UK Public M&A Update

Overview

14 firm offers were announced in Q3 2018 (compared to 9 in Q2 2018 and 13 in Q1 2018), with a combined offer value of £14.3 billion (representing a decrease compared to £74.09 billion in Q2 2018 and £20.13 billion in Q1 2018). Of those 14 offers, 11 were all cash, 1 was all shares, 1 was in cash and shares (with an all-cash alternative) and 1 was all cash with an alternative consideration structure comprising cash, shares and loan notes.

In the last quarter, Ashurst mandates have included advising: (i) Stafford Capital Partners Limited on its £185.4 million hostile takeover of Phaunos Timber Fund Limited; (ii) Volcan Investments Limited on its £2.33 billion recommended cash offer for Vedanta Resources Plc; (iii) Lazard & Co., Limited as financial adviser to Dalmore Capital Limited and Equitix Investment Management Limited in relation to Jura Acquisition Limited's £1.448 billion recommended cash offer for John Laing Infrastructure Fund Limited; (iv) CareTech Holdings PLC on its £327 million recommended cash and share offer for Cambian Group plc; and (v) Deutsche Bank as financial adviser to Twenty-First Century Fox, Inc. in relation to its £27.4 billion revised offer for Sky plc.

A summary of the key features of each announced offer is set out in a table in the Appendix.

During Q3 2018, there were a number of newsworthy items, including the latest decision by the UK Takeover Panel (the Panel) on the King/Rangers case and the Panel's chain principle ruling in relation to 21st Century Fox's bid for Sky plc. Further details of these developments are set out in the News Digest on pages 2 to 6 of this publication.

News digest

Rejection of Mr King's request for an extension to send an offer document to the shareholders of Rangers International Football Club Plc

Background

In March 2017, the Panel published Panel Statement 2017/4 and the TAB published Statement 2017/1, which set out their decisions to dismiss appeals by Mr King and required him to launch a Rule 9 mandatory bid for Rangers International Football Club Plc (Rangers) by 12 April 2017. Please see our Q1 2017 Public M&A Update for further details of these decisions.

On 13 April 2017, the Panel announced that, Mr King having failed to make a Rule 9 mandatory bid by the 12 April deadline, it had initiated proceedings in the Court of Session, Edinburgh (under section 955 of the Companies Act 2006) seeking an order requiring Mr King to comply with the Panel's rulings. The Outer House of the Court of Session found in favour of the Panel and granted the order sought under section 955 of the Companies Act 2006 ordering Mr King to announce in accordance with the Takeover Code (the Code), within 30 days of the date of the court's order, and thereafter make in accordance with the Code, a mandatory offer at a price of 20p per share for all the issued ordinary share capital of Rangers not already controlled by him and three others. Please see our 2017 Review for further details on this decision.

The Inner House of the Court of Session upheld the decision of the Outer House of Session. The Inner House found in favour of the Panel and granted the order sought by the Panel under section 955 of the Companies Act 2006 (subject to a modification in the order), requiring Mr King to announce a mandatory offer for Rangers. Please see our Q2 2018 Public M&A Update for further details on this decision.

Latest decision

In the most recent development, the Chairman of the Hearings Committee of the Panel (the Committee) in Panel Statement 2018/8, rejected a request by Mr King that the Committee be convened to review the refusal by the Executive of the Panel (the Executive) to grant Mr King an extension of time to send an offer document to Rangers shareholders. The Chairman's ruling was made pursuant to Rule 2 of the Rules of Procedure of the Hearings Committee (the Rules of Procedure), which permits the Chairman to reject a request that a Hearings Committee be convened on certain specified grounds. The Chairman relied in his ruling on the grounds that (a) the request was not validly notified and (b) the matter had no reasonable prospect of success.

The Executive's Ruling

Following the Court of Session's decision, an announcement was published on 29 March 2018 stating the intention of Laird Investments (Proprietary) Limited (Laird) to make an offer at 20 pence per share in cash for all the ordinary issued share capital of Rangers not already controlled by Mr King or persons acting in concert with him. Pursuant to rule 24.1, except with the consent of the Panel, Laird was required to send an offer document to Rangers shareholders by 26 April 2018 (within 28 days of the announcement of a firm intention to make an offer).

The announcement did not contain the cash confirmation required by rule 2.7(d). The Executive explained to Mr King on 6 April 2018 that a cash confirmation would need to be provided by a UK financial adviser or bank. On 24 April 2018, the Executive applied for and obtained an interim interdict from the Outer House that prevented Laird from publishing an offer document that did not contain the necessary cash confirmation.

On 26 April 2018, Mr King made a request to the Executive for an extension of time to send the offer document to Rangers shareholders. The rationale for the request was that Laird was based in South Africa and required approval under South African exchange control regulations to transfer money out of South Africa into the UK and to convert those funds into sterling for possible completion of the share purchase transactions. On the same date, the Executive refused the request stating that Mr King had been aware since 28 February 2018 of his obligation to make an offer in accordance with the Code and that he had had enough time since then to obtain all the consents necessary for cash confirmation to be given.

