UK or on any stock exchange in the Channel Islands or the Isle of Man). It also applies to offers for other companies with their registered office in the UK, the Channel Islands or the Isle of Man that are considered by the Panel to be resident in one of those jurisdictions. The City Code does not apply to private companies unless there has been some marketing of their shares to the public in the previous 10 years. As required by the Takeover Directive, the Panel will share jurisdiction with a takeover regulator in another European Economic Area (EEA) member state where an offer is made for: (i) a company with its registered office in the UK but with its securities admitted to trading on a regulated market in another EEA state (and not the UK); and (ii) a company with its registered office in another EEA state and with its securities admitted to trading on a regulated market in the UK but not the other EEA state. The City Code is a set of rules developed by the Panel to reflect some 40 years practical experience of takeovers. It has statutory effect following implementation of the Takeover Directive. The City Code consists of six general principles and 38 detailed rules. The general principles (set out in appendix 1) are essential to an understanding of how the City Code works. The most fundamental principle is that all shareholders must be treated equally.

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A number of other statutory rules also apply during takeovers. For example, there are criminal restrictions on insider dealing, making misleading statements and market manipulation. There is also a civil prohibition on market abuse. The Financial Services Authority (FSA) is the competent authority in the UK. Its Listing, Prospectus and Disclosure and Transparency Rules may also be relevant.
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Even when it was a non-statutory body, the Panels rulings were invariably complied with. Following implementation of the Takeover Directive, the Panel has new disciplinary and enforcement powers. The Panel prides itself (justifiably) on its speed, efficiency, consistency and confidentiality. Its standing has been reinforced by the UK courts decision not to interfere with Panel rulings or decisions during the course of a bid. Accordingly, while it is theoretically possible for there to be judicial review of Panel rulings, there is virtually no litigation in the context of UK takeovers. A new market abuse regime was introduced in the UK in 2001 (this was amended in July 2005 to implement the EU Market Abuse Directive), increasing the scope for litigation during bids. However, the FSA, which enforces the market abuse regime, regards the Panel as the prime regulator during bids.

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Merger control in the UK is regulated by the Enterprise Act 2002 in cases not governed by the EC Merger Regulation. The Enterprise Act establishes a two-stage administrative procedure for merger control involving the Office of Fair Trading (OFT) and the Competition Commission. The OFT has a duty to refer mergers (anticipated or completed) to the Competition Commission if it believes that there is, or may be, a relevant merger situation that has resulted or may be expected to result in a substantial lessening of competition (SLC). On a reference to it, the Competition Commission must decide whether a relevant merger situation has or will be created and, if so, whether the situation results, or may be expected to result, in an SLC within any market in the UK. If the Competition Commission decides (two-thirds majority) that there is an anti-competitive outcome, it must decide how to remedy, mitigate or prevent the adverse effects. The Competition Commission has up to 32 weeks to publish a report on the merger from the date of reference. A relevant merger situation will exist if two or more enterprises cease to be distinct (ie they are brought under common ownership or common control) and the merger creates or enhances a share of supply (or demand) of goods or services in the UK of 25 per cent or more (the share of supply test), or the value of turnover in the UK of the enterprise being taken over exceeds 70m.

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Notification is voluntary under the Enterprise Act and there are no bars to completion of a takeover while it is being considered by the OFT. However, the City Code includes provisions that effectively amount to a waiting period, as an offer that falls within the statutory provisions for possible reference to the Competition Commission (or is within the scope of the EC Merger Regulation) will lapse if there is a reference or if the European Commission initiates Phase II proceedings before the first closing date or the date when the offer becomes unconditional as to acceptances, whichever is later. An offer must lapse if referred to the Competition Commission and it then becomes unlawful to acquire further shares in the target without the Competition Commissions consent.
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Different rules are in place for water mergers, public interest cases (involving national security or newspaper/media considerations) and special public interest cases (which cover those relating to government contractors involved in defence issues and newspaper/media mergers). The rules allow the Secretary of State for Business, Enterprise and Regulatory Reform to intervene in the last two cases. Also regulatory consent is required before a controlling interest can pass in banks and insurance companies. A number of previously state-owned companies still have golden shares that permit the UK government to prevent a change of control.
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There are no restrictions on overseas investment in the Enterprise Act and the UK has no exchange control regime. However, the Industry Act 1975 makes special provision for cases involving the acquisition of important UK manufacturing undertakings by non UK persons. This has never been used.

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Shares in UK listed companies are almost invariably held in registered form and are freely transferable. Shareholders can choose whether they hold their shares in certificated or uncertificated form. The procedure for transferring shares depends on how they are held. Under the Listing Rules, shares must be freely transferable to be eligible for listing.
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As mentioned above, some previously state-owned companies retain a golden share that permits the UK government to block a change of control. Also, a small number of long-established companies have split share capital structures giving the founders weighted voting rights either generally or in

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particular circumstances. The weighted votes are typically held by a small group, making it difficult for outsiders to take control. These companies are very much the exception and the FSA will no longer list companies with this sort of share capital structure. Recently, institutional shareholders have exerted considerable pressure on companies to unwind these structures. With these exceptions, there are generally no provisions that make the acquisition of a controlling interest insurmountable.
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Public companies in the UK have unitary boards of directors, generally comprising executive and non-executive directors. All directors can be removed from office at any time by a resolution of shareholders requiring a simple majority. This right to remove directors cannot be overridden by contract, although directors may be entitled to damages for loss of office. Most shareholder resolutions require a simple majority. A number of resolutions, for example to amend the companys constitutional documents, require a 75 per cent majority.
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As a matter of law, it is possible for UK companies to build into their constitutional documents various types of takeover defence mechanisms. In practice these are rare. In particular, the Listing Rules would usually require shareholder approval for these types of arrangements. In addition, the statutory requirement that directors use their powers only for the purposes for which they were conferred limits the directors freedom to put in place US-style poison pill arrangements.

