What are the key rules/laws relevant to M&A and who are the key regulatory authorities?
The key laws governing M&A in Jersey are:
Part 18 (Takeovers), Part 18A (Compromises and Arrangements) and Part 18B (Mergers) of the Companies (Jersey) Law 1991;
The UK City Code on Takeovers and Mergers (Takeover Code);
The Competition (Jersey) Law 2005.
The key regulatory authorities are:
The UK Takeover Panel (Panel) has been appointed by the Companies (Appointment of Takeovers and Mergers Panel) (Jersey) Order 2009, made under Article 2 of the Companies (Takeovers and Mergers Panel) (Jersey) Law 2008, to carry out certain regulatory functions in relation to takeovers and mergers under Jersey law that fall within the ambit of the Takeover Code. The Takeover Code applies to offers for companies, other than open-ended investment companies, registered (and having their registered office) in the UK, the Channel Islands or the Isle of Man, where those companies have any of their securities admitted to trading on a regulated market in the UK or on any stock exchange in the Channel Islands or the Isle of Man. The Takeover Code also applies to offers for public companies and, in certain limited circumstances (relating to previous listings, marketing arrangements and issue of prospectuses), private companies, which have their registered offices in Jersey and which are considered by the Panel to have their place of central management and control in the UK, Channel Islands or Isle of Man.
The prior approval of the Channel Islands Competition and Regulatory Authorities will be required where the share of supply or purchase of one or more parties to a merger in any product or service exceeds relevant thresholds as set out in the Competition (Mergers and Acquisitions) (Jersey) Order 2010.
The consent of the Jersey Financial Services Commission will be required if the merger or acquisition involves entities carrying on a regulated activity in Jersey (which includes banking, insurance, funds, trust or fiduciary business) or if variation is needed of a consent issued to the target company pursuant to the Control of Borrowing (Jersey) Order 1958.
What is the current state of the market?
Whilst global activity has declined year-on-year, the offshore sector recorded an increase in deals by both volume and value. We consider the typical M&A motivations remain as relevant as ever; scope for efficiency savings, gaining access to operational or sector expertise, upgraded systems and IT structures and expansion into adjacent industries and geographies. In addition, rapid technological and logistical advances are making industry convergence all the more common, with ‘Fintech’ becoming the new buzzword for this phenomenon.
Which market sectors have been particularly active recently?
The top 5 target sectors by volume in 2017 were financial and insurance activities, manufacturing, information and communication, construction, and wholesale and retail trade. In the local market, the trend of consolidation in the fiduciary and corporate services sector has continued. Software development also continues to attract significant acquisitions.
What do you believe will be the three most significant factors influencing M&A activity over the next 2 years?
Other than technology disruption and private equity deployment, we consider the three most significant factors for Jersey to be:
1. political uncertainties including Brexit in Europe and the midterm elections in the US;
2. US and UK tax and regulatory reforms; and
3. Chinese government scrutiny over outbound deals.
What are the key means of effecting the acquisition of a publicly traded company?
Takeover offer – an offer made by a bidder to a target’s shareholders. The bidder may compulsorily acquire the remaining shares if it acquires at least 90% of the share to which the offer relates.
Scheme of arrangement –a statutory procedure pursuant to Part 18A of Article 125 of the Companies (Jersey) Law 1991 (Companies Law) whereby a company may make a compromise or arrangement with its members or creditors (or any class of them). Where an arrangement or compromise is proposed by the company with its members (or creditors), the court may sanction that compromise or arrangement with the effect that it becomes binding on all the members (or creditors). There are also separate statutory transfer schemes for insurance and banking business.
Legal merger – Part 18B of the Companies Law makes provision for mergers between Jersey companies and foundations and companies and other bodies incorporated both in and outside Jersey (provided that the foreign incorporated body is not prohibited under its relevant foreign law to merge).
Sale and purchase agreements (shares or asset) – a private contract between buyer and seller.
What information relating to a target company will be publicly available and to what extent is a target company obliged to disclose diligence related information to a potential acquirer?