Request to the Committee was not validly notified

One of the reasons for the rejection of Mr King's request to convene the Committee is the failure to notify a request within one month of the Executive's ruling. Rule 1.2 of the Rules of Procedure  provides that, unless otherwise stipulated by the Executive, the time limit for requesting a review of a ruling of the Executive is one month from the date of the ruling. Mr King's request was made on 11 June 2018. The Chairman considered that Mr King offered no adequate justification for waiting more than six weeks to request a review of the Executive's ruling. In addition, the hope that a decision maker may reverse its decision, as Mr King had claimed, can rarely, if ever, be a good reason for failing to comply with time limits for an appeal. The Chairman also stated that Mr King does not require a reversal of the Executive's ruling to enable him to procure the making of an offer, as the Executive had stated that subject to cash confirmation being provided, it is open to Mr King to procure the making of an offer that complies with the Code other than as to the rule 24.1 time limit.

No Reasonable Prospect of Success

The Chairman also relied in his decision on the ground that the matter had no reasonable prospect of success under Rule 2.1 of the Rules  of Procedure. The Chairman stated that it was Mr King’s obligation as a resident of South Africa and as the party obliged to procure a Code compliant offer, to ascertain at an early stage what if any exchange control difficulties he might face in publishing an offer and then promptly to start the process of dealing with them having first consulted the Executive. Mr King was informed of the requirements separately by the Executive on 6 April 2018, and it was not until 23 April 2018 that he raised the problem of exchange control approval. In view of the wider context and the fact that Mr King had previously failed to comply with the ruling of the Takeover Appeal Board, the Chairman considered it highly unlikely that a review by the Committee of the Executive's decision would be successful and therefore Mr King's request would stand no reasonable prospect of success.

Chain Principle Ruling: 21st Century Fox's Bid for Sky

On 20 June 2018, Disney and Fox signed an amended acquisition agreement pursuant to which Disney agreed to increase the consideration payable for its acquisition of Fox (the Revised Acquisition Agreement). On 28 June 2018, the Panel announced, in Panel Statement 2018/7, that it was considering the impact of such increase on any consideration that would be payable under Disney's obligatory chain principle offer (the Chain Principle Offer) to the holders of ordinary shares in Sky following completion of the acquisition.

Since then, a number of further developments have taken place.

First, on 13 July 2018, the Executive gave its ruling, as published in Panel Statement 2018/9, that the price payable by Disney under the Chain Principle Offer would be £14.00 for each ordinary share in Sky.

In response, the Independent Committee of Sky and several of its larger shareholders requested that the Executive's ruling be reviewed by the Committee, which was convened on 27 July 2018. The Committee's ruling, published as Panel Statement 2018/14, confirmed the Executive's ruling.

The Committee reasoned that, because the Code does not regulate the process of determining a Chain Principle Offer price, and as previous rulings of the Committee and Takeover Appeal Board afford no precedent, the Committee had to attempt to identify the approach which, on the particular facts of the case, best reflected the rationale of Rule 9 of the Code, which seeks to ensure equivalent treatment of shareholders. The Committee stated that a key consideration in this respect was to identify an approach which gave effect to the principle that, where a party acquires control of a company or consolidates or secures control, the other shareholders should be offered the highest price actually paid by that party in obtaining or securing control.

The Committee concluded that the most reliable piece of evidence for inferring the value attributed by Disney to Fox's stake in Sky from the consideration payable under the Revised Acquisition Agreement (and by extension what a suitable offer price for the remaining Sky shares would therefore be), was the price at which Disney had subsequently authorised Fox to bid for the remaining shares of Sky on 11 July 2018. In the Committee's view, the fact that the Fox offer price was authorised and supported just three weeks after the announcement of the Revised Acquisition Agreement meant that it had real value as evidence for inferring, retrospectively, the value which Disney had attributed to the 39% stake in Sky when agreeing the increased consideration payable under the Revised Acquisition Agreement. The Committee then stated that, as under Rule 9 of the Code it is the price paid to gain or consolidate a controlling interest that must, in turn, be offered for the remaining shares of a company, the Chain Principle Offer price should reflect the price attributed by Disney and to be received by Fox's shareholders for Fox's 39% stake in Sky.

Applying this logic, the Committee proceeded to note that in authorising and supporting Fox's bid, Disney had agreed to take on the increase in debt which Fox would have to incur to make the offer. It also noted that Disney had undertaken to indemnify Fox for liabilities attributable to the offer price exceeding £13.00 in the event the acquisition of Fox did not complete for regulatory or for some other specified reasons. 

Drawing these considerations together, the Committee concluded that the Chain Principle Offer price should reflect the offer price of £14.00 per share authorised and supported by Disney for Fox's bid shortly after the Revised Acquisition Agreement had been announced.

Following the Committee's ruling, several interested parties lodged appeals to the Takeover Appeal Board against the ruling, and a hearing took place on 15 August 2018. The Takeover Appeal Board, in its ruling announced on 16 August 2018 in TAB Statement 2018/3, confirmed the Committee's ruling.

Other Panel News

On 18 January 2018, the Panel announced the publication of its Annual Report and Accounts for the year ended 31 March 2018. Noteworthy points from the Director General's Report include:

• 2017-18 saw a higher level of public M&A activity than the previous year.
• The number of firm takeover offers which were announced during the year was 57 (52 in 2016-17).
• There were 13 firm offers announced of over £1 billion (5 in 2016-17).
• During the year, the Executive issued four letters of private censure and seven educational/warning letters.
• There is a reminder to offerors of the amendments to the Code made in January 2018 and the extended range of subjects on which offerors are required to make specific intention statements, and that details of intention statements should be included in both the offer document and the Rule 2.7 announcement.
• Advisers to offerors are reminded to consult the Executive about the form of the intention statements ahead of the proposed publication.

The full Annual Report can be found at: http://www.thetakeoverpanel.org.uk/statements/reports.