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Companies registered under the UK Companies Acts (the main legislation governing the formation and registration of companies) have to make a large amount of information publicly available. The burden on listed companies is even greater because of the requirements of the Listing Rules and the Disclosure and Transparency Rules. A potential bidder can obtain the following from the relevant registry without alerting the target to its interest: a companys memorandum of association and its articles of association showing, most importantly, its share capital structure; details of directors; details of issued share capital and shareholders; a companys accounts and the related directors and auditors reports; any circular, listing particulars or prospectus published by the company;

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any US filings it has made (for example, if it has a US listing) these are often more comprehensive than other materials available on the target; and research published by investment banking analysts who follow the company (which often contains information obtained from high-level sources within the company). There are also numerous online search facilities and internet sources containing corporate information. Companies with shares admitted to trading on a regulated market in the UK must release details to the market of any inside information, including significant acquisitions and disposals and material trading developments (for example, an unexpected downturn in profitability). They also have to release half-yearly financial information, interim management statements and more routine information such as results of meetings and dividend details. This information will also be included or referred to in the companys annual information update required by the Prospectus Directive. When a company produces a prospectus to gain admission to a regulated market for new shares, it must disclose details of material contracts entered into in the previous two years and earlier contracts containing any provision under which any member of the issuers group has any obligation or entitlement that is material to the group at the date of the document. Material contracts are also disclosable in a takeover offer document.
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A company has to keep open for inspection by third parties its register of members. Anyone can request a copy of a companys share register. There are circumstances in which a company can refuse to provide a copy of its share register, but these are unlikely to apply in a takeover context. In addition, anyone controlling 3 per cent of the total voting rights in a UK listed company has to notify that interest (and any increase or decrease of a whole percentage point above or below 3 per cent) to the company and the FSA; the information is then reported to a regulatory information service, which makes it public. These notifications look behind nominee arrangements; the ultimate holder of the voting rights must be disclosed. Certain interests acquired through a holding of financial instruments must also be disclosed.
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English law restricts shareholders ability to claim direct remedies against a company or its directors for information included in its accounts, except when the information is included in a prospectus. Accountants will not generally be liable to shareholders for auditing a companys accounts or to a bidder, except if the auditors expressly accept that a bidder is relying on the accounts.

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There is no legal or City Code requirement for a bidder to negotiate or even approach the target before announcing an offer. The only requirement is that an offer should be communicated in the first instance to the target board; in practice this obligation can be satisfied by a telephone call immediately before the bid is announced. However, many bids are recommended and these will involve negotiations between the parties and their financial advisers. Negotiations would usually be with the target board. Key target shareholders may be approached and persuaded to commit to accept the offer but there are strict City Code limitations on the timing of these approaches and on the number of shareholders that can be approached.
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It is unusual to have an agreement between a bidder and the target about the conduct of a bid (contrary to standard US practice). Merger agreements are, however, usually proposed in the context of a scheme of arrangement (see page 14) and on cross-border transactions. However, it is usual to have informal agreement on a recommended bid on such matters as board positions, the location of the head office and the new name of the merged group and for this information to be included in the press announcement giving details of the offer; this is usually regarded as constituting a sufficient commitment by the bidder.
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These are very rare. A bidder may seek them from a controlling or dominant shareholder, or from directors who hold an unusually large number of shares, but warranties would not be included in the general offer sent to shareholders. It is technically possible to introduce deferred consideration to protect against poor performance, although this is done only occasionally on public bids.
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Despite the absence of contractual representations and warranties, directors, financial advisers and other professionals involved in pre-bid negotiations need to be aware of the potential liabilities that may arise from statements made during these discussions. For example, in one case a firm of auditors incurred a significant liability to a bidder for confirming the accuracy of a target companys set of accounts when the bidder made it clear that no offer would be made without this confirmation. Similar claims have been made against investment banks. The market abuse regime includes a restriction on disseminating information that gives a false or misleading impression about an investment and on behaviour that is likely to give a false or misleading impression about securities.

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English law is generally considered not to recognise an obligation to negotiate in good faith and the courts will usually refuse to enforce an obligation to negotiate on the basis that it is too uncertain. Exclusivity arrangements (in which the target agrees not to start discussions with third parties) can as a matter of law bind a target provided they have a specified duration. However, such a commitment by a target is not relevant to a public offer because the target is not a party and it does not bind the directors in their personal capacities. Very few target directors would agree to this sort of restriction, arguing that their fiduciary obligations would be compromised. It is, of course, essential that the parties to pre-bid discussions do not deliberately mislead each other. For example, if a bidder relies on a representation that the target is not in discussions with third parties, it may well have a valid claim for losses suffered if the statement was false or misleading.
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Confidentiality agreements are common. Due diligence exercises (high level or detailed) usually start with an exchange of confidentiality agreements. These will tend to cover the fact that a transaction is being discussed as well as the confidentiality of the information exchanged.
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Confidentiality agreements often include standstill agreements restricting the acquisition of target company shares, typically for a period of between one and two years, after discussions have broken down. There are no hardand-fast rules and it is a matter for negotiation on each occasion. Care is needed where the bidder already has shares in the target and the target seeks to prevent the bidder from accepting a third party bid or agreeing to do so (see Note 4 to the definition of acting in concert in the City Code).
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Practice varies widely over both the scope of due diligence and the way it is carried out. Any bidder is advised to carry out as much due diligence as possible because the opportunities to withdraw after announcing a bid are limited. The City Code allows a bidder to announce a firm intention to make an offer only if it has every reason to believe that it can and will continue to be able to implement the offer (Rule 2.5). A bidder will get an unsympathetic hearing from the Panel if it tries to withdraw from a bid because it discovers something it reasonably ought to have found out before the announcement. The bidders enthusiasm for a detailed due diligence exercise will be tempered by the targets sensitivities and the need to preserve secrecy.

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Target companies often have a natural inclination towards a quick process with minimal due diligence. They will claim market practice supports them, but there are no hard-and-fast rules. Target companies will also be worried about the City Code requirement to provide the same information to any other bona fide potential bidder that emerges (see page 9). This can be a genuine point and there are many examples of targets being faced with information requests from prospective bidders who are their commercial competitors. However, the point is frequently overstated and target directors will often concede information to get the best price. The outcome is normally that due diligence is conducted at a fairly high level, usually involving only senior management and in-house counsel. On a recommended bid in which the target is keen to ensure that the bidder is not able to back out, the target will want to disclose matters that may trigger the conditions to the bid. This is because the Panel has to be consulted about a bidder relying on certain conditions. It will not allow a bidder to invoke a condition when it knew about the nature and scope of the problem before the announcement. If a significant amount of equity is involved, the target would normally insist on reciprocal due diligence on the bidder to verify the assumptions underlying the valuation of the bidders shares. If a prospectus is being issued on the combined group, the due diligence exercise may become more formal and expansive: in particular, a working capital statement (confirming that the merged group will have sufficient working capital for its present requirements) must be included and confirmed by the bidders financial adviser.
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Under English rules details of information exchanged between the bidder and target do not need to be disclosed (except to rival bidders see below). This is subject to the general principle that shareholders are entitled to sufficient information to allow them to make an informed assessment of the bid. But the fact that detailed information has been exchanged between the bidder and the target or made available to banks or underwriters financing a bid does not provide shareholders with a right of disclosure. If, on the other hand, information is given selectively to particular target shareholders, there is a strictly enforced obligation under the City Code to make it equally available to other target shareholders. Additional disclosure of information exchanged in pre-bid negotiations may be required if the offer is to be made into the US.
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The receipt of information may prevent the bidder from buying shares in the target if the information amounts to unpublished inside information, but should not prevent it from bidding. Often this restriction will fall away

