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New 'put-up or shut-up' regime for public M&A in Ireland

Thursday 21 July 2022

Patrick Spicer
Matheson, Dublin
patrick.spicer@matheson.com

David Fitzgibbon
Matheson, Dublin
david.fitzgibbon@matheson.com

Michael Sinnott
Matheson, Dublin
michael.sinnott@matheson.com

The Irish Takeover Rules (the 'Rules') are set to be revised, following a consultation process run by the Irish Takeover Panel (the 'Panel'), the takeovers regulator for Ireland. The Rules apply to takeovers (and certain other transactions) involving Irish-incorporated public limited companies that are listed on certain exchanges, including the New York Stock Exchange (NYSE), NASDAQ, London Stock Exchange and Euronext Dublin.

Many of the forthcoming changes to the Rules are in the nature of 'process' points that will affect takeover procedure. However, some changes will have strategic implications for potential bidders and targets in making and dealing with approaches. This article provides an overview of two such changes:

  1. The most important change is the proposed overhaul of the Irish 'put-up or shut-up' (PUSU) regime, with the introduction of a mandatory 42-day PUSU deadline for all publicly identified bidders. Under the new regime, all such bidders will be obliged to 'put-up', by announcing a binding offer, or 'shut-up', by announcing that it will not make an offer, within 42 days of being publicly identified.
  2. The second key change is that it will no longer be open to a possible target to announce that it is in discussions with an unnamed party about a potential offer. Any announcement by a potential target about a possible offer (including a leak announcement) must identify all potential bidders that it is in talks with or has received an approach from, unless the target has unequivocally rejected that approach.

The new Rules, which were proposed to be in operation as early as July 2022, will have implications for many clients, including several S&P500 and FTSE100 clients with Irish-incorporated holding companies.

The new Rules

In a consultation paper published in December 2021, the Panel proposed amendments to the Rules intended to reflect developments in takeover practice and legal changes since the Rules were last reformed in 2013. Several of the proposed amendments mirror similar amendments made to the United Kingdom's equivalent rules in the aftermath of Kraft Foods' controversial takeover of Cadbury in 2011. The Panel's consultation process concluded at the end of February 2022.

At the end of May 2022, the Panel published its response paper, outlining the near final version of the new Rules. The Panel has not formally confirmed the timeline for the new Rules coming into operation. However, the Irish market expected that the new Rules may be operational as soon as July 2022. The old Rules will continue to apply to takeovers that are 'in being' when the new Rules commence.

PUSU regime: background and context

The most far-reaching change to the Rules is the introduction of a mandatory PUSU deadline for all publicly announced possible offers. This change represents a significant shift in the balance of power in favour of a potential target.

The Rules regulate the conduct of takeovers of Irish public companies and certain other changes in control transactions affecting such companies; the Rules are not concerned with the financial or commercial advantages or disadvantages of a takeover or other transaction. When a company is identified to be 'in play' or the company's board has reason to believe that the making of an offer is or may be imminent, the Rules introduce a series of restrictions on the freedom of action of the company, designed to prevent the company from frustrating an offer or possible offer. These restrictions include a requirement to obtain the regulator's prior consent for activities such as issuing stock or undertaking M&A activity. These restrictions can seriously inhibit a target's ability to continue ordinary-course operations, especially when combined with the uncertainty created by being 'in play'. As a consequence, the Rules provide for a PUSU regime to prevent potential targets from being 'under siege' for extended periods.

Current PUSU regime: discretionary PUSU deadline

Under the current rules, once a possible offer and the identity of the potential bidder have been made public, a target can request that the Panel impose a specified time limit for the bidder to either: (1) 'put up' by announcing a 'firm intention' to make an offer, which is then binding on the bidder; or (2) 'shut up' by announcing that it will not proceed to make an offer. If the potential bidder 'shuts up' under the current rules, the bidder is then barred from making a further approach for 12 months, unless the Panel otherwise consents.

The Panel can currently determine the appropriate PUSU time limit on a case-by-case basis by reference to all the circumstances of the situation. The Panel will seek to balance the potential damage to the business of the target arising from the uncertainty caused by the bidder's interest (ie, from the target being in play) against the disadvantage to the target's shareholders of losing the prospect of an offer.

In our experience, under the current rules, the Panel will typically grant a PUSU where a period of 8–12 weeks has elapsed since the approach was first made public. In this context, the deadline set by the Panel will typically be three to five weeks from the date it determines that a PUSU time limit should be imposed. In effect, the combination of these two timeframes means that, under the current rules, a target can be under siege for a period of 75–120 days before any PUSU expires.

