I OVERVIEW OF M&A ACTIVITY

Globally, 2016 was a very strong year for high-ticket M&A activity, if not quite mirroring 2015’s year of mega-deals. Deal volume across Europe reached a record high, with 6,999 announced deals totalling a combined value of €729.5 billion.2 The UK market was no exception. The value of inbound M&A activity in 2016 was the highest on record, with foreign investors spending a total of £187.4 billion on UK targets.3

Public M&A was a driver of much of the dealmaking in the UK. Fifty-one firm offers were announced for Main Market or AIM companies in 2016, down slightly from 52 in 2015. While the volume of announced bids in 2016 was broadly similar to that in 2015, the overall value of bids has decreased. Twenty-six offers were for Main Market companies (compared to 32 in 2015 and 24 in 2014) and only five offers had a value of over £1 billion (compared to 14 in 2015 and 24 in 2014).4

Given the political uncertainty created by the result of the UK referendum on European Union membership on 23 June 2016 and the decision to leave, these figures are strong. The threat of Brexit lowered business confidence to some extent, and in turn depressed dealmaking in the first quarter of 2016.5 As investors came to accept the referendum result, and given that the fall in the value of the pound triggered by that result made UK targets cheaper, deal activity increased in Q3 and Q4 of 2016.

The standout UK deal of the year was the £24.4 billion acquisition of ARM Holdings plc by Japanese telecoms company SoftBank Group Corp. Announced shortly after the result of the EU referendum, it was the highest-valued bid of 2016. The deal, discussed in further detail below, was also the first example of an acquirer giving post-offer undertakings under amendments to the Takeover Code introduced in 2015.

As in previous years, the scheme of arrangement was the most popular way of implementing bids, and was used in 31 of the firm offers in 2016 compared to only 20 contractual offers. This is no surprise given the scheme’s advantages over a contractual offer, such as being able to ensure 100 per cent control of the target. One of the high-ticket schemes to hit the headlines towards the end of last year was Anheuser-Busch InBev’s £79 billion takeover of UK listed beverage company SABMiller plc. The deal was notable in part because it was an example of activist investors using the scheme structure and process to try and force an increase in the price of the bid in an emerging trend known as ‘bumpitrage’.

The UK’s macroeconomic performance in 2016 was solid if not spectacular. The UK economy grew by 2 per cent compared to 2.2 per cent in 2015, while inflation reached 1.6 per cent in December 2016. This was its highest rate since July 2014 and reflects the fact that the fall in the value of the pound since the EU referendum has increased costs in the UK. Q4 2016 saw labour productivity rise by 0.4 per cent from Q3, but labour productivity growth is still on average far from returning to pre-crisis levels. Both manufacturing and services productivity grew in Q4 as compared with Q3, by 1.7 per cent and 0.8 per cent respectively. However, the 16 per cent gap between UK labour productivity and that of the rest of the G7 remains broadly the same as in 2015.6

Moving into 2017, worldwide dealmaking continued to defy expectations and delivered a strong first quarter. The UK was the most targeted country in Europe by volume, drawing 283 deals worth US$38.3 billion.7 These figures seem particularly impressive given that Q1 closed with Prime Minister Theresa May triggering Article 50 on 29 March 2017, kick-starting the official process of the UK leaving the EU. A lot remains to be seen, however, as political uncertainty seems to be the enduring theme of 2017 to date. The snap general election of 8 June 2017 has only compounded domestic uncertainty, as it is not yet clear what a minority Conservative government will mean for the UK in general and the Brexit negotiations in particular. It is hoped that the market resilience demonstrated over the past year will continue.

II GENERAL INTRODUCTION TO THE LEGAL FRAMEWORK FOR M&A

The Companies Act 2006 provides the fundamental statutory framework and, together with the law of contract, forms the legal basis for the purchase and sale of corporate entities in the UK. In addition, the City Code on Takeovers and Mergers (Takeover Code) regulates takeovers and mergers of certain companies in the UK, the Isle of Man and the Channel Islands. The Takeover Code has statutory force, and the Takeover Panel (Panel) has statutory powers in respect of the transactions to which the Takeover Code applies. Breach of any of the Takeover Code rules that relate to the consideration offered for a target company could lead to the offending party being ordered to compensate any shareholders who have suffered loss as a consequence of the breach. In addition, breach of the content requirements of offer documents and response documents may constitute a criminal offence. The Panel also has the authority to issue rulings compelling parties who are in breach of the requirements of the Takeover Code to comply with its provisions, or to remedy the breach. These rulings are enforceable by the court under Section 955(1) of the Companies Act. The Takeover Code has a wider scope than the EU Takeovers Directive, and applies if the offeree (or potential offeree) is a UK public company and, in some instances, if the company is private or is dual-listed.

The Financial Services and Markets Act 2000 (FSMA 2000) regulates the financial services industry, and makes provision for the official listing of securities, public offers of securities, and the communication of invitations or inducements to engage in securities transactions. Following substantial amendments to FSMA 2000, brought about on 1 April 2013 when the Financial Services Act 2012 (FS Act) came into force, financial regulation in the UK is split between two new bodies: the Financial Conduct Authority (FCA), which regulates conduct in retail and wholesale markets, and the Prudential Regulation Authority, which is responsible for the prudential regulation of banks and other systemically important institutions. As a consequence of the FS Act, over 1,000 institutions (including banks, building societies, credit unions and insurers) are now ‘dual-regulated’. The UK Listing Authority Sourcebook of Rules and Guidance (which includes the Listing Rules, the Prospectus Rules, and the Disclosure Guidance and Transparency Rules (DTRs)), promulgated by the FCA in its capacity as the UK Listing Authority (the competent authority for the purposes of Part VI of the FSMA), includes various obligations applicable to business combinations involving listed companies, and contains rules governing prospectuses needed for public offers by both listed and unlisted companies. The Listing Rules, in particular, set out minimum requirements for the admission of securities to listing, the content requirements of listing particulars and ongoing obligations of issuers after admission. The Criminal Justice Act 1993 contains the criminal offence of insider dealing and, from 3 July 2016, the EU Regulation on Market Abuse (MAR) (together with the Listing Rules, the DTRs and the Takeover Code) regulates the civil regime for insider dealing.

The merger control rules of the UK are contained in the Enterprise Act 2002, although the rules do not generally apply to mergers in relation to which the European Commission (Commission) has exclusive jurisdiction under the EU Merger Regulation. In addition, specific statutory regimes apply to certain areas, including water supply, newspapers, broadcasting, financial stability, telecommunications and utilities, and these separate regimes may have practical implications in merger situations.

III DEVELOPMENTS IN CORPORATE AND TAKEOVER LAW AND THEIR IMPACT

i Takeover Panel: changes to the Takeover Code rules on communications and distribution of information during an offer

On 14 July 2016, the Code Committee of the Takeover Panel published Response Statement 2016/1 setting out amendments to the Takeover Code relating to the communication and distribution of information during the course of an offer. The changes codify much of what is already the existing practice of the Panel Executive, but also serve to update the Takeover Code to reflect technological changes over time. The amendments took effect on 12 September 2016.