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once the bid is announced on the basis that, if the bid is made at a significant premium, the information will no longer be regarded as price sensitive.
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Under the City Code the target will have to provide any bona fide bidder or potential bidder with information it has given to any other bidder. This rule applies even if the other potential bidder is hostile or a competitor of the target. The Panel will, however, permit the target to insist on a confidentiality agreement.
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It will be difficult for the target to agree to deal protection measures during pre-offer negotiations because of the City Code, the Listing Rules and the law on directors duties. Agreeing to such arrangements could amount to frustrating action for the purposes of the City Code if the directors believe there may be a bid by a third party. Similarly, agreeing, for example, to the grant of cross options over share capital or the grant of an option over the targets assets raises the question of whether the directors of the two companies are using their powers for the purposes for which they were conferred. The most common and straightforward method of trying to keep other bidders out of the fray is by tying up as many shares in the target as possible before the offer is announced. This could be outright purchases of target shares (subject to the rules that restrict market purchases, see page 12) or, more usually, by persuading shareholders to commit to accept the offer when it is made. These commitments, known as irrevocable undertakings, mean the relevant shareholder is able to benefit from any increase in the offer price that the bidder is forced to offer to secure control. Institutional shareholders have become increasingly willing to give these undertakings but usually insist that they fall away if a competing offer is made at more than a specified price.
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Break fees payable if an offer fails because of a third party intervening are now very common on UK takeovers. Current practice is to agree at the formal announcement stage a fee of up to 1 per cent of the targets net assets on a market value basis (this level of fee is not prohibited by the financial assistance rules). Under the City Code a break fee must normally be no more than 1 per cent of the offer value and must be fully disclosed in the offer announcement and the offer document. It is also necessary to consult the Panel about any proposed break fee. The City Code limit on the amount of any break fee also applies to other favourable arrangements with a potential offeror. The arrangement may be reciprocal on a bid that is effectively a merger of equals. A target may also be persuaded to agree to a break fee arrangement

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in the pre-announcement stage if the potential bidder wants some comfort that it will be able to recover some of its expenses if the target board decides to recommend an offer by a third party. If the company that agrees to pay the break fee (whether the bidder or the target) is a listed company, there are similar limitations in the Listing Rules and the City Code on the size of the fee.
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The City Code requires absolute secrecy before a bid is announced. If the deal does leak the bidder may be forced to make an announcement before it is ready. It is not therefore possible to have wide consultation with employees before an offer is announced. An employer is required to consult employees before implementing a collective redundancy arrangement. The employer may also have agreed, or have had imposed on it, wider information and consultation procedures. The Panel accepts that discussions may be needed with employee representatives before an offer is announced, for example if there will be a simultaneous announcement of a significant restructuring or rationalisation. It will allow discussions with specific individuals on a confidential basis. If there is a leak, however, an immediate announcement will have to be made. Following implementation of the Takeover Directive, the offer documentation has to be made available to the targets employee representatives (or employees if there are no representatives).
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Employees of the target have no rights to challenge the offer.

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A bidder has to give details in its offer document of its strategic plans for the offeree and their likely repercussions on employment. It also has to state its intentions regarding the continued employment of the employees and management of the offeree and its subsidiaries, including any material change in the conditions of employment. It is now a criminal offence for a bidder not to make the required disclosures regarding employees. If a cross-border merger is implemented in the UK under the new CrossBorder Merger Regulations (see page 15), it must take into account existing employee participation arrangements if these exist in one or more of the merging companies. Employees in the UK do not have a statutory right to involvement at board level within a company, but if voluntary arrangements have been put in place that meet the definition of employee participation, these will need to be retained following a merger under the Regulations.

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There are City Code restrictions on contacting private individuals and small corporate shareholders seeking irrevocable commitments to accept or refrain from accepting an offer. There are also statutory rules on financial promotion, meaning broadly that approaches to non-institutional shareholders may have to be made by the financial adviser, although appropriate exemptions are generally available. Apart from these, there are no restrictions on approaching target company shareholders, although a bidder should be careful about triggering an announcement obligation before it is ready to proceed. The City Code emphasises the importance of absolute secrecy before any offer is announced. People may be made aware of the bidders intentions only on a need-to-know basis and provided they are made aware of the need for secrecy and that they should not act on the basis of the information. The City Code requires an immediate announcement if negotiations or discussions are about to be extended to include more than a very restricted number of people. Also, the bidder will have to make an announcement if the target share price increases or there is rumour and speculation in the market and this is likely to have been as a result of the bidders actions.

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Provided the bidder manages to keep its intentions confidential and there are no leaks into the market, it will not have to reveal its interest until it formally announces its offer. This formal announcement must state the terms and all of the conditions of the offer and give details of any shares in the target held or contracted to be acquired by the bidder. Announcing a firm intention to make an offer changes the bidders position fundamentally. It becomes obliged to proceed with the offer within a further 28 days, irrespective of problems that may arise during that period. The Panel will strive to prevent a bidder from withdrawing on the basis of, for example, a problem within the targets business, even if the offer conditions would technically allow withdrawal, if the bidder could have discovered this by appropriate due diligence. In recent years, in the context of these strict rules on announcements, the practice has developed of issuing pre-conditional announcements. For example, if EU Merger Regulation clearance is required, an offer may be announced on the basis that it will be formally made only if clearance is given (recent examples include Linde AGs acquisition of BOC and Thomson Corporations merger with Reuters). However, the parties will be expected to seek clearance diligently and will be required to implement the offer within a limited period after receiving clearance. This process prevents

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the expense and effort of making an offer that may be blocked and gives more time for obtaining clearance than the strict City Code timetable allows. The pre-conditional approach can be used only to deal with regulatory hurdles.
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The target will have to make an announcement if, following an approach from a potential bidder, it is the subject of rumour or speculation or there is an untoward movement in its share price. A bidder cannot prevent a target from making an announcement even though the bidder may not be ready to proceed. Increasingly, potential bidders and target companies make possible interest announcements as a negotiating tactic even when there is no City Code requirement to do so. These announcements may refer to the fact that an approach has been made or that discussions have begun and put pressure on a target board. This type of carefully worded announcement can provide tactical flexibility. For example, an announcement may be designed to put pressure on the directors of the target company to open negotiations. Another example is if an announcement may be made to permit consultation about the merits of a merger to take place freely with shareholders. An unwilling target can ask the Panel to impose a time limit for a potential bidder to clarify its intentions if there is prolonged uncertainty.

