Practice Statement 31
Formal sale processes, private sale processes, strategic reviews and public searches for potential offerors
Introduction
From time to time, the Executive is consulted in relation to the application of the Code where a company wishes to initiate:
a formal sale process;
a private sale process;
a strategic review (which may or may not refer to an offer for the company as a possible outcome); or
a public search for potential offerors that is not conducted as a formal sale process (for example, by announcing that it is “seeking potential offerors” or “seeking purchasers”).
This Practice Statement describes the way in which the Executive normally interprets and applies certain aspects of Rule 2, Rule 21.2 and Rule 21.3 in these circumstances. Although this Practice Statement describes the Executive’s normal approach, companies and their advisers are expected to consult the Executive before initiating any formal sale process, private sale process, strategic review or public search for potential offerors.
The formal sale process concept was introduced in 2011 to allow the board of a company to undertake a sale process with the benefit of certain dispensations from the requirements of the Code, principally the requirements for any potential offeror to be identified under Rules 2.4(a) and (b) and to be set a “put up or shut up” deadline under Rule 2.6(a). The Executive considers that the formal sale process continues to be a valid option for a company seeking a potential offeror and notes that it provides further benefits that are not available through other methods of selling the company (for example, the ability to enter into an inducement fee arrangement under Note 2 on Rule 21.2 and the ability to require participating potential offerors not to request information under Rule 21.3).
However, the Executive understands that many boards of companies which wish to undertake a sale process or otherwise seek potential offerors are reluctant to do so by means of a formal sale process and therefore may prefer to initiate a private sale process, a strategic review which refers to an offer for the company as a possible outcome or a public search for potential offerors.
Where a company is genuinely initiating a private sale process, the Executive considers that the requirements in Rules 2.4(a) and (b) to identify in a subsequent announcement any potential offeror with which the company is in talks, or from which an approach has been received, may operate in an inappropriate manner. Instead, it may be acceptable for the company to be required to identify a potential offeror only if it has been specifically identified in any relevant rumour or speculation.
In this Practice Statement:
section 2 summarises the principal provisions of the Code that are relevant in the circumstances referred to in paragraph 1.1 above;
section 3 sets out guidance in respect of formal sale processes;
section 4 sets out guidance in respect of private sale processes;
section 5 sets out guidance in respect of strategic reviews and public searches for potential offerors;
section 6 sets out guidance in relation to companies with majority shareholders in the circumstances referred to in paragraph 1.1 above; and
section 7 sets out guidance for companies in respect of the application of Rule 21.3 and Note 1 on Rule 21.3 in the circumstances referred to in paragraph 1.1 above.
Relevant rules
Introduction
Section 2 summarises the principal provisions of the Code that are relevant to the Executive’s application of Rule 2, Rule 21.2 and Rule 21.3 where a company is undertaking a formal sale process, a private sale process, a strategic review or a public search for potential offerors.
Definition of “offer period”
The definition of “offer period” states that an offer period will commence “when the first announcement is made of an offer or possible offer for a company, or when certain other announcements are made, such as an announcement … that the board of the company is seeking potential offerors”.
Rule 2.2: when an announcement is required
Rule 2.2 requires an announcement to be made in certain circumstances including, under Rule 2.2(f), when a purchaser is being sought for an interest, or interests, in shares carrying in aggregate 30% or more of the voting rights of a company or when the board of a company is seeking one or more potential offerors and:
the company is the subject of rumour and speculation or there is an untoward movement in its share price; or
the number of potential purchasers or offerors approached is about to be increased to include more than a very restricted number of people.
Note 2 on Rule 2.2 provides that where, during an offer period, rumour and speculation specifically identifies a potential offeror which has not previously been identified in any announcement, the Panel will normally require an announcement to be made by the offeree company or the potential offeror (as appropriate) identifying that potential offeror.
Rule 2.4: requirement for announcements to identify potential offerors
Rule 2.4(a) requires a potential offeror with which an offeree company is in talks or from which an approach has been received (and not unequivocally rejected) to be identified in an announcement by the offeree company which commences an offer period.
Rule 2.4(b) requires any subsequent announcement by the offeree company which refers to the existence of a new potential offeror to identify that potential offeror (except where the announcement is made after an offeror has announced a firm intention to make an offer for the company)
Rule 2.6: the “put up or shut up” requirement
Rule 2.6(a) provides that an identified potential offeror must either announce a firm intention to make an offer or announce that it does not intend to make an offer by not later than 5.00 pm on the 28th day following the date of the announcement in which it is first identified (unless the Panel has consented to an extension of the deadline). Rule 2.6(a) does not apply if another offeror has announced a firm intention to make an offer for the offeree company.
