THE TAKEOVER PANEL - PRACTICE STATEMENTS ON THE RELEASE OF INFORMATION, EQUALITY OF INFORMATION AND FRUSTRATING ACTION

In a break from the previous practice of providing guidance on the interpretation of the Takeover Code and SARs in the Director General's Report in the Panel's Annual Report and Accounts, the Takeover Panel Executive will now publish guidance on relevant issues as they arise by publishing Practice Statements. These Practice Statements will not form part of the Takeover Code or SARs and like the Director General's report will not be binding on the Panel. Instead they are guidance as to how the Executive normally interprets and applies the Code and SARs in certain circumstances.

1 Rule 19 - Information

1.1 Rule 19.1 - Standards of Care
Rule 19.1 requires that during the course of an offer each document or advertisement issued, or statement made, must satisfy the highest standards of accuracy and the information given must be adequately and fairly presented, whether issued by the company directly or by an adviser on behalf of the company.

The notes to Rule 19.1 state that the Panel regards financial advisers as being responsible to the Panel for guiding their clients and any relevant public relations advisers with regard to any information released during the course of an offer. It warns that it is very difficult to alter an impression given or a view or remark attributed to a particular person after publication and that control of any possible abuse lies largely with the person being interviewed.

Under guidance issued in February 2004, the Executive have noted comments reported in newspapers concerning the revision of an offer attributed to an offeror which could not have been made in accordance with the provisions of the Code and investigated the source of the comments (see 2.1.2 below). The guidance advises shareholders of the offeree company that the comments should be disregarded. Under the notes to Rule 19.1, the Executive could require a statement of retraction to be issued.

1.2 Rule 19.3 - Unacceptable Statements
Rule 19.3, which applies General Principle 6, aims to preserve a fair market in the shares of companies involved in takeover offers. The Rule requires parties to an offer and their advisers to take care not to issue statements which, while not factually inaccurate, may mislead shareholders and the market or may create uncertainty. In addition, it prohibits an offeror from making a statement to the effect that it may improve its offer without committing itself to doing so and specifying the improvement.

In guidance issued in relation to an offer by Silvestor UK Properties Limited for Canary Wharf Group Plc, the Executive warn that any suggestion of the possibility of a revision to an offer will be of particular sensitivity and could lead to there being a false market in the shares of the offeree company in the event that no such revision materialises.

2 Rule 20 - Equality of Information

2.1 Rule 20.1 - Equality of Information
The General Principal set out in Rule 20.1 is that information about companies involved in an offer must be made available to all shareholders as nearly as possible at the same time and in the same manner.

The notes to Rule 20.1 have sought to apply this by requiring that where there are meetings with shareholders an adviser must be present and must confirm in writing to the Panel that no material new information has been given and no significant new opinions given.

In the recent guidance, the Executive have sought to confirm that it is not acceptable for an offeror or an offeree company or their respective advisers to make significant arguments in support of or against an offer to selected shareholders, analysts or stockbrokers unless they have been disclosed to all shareholders and the market generally by means of a circular or public announcement.

In relation to information about companies involved in an offer disclosed by the press, television and in radio interviews, the notes to Rule 20.1 advise that parties involved in an offer must take particular care not to release new material in interviews or discussions with the media. Where any new information is made pubic by the media, a circular must be sent to shareholders and, where appropriate, paid newspaper space taken.

The Executive have specified in guidance that all parties involved in takeovers and their advisers must take the utmost care in any discussion, whether formal or informal, with shareholders and others, such as journalists or investment analysts, not to release any material new information or significant new opinions relating to the offer.

2.2 Rule 20.2 - Site Visits and Meetings with Management and Controlled Auctions
Under Rule 20.2, where information is given to one offeror or potential offeror, it must, on request, be given equally and promptly to another offeror or bona fide potential offeror even if the offeror is less welcome.

Under the guidance the Executive state that it is their view that information includes site visits and meetings with the offeree company management. The Executive recognises that it is not possible to replicate the same site visit or access to management exactly but that it is the responsibility of the financial adviser of the offeree company to give equality of treatment as far as practicable. In relation to meetings, the Executive have confirmed that the offeree management would not be required to provide specific items of information unless it had been previously provided to another offeror or potential offeror.

