THE TAKEOVER PANEL. Profit Forecasts and Quantified Financial Benefits Statements. September 2013

Transcription

1 THE TAKEOVER PANEL Prfit Frecasts and Quantified Financial Benefits Statements September 2013

2 Objectives Reduce the burden f the prfit frecasts regime where frecasts are less cntentius: frecasts published befre an apprach rdinary curse frecasts lng term frecasts Extend the merger benefits statements regime t statements by an fferee cmpany, i.e. quantified financial benefits statements (r QFBSs ), bring the QFBS regime int Rule 28 and make it mre cnsistent with the prfit frecasts regime Update Rule 28 and make it mre cnsistent with ther standards, e.g. Prspectus Directive, ESMA recmmendatins and FCA Handbk -1-

3 Scpe f the new Rule 28 One-ff prfit frecasts Ordinary curse prfit frecasts Quantified financial benefits statements Frecasts nt published in the rdinary curse Shrt term fr perids ending up t 15 mnths frm date f publicatin Lng term fr perids ending mre than 15 mnths frm date f publicatin Guidance given t the market in accrdance with an established practice and as part f the rdinary curse f cmmunicatins Still uncmmn in the UK market, but the Cde shuld nt restrict the develpment f a cmmunicatin practice welcmed by investrs and cmpanies Benefits accruing t the enlarged grup as a result f a cmbinatin Als nw includes statements f cst savings by the fferee cmpany, e.g. as part f a defence Nt applicable t cash fferrs Requirements f Rule 28 apply t fferee cmpanies and securities exchange fferrs but d nt apply t cash fferrs Nt applicable t aspiratinal targets Typically 3-5 year lk-frward; may cver sales and margins rather than precise prfit numbers Ptentially fine dividing line between an aspiratinal target and a prfit frecast Aspiratinal targets are nt subject t Rule 28-2-

4 Sme terminlgy The new Rule 28 sets ut essentially tw regimes fr prfit frecasts: 1. The reprting regime : requires reprts frm reprting accuntants and financial advisers 2. The directrs cnfirmatins regime : less nerus than the reprting regime, n third party reprts requires directrs t cnfirm that: (i) the frecast has been prperly cmpiled n the basis f the assumptins; and (ii) a cnsistent basis f accunting has been used The applicable regime is driven by: the type f frecast ( ne-ff r rdinary curse ) the financial perid t which the frecast applies (shrt term, i.e. 15 mnths, r lng term, i.e. > 15 mnths) when the frecast is published (befre apprach, after apprach r after cmmencement f the ffer perid) and hence whether the frecast is new r repeated -3-

5 Shrt term prfit frecasts (nt rdinary curse) Shrt term prfit frecast (i.e. fr perid ending within 15 mnths frm when it was published) during an ffer perid: subject t the reprting regime prfit frecast and reprts t be included in the dcument/annuncement in which the frecast is published see Rule 28.1(a) Shrt term prfit frecast which was published fllwing a bid apprach but prir t the ffer perid cmmencing: frecast must be repeated and is subject t the reprting regime prfit frecast and reprts t be included in ffer dcument/fferee bard circular, r in any earlier annuncement r dcument which refers t the frecast see Rule 28.1(b) Shrt term prfit frecast published prir t a bid apprach being made: three ptins: (i) repeat the prfit frecast, cnfirm it remains valid and give the directrs cnfirmatins ; r (ii) explain why the prfit frecast is n lnger valid; r (iii) include a new frecast, t which the reprting regime will apply see Rule 28.1(c) -4-

6 Lng term prfit frecasts requirement t publish prfit frecasts fr all intervening perids Lng term prfit frecasts New prfit frecasts fr a perid ending > 15 mnths away will be subject t the directrs cnfirmatins regime, nt the reprting regime (whether ne-ff r rdinary curse ). See Rule 28.2(a) Where a lng term prfit frecast has already been published, the cmpany must (i) repeat it and give the directrs cnfirmatins ; r (ii) explain why the prfit frecast is n lnger valid; r (iii) publish a new frecast and give the directrs cnfirmatins Prfit frecasts fr intervening perids Whenever a cmpany publishes r repeats a lng term frecast, it will be required t prduce a full sequence f prfit frecasts fr all intervening financial perids. See Rule 28.2(b) One (r ccasinally tw) f these frecasts will therefre relate t a perid that ends within 15 mnths (i.e. a shrt term frecast): if an intervening, shrt term frecast is published as a new frecast, the reprting regime applies if an intervening, shrt term frecast has already been published, it must be repeated (and either the reprting regime r the directrs cnfirmatins regime will apply in accrdance with Rule 28.1), r a new frecast must be published the ptin t explain why the prfit frecast is n lnger valid is nly available if the same ptin is applied t all frecasts fr subsequent perids -5-