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Provided the bidder does not have unpublished inside information, it can buy shares in the target before announcing an offer. It can also buy shares in the market during the offer unless its bid includes only non-cash consideration. Dealings in the targets shares are not suspended during a bid. These purchases will count towards achieving the minimum 50 per cent acceptance condition required by the City Code. If the bidder has inside information on the target or information that is not generally available, it cannot deal until the information is no longer inside information or has become generally available. This is because of the criminal insider dealing legislation and the civil restriction on insider dealing (one part of the general prohibition on market abuse). The fact that the bidder intends to make a bid is, of course, inside information. Accordingly, its directors, employees and advisers cannot deal before the bid. However, the bidder itself can deal, relying on the deal facilitation exemption that exists in the insider dealing and market abuse legislation. This means it can buy shares to help achieve its objective of acquiring the target. This is provided its sole purpose for the purchase is to gain control

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and, in the case of the criminal insider dealing defence, it has no other inside information. Rule 5 of the City Code prevents the acquisition of interests in shares taking a bidders holding to over 30 per cent of the voting rights of a target company unless an exception applies. There are exceptions covering an acquisition from a single shareholder before the offer is announced, an acquisition immediately before or during a recommended offer (or made with the consent of the target board) and also acquisitions after the first closing date of the offer provided an announcement has been made that there will be no intervention by the antitrust authorities. Rule 5 applies to irrevocable commitments by target shareholders to accept the offer (see page 9) so can limit the number of shares for which the bidder can obtain irrevocable undertakings. There are other City Code restrictions on dealings by the advisers to the two sides during the offer. An exempt market maker connected with the bidder or the target cannot deal in shares for the purpose of assisting the bidder or the target as the case may be (Rule 38). Also the targets advisers cannot acquire interests in the targets shares during the offer period (Rule 4.4). A UK listed bidder cannot acquire target shares (whether through the offer or outside it) for an aggregate consideration of more than 25 per cent of its net assets. Beyond this amount it will need to obtain shareholder approval (over 50 per cent of those voting) in accordance with the Listing Rules.
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Under the Disclosure and Transparency Rules anyone who gains control of 3 per cent or more of a UK listed companys total voting rights must notify the target and the FSA within two trading days. The target has to notify a regulatory information service, which will then publish the information. Each further 1 per cent increase or decrease in the stake must be disclosed. During an offer period the bidder and the target and their associates will have to disclose dealings in shares or other securities of the bidder or target, however big or small their stake (Rule 8 of the City Code). Rule 8 also requires next-day disclosure by shareholders with an interest in 1 per cent or more of the target shares even if they have no connection with the bidder or target.
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No bidder or person acquiring shares in a company has to say anything about its future intentions. If the bidder does say anything, it will be held to this by the Panel. For example, if it says it does not intend to make an offer for the target it will normally be prevented from doing so for six months unless there is a material change of circumstances.

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The offer price cannot be lower than the price paid for any interest in shares in the three months leading up to the offer announcement. Also if the bidder or any concert party acquires an interest in shares at above the offer price during the offer it will have to increase its offer to all shareholders. If the bidder is offering only shares or other securities as consideration it should not acquire any interest in shares for cash during the offer period. If it does, it will have to offer cash to all shareholders. A bidder will also have to offer cash if it has acquired interests in shares representing 10 per cent or more of the target companys voting rights for cash in the 12 months before the offer. There are similar rules if a bidder has acquired shares in exchange for its own shares before or during the offer: a bidder now has to make a share exchange offer available to all shareholders if it acquires interests in 10 per cent or more of the targets securities in exchange for its own shares.
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General principle 6 of the City Code provides that parties must use every endeavour to prevent the creation of a false market in the shares of the bidder and the target. It is also a criminal offence to make a misleading statement or to create an impression that proves to be false or misleading about the market in, or value of, any investments with a view to influencing dealings in those investments. Accordingly, attempts artificially to influence the market value of the target or bidders shares are outlawed, as are secret inducements to deal. There are also civil prohibitions on manipulating transactions and disseminating false or misleading information in the Financial Services and Markets Act 2000.

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A contractual takeover offer involves the bidder making a general offer to all target shareholders on the register of members to acquire their shares. Shareholders are sent an offer document containing information on the bidder and its offer with a form of acceptance or instructions on how to accept the offer electronically. To succeed with the bid a bidder has to secure acceptances over shares representing at least 50 per cent of the targets share capital. This 50 per cent can include market purchases.
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An increasingly popular way of achieving a change of control of a public company is to use a statutory mechanism known as a scheme of arrangement. This is a process involving court approval that allows a company to change its capital structure and agree matters with its shareholders; it is not a US or continental style merger where one company ceases to exist. Under a scheme the targets shareholders could agree that their existing shares be cancelled and reissued to the bidder, or transferred to the bidder, in consideration for the payment of cash or the issue of new shares by the bidder.

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The target company would apply to court, which may then convene a meeting of shareholders. At the meeting a majority in number representing three-quarters in value of members voting must approve the scheme. The scheme then requires the sanction of the court. Once the scheme has been approved all shareholders are bound by it. A scheme of arrangement has certain advantages over an offer, including the fact that it should avoid a 0.5 per cent stamp duty charge that will be payable on a general offer. Additionally, the bidder is certain to acquire 100 per cent of the target company shares. A scheme does, however, require a higher approval level than an offer, as it requires approval by a majority in number representing 75 per cent in value of the shareholders voting at the meeting (or the relevant class meeting). On a takeover offer the bidder has only to secure acceptances over 50 per cent of the voting shares. However, the fact that a scheme, if successful, will guarantee that all shareholders of the target are bound is sometimes seen as crucial. Schemes have traditionally been used only where the bid is recommended because they will generally require the active assistance of the targets directors. Schemes may also be less flexible because of the courts involvement: it is less straightforward to improve the terms, for example if a rival bidder appears, than on a conventional offer. A high number of recommended takeovers, particularly the larger deals, are now effected by scheme of arrangement. The City Code now has a separate Appendix dealing with the application of its rules to takeovers implemented by scheme.
^==~=~~===J=~\=

Following implementation of the EU Cross-Border Mergers Directive in 2007, the UK now has a further statutory merger alternative. For the CrossBorder Merger Regulations (the Regulations) to apply, the transaction must involve at least one UK company and at least one company governed by the laws of an EEA state other than the UK, ie there must be a genuine crossborder element to the merger. The Regulations can apply to mergers by absorption (if a transferor is dissolved without going into liquidation and transfers all its assets and liabilities to the transferee or, if the transferor is a wholly owned subsidiary, to its parent company) and to mergers by formation of a new company (where two or more transferors are each dissolved without going into liquidation and transfer all their assets and liabilities to a single transferee formed for the purposes of the merger). Broadly, the Panel will consider the City Code to apply to cross-border mergers implemented under the Regulations if the transferor company would normally be subject to the City Code (see page 1). This company will be treated as the target company for the purposes of applying the City Code. A general meeting of each merging company must approve draft merger terms, after which the company must seek court approval for the merger.

