The Takeovers Panel will now apply a case-by-case assessment to whether parties to a lock-up agreement are “associates”, according to new guidance released this week.
Under the Takeovers Code, a person may not acquire an increased percentage of shares in a code company if the acquisition will give that person together with their associates more than 20% ownership or control.
Previously, the Panel has treated all parties to a lock-up agreement as having automatic associate status. However it has now reviewed its thinking in light of market feedback and its experience since the Bridgecorp Capital Limited Determination in 2004 and will consider each agreement according to its particular circumstances.
Helpfully, it has provided a non-exhaustive list of the characteristics of a lock-up agreement which does not give rise to an association:
- commercial and arm’s length
- does not go beyond making and accepting a takeover offer (i.e. it does not contain any terms relating to the parties' general involvement in the takeover offer process, ongoing covenants, or future relationships)
- expressly precludes control of voting rights passing to the offeror prior to the takeover offer becoming unconditional
- short-term, lasting no longer than the settlement or lapsing of the takeover offer, and
- the relationship between the parties ends once the shares are transferred in accordance with the takeover offer.
The Panel has also provided additional guidance on when the parties to a shareholders’ agreement may be associates.
An agreement which merely contains terms relating to pre-emptive or drag/tag along rights and obligations is unlikely on its own to create an association.
But where the agreement, for example, contains terms relating to voting requirements or director appointment, or is only for a select group of shareholders, the parties to it are more likely to be associates.
Chapman Tripp comments
The Panel’s revised guidance, especially in relation to lock-up agreements, is to be welcomed, and the Panel is to be congratulated for its preparedness to revisit the issue and take note of feedback and experience in the last 11 years.
It does not represent a radical shift in the Panel’s thinking on the meaning of “associate”.
Rather, it aligns the Panel’s position on these types of agreements, especially on lock-up agreements, with its position on the meaning of “associate” more generally.
The Panel’s main focus when determining whether an agreement between shareholders (whether it be a lock-up, shareholders' agreement or otherwise) creates an association is whether the agreement confers on one or more of the parties any ability to control or influence the behaviour of another party to the agreement, especially in relation to voting rights and/or director appointment.
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