Proposed new framework for dual class share structures

Earlier today, the UK Takeover Panel published a consultation paper (PCP 2025/1). The PCP proposes a new framework for the application of the UK Takeover Code to dual class share structures (DCSS). Recent reforms to the UK Listing Rules have relaxed regulations around DCSS as they seek to attract founder-led, high-growth companies to list in the UK. Whilst the Panel Executive has previously taken an ad hoc approach to queries regarding these companies, it is now seeking to formalise guidance in this area in the expectation that more companies may list with these structures in the future.

PCP 2025/1 also seeks to codify certain practices in relation to disclosure at the time of an IPO and makes certain amendments to the rules relating to share buybacks to make those rules clearer and more concise.

So what do you need to know?

Set out below are the key takeaways from PCP 2025/1. 

For the purpose of this analysis, the Executive has considered three different types of DCSS:

• DCSS 1: "Class B" shares held by one or more shareholders which give weighted voting rights on all matters from the point of issuance, and which are extinguished or converted to ordinary shares on particular trigger events.
• DCSS 2: A single "special" share which confers effective majority or veto rights on some or all resolutions from the point of issuance, and which are extinguished on particular trigger events.
• DCSS 3: A single "special" share which confers effective majority or veto rights on some or all resolutions from a "change of control", and which is extinguished on particular trigger events.

Most of the new provisions apply to DCSS 1 only. Given DCSS are likely to evolve over time, the proposed new provisions will be principles-based and allow the Executive to apply them flexibly.

1. Application of Rule 9.1 - In a DCSS 1 structure it is possible that, on a trigger event, a third party shareholder may be concentrated through a mandatory offer threshold because its proportionate percentage of voting rights increases. Such increase is prima facie an "acquisition" of voting rights for the purposes of Rule 9.1. PCP 2025/1 proposes that such third party shareholder should be treated in substantially the same way as an "innocent bystander" under Rule 37.1 (in respect of share buybacks). This would mean that the third party shareholder should not normally be required to make a mandatory offer unless the trigger was a foreseeable event (such as a time sunset), or the Panel considers that, at the time it acquired ordinary shares, the third party shareholder had reason to believe that a trigger event would take place. Rule 9.1 may also be relevant for DCSS 2 or DCSS 3 companies where a special share is issued to a company which is already subject to the Code.

2. Rule 9 dispensation through disclosure - The Executive has a long-standing practice of granting a "Rule 9 dispensation by disclosure" at the time of an IPO. PCP 2025/1 proposes to codify this practice and to apply a similar approach for a third party shareholder who would otherwise be under an obligation to make a mandatory offer upon the occurrence of a time sunset (or other trigger event). Such dispensation will only be possible where there is sufficient disclosure in the IPO admission document and there has been no increase in the percentage of voting rights held by the third party between admission and the trigger event.

3. The acceptance condition - Rule 10.1 provides that the bidder can only declare an offer unconditional where it has acquired, or agreed to acquire, shares carrying more than 50% of the voting rights in the target. This ensures that the outcome of the acceptance condition is binary – either the bidder will gain statutory control or the offer will lapse. The precise Rule 10.1 treatment will depend on the facts and nature of the rights, however, PCP 2025/1 proposes that, to satisfy Rule 10.1 (and Rule 9.3 for mandatory bids), the acceptance condition must be satisfied on both a "pre-unconditional" and also a "post-unconditional" basis. Again, this is only really relevant for DCSS 1 weighted structures. In DCSS 2 and DCSS 3 cases, the special share should not be counted for the purpose of the acceptance condition.

4. Rules 14 and 16 - Bidders will be required to consult with the Panel on any proposed structure of an offer which relates to Class B or special shares. The structure of the offer will depend on the rights attaching to the shares but Rule 14.1 is unlikely to apply in the context of an offer for DCSS 2 or DCSS 3 (and certain DCSS 1) companies. Care must be taken so as not to provide a special deal to holders of Class B or special shares. In order to comply with Rule 16.1, the price paid should be calculated by reference to the conversion ratio. If the shares extinguish on a trigger event, no consideration should be paid. In the context of special share which has no rights to income or capital and its enhanced voting rights are not transferable, the price paid should be no more than the nominal value of the special share, unless the shareholder had a contractual or constitutional right to a premium.

5. Share buybacks - PCP 2025/1 proposes to amend the provisions relating to disqualifying transactions to ensure that companies are not unduly restricted from carrying out a share buyback under their normal shareholder authority and to codify the practice whereby the Executive may treat as an "offer" a share buyback which could result in all or substantially all of the company's shares being held by one person or a group of persons acting in concert.

DCSS structures enable founder and other major shareholders to list their companies whilst retaining majority or enhanced voting rights or control. If the recent UK Listing Regime reforms are successful, we may well see more of these structures in the future. Whilst we think it makes sense for the Executive to formalise its guidance in this area, given the often unique nature of these structures we think it is appropriate for the Executive to continue to preserve flexibility with the way it approaches and applies the rules.

The consultation period runs until 26 September 2025. The Panel expects to publish its Response Statement by the end of 2025 and for the amendments to come into effect in the first quarter of 2026.