Rule 20.1 of the Takeover Code, which provides that information must be made available equally to all target shareholders as nearly as possible at the same time and in the same manner, is being substantially rewritten to provide greater clarity about how this general requirement should be satisfied. Generally, a bidder or target will be required to make an announcement via a regulatory information service (RIS) of any material new information or significant new opinion that is (1) published by or on behalf of any party to the offer; (2) provided to any holder of securities to any party to the offer or the investment community; or (3) provided to the media. In addition, the relevant party to the offer must publish the announcement on its website promptly after its release.

Certain kinds of materials (such as presentations provided or used during a meeting or call with shareholders or any article relating to the offer that has been provided to the media) must be published on a website even if they do not contain new information or opinions.

Rule 20.2 of the Takeover Code also requires financial advisers to police meetings that take place between representatives of, or advisers to, a bidder or target and relevant third parties to ensure that no material new information or significant new opinions about the offer or parties to the offer are provided selectively to those third parties. It has been clarified that ‘meetings’ include any calls or meetings held by electronic means.

Whereas previously, financial advisers were required to attend all meetings and provide written confirmation to the Panel that no material new information or significant new opinion were provided, the rules have to an extent been relaxed. In relation to recommended offers, where a firm offer has been announced (and there is no competitive situation), the Panel will normally grant a dispensation so that the financial adviser does not need to attend and supervise meetings. Instead, it will be sufficient for senior representatives of the company to attend and provide confirmations to the Panel. If the only persons attending the meeting on behalf of the bidder or target are its financial adviser or corporate broker, then no confirmation is required.

The use of social media by parties to the offer is also addressed for the first time. The Panel considers that any communication via social media should be limited to information and opinions that have already been published by parties to the offer. Social media may only be used to publish the full text of an RIS announcement or of a document that has been published on a website, or to publish links to webpages on which the full announcement or document can be read.

The use of videos, podcasts and webcasts to communicate information or opinions relating to the offer is also limited, requiring a director or senior executive to present it from a prepared script, and they may only be published with the prior consent of the Panel. These requirements do not apply to communications relating simply to the company’s ordinary business.

ii MAR

As noted in the previous edition of The Mergers & Acquisitions Review, the UK’s civil market abuse regime aims to ensure the smooth functioning of the market for financial securities by curbing behaviours that distort the price of securities and harm investor confidence in the market’s integrity and impartiality.

At the EU level, concerns about market distortion arising through regulatory arbitrage have led to the introduction of new harmonising measures in the form of MAR. MAR has direct effect in all EU Member States, including the UK, and most of its provisions applied from 3 July 2016.

Although MAR bears many similarities to the UK’s old regime, there are key differences that expand the scope of the market abuse regime, and change permitted behaviours and the ways in which listed companies need to operate within safe harbours. There are also changes to the rules governing the disclosure and control of inside information and the reporting of transactions by persons discharging managerial responsibilities.

MAR has introduced a new ‘market soundings’ safe harbour to the offence of unlawfully disclosing inside information. Market soundings (also known as ‘pre-marketing’) comprise the communication of information, before the announcement of a transaction, to potential investors to gauge their interest in a possible transaction and the conditions relating to it, such as its potential size or pricing. Indeed, some aspects of the market sounding regime under MAR will be nothing new to the market. But the introduction of a prescriptive, formalised procedure for undertaking a market sounding replaces what was previously a procedure governed largely by market practice. For example, a record of all information given to the person receiving the market sounding must be maintained, including the prescribed information given and the identity of the potential investors to whom the information has been disclosed. All records must be kept for five years.

Less clear is the interpretation of some other provisions of MAR, not least because of the limited guidance issued by the FCA or the European Securities and Markets Authority. In light of the uncertainty, on 28 October 2016 the City of London Law Society and Law Society Company Law Committees’ Joint Working Parties (JWP) on Market Abuse, Share Plans and Takeovers Code published a Q&A setting out their suggested approach to the implementation of certain aspects of MAR.8 While the JWP emphasised that information in the Q&A is subject to any future guidance published on MAR, it nonetheless offers some interesting insights.

The Q&A, for example, addressed the interpretation of Article 20 of MAR. This provision requires persons disseminating investment recommendations or suggesting an investment strategy to take reasonable care that such information is objectively presented, and to disclose their interests or any conflicts of interest concerning the financial instruments to which that information relates. The JWP took the view that neither a circular containing a voting recommendation by the board of an issuer (as required by the Listing Rules) nor the directors’ recommendation of a takeover offer would constitute an ‘investment recommendation’ or ‘information recommending or suggesting an investment strategy’ for the purposes of Article 20. The JWP offered three main reasons for their rationale. First, communications from a board to shareholders do not fall within the scope of Article 3(34), which captures information given by those ‘whose main business is to produce investment recommendations’. Second, a decision to vote was not considered by the JWP to be an ‘investment decision’ for the purposes of Article 3(34)(ii). Third, the JWP noted that Article 20 was not intended to encompass a board’s recommendations on a takeover (or an independent adviser’s opinion to the target’s directors for that matter). Such recommendations are regulated by the specific regime in the Takeover Code and are made within the context of duties owed from directions to shareholders as a result of that specific relationship.

iii Contractual interpretation

Noteworthy contractual interpretation cases have come before the court in 2017, providing useful lessons for M&A practitioners to consider when drafting transaction documents. In Watson v. Watchfinder.co.uk Limited,9 the court reviewed an option agreement entered into between the parties, a provision of which gave the defendant company directors discretion over the exercise of the option. The court had to determine whether this was an unconditional right to veto, or whether the directors had to act reasonably in withholding their consent. The court applied the public law concept of ‘reasonableness’, finding that the board had a duty to not act capriciously, arbitrarily or unreasonably when exercising its discretion. Allowing consent to be withheld arbitrarily would make the option meaningless, because then ‘the grant of shares is entirely within the gift’ of the directors.10 Not only does this reveal the court’s willingness to impose public law doctrines upon private M&A contracts, but the court also commented on some wider drafting points. It was noted that the agreement was in part drafted by an operations director, reminding market participants of the need for sound and proper legal drafting. The case also emphasises that boards need to document properly their decision-making processes, as the judge noted that there was insufficient evidence to demonstrate why the board refused its consent. One suggested reason was that the claimant failed to secure the appropriate investment for the defendant, as it had been engaged to do. However, the court noted that if the defendant wanted to make the option conditional on a successful investment being made, then the parties ought to have drafted for that.

The court again noted the imprecise drafting of a share purchase agreement indemnity clause in the Supreme Court case of Wood v. Capita Insurance Services Limited.11 Contributing to the case law on the textual approach to contractual interpretation, the court found that it was more inclined in this case to view the clause in the context of the contract as a whole, as this would assist in making the term’s meaning clear. The court looked to the warranties, which were broad and time-limited, to understand that the parties had drafted a further indemnity, which was not time-limited and was limited in scope. As such, the court dismissed the appeal because the claim was not within the limited scope of the indemnity, nor was it within the two-year warranty period. The extent to which the court will rely on the wider context of a contract to understand a particular provision depends on the contract’s formality, and the nature and quality of the drafting.

iv Persons with significant control register

As noted in the 10th edition of The Mergers & Acquisitions Review, the Small Business, Enterprise and Employment Act (SBEE Act) received Royal Assent on 26 March 2015. Although its title suggests that it will only affect small businesses, the SBEE Act implements substantial changes to company law and corporate governance that will impact all companies.

