Stakebuilding meaning

Produced with input from Rebecca Cousin of Slaughter and May on market practice. This Practice Note succinctly outlines the relevant rules and guidance concerning parties who are, or are deemed likely to be, acting in concert for the purposes of The City Code on Takeovers and Mergers (the Code). In particular, the note reviews the various relationships that may amount to acting in concert, the importance of concert parties for Rule 9 of the Code, and the disclosures required in connection with stakebuilding. Stakebuilding is not prohibited by the Code, but can carry significant implications. The effects of membership of a concert party will typically be engaged under Rules 4 (Restrictions on dealings), 5 (Timing restrictions on acquisitions), 6 (Acquisitions resulting in an obligation to offer a minimum level of consideration), 8 (Disclosure of dealings and positions), 9 (The Mandatory offer and its terms) and 11 (Nature of consideration to be offered) when any of the relevant parties acquires shares...

Disclosure of interests and dealings The reporting of shareholdings and transactions both before and throughout a takeover offer sits within a dense, robust and intersecting framework of statutes and rules. The Panel on Takeovers and Mergers (Panel) views these disclosures as essential to uphold the General Principle in the City Code on Takeovers and Mergers (Code) that every participant in an offer should prevent the formation of false markets in the securities of the offeror or the offeree. Practically, the obligation to reveal interests and trades during a takeover bid chiefly aims to discourage stakebuilding, where an individual amasses and parks, without any public announcement, a material stake in another company...

Dealing in shares and related interests Trading in shares and associated interests of the offeree and of any offeror or would-be offeror, whether ahead of or during an offer, can carry material weight in a public takeover, as each side looks to secure tactical or strategic leverage by building up (or divesting) positions over time if feasible. This is often most acute in contested bids, or where the offeror seeks the offeree board’s endorsement of the transaction in particular. Any securities dealings connected to a takeover bid, before, during, or after the offer period, may fall under legal and regulatory constraints that can restrict or bar such activity in whole or in part. These rules on trading in shares and related interests are extensive and intricate. Prospective offerors should familiarise themselves, well in advance of approaching a potential offeree, with the distinct yet overlapping regulatory regimes that underpin these constraints. Moreover, transactions in shares and other securities of parties to an offer may trigger disclosure under several separate legal...