 It's a great pleasure to have you here in this last 3CL seminar of the term and we will be in touch then soon with the term card for next term. And today, for our last seminar, we have Spencer Summerfield of Jora Smith, a speaker and we were very glad that Spencer you took the time to be here with us. You will speak on getting out of a takeover offer. You will focus on the inability of or the ability or inability of a bidder to withdraw from a takeover offer in reliance on a material adverse change clause. And in addition, you'll also take a closer look at a post offer undertakings. I'd like to briefly introduce you Spencer before you start. Spencer trained at Trevor Smith. So you have a long history at Trevor Smith. You became a partner in 1997 and then head of corporate in 2013. You have a broad corporate practice, which is probably also an effect of you being head of corporate. But your principal areas of work are corporate finance, including mergers, acquisitions and disposals, rotations and underwritings, also corporate joint ventures and general corporate advice. You are listed as a leading individual in both Chambers and Partners in Legal 500, where you described and I quote, you are incredibly knowledgeable and an impressive operator. Now Spencer, you can tell us whether being a great operator also includes operating Zoom or whether this was before the lockdown and the other events. But in any case, you know, I'm looking forward to you operating your slides and giving us some insights into takeover law. Spencer, thanks a lot again for being here. I also thank you very much to you and your firm for supporting us because this is officially the 3CL Trevor Smith seminar on getting out of a takeover offer. And we are very grateful Spencer for your support in 3CL and our seminar series. Spencer, thanks a lot and the virtual floor is yours. Thanks a lot Felix and good afternoon everyone. Today I will be covering two topics, as Felix said, relating to public takeovers. Firstly, I'll talk about the ability of a bidder to invoke a material adverse change condition, often referred to as a MAC condition. This has received quite a bit of press this year off the back of Brigadier's bid for Moss Bross. I'll then spend a bit of time talking about post offer statements and undertakings and I'll touch on the potential impact on these arising from the recent introduction of the National Security and Investment Bill. If you look at any public takeover offer, with the exception of a mandatory offer under rule 9, it will include a general MAC condition purporting to entitle the bidder to withdraw its bid if after announcement of the offer a material adverse change occurs to the business or prospects of the target group. Although such a provision is always included, to date no bidder to my knowledge has been allowed by the panel to invoke it. So why is this? Well let's begin by looking at the relevant rules in the takeover code and the accompanying practice statement on invoking conditions. The relevant rule of the code is rule 13.5a and it overrides the legal and contractual effect of the offer conditions. The rule doesn't apply to MAC conditions, but all conditions with the exception of the acceptance condition and at least for now the UK and EU antitrust conditions. The rule says that a bidder can only invoke a condition and allow the offer to lapse if the particular matter is of material significance to the bidder in the context of the offer. Although it's not currently written into this rule, although this is proposed to change, the panel considers that a bidder cannot invoke a condition unless the panel is first consented to it. The onus is therefore very much on the bidder to prove to the panel that a particular matter is of material significance. Now the object behind this rule is, like many rules in the code, its purpose is to prevent bidders from announcing offers and then without adequate reason withdrawing them. The panel's concern is that this could create a false market which could lead to unfair treatment among the target shareholders. So what exactly is a matter of material significance? In the panel statement relating to WPP's takeover of Tempest, we're back in 2001 and I'll move on to discuss this in a bit more detail shortly, the panel stated that rule 13.5a meant that the adverse changes had to be a very considerable significance striking at the heart of the purpose of the transaction. So those words are important, striking at the heart of the purpose of the transaction. The panel went on to say that it had to be something analogous to what would justify frustration of a legal contract. Now the use of those last few words by the panel were however unfortunate because of the back of that a number of practitioners quite justifiably interpreted this to mean the bidder would need to demonstrate legal frustration in order to invoke a MAC condition. To clarify things in April 2004 the panel published panel statement number five on invoking conditions and said that this interpretation of legal frustration went too far. They said whilst the bail is high the test does not require the bidder to demonstrate frustration in a legal sense. The appropriate test is whether the circumstances upon which the bidder is seeking to rely are of material significance to that bidder in the context of the offer which must be judged by reference to the facts of each case at the time the relevant circumstances arise i.e the panel won't be making any hypothetical determinations in advance. The panel also repeated in practice statement number five the test that they had laid down in WPP and Tempest that the bidder had to demonstrate that the relevant circumstances struck at the heart the purpose of the transaction. Practice statement number five was subsequently amended by the panel in 2009. The panel added a paragraph to the effect that in assessing whether a condition can be invoked the panel would take into consideration other relevant factors including whether the condition was specifically negotiated between the bidder and the target, whether the condition was withdrawn to the sorry was drawn to the attention of the target shareholders in the 2.7 announcement and offer document