Contested mergers and takeovers
This briefing explains the law on mergers and takeovers, and describes the role and powers of bodies that get involved in the process. Recent developments and cases are also covered.
Please note that this briefing paper is currently being updated. Most of the content is still current, except for changes arising from Brexit and new arrangements for some areas arising from the National Security and Investment Act 2021.
Many mergers and takeovers go largely unremarked by the wider public. Some, however, attract a great deal of attention and criticism.
It is shareholders who ultimately accept or reject a merger or takeover, by voting on the offer. But other bodies can intervene in various ways, and significantly alter the deal, or block it altogether.
The most common hurdle that proposed mergers and takeovers must pass is to demonstrate that they do not substantially reduce competition in the relevant market. Less frequently, mergers and takeovers may have to show that they do not harm specified public interests.
The public interest concerns upon which the Government may intervene in mergers and takeovers are set out in section 58 of the Enterprise Act 2002:
- The Secretary of State for Business, Energy & Industrial Strategy can intervene on grounds of national security and financial stability.
- The Secretary of State for Digital, Culture, Media & Sport can intervene on grounds of media quality, plurality and standards.
The Government wants to increase its ability to scrutinise and intervene in investments and transactions that raise national security concerns. Under proposed reforms published on 24 July 2018, the Government would be able to intervene much more widely and frequently when national security is considered to be at risk.
The procedures by which mergers and takeovers are undertaken are subject to regulation by the Takeover Panel, which issues and administers the City Code on Takeovers and Mergers.
The Takeover Panel also has powers to monitor and enforce “post-offer undertakings”. Post-offer undertakings are legally binding commitments made by the acquiror with respect to the future of the target company. For example, the acquiror might commit to maintaining certain levels of employment or expenditure on R&D, or to making certain contributions to the pension fund.