Summary of UK Takeover Panel Practice Statement 35 (PS35): Profit forecasts, quantified financial benefits statements and investment research

1. After rejection of an approach: if the target then later enters into an offer period, target will usually need to report on any “one-off” profit forecasts (i.e. any forecast which isn’t an “ordinary course” forecast published in accordance with its established practice and as part of the ordinary course of communications with its shareholders/the market) published between (i) a series of approaches made by a potential bidder and (ii) unequivocal rejection of an offer – though the Panel may grant a dispensation in certain circumstances, including where the profit forecast was published more than seven days after the unequivocal rejection and prior to the receipt of any subsequent approach.
2. Quantified financial benefits statements (QFBS): the Panel might consent to these being made at the time of a Rule 2.4 possible offer announcement without a contemporaneous report, depending on (i) if target consents; (ii) the level of supporting disclosures/information in the QFBS; and (iii) planned timing of any subsequent report. This should avoid any unnecessary delay to communicating the potential merits of an offer to the market.
3. Profit forecast privately given to bidder: the Panel will usually permit a dispensation from producing a report for any internal profit forecast given to a bidder by target, which the bidder is subsequently required by law to make public (e.g. if a U.S. bidder is required by U.S. securities law to include such profit forecast in its public proxy statement seeking approval from its own shareholders for the takeover) – provided however the forecast is not used in the arguments as to the merits of the offer.
4. Aspirational targets: the Panel emphasises its practice is normally to treat a forward-looking statement for a period ending more than three years from the date on which it is made as being an aspirational target, to which Rule 28 requirements do not apply. But if any statement is repeated such that the forecast then falls within the 3-year window, it will then usually be treated as a profit forecast.
5. Profit forecasts for periods ending >15 months: Rule 28.2 states that the Panel will usually dispense with reporting requirements for such a forecast ending >15 months, if reports are provided for the intervening years. The Panel may also dispense however with the need for reports for these intervening years, if the >15 month forecast is not intended to enable shareholders/the market to infer profit forecasts for the intervening years.
6. PS35 also provides guidance on certain other points, including:
   1. That the Panel may, if the offer is recommended and not competitive, dispense with the Rule 27.2(d)(ii) requirement for a document to confirm that the reports obtained on a profit forecast or QFBS continue to apply.
   2. That the Panel may dispense with the requirement for reports on a “profit estimate” where (i) a statement of the type referred to in Rule 28.5 (e.g. preliminary statement of annual results, or interims) will be published shortly afterward; (ii) the profit estimate relates to a normal reporting period; and (iii) it includes “directors' confirmations”.
   3. Disapplication of the prohibition on including any profit forecast, QFBS, asset valuation or estimate of other figures key to the offer in investment research published by a firm connected with a cash offeror.
   4. That the Panel may, if the offer is recommended and not competitive, dispense with the requirement for investment research published by a connected firm to be pre-vetted (under Note 4 on Rule 20.1).

HL opinion: Although PS35 provides further helpful and welcome clarification on the application of Rule 28, it remains a complex area, in which early consultation with the Panel is necessary to ensure efficient deal execution.

Authored by Daniel Simons, Francesca Parker, and John Holme.