Tuesday 25 November 2014

Rule 2.8 e

I have to admit I was a little bit surprised to see reports this week claiming America's Stryker Corporation is "discussing the financing" of a multi-billion pound acquisition of orthopaedics maker Smith & Nephew.

For readers that don't recall, the Financial Times revealed in May that Stryker was looking at buying London-listed Smith & Nephew. However, once the US-based company was outed, it did an about turn and restricted itself from making an offer for six months.

Here is the Stryker statement from May:
"At the request of the UK Takeover Panel, Stryker confirms that it does not intend to make an offer for Smith & Nephew. Accordingly, Stryker is bound by the restrictions under RULE 2.8 of the UK Takeover CODE (the "Code").
For the purposes of Rule 2.8 of the Code, Stryker reserves the right to announce or participate in an offer or possible offer for Smith & Nephew and/or to take any other action which would otherwise be restricted under Rule 2.8 of the Code within 6 months after the date of this announcement in the circumstances described in note 2 to Rule 2.8 of the Code."

I have no doubt this week's report - click on the link http://www.bloomberg.com/news/2014-11-24/stryker-said-to-weigh-bid-for-u-k-s-smith-nephew.html - is accurate (everybody in financial journalism knows that Bloomberg has the strictest sourcing guidelines so invariably its scoops are always on the money).

The thing is: under rule 2.8 e of the Takeover Panel code companies that have ruled themselves out from making an offer for a UK-listed business for six months are not allowed to speak to outside advisers about launching a fresh bid until the "lock up" period expires.

Here is rule 2.8 e of the Takeover Code:

"take any steps in connection with a possible offer for the offeree company where knowledge of the possible offer might be extended outside those who need to know in the potential offeror and its immediate advisers."

Now, I have been told by very well-placed sources that "immediate advisers" can include the company law firm and a retained M&A adviser but definitely not financing banks or anybody else in the wider advisory community.

If rule 2.8 e has been broken, the Takeover Panel can extend the six month lock up period.

Here is a quote directly from rule 2.8 e of the Takeover Code:

"Failure to comply with this Rule may lead to the period of six months referred to above being extended."

So, if Stryker doesn't launch a bid for Smith & Nephew this friday (when the lock up period expires) or anytime soon, perhaps rule 2.8 e might be the reason why?      

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