On 30 April 2024, the Takeover Panel published a revised version of Practice Statement 31 on 'formal sale processes', 'private sale processes', 'strategic reviews' and public searches for potential offerors. In it, the Takeover Panel has recognised that rather than initiating a 'formal sale process', boards of companies may prefer to initiate a 'private sale process'. The Takeover Panel has therefore set out new guidance on 'private sale processes' and revised guidance on the other types of sale processes.

While not formally binding on the Takeover Panel, Practice Statements set out informal guidance on the way in which the Takeover Panel normally applies the City Code on Takeovers and Mergers (the Takeover Code). As such, they form an important part of the regulatory framework and market participants will pay close attention to them. Here, we provide a summary of what the new guidance on sales processes covers and some of the key points to consider.

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1. New guidance for private sale processes

In amended Practice Statement 31, the Takeover Panel acknowledges that companies 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.

If a company does, however, make an announcement in respect of such private discussions (either voluntarily or because it is required to do so following rumour or speculation), Rule 2.4(a) of the Takeover Code would ordinarily require that company to name any potential offeror with which it is in talks or from which it received an approach.

However, the new guidance states that where a company can demonstrate to the Takeover Panel that it is genuinely initiating a 'private sale process', the Takeover Panel will normally grant dispensations from Rule 2.4 of the Takeover Code, such that:

  • where a company voluntarily makes an announcement in relation to what was, until that point, a 'private sale process', it will not be required to identify any potential offeror with which it is in talks or from which an approach has been received; and
  • an announcement in relation to the 'private sale process' under Rule 2.2 of the Takeover Code (e.g. because there has been rumour or speculation), will only be required to identify a 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.

Where the above dispensations have been granted, this should be made public by the company in question in any relevant announcement and such announcement should also state whether the company is at that time in talks with, or has received 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.

However, even where these dispensations have been granted, companies can still voluntarily name potential offerors (save where it is otherwise required to do so by the Takeover Panel). Any potential offerors that are named will then be subject to the normal 28-day 'put up or shut up' regime in Rule 2.6 of the Takeover Code.

In the same way as other sale processes, the company will be required to publish periodic updates as to their progress once they have become public.

Amended Practice Statement 31 also makes clear that companies will be able to convert a 'private sale process' into a 'formal sale process' (and, therefore, take advantage of additional benefits available when conducting a 'formal sale process'), if they can persuade the Takeover Panel that they are genuinely seeking to sell the company in that process.

2. Strategic reviews that refer to an offer

Where a company announces a strategic review that refers to an offer for the company as a possible outcome, or announces that it is searching for potential offerors, the same rules as summarised above in relation to 'private sale processes' will normally apply - including the possibility of seeking dispensations from Rule 2.4 of the Takeover Code from the Takeover Panel. The rules for strategic reviews that do not refer to an offer remain largely unchanged.

3. Companies with majority shareholders

Amended Practice Statement 31 states that the guidance on private sale processes, formal sale processes and strategic reviews and public searches for potential offerors should apply equally. This is so regardless of whether the relevant process, strategic review or search is initiated by the company itself, or by a majority shareholder holding more than 50% of the company's voting rights and which is seeking a purchaser for those shares.

However, as an exception to this, such a majority shareholder (other than one itself looking to make an offer for the company) will be able to ask the Takeover Panel to grant a dispensation from the 28-day 'put up or shut up' regime in Rule 2.6(a) of the Takeover Code 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.

4. Will formal sale processes still be relevant?

While it might seem that formal sale processes will be less common, they will still have an important role to play, as they provide companies with additional benefits that are not available on a private sale process or a strategic review. For example, in a formal sale process:

  • companies are able to require participants in the formal sale process to agree not to request information given to competing offerors under the 'equality of information provisions' set out in Rule 21.3 of the Takeover Code; and
  • companies are also able to enter into an inducement fee arrangement with one formal sale process participant in the circumstances set out in Rule 21.2 of the Takeover Code.

How will the new guidance inform your approach?

The revised Practice Statement and new guidance on private sale processes will offer a welcome update to the regulatory framework in this area, providing Takeover Code companies with further options when considering their future strategies.

If you have any questions about the points raised in this article, please get in touch with Jeffrey Elway or Samantha Hacking. You can also sign-up here to receive more updates on this and other topics from our Capital Markets team.