One such change is the introduction of the ‘persons with significant control’ register (PSC register). Since 6 April 2016, UK companies and limited liability partnerships are required to hold, and maintain, a register of people with significant control. From 30 June 2016, they are required to file the information with Companies House on an annual basis. This forms part of a suite of measures reflecting the government’s commitment to increase transparency of company ownership and control.

People with significant control are individuals who hold (directly or indirectly) 25 per cent of a company’s shares or voting rights; control rights to appoint or remove a majority of the board; or otherwise have the right to, or actually do, exercise significant influence or control over the company. The Department for Business Innovation and Skills has issued statutory guidance on the meaning of ‘significant influence or control’.12

Importantly, publicly traded companies on UK exchanges are exempt, as are companies traded on an EEA regulated market or on specified markets in Switzerland, the United States, Japan and Israel.

The new regime will also impact upon private equity structures. Following consultation with the British Venture Capital Association, the government’s initial proposals for the PSC register were amended so that limited partners will not be registered on the PSC register solely because they are limited partners of a limited partnership. This amendment is welcome relief for the private equity industry, which commonly makes use of limited partnerships in investment structures. However, the exemption only applies in respect of limited partnerships registered under the Limited Partnerships Act 1907 (and would exclude, therefore, limited partnerships registered in other jurisdictions, including Jersey and Guernsey). Practitioners will need to be mindful of the increased transparency that will apply in transactions making use of such structures.

More generally, the PSC register may impact overseas companies acquiring UK subsidiaries. Overseas companies with UK subsidiaries (but not those that only have UK branches) need to be aware of the regime, as each of their UK subsidiaries will be required to keep a PSC register and, as with any other company within the scope of the regime, will need to obtain the information needed to complete the register.

As a result of the UK’s implementation of the Fourth Money Laundering Directive,13 it is expected that the scope of the PSC register requirements will be widened to include certain other entities, such as AIM-listed companies. In addition, all companies caught by the PSC regime will need to update Companies House any time there is a change to their PSC register.

IV FOREIGN INVOLVEMENT IN M&A TRANSACTIONS

The UK’s decision to leave the EU does not appear to have had an immediate adverse impact on the UK’s attractiveness for foreign direct investment (FDI). The UK again was Europe’s number one recipient of FDI projects, ahead of Germany, France, Spain and Poland. Indeed, the number of FDI projects in the UK hit record levels, with 1,144 projects in 2016, a 7 per cent increase on the previous year. FDI-generated jobs rose by 2 per cent from 2015 to 44,665, making the UK the top country in Europe for receiving FDI jobs.14

However, the UK’s market share of all European FDI projects fell from 21 per cent in 2015 to 19 per cent in 2016. It is not insignificant that this decrease is set against a backdrop of an overall increase in FDI projects across Europe as a whole, which rose by 15 per cent to 5,845. This reflects a high point for European FDI since the eurozone crisis, but interestingly EY’s survey concluded that the Brexit vote did not unduly deter investors.15 Although the UK was not reaching the FDI heights seen in previous years, EY noted that the UK’s actual performance in 2016 was in fact in line with expectations. According to two investor perception surveys conducted by EY – one before and another after the EU referendum – investors’ one-year perception of the UK as an option for FDI remained positive.16 While investors’ short-term confidence is encouraging, a more recent EY study conducted in 2017 found that the share of investors with a negative view of the UK’s medium-term prospects had almost doubled since 2016. It seems that the EU referendum result may have impacted the UK’s future attractiveness for foreign investors, but has left the country’s short-term prospects largely unaffected.

Accordingly, in respect of M&A, 2016 again saw some extremely high-value acquisitions of UK companies by foreign investors, the overall value of which hit a record high of £187.4 billion. This value should be seen in its proper context, influenced as it is by four particularly high-value deals each coming in at £10 billion or more (no M&A deal reached this level in 2015).17 Q3 2016 saw the acquisition of ARM Holdings plc by Japan’s SoftBank Group Corp for approximately £24 billion, making it one of the biggest tech deals of the year, and the biggest ever in the UK.18 Aside from its notable value, the deal was also significant for being the first example of a bidder for a UK target making use of the post-offer undertakings (POU) regime brought in by Rule 19.5 of the Takeover Code in January 2015.19 Bidders who provide POUs (as distinct from post-offer intention statements) are bound by their commitment under a POU, and their compliance with it is monitored. By way of contrast, a post-offer intention statement is an accurate statement of the party’s intention at the time that it is made. SoftBank Group Corp committed to, inter alia, keep ARM Holdings plc’s headquarters in Cambridge, double the number of its UK employees within five years and increase the number of non-UK employees within the same time frame.

Another standout deal was the £79 billion takeover of UK brewer SABMiller plc by Belgium’s Anheuser-Busch InBev, which completed during Q4 2016 and accounted for 95 per cent of the total M&A deal value reported in those three months.20 Overall foreign involvement in M&A in 2016 was not insignificant, with 227 successful acquisitions of UK companies by foreign investors, the highest number since 2011.

The US continued to be the largest country investor in UK FDI in 2016, although its relative proportion dropped to its lowest level for 10 years. Germany is proving to be a strong competitor for the UK for FDI from Chinese and Indian investors, having also surpassed the UK in attracting investments from 24 high-growth markets. While the UK received 40 per cent of all Indian projects, the UK’s total share of Asian projects is down.21

V SIGNIFICANT TRANSACTIONS, KEY TRENDS AND HOT INDUSTRIES

i Insurance and financial services

The insurance M&A market in 2016 saw deal volume decrease by 20 per cent after the bumper year of insurance mega-deals in 2015.22 Deal flow was limited by a number of factors, including but not limited to the uncertainty the insurance sector perceived in light of the UK’s decision to leave the EU after the June 2016 referendum. Other factors specific to the insurance sector also impacted dealmaking over the past year, such as the requirement for firms to implement the Solvency II Directive23 from January 2016, which made insurers consider their capital position. The insurance market also saw insurers focusing on their core business, which in part motivated Deutsche Bank AG’s decision to sell its Abbey Life Assurances business to Phoenix Group Holdings for £935 million in September 2016.24