7 Ordinary curse prfit frecasts Ordinary curse prfit frecast published prir t the ffer perid cmmencing (whether befre r after an apprach): subject t the three ptins set ut in Rule 28.1(c) (i.e. the directrs cnfirmatins regime if repeated) see Nte 2(a) n Rule 28.1 Ordinary curse prfit frecast published during the ffer perid subject t the reprting regime, unless all ther parties agree t a dispensatin, in which case the directrs cnfirmatins regime applies see Nte 2(b) n Rule 28.1 Nte: It is assumed that rdinary curse prfit frecasts will generally be shrt term. But Rule 28.2 will apply t lng term prfit frecasts irrespective f whether they are ne-ff r rdinary curse. -6-

8 Summary table f prfit frecast prvisins Prfit frecast One-ff Ordinary curse Lng term published 15 mnths 15 mnths > 15 mnths* Rule 28.1(a) Nte 2(b) n Rule 28.1 Rule 28.2(a) During ffer perid Reprts when published Directrs cnfirmatins if ther parties agree, therwise reprts when published Directrs cnfirmatins when published Fllwing apprach but befre ffer perid Befre apprach Rule 28.1(b) Nte 2(a) n Rule 28.1 Rule 28.2(a)/Rule 28.1(c) First dcument must: Reprts in first dcument repeat and give directrs First dcument must: cnfirmatins; r repeat and give directrs explain why nt valid; r publish new frecast and reprt Rule 28.1(c) First dcument must: repeat and give directrs cnfirmatins; r cnfirmatins; r explain why nt valid; r publish new frecast and give directrs cnfirmatins explain why nt valid; r publish new frecast and reprt *Where a prfit frecast > 15 mnths is published r repeated, frecasts must be published fr all intervening perids and Rule 28 will apply t each such frecast This is an abbreviated versin f the summary table included at Appendix C t RS 2012/1-7-

9 Management buy-uts and ffers by cntrllers Ratinale Prfit frecasts shuld be subject t enhanced scrutiny where a management team r a cntrlling sharehlder might have an incentive t depress a prfit frecast s as t be able t acquire the cmpany mre cheaply Prvisins N dispensatin frm the reprting regime n frecasts 15 mnths, including frecasts published befre an apprach t the fferee cmpany rdinary curse frecasts frecasts fr perids 15 mnths required by Rule 28.2(b) by virtue f a lng term frecast being published See Nte 3 n Rule 28.1 Fr lng term frecasts fr perids > 15 mnths, the three ptins (repeat and give directrs cnfirmatins ; explain why n lnger valid; r make a new frecast and give directrs cnfirmatins ) still apply, per Rule 28.2(a) -8-

10 Prfit frecasts fr part f a business Ratinale Prfit frecasts fr part f a business, where made in the cntext f an ffer, are likely t have been made t influence the debate n the ffer N intentin t apply the reprting regime r the directrs cnfirmatins regime t prfit frecasts fr parts f a business which are building blcks in a prfit frecast published fr the whle grup reprting r directrs cnfirmatins wuld be required fr the whle nly Numerical guidelines fr materiality threshlds fr requiring reprts are nt practical: e.g. a part that is frecast t mve frm a lss t a small prfit, but that prfit is still de minimis in relatin t the whle? e.g. a part that is valued n a prfit multiple basis, where the rest f the business is valued n an asset value basis? general presumptin that where a party chses t publish a separate frecast fr a part f a grup, that frecast is likely t be material Prvisins Rule 28 applies t a frecast made in respect f part f a business in the same way as t a frecast fr the whle Panel may grant dispensatin in cases f genuine nn-materiality See Nte 5 n Rule

11 Dispensatins where the applicatin f Rule 28 wuld be disprprtinate Ratinale Dispensatin may be apprpriate where the frecast sets a ceiling, rather than a flr, t prfits since, in the cntext f an ffer, it is nt nrmally in the interests f the party making the frecast t set a ceiling. But therefre dispensatin will nt be granted fr a prfit ceiling frecast made: by an MBO team r cntrlling sharehlder with the effect f increasing expectatins (e.g. market cnsensus EPS frecast is 10p per share; cmpany frecasts that EPS will nt exceed 12p per share, with the effect f increasing expectatins t 11-12p) Dispensatin may be apprpriate where the burden f applying Rule 28 is disprprtinate, e.g.: the securities ffered are de minimis in relatin t the fferr s enlarged share capital (the whale and minnw argument) the securities cmpnent is a de minimis cmpnent f the value f the ffer Panel will take int accunt the cntext f the prfit frecast (e.g. why it was made; hw specific the frecast was; whether the ffer was hstile r cmpetitive) in deciding whether t grant a dispensatin Prvisins Panel may grant a dispensatin frm the requirements f Rule 28 where it cnsiders the applicatin f the Rule wuld be disprprtinate see Nte 4 n Rule

