496 17 Duties of the Board in the Context of Takeovers
17.3 Duty to Obtain Advice or to Give Advice
Requirements as to the substance of opinions or independent advice in the context
of public takeover bids can reflect the choice of principal and agent under the legal
framework. There is a difference between the position of Community law and the
position of English law.
Community law. As said above, the offeror company must “draw up and make
public ... an offer document containing the information necessary to enable the
holders of the offeree company’s securities to reach a properly informed decision
on the bid”.^35 For example, the offer documents must state “the offeror’s inten-
tions with regard to the future business of the offeree company and, in so far as it
is affected by the bid, the offeror company” as well as “the offeror’s strategic
plans for the two companies”.^36
The board of the offeree (target) company must “draw up and make public a
document setting out its opinion of the bid and the reasons on which it is based,
including its views on the effects of implementation of the bid on all the com-
pany’s interests and specifically employment, and on the offeror’s strategic plans
for the offeree company and their likely repercussions on employment and the lo-
cations of the company’s places of business”.^37
The Directive does not require the boards to obtain independent advice. Neither
does it require the board of the target to say whether the bid is in the interests of
shareholders.
English law. In England, the board of the target company must take competent
independent advice on the offer and communicate the substance of the advice re-
ceived to the shareholders.^38 The board of the offeror company has a duty to ob-
tain independent advice when the directors are faced with a conflict of interest; in
that case, the “advice should be as to whether or not the making of the offer is in
the interests of the company’s shareholders”.^39 One can therefore draw the conclu-
sion that shareholders of both companies expect to be told whether the proposed
transaction is in their interests (for the dominance of institutional shareholder, see
below).
Role of the board. The duty to disclose information to shareholders raises ques-
tions about the role of the board as an information intermediary.
The target’s board cannot be a reliable source of information about the value of
the acquirer’s shares offered as consideration in a proposed transaction. First,
there is not enough “proximity” to the “information target” (they do not know
enough of the acquirer, see Volume I). Second, there is not enough proximity to
the “information topic” (they do not know enough of valuation issues in general as
they are not valuation specialists in their capacity as board members). Third, from
a legal perspective, there is a very large “tolerance zone” for statements about the
(^35) Article 6(2) of Directive 2004/25/EC (Directive on takeover bids).
(^36) Article 6(3)(i) of Directive 2004/25/EC (Directive on takeover bids).
(^37) Article 9(5) of Directive 2004/25/EC (Directive on takeover bids).
(^38) Rules 3(1) and 15(1) of the City Code on Takeovers and Mergers.
(^39) City Code on Takeovers and Mergers, Notes on Rule 3.2.