In addition, where an offeree company approaches a number of potential offerors asking them to participate in a controlled auction process, the Executive have stated that they will consider each of the recipients to be the first offeror provided they each agree to the conditions on which they will receive the appropriate information. Accordingly, the offeree company can attach to the passing of information to each of those potential offerors and the offeree company can agree different conditions with each of the potential offerors concerned. However, any subsequent offeror who is not approached by the offeree company to participate in the auction or any potential offeror who is initially approached but refused to agree to the conditions will continue to benefit from the protections in Rule 20.2 as a subsequent offeror.

This guidance clarifies the obligations and the Executive have indicated that, in the case of any dispute, it will be the financial adviser's responsibility to satisfy the Panel that there has been equality of treatment.

3 Rule 21 - Restrictions on Frustrating Action

3.1 Rule 21.2 - Inducement Fees
Rule 21.2 sets out certain provisions relating to the payment of inducement fees. Generally speaking, this includes a requirement that any inducement i.e. it must be no more than 1%.

In determining what equals no more than 1% of the value of the offeree company:

(a) the 1% limit can be calculated on the basis of the fully diluted equity share capital of the company;
(b) any VAT payable as a result should be taken into account in determining whether the 1% limit would be exceeded (other than if the VAT is recoverable);
(c) on a securities exchange offer, the value of the offeree company for these purposes will be fixed by reference to the value of the offer at the time of the announcement of the transaction; and
(d) where the inducement fee is agreed prior to the announcement of the firm offer the value of the offeree company will be determined by reference to the expected value of the offer at the time of the fee is agreed.

Where inducement fees are agreed with more than one offeror or potential offeror, each inducement fee can be up to the 1% limit not withstanding that in the circumstances the aggregate amount payable by the offeree company might exceed 1% of its value.

Finally, the Executive have indicated that as well as being consulted at the earliest opportunity they expect the offeree company board and its financial adviser to provide them with certain written confirmations prior to agreeing to pay an inducement fee. These confirmations are as follows:

(a) the inducement fee arrangements were agreed as part of the normal commercial negotiations;
(b) an explanation of the circumstances in which the fee becomes payable on the basis on which such circumstances were considered appropriate;
(c) any relevant information concerning possible competing offerors, for example the status of any discussions;
(d) confirmation that there are no side agreements or understandings in relation to the relevant arrangements that are not fully disclosed; and
(e) confirmation that in the opinion of the offeree company board and its financial adviser the agreement to pay the inducement fee is in the best interests of the offeree company shareholders.
For further information and the full text of the practice statements, please see the Panel's website at www.thetakeoverpanel.org.uk.

4 Takeover Directive

On 30 March 2004 the EU Council of Ministers adopted the Takeover Directive, by confirming its approval of the amendments to the Directive proposed by the European Parliament at first reading.

The aim of the Directive is to establish minimum guidance in all Member States for the conduct of takeover bids for securities admitted to trading on a regulated market. The Directive will provide for a framework of common principles and a limited number of specific requirements for implementation by the Member States. The major impact for the UK is that the Takeover Panel and the Code will be placed on a statutory footing.

Member States are required to bring appropriate legislation into force to implement the Directive no later than 30 March 2006.

If you require further information on any matter covered in this note, please contact your principal contact at Charles Russell or Simon Gilbert, Katy Knight, Clive Hopewell or Alexander Keepin (London), Francis Rundall or Richard Norton (Cheltenham) or Geoff Sparks (Guildford) and on 0207 203 5000.

Please note that the summaries above are a general indicative guide only. They are not exhaustive. This information has been prepared by the firm as a service to our clients. As it is a general guide, we recommend that you seek professional advice before taking action. No liability can be accepted by the firm for any action taken or not taken as a result of this information. The firm is not authorised under the Financial Services and Markets Act 2000 but we are able in certain circumstances to offer a limited range of investment services to clients because we are members of the Law Society. We can provide these investment services if they are an incidental part of the professional services we have been engaged to provide.