Employment aspects of the revised City Code on Takeovers and Mergers (the “Takeover Code”)

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Following a review of the Takeover Code a number of changes were made.  Provisions affected by these changes include those relating to employee information rights and buyer intention statements.

Background

The Takeover Code governs the terms and conduct of offers to acquire all the share capital of publicly listed companies in the UK.  This has recently been reviewed and a number of changes have come into effect.

The purpose of the changes is to secure greater recognition for the interests of the target company’s employees.

The relevant changes to the Takeover Code are set out below.  These arise from the recent Kraft/Cadbury takeover which resulted in the closure of a UK factory and the redundancy of employees one week after the takeover had been finalised, when prior to the takeover the buyer had stated that it would keep the factory open and that the jobs would be safeguarded.

Statements of the buyer’s intention

The buyer is now obliged to make a number of statements regarding its intentions for the target company’s employees and future business and its own employees including:

• the continued employment of the employees and management of the target company and its subsidiaries, including any material change in the conditions of employment
• its strategic plans for the target company and the likely affect on employment.

Employee representatives

Employee representatives are entitled to have their opinion on the effects the takeover would have on employment appended to the target company’s circular.  To encourage this the rules have been changed.  The target company must inform the employee representatives of this right and the target company is responsible for paying any costs reasonably incurred by the employee representatives in obtaining advice to ensure their opinion is accurate.

Employee information rights

Employee representatives must be given details of the announcement of an offer, the key terms and conditions and any changes to those.

Commentary

As a result of the revisions to the Takeover Code the effect on the employees of a takeover will assume greater importance and greater obligations are placed on both the buyer and the target company to keep the workforce informed and to take account of their views.

For further information or to discuss the issues raised, please contact Guy Abbiss, David Widdowson or Stephen Wright on +44 20 3051 5711.