Regulatory concerns made their mark in another area of the financial services sector in the past year. March 2017 saw the proposed £21 billion ‘merger of equals’ between Deutsche Börse AG and London Stock Exchange Group (LSEG) blocked by the Commission on the grounds of EU competition law. The announcement came at the end of 13 months of dealmaking and made it the third time that an attempt to merge the two stock exchange operators has failed. Competition Commissioner Margrethe Vestager objected to the merger on the basis that the deal would create a ‘de facto monopoly’ in the clearing fixed income instruments market.25 In particular, the competition authority did not consider that the parties’ proposed remedy of LSEG divesting its interest in LCH.Clearnet SA (its France-based clearing house) was sufficient to quell antitrust concerns. Indeed, ­the parties then rejected the Commission’s proposal for LSEG to divest its stake in its Italian trading platform MTS, at which point it looked unlikely that the deal would receive the necessary clearance. While Vestager said her decision was not impacted by Brexit, the referendum result nonetheless raised questions in the public mind about the merger. Voices in Germany called for the proposed merged entity’s headquarters to be relocated to Frankfurt in light of the uncertainty created for London by Brexit while, from the UK side, political pressure was directed at a major national financial institution moving its regulatory and operational bases to Germany. Although LSEG and Deutsche Börse pushed ahead despite the Brexit announcement coming midway through negotiations, it is perhaps not surprising that some in a politically charged Europe were hostile to its successful completion.

ii Consumer and retail

The consumer and retail sector had a strong showing of M&A activity in 2016, even if it was no match for the mega-deals of 2015. Despite concerns after the result of the EU referendum that consumers would be less inclined to spend, the UK registered 71 retail deals in 2016 amounting to €4.3 billion in value, ahead of France’s €918 million.26 A notable UK transaction was J Sainsbury plc’s acquisition of Home Retail Group plc (HRG) for £1.4 billion, which completed in September 2016 and created one of the largest food and non-food retailers in the UK. The deal was one of three bids in 2016 that involved a switch in structure from a contractual offer to a scheme of arrangement or vice versa. The deal was initially structured as a non-recommended offer, but was later amended and unanimously recommended as a three-stage process, starting with a scheme of arrangement and allowing for the return of value to HRG shareholders. HRG was also a possible target for Steinhoff International Holdings NV, which made three separate attempts for a UK target in the retail sector,27 perhaps an indicator of increased inbound M&A activity as a result of the fall in the value of sterling after the EU referendum. Steinhoff ultimately acquired UK retailer Poundland Group plc by way of a scheme in September 2016 for £610.4 million (a deal that itself increased in value from £597 million due to successful action by shareholder activists).

The first quarter of 2017 saw Tesco plc announce a £3.7 billion takeover offer for the wholesaler Booker Group plc, placing it within the top five deals to target the UK in Q1.28 The aim is to create ‘the UK’s leading food business’, and the deal is expected to complete in late 2017 or early 2018. At the time of writing, the deal is in the early stages of scrutiny by the Competition and Markets Authority (CMA), with the deadline for the Phase I decision currently scheduled for 25 July 2017.

iii Shareholder activism and related decisions

The past year has seen an increase in shareholder activism, and as a result there has been a spate of recent decisions that address the issue. This topic has come to the fore in particular with transactions structured as schemes of arrangements (which allow the bidder to acquire 100 per cent control of the target if the scheme is approved). Accordingly, the requisite statutory thresholds contain minority protections of which activist investors have been making increased use recently in the hope of securing more favourable terms in a trend known as ‘bumpitrage’.29

For example, there was notable investor controversy in the run up to Anheuser-Busch InBev NV’s takeover of SABMiller in late 2016. US activist hedge fund Elliott Management raised concerns that the partial share consideration on offer, which was aimed at major SABMiller shareholders Altria Group Inc and BevCo Limited, was more favourable than the cash offer because of the decline in the value of sterling after the Brexit vote.30 That pressure is reported to have led Anheuser-Busch InBev to raise its cash offer in July 2016.31 In addition, Soroban Capital Partners, which in fact supported the scheme, objected to the exclusion of Altria and BevCo from the class of shareholders who were entitled to vote on the transaction. Soroban claimed that the court did not have jurisdiction to convene a meeting with all of SABMiller’s shareholders except Altria and BevCo, and further stated that the two shareholders’ presence would mean a much higher chance of dissentient shareholders being outvoted. The court, however, held in Re SABMiller plc that it did have the requisite jurisdiction.32 The practical consequences of this decision are that a company proposing a scheme may choose to exclude certain supportive shareholders from the scheme meeting in order to minimise the risk of legal challenge to the scheme.

Contentious shareholder activity hit the headlines again in early 2017 when the Dee Valley case came before the court.33 The issue was whether it was valid for a shareholder to split its shareholding by transferring one share each to 445 individuals in order to defeat the ‘majority in number’ test in a scheme of arrangement used to effect a takeover. The court held that members must use their votes for the purpose of benefiting the class as a whole and not their own individual interests. Accordingly, the relevant dissenting shareholders’ votes were ruled invalid and the scheme was sanctioned. The implications arising from the case are numerous, not least because it was the first in England and Wales to consider the validity of share splitting as a mechanism to vote against a scheme. In reaching its decision, the court noted that the court meeting convened to approve the scheme is a sui generis meeting under the control of the court, unlike a normal general meeting of company shareholders. As such, the chair of the court meeting is given wide powers to reject votes where members are not voting in the interests of the class as a whole (although in practice it is likely that the chair would seek advice from the court or counsel before doing so). Had the case been decided differently, it might have paved the way for activist shareholders to block schemes with share-splitting strategies, which would have been particularly notable given the scheme’s popularity in recent years as a way to implement recommended takeovers (as discussed in Section I, supra). The judgment still leaves some uncertainty over what exactly constitutes vote manipulation, keeping open, for example, the question of whether the votes would have been valid if the share splitting had occurred before the court meeting was convened, or if the relevant shareholders had paid for the single share they received as part of the split. It will be interesting to watch the activities of activist investors in the coming year, both to see the approach taken by boards of UK companies when confronted in an M&A situation and whether activists will continue to focus on the intricacies of the scheme structure.

In June 2016, the Takeover Appeals Board (TAB) considered the appeals made by a Ladbrokes plc shareholder, Dermot Desmond, who claimed that Ladbrokes shareholders voted on a false premise in relation to the proposed recommended merger of Ladbrokes and Gala Coral Group Limited. The hearing was rare as, prior to this, only three appeals in the previous 25 years had been heard by the TAB. Mr Desmond asserted that Ladbrokes had failed to publish certain material contracts, and that the notice of the meeting containing the resolutions to approve the merger (including a resolution to waive a requirement to make a mandatory bid, which would otherwise have arisen under Rule 9.1 of the Takeover Code as a consequence of the transaction structure) was misleading as it too contained material omissions and inaccuracies. The TAB dismissed all of Mr Desmond’s appeals, instead upholding the decisions of the Panel Executive and the Hearings Committee that Ladbrokes had complied with the relevant rules.

VI FINANCING OF M&A: MAIN SOURCES AND DEVELOPMENTS

In 2016, 51 firm offers were announced for AIM or Main Market companies that were subject to the Takeover Code.34 Cash continues to be the main form of consideration (or cash in combination with shares or loan notes). It remains common to use debt financing to fund acquisitions, with 27 offers involving a debt portion. This represents a slight drop on 2015.35 The use of short-term bridge facilities remains popular, particularly for larger deals; the facilities are typically refinanced in the bond markets or with longer-term loan refinancings.

