Breaking the silence

Date: 27 February 2009
Authors: Roger Le Tissier
Issue: Vol 159, Issue 7358
Categories: Features, Commercial, Company, Competition

Guernsey Company Law is no longer tacit on takeovers. Roger Le Tissier reports

Before 1 July 2008, Guernsey Company Law was silent in respect of takeovers. The new law, however, introduces provisions which will be of potential interest to targets and offerors alike. The Companies (Guernsey) Law 2008, Pt XVIII ss 335–340 sets out the entire statutory provisions relating to takeover sand applies where a scheme or contract involves the transfer of shares or any class of shares in an offeree company to any person. The principle is not unfamiliar in relation to other companies’ laws and provides sweep up provisions, where 90% of shareholders accept an offer. Practically speaking, if, within four months after the date of making an offer in respect of a scheme or contract, the offer is approved by shareholders comprising 90% in value of the shares affected, the offeror may, within two months after the expiration of those four months, give notice to any dissenting shareholder that it desires to acquire his shares. In calculating the 90% threshold, any shares held as treasury shares are to be excluded.

Where a notice to acquire is given, the offeror is entitled and bound to acquire those shares on the terms on which, under the scheme or contract, the shares of the approving shareholders are to be acquired by the offeror.

A shareholder shall, on the expiration of one month from the date of the notice to acquire, send a copy of the notice to the offeree company, and pay or transfer to the offeree company the consideration required under the notice, in respect of the shares he is entitled to acquire and the offeree company shall thereupon register the offeror as the holder of those shares. Any sums received by the offeree company section shall be paid into a separate bank account and any such sums and any other consideration so received shall be held by the offeree company on trust for the shareholders entitled to the shares in respect of which the said sum or other consideration was respectively received. A dissenting shareholder may, within one month after the date of a notice to acquire, apply to the court to cancel that notice. The court may cancel the notice or make such order as it thinks fit.

Takeover codes

Guernsey companies are listed on a number of stock exchanges, each of which has rules in relation to takeovers and mergers. In the UK, the City code on takeovers and mergers (the takeover code) is a collaboration of general principles and rules governing the conduct of takeovers and mergers of companies with registered offices in the UK, the Channel Islands and the Isle of Man. Following implementation of the EU Takeover Directive (2004/25/EC), the takeover code now has a statutory effect in the UK; however an Order of Council has not yet been made to extend such powers to Guernsey. The takeover code provides that it applies to companies if any of their securities are admitted to trading on a regulated market in the UK or any stock exchange in the Channel Islands or the Isle of Man. It also provides that it applies to those companies which are considered by the panel on takeovers and mergers to have their place of central management and control in the UK, the Channel Islands or the Isle of Man.

CISX listed companies

Although the takeover code applies to Channel Island registered companies in the above circumstances, the Channel Island Stock Exchange (CISX) listing rules also include requirements in regards to takeovers. Companies which are listed upon the CISX must obey the CISX listing rules. They govern the requirements for issuers to gain admission to listing, the continuing obligations to listing and the suspension and cancellation of listing securities on the CISX.

Hostile bids

In some situations where a takeover is unwelcome the takeover becomes hostile. In order to avoid a hostile takeover, some companies use a poison pill tactic to make the target company appear unattractive. The poison pill was developed as a response to tender-based hostile takeovers and works by automatically triggering the issue of new shares of the target company when a bidder acquires a certain percentage of shares of the company, effectively diluting the stake held by the bidder.

Poison pills are heavily restricted by R 21 of the takeover code. The board of directors, in principle, is required to obtain approval of the shareholders in a general meeting before taking any action to frustrate a takeover offer. However, Guernsey legislation does not prevent poison pills, and an Order of Council has not yet been granted to extend powers of the takeover Directive to Guernsey and, therefore, such restrictions do not apply to Guernsey companies that are not listed and which are therefore not subject to the code. The CISX listing rules are also silent on poison pills.

Considerations for companies

Many listed Guernsey companies are investment funds. Many of these are funds of funds and, as their value is related to the underlying investments which are valued regularly and transparently, are unlikely to be attractive targets. As regards investment funds, investment managers and advisers may wish to consider their position in relation to a takeover and the likelihood of the termination of the investment management or advisory agreements and make suitable provisions in the terms of those agreements for such an eventuality.

Considerations for offerors

The same considerations will apply for offerors considering an approach to a Guernsey company. In addition, however, offerors wishing to borrow to fund the acquisition will now more easily be able to provide security over the shares that are acquired in the transaction as the risks associated with the inability to acquire 100% of the target should not be present.

Bookmark this article with: