Fifteen years ago, Kraft’s £12bn takeover of Cadbury led to the ‘surprise’ closure of a UK chocolate factory. The events prompted Vince Cable, then Secretary of State, 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 the following key areas such as employment policies, the location of business activities, strategic intentions and plans for the target’s pension schemes.

But, 13 years on, in March 2024, the Panel found it necessary to publish Bulletin 7, 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 also set out a number of scenarios that do not form “an acceptable basis for formulating statements of intention”.

Specific intent

In a briefing note, global law firm 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.” 

So what does this mean for M&A? Helen Roxburgh, a KPMG corporate finance partner, says: “I am often working with clients and the Takeover Panel to make sure that statements are compliant with the Code if I am advising an offeror. I’m also interested 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.”

Rick Thompson, MD for investment banking at Singer Capital Markets, sees the statements as being important for both sides: “It’s a natural part of your M&A defence. It would be something you’d be discussing with all advisers, and certainly in hostile situations. Target boards are focused on getting the best price, but they also have a wider duty of care to other stakeholders.”

Seeking flexibility

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 all parties that general or non-specific statements won’t be acceptable. That’s something you always discuss with your clients up front, emphasising how they should 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.”

For Giles Distin, a corporate partner at Addleshaw Goddard and ICAEW Corporate Finance Faculty board member, Bulletin 7 shows “the Panel is not happy with the fence-sitting or highly contingent wording that bidders are trying to include”. He adds: “More detailed statements could make a deal more difficult to do because clearer statements could worry the target.”

While many post-offer intention statements inevitably relate to employee arrangements in the target group, Distin says, “the statements that the Takeover Code requires go beyond that and into questions such as: ‘What are the bidder’s longer-term plans for the business? What is it going to do with the fixed assets? Is it going to close down the target’s headquarters or other functions?’ The Panel is saying that it has these rules and doesn’t think people are complying with them in the way they’re expecting them to be complied with. It’s a message to say: ‘We’re warning, please do better.’”

Penalties available

As for sanctions for breaching the rules? “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. What the Panel can’t do is specifically enforce post-offer intention statements, for example in court. And indeed, despite the increasing focus of the Panel on the need for more specificity, they would still not be drafted in a way that would be enforceable in law.”

Thompson adds: “Intention statements are 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.”

A longer version of this article appears on Corporate Financier, the Corporate Finance Faculty’s content hub.