Sherborne and F&C Asset Management: Impact of the Takeover Code on shareholder activism
F&C Asset Management (F&C) is an Official List company with a Premium Listing on the Main Market of the London Stock Exchange. Sherborne Investors GP, LLC (Sherborne) is an activist investment company.
Sherborne successfully requisitioned a general meeting of F&C to consider resolutions (i) removing the chairman of F&C and one of its independent non-executive directors and (ii) appointing three directors as nominees of Sherborne. These resolutions were convincingly passed yesterday. The two existing F&C directors were voted off and the three Sherborne nominees voted on; six existing F&C directors continued in office, meaning that the Sherborne nominees do not constitute a majority of the new F&C board.
This is the first of two posts looking at two of the legal aspects of Sherborne’s F&C activisim (the Sherborne Activism). In this post, we consider the impact (or non-impact) of the City Code on Takeovers and Mergers (the Takeover Code) on the Sherborne Activism. In the second, we look at the the Companies Act 2006 mechanism that allowed the requisition of the F&C general meeting and the removal of the two directors.
The Takeover Code
Sherborne is an activist investor with a track record of placing nominees on the boards of listed companies and changing their strategy and / or operational performance. In some ways, what Sherborne does could be considered, in layman’s terms, as acquiring control of its targets by placing its nominees on the target board. However, the Sherborne Activism was not considered to be an event that would require Sherborne to make a public offer to acquire the shares of the other F&C shareholders.
Rule 9.1 of the Takeover Code requires that when “any person acquires, whether by a series of transactions over a period of time or not, an interest in shares which (taken together with shares in which persons acting in concert with him are interested) carry 30% or more of the voting rights of a company”, then that person must make a offer to the other shareholders to acquire their shares.
Sherborne held between 17 and 18% of F&C’s shares. Aviva openly expressed support for Sherborne and holds, according to F&C’s latest annual report, 5% of F&C’s shares. It may be that other institutional investors also supported Sherborne; the convincing nature of the voting results at the general meeting certainly suggests so.
Was there a concert party? Was there a “board control-seeking proposal”?
So – looking at the wording of Rule 9.1 above – was there a Sherborne concert party which, if its combined holding of shares totalled over 30%, would have required an offer to be made? Well, for the purposes of Rule 9.1, the answer to that (at first blush, slightly surprisingly) appears to be “no”.
This is because Note 2 to Rule 9.1 says that “the Panel will normally presume shareholders who requisition…the consideration of a board control-seeking proposal…at an extraordinary general meeting, in each case together with their supporters as at the date of the requisition…to be acting in concert with each other”.
So the question then becomes: Was the F&C Activism a “board control-seeking proposal”? The answer to this is no, as the Code continues further in Note 2 to Rule 9.1 that “if…the implementation of the proposal would not result in the proposed directors representing a majority of the board, the proposal will not normally be considered to be board-control-seeking…” . (The Note continues “unless an analysis of [factors set out in Note 2] would indicate otherwise – and those factors do not appear to have been satisfied in this case.) As described above, the Sherborne nominee directors do not constitute a majority of the board.
As the F&C Activism was not “board control-seeking”, Sherborne and its supporters were not acting in concert in the terms of the Takeover Code and so the mandatory offer requirement of Rule 9.1 was not triggered.
This analysis is is based only on those facts about the F&C Activism that are publicly available.
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