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ACCA Strategic Professional · Advanced Financial Management · Regulatory framework and processes

Kiln plc, a UK-listed target, receives a bid from Orb plc. Under the Takeover Code's General Principles and rules on target board conduct, which action by Kiln's board during the offer period is permitted without shareholder approval?

The board may seek a rival bidder and advise shareholders on the offer, because that does not frustrate the bid. Issuing shares, selling key assets or creating poison-pill arrangements are frustrating actions that need shareholder approval under the Takeover Code.

  1. ASeeking a competing bidder (a white knight) and advising shareholders on the merits of the offerCorrect
  2. BIssuing new shares to a friendly party to dilute Orb's holding
  3. CSelling a major subsidiary that Orb wants (a crown jewel defence)
  4. DAgreeing a large poison-pill style option over its key assets

Explanation

Rule 21 prevents the target board from taking frustrating action without shareholder approval, such as issuing shares, disposing of material assets or entering unusual contracts. Looking for a competing offer and giving reasoned advice to shareholders is not frustrating action and is allowed. The other three options are frustrating actions needing approval.

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