Fifteen years ago, Kraft’s £12bn takeover of Cadbury led to the ‘surprise’ closure of a UK chocolate factory. The events, unforeseen by vendor and employees, prompted Vince Cable, then secretary of state in the UK coalition government, to require the Takeover Panel to change the UK Takeover Code. It introduced rules governing how foreign buyers purchase UK listed companies and the undertakings they must declare when they do so, prior to completion.

Post-offer intention statements – declarations made by the acquiring company during the M&A process – were introduced in 2011. Such acquirers became obliged to detail their post-acquisition plans for the target company. According to the Takeover Code, statements had to be clear and specific, covering key areas such as employment policies, the location of business activities and strategic intentions. The statements are supposed to provide transparency and foster trust among all parties involved.

But 13 years on, in March 2024, the Panel found it necessary to publish a Bulletin tightening up the rules: “The disclosure by an offeror of its intentions allows shareholders in the offeree company to take that information into account in order to reach a properly informed decision on the takeover bid,” the bulletin explained. The Panel set out a number of scenarios (including ‘standard form’ statements) that do not form “an acceptable basis for formulating statements of intention” – a pretty forthright statement for the Panel.

Specific intent

In a briefing note Herbert Smith Freehills explained: “The Panel expects a bidder will always have developed specific intentions for the target business, and they must be included in the announcement of an offer.” The Panel has begun to require greater disclosure of a bidder’s intentions and details of the plan for the target business after the deal closes. The briefing note further adds: “If, exceptionally, the bidder does not intend to make any changes in relation to those matters, it must make a statement to that effect.”

So what has this meant for M&A so far and what will it mean going forward? The Takeover Panel does police the 12-month period governed by statements of intention and demands follow-ups monitored by the transaction’s advisers at the end of the period. But sanctions are limited to censure and shame, rather than any financial penalty. Even so, within the City they trust the obligation to play by the rules in order to be admitted to the field of play in the future. Rick Thompson, MD for investment banking at Singer Capital Markets, says the sanction of ‘cold shouldering’ is very effective in making acquirers abide by the Takeover Code.

Thompson, who also sits on ICAEW’s Corporate Finance Faculty Technical Committee, says that post-offer intention statements have become “rather generic commentary about management and employees and a bit tick-box. Because they’re not binding like post-offer undertakings, you might actually get more clarity from the bidder, or indeed the target.”

Helen Roxburgh, a KPMG corporate finance partner with particular experience of working with and in relation to public companies on Takeover Code-governed transactions, says: “I am often working with clients and the Takeover Panel to make sure that statements are compliant with the Code requirements if I am advising an offeror. I’m also interested in what those statements say if I am advising the offeree, because the offeree board would need to provide its views on certain of those statements within any offer when it’s made.”

Thompson sees the statements as being important for both sides of the deal: “It’s a natural part of your M&A defence. It would be something you’d be discussing with all advisers, not just lawyers, and certainly in hostile situations. Target boards are naturally focused on getting the best price, but they also have a wider duty of care to other stakeholders.”

The definition of interested parties goes beyond shareholders, says Roxburgh: “The Panel changed the Takeover Code back in 2011 as it believed offerors needed to think more broadly and to provide disclosures relevant to a wider group of stakeholders rather than just focusing on shareholders. This acknowledges that there’s a wider stakeholder group impacted by a change of ownership.” 

When deal volumes ticked up post-COVID, Roxburgh says some parties were looking to get flexibility in the statements: “The Takeover Panel published Bulletin 7 to remind offerors, offerees and their advisers that general or non-specific statements won’t be considered acceptable. From my perspective, that’s something you always discuss with your clients upfront, emphasising how important these statements are and how they should effectively consider them as binding over the period they cover. Some are statements of what a party is going to do and some are what they’re not going to do – they’re equally important. One point I make clearly to my clients is that they need to ensure what they’re saying in any offer announcement or offer document is consistent with both internal and external documentation setting out rationale for and plans following completion of the transaction.”

It might mean more work up front for offerors to be able to provide those statements than they would necessarily have planned to meet some of the disclosure requirements but, Roxburgh adds: “That would be unlikely to put bidders off. It might, however, load into the pre-completion announcement timetable some of the work they might expect to undertake after a deal is completed.”

For Giles Distin, a corporate partner at Addleshaw Goddard and ICAEW Corporate Finance Faculty board member, the Takeover Panel’s Bulletin 7 published last year shows “the Panel is not happy with the fence-sitting or highly contingent wording which bidders are trying to include as intention statements”. He adds: “It is likely such contingent wording is included because the bidders want to leave lots of options open post-deal, to allow them to make changes to the target’s business and employment arrangements, but not rock the boat politically in the run-up to announcing a bid. More detailed statements could make a deal more difficult to do because clearer – but perhaps less positive – statements about plans could worry the target and its management. The Panel is basically saying that more detail and specificity in this wording is expected and boilerplate wording won’t be acceptable because each target company and deal is different to the next.”

Describing the Kraft/Cadbury post-deal actions as something of a “wake-up call for the UK government and regulators” that persuaded the Takeover Panel to institute a different regime, Distin says post-offer intention statements are part of a more holistic view of the merit of takeover, going beyond shareholder price. “Lots of those statements inevitably would relate, as a minimum, to employee arrangements in the target group post-transaction, but the statements that the Takeover Code currently requires go beyond that and into questions such as: What are the bidder’s longer-term plans for the business? What are you going to do with the fixed assets of business? Are you going to close down the target’s headquarters or other functions?”

Distin says the purpose of Bulletin 7 is clear: “The Panel is effectively saying that they have these rules and don’t think people are complying with them in the way they’re expecting them to be complied with. It’s basically a message to advisers, investment bankers and lawyers to say: ‘We’re warning, please do better.’”

As for sanctions for breaching the rules relating to intention statements? “The Panel has a range of sanctions at its disposal. It might, for example, choose to censure a breaching party,” Distin says, “which, from a reputational perspective, could be quite damaging for them. What the Panel can’t do is specifically enforce post-offer intention statements, for example in court. The regime for intention statements hasn’t been set up in that way. And indeed, despite the increasing focus of the Panel on the need for more specificity in these intention statements, they would still not be drafted in a particular, precise way that would be capable of enforcement in a court of law.”

Thompson adds: “Intention statements are clearly better than nothing. But they are only intention statements. You can qualify them and they only last for 12 months post the offer period. I do slightly wonder about their value.”