and finally whether the condition was drafted so that it was specific to the circumstances of the target. So those are the written rules laid down by the panel on invoking conditions. Let's turn now to look at the rulings which the panel have made when bidders have tried to invoke the matte condition on a takeover. They have over the last 30 years been three bidders who have tried all unsuccessfully to do this. The first bidder was WPP in relation to its bid for Tempus. Tempus was an advertising agency whose business was very reliant on generally positive economic conditions. Let's look at the timeline that's on the screen. So on the 20th of August WPP announced a competing offer for Tempus. In fact another company at Havis advertising about a month earlier had made a recommended offer for Tempus but WPP had trumped that bid by Tempy and therefore the Tempus Board was now recommending WPP's bid. On the 10th of September WPP posted the offer document and on the 11th of September the horrendous terrorist attacks of 9-11 in the States occurred. On the 17th of September WPP made purchases of Tempus shares. I'll mention that in a bit more detail in a second. On the 2nd of October WPP's offer became unconditional as to acceptances and WPP extended its offer until the 15th of October. 10th of October WPP announced that it was seeking a ruling from the panel to get out of the bid invoking its matte condition. 22nd of October to protect its position WPP announced its offer would remain subject to the conditions it was trying to invoke but was otherwise unconditional and extended its offer further. 24th of October panel ruled that WPP couldn't invoke the Mac. 25th of October WPP announced an appeal and on the 1st of November the panel dismissed the appeal. In reaching its decision not to permit the Mac condition to be invoked the following points were made by the panel in their statement. They considered that the statement previously made by the panel back in 1974 was still good. A change in economic or industrial conditions which may suggest that a proposed acquisition will not be as advantageous for a bidder is one of the hazards that must be accepted and will not normally justify the withdrawal of the offer. The 9-11 events were exceptional and unforeseeable but they did not undermine the rationale for WPP's offer which was based on Tempest's long-term prospects. A temporary effect on profitability was not sufficient. It had to be long lasting. The panel also noted that the conduct to WPP in making market purchases of Tempest shares after the 9-11 attacks may have acted as a signal to the market that WPP intended to proceed with the offer. Although in this instance the panel did not need to consider this point any further as WPP had failed by some way to demonstrate that the events went to the heart of the transaction. Terra firma was the next bidder after WPP to try and wriggle out of a takeover offer. This time for East Surrey. Terra firma was interested in acquiring East Surrey not because of the target's water business but because it had a gas distribution business in Northern Ireland. In the previous year the Northern Irish Energy Regulator had announced a new price agreement with East Surrey and Terra firma had priced its bid on the basis of this new price agreement being in place. However, following Terra firma's bid the regulator announced that the new price agreement had been only an agreement in principle and was predicated on the basis that the previous price pricing agreement being insufficient to recover the initial investment in the business. It also announced that it needed to carry out a public consultation in relation to any new price agreement. In essence what was happening was the regulator had decided to withdraw the agreement when it saw what a rich deal East Surrey shareholders were being offered by Terra firma. Terra firma applied to the takeover panel to withdraw its offer invoking its MAC condition. In a very short panel statement just one page long the panel said that it had had extensive discussions with all the parties involved and whilst it accepted that the withdrawal of the new pricing agreement by the regulator was unforeseen it concluded that these developments were not a sufficient substance to permit the withdrawal of the bid. Although there is little detail of the reasons why the panel reached their conclusion I think what is clear is that East Surrey still had a viable gas distribution business in Northern Ireland as well as a perfectly good water business in East Surrey. Also the regulator confirmed that it remain open to exploring appropriate arrangements with East Surrey for its future pricing regulation. The consistent is therefore consistent with the WPP tempest ruling as the withdrawal of the new pricing agreement did not go to the heart of the purpose of the transaction albeit Terra firma had priced the bid on the basis that the new pricing agreement would it be in place. The takeover was simply not so attractive for Terra firma as they had thought. The last bidder to try and extricate themselves from a bid by invoking a MAC condition was Brigadier in relation to its offer for Moss Bross which happened earlier this year. Let's go through the timeline. So on the 11th of March the World Health Organization declared COVID-19 to be a pandemic. The day after that the 12th of March Brigadier made a recommended cash offer for Moss Bross. On the 23rd of March lockdown was introduced and on the same day Moss Bross announced closure of stores and stated that COVID-19 was likely to affect revenue and profitability. We'll look at its trading statement in a minute. On the 8th of April the scheme document was posted and on the 22nd of April Brigadier sought to invoke the MAC condition. It also invoked some other conditions as well. On the 29th of April the scheme was approved. Moss Bross basically plowed on with the scheme notwithstanding Brigadier was trying to extricate itself from the takeover. On the 19th of May the takeover panel ruled that Brigadier could not invoke the MAC. On the 21st of May the panel announced that Brigadier had requested a review of the decision and on the 26th of May the panel announced that Brigadier had got