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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

Schedule 3 SAYE option schemes: Requirements relating to share options: Exercise rights: Takeovers

Most successful takeovers bids will trigger exercise by virtue of either paragraph 37(2) or 37(6). If the acquirer does not already control the target:

  • its offer to acquire all the shares in the target (or all the shares of a specific class conferring control) and acceptance by enough shareholders to confer control on the acquirer, will trigger a right of exercise under paragraph 37(2);
  • its receipt of acceptances in respect of 90% of the shares it did not hold when it made the offer, makes the acquirer bound and entitled under Section 979 – 982 of the Companies Act 2006 (‘squeeze out’ provisions including “drag along” provisions section983) to acquire the shares of the dissenting minority, and triggers a right of exercise under paragraph 37(6).

Exercise under paragraph 37(2), but not paragraph 37(6), will be triggered if control is obtained as a result of a general offer but 90% acceptances are not received. 

Exercise under paragraph 37(6), but not paragraph 37(2), will be triggered if the acquirer already has control of the target when its offer is made but receives 90% acceptances in respect of the shares it did not hold when it made the offer.

The period when the acquiring company is bound or entitled under Sections 979 – 982 or 983 to 985 Companies Act 2006 may, in practice, be much shorter than the six month period during which paragraph 37(2) and the scheme rules may give the option-holder the right to exercise, although only during the period the shareholder is bound or entitled.

In practice it is not possible for a Schedule 3 SAYE share option to be part exercised and part rolled-over in these circumstances because of the terms of the savings contracts (see ETASSUM34070).