First scheme of arrangement including post-offer undertakings sanctioned by the court

By Andrew Thornton of Erskine Chambers

At the beginning of September 2016, the High Court sanctioned the high-profile takeover of ARM Holdings plc (ARM) by SoftBank Corporation
(SoftBank).  Although the consideration was significant (£24.4 billion), the scheme itself was relatively straightforward with shareholders being offered cash consideration at a premium of around 43% to the pre-takeover share price. However, the transaction was notable not only for its size but also the
post-offer undertakings given by SoftBank to the Takeover Panel.

Background: post-offer undertakings following Cadbury and AstraZeneca

The Takeover Code (Code) was amended in 2015 to introduce the concept of “post-offer undertakings” and “post-offer intention statements”.  The changes to the Code were prompted by two high-profile takeovers (one completed, one aborted) which focused political attention on how statements made by a party to a takeover offer could ultimately be enforced.

The completed transaction was Kraft’s takeover of Cadbury, during which certain assurances were reportedly made by Kraft as to their future plans for Cadbury’s Somerdale factory, which was subsequently closed down.  During the course of Pfizer’s aborted offer for AstraZeneca, Pfizer wrote
a letter to the then Prime Minister, David Cameron, providing assurances about their plans to, amongst other things, headquarter the combined entity in the UK.

Post-offer undertakings

Post-offer undertakings are defined in the Code as:

“a statement made by a party to an offer in any document, announcement or other information published by it in relation to the offer relating to any particular course of action that the party commits to take, or not take, after the end of the offer period and which is described by that party as a post-offer undertaking.”

The key aspect of the undertaking regime is that a party making a post-offer undertaking will be held to that undertaking. The rule applies to a “party to
an offer” – so applies to undertakings given by both offerors and offerees.  Such undertakings are enforceable the Takeover Panel under section 10(b) and 11 of the Introduction to the Takeover Code, and ultimately by the court pursuant to s955 Companies Act 2006.

It follows that it has to be possible to assess clearly whether the undertaking has been fulfilled. So post-offer undertakings must be “specific and precise, readily understandable and capable of objective assessment”. Any qualifications or conditions to the undertaking must be clearly stated, and any
attempt to invoke such a qualification or condition must be discussed with the Panel in advance.

A party giving an undertaking must comply with its terms for the 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 Panel can require reports and documents as to the status and fulfilment of the undertaking.

Post-offer intention statements

A post-offer intention statement is a non-binding indication of future plans.  It is defined as:

“a statement made by a party to an offer in any document, announcement or other information published by it in relation to the offer relating to any particular course of action that the party intends to take, or not take, after the end of the offer period, other than a post-offer undertaking.”

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 twelve months after the end of the offer period, it must consult with the Panel and if necessary make an public
announcement of the course of action it has taken.

Softbank’s post-offer undertakings and the approach of the court

By its undertakings, Softbank agreed various matters including:

• to maintain ARM’s corporate headquarters in Cambridge;
• to double the number of ARM’s UK employees within five years;
• to increase the number of non-UK employees within five years; and
• to maintain the proportion of its employees engaged in technical work.

SoftBank also undertook to procure that ARM offers mirror undertakings as soon as reasonably practicable after the scheme had taken effect (and not later than 45 days after the scheme had taken effect).

The undertakings were notable because it was the first time that a bidder for a UK company had given unconditional post-offer undertakings pursuant to the revised Takeover Code.

The court noted that the undertaking to maintain ARM’s corporate headquarters in Cambridge was expressed in terms simply requiring it to maintain a presence in Cambridge that was ‘designated’ as its global corporate headquarters, and that its obligation was not, for example, to hold board meetings there.

The judge also made clear that the undertakings (and whether they were given, or not given, in relation to a scheme) was not relevant to the court’s
determination of whether to sanction a scheme, but a matter of politics. Accordingly, he did not regard it as the court’s role to consider the adequacy
of any particular undertaking.  Rather, he considered whether to exercise his discretion in favour of sanctioning the scheme on the well-established principles applicable to schemes, principally determining whether the scheme proposal was “such that an intelligent and honest man, a member of the class concerned, acting in respect of his interests might reasonably approve.”

Andrew Thornton of Erskine Chambers acted for ARM in relation to the scheme of arrangement.  FromCounsel (www.fromcounsel.com) is a new online corporate law knowledge service produced by 22 members of Erskine Chambers and 15 professional support lawyers.  The service provides authoritative commentary and analysis on corporate law including all aspects of the Companies Act 2006 and related legislation.