Rule 24.3(f) of the Takeover Code requires that the offer document must contain a description of how the offer is to be financed and the source or sources of the finance. In particular, the offer document must provide details of the key terms of the debt, including the interest rates and any ‘step up’ or variation provided for (which would include market flex rights). Following the publication of the announcement of a firm intention to make an offer, any documents relating to the financing of the offer must be published on a website no later than 12 noon the following business day (Rule 26.2(f)). The disclosure of any market flex provisions included in the financing arrangements can therefore be a contentious issue. Disclosure of negotiated flex rights pursuant to Rule 26.2 may lead to higher funding costs, as it can put potential syndicate members on notice of the arrangers’ ability to increase the interest payable (within the agreed parameters).

Rules 24.3(f) and 26.2 were introduced in 2011; in its 2012 review of the 2011 amendments to the Takeover Code, the Panel noted that as a result of the concerns outlined above, dispensation had been granted from the Rule 26.2 requirement in relation to disclosure of flex rights. This gives the parties a period of up to 28 days to complete syndication before the publication of the offer document, which must then include details of the flex in accordance with Rule 24.3(f). Whether this 28-day concession will be long enough to complete syndication will depend upon the proposed timetable, but the trend of requesting dispensation from the Panel continued in 2016: for example, Avnet Inc’s offer for Premier Farnell plc redacted details of the flex rights from the fee letter published in accordance with Rule 26.2(b), but subsequently summarised the flex terms in its scheme document.

VII PENSIONS AND EMPLOYMENT LAW

i Holiday pay – liability for potential claims

Holiday pay continues to be a hot topic. In an M&A context, the purchaser will need to consider the potential for historic liabilities where holiday pay has been underpaid, and whether appropriate indemnity protection is required.

The calculation of holiday pay is governed by the concept of ‘a week’s pay’ in Sections 221 to 224 of the Employment Rights Act 1996. The mechanism is complex, and depends on whether the employee’s remuneration varies according to the type or amount of work done. Often employers only use base salary to calculate holiday pay, and additional payments such as overtime, bonuses, commission and allowances are not typically included.

British Airways plc v. Williams was the first case to question this approach, and the European Court of Justice (ECJ)36 and subsequently the Supreme Court37 confirmed that employees were entitled to receive holiday pay that included allowances and supplementary payments that were ‘intrinsically linked’ to the performance of their duties. The ECJ later confirmed in Lock v. British Gas Trading Limited 38 that holiday pay must include an amount in respect of the results-based commission that the employee would have earned had he or she not been on holiday. Bear Scotland Ltd v. Fulton39 then followed, and the Employment Appeal Tribunal held that holiday pay must include an amount in respect of compulsory overtime (i.e., that which the employee is obliged to work if offered by the employer).

These cases still fail to determine how holiday pay should be calculated to include these additional payments: for example, over what reference period the payments should be judged and whether variable pay should be included. The reference period is one of the issues due to be determined when the British Gas claim returns to the Employment Tribunal later in 2017, so this should hopefully resolve some of the uncertainty facing employers.

Businesses initially had concerns that employees would be able to bring retrospective holiday pay claims for a period stretching back to the introduction of the Working Time Regulations in 1998,40 but some comfort was given from the decision in Bear Scotland, which decided that retrospective holiday pay claims must be brought within three months of an underpayment of holiday pay and can only extend to previous underpayments if there is not more than three months between each underpayment. If there is a gap of more than three months, the chain is broken and the claim cannot extend back any further. The Deduction from Wages (Limitation) Regulations 2014,41 which came into force on 8 January 2015 and which apply to claims presented on or after 1 July 2015, also introduced a limitation on historic claims of this sort to the two years preceding the date of the claim.

Although an employer’s exposure has been limited by recent legislation and case law, there will still be some level of exposure in the foreseeable future in industries with atypical remuneration structures or where there is a high proportion of overtime and bonuses, particularly on transactions involving significant numbers of employees. Purchasers should continue to seek an indemnity to cover any potential historic liability for holiday pay.

ii Employment status

Employment status is another hot topic at present, particularly in certain sectors (such as the gig economy) where workers have traditionally been classified as self-employed, but are now claiming to be entitled to certain employment rights. The government commissioned Matthew Taylor to conduct a review of modern employment practices,42 which published his report43 in July 2017. The review recommends significant reforms to the current categorisation of workers and self-employed individuals, and the rights attaching to each status. The government has welcomed the report, and intends to consult on its recommendations and issue a full response later this year.

Businesses should therefore be alive to the risk that the individuals within their workforce may be incorrectly classified, and that the rights and responsibilities attaching to those individuals may be subject to change. This could have significant financial and reputational implications for the business, particularly in the current political climate. Purchasers should therefore conduct thorough due diligence on the employment status of the target’s workforce, and seek appropriate indemnity protection where necessary.

iii Postponement of minimum contribution rate increases under auto-enrolment

There is mandatory auto-enrolment in the UK. This means that companies are required to offer (most) workers at least a defined contribution tax-registered pension plan providing a minimum level of contributions. Such requirements are being introduced on a ‘staged’ basis: they currently amount to a minimum total contribution of 2 per cent of an employee’s ‘qualifying earnings’44 (of which the employer must contribute at least 1 per cent), rising to 5 per cent from 6 April 2018 (of which the employer must contribute at least 2 per cent) and to 8 per cent from 6 April 2019 (of which the employer must contribute at least 3 per cent). The increasing cost of auto-enrolment will need to be taken into account by purchasers as part of a target’s ongoing employment costs.

However, employers may not currently be able to automatically postpone the starting dates of the minimum contribution rate increases if, for example, they have been specifically written into the scheme rules. The position will need to be checked by the purchaser.

iv Abolition of contracting out for defined benefit schemes: changes now in effect

On 6 April 2016, contracting out of the state pension in defined benefit schemes was abolished as part of the introduction of the reformed UK state pension system. Employers have therefore lost the national insurance rebate that they were previously entitled to as result of contracting out of the state pension.

The abolition of contracting out could be a relevant consideration for those purchasers considering taking on a target’s (now formerly contracted out) defined benefit scheme that is still open to future accrual (although such schemes are now rare), as the employer would be required to pay a higher level of national insurance contributions.

However, a statutory modification power has been introduced that allows employers unilaterally to amend scheme rules governing accrual rates and member contribution levels so far as is necessary to compensate the employer for the loss of its national insurance rebate. This power is subject to certain restrictions and would require consultation with employees. The power will be available for five years after the abolition of contracting out.

v Transfers of past service benefits

A seller may require the purchaser to continue to offer a target’s employees membership of a defined benefit pension scheme, including accepting a transfer of the employees’ (and possibly former employees’) past service benefits into that scheme, although this is now relatively unusual.

It may not currently be possible to carry out a transfer of such past service benefits following the abolition of contracting out on 6 April 2016. If a transfer is to be carried out on a ‘without consent’ basis,45 certain requirements must be met. Currently, these requirements mean that where a formerly contracted-out defined benefit scheme is seeking to transfer any contracted-out benefits, it is only able to make such transfer to another formerly contracted-out defined benefit scheme. On acquisitions, transfers would usually be made with members’ consent, but they could be made on a without-consent basis, particularly if it is intended to also transfer the benefits of any former employees.

