Memery Bank: Takeover Code update — important clarification on directors’ irrevocable undertakings

The Takeover Panel has released a practice statement clarifying the application of Rule 21.2 to directors’ irrevocable undertakings.

Typically, in a takeover the bidder would seek irrevocable undertakings from key target shareholders, including target directors who hold shares, to accept the offer. Historically, an irrevocable undertaking given by a director who was a shareholder would cover two broad points: first, an undertaking as a shareholder to accept the bidder’s offer: and second, an undertaking as a director to do certain things to facilitate the bid, such as provide information, make a recommendation, inform the bidder of any rival bid approach etc. These latter provisions were intended to commit the target to the bidder’s offer as far as possible.

Rule 21.2 of the Takeover Code provides that, except with the consent of the panel, neither the target nor any person acting in concert with it (which would include the target board), may enter into an ‘offer-related arrangement’ with the bidder or any person acting in concert with the bidder, either during an offer period or when an offer is reasonably in contemplation…

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