Companies and shareholders: company takeovers: background
The purchase by a company of a controlling interest in another company (over 50 per cent of its share capital) is known as a takeover. Takeovers of all listed companies are regulated by the Panel on Takeovers and Mergers to ensure the process is properly conducted. In addition, the Government (via the Office of Fair Trading and the Competition Commission) and the European Union regulate where the takeover of large companies could stifle competition or be potentially against the national interest.
A principle of regulation is fair and equal treatment of shareholders. For the purchasing company (‘predator’/ ‘offeror’) to acquire control, it must make an equal offer to all of the shareholders of the target company to acquire all their shares (or all the shares of one or more class) in the company.
Offers and forms of consideration
The offer is first made to the board of directors of the target company, who can respond by recommending that their shareholders accept the offer (if they do not, the subsequent offer is known as a ‘hostile bid’).
Consideration for the offer may be in the form of:
- Cash (e.g. 105 pence for every share in the target company), and/or
- Shares (e.g. for every 2 shares in the target company, 3 shares in the acquiring company), or
- Shares with a cash alternative (e.g. for every 2 shares in the target company, either 3 shares in the acquiring company or 105 pence in cash).
For the stamp duty treatment of each form of consideration, see STSM077000.
Shareholders wishing to accept the offer complete a form of acceptance. The offeror usually sets conditions that, by a given closing date, it receives enough acceptances to control a stated minimum percentage of shares. If these are unfulfilled, the offeror may cancel the offer, reduce the minimum percentage or extend the offer period. Once the conditions are satisfied, the offer is declared unconditional. Acceptances received before the offer is declared unconditional are conditional contracts until that date.