11 August 2021
The Takeovers Panel has given notice that the revised Guidance Note 20 on Equity Derivatives will come into effect from Monday, 4 October 2021. This article provides a reminder of the key changes contained in the new Guidance Note 20 on Equity Derivatives that market participants and their legal advisers should be aware of.
IN BRIEF
Apart from minor changes to clarify certain disclosure requirements, the Guidance Note is consistent with the revised Guidance Note 20 that was published in May 2020. This Guidance Note:
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makes it clear that all long positions (whether physical or cash settled) of 5% or more should be publicly disclosed, irrespective of whether a control transaction has commenced; and
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sets out the factors the Panel may take into account in determining whether an acquisition of a long position in excess of 20% will constitute unacceptable circumstances.
KEY CHANGES IN THE NEW EQUITY DERIVATIVES GUIDANCE NOTE
DISCLOSURE EXPECTED WHETHER OR NOT THERE IS A CONTROL TRANSACTION
The Takeovers Panel expects public disclosure to be made where the long position of a person and their associates:
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is 5% or more; and
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if so, changes by at least 1% or falls below 5%,
whether or not a control transaction has commenced. Failure to provide the required disclosure may give rise to unacceptable circumstances, irrespective of whether a control transaction has commenced.
UNACCEPTABLE CIRCUMSTANCES
Examples of where the Panel is likely to find unacceptable circumstances include where:
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the taker with an undisclosed long position of 5% or more has attempted to exercise control or influence over the entity or proposes a control transaction after the time that disclosure should have been made; and
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someone other than the taker proposes a control transaction and is unaware of the equity derivative (which has not been disclosed).
The Panel may also consider non-disclosure of equity derivatives where the taker does not have a long position of 5% or more to be unacceptable in certain circumstances, such as where the purchase of physical securities would have required disclosure as a pre-bid purchase in a bidder’s statement under s636(1)(h).
In relation to the acquisition of a long position that would breach the 20% rule (if it were comprised entirely of a physical holding), the factors the Panel may consider in determining unacceptable circumstances include:
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if the taker has attempted to exercise control or influence over the entity;
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if and when the long position was disclosed; and
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whether the acquirer of the long position could have relied on an exemption to the 20% rule if the acquirer had made the acquisition as a physical holding (such as the “3% creep” exemption).
COMMENTARY
Although the revised Guidance Note 20 will only come into effect later this year, there has been quite a long lead time since the Takeovers Panel released the consultation paper that proposed these changes in mid-2019. Accordingly, we expect that many market participants will have already been taking into consideration the Takeover Panel’s proposed revisions in their market disclosures that relate to equity derivatives. Nevertheless, market participants should be aware that the Takeover Panel’s position on disclosure of equity derivatives has now been made clear and the key changes in the new Guidance Note 20, as outlined in this article, will come into operation from Monday, 4 October 2021.
For further information, please contact:
Andrew Rich, Partner, Herbert Smith Freehills
andrew.rich@hsf.com