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The Regulations are expected to have only a limited impact on UK market practice given the extended timetable involved. It is thought likely that takeover offers and schemes of arrangement will remain the prevalent means of implementing cross-border mergers in the UK.
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There are a number of examples of dual-headed structures involving UK companies. These structures, involving a synthetic merger of the two parties, which each retain their respective listings, can be divided into two categories. In the first category the merged operations of the business are grouped under one or more holding companies in which the two listed companies have equal voting interests. The two listed companies retain their separate existence and their shares are traded separately. The holding companies are the main link between the two companies. An example of a company using this structure is Reed Elsevier. In the second category the underlying assets are not jointly owned but remain within the ownership of the relevant merger partner. Contractual arrangements are put in place between the two companies, ensuring unified management (the companies will have identical boards) and equalisation of dividend and capital payments to shareholders. Key shareholder decisions are taken on a joint basis. There is no transfer of shares or assets between the companies. Examples of companies using this structure are Unilever, RTZ/CRA and P&O Princess/Carnival Corporation. A dual-listed company (DLC) merger is subject to the City Code. The Panel will usually treat the deal as a securities exchange offer and treat the UK plc involved in the DLC as the offeree.

q====
t~====~=~====~==\=

The Panels consent is not required before making a bid and nor does it need to approve the offer price. City Code rules do, however, specify a minimum price in certain circumstances and require certain offers to include a full cash alternative. For example, the offer price cannot be lower than the price paid for any interest in shares acquired in the three months leading up to the offer announcement. Also, if the bidder acquires an interest in shares during the offer period at above the offer price, it will have to increase its offer to all shareholders. If the offer falls within the thresholds of the Fair Trading Act or the EC Merger Regulation, it has to be a term of the offer that it will lapse if it is referred to the relevant authority. There are several other standard terms driven by the requirements of the City Code. For example, shareholders must be given withdrawal rights if a bidder does not secure control by a certain date.

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t~==~===\=

A City Code offer has to be conditional on the bidder securing shares carrying over 50 per cent of the voting rights of the target. Usually, the acceptance condition is set at 90 per cent (because this is the percentage at which the bidder will have the right to acquire compulsorily the remaining 10 per cent) but with the bidder reserving the right to declare the offer unconditional at any lower level above 50 per cent. The bidder has 60 days from posting its offer document to satisfy the acceptance condition (see timetable in appendix 2). An offer will usually also be subject to an extensive set of conditions covering antitrust and regulatory approvals, approval by the bidders shareholders, the listing of new shares (where appropriate) and conditions dealing with the state of the targets business. An offer cannot, however, be subject to conditions that depend on the subjective judgement of the bidders directors. If the offer is a mandatory offer (see page 25), only very limited conditions are allowed.
e=~====~===~=~~\=

A bidder should announce an offer only if it has every reason to believe that it is able, and will continue to be able, to implement the offer. It will be allowed not to proceed with the formal offer only if it specifically states that the offer is subject to a pre-condition and this is not fulfilled. Also, even though a bid is usually subject to extensive conditions, a bidder can rely on these only if the relevant event is material and is accepted as such by the Panel. This is a very high test. The Panels attitude will also depend on whether the bidders due diligence was thorough enough and whether it should have uncovered the problem at the start. The Panel will not, however, force a bidder to declare its bid unconditional at less than the specified level of acceptances. This is another reason for a bidders preference for a 90 per cent acceptance condition it can be used to withdraw if problems have arisen within the target.
f==~===~=~=~=~\=

This is one of the general principles of the City Code and underpins many of its rules, such as Rule 20.1, which requires information to be made equally available to all shareholders as closely as possible at the same time and in the same manner. A bidder also cannot make special arrangements with particular target shareholders or give anyone favourable treatment (Rule 16 of the City Code). There is, however, recent precedent for the Panel agreeing, in the context of proposed pre-sale agreements, that certain target assets may be sold to particular shareholders if it is satisfied that the transaction is on arms-length terms.

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p~=~=
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A bidder will often offer shares or other securities as consideration for the offer. It may offer shares alone, shares as an alternative to cash or a mixture of cash and shares. A UK target shareholder would usually expect these shares to be listed on the London Stock Exchanges market for listed securities or traded on the UK Alternative Investment Market. There are, however, increasing numbers of bids in which the consideration includes shares listed on an overseas exchange. Accepting shares or other paper consideration may have tax advantages for target shareholders, who will usually be able to roll over any capital gain they have made on their shares in the target. A cash offer is often accompanied by a loan note alternative for this reason. Loan notes are a form of unsecured, typically unlisted debenture issued to enable shareholders to postpone their capital gains tax liability.
f=~=~===~==\=

A prospectus must be approved by the competent authority of the bidders home member state. Alternatively the bidder may use a document that is accepted as equivalent to a prospectus by the competent authority/ies where the offer is made.
^==~=~~=\=

The Companies Act requires shares to be valued if they are issued for a consideration other than cash. On a securities exchange offer, however, there is an exemption from the usual requirement provided the offer is open to all target shareholders. There will, therefore, usually be no valuation requirement (unless, for example, certain shareholders are denied the right to receive shares). If the offer includes unlisted securities the offer document must contain an estimate of their value by an appropriate adviser.

q=
f==~==~==~==~==~\=

The City Code sets a strict timetable in which the bidder and target have to post their documents and the bidder must satisfy the acceptance and other conditions (see timetable in appendix 2). The rules are aimed at preventing target management from being subject indefinitely to the distraction of dealing with a bid and prolonged market uncertainty about the targets fate. In a contractual offer, the bidder has 28 days from announcing the terms of its offer to post a document containing the offer to all target shareholders. The bidder then has a maximum of 60 days in which to satisfy the acceptance condition unless the timetable is extended by the Panel (for example, to deal with competitive bids or regulatory delays). The bidder has

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21 days after satisfying the acceptance condition to satisfy the other conditions to its offer, such as antitrust clearances. The timetable may be extended if the OFT or the European Commission is taking an unexpectedly long time to decide whether there should be a referral. The City Code does not expressly cover delays caused by other antitrust authorities, for example the US Federal Trade Commission. The Panel may be persuaded to extend the bid timetable. However, if a bidder thinks there may be delays, it may well be advised to announce an offer with an antitrust clearance pre-condition (see page 11).
`~=~====\=

The bidder can revise its offer until 46 days after it is first made. Any revised offer then has to be open for 14 days. An offer may be revised following the release of new information by the target. The target cannot issue material new information, including trading results, profit forecasts or valuations, after day 39 following posting of the offer document. A revised offer usually means an increased offer. Shareholders who accepted the original offer must be entitled to the revised consideration. This top-up requirement does not normally apply to shareholders who sell their shares in the market. A bidder may be forced by the City Code to increase its offer. For example, if it buys shares in the market at a price higher than the offer price it will have to increase its offer.
a=~=~=~=~~=\=

Forms of acceptance usually state that shareholders cannot withdraw their acceptances once lodged with the bidders receiving agent. The City Code, however, provides that shareholders must be given the right to withdraw their acceptances and, for example, accept a rival offer if the original bidder does not achieve the necessary level of acceptances to satisfy the acceptance condition within 21 days of the first closing date (this normally means 42 days from first making the offer). Once an offer is declared unconditional as to acceptances, any rights of withdrawal lapse. However, if the bidder has to publish a supplementary prospectus before the offer closes, target shareholders will have withdrawal rights for 48 hours after publication of the supplementary prospectus. If the bid is made into the US, because of US rules target shareholders may have to be given more extensive withdrawal rights.
`~=~==~=~======~\=

The offer has failed if the bidder fails to satisfy the minimum 50 per cent acceptance condition by day 60 or to satisfy all the other conditions within 21 days of satisfying the acceptance condition. Shareholders who have accepted the offer are released from any obligation to the bidder. The bidder is left with only the shares it has bought in the market.

