A key issue for a bidder looking to acquire 100% under a takeover bid is that, while the bid will be subject to a 90% minimum acceptance condition, institutional investors often will not accept while the bid remains conditional. This means that bidders will generally need to waive the offer conditions in order to reach the 90% compulsory acquisition threshold – though this exposes the bidder to the risk of ending up with less than 90% or even with a minority interest. It is largely because of this risk that the scheme structure, which provides an ‘all-or-nothing’ outcome, is frequently used to effect a ‘friendly’ 100% acquisition of a target.
One tool which has been developed to attempt to deal with this issue in a takeover bid is the institutional acceptance facility, which has been used in numerous takeover bids. The concept is simple. Rather than accepting the bid at the outset, certain institutional target securityholders are given the option of initially just indicating their intention to do so. That is achieved by the institution providing ‘acceptance instructions’ to a third-party trustee. The instructions either take the form of a completed acceptance form or (if the securities are held through a custodian) written directions to the custodian. The trustee holds the instructions until a specified trigger event occurs – most commonly the delivery of a notice by the bidder confirming that, when combined with the actual acceptances already received by the bidder, the instructions will (when processed) result in the bidder achieving acceptances for more than a specified percentage of the target (such as 50% or 90%) and the bid will then become unconditional.
Upon the trigger event occurring, the trustee acts on the instructions by delivering the acceptance forms to the bidder and providing the directions to the custodians. Hence, it is only at that point that the institutional securityholders’ intentions to accept are converted into actual acceptances of the bid. Up until the trigger event occurring, the securityholders have the ability to retract their instructions, and retain full control over the voting and disposal of their securities.
Such facilities have an in-built flexibility which makes them attractive to bidders: they can be introduced at any time during a bid and (within limits) the bidder has a broad discretion as to what trigger event applies. This flexibility is particularly useful. A bidder has the opportunity of first assessing the bid’s progress before having to commit to withdrawal rights. If such rights become necessary, they can then be tailored to the particular circumstances prevailing – the facility can be directed at the specific securityholders that have concerns, and can be structured with a trigger event that achieves the precise outcome desired by the bidder.
