Acceptance condition
M&A / Merger ModelThe condition in a UK contractual takeover offer that enough shareholders accept to take the bidder above 50% of the voting rights.
Also written: acceptance threshold, 50% acceptance condition
Under the Takeover Code a contractual offer must be conditional on the bidder receiving acceptances that would carry it above 50% of the voting rights. Until that is satisfied the offer cannot be declared unconditional, and the bidder is not obliged to buy anything. It is a protection for the bidder rather than a regulatory formality: without it, a bidder could pay a control premium and end up with 35%, holding a stake that gives it no control, no access to the target's cash flows and no route to a delisting.
Bidders routinely set the condition higher than the minimum. Ninety per cent is the level that unlocks statutory squeeze out of the remaining shares, so a bidder that wants clean 100% ownership, typically because it intends to push debt down into the target or delist it, will set the condition there and reserve the right to waive it down.
That threshold is the reason the two UK structures behave differently. An offer reaches 100% only through 90% acceptances of the shares it does not already hold. A scheme of arrangement needs a majority in number of the holders who vote at the court meeting representing 75% in value, and once the court sanctions it, every shareholder is bound with no separate mop up step. The scheme clears at a lower effective bar and leaves no minority, which is why recommended UK deals overwhelmingly use one.
The catch is availability rather than arithmetic. Only the target can convene the court meeting, so a scheme is not open to a hostile bidder, and every hostile UK bid is a contractual offer. Reading which structure was chosen therefore tells you something about the relationship between the parties before you have read a word of the announcement.
Worked example
Illustrative. A bidder sets its acceptance condition at 90% because it plans to refinance the target with debt raised against its assets, which requires full ownership.
Acceptances come in at 82%. The bidder can waive the condition down to just above 50%, take control, and live with an 18% minority it cannot compulsorily acquire.
Or it can let the offer lapse. Which it chooses depends almost entirely on whether its financing plan survives a minority sitting inside the target, which is why the condition is set by the financing rather than by the lawyers.