The UK Association of Pension Lawyers has raised the difficulties created by the above situation, and has suggested that schemes that are not formerly contracted out should be able to receive such transfers on the proviso that other sufficient protections are in place. The UK Department of Work and Pensions has accepted the logic of this suggestion but, given the complexities of enacting it, may not make the required changes to the legislation for some time. The current expectation is that a government consultation on this point is unlikely to be launched before autumn 2017.

VIII TAX LAW

In the aftermath of the Brexit referendum, the government has repeatedly reaffirmed its commitment to provide a stable and competitive tax system ‘to support economic growth and maintain the UK as one of the best places in the world to set up and grow a business’. There is no reason to believe that will change following the UK’s general election on 8 June 2017.

As part of the drive for greater stability, it has been announced that the annual Autumn Statement will be abolished, and that the Budget of March 2017 should be the last spring budget.

Going forward, an Autumn Budget will set out immediate changes; this will be followed by the publication of the Finance Bill. Separately, a Spring Statement is intended to enable the government to address longer-term fiscal issues.

i Encouraging debt and equity investment

UK legislation imposes a 20 per cent withholding tax on interest, but that rate is reduced to zero under many double taxation treaties (DTTs). To facilitate and expedite applications by borrowers for approval to pay interest gross under the relevant DTT, HMRC launched the double taxation treaty passport (DTTP) scheme in 2010. From April 2017, the DTTP scheme has been extended to cover UK non-corporate borrowers (UK partnerships, individuals and charities) and overseas non-corporate lenders (sovereign wealth funds, pension funds and partnerships, but the latter only if all the partners are entitled to treaty benefits under the same treaty).

Following a consultation on the substantial shareholdings exemption (SSE) during 2016, the government proposed that, for disposals made on or after 1 April 2017, the investor trading condition is removed, the period over which the substantial shareholding requirement can be satisfied is extended and the post-disposal investee (target) trading condition is removed. A new subsidiary exemption that removes the need to satisfy any trading tests for certain ‘qualifying institutional investors’ has also been proposed.

The package amounts to a very welcome relaxation of the rules, bringing the SSE more into line with ‘participation exemptions’ in other jurisdictions. The Finance Bill 2017 had included legislation to effect these proposals and, although the relevant clauses were removed to ensure enactment of the bill before the dissolution of Parliament, it seems likely that the legislation will be reintroduced.

ii The UK as domicile of choice post-Brexit

Most of the features that make the UK an attractive jurisdiction from a corporate tax perspective should be unaffected by Brexit.

After the Republic of Ireland, the UK has the lowest corporation tax rate in Western Europe; currently, it is 19 per cent, and it is set to decrease to 17 per cent by 1 April 2020. The UK has a broad network of DTTs, generally exempts from tax any dividends (both domestic and foreign) received by UK companies and does not operate any withholding tax on dividends paid by UK companies (other than real estate investment trusts).

Brexit may, however, mean that UK companies are no longer able to avail themselves of certain tax-related benefits of the UK’s membership of the EU, notably benefits under the Parent–Subsidiary Directive.46

If UK parent companies can no longer rely on this Directive (which abolishes withholding taxes on payments of dividends between associated companies of different Member States), dividends would be received subject to withholding at the relevant DTT rate, and this is not necessarily zero (for instance, in respect of dividends from German and Italian subsidiaries, it would be 5 per cent). Intra-group payment flows should therefore be reviewed and holding structures for future acquisitions designed with this in mind.

If a takeover was structured as a cross-border merger involving a UK company, the Tax Mergers Directive47 may no longer operate to ensure that the merger is tax-neutral; it is unclear how the UK implementing legislation would continue to apply after Brexit. In practice, though, it is extremely rare to use this method in a UK context anyway.

iii Using tax losses

Supposedly to align the UK with other G7 countries, legislation had been included in the Finance Bill 2017 to allow losses incurred after 1 April 2017 to be carried forward and set off against profits from other income streams or group companies, but against only 50 per cent of a group’s profits above £5 million (with stricter restrictions for banks).

The Finance Bill 2017 also included changes to the rules against ‘loss buying’. Currently, if there is a major change in the nature or conduct of the target’s trade (or investment business) within three years following its acquisition, any pre-acquisition losses are lost. The proposed changes would extend the test period to five years and restrict group relief in respect of the target’s pre-acquisition losses.

Like the SSE changes, the relevant clauses in respect of both changes were dropped from the bill before the election with a commitment to reintroduce them.

iv Anti-avoidance

We have seen the issuance of the first charging notices in respect of the diverted profits tax (DPT), which was introduced in 2015. Most commonly, such notices have been issued alongside enquiries into a group’s transfer pricing and controlled foreign companies. Thorough due diligence in these areas is, therefore, particularly important, and warranty protection in respect of the application of the DPT should be sought.

To implement Action 4 under the base erosion and profit shifting project, the government had included in the Finance Bill 2017 a restriction on deductions for net interest expense to 30 per cent of a group’s UK ‘tax-EBITDA’ or, if higher, to the ratio of net interest to EBITDA for the worldwide group. Again, like the SSE changes, the relevant clauses were dropped from the bill before the election with a commitment to reintroduce them.

On 27 April 2017, new corporate offences of failure to prevent the facilitation of UK or foreign tax evasion were enacted. The scope of the new offences is deliberately broad; partnerships and bodies corporate can be held responsible for actions of their employees, agents or any other persons performing services for them or on their behalf. Liability can therefore extend to actions of third parties with whom the group’s relationship is only contractual, such as in supply chains or distribution networks. In an M&A context, warranty protection in respect of internal policies, procurement processes, and terms and conditions of business should be sought.

v Stamp duty

As announced at the Autumn Statement 2016, the Office of Tax Simplification (OTS) is currently reviewing the operation of stamp duty on share transfers. The OTS published an interim report in March 2017 outlining two different solutions. One proposal is to make stamp duty a self-assessed digital tax and retain it alongside stamp duty reserve tax (SDRT). The other proposal, which the OTS says has so far been favoured by the majority of respondents, is to merge stamp duty and SDRT. This would make the stamp taxes analysis on share transfers more straightforward.

Brexit could bring back the 1.5 per cent stamp duty charge on issuing securities into a depositary or clearing system, as the UK may no longer have to comply with the Capital Duties Directive, as interpreted by the Court of Justice of the European Union in the HSBC case some years ago. So far, however, there has been no indication from the government that it intends to reinstate the charge.

vi VAT

While the fundamental VAT rules within the UK may not be altered significantly as a result of Brexit, it is likely to give rise to uncertainty regarding the imposition of VAT (and excise duties) on supplies between the UK and the remaining EU Member States. Whether in respect of existing group structures or on a proposed acquisition, supply chains will need to be carefully considered to prevent inefficiencies.

