There has been much commentary in the financial press that UK equities remain undervalued and look cheap to prospective international buyers compared with international peers (particularly the US). This, together with a series of high-profile takeovers, attempted takeovers and potential takeovers of companies throughout the FTSE over the last 12 months, has left many UK public companies concerned about workforce stability issues in the event of an offer.

Employees may fear job losses if the rationale for an offer is based on “synergies” (which is often the case), so retention and hiring can become much harder during an offer period. What should senior HR professionals of FTSE companies be considering and planning for before any specific bid is in the offing?

Start workforce stability planning early

Considering workforce stability planning at an early stage, before any specific potential offer is in the pipeline, can be prudent. An “offer period” under the UK Takeover Code (the “Code”) can commence at a much earlier stage than a formal offer being made. Once the Code kicks in, rule 21 (“frustrating action”) means a target company is restricted in terms of employment-related stability measures it can take without Panel consent e.g. retention arrangements and changes to service agreements. And once an offer is made things generally move very quickly, with multiple commercial issues being considered and negotiated, so putting together a detailed workforce stability plan at that stage may be too late. 

Preliminary considerations for HR professionals 

There is much that HR professionals can do at an early stage to ensure there is a plan for workforce stability in the event of an offer. 
Preliminary steps include checking what workforce stability protections exist already, and what additional “asks” you might have for a bidder for in the event of an offer (always bearing in mind the need to balance workforce stability issues against duties to shareholders and other stakeholders). These may include: 

• considering which groups of employees would be critical in the event of a bid – both from an operational perspective and from a deal perspective;
• checking whether cash bonus plans include change of control provisions;
• considering with the Remuneration Committee (“RemCo”) what retention arrangements may be necessary/appropriate if an offer is made;
• checking what redundancy/severance arrangements are in place for employees, whether these are contractual (expressly or through custom/practice) and whether there are any gaps (e.g. for those with a short length of service); 
• consideration of what the treatment of share incentives would be on completion of an offer under the plan rules – this is usually an area which requires detailed consideration; 
• checking whether non-executive directors have contractual payment in lieu of notice periods; 
• considering what post-completion “asks” you might want to raise with a bidder in order to keep the workforce stable (which would likely be set out in a Cooperation Agreement in the event of a bid recommended by the target board of directors) e.g. a period of commitment post-completion that there will be no changes to the terms and conditions of employment of target employees; and
• considering what restrictions may apply to your proposed/potential stability plans e.g. the Directors’ Remuneration Policy and remuneration regulations for financial services organisations. 

Information and consultation

Consider which employee representative bodies (e.g. trade unions, works councils, European Works Councils) may need to be informed/consulted promptly in the event of an approach from a bidder. The Code has various requirements to inform employee representative bodies of certain matters in the event of an offer, and they have the right to provide an opinion on an offer. There are no express requirements in the Code to consult or negotiate. However, collective agreements within your organisation may have broader requirements, so having a list to hand of what these are in the event of an approach may be very helpful. Any related redundancies, reorganisations or TUPE transfers may also have additional information and consultation requirements. 

Always, however, be mindful of the restrictions on sharing inside information – if in doubt, seek legal advice.

Putting together a plan

Linklaters can assist you in putting together a workforce stability plan, so that your organisation can continue to operate effectively on a “business as usual” basis in the event of any approach by an offeror. Please speak to your Linklaters Employment & Incentives contacts if you have any questions or would like to start preparing a plan.