The register of members of a Jersey company is available for inspection by any member and, for a fee not exceeding the prescribed maximum, any other person. A person may require a copy of the register, in the case of any company, on payment of a fee not exceeding the prescribed maximum and in the case of a public company on submission of a statutory declaration relating to the use of the copy. The annual return to the registrar of companies (available online) will include names, addresses and holdings of members (holding more than 1% of the capital/issued shares) together with the number of members holding less than 1% (and the total number of shares in such holdings) as at 1 January in each year or a statement that they have not changed since the last time they were submitted. In the case of public companies, the annual return will also show director details.
A public company or a company with more than 30 members (calculated in accordance with the Companies Law ) must deliver its accounts to the Registrar within 7 months of the end of the financial period to which they relate. These accounts will be publicly available. A private company is not required to make its annual financial statements publicly available.
A search of the Jersey Companies Registry will also show basic information on the company including its registered office, its incorporation documents, its memorandum and articles of association, prospectuses and any special resolutions filed.
Searches can also be made of public registers which show Jersey security granted by the company, land, bankruptcy (désastre) and litigation proceedings.
If the company is listed on an exchange, copies of its accounts, interim reports and announcements can be obtained.
To what level of detail is due diligence customarily undertaken?
In the case of a hostile bid, this would usually be limited to information from public sources. For a recommended or supported bid, public information may be supplemented by the target providing an electronic data room and/or responses to a list of financial, legal, regulatory and operational due diligence questions and requests.
The Takeover Code, if it applies, may require a target to provide equivalent information to competing bidders and/or govern the questions that can be raised by a bidder.
What are the key decision-making organs of a target company and what approval rights do shareholders have?
The directors of a company will be integral in consummating a merger or acquisition, whether by way of merger, scheme of arrangement or share acquisition.
Scheme of Arrangement – a key condition is that the compromise or arrangement is approved by a majority in number representing 75% of the voting rights of the members (or value of creditors).
Merger – a merger agreement must be prepared which must be submitted for approval by a special resolution of each merging company.
What are the duties of the directors and controlling shareholders of a target company?
The target directors have their general duties under Jersey law as directors to act honestly and in good faith with a view to the best interests of the company and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
Do employees/other stakeholders have any specific approval, consultation or other rights?
There is no obligation to consult with or obtain the approval of employees. If the Takeover Code applies, there is an obligation to provide certain documents to either an employee representative or otherwise to the employees.
To what degree is conditionality an accepted market feature on acquisitions?
Conditionality is an accepted standard practice and would usually include any requisite shareholder or regulatory approvals. Where the Takeover Code applies, the offer must include a condition that the offer will lapse unless the bidder acquires (or agrees to acquire) more than 50% of the voting rights of the target. A typical condition though is that a bidder acquires at least 75% of the target shares (so that a bidder has a sufficient majority to pass any required shareholder approvals or effect a scheme of arrangement) or at least 90% of the target shares so that it may compulsorily acquire the remaining shares by notice to the relevant shareholders.
What steps can an acquirer of a target company take to secure deal exclusivity?
The Takeover Code, if applicable, imposes a general prohibition on offer related arrangements between a bidder, or any person acting in concert with it, and the target.
In all other cases, there are no rules prohibiting the target from agreeing to deal exclusivity, provided that the directors are satisfied that they are acting in the best interests of the company and are fulfilling their fiduciary duties.
What other deal protection and costs coverage mechanisms are most frequently used by acquirers?
Where the Takeover Code does not apply, then conditionality and exclusivity are the most frequently used.
Which forms of consideration are most commonly used?
Cash and shares are the most commonly used forms of consideration but loan notes may also be offered (with the notes themselves becoming listed on The International Stock Exchange).
Where the Takeover Code applies, the consideration must be in cash, or be accompanied by a cash alternative of at least equal value, and must comply with the minimum price rules.
At what ownership levels by an acquirer is public disclosure required (whether acquiring a target company as a whole or a minority stake)?
Where the Takeover Code applies, the bidder must publicly disclose its opening position (including those of its concert parties).
Where an application is made to the Channel Islands Competition Regulatory Authorities (CICRA), notice of the application will be published by CICRA.
Otherwise there are no specific disclosure requirements in Jersey unless required by the target’s constitutional documents or by a foreign stock exchange if the target’s shares are listed.
At what stage of negotiation is public disclosure required or customary?