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If a bid fails or lapses the bidder will not be able to make another offer for the same target for at least 12 months. The Panel can consent to an earlier offer and will normally do so if the second offer is recommended by the target board or a competing offer is made. The Panel will also consent to a new offer if the original offer failed because of intervention by the antitrust authorities. If the bid is cleared the bidder will usually be allowed to make another offer provided this is announced within 21 days of the clearance.
a==~==~===~~=\=

A scheme timetable is generally more flexible than a contractual offer timetable, broadly because a scheme is invariably recommended by the target company. A typical scheme timetable is set out in appendix 2. Often, a bidder will be able to acquire statutory control of the target faster in a contractual offer, because the offer can be declared unconditional as early as day 21 after posting. However, 100 per cent control can be acquired more quickly under a scheme than in an offer, because, once effective, a scheme will bind all shareholders whereas minority holdings that have not been accepted to an offer will need to be acquired compulsorily under the Companies Act 2006 (see page 25). This procedure usually takes six weeks from reaching the required 90 per cent threshold.

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The City Code states that shareholders must be given sufficient information and advice to enable them to reach a properly informed decision on the offer. That information will be contained in the formal announcement of the offer (this has to be circulated to target shareholders by the target board) and the offer document sent to all target shareholders. The City Code dictates what information has to be included in both the announcement and the offer document. The offer document has to contain specified information, including: the bidders intentions regarding the future business of the target and its strategic plans (including their likely repercussions on employment and the locations of the companys business); the long-term commercial justification for the bid; the bidders intentions regarding continued employment of employees and management; details of any securities being offered as consideration; a description of how the bid is being financed; and details of shareholdings and dealings in the targets securities by the bidder.

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These requirements are all offer document rules giving effect to the Takeover Directive. The bidder, its directors and any holding company risk committing a criminal offence if these rules are not complied with. The offer document must also contain extensive financial information on the bidder and the target. The offer document has to be posted to all target shareholders except those located in non-EEA jurisdictions if less than 3 per cent of the target shares are held by shareholders located there. The offer document has also to be made readily available to bidder and target employees.
t~=~===~===\=

There is a general requirement under the City Code that shareholders be given sufficient information and advice to enable them to reach a properly informed decision. The target board must circulate its opinion on the bid to its shareholders and has to provide its shareholders with certain information prescribed by the City Code. If the bid is recommended this information will be included in the offer document from the bidder. If the bid is hostile, the target will produce a separate defence document containing the relevant information. The target boards opinion on the offer has to cover: the boards views on the effects of implementation of the offer on the companys interests, including, specifically, employment; and the boards views on the offerors strategic plans for the offeree and their likely repercussions on employment and the locations of its places of business. These requirements are response document rules giving effect to the Takeover Directive. The target and its directors risk committing a criminal offence if they do not comply with these rules. In addition, the target has to provide its shareholders with: certain shareholding and dealing information; particulars of any service contracts with more than 12 months to run; and details of any material contracts entered into by the target within the last two years.
t=~==~====~\=

All documents issued to shareholders and advertisements published in connection with a bid have to contain a responsibility statement stating that the directors of the company issuing the document take responsibility for the information included in it. If a subsidiary is used to make a bid, the City Code requires the directors of the ultimate holding company to take responsibility for documentation. The Panel will agree to certain dispensations, for example for directors of a supervisory board.

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^==~=~====~I=~= ~~==~=~==\=

There are particular City Code rules dealing with all these topics. A profit forecast has to be compiled with scrupulous care and objectivity by the directors. A forecast, unless made by a bidder offering only cash, must be reported on by the relevant companys auditors and the financial adviser. The rules apply not only to forecasts made during the bid but also to any forecast made previously. Asset valuations given in connection with a bid must be reported on by a named independent valuer. Certain additional requirements of the City Code will normally need to be complied with on a securities exchange offer if the bidder makes statements about the expected financial benefits of a proposed bid, particularly if these are quantified. Most significantly, the bidder may have to publish the basis of its belief supporting the statement and reports by the financial adviser and auditors that the statement has been made with due care and consideration.

c~=
`~=~===~==~\=

No. The bidder and its financial adviser must be satisfied when a firm bid is announced that the bidder will be able to settle the offer consideration when it is due. The bidder must therefore have appropriate arrangements in place to finance the offer when it formally announces it. If the offer is for cash, or includes cash, the financial adviser to the bidder will have to confirm in the offer announcement and the offer document that the bidder has sufficient funds to satisfy full acceptance of the offer (Rule 2.5 and Rule 24.7 of the City Code). Accordingly, the financial adviser will review very carefully the financing arrangements and in particular the terms of any debt finance. It may be possible to include a financing pre-condition on a pre-conditional offer (see page 11) subject to the approval of the Panel.
`~==~=~==~====~== ==~==\=

The Companies Act prohibition on giving financial assistance for the acquisition of a companys own shares makes it difficult to use assets of the target to discharge borrowings incurred to finance a bid or to help finance a recommended bid from the start. Section 151 of the Companies Act 1985 makes it a criminal offence for the target or any of its subsidiaries to give (directly or indirectly) any financial assistance for the purpose of acquiring shares in the company concerned or for the purpose of reducing or discharging a liability previously incurred in connection with the acquisition. Financial assistance is widely defined it can include, for example, certain forms of break fee and the grant by the target or its subsidiaries of security

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over its assets to secure borrowings incurred by the bidder for the purposes of the offer. The prohibition may be relaxed following completion of the offer if the bidder acquires more than 90 per cent of the target and is able to implement the statutory minority squeeze-out procedures (see page 25). The target can then be converted into a private company and, by implementing a procedure that protects creditors (known as the whitewash procedure), can provide security for its new parent companys borrowings. Unless the whitewash procedure is used, it would be a criminal offence for the target to make upstream loans after the offer or to give guarantees or other security to refinance or secure any bid finance arrangements. The financial assistance restriction will not, however, prevent the bidder from granting security over the shares it acquires in the target. From 1 October 2008, the statutory financial assistance prohibition for private companies will be abolished and, provided the target is converted into a private company before any assistance is given, the whitewash procedure will no longer be required.