12 Prfit estimates Definitin: A prfit frecast fr a financial perid which has expired and fr which audited results have nt yet been published. : cnsistent with ESMA Prspectuses Q&As Exemptin frm Rule 28.1: in respect f prfit estimates where, althugh audited results nt published, the prfit numbers shuld be sufficiently reliable fr Rule 28 reprts r cnfirmatins nt t be required: preliminary statements f annual results cmplying with UKLA Rules see Rule 28.5(a) (per existing rules) AIM r ISDX Grwth Market cmpanies preliminary results cmplying with the substance f UKLA Rules fr preliminary results see Nte 1 n Rule 28.5 (cdificatin f existing Panel Executive practice cnfirmatin by accuntants r financial advisers will still be required) half-yearly financial reprts cmplying with UKLA, AIM r ISDX Grwth Market Rules see Rule 28.5(b) (previusly available nly in recmmended ffers) interim management statements that are (i) a regulatry requirement and (ii) in accrdance with IAS 34 see Rule 28.5(c) (new exemptin) ther cases where an estimate is published in accrdance with a regulatry requirement and under a framewrk equivalent t the UKLA Rules/IAS 34 accunting treatment, e.g. verseas-listed fferrs see Nte 2 n Rule 28.5(c) (cdificatin f existing Panel Executive practice cnfirmatin by accuntants r financial advisers will still be required) -11-

13 Investment analysts frecasts Quting investment analyst r ther third party frecasts is endrsement and Rule 28 will apply: Frmerly (implicitly) prvided fr under Nte 5 n Rule 19, nw explicitly prvided fr in Nte 6 n Rule 28.1 Rule 28.7: Parties may maintain cnsensus frecasts n their websites during an ffer perid, prvided: surce analysts frecasts were published since latest preliminary r interim results cnnected analysts frecasts are remved high, lw and arithmetic mean (= cnsensus ) is stated ther disclsure requirements are met see Rule 28.7(c) prminent disclaimer that the cnsensus is nt endrsed by the cmpany Rule 28.8: If party A refers t analysts frecasts fr party B, it must use either party B s cnsensus frm its website (per Rule 28.7 abve) r, if nt available, cmpile its wn cnsensus in accrdance with Rule 28.7: if party B has nt cnsented t party A referring t the cnsensus frecast, party B may then itself refer t the cnsensus used by party A (but may nt elabrate n it) withut being subject t Rule 28.1 (the right f reply ) see Rule 28.8(b) if party B has cnsented t party A referring t the cnsensus frecast, party B has endrsed the frecast and Rule 28.1 will apply see Rule 28.8(c) -12-

14 Quantified financial benefits statements Merger benefits statements prvisins f the ld Nte 9 n Rule 19.1 (nw defined in a new definitin f quantified financial benefits statements ) extended t: include statements made by the fferee cmpany abut cst savings r ther financial benefits it will achieve if the ffer des nt succeed capture statements by securities exchange fferrs at all times, nt just when the ffer is hstile r cmpetitive make the reprting treatment cnsistent with that fr prfit frecasts A QFBS must be reprted n in accrdance with Rule 28.1(a) and must include the disclsures required by Rule 28.6 Offeree cmpany will nt have t btain reprts if it simply repeats cst saving measures published prir t the ffer perid If revised cst saving measures are published: after an apprach but prir t the cmmencement f the ffer perid: cnsult the Panel reprting may be required in the fferee bard circular during the ffer perid: reprt when published see Nte 1 n Rule

15 Cntact details and disclaimer This presentatin has been prepared by the Panel Executive (the Executive ) t prvide infrmal summary guidance n the new regime applicable t prfit frecasts and quantified financial benefits statements. The new regime, which is effective as f 30 September 2013, was adpted by the Cde Cmmittee f the Takever Panel (the Panel ) in Respnse Statement 2012/1, dated 24 July The presentatin des nt frm part f the Takever Cde (the Cde ) and its cntents are nt binding n the Executive r the Panel. It is nt a substitute fr reading the Cde r RS 2012/1 r fr cnsulting the Executive t establish hw the Cde applies in a particular case. The Executive may be cntacted by telephne n +44 (0) r by n inf@thetakeverpanel.rg.uk. -14-