In a purely domestic context, the recovery of VAT by holding companies continues to be a hot topic, in particular in the context of fees for advice on an acquisition. HMRC has published new guidance which draws the following distinction:

    • a a holding company that does not become VAT-grouped with its new subsidiary should be able to recover input tax borne on supplies received for the purposes of acquiring the subsidiary if (but only if) the holding company carries on a business of its own and the acquisition is a ‘direct, continuous and necessary extension’ of that business, or the holding company provides management services to the subsidiary for a clearly defined consideration that is actually paid from the start; and
    • b a holding company that does become VAT-grouped with its new subsidiary does not thereby (in HMRC’s view) have an automatic entitlement to recover such VAT even if the target has a fully taxable business. HMRC claims that the holding company can recover if it provides management services or makes interest-bearing loans, assuming the services or loans support the making of taxable supplies by the subsidiary, although this analysis seems at odds with the fundamental principle of VAT grouping.

It is worth bearing in mind that there has not yet been a follow up to the consultation on changes to the UK’s VAT grouping rules, which closed at the end of February 2017, so there may be further developments in this area.

IX COMPETITION LAW

i The UK merger regime

The CMA has the power to carry out an initial Phase I review, and has a duty to refer any qualifying transaction for a detailed Phase II investigation where it believes that it is or may be the case that the merger could give rise to a substantial lessening of competition. Phase I decision-making is undertaken by the Senior Director of Mergers (or another senior CMA official). Phase II decision-making is undertaken by an independent panel of experts drawn from a pool of senior experts in a variety of fields.

Notification is ‘voluntary’ in the sense that there is no obligation to apply for CMA clearance before completing a transaction. The CMA may, however, become aware of the transaction through its market intelligence functions (including through the receipt of complaints) and impose interim orders preventing further integration of the two enterprises pending its review. There is a risk that it may then refer the transaction for a Phase II investigation, which could ultimately result in an order for divestment.

The CMA strongly encourages parties to enter into pre-notification discussions in advance of formal notifications in order to seek advice on their submission, to ensure that a notification is complete and to also lessen the risk of burdensome information requests post-notification. The CMA aims to start the statutory clock within 20 working days (on average across all cases) of submission of a substantially complete draft merger notice. The CMA appears to be meeting its target: during the 2016–2017 financial year, the period between submission of a substantially complete draft merger notice and formal notification took on average 11 working days.48 The average length of the total pre-notification period was 33 working days in the 2016–2017 financial year.49 Some cases, however, still do require long pre-notification periods. Once a transaction is formally notified, Phase I begins, and the CMA has a statutory time limit of 40 working days to reach a decision. It may, however, extend this period in certain exceptional circumstances, such as if it is waiting for information from the merging parties. The CMA can obtain information at Phase I through formal information-gathering powers with penalties for non-compliance. The CMA formally paused the statutory timetable in 13 Phase I cases during the 2016–2017 financial year.50

During the 2016–2017 financial year, the CMA completed all cases within the Phase I statutory deadline. The average length of Phase I was 35 working days.51 Where the CMA’s duty to refer a transaction to a Phase II investigation is engaged, the parties have five working days from the substantial lessening of competition decision (SLC decision) to offer undertakings in lieu of a reference to the CMA (although they may offer them in advance should they wish to do so). Where the parties offer undertakings, the CMA has until the 10th working day after the parties received the SLC decision to decide whether the offer might in principle be acceptable as a suitable remedy to the substantial lessening of competition. If the CMA decides the offer might in principle be acceptable, a period of negotiation and third-party consultation follows. The CMA is required to decide formally whether to accept the offered undertakings, or a modified form of them, within 50 working days of providing the parties with the SLC decision, subject to an extension of up to 40 working days if there are special reasons for such extension.

At Phase II, the CMA must issue its decision within a statutory maximum of 24 weeks, extendible in special cases by a period of up to eight weeks. Where remedies are required, the CMA has a statutory period of 12 weeks (which may be extended by up to six weeks) following the Phase II review within which to make a decision on any remedies offered by the parties.

The CMA has significant powers to impose interim measures to suspend or reverse all integration steps and prevent pre-emptive action in relation to both completed and anticipated mergers. This ensures that, while notification is voluntary in the UK, the CMA is able to prevent action being taken that would result in irreversible damage to competition. Severe financial penalties may be imposed for breaches of any interim orders or undertakings (capped at 5 per cent of the aggregate group worldwide turnover).

The CMA levies substantial filing fees in respect of the mergers it reviews, with fees of between £40,000 and £160,000, depending on the turnover of the target business.

ii Treatment of mergers by the CMA

The number of Phase I merger decisions made by the CMA in the 2016–2017 financial year (57) was slightly down from the 62 decisions taken in the preceding financial year, and significantly down from the peak of 210 merger decisions made by the OFT in the 2005–2006 financial year. Since 1 April 2004, 57 is the lowest annual figure for Phase I decisions, with the average number being 101 decisions per year.

Of the 57 cases decided during the year, 42 were cleared unconditionally, representing around 74 per cent of cases, up from 65 per cent in the preceding year (including cases cleared under the de minimis exception). Five cases were referred for Phase II review, which is around 9 per cent of cases, down from 18 per cent in the preceding year. Undertakings in lieu of a reference were accepted in nine cases, the same as in the preceding year.

At the time of writing, one of the five transactions referred to Phase II has been cleared unconditionally, two have been cleared with remedies, one has been prohibited (see further below) and one is still under review.

A total of seven Phase II decisions were published by the CMA in the 2016–2017 financial year, down from nine published by the CMA in the previous year. One was an unconditional clearance, four were granted clearance subject to divestiture remedies and one permitted the transaction to proceed subject to behavioural remedies. The CMA prohibited one merger during the 2016–2017 financial year,52 whereas it did not prohibit any in the preceding year.

Overall, the CMA intervened (i.e., prohibited or accepted remedies) in around 23 per cent of cases in the 2016–2017 financial year, which is around three times the rate of intervention from the Commission over a similar period. The higher intervention rate may be explained by the voluntary nature of the UK merger control regime, which means that parties may elect not to notify transactions that do not give rise to significant competition issues.

iii Recently published statements and consultations relevant to mergers

In its Annual Plan 2017/18, the CMA states that it will build on the recent changes it has made to ensure an efficient, effective and targeted merger control regime, including improvements to pre-notification processes, updates to the merger notice and improvements to the use of undertakings in lieu. In addition, the CMA will review its internal guidance, and will seek to ensure that remedies in merger cases are proportionate, timely and reflect a clear understanding of consumer behaviour. The CMA has recently launched consultations on proposed guidance in relation to the merger notice and the use of interim measures.