o===~=~=
t~=~=====~=~\=

Directors of a target company have a statutory duty to promote the success of the company for the benefit of its members; to act in accordance with the companys constitution and to use powers only for the purposes for which they were conferred; and to exercise independent judgement. These principles are reinforced by the City Code, which requires target directors to act in the interests of the company as a whole; they must not deny the holders of securities the opportunity to decide on the merits of the bid. The target directors are obliged by the City Code to circulate their views on any offer to shareholders and to obtain independent advice.
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The directors of the target are not allowed to take any action that could frustrate the making of a bid. This applies from the time the directors reasonably believe a bid may be imminent (Rule 21 of the City Code). What the Panel will regard as frustrating action goes beyond what may be expected. Not only will poison pill type contractual arrangements and material disposals or acquisitions be covered but also issues of shares or options and contracts otherwise than in the ordinary course of business. Entering into or amending directors employment contracts is also regarded as frustrating action. The target board can, however, invite shareholders to approve what would otherwise be frustrating action. The philosophy of the City Code is that it is up to target shareholders to decide the outcome of an offer and shareholders can therefore be asked to approve any defensive action the board thinks

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appropriate. Institutional shareholders are, however, generally reluctant to agree to any measure that would eliminate the possibility of a bid.

o===~~=~=
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The bidder is not normally required by the City Code to have a financial adviser to make the bid but the market will expect it to have one. If the bidders shares are listed in London it must have a sponsor if it is issuing new shares and has to produce a prospectus. A sponsor is also required if the bid needs the approval of the bidders shareholders under the Listing Rules and the bidder has to produce a shareholder circular. The sponsor has to give certain confirmations to the FSA about the prospectus or circular. The sponsor would usually be the companys financial adviser. The City Code also requires a bidders financial adviser to report on any profit forecast or asset valuation either contained in the offer document or on the record at the time the bid is announced.
j==~=~=~=~~=~\=f==~===\=

A target must have a financial adviser. The target board must obtain competent independent advice on any offer and make the substance of this known to shareholders (Rule 3.1 of the City Code).
f==~===~=~==~~=\=

It is accepted practice for the bidder and target to agree a formal engagement letter with their financial adviser setting out the scope of the advisers duties. It will invariably include an indemnity in favour of the adviser for losses incurred while it is carrying out the engagement unless these arise as a result of the advisers negligence or default.
t==~~=~=~===~=====\=

The financial adviser to the bidder does not have to give any sort of opinion on the offer to target shareholders. If the bid requires the approval of the bidders shareholders under the Listing Rules, the directors have to recommend the voting action that shareholders should take and state in the shareholder circular whether the proposed bid is in the best interests of shareholders as a whole. This opinion is generally given with reference to the advice from the financial adviser. The financial adviser to the target does not give an opinion on the bid to the targets shareholders. If the target board is recommending the offer, its opinion will refer to the advice given by the financial adviser. The opinion will also state that, in providing advice to the target board, the financial adviser has taken into account the commercial assessments of the targets directors.

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j~~==
^==~===~====~==~=~=== ~==~\=

If a person, or group of persons acting in concert, acquires an interest in shares resulting in the person (or concert party) being interested in shares carrying 30 per cent or more of the voting rights of a target company, the acquirer must make a mandatory cash offer for the rest of the shares (Rule 9). The offer must be at a price equivalent to the highest price paid for any interest in the 12 months before the announcement of the offer. A similar obligation arises if a person (or concert party) has an interest in shares of between 30 per cent and 50 per cent of the voting rights and acquires any further interest. Rule 9 can be triggered during an offer if the bidder acquires an interest of 30 per cent or more. It must then relaunch its offer as a Rule 9 offer. Rule 9 offers must be in cash and can only be conditional on 50 per cent acceptances and antitrust matters. A bidder cannot therefore rely on the usual conditions to protect itself against problems subsequently uncovered about the target. Acting in concert covers a wide category of persons and is also subject to the interpretation of the Panel.

j=J=
a=rh=~=~=~=====~= =~=~=\=

The Companies Act 2006 provides a procedure for the compulsory acquisition of the shares of any minority shareholders following a takeover offer. Provided the bidder secures at least 90 per cent acceptances of the shares to which the offer relates, representing at least 90 per cent of the voting rights attributable to that class (excluding shares held by the bidder or its associates at the time the offer document is posted), it will have the right to compulsorily acquire or squeeze out the remaining shareholders. Once the bidder achieves the 90 per cent level, it may give notice in accordance with the Companies Act 2006 that it wishes to purchase compulsorily those shares on the same terms (ie identical form of consideration) as the original offer. Subject to certain minority rights, completion of this statutory procedure takes six weeks. Shareholders have the right to object to the acquisition of their shares by applying to the court within six weeks of the date the relevant notice was given. In practice, however, this right is rarely exercised and is almost never successful.

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^=N=
d~====`=`==q~=~=j=

1 All holders of the securities of an offeree company of the same class must be afforded equivalent treatment; moreover, if a person acquires control of a company, the other holders of securities must be protected. 2 The holders of the securities of an offeree 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 securities, the board of the offeree company must give its views on the effects of implementation of the bid on employment, conditions of employment and the locations of the companys places of business. 3 The board of an offeree 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. 4 False markets must not be created in the securities of the offeree company, of the offeror company or of 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. 5 An offeror must announce a bid only after ensuring that he/she can fulfil in full any cash consideration, if such is offered, and after taking all reasonable measures to secure the implementation of any other type of consideration. 6 An offeree company must not be hindered in the conduct of its affairs for longer than is reasonable by a bid for its securities.

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^=O=
`~~=~==~==~=~==
p= Announcement of scheme. First court hearing. Court orders shareholder meeting to be held. Post scheme document (normally 20-24 days after announcement). Last date to revise terms of scheme. a~= l= -28 -4 Announcement of offer.

Post offer document (normally 10-14 days after announcement).

+10 +14 +21 Target to have published its response to the offer. Minimum period an offer is to be kept open. An unwelcome bidder cannot normally acquire an interest of 30 per cent or more until this date; if it does at this stage, this will trigger an obligation for it to make a mandatory cash offer with very limited preconditions.

Usual date to hold court and shareholder meetings to approve the scheme.

+24

+39

Last date for material new information (including trading results, profit forecasts, material acquisitions or disposals) to be released by the target. Target shareholders can withdraw their acceptances if the offer is not unconditional as to acceptances (assuming day 21 is the first closing date).

+42

Court hearing to grant order sanctioning the scheme. Court order filed and becomes effective once registered by relevant registry. Bidder acquires 100 per cent control.

+44 +45

+46 Last date for consideration to be posted (assuming scheme became effective on day 45). +59

Last date for posting any revised offer from the bidder.

+60

Last date for offer to be declared unconditional as to acceptances. Offer normally to remain open for a minimum of 14 days after it is declared unconditional as to acceptances. Last date for all conditions to be satisfied (21 days after the offer is unconditional as to acceptances). Last date for consideration to be posted (14 days after the offer is wholly unconditional).

