19.10 Public Takeover Offers 545company’s securities, the disclosure of the result of a bid, the irrevocability of a
bid, and the conditions permitted.^167
As a rule, the offeror may need to use the same conditions as the conditions
precedent to closing used in most acquisition agreements. Depending on the gov-
erning law, the conditions can therefore range from the availability of funding and
the lack of material adverse change to the obtaining of regulatory permits and the
obtaining of a certain minimum percentage of shares.
In Germany, the minimum percentage could be 75% or 51% of the share capital. 75% of
the share capital enables a controlling shareholder to control the target company under a
control and profit transfer agreement and to decide on the merger of the target company
with the acquisition vehicle.^168
The actual use of conditions may be constrained both by the governing law and
market practice. For example, their use has been severely constrained in the UK,
but not in the US. In both countries, there are particular limitations on the right to
invoke a material adverse change condition.
According to the City Code on Takeovers and Mergers, the main rule is that pre-conditions
to the bid are not permitted unless they involve official authorisations or regulatory clear-
ances relating to the bid. This means that the bid must not normally be made subject to any
financing conditions or pre-conditions (other that regulatory clearances).^169 The offeror
should also use all reasonable efforts to ensure the satisfaction of any conditions or pre-
conditions to which the offer is subject.^170
It is nevertheless normal to include a material adverse change condition.^171 The right to
invoke a material adverse change condition was tested in WPP’s bid for Tempus in 2001.^172
In August 2001, WPP Group plc owned a 22% stake in Tempus Group plc. WPP made a
public offer for the remaining shares. The offer was subject to the following condition: “...
no material adverse change or deteroriation having occurred in the business, assets, finan-
cial or trading position or profits or prospects of any member of the wider Tempus Group
...” After the 9/11 terrorist attacks, WPP wanted to invoke the pre-condition, but there were
constraints under the Code.^173
The UK Takeover Panel ruled that a bidder seeking to rely on the condition must show
that exceptional circumstances affecting the target have arisen and that they could not have
been reasonably foreseen when the offer was announced. The effect of those circumstances
(^167) Recital 22 of Directive 2004/25/EC (Directive on takeover bids).
(^168) § 293(1) AktG and § 65 UmwG. See Riegger B, Kapitalgesellschaftsrechtliche Grenzen
der Finanzierung von Unternehmensübernahmen durch Finanzinvestoren, ZGR 2008 p
234.
(^169) Rule 13 of the City Code on Takeovers and Mergers.
(^170) Rule 13.4(b) of the City Code on Takeovers and Mergers.
(^171) Rule 13.4(a) of the City Code: “An offeror should not invoke any condition or pre-
condition so as to cause the offer not to proceed, to lapse or to be withdrawn unless the
circumstances which give rise to the right to invoke the condition or pre-condition are of
material significance to the offeror in the context of the offer. The acceptance condition
is not subject to this provision.”
(^172) Panel Statement 2001/15.
(^173) Rules 2.7 and 13 of the City Code on Takeovers and Mergers.