TITLE : TAKE-OVERS AND MERGERS. 4TH ED.

THE twin objects of this book remain:

(1) to provide for practitioners a detailed and systematic book of reference on the law and the practice relating to take-overs and mergers, and

(2) to present a readable account of the subject for the many others, particularly company directors, financial commenta- tors, investment analysts, stockbrokers and shareholders, who come into contact with or have an interest in take-overs and mergers.

In the eight years since the publication of the third edition of this book, the number of take-over and merger proposals in the United Kingdom has declined from its height in the year to March 1972, when there were 436 such proposals, to a more static level of about 150 to 200 proposals each year. During this period there have been no fundamental changes in the law or in extra-statutory regulations The primary regulations remain those contained in the City Code and the Rulings and Practice Notes published by the Take-over Panel. This system of regulation remains, as intended, flexible, enabling occasional significant changes or shifts in emphasis to be made in order to control abuses or effect improvements. The rules and procedures develop through the issue of new Rulings and Practice Notes and embellishment by practitioners, and the extent of such development is most clearly demonstrated by the sheer length of Chapter 13, with its point-by-point analysis of the procedure to be followed in take-over bids and the information to be incorporated in documents issued during the course of an offer.

The domination of the self-regulatory system as embodied in the City Code is particularly highlighted in relation to mandatory bids (dealt with in detail in Part A of Chapter 9), where the Code requires an offer to be extended to all shareholders in an offeree company where effective control has passed to one person or to a group of persons acting in concert. Despite its fundamental importance in terms of the substantial financial commitment that the obligation to make a mandatory bid could involve, such obligation is not legally enforceable. This is the most significant example of the extent to which the self-regulatory system governing bids has overwhelmed legal regulation in respect of conduct as well as procedure.

It remains widely accepted, however, that there are areas in which legalisation is required and the self-regulatory system is inadequate. rubs Thus, for example, the Take-over Panel has called for some years for legislation to deal adequately with the abuse of insider trading, the compulsory acquisition procedures contained in section 209 of the Companies Act 1948 are ambiguous and unsatisfactory and the rights of minority shareholders are inadequate in theory and even more unsatisfactory in practice. Opportunities have been missed for legis- lation in these important areas, and it is unfortunate that the provisions of the Conservative Government's 1973 Companies Bill dealing with the compulsory acquisition procedures (referred to in Chapter 14) have fallen by the wayside. However, the proposals contained in the Labour Government's 1978 Companies Bill dealing with improved rights for minority shareholders (contained in clause 65 of that Bill) have now been reIntroduced by the new Conservative Government, and the Government has recently announced its intention to introduce some legislative proposals concerning insider trading into its 1979 Bill.

The economic aspects of take-overs and mergers discussed in this book and the consideration of the structure of bids and mergers, defensive tactics and the duties and obligations of directors have much relevance outside the United Kingdom. The increasing volume of regulation, rulings and practical development in the United King- dom, whilst generally not of specific application in other jurisdictions may nevertheless be of some relevance to or provide a possible approach to or solution of common problems, particularly in common law countries where the regulation of take-overs and mergers has drawn on United Kingdom experience.

Since the previous edition, the United Kingdom has joined the European Economic Community. In the long term, the Community looks towards the harmonisation of company law but implementation will be a long and complicated process. So far, the United Kingdom has implemented the First Council Directive on company law in section 9 of the European Communities Act 1972, and the proposals in the Second Directive, adopted in 1976, should reach the statute book in the near future, having been introduced originally in the 1978 Companies Bill and now reintroduced in the 1979 Companies Bill. In time, the Third Directive, proposing co-ordination of the pro- cedures for and effects of mergers through the acquisition of assets and liabilities of a company (but not of its share capital), and the Fourth Directive and further draft Directives seeking to harmonise accounts and disclosure of information regarding listed companies, will have some impact. However, for the time being it is only the anti-trust provisions of the Treaty of Rome and the coal, iron and steel provisions of the Treaty of Paris, discussed briefly in Chapter 15, which are of significant importance. A detailed review of transnational mergers currently remains outside the scope of this book.

The change of government in the United Kingdom in May 1979 has made it more than usually difficult to ensure that at the time of publication, this book should present an up-to-date reference guide for the practitioner. For the future, it is the intention that there should not again be such a long interval of time between publication of successive editions and, furthermore, where any sufficiently significant new regulation or change in existing regulations is introduced, a supplement may be published. In this connection, I would welcome comments from practitioners who feel that their own particular experiences, perhaps leading them to explore some regula- tion in great detail, may be of general application to others. In this way, they will help to ensure that the book remains as extensive and useful a practitioner's guide as possible.