back in its box and realised it was going to lose so it withdrawn its request for a review. So before considering the panel's decision on this matter let's have a look at that trading update which Moss Bross announced on the 23rd of March following lockdown. So we've got the first three statements here. The group has taken the decision to temporarily close all its stores until further notice. COVID-19 could result in a sharper decline in trading performance of mass gathering such as Ascot are voluntarily cancelled or prohibited and the effects of COVID-19 will result in a significant reduction in revenue and profitability for the year-ending 20th of January 2021. So the first three statements all show the immediate effects of COVID-19 on the business none of which look very good. The trading update also said the group is managing the business to protect profitability and is taking all necessary action to reduce costs and conserve cash. The group believes that it has the ability to withstand significant revenue decline through to the beginning of the second half of financial year 21 and over the longer term the board remains confident in the strategy and believes the group is well positioned to benefit from the normalization and growth of the UK retail market. Wonder whether they could still say that today. Anyhow these last three statements highlight the Moss Bross board's expectation that the business would bounce back in 2021 and that it had enough cash to weather the storm. Although the panel statement on the Brigadier Moss Bross takeover is very brief the matter has been openly discussed by a number of those concerned. The first thing the Brigadier tried to establish was that the impact of COVID-19 struck at the heart of the purpose of the transaction. Central to Brigadier's case was that the events after 12th of March were sufficiently materially adverse that Moss Bross might not survive lockdown and even if it did the strategic turnaround planned by the bidder would be virtually impossible to implement. Moss Bross successfully rebutted the specific arguments which Brigadier put forward arguing that the long term prospects of the business had not been compromised and that Brigadier was merely speculating on the future impact of COVID-19. They cited their trading update made on 23rd of March confirming that they expected the business to bounce back in the second half of 2021. The panel concluded that Brigadier had not established the long-term impact on the business and therefore consistent with the approach adopted in WPP and Tempest and Terra Firma and East Surrey did not consider the materiality test to have been met. In addition to assessing the material significance of the circumstances the panel also looked at foreseeability and the conduct of Brigadier. The day before the 2.7 announcement as I said the World Health Organization had declared COVID-19 a worldwide pandemic and a number of countries had already declared full or partial lockdown. The potential issue was therefore entirely foreseeable. As a result at the time of announcement Brigadier could have taken three alternative actions. It could have walked away and wait and see what happens. It could have proceeded with the announcement but included a negotiated specific condition relating to COVID-19 or it could have repriced its offer and taken the risk on the COVID-19 impact. Instead Brigadier didn't do any of these things and therefore the panel decided that these were further grounds to support their conclusion that Brigadier could not rely on the general Mac condition or indeed any of the other conditions that it had cited. So what are the key takeaways of all of this? Well firstly the burden of proof of showing that the Mac condition can be invoked lies very much with the bidder. The bidder has to prove to the panel that it is entitled to invoke that condition. To invoke a Mac condition is a very high bar but not so high that the particular matter needs to amount to legal frustration. The key is whether the particular matter strikes at the heart of the purpose of the transaction. Short-term issues will be ignored. It has to be something of a longer lasting impact. Could the bidder have foreseen the issue at the time of the 2.7 announcement? If it could then it is likely to be much harder to invoke the condition absent something specific dealing with the matter in the 2.7 announcement and off the document. Has the bidder done anything since the particular matter arose which might suggest to the market that it does not intend to invoke the Mac condition like WPP did on Tempus by buying further shares in the market? And finally was the Mac condition drafted specifically for the target and was it drawn to the attention of the target shareholders? Just like practice statement number five suggests if yes then the bidder still needs to show the particular matter has a material significance but the panel is likely to be more inclined to permit such a Mac condition to be invoked. The panel is currently consulting on various changes to the takeover code some of which relate to the ability to invoke conditions. The proposed changes if implemented should not have a fundamental impact on the panel's practice to date. However it's worth noting that the panel is proposing to expressly add to practice statement number five a couple of new factors to be taken into account when determining whether condition can be invoked. The first new factor proposed is foreseeability. However the panel have said that this factor will not be determinative and the fact that a particular outcome was foreseeable will not necessarily exclude the possibility of the panel consenting to a condition being invoked if for example the likelihood is remote. The second new factor proposed is the action taken by the bidder after the occurrence of the circumstances under which the bidder wants to invoke a condition. The examples the panel give are has the bidder bought shares in the target or made statements to the market indicating an intention to continue to pursue the offer. The third new factor proposed relates to the views of the target board. If the target board is agreeable to the offer lapsing this will be very influential upon