Note 2 on Rule 2.6 provides that where, prior to an offeror having announced a firm intention to make an offer, the board of the offeree company announces that it is seeking one or more potential offerors by means of a formal sale process, the Panel will normally grant a dispensation from the requirements of Rules 2.4(a) and (b) and Rule 2.6(a), such that any potential offeror which agrees to participate in that formal sale process would not be required to be publicly identified under Rule 2.4(a) or (b) and would not be subject to the 28 day deadline referred to in Rule 2.6(a), for so long as it is participating in the formal sale process.
Rule 21.2: prohibition on offer-related arrangements
Rule 21.2 prohibits an offeree company and any person acting in concert with it from entering into any offer-related arrangement (including an inducement fee arrangement) with an offeror or any person acting in concert with it during an offer period or when an offer is reasonably in contemplation, other than in limited prescribed circumstances.
Note 2 on Rule 21.2 provides that where, prior to an offeror having announced a firm intention to make an offer, the board of the offeree company announces a formal sale process, the Panel will normally grant a dispensation from the prohibition in Rule 21.2, such that the offeree company would be permitted to enter into an inducement fee arrangement with one offeror (who had participated in that process) at the time of the announcement of its firm intention to make an offer. Any such inducement fee will be subject to the provisos set out in Note 1(a) and (b) on Rule 21.2, i.e.:
the value of the inducement fee must be de minimis; and
the inducement fee must be capable of becoming payable only if an offer becomes or is declared unconditional.
Rule 21.3: equality of information to competing offerors
Rule 21.3 provides that the board of the offeree company must, on request, equally and promptly provide an offeror or bona fide potential offeror with all information that it has provided, and that it provides in the seven days following the request, to another offeror or potential offeror. Under Rule 21.3(b), this requirement will normally only apply when:
Note 1 on Rule 21.3 provides specific limits on the conditions that an offeree company may attach to the passing of information under Rule 21.3 and states that any such conditions should be no more onerous than those imposed on any other offeror or potential offeror.
Formal sale processes
FSP dispensations
The Executive should be consulted at the earliest opportunity where a company intends to announce a formal sale process, including where the company is seeking the dispensations from:
the requirement to identify potential offerors in Rules 2.4(a) and (b), as set out in Note 2 on Rule 2.6;
the requirement to set a “put up or shut up” deadline in Rule 2.6(a), as set out in Note 2 on Rule 2.6; and/or
the prohibition on inducement fees in Rule 21.2, as set out in Note 2 on Rule 21.2.
In this Practice Statement, the dispensations in paragraphs (a) to (c) above are referred to as the “FSP dispensations”.
The Executive will normally grant the FSP dispensations where it is satisfied that the board is genuinely putting the company up for sale through a formal and public process.
Where it is proposed to conduct a formal sale process as part of a strategic review (see section 5 below), the Executive will normally grant the FSP dispensations if a sale of the company through a formal and public process is genuinely being explored as a possible outcome of the strategic review.
In order for the Executive to consider a request for the FSP dispensations, the advisers to the company should provide the Executive with a copy of the draft announcement which will commence the formal sale process (or the strategic review of which the formal sale process forms a part).
Contents of announcement
The Executive considers that the announcement of a formal sale process should:
include the phrase “formal sale process” in the heading and make clear that a formal sale process is being commenced;
explain how the formal sale process will be conducted, including:
who an interested party should contact if it wishes to participate;
what documentation an interested party will be required to enter into in order to participate; and
an indicative timetable (or a commitment by the company to make a further announcement in relation to the timetable for the formal sale process);
confirm whether the company is in discussions with, or is in receipt of an approach from, any potential offeror at the date of the announcement; and
explain, to the extent applicable, that the Executive has granted the FSP dispensations, such that any potential offeror which has agreed or subsequently agrees with the company to participate in the formal sale process will not be required to be identified under Rule 2.4(a) or (b) and will not be subject to the “put up or shut up” deadline referred to in Rule 2.6(a), for so long as it is participating in that process.
Updates
The Executive considers that the company should make announcements providing an update on the progress of the formal sale process, as appropriate. If at any stage the company decides not to proceed with the formal sale process, the company should update the position promptly by way of an announcement.
Note 2 on Rule 2.2 will apply to a formal sale process, regardless of whether the Executive has granted the FSP dispensations, such that, if rumour and speculation specifically identifies a potential offeror during the offer period, an announcement identifying that potential offeror will normally be required.
Private sale processes
Introduction
A company may wish to initiate discussions on a private basis with more than one potential offeror (a “private sale process”) and choose not to announce those discussions. A company undertaking a private sale process will be subject to Rule 2.2, including Rule 2.2(f) (see also section 5 and section 8 of Practice Statement 20).
