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Lord Sharman: As the Bill, when enacted, is not to be a full consolidation but is incorporating amendments to the existing Companies Act 1985, we agree with the Law Society's advice that it would be desirable that users of the Act should not have to check a large number of different parts of it to determine whether or not, or the extent to which, a particular provision of the 1985 Act has been amended. Obviously consequential amendments to delete the other paragraphs from their current location in Schedule 4 will be required. I beg to move.
Lord Sainsbury of Turville: My answer can be summarised by saying that it all depends which particular onion you are talking about in this context. The point here is that Schedule 4 to the Bill contains amendments to the Companies Act 1985 to clarify the wording of the offences in that Act.
The amendment would move the provisions set out in paragraphs 32 and 33 of Schedule 4 to the Bill into Schedule 3. That would ensure that all the amendments made to Part 13A of the Companies Act 1985 were set out in one place in the Bill. Currently all amendments relating to offences in the 1985 Act are set out separately in Schedule 4.
I consider that there are good reasons for maintaining all the amendments to offences in the 1985 Act together in Schedule 4. Schedule 4 to the Bill provides a comprehensive list of amendments to the offences in the 1985 Act which remain. All such
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amendments can thus be seen in Schedule 4, and therefore I am not convinced that the noble Lord's amendments are helpful.
It is important for the correct treatment to be applied because this determines how many shares the bidder must gain acceptances for in order to be able to reach the threshold which enables the squeeze-out procedure to be operated.
whether shares bought on a market immediately before the bidder's original announcement of its offerknown as a Rule 2.5 announcementcan be treated as ones to which the offer relates, despite the fact that the shares have not been acquired by virtue of acceptance of the offer. We therefore tabled the amendment, which would leave out subsection (6) on page 439 of the Bill, as a probing amendment to enable the Minister to let us know the Government's intentions. I beg to move.
Lord Sainsbury of Turville: We are taking the opportunity to clarify what is meant by "contracted to acquire". This arose from a recommendation of the Company Law Review. In relation to squeeze-out, amendments are made to both Sections 428 and 429 of the Companies Act. The policy aim is that only shares that the offeror has either acquired or unconditionally contracted to acquire in the offer will count towards the 90 per cent total needed to exercise squeeze-out.
In keeping with these amendments, the substantive change at Section 429(8) is the insertion of the word "unconditionally", so that conditional contracts for a price higher than the offer price are not treated as acquisitions at a higher price excluded from calculating the 90 per cent squeeze-out threshold. It is consequential upon new subsections (1A) and (2A) of Section 429.
"(3B) Without prejudice to subsection (4), where the terms of the offer include or have at any time included one or more elective arrangements which provide for the holder of any shares to receive one or more combinations of different types of consideration, such combination or combinations will be included in the choice of consideration set out in the notice.""
Section 430 binds the offeror to acquire shares pursuant to a notice under Section 429 on the terms of the offer. An offeror may choose to make a "mix and match" offer to the target company's shareholders. That means that the shareholders elect to receive shares, cash or a mixture of bothor another type of considerationin exchange for their shares in the target company. The proportions of cash and shares which the shareholders receive will vary depending on the elections being made by others. The essence of the arrangement is that shareholders can elect to receive different mixes of consideration to the extent that there is a matching election which allows this. This process may apply at different times where an offer period is extended such that at each stage the outcome of what shareholders receive will differ, depending on the elections made by that group of shareholders.
The Company Law Review steering group, in its publication Modern Company Law: Final Report, suggested that shareholders whose shares were being bought pursuant to a notice under Section 429 should be offered a choice of consideration, including the consideration arrangements offered under the mix and match offer. Where there was more than one mix and match arrangement, the shareholder should be offered the choice of the outcome of each of those arrangements such that he would be no worse off than had he accepted the offer at any earlier point.
On page 47 of Implementation of the European Directive on Takeover BidsA Consultative Document, the Department of Trade and Industry proposed to introduce this amendment. However, the Bill as it stands fails to do this, and it is our view that the amendment should be included. I beg to move.
Lord Hodgson of Astley Abbotts: My name is added to this amendment and I agree with what the noble Lord, Lord Sharman, has said. The practical implications can be quite significant for a shareholder.
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For example, the opportunity to roll over into a form of consideration which will enable the deferral of capital gains tax can be a significant issue for a vendor shareholder. Therefore, squeezing out shareholders unfairly in a cash bid or whatever cannot be rightthey should be offered the same proportions as anyone else to whom the bid is made. I very much support the amendment.
Lord Sainsbury of Turville: We very much understand the concerns that give rise to the amendment. This area has been debated to a considerable extent. "Mix and match" offers give shareholders the choice to receive shares, cash or a mixture of both, or another type of consideration.
I think that many people would agree that in principle a minority shareholder who has been squeezed out following a mix and match offer should have the full range of choices available to other shareholders in that offer. But the arguments are finely balanced, as was recognised by the Company Law Review.
In response to further consultation, a number of technical comments were received on how the provisions would operate in practice. The circumstances in the market might have moved on since the original offer was madethe value of securities offered having gone up or downaffecting the relative attractiveness of the respective options to shareholders. Questions were asked about how elections made at the point of squeeze-out would affect elections already made in pools by shareholders.
It has to be said that we do not have answers to all these questions, and we think that extensive legislative provision might be necessary to provide them. Instead, in the Bill we have taken the opportunity to clarify that where an offer of shares, or a mixture of shares and cash, is made and it is no longer possible when the offeror exercises his right of squeeze-out to give the consideration in shares, the offeror should pay the cash equivalent, irrespective of whether the shareholders had previously been offered a choicethat is, whether or not the offer was "mix and match".
Parallel changes are made as regards sell outin Section 430B(3A) and (4). This is precisely what the takeovers directive requires. I hope that that explains our approach and reassures the noble Lord that we have looked at this issue very seriously.
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