the panel although it's difficult to see circumstances particularly on an all cash takeover offer where a target board will want to give consent if something disastrous has happened to its business. That's all I wanted to say on MAC conditions. Let's just turn for 10 minutes and have a look at post offer intention statements and post offer undertakings. First a bidder background to put this into context. The takeover code was amended in 2015 and again in 2018 to introduce a two-tier regime with the concepts of post offer undertakings and post offer intention statements. The changes to the code were prompted by two high-profile takeovers which focused political attention on how statements made by a party to a takeover offer could ultimately be enforced. First there was cross takeover at Canberra during which certain assurances were reportedly made by craft as to their future plans for Cabaret's Summerdale factory which was subsequently closed down. Second during the calls of Pfizer's aborted offer for AstraZeneca Pfizer wrote a letter to the then Prime Minister David Cameron providing assurances about their plans to headquarter the combined entity in the UK. So the slide on screen sets out the definition of post offer intention statements. This is a non-binding statement however it must be an accurate statement of the party's intention at the time that it is made and made on reasonable grounds. If a party giving such a statement decides to depart from its statement in the 12 months after the end of the offer period it must consult with the panel and if necessary make a public announcement of the course of action it's taken. At the end of the 12 month period the bidder must confirm whether it has taken the course of action. In contrast you've got post offer undertakings. The key aspect of the undertaking regime is that the undertaking is legally binding and a party making a post offer undertaking will be held to it. As you can see from this slide there are several key requirements. The party giving an undertaking must comply with its terms for the time period specified. For example keeping a manufacturing facility open for a period of years and must complete the action committed to by the date specified in the undertaking. The undertaking must be specific and precise and it must be readily understandable and capable of objective assessment. This is required to make it easier for the panel to ensure enforcement. Any qualifications or conditions to the undertaking must be clearly stated and any attempt to invoke such qualification or condition must be discussed with the panel in advance. The panel can require reports and documents as the status and fulfilment of the undertaking and will appoint a supervisor to oversee compliance. Since 2015 in the absence of stronger intervention rights the government put pressure on high profile bidders to make post offer undertakings. Let's look at some of these which have been given. In September 2016 the High Court sanctioned the takeover of arm holdings PLC by Softbank Corporation. The transaction was notable not only for its significant size 24.4 billion but also for being the first transaction to include post offer undertakings. In 2018 Melrose offered post offer undertakings in connection with its hostile offer for UK engineering company GKN. GKN's involvement in programmes with the Ministry of Defence such as supplying parts and technology to Britain's arms forces led to the possibility of government intervention. Melrose attempted to preempt any issues by offering a package of commitments and undertakings such as maintaining Melrose's headquarters in the UK, maintaining Melrose's UK listing of shares and maintaining a specified level of research and development expenditure. In Comcast Corporation's 30.6 billion offer for Sky PLC in 2018 Comcast undertook to ensure Sky would have the right to use all assets and rights to carry on Sky News, to commit a minimum annual expenditure to Sky News, to maintain Sky's headquarters in London, not to purchase a controlling interest in any other undertaking carrying on a business of publishing a daily Sunday or local UK newspaper and to establish a separate editorial board for Sky News. The National Security and Investment Bill has been introduced by the UK Government in order to bring into existence a freestanding national security screening regime. It was introduced on 11 November this year and unusually the powers took effect from this date rather than when the law is passed by Parliament, the idea being to avoid a rush of takeovers to try and preempt the bill. It will broaden the range of investments which can be reviewed by the UK Government on national security grounds and introduce a statutory requirement for parties to notify relevant transactions in the most sensitive areas of the economy. Alongside a mandatory requirement the government will also have a more extensive call in power to enable it to assess deals which may give rise to national security risks. In each case the review process will be subject to statutory time limits. The NSI Bill is being introduced because the government considers that its existing national security review powers set out in the Enterprise Act 2002 are no longer fit for purpose. In particular the Enterprise Act powers limit the number of sectors which the government can scrutinize. For example, critical infrastructure is largely out of scope. They involve a lengthy and costly statutory review process which imposes significant burdens on the government and they limit the types of deals which can be scrutinized. For example, mere asset acquisitions cannot be reviewed by the government under the Enterprise Act 2002. It remains to be seen whether increased powers to challenge inward investment will decrease reliance on post offer undertakings as a means of controlling foreign investment in politically or strategically sensitive areas. For what it's worth I think post offer undertakings will still be encouraged by the government in high-profile takeovers by foreign bidders where the NSI Bill which is limited to national security risks is not quite enough to get the government what they want. That's all I have. I'm now very happy to take any questions.