Possible dispensations
If a company makes an announcement in respect of what was until that point a private sale process, either voluntarily or as required under Rule 2.2, this will commence an offer period in relation to the company. The requirement in Rule 2.4(a) to identify any potential offeror with which the company is in talks, or from which an approach has been received, would therefore apply to that announcement.
However, where the Executive is satisfied that the company is genuinely initiating a private sale process, the Executive will normally grant dispensations from Rules 2.4(a) and (b), which would apply once the company has initiated the private sale process.
If the Executive grants these dispensations in a particular case:
any voluntary announcement by the company in relation to what was until that point a private sale process will not be required to identify any potential offeror with which the company is in talks or from which an approach has been received; and
any announcement by the company required under Rule 2.2 will only be required to identify any potential offeror with which the company is in talks, or from which an approach has been received, if that potential offeror has been specifically identified in any rumour or speculation.
If a company wishes to seek these dispensations it should consult the Executive before initiating any private sale process or approaching, or entering into talks with, any potential offerors.
The Executive considers that a company to which the dispensations from Rules 2.4(a) and (b) have been granted should explain in any relevant announcement that the Executive has granted these dispensations and state whether the company is at that time in talks with, or in receipt of an approach from, any potential offerors. Once a private sale process has been publicly announced, it should then be treated as a public search for potential offerors (see section 5 below).
A company to which the dispensations from Rules 2.4(a) and (b) have been granted can decide whether:
to communicate to potential offerors that it has received such dispensations; and/or
to identify any potential offeror with which the company is in talks, or from which an approach has been received, in any announcement (save where it is otherwise required to do so by the Executive).
A potential offeror should not attempt to prevent a company from identifying it (see Rule 2.3(d) and paragraph 3.5 of Practice Statement 20).
If a potential offeror is identified in an announcement in relation to a public search for potential offerors that was previously a private sale process, either voluntarily or as required by the Executive, Rule 2.6(a) will apply. Therefore, in accordance with Rule 2.4(c), the announcement must specify the date on which the “put up or shut up” deadline in relation to that potential offeror will expire. Any potential offeror that is not identified in such an announcement will not be subject to a “put up or shut up” deadline.
Updates
Once the private sale process has been announced (and therefore becomes a public search for potential offerors), the Executive considers that the company should make announcements providing an update on the progress of that public search for potential offerors, as appropriate. If at any stage the company decides not to proceed with the public search for potential offerors, the company should update the position promptly by way of an announcement.
Note 2 on Rule 2.2 will apply to a public search for potential offerors that was previously a private sale process, regardless of whether the Executive has granted dispensations from Rules 2.4(a) and (b). As such, if any rumour or speculation specifically identifies a potential offeror, an announcement identifying that potential offeror will normally be required.
Converting a private sale process (or other private discussions following an approach) to a formal sale process
A company which has been undertaking a private sale process (or is otherwise in private discussions with one or more potential offerors which have approached it) may wish to announce a formal sale process (whether on a voluntary basis or where an announcement is required under Rule 2.2). If so, the Executive will normally grant the FSP dispensations where it is satisfied that the board is genuinely seeking to sell the company through that process.
However, if a company is announcing a formal sale process in circumstances where an announcement is required under Rule 2.2, the Executive will normally require the company to identify any potential offeror that has been specifically identified in any rumour or speculation, but will normally grant a dispensation from Rule 2.6(a) so that any such potential offeror would not be subject to a “put up or shut up” deadline, provided that (and for so long as) it is participating in the formal sale process.
The Executive should be consulted at the earliest opportunity in all cases in which a company undertaking a private sale process may subsequently wish to announce a formal sale process.
In addition, an announcement required under Rule 2.2 should not be delayed in order for a company to seek the FSP dispensations or to ascertain whether a potential offeror agrees to participate in the formal sale process. However, the Executive considers that a company could, prior to an announcement obligation arising under Rule 2.2, pre-emptively seek such agreement from a potential offeror.
Strategic reviews and public searches for potential offerors
Strategic review announcement which refers to an offer or a public search for potential offerors
The Executive considers that the same principles as regards the application of the relevant rules, possible dispensations and updates set out in sections 4(a) to (c) above in respect of a private sale process should also apply where a company announces (other than by means of a formal sale process):
a strategic review which refers to an offer for the company as a possible outcome; or
a public search for potential offerors (for example, by announcing that it is “seeking potential offerors” or “seeking purchasers”).
As referred to in paragraph 4.6 above, a public search for potential offerors would include where a company was previously undertaking a private sale process that has been publicly announced.
Strategic review announcement which does not refer to an offer
If a strategic review announcement does not refer to an offer as a possible outcome, the Executive will not treat the announcement as automatically commencing an offer period.
