10.3 Third Party as a Source of Remuneration 351Where there are two competing takeover bids for shares listed on the London
Stock Exchange and either offer may be increased or otherwise revised because
neither offeror has declared its offer final, the Takeover Panel may establish an
auction procedure.^99
The procedure was used in 2006 when Tata Steel UK Limited and CSN Acqui-
sitions Limited submitted competing offers for Corus Group plc. There was a
deadlock situation, because neither offeror had declared its offer final. In order to
provide an orderly framework for the resolution of this competitive situation, the
Panel Executive established an auction procedure in accordance with Rule 32.5 of
the Takeover Code. Each of the parties agreed to the terms of the auction proce-
dure. Tata eventually prevailed in an all-night auction.
This is how Corus described the agreed form of auction on 26 January 2007: “The auction
procedure will consist of a maximum of nine rounds, comprising up to eight rounds in
which each offeror is able to lodge a fixed price bid in cash followed by, if the auction pro-
cedure has not by then concluded, a final round. In the final round each offeror is able to
lodge either a fixed price bid in cash or a cash bid calculated by reference to a formula pur-
suant to which an offeror can lodge a bid at a specified amount in cash more than the other
offeror subject to a specified maximum cash amount. In respect of the first eight rounds of
the auction procedure, a subsequent round will only take place if the offeror which has the
lower cash bid as at the beginning of that round (or, if at that time the highest cash bids of
both offerors are at the same price, either offeror) lodges an increased cash bid in that
round. Such a cash bid must be not less than 5p higher than the higher cash bid as at the be-
ginning of that round (or, if at that time the highest cash bids of both offerors are at the
same price in cash, not less than 5p above the price of those bids). However, if an offeror
which has the higher cash bid as at the beginning of a round lodges an increased bid in that
round, it is not subject to any minimum increment.”
Excursion: Issuing of bonds through auction. In corporate finance, another usual
situation that involves the use of an auction is the issuing of bonds. This is how
the ECB described a typical primary market auction for euro-denominated
bonds:^100
“In a typical primary market auction, investors can submit (sealed) bids specifying quanti-
ties and prices that the bidding investor is prepared to pay. The quantity that the investor
receives and the price the investor has to pay is then determined on the basis of all bids ac-
cording to pre-defined rules. Government bond auctions are organised as uniform price auc-
tions, i.e. all bidders pay the same (issue) price, including those who submitted bids with a
higher price. Or they are organised as multiple price auctions, as in France and Germany,
where bidders always pay the price that they have submitted.
Direct participation in an auction may be restricted to a group of financial firms, called
primary dealers. Virtually all auctions are carried out fully electronically. Large govern-
ment bond issuers typically operate electronic auction systems themselves. Smaller issuers
use electronic auction systems operated by, for example, an entity that also offers electronic
secondary market trading facilities (such as a regulated securities exchange or an alternative
trading system). During the internet boom, some primary market bond auctions were car-
(^99) Rule 32.5 of the Takeover Code.
(^100) ECB, The euro bonds and derivatives markets (June 2007) p 33.