What it means
The rule exists to stop people getting around takeover thresholds by spreading a stake across friends, family or associated funds. Without it, five investors could each take 6% and control a company between them while none of them ever crossed a 30% trigger.
Regulators look at conduct rather than paperwork. Voting together repeatedly, sharing an adviser, financing each other's purchases, or agreeing in advance to appoint the same directors can all point towards concert action.
Certain relationships are presumed to be in concert unless the parties show otherwise. A company and its directors, a fund manager and the funds it controls, and close family members are common examples written into takeover codes.
The consequences are serious. Crossing a mandatory offer threshold as a group usually forces the group to offer to buy every remaining share at the highest price any of them paid, and failing to disclose the combined stake can bring fines, suspension of voting rights or a forced sale.
The concept is not the same as ordinary shareholder engagement. Investors may compare views on a board's performance, and most regimes protect that explicitly, but coordinating to requisition a meeting and replace the directors moves much closer to concert territory.
In practice
Real-world examples.
Example
Two hedge funds each build a 14% stake in an engineering group, share the same public relations adviser and file near identical letters demanding board change. The takeover regulator asks both to explain why they should not be treated as acting in concert.
Example
A founder holding 18% transfers 9% to his brother and 6% to a trust for his children. All three are presumed to be acting in concert, so the family is still assessed as a 33% holder for takeover purposes.
Example
Three institutional investors independently vote against a remuneration report after each reaching its own view. Because there was no prior coordination and no plan to acquire control, this is normal engagement rather than concert action.
Formula
Calculation
Combined holding % = (sum of the parties' shares / total shares in issue) x 100, then compared with the relevant disclosure or mandatory offer threshold.
A listed company has 50,000,000 shares in issue. Three investors hold stakes as follows.
Investor A: 6,000,000 shares = 12.0%
Investor B: 4,750,000 shares = 9.5%
Investor C: 5,500,000 shares = 11.0%
Combined: 16,250,000 shares = 16,250,000 / 50,000,000 = 32.5%
Individually, none of them is near a 30% mandatory offer threshold. If the regulator concludes they acted in concert, the group is treated as holding 32.5%, which crosses the threshold and obliges them to offer for the remaining 50,000,000 - 16,250,000 = 33,750,000 shares. At the highest price any of them paid, $4.20 a share, that offer would cost 33,750,000 x $4.20 = $141,750,000.Case study
Seen in the real world.
The following is an illustrative and entirely fictional example. Four investment funds built positions in Calverhill Retail, an invented listed chain, of 9%, 8%, 7.5% and 6.5% of its 80,000,000 shares, which is 7,200,000, 6,400,000, 6,000,000 and 5,200,000 shares respectively. Each stayed comfortably below the disclosure levels that would have attracted attention on its own.
The problem was what they did next. In the fictional scenario the four had met twice, agreed a single slate of three new directors, and instructed the same law firm to draft the requisition letter. Their combined 24,800,000 shares represented 31% of the company, above the 30% mandatory offer threshold.
The regulator ruled they had acted in concert from the date of the first meeting. The group was required either to make a cash offer for the remaining 55,200,000 shares at $2.75, a commitment of $151,800,000 none of them wanted, or to reduce the combined stake below 30% and accept a period during which their voting rights were restricted. They chose the second route, and the illustrative episode cost them both the campaign and a substantial legal bill.
Watch out
Common mistakes.
- Believing that only a signed agreement counts, when regulators infer concert action from behaviour, timing and shared advisers.
- Assuming that staying below a threshold individually is sufficient, ignoring that stakes are aggregated once concert action is established.
- Confusing routine engagement between shareholders with coordinated action aimed at acquiring or exercising control.
Questions
People also ask.
What is the usual threshold?
Many takeover regimes set a mandatory offer trigger at 30% of voting rights, with separate disclosure duties often starting at 3% or 5% and further notifications required at each whole percentage point above that.
Can investors talk to each other at all?
Yes, and most codes protect discussion of company performance and general policy, as long as it stops short of agreeing a plan to acquire or exercise control.
What are the penalties?
These range from fines and public censure to suspension of voting rights, an order to sell shares down to below the threshold, or being compelled to make a full cash offer for the whole company at the highest price any member of the group paid.
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