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ACCA Strategic Professional · Advanced Financial Management · Acquisitions and mergers versus other growth strategies

Under typical takeover regulation in many jurisdictions, such as the UK City Code, what is the effect of the mandatory bid rule?

The mandatory bid rule requires anyone who acquires a controlling stake above a set threshold, such as 30% under the UK Code, to offer to buy all remaining shares at an equitable price, protecting minority shareholders.

  1. AA party acquiring a controlling stake above a set threshold must make an offer to all remaining shareholders at an equitable priceCorrect
  2. BThe target's board must always recommend the first offer received
  3. CThe bidder must pay for all acquisitions using its own shares
  4. DThe bidder may buy control without informing other shareholders

Explanation

The mandatory bid rule protects minority shareholders by forcing anyone who crosses the control threshold, 30% in the UK, to offer to buy the rest at a fair price, typically no lower than the highest price paid recently. The other options contradict takeover regulation.

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