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UK Takeover Panel extends concert party rules to funds and their investors

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Earlier this year, the UK Takeover Panel amended its ‘concert party’ rules to specifically target private capital funds and their investors. Here we explain the impact of the changes.

Issue

Under the UK Takeover Code, “concert parties” are groups of persons that are presumed or deemed by the Takeover Panel to be cooperating or coordinating to obtain or consolidate control of a company. In the context of a takeover, a bidder will usually agree the scope of its concert party with the Panel, and share trading or public statements by the bidder’s concert parties could have consequences for the bid (for example by setting a floor price).

Outside of the takeover context, where persons acting in concert acquire 30% of a relevant company or increase their holding between 30% and 50%, the concert party may be required to make a mandatory cash offer to all other shareholders.

Fund investors holding stakes over 30% likely to be caught by changes

The Code contains a number of presumptions, and persons grouped together by them will be treated as concert parties unless they can persuade the Panel otherwise, which can be difficult in practice. Until the recent changes, the main presumptions applied to companies and corporate groups but not expressly to fund structures or fund investors (although the Panel did loosely extend them to funds by analogy).

However, in recognition of the increasing influence of private capital on UK deal-making, the Panel decided it was no longer appropriate for financial sponsors not to be bound by the same set of rules as corporates.

Under the old regime, businesses were presumed to be in concert with their “associated companies”, with ownership or control of 20% or more of a company’s equity share capital the test for associated company status. This has been replaced by two new presumptions.

  • Under the first, companies will be presumed to be acting in concert if one “controls” the other or they are under common control (whereby a company is interested in 30% or more of the voting rights, or a majority of the equity share capital, of another).
  • Under the second, the same presumption applies if one is interested in 30% or more of the other’s equity share capital (diluting interests through a chain of ownership). Importantly for private capital firms, interests in funds will now be treated in the same way as interests in a company’s share capital (whether voting or non-voting).

In practice this means that fund investors, including passive fund investors, could be treated as acting in concert with a fund and the fund adviser (and potentially the bidco making a bid) if their interest in the fund is over 30%.

Solution

Most funds maintain a standing concert party list which they have vetted with the Panel. These lists should be reassessed in light of the new rules, which are particularly complex. On takeover transactions, additional time should also be allocated to analysing and agreeing the bidder fund’s concert party analysis with the Panel.

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