For the present, the reader is asked to take note of some changes which have taken place since the effective date of this edition:

(a) the Labour Government's 1978 Companies Bill died nvith the fall of that government, but the provisions of Parts I, II and III of the Bill have been substantially reproduced in the Companies Bill 1979 introduced by the Conservative Government. The new Bill reproduces in very similar form clauses 1-43, 64, 65 and 67-78 of the Companies Bill 1978 and, where references to those clauses appear in the text, the reader should have regard to the provisions of the 1979 Companies Bill;

(b) in July 1979 the Stock Exchange published amendments to the Listing Agreement and to Chapter 4 of the Yellow Book dealing with acquisitions and realisations. Whilst it has not proved possible to incorporate the detailed changes, many of which affect form rather than substance, in the text it has been possible to add the new pro- visions to Appendix D and to highlight the changes. In particular, attention is drawn to the amendment to paragraph 17 of Chapter 4 of the Yellow Book which was introduced following controversy over the bid by Allied Breweries Limited for l. Lyons & Company Limited, and which requires that the consent of the shareholders of an offeror company must be obtained where the company proposes to make a significant acquisition, being broadly an acquisition where the ofleree company is 25 per cent. or more of the size of the offeror company; (c) the Annual Report of the Panel on the year ended March 31, 1979, was published at the end of May 1979 and included particulars of significant Rulings during the previous 12 months. These did not involve any significant changes from interpretations already set out in the book; the relevant portions of the Report are included in (d) the Capital Gains Tax Act 1979 came into effect on April 6, 1979, consolidating existing capital gains tax legislation. It has been possible to incorporate references to the new section numbers in Chapter 17, dealing with the tax effects of take-overs and mergers, but it was not possible to extend use of the new references through- out the book and occasionally, therefore, references may still be to the previous capital gains tax legislation;

(e) Exposure Draft 24 published in May 1979 proposes as a further stage in the implementation of inflation accounting (discussed in Chapter 20) to amend the Hyde Guidelines to require a monetary working capital adjustment and the provision of an inflation adjusted balance sheet. If approved, the new requirements will apply to financial statements for accounting periods beginning on or after January 1, 1980;

(f) the Competition Bill 1979 proposes the abolition of the Price Commission (this has in practice already been carried into effect) and also proposes much broader powers to allow the Director General of Fair Trading to carry out investigations into courses of conduct which may be regarded as anti-competitive. The Bill contains no definition of " anti-competitive conduct," perhaps highlighting the new Con- servative Government's uncertainty with regard to its attitude to monopolistic practices. For the present, the provisions of the Fair Trading Act 1973, described in detail in Chapter 15, and the inter- pretations thereof remain effective as guidelines to competition policy in relation to take-overs and mergers;

(g) restrictions on direct investment outside the Scheduled Terri- tories were abolished in July 1979, although permission under the Exchange Control Act 1947 is still required (E.C. 18 Supplement No. 6).

I have already referred to the considerable expansion and develop- ment of Chapter 13. In addition, I hope that the reader will find the treatment of the following areas, where significant developments of the law or practice have occurred, to be particularly useful:

(a) the very detailed treatment of mandatory bids and partial bids (Chapter 9). The development of the rules governing acquisitions of effective control of a company represents the major change in the Code in the last eight years and requests for guidance or interpretation of those rules represent easily the largest source of calls on the Panel executive;

(b) a more detailed treatment of the compulsory acquisition procedures (Chapter 14) in the light of some recent cases;

(c) the development and expansion of Chapter 15 as a result of the publication in 1978 of the Guide to the Procedures under the Fair Trading Act 1973 issued by the Office of Fair Trading, and the publication in May 1978, of a Review of Monopolies and Merger Policy by a working party of senior officials, reporting to the Secretary of State for Prices and Consumer Protection;

(d) the implications of section 54 of the Companies Act 1948 on the financing of take-overs are analysed in more detail in Chapter 18, particularly in the light of some recent cases;

(e) the accounting implications of take-overs and mergers are analysed by an accountant and Chapter 19 offers a much more practical approach to the accounting problems encountered;

(f) the introduction of the imputation system of taxation and inflation accounting has led to significant changes in attitudes to the valuation of securities and Chapter 20 reflects the new approach.

I should like to express my thanks to John Dick, the taxation editor, to John White of Peat, Marwick, Mitchell & Co. for completely revising Chapter 19 on the accounting implications of take-overs and mergers and to his firm for kindly permitting the reproduction, as Appendix M, of their check list of procedures in relation to a profit forecast. Sincere thanks also go to A. P. Thompson of de Zoete & Bevan for his ideas and advice in relation to the chapters on valuation of securities and on gearing and to Peter Lee, a Deputy Director General of the Panel and his colleagues for their ready and patient help and guidance in connection with the interpretation of the Code. I am grateful for the willing assistance and gyidance from officials at the Department of Trade, the Quotations Department of The Stock Exchange, the Bank of England and the Dividends Section of the Treasury. Finally, my thanks to all those colleagues and friends who helped and advised in their different ways, particularly Edwin Williamson of Sullivan & Cromwell, Andrew Leggatt Q.C., Dennis Marshall, Geoffrey White, Simon MacLachlan, Edward Sadler, Michael Coombes and Michael Legge. Whilst recognising and appreciating the assistance and helpful comments received during the preparation of this edition of the book, the views expressed are nevertheless solely my own and do not necessarily represent official views.

My sincere thanks to Andrew Greystoke for his tremendous enthusiasm and assistance, frequently at the cost of crossing the Atlantic, without which this edition may not have happened for some time longer, and to his wife Andrea for putting up with lost evenings and weekends. Finally, my deepest thanks go to my wife Sylvia for encouraging me to complete this edition on those late evenings and long weekends when the spirit was the least willing and for being prepared to suffer the countless absences and unsociable hours.

This edition is written with reference to the law and regulations in force at April 1, 1979.

Blackfriars House, London E.C.4. September, 1979. M. V. BLANK.