• The Takeover Panel is consulting on changes to the Takeover Code to address dual-class share structures on a takeover (and some other matters)

Takeover Panel consults on Code amendments to address dual-class share structures

The Takeover Panel has published consultation paper PCP 2025/1, in which it is proposing changes to the Takeover Code to deal with companies with so-called “dual-class share structures”.

The consultation also proposes changes relating to initial public offers (IPOs) and share buy-backs.

A dual-class share structure (DCSS) normally involves a company issuing at least one class of special share alongside its ordinary shares. These special shares – often referred to as “class B” shares, although they can carry any label – are usually held by management and typically carry weighted voting rights in certain circumstances.

DCSS structures are typically used to provide founders of, or initial investors in, a business with ongoing enhanced influence as their economic participation dilutes over time, and to protect against a change of control. Class B shares typically convert to ordinary shares or become extinguished on certain trigger events.

Under the UK Listing Rules, a company with a DCSS can obtain a listing for its ordinary shares (and, therefore, access to the UK’s senior primary capital markets), subject to certain conditions. These include restrictions on transfers of the class B shares and on matters to which enhanced voting rights apply, and a requirement that class B shares not held by directors or employees expire after 10 years (a sunset provision).

The Panel is proposing the key changes and clarifications to the Code in relation to DCSSs.

• Mandatory offers. If class B shares are extinguished or convert into ordinary shares on a trigger event and, as a result, a shareholder’s percentage of voting rights in the company crosses the mandatory offer threshold, that shareholder would be required to make an offer for the company under Rule 9 of the Code.

However, the Panel would normally grant a dispensation from Rule 9 unless the trigger event is the expiry of a sunset provision or the shareholder in question had reason to believe, when it acquired the class B shares, that the trigger would occur.

The Panel would also be able to grant a dispensation from Rule 9 if, at the time the company achieves its IPO, it makes “appropriate disclosure” in its IPO document of the maximum percentage of voting rights the shareholder could have following a trigger event. This dispensation would apply on all trigger events, including expiry of a sunset provision.

• Acceptance condition. Under the Code, an offer must be subject to a condition that the bidder has acquired or will, pursuant to the offer, acquire more than 50% of the voting rights in the target.

For a DCSS target company, the Panel is proposing to apply this condition at two points: before any class B shares convert or are extinguished (Test 1); and (if Test 1 is satisfied) again after any class B shares convert or are extinguished (Test 2).

• Comparable offers. When making an offer for a DCSS target, a bidder would need to make a comparable offer for any class B shares.

Broadly speaking, if the class B shares would convert into ordinary shares on completion of the takeover, the price offered for each class B share would not be able to exceed the price offered for each ordinary share. (If the class B shares would be extinguished or cannot be acquired, the bidder would not be able to offer more than the nominal value of each class B share.)

• Frustrating action. The Code restricts a target company from taking certain actions which are designed to prevent or obstruct a bidder from implementing a takeover of the target (known as frustrating action).

The Panel is proposing to clarify that issuing class B shares will not normally be considered “frustrating action” unless the shares are issued during an offer period or certain other times when the Code is in play. It is also proposing to clarify that exercising weighted voting rights attaching to class B shares will not normally be considered “frustrating action”.

Separately, the paper proposes two further changes to the Code:

• IPOs. If a company would become subject to the Code on an IPO, it would be required to disclose certain information about the Code, including details of any person (or group of persons) who would be interested in more than 30% of the company’s voting rights, and any dispensation from Rule 9 granted to those persons by the Panel.
• Share buy-backs. The range of share buy-back transactions that necessarily trigger a mandatory offer under Rule 9 would be narrowed (by permitting the Panel to grant a “Rule 9 waiver” in a broader range of circumstances). On the flipside, a company carrying out a buy-back would be required to disclose details of any person (or group of persons) who would be interested in more than 30% of the company’s voting rights as a result of the buy-back.

The consultation closes on 26 September 2025.

Access Takeover Panel Consultation Paper PCP 2025/1 (opens PDF)