Mandatory offer

The City Code (of the Takeover Panel) requires that if a shareholder or a concert party acquires more than 30% of a company it must offer to buy the remaining shares on terms as good as its most recent purchases.

The reason for this is that 30%, although not giving a shareholder formal control, is sufficient to give effective control.

When a change of control takes place it may adversely affect the share price. This is because minority shareholders are likely to worry that the company will be run to suit the controlling shareholder, and the interests of minorities may be affected. Therefore, it is only fair to allow them to sell out at the price that the new controlling shareholder paid before the change of control.

There are circumstances in which the Takeover Panel may grant a waiver from the requirement to make a mandatory offer — for example, if major shareholders state that they will not accept the mandatory offer.

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