No specific disclosure is required before an offer is made. However, the Takeover Code (if it applies) does contain requirements in relation to the disclosure of dealings and positions.
Is there any maximum time period for negotiations or due diligence?
No. However, if the Takeover Code applies there are time periods relating to the making of the offer which must be adhered to.
Are there any circumstances where a minimum price may be set for the shares in a target company?
Where the Takeover Code applies, the bid price must not be less than the highest price that the bidder (or any person acting in concert with the bidder) has paid for any interest in the target’s shares during the three months prior to the commencement of the offer period, and during the period until the offer closes to acceptances.
Is it possible for target companies to provide financial assistance?
There is no prohibition on the giving of financial assistance by a Jersey target company (although the target directors will still need to consider corporate benefit and obtain any necessary shareholder approvals).
Which governing law is customarily used on acquisitions?
The governing law is most commonly either the laws of Jersey or the laws of England and Wales.
What public-facing documentation must a buyer produce in connection with the acquisition of a listed company?
This will be determined by the rules of the stock exchange upon which the target is listed but typically this will include:
a circular setting out the terms and conditions of the offer;
the offer document and/or prospectus; and
an acceptance form.
What formalities are required in order to document a transfer of shares, including any local transfer taxes or duties?
Other than in the case of a transmission of shares by operation of law, the transfer of shares that are certificated generally requires that an instrument of transfer in writing has been delivered to the target company. The articles of association of the company usually specify additional requirements including delivery of the relevant share certificate (or the giving of an appropriate indemnity for a lost share certificate) and that the instrument of transfer be in a form approved by the directors and executed by the transferor and, where shares are not fully paid, by the transferee.
Uncertificated shares may be traded through CREST pursuant to the Companies (Uncertificated Securities) (Jersey) Order 1999 (as amended).
There are no registration, stamp, documentary or any similar taxes or duties of any kind payable in Jersey in connection with transfers of shares (except in the case of share transfers that confer a right of occupation of dwelling accommodation in Jersey).
Are hostile acquisitions a common feature?
Hostile acquisitions are not yet typical in Jersey.
What protections do directors of a target company have against a hostile approach?
There are no specific provisions under Jersey law for the protection of directors of a target company against a hostile approach.
Are there circumstances where a buyer may have to make a mandatory or compulsory offer for a target company?
Where the Takeover Code applies, a mandatory offer must be made when the bidder either:
acquires an interest in shares which carry (when taken together with shares in which persons acting in concert with the bidder are interested) 30% of more of the voting rights of the company; or
is, together with any person acting in concert with them, interested in shares which in the aggregate carry not less than 30% of the voting rights of a company but does not hold shares carrying more than 50% of such voting rights, and the bidder (or any person acting in concert with them) acquires an interest in any other shares of the company which increases the percentage of shares carrying voting rights held by the bidder.
If an acquirer does not obtain full control of a target company, what rights do minority shareholders enjoy?
Where a bidder, has by virtue of the acceptance of an offer, acquired or contracted to acquire not less than 90 per cent in nominal value of all of the shares (or all of the shares of a particular class) of the Jersey company, the holder of any shares (or class of shares) to which the offer relates who has not accepted the offer may, by written notice to the bidder require the bidder to acquire the holder’s shares.
Is a mechanism available to compulsorily acquire minority stakes?
The Companies Law provides that, where a person (the Offeror) makes a takeover offer to acquire all of the shares (or all of the shares in any class) in a Jersey company (other than any shares already held by the Offeror at the date of the offer), if the Offeror has, by virtue of acceptance of the offer, acquired or contracted to acquire not less than 90 per cent in nominal value of the shares (or class of shares) to which the offer relates, the Offeror may (subject to the requirements of the Companies Law), by notice to the holders of the shares (or class of shares) to which the offer relates which the Offeror has not already acquired or contracted to acquire, compulsorily acquire those shares. A holder of any shares who receives a notice of compulsory acquisition may (within six weeks from the date on which such notice was given) apply to the Jersey court for an order that the Offeror not be entitled and bound to purchase the holder’s shares or that the Offeror purchase the holder’s shares on terms different to those of the offer.
For more information or support, contact the Appleby Mergers & Acquisitions (M&A) team.