The CMA also announced three targets for its assessment of mergers in its Annual Plan 2017/18: to clear at least 70 per cent of merger cases that are less complex within 35 working days; to complete 70 per cent of Phase II merger cases without an extension to the statutory deadline; and to implement Phase II merger remedies without the need for an extension to the statutory deadline in at least 80 per cent of cases.

iv Brexit, merger control and industrial strategy

At the time of writing, it is expected that the UK will withdraw from both the EU and EEA, which could cause significant changes to merger control regulation. It is likely that businesses may need to submit parallel notifications in the UK and EU to obtain clearance for a deal, as the ‘one-stop-shop’ principle may no longer apply (that is, the principle that if a merger has an ‘EU dimension’ (as defined in the EU Merger Regulation), it falls under the exclusive jurisdiction of the Commission and, conversely, the CMA is in principle competent to investigate mergers that do not have an EU dimension but qualify for review under the UK rules). This could lead to a number of challenges for merging businesses, including increased regulatory burden. The CMA has indicated that, from its perspective, the removal of the one-stop-shop principle would lead to an increased workload and consequently have an effect on resources. In addition, this might affect the CMA’s role in global mergers and its relationships with foreign regulators.53 Other changes to the UK merger control rules may be introduced as result of Brexit (for example, moving to a mandatory rather than voluntary regime – or possibly a hybrid between the two – or changes to the notification thresholds), although this is currently uncertain.54 Transitional arrangements would also need to be made to clarify how cases currently in train would be handled.

It is also possible that the government’s development of a new industrial strategy could affect the national merger control regime. In particular, this may entail changes to the regime relating to public interest interventions in mergers, with the current government suggesting that the UK may develop a more politically interventionist approach to the ownership and control of critical infrastructure.

X OUTLOOK

2016 was a very strong year for global M&A. Deal volume across Europe reached a record high, and the UK shared in the benefits to be sure, particularly in the second half of the year. While 2016 did not reach the same highs as 2015, markets were not as plagued by the political uncertainty of the Brexit vote as many had initially expected them to be. Indeed, a weaker pound and cheap financing meant that foreign investors continued to see the UK as an attractive investment centre and responded accordingly.

That said, dealmakers were obviously not completely immune to the impact of the EU referendum result, with some market participants temporarily placing deals on hold in the run up to the Brexit negotiations of 2017 and beyond. The insurance M&A market has felt the impact of the Brexit uncertainty, but its performance was also affected by increased capital regulation and the trend of insurers focusing on their core business. In the case of the blocked £21 billion ‘merger of equals’ between Deutsche Börse AG and London Stock Exchange Group, it was heightened competition scrutiny that caused the deal to fail. However, other transactions remain on course and, with promising activity in the consumer, retail and technology sectors, there may be cause to look to the year ahead with some optimism.

The snap general election of 8 June 2017 did not produce the ‘strong and stable’ Conservative majority envisioned by the Prime Minister, posing more questions about the UK’s political and economic direction than it answered. While markets might well be preoccupied by this ever-changing geopolitical landscape, potentially leading M&A activity to respond in kind, dealmaking from the past year suggests that there will be numerous opportunities for those investors willing to explore them.

1 Mark Zerdin is a partner at Slaughter and May. The author would like to thank Nicholas Schaffer for his assistance in preparing this chapter.

2 Mergermarket, Deal Drivers EMEA 2016.

3 Office for National Statistics article: UK Mergers and Acquisitions activity in context: 2016.

4 PLC, Public M&A Trends and Highlights 2016.

5 Deloitte CFO Survey Q1 2016.

6 Office for National Statistics, UK Productivity Introduction: Oct to Dec 2016.

7 Mergermarket, Monthly M&A Insider (Quarterly Edition), April 2017.

8 Market Abuse Regulation Q&A, prepared by the City of London Law Society and Law Society Company Law Committees’ Joint Working Parties on Market Abuse, Share Plans and Takeovers Code (28 October 2016).

9 [2017] EWHC 1275 (Comm).

10 [2017] EWHC 1275 (Comm), at [98] per Judge Waksman QC.

11 [2017] UKSC 24.

12 www.gov.uk/government/uploads/system/uploads/attachment_data/file/523120/PSC_statutory_guidance_companies.pdf.

13 EU 2015/849.

14 EY, UK Attractiveness Survey 2017, Executive Summary.

15 Ibid., ‘But there is no sign of any Brexit effect on short-term […]’.

16 Ibid., ‘The UK’s actual performance in 2016 […]’.

17 Office for National Statistics article: UK Mergers and Acquisitions activity in context: 2016.

18 ‘Softbank has completed its £24B cash acquisition of ARM Holdings’, Tech Crunch, 5 September 2016.

19 PLC, Public M&A Trends and Highlights 2016.

20 Office for National Statistics statistical bulletin: Mergers and Acquisitions involving UK companies: Quarter 4 October to December 2016.

21 Footnote 14, ‘European investment […]’.

22 EY, Global Insurance M&A Activity: January through September 2016.

23 2009/138/EC.

24 ‘Deutsche Bank boosted by €1bn Abbey Life sale’, Financial Times, 28 September 2016.

25 European Commission press release, ‘Mergers: Commission blocks proposed merger between Deutsche Börse and London Stock Exchange’ (29 March 2017).

26 Mergermarket, Deal Drivers EMEA 2016.

27 PLC, Public M&A Trends and Highlights 2016.

28 Mergermarket, Monthly M&A Insider (Quarterly Edition), April 2017.

29 ‘Bumpitrage in schemes: the growing threat’, PLC, 27 October 2016.

30 ‘Shareholders back AB InBev and SABMiller £79bn ‘Megabrew’ deal’, Financial Times, 28 September |2016.

31 Ibid.

32 Re SABMiller plc [2016] EWHC 2153 (Ch).

33 Re Dee Valley Group plc [2017] EWHC 184 (Ch).

34 PLC Public M&A Trends and Highlights 2016.

35 Ibid.; PLC Public M&A Trends and Highlights 2015.

36 [2012] EUECJ C-155/10.

37 [2012] ICR 1375.

38 [2014] EUECJ C-539/12.

39 [2014] UKEATS/0047/13/BI, UKEAT/0160/14/SM.

40 SI 1998/1833.

41 SI 2014/3322.

42 www.gov.uk/government/groups/employment-practices-in-the-modern-economy.

43 www.gov.uk/government/uploads/system/uploads/attachment_data/file/627671/good-work-taylor-
review-modern-working-practices-rg.pdf.

44 The contribution rates do not apply to all of an employee’s pay, but only to the amount falling within the ‘qualifying earnings band’. For the 2017/18 tax year, qualifying earnings are gross annual earnings between £5,876 and £45,000.

45 That is, without the consent of the members whose benefits are to be transferred.

46 90/435/EEC.

47 90/434/EEC.

48 Mergers updates, Law Society Competition Section seminar, 14 March 2017. This figure is accurate as at 28 February 2017.

49 Ibid. This figure is accurate as at 28 February 2017.

50 Ibid. This figure is accurate as at 28 February 2017. The CMA has indicated that the statutory clock was only stopped in cases that had been referred to it from the Commission under Article 4(4) of the EU Merger Regulation, not in mergers that were originally notified to the CMA.

51 Ibid. This figure is accurate as at 28 February 2017.

52 ICE/Trayport. ICE unsuccessfully appealed the CMA’s decision to the Competition Appeal Tribunal.

53 Mergers updates, Law Society Competition Section seminar, 14 March 2017.

54 Ibid.