+74

+81

+95

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^=P=
`=`=~==

This list sets out certain key points on the City Code for companies and their advisers involved in a bid for a UK public company.
d~==

Secrecy is paramount, particularly before the announcement of the offer. There must be no dealings in the bidders or targets shares, options or related derivatives by the bidder, the target, their directors, their families or anyone else who may be regarded as a concert party or an associate without prior clearance by the relevant financial adviser and the legal advisers. Share repurchases may have to be stopped. Information should be made equally available to all shareholders. Be very careful in any discussion with the media. Particular areas of sensitivity include future profits and prospects (including earnings guidance and any unaudited results figures), asset values, merger benefits statements and the likelihood of an increased offer. Generally, take care not to make statements that may mislead the market or shareholders. Contact with the press needs to be strictly controlled. Ensure that a representative of the financial adviser is present at any meetings with shareholders, analysts or stockbrokers of bidder or target. No material new information should be provided at such meetings. Generally, the publication of advertisements is prohibited. There are exceptions, including: product advertisements not bearing on the offer; and corporate image advertisements that have been cleared by the Panel if in doubt, consult the financial adviser. Ensure that proper arrangements are in place to enable the whole board to monitor the conduct of the bid (day-to-day decision making may rest with one or two directors). All documents must be prepared and verified to prospectus standards. No relevant information should be withheld. Any decision to avoid or delay an announcement if one is required to avoid a misleading impression could amount to market abuse. This is also the case if any release or announcement creates a misleading impression.
_==

There must be no special deals, ie no arrangements with target shareholders, or with any other person, to deal in the targets shares if there are favourable conditions attached that are not available to all shareholders.

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Be careful not to issue misleading statements while not inaccurate they may mislead (eg stating that you may raise your offer without committing yourself to doing so and specifying the increase). You must disclose your intentions regarding the future business of the target and strategic plans for the target and their likely repercussions on employment. It is now a criminal offence not to comply with these requirements. Avoid making no increase or no extension statements about the offer.
q~==

The board must keep a close watch on its share price if there is untoward movement or rumour and speculation, an announcement may be required. The boards opinion on the offer must deal with the effect of the offer on all the companys interests, including, specifically, employment and the bidders disclosures of its intentions regarding the target. It is now a criminal offence not to comply with these requirements. In advising shareholders, the directors must not have regard to personal or family or other shareholdings and directors must not enter into any commitment restricting their ability to advise shareholders. Independent financial advice on any offer must be obtained. No action should be taken by the target board, without shareholder approval, that could frustrate an offer or deny shareholders the opportunity to decide on its merits. Similarly there should be no issues of shares or options or material acquisitions or disposals without prior approval. Do not do anything outside the ordinary course of business. Remember that information given to one bidder must, on request, be given equally and promptly to a less welcome offeror.

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AMSTERDAM

DUBAI

HO CHI MINH CITY

NEW YORK

Strawinskylaan 10 1077 XZ Amsterdam

T + 31 20 485 7000 F + 31 20 485 7001

Mailing address PO Box 75299 1070 AG Amsterdam

BARCELONA

The Exchange Building 5th floor Dubai International Financial Centre Sheikh Zayed Road PO Box 506 569 Dubai
T + 971 4 5099 100 F + 971 4 5099 111
DSSELDORF

#1108 Saigon Tower 29 Le Duan Boulevard District 1 Ho Chi Minh City

T + 84 8 8226 680 F + 84 8 8226 690
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T + 34 93 363 7400 F + 34 93 419 7799
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T + 852 2846 3400 F + 852 2810 6192
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T + 33 1 44 56 44 56 F + 33 1 44 56 44 00
ROME

Feldmhleplatz 1 40545 Dsseldorf

T + 49 211 49 79 0 F + 49 211 49 79 10 3

Piazza di Monte Citorio 115 00186 Rome

T + 39 06 695 331 F + 39 06 695 33800
SHANGHAI

3705 China World Tower Two 1 Jianguomenwai Avenue Beijing 100004

T + 86 10 6505 3448 F + 86 10 6505 7783
BERLIN

Mailing address Postfach 10 17 43 40008 Dsseldorf

FRANKFURT AM MAIN

65 Fleet Street London EC4Y 1HS

T + 44 20 7936 4000 F + 44 20 7832 7001
MADRID

Potsdamer Platz 1 10785 Berlin

T + 49 30 20 28 36 00 F + 49 30 20 28 37 66
BRATISLAVA

Bockenheimer Anlage 44 60322 Frankfurt am Main

T + 49 69 27 30 80 F + 49 69 23 26 64
HAMBURG

Fortuny 6 28010 Madrid

T + 34 91 700 3700 F + 34 91 308 4636
MILAN

34th floor Jinmao Tower 88 Century Boulevard Shanghai 200121

T + 86 21 5049 1118 F + 86 21 3878 0099
TOKYO

Laurinsk 12 81101 Bratislava

T + 421 2 5926 3111 F + 421 2 5926 3602
BRUSSELS

Alsterarkaden 27 20354 Hamburg

T + 49 40 36 90 60 F + 49 40 36 90 61 55

Via dei Giardini 7 20121 Milan

T + 39 02 625 301 F + 39 02 625 30800
MOSCOW

Akasaka Biz Tower 36F 5-3-1 Akasaka Minato-ku Tokyo 107-6336

T + 81 3 3584 8500 F + 81 3 3584 8501
VIENNA

Bastion Tower Place du Champ de Mars Marsveldplein 5 B-1050 Brussels

T + 32 2 504 7000 F + 32 2 504 7200
COLOGNE

Mailing address Postfach 30 52 70 20316 Hamburg

HANOI

Kadashevskaya nab 14/2 119017 Moscow

T + 7 495 785 3000 F + 7 495 785 3001
MUNICH

Seilergasse 16 1010 Vienna

T + 43 1 515 15 0 F + 43 1 512 63 94
WASHINGTON

#05-01 International Centre 17 Ngo Quyen Street Hanoi

T + 84 4 8247 422 F + 84 4 8268 300

Prannerstrasse 10 80333 Munich

T + 49 89 20 70 20 F + 49 89 20 70 21 00

Heumarkt 14 50667 Cologne

T + 49 221 20 50 70 F + 49 221 20 50 79 0

701 Pennsylvania Avenue, NW Suite 600 Washington, DC 20004-2692

T + 1 202 777 4500 F + 1 202 777 4555

22318

Freshfields Bruckhaus Deringer LLP is a limited liability partnership registered in England and Wales with registered number OC334789. It is regulated by the Solicitors Regulation Authority. A list of the members (and of the non-members who are designated as partners) of Freshfields Bruckhaus Deringer LLP and their qualifications is available for inspection at its registered office, 65 Fleet Street, London EC4Y 1HS. Any reference to a partner means a member, or a consultant or employee with equivalent standing and qualifications, of Freshfields Bruckhaus Deringer LLP or any of its affiliated firms or entities. Freshfields Bruckhaus Deringer LLP has taken over the practice of Freshfields Bruckhaus Deringer with effect from 1 May 2008. Please refer to www.freshfields.com/support/legalnotice for information on the transfer of the business and regulatory information.