Corporate Law Update

• Bids for Morrisons go to auction
• FRC publishes factsheet in advance of new International Sustainability Standards
• Legislation is published to close a “lacuna” in the UK’s financial promotions regime
• The CMA publishes new guidance to prevent “greenwashing” by businesses
• The CMA launches the Office for the Internal Market to support the UK internal market

Morrisons bids to go to auction

Competing bids for WM Morrison Supermarkets plc, the holding company of the group that runs the Morrisons chain of supermarkets, is to go to auction this Saturday, 2 October 2021.

Since August 2021, Morrisons has been the subject of competing bids from funds managed by Fortress Investment Group, LLC and Clayton, Dubilier & Rice, LLC (CD&R) respectively.

The Takeover Panel announced the terms of the auction (which the parties agreed with the Panel) on Wednesday through Panel Statement 2021/20. The auction will operate on an accelerated basis over the course of a single day. There will be five rounds, with either offeror able to bid in the first round and each offeror able to outbid the other in successive rounds. If the auction is not resolved by the fifth round, either offeror will be able to bid, with any bid by Fortress being an even number and any bid by CD&R an odd number. Bids must be in cash only.

However, the auction will not go ahead if either offeror confirms publicly before 5:00 p.m. on 1 October 2021 that it will not increase its offer.

In a move that underscores the current buoyancy and competitiveness of the UK M&A market, this is the fourth Panel-ordered auction this year, following completed auctions for security services firm G4S plc in February and waste disposal business Augean plc in September, and the announced auction for inhalation medicines manufacturer Vectura plc in August that ultimately did not proceed.

The statement shows the Panel’s increasing readiness to resolve competitive situations by way of a competitive auction. If the auction goes ahead, following this weekend, there will have been six Panel-ordered auctions in just over three years, as against eight auctions during the preceding 15 years.

The terms of the auction also show the Panel’s willingness to depart from the default procedure in Appendix 8 to the Takeover Code, which stipulates daily rounds over a five-day period with no restrictions on bid amounts, in order to resolve a competitive situation quickly.

For example, single-day auctions have been a favoured mechanism in recent years for resolving a competitive situation in short order, featuring in the Augean auction in September and in the auction for Sky plc in September 2018 between Comcast and Twenty-First Century Fox. “Odd/even” bidding in the final round has been used only three times before, in the aborted auction for Vectura this year, the planned July 2014 auction for upstream O&G company Cove Energy plc (which also ultimately never took place) and in June 2008 on the auction for food machinery manufacturer Enodis plc.

Auctions have not been the only means by which competitive situations have been resolved recently. In January this year, a four-way competition for flight support business Signature Aviation plc ended when three of the four bidders formed a consortium to bid for the company. And in June this year, what could have become a competitive battle for spend management software company Proactis plc was avoided when a bidder and an existing shareholder came together to launch a joint bid.

These examples all demonstrate the value to an offeror of considering collaboration with competing bidders, whether to agree the terms of a procedure to end the deadlock or to launch a joint or consortium bid that can provide better value for target shareholders.

FRC publishes factsheet on forthcoming international sustainability standards

The Financial Reporting Council (FRC) has published a factsheet for companies explaining plans by the International Financial Reporting Standards Foundation (the IFRS Foundation) to develop new international Sustainability Standards.

The standards will be set by a new International Sustainability Standards Board (ISSB), which will operate alongside the existing International Accounting Standards Board (IASB). Formation of the ISSB is expected to take place in November 2021, to align with COP26.

The new standards will focus on reporting that is aimed at investors and other capital market participants, enabling them to assess the impact of sustainability matters on value creation.

The FRC expects a draft standard on climate to be published in early 2022, followed by a suite of standards on a range of sustainability topics. Individual jurisdictions will need to decide whether to mandate reporting under the new standards and (if so) for which kinds of entity.

The FRC expects the new standards to be built on existing frameworks, including those published by the Sustainability Accounting Standards Board (SASB), the Task Force on Climate-Related Financial Disclosures (TCFD) and the Climate Disclosure Standards Board (CDSB).

Other items

• Legislation published to close “lacuna” in financial promotions regime. New regulations have been published to close a gap in the UK’s financial promotions regime resulting from the UK’s withdrawal from the European Union. Following Brexit, certain exemptions in the regime that previously applied to UK securities exchanges no longer apply. The Regulations fix this anomaly with effect from 18 October 2021. The Financial Conduct Authority has confirmed that, in the meantime, it does not propose to take enforcement action as a result of this anomaly.
• New guidance on greenwashing goods and services. The Competition and Markets Authority (CMA) has published new guidance on making environmental claims in connection with goods and services. The guidance, which is built on six principles, aims to prevent “greenwashing” by businesses when marketing to consumers and to other businesses. The CMA has also published supporting guidance which provides an overview for businesses.
• CMA launches new Office for the Internal Market. The Competition and Markets Authority (CMA) has announced the launch of the new Office for the Internal Market (OIM), which will operate within the CMA, and published guidance on how the OIM will carry out its functions. The OIM’s purpose is to support the effective operation of the UK internal market following the UK’s withdrawal from the European Union. To this end, the OIM has created a digital reporting service through which businesses can share their experience of how the UK internal market is working. The OIM will also exercise the CMA’s information-gathering powers under the United Kingdom Internal Market Act 2020 and, in this regard, has published a statement of policy on how it will use those powers.