With literally hundreds of PTP transactions having been successfully completed in the UK, including some keenly contested hostile transactions, the procedure for carrying out such transactions is clear. Lisa Bushrod reports

Marco Compagnoni, partner at Lovells, says of the UK system in the case of PTP transactions: “There are three basic levels to worry about. First, the fiduciary duties of directors, second, takeover code policing and third is financial assistance.”

On the area of directors’ fiduciary duties, of concern is whether it is in the best interests of the target company to pay a break fee or not. “The classic view taken is that you are effectively putting the company into play and therefore getting better value for shareholders. But that you won’t get anyone to play without the costs being underwritten,” says Compagnoni. For the most part it is easy for independent directors of the company to get comfortable with this concept, unless of course there is an outright bidding war ensuring.

On the subject of takeover code policing, while submissions are made to the Takeover Panel in regards of fees or arrangements in fact this area lies in the domain of the Companies Act 1985 section 151. This requires an independent advisor to confirm that any fees or arrangements are in the best interests of shareholders.

Finally, the issue of financial assistance is dealt with by the EU’s second company law directive and the viability of a public-to-private transaction depends on how well individual EU member states have incorporated that into their domestic law. Compagnoni says: “The UK market has elaborate financial assistance regulations. It’s very detailed so it is very easy to advise on it because you can get a very clear legal position.”


The fact that UK legislation and regulation for public takeovers and stock delistings is highly prescriptive and has been put to the test hundreds of times is one of the reasons that hostile PTP transactions have occurred in the UK.

When Duke Street Capital bid for and went on to successfully complete the acquisition of Esporta, which was duly delisted, it would be a fair assessment to say that the greatest risk in this transaction involved commercial risk. The fact that Esporta’s incumbent management refused even to talk to the Duke Street Capital team meant the investor was forced to proceed with its bid on the basis of purely publicly available information.

This fits with rule 20.3 of the UK Takeover Code, which relates to the fact that the bidder must furnish the independent directors of the offeree company with all the information that has been given to the private equity backer. However, in practice there are usually two business plans put together in a UK PTP situation, one worked on by the incumbent bidding management team and another put together by the private equity backer.

This is the one way the bidder can ensure its strategic vision for the business is not hijacked, leaving it with a failed bid and out of pocket on expenses. The plan put together by an incumbent management team tends to concentrate on publicly available information, thereby not giving a competitive advantage away if, for example, rule 20.2 of the Takeover Code were invoked. Rule 20.2 provides for equality of information to competing offerors but states that the competing offeror must be a serious contender so as to avoid competitive intelligence abuses.

However, risks aside, a significant impediment to more hostile PTP transactions occurring is the fact that many private equity funds simply are not permitted by the terms of their individual fund agreements to get involved in hostile situations.

…and the EU

The fact that UK company law and the UK Takeover Code provide so well for public takeovers and delistings has been a key driver in the lobbying by UK practitioners to get its procedures and structure imposed on the proposed EU Takeover Code. A look at the proposed code shows an evolution, over its 13-year gestation, towards something closely resembling the UK Takeover Code. With the most active and successful European stock exchange it’s understandable that the UK market would be unwilling to concede on any points that it felt would leave it with less manoeuvrability than under its present system. Even if Europe’s disparate states can agree on a workable EU-wide Takeover Code that is incorporated into their legislation the company law of individual states may require attention to achieve a level playing field in this area across Europe.