New PUSU regime: mandatory PUSU deadline of 42 days

Under the new Rules, once a bidder is publicly identified, the bidder must 'put-up' by announcing an offer or 'shut-up' by announcing it does not intend to make an offer by 1700 on the 42nd day following the announcement identifying the bidder (ie, a fixed six-week period from announcement). There is no need for the target to request a PUSU from the Panel – the PUSU will automatically apply following the identification of the bidder. If a bidder 'shuts-up' by announcing that it does not intend to make an offer, it will be barred from making a further approach to the target for six months without the consent of the Panel.

Extensions to the 42-day PUSU deadline are possible under the new Rules, but only on the request of the target's board. The Panel will consider all relevant factors, including the status of negotiations and the anticipated timeline for completion, when deciding whether to grant an extension. The Panel has indicated under the new Rules that it will normally only give its decision on whether to grant an extension shortly before the deadline is due to expire.

Implications of the new PUSU regime

The new PUSU regime has the potential to help to swing the balance of power in favour of the target when a potentially unwanted offer is on the table; the target can trigger the PUSU at any time by announcing the identity of the target and is in control of any request for an extension to the deadline. The new PUSU regime is even more significant in light of the new requirement (see below) that any announcement by a potential target about a possible offer must name all potential bidders. We expect the key implications of the new PUSU regime to be as follows:

  • The PUSU deadline is no longer 'the gift' of the Panel to the target. The automatic imposition of a PUSU is a strong weapon in a target's arsenal for dealing with highly unwanted approaches. If a target receives an unwanted approach and suspects that the potential bidder is unlikely to be able to proceed to formally announce an offer within 42 days, the target can unilaterally trigger the PUSU.
  • The 42-day (six-week) time period from the time a potential bidder under the new regime is identified is significantly narrower than the period that the Panel typically imposed under the current rules (8–12 weeks before granting a PUSU, plus a further three to four weeks of a PUSU period until the deadline). To avoid becoming prematurely locked into a 42-day window to make an offer, potential bidders are likely to be reluctant to make any approach until preparations for the possible offer are well advanced. Possible bidders are likely to be even more sensitive where financing is required or antitrust issues are likely to be a concern.
  • Where a potential bidder and target are in confidential discussions about a possible offer, the target could announce the identity of the potential bidder to pressure the bidder to do a deal within the 42-day window and improve its offer or face the prospect of being locked-out for six months. Potential bidders are therefore likely to seek strong contractual protections against voluntary announcement by the target in confidentiality agreements/non-disclosure agreements (NDAs).
  • As a target must consent to a request for an extension to a PUSU timeline, it is possible that bidders may try to include agreements to consent to extensions or to request extensions in confidentiality agreements/NDAs. Targets should be very reluctant to sign up to any such agreements.

Naming potential bidders: now mandatory in any announcement about a possible offer

The new mandatory PUSU deadline is of even greater significance when considered in light of how the new Rules deal with identifying potential bidders. Under the new Rules, it is no longer possible for a target to announce that it is in discussions with an unnamed party about a potential offer.

In the event of a leak regarding a possible offer, the Panel strictly enforces Rules designed to ensure an immediate announcement to deal with any false market that may arise in the target's securities and, where relevant, the bidder's securities. The principal concern of the Panel in applying these Rules is to ensure that the market is informed about the possibility of an offer if it appears that there may have been a leak around this possibility or if trading appears to be taking place on the basis of inside information.

The responsibility for issuing a leak announcement varies depending on whether an approach has been made to the target. Before an approach is made by the bidder, the burden of compliance generally rests with the bidder. Any potential bidder is required to monitor the market for anomalous movement in the target's share price and for any rumour or speculation concerning the target. Following an approach by the bidder to the target, the responsibility for making an announcement and consulting the Panel shifts entirely to the target and its advisers, who are obliged to monitor the market for any anomalous movement of the target's share price and/or for rumour and speculation.

Aside from the obligation to make a leak announcement in these circumstances (and following consultation with the Panel), a target may decide to announce that it has been approached at any time (albeit that this would trigger the extensive restrictions imposed on companies by the Rules). Under the current rules, there is no obligation for the target to identify a potential bidder, that is, the target can currently announce that it is in talks with an unnamed bidder that may or may not lead to an offer.

Under the new Rules, the target will no longer be able to withhold the identity of potential bidders from an announcement about a possible offer (including a leak announcement). In any such announcement, the target must identify all potential offerors that it is either in talks with or has received an approach from (not just those who have been the subject of rumour or speculation), unless the target has unequivocally rejected that approach. If a target is in discussions with several potential bidders, a leak in relation to one bidder may oblige the target to announce the identities of all the other potential bidders. Once identified, the potential bidders will be subject to the full rigours of the mandatory 42-day PUSU deadline (see above).

Next steps: board briefings and takeover strategy materials

As the new Rules have important strategic implications for how relevant companies deal with approaches, we have been advising our clients to update their boards and revise their takeover strategy materials/handbooks: early engagement with the new Rules will help to avoid the risk of being surprised by the implications of the Rules at an inopportune time or even being outmanoeuvred by another party.