Public company change of control series: Scheme vs Contractual Offer

The Takeover Code is a set of binding rules and general principles which govern how company takeovers and mergers are administered and executed in the UK. It is designed to regulate transactions which may result in control of a public company and ensure fairness, transparency and equal treatment of shareholders.

In our Public company change of control series, we shared a guide to a Part 26 Scheme of Arrangement (part one) and a Contractual Offer (part two) which are the two primary mechanics used to acquire control.

In the third and final part of the series, we examine the key differences between the two when acquiring control of a public company under the UK Takeover Code.

Approval thresholds

• A Part 26 Scheme of Arrangement (Scheme) requires approval by a majority in number of shareholders voting in each relevant class and at least 75% by value of votes cast, followed by court sanction (which confirms that the class composition is appropriate and that the Scheme is fair).
• By contrast, a Contractual Offer typically becomes unconditional with acceptances at more than 50% of the voting rights, though bidders may prefer to set a 75% or 90% acceptance condition depending on their post‑offer objectives.

Effect

• Once sanctioned and delivered to the Registrar of Companies, a Scheme binds all shareholders in the relevant class, eliminating minority hold‑outs.
• A Contractual Offer binds only accepting shareholders unless the bidder reaches 90% acceptances and implements compulsory acquisition under the squeeze‑out regime. (A squeeze out allows a bidder who has acquired a very high percentage of a target company’s shares to compel the remaining minority shareholders to sell their shares.)

Court involvement

• A Scheme requires two court hearings: directions (to convene the shareholder meeting) and sanction (to approve the Scheme)
• Contractual Offers do not involve the court unless squeeze‑out is contested.

Timetable control

• A Scheme timetable is driven by court availability, shareholder meeting logistics and Takeover Panel oversight.
• A Contractual Offer follows the timetable prescribed by the Takeover Code, subject to permitted extensions and the oversight by the Takeover Panel.

Documentation

• A Scheme circular is published by the target with the board’s recommendation and an explanatory statement.
• A Contractual Offer uses an offer document from the bidder.

In each case, the Takeover Code’s content requirements, financial adviser confirmations and announcement obligations apply.

Which is the best option: Scheme or Contractual Offer?

Each of the two options offer different advantages subject to the bidder’s objectives and the context of the acquisition:

Scheme advantages

• High execution certainty
• Single closing; and
• Potential tax or regulatory structuring advantages.

Contractual Offer advantages

• Speed (particularly when recommended)
• Conditional flexibility; and
• Ability to proceed without target board support.

Ultimately, the optimum route depends on the bidder’s objectives, strategic aims and anticipated level of board support. In all cases, early engagement with the Takeover Panel, careful attention to class issues, realistic timetables and robust disclosure in the Scheme circular are essential to a successful outcome.

How Hamlins can help

Our Corporate team acts for entrepreneurs, SMEs and larger organisations, providing corporate, commercial advice and business expertise, both in the UK and internationally.

We have the expertise to advise and support companies at each stage of its journey. If you would like more information on how our Corporate team can help, please get in touch.