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City Code on Take-overs and Mergers
In this guide
- 1. City Code on Take-overs and Mergers
- 2. 3 Key Takeaways
- 3. What is the City Code on Takeovers and Mergers?
- 4. Importance of the City Code on Takeovers and Mergers
- 5. How the City Code on Takeovers and Mergers Works
- 6. Examples of the City Code on Takeovers and Mergers in Action
- 7. Real World Application of the City Code on Takeovers and Mergers
3 Key Takeaways
Copy link to section- It ensures fair treatment of shareholders during mergers and acquisitions.
- It provides an orderly framework for conducting takeovers.
- It is enforced by the Panel on Takeovers and Mergers.
What is the City Code on Takeovers and Mergers?
Copy link to sectionThe City Code on Takeovers and Mergers is a comprehensive set of rules that dictates how companies in the specified jurisdictions can be taken over or merged. It outlines the procedures, timeframes, and disclosures required during these processes. The primary aim of the Code is to protect the interests of shareholders, ensuring they are treated fairly and have access to all relevant information to make informed decisions.
Importance of the City Code on Takeovers and Mergers
Copy link to section- Protection of Shareholders: The Code ensures shareholders are not disadvantaged during takeovers and have equal opportunity to participate in any benefits arising from the transaction.
- Transparency and Fairness: It promotes transparency by requiring companies involved in takeovers to disclose all relevant information to the market. This allows shareholders to make informed decisions about their investments.
- Orderly Process: The Code provides a structured framework for conducting takeovers, preventing hostile or chaotic situations that could harm the interests of shareholders or the market as a whole.
- Market Confidence: By maintaining fairness and transparency in the takeover process, the Code helps to maintain investor confidence in the market, which is crucial for its overall health and stability.
How the City Code on Takeovers and Mergers Works
Copy link to sectionThe Takeover Code is based on a set of general principles that guide the conduct of all parties involved in a takeover or merger. These principles emphasize fairness, equal treatment of shareholders, and timely disclosure of information.
- Offer Period: The Code sets out specific time limits for the offer period, during which the acquiring company must make its offer to the target company’s shareholders.
- Disclosure Requirements: The acquiring company must disclose all relevant information about the offer, including its terms, financing, and any potential impact on the target company.
- Independent Advice: The target company’s board must obtain independent advice on the offer and communicate this advice to its shareholders.
Examples of the City Code on Takeovers and Mergers in Action
Copy link to section- A large multinational corporation makes a bid to acquire a smaller competitor. The City Code ensures that the smaller company’s shareholders are given a fair price for their shares and have the opportunity to accept or reject the offer.
- Two companies agree to merge. The Code mandates that both companies disclose all relevant financial and operational information to their shareholders, allowing them to assess the potential benefits and risks of the merger.
- A company attempts to acquire a controlling stake in another company without making a formal offer to all shareholders. The Takeover Panel, which enforces the Code, intervenes to ensure that all shareholders are treated equally.
Real World Application of the City Code on Takeovers and Mergers
Copy link to sectionThe City Code on Takeovers and Mergers has played a crucial role in numerous high-profile mergers and acquisitions in the UK. For example, it was applied in the takeover of Cadbury by Kraft Foods in 2010, ensuring that Cadbury’s shareholders were given a fair price for their shares. The Code is also regularly updated to reflect changes in market practices and regulations, ensuring that it remains an effective tool for protecting the interests of shareholders in the UK market.
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Sources & references

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