In such circumstances, the Executive will make enquiries of the company’s advisers as to the options being considered by the board. The Executive will normally require the company to make a further announcement, identifying that an offer is one of the options to be considered as part of the strategic review, where both:
Any such further announcement will commence an offer period and the Executive considers that the same principles as regards the application of relevant rules, possible dispensations and updates referred to in paragraph 5.1 above should apply in these circumstances.
Converting either a strategic review which refers to an offer or a public search for potential offerors to a formal sale process
If a company which has announced either:
a strategic review that refers to an offer for the company as a possible outcome; or
a public search for potential offerors,
subsequently wishes to announce a formal sale process, the Executive will normally grant the FSP dispensations where it is satisfied that the board is genuinely seeking to sell the company through that process.
Given that the company would already be in an offer period at this point, Rule 2.4(a) would not be applicable and the effect of the FSP dispensations would be that:
any subsequent announcement by the company which refers to the existence of a new potential offeror would not be required to identify that potential offeror under Rule 2.4(b); and
each of the potential offerors (regardless of whether it is identified) would not be subject to the “put up or shut up” deadline referred to in Rule 2.6(a),
provided that (and for so long as) the potential offeror is participating in the formal sale process.
Companies with a majority shareholder
Save as set out in paragraph 6.2 below, the Executive considers that the principles set out in sections 3 to 5 above should apply equally regardless of whether the relevant sale process, strategic review or search is initiated by:
the company itself; or
a shareholder which holds shares carrying more than 50% of the voting rights in the company and which is seeking a purchaser for those shares.
However, at the request of a majority shareholder (other than a majority shareholder that is itself considering making an offer for the company), the Executive will normally grant a dispensation from the “put up or shut up” requirement in Rule 2.6(a) in respect of any particular potential offeror that has been identified in an announcement in relation to the relevant sale process, strategic review or search.
Application of Rule 21.3 and Note 1 on Rule 21.3
Ability to treat more than one potential offeror as the “first offeror”
The limitation on the conditions that an offeree company may attach to the passing of information under Note 1 on Rule 21.3 applies only where the information requested has already been provided to an earlier offeror or potential offeror. Note 1 on Rule 21.3 does not address the position of the first offeror or potential offeror to which information is provided, and Rule 21.3 does not seek to intervene in relation to the conditions that a company might seek to impose on the first offeror or potential offeror (because the rule does not apply at that stage).
Where a company approaches more than one potential offeror to ask them to participate in a formal sale process, private sale process, strategic review or public search for potential offerors, each of the potential offerors which receives information as part of that process will normally be considered to be a “first offeror” for the purposes of Note 1 on Rule 21.3, provided that each of them agrees to the conditions on which it will receive the information and participate in the relevant process before any information is passed to any of them.
Subject to paragraph 7.4 below, the company may therefore at that stage seek to:
require potential offerors to enter into certain arrangements as a condition to them receiving information and participating in the relevant process (for example, a “standstill” provision that would prevent a potential offeror from acquiring shares in the company without the consent of the board); and/or
agree different conditions with each such potential offeror.
Waiving Code provisions
The Executive considers that a company may not normally require a potential offeror to agree to waive provisions of the Code as a condition to it receiving information and participating in the relevant process. However, in the case of a formal sale process, the company may require a potential offeror that is participating in that process to undertake not to request information under Rule 21.3, provided that the undertaking applies only until the earlier of:
the announcement by a third party of a firm intention to make an offer; or
the conclusion of the offer period.
Subsequent offerors
Any subsequent offeror or potential offeror which was not initially approached by the company to participate in a formal sale process, private sale process, strategic review or public search for potential offerors, or any potential offeror which was initially approached but which did not agree to the conditions sought to be imposed before any information was passed to any offeror or potential offeror, will benefit from the protection of:
Rule 21.3 (save in the case of a formal sale process where that potential offeror has entered into an undertaking as described in paragraph 7.4 above); and
Note 1 on Rule 21.3 (regardless of whether it chooses to engage with the company in the relevant process).
Application of Rule 21.3(b) in a publicly announced process
The announcement of the commencement of a formal sale process, strategic review which refers to an offer or public search for potential offerors will be treated as equivalent to the announcement of the existence of a potential offeror to which information has been given for the purposes of Rule 21.3(b). Accordingly, following the announcement of such a process, any information passed to any potential offeror participating in that process must, on request (and subject to any undertaking entered into as described in paragraph 7.4 above), be passed to a bona fide potential competing offeror, even if that party is not participating in that process.
Practice Statements are issued by the Executive to provide informal guidance to companies involved in takeovers and practitioners as to how the Executive normally interprets and applies relevant provisions of the Code in certain circumstances. Practice Statements do not form part of the Code. Accordingly, they are not binding on the Executive or the Panel and are not a substitute for consulting the Executive to establish how the Code applies in a particular case.
7 July 2017
Last amended 30 April 2024