Updating the City Code: Dual Listed Company Transactions and Frustrating Action

While mergers and acquisitions may be off the agenda for most companies at the moment, the Takeover Panel continues to amend and update the Code in response to changing business practices. Following public consultation, the Code Committee has issued Response Statement 11 (27th August 2002) which:

amends the definition of an 'offer' in the Code to include Dual Listed Company Transactions; and

clarifies the nature of certain 'frustrating actions' contained in Rule 21.2.

In Brief: The City Code On Takeovers and Mergers

Applies to any listed or unlisted plc resident in the UK which is the subject of a 'change of control' (generally a merger or takeover offer)

Change of control is defined as a holding of 30% or more of shares carrying voting rights in a company

The Code is designed principally to ensure the fair and equal treatment of all shareholders in relation to take-overs (General Principles)

The Code does not have the force of law but regulatory bodies have held that all parties should adhere to the Code as it is in accordance with high business standards.

The Code applies to all parties involved in such transactions including professional advisors.

1. Dual Listed Companies (DLCs)

What are Dual Listed Companies?

A DLC structure involves two listed companies combining their operations into a single economic unit, while retaining their separate legal identity and existing Stock Exchange listings in their own countries. Unlike a conventional merger or takeover involving two companies, under a DLC arrangement neither set of shareholders need dispose of their shareholding and the companies need not transfer assets between each other. Although the two companies have a unified management structure and operate as one company, they are still separately owned. This 'virtual merger' of the two companies is held in place by contractual obligations. The aim of the DLC is that investors should treat the shares of each company as if they were interchangeable. Both sets of shareholders have a share in the risks and rewards of the combined enterprise.

Both companies' shareholders in a DLC structure usually elect a common board of directors to govern the two companies. The companies form a 'joint electorate' by changing their constitutions to allow shareholders to vote at each other's meetings. Where the companies have a different numbers of shareholders, special voting shares can be issued so that the company with the largest number of shareholders does...