New Practice Statement 35

Earlier today, the UK Takeover Panel published a new Practice Statement 35 (Profit forecasts, quantified financial benefits statements and investment research) (PS35) which sets out the way in which the Executive normally interprets and applies certain aspects of Rule 28 of the UK Takeover Code. To properly interpret the Rule, it is key to understand the distinction drawn between "ordinary course" and "one-off" profit forecasts.

• "Ordinary course" profit forecasts - A profit forecast published by the target or a securities exchange bidder in accordance with its established practice and as part of the ordinary course of its communications with its shareholders and the market. 
• "One-off" profit forecasts - Any profit forecast which is not an ordinary course profit forecast.

Rule 28 sets out strict regulatory obligations for targets and securities exchange bidders to report on profit forecasts and QFBS. Less onerous requirements can be applied to "ordinary course" profit forecasts. The logic behind this is that it is far less likely that such statements will have been made with the express intention of influencing a bid.

So what do you need to know?

Set out below are some of the key takeaways from the new PS35.

1. Following rejection of an approach - To the extent that the target subsequently enters into an offer period, target boards will normally need to produce a report on any one-off profit forecast published between a series of approaches made by a potential bidder and an unequivocal rejection of an offer, except where the Executive grants a dispensation. Dispensations may be granted where the profit forecast was published more than seven days after the unequivocal rejection and prior to the receipt of any subsequent approach.

2. QFBS at the time of a possible offer - The Executive may permit a QFBS to be made at the time of a possible offer announcement without a contemporaneous report. It will consider, amongst other things, the target's views, what disclosures are being made alongside the QFBS, and the proposed timing of any subsequent report.

3. Internal profit forecasts provided to bidders - The Executive will normally permit a dispensation from producing a report for any internal profit forecast provided by the target to a bidder which is subsequently required to be published as a matter of law by the bidder. The Executive will not give this dispensation where the profit forecast is used in any arguments as to the merits of the offer.

4. "Aspirational" targets - The Executive has clarified that its normal practice is to treat forward-looking statements for periods ending more than three years from the date on which they are made as being "aspirational" targets to which Rule 28.1 does not apply. However, should any statement be repeated such that the profit forecast would fall within the three year window, it would be treated as a profit forecast.

5. Future financial periods -  Rule 28.2 provides that the Executive will normally grant a dispensation from the requirements to produce a report for a profit forecast falling beyond 15 months, as long as reports are provided for the intervening years. However, the Executive may be willing to grant a dispensation from the requirement to produce a full sequence of profit forecasts for the intervening years if it considers that the profit forecast for the future financial period is not intended as a means to enable shareholders, or the market, to infer profit forecasts for the intervening years.

PS35 provides helpful clarification in an area which can be complex. This includes providing a number of examples of where the Executive may be disposed to grant dispensations from reporting obligations or where it may be happy to take a lighter touch to certain connected research. In all cases, consultation with the Panel is advised if you are in any doubt in relation to any aspect of the Rules.