Contractual Offer vs Scheme of Arrangement: 50%, 75% and 90%

Table of Contents

• • Contractual offer: read the acceptance condition
• • Scheme of arrangement: two meeting tests, then the court
• • What if a shareholder votes no or does nothing?
• • The 90% squeeze-out trap: use offer shares
• • Keep the three percentages in separate boxes
• • A practical document-reading method

A contractual offer and a scheme of arrangement can both deliver a UK company takeover, but they do not ask shareholders to do the same thing. An offer seeks individual acceptances. A scheme uses a statutory class-meeting and court process.

That distinction answers a real concern raised in this shareholder discussion about a takeover: what happens to my shares, and do I need to act? For CISI MAMR candidates, the equivalent problem is choosing the correct threshold, denominator and consequence.

The examples below concern ordinary UK Part 26 member schemes and straightforward voting shares. They are not rules for every jurisdiction, insolvency restructuring or special share class.

Contractual offer: read the acceptance condition

Under a contractual offer, shareholders choose whether to accept the bidder’s terms. The bidder’s stated acceptance condition matters.

Takeover Code Rule 10.1 ordinarily requires an acceptance condition that cannot be satisfied unless the bidder has acquired or agreed to acquire shares carrying over 50% of voting rights. This is not a promise that every offer completes at 50.1%.

If the document specifies a 90% acceptance condition, a 60% result does not satisfy that unchanged condition. Whether the bidder may lower or waive it depends on the terms and applicable rules.

Separate “the regulatory minimum” from “the condition this bidder actually chose”. A headline saying that a bidder has won control may still leave conditions, settlement or minority-acquisition steps outstanding.

Scheme of arrangement: two meeting tests, then the court

For the ordinary member scheme, Companies Act section 899 requires a majority in number representing at least 75% in value of the relevant class present and voting, in person or by proxy.

Consider a meeting where 100 members vote:

Support	Value represented by supporters	Ordinary meeting result
70 members	75% of voted value	Both limbs pass
45 members	80% of voted value	Headcount limb fails
70 members	74% of voted value	Value limb fails

“75% of all shareholders” loses both the correct denominator and the separate headcount test. A non-voter is not automatically counted as a vote against.

Passing the meeting is not completion. Court sanction remains necessary, and the order has no effect until delivered to the registrar. The actual circular also identifies other conditions and implementation steps.

What if a shareholder votes no or does nothing?

An effective, sanctioned scheme binds the relevant class, including dissenters. It does not leave each member with a permanent individual veto.

A contractual offer works differently: not accepting is not ordinarily equivalent to signing the acceptance. However, a later statutory squeeze-out may affect remaining shareholders once its requirements are met.

For a holding through a broker, read the broker’s corporate-action message alongside the company’s documents. Identify whether you are being asked to accept an offer, give voting instructions, or choose between consideration alternatives. Those are different decisions. Broker processing arrangements can also differ from the company’s published dates.

These mechanics explain the outcome; they are not a recommendation to accept, reject or trade a particular investment.

The 90% squeeze-out trap: use offer shares

Section 979 provides the statutory route for buying out remaining shareholders after a qualifying takeover offer. For voting shares, the ordinary test requires at least 90% in value of the shares to which the offer relates and 90% of their voting rights. Where classes differ, assess the relevant class.

Assume a company has 100 million identical voting shares:

• The bidder already owns 20 million outside the offer.
• The offer covers the remaining 80 million.
• The ordinary 90% offer-share target is 80 million × 90% = 72 million.

If 70 million accept, the bidder reaches 90% of the whole company, but only 87.5% of the offer shares. On those stated facts, the ordinary squeeze-out test has not been met.

If 72 million accept, total ownership becomes 92 million and the offer-share calculation reaches 90%. The applicable notice and acquisition process still needs to be followed. Reaching the number does not instantly transfer the final shares.

Special acquisition circumstances can affect the statutory calculation. An exam example using a simple pre-stake is not a substitute for checking the full legislation in a live deal.

Keep the three percentages in separate boxes

The most useful revision aid is not a single ladder with 50, 75 and 90 on it. It is this comparison:

Question	Relevant ordinary test	What it does not establish
Can an offer’s minimum acceptance requirement be met?	Over 50% voting rights under Rule 10.1, plus the actual offer condition	Automatic acquisition of every remaining share
Has the scheme class approved it?	Majority in number and at least 75% in value of those present and voting	Court sanction or effectiveness
Can statutory squeeze-out proceed?	Relevant 90% offer-share value and voting-rights tests	An instantaneous transfer without the statutory process

A scheme’s supporting general meeting can contain separate resolutions. Do not merge those votes with the court-meeting result.

Also keep the reason an offer became mandatory outside this comparison. The Rule 9 mandatory-offer guide covers stake-building triggers and concert parties; this page covers acquisition mechanics after a route is chosen.

A practical document-reading method

Read a takeover announcement or case in this order:

1. Identify offer or scheme.
2. Find the share class and eligible electorate.
3. Copy the actual condition or voting test.
4. State the denominator before calculating.
5. List what remains: further conditions, court steps, effectiveness, settlement or squeeze-out.

This method also prevents a misleading timetable answer. A favourable vote is not a universal closing date, and a possible offer is not the same as a completed acquisition.

Use the 15 original questions above to practise choosing the denominator before doing the arithmetic. For integrated transaction cases, the CISI Academy Mergers & Acquisitions and Market Regulations course connects these rules with the rest of the syllabus. Consult your official candidate updates for the requirements applicable to your sitting.