Mandatory Offer Thresholds and Creeper Rules

Many jurisdictions' takeover rules include a mandatory offer threshold: once an investor's stake in a public company crosses a set percentage, commonly 30%, as under the UK Takeover Code, that investor is legally required to make a cash offer for all remaining shares at a price no lower than the highest price paid for shares in the prior year. This exists to protect minority shareholders from being left holding stock in a company effectively controlled by someone who never had to offer them an exit at a fair price.

A related protection is the creeper rule, which caps how much an investor already near the threshold can buy in a given period (often 1% over 12 months) without triggering the mandatory offer. Without it, an investor could slowly accumulate a controlling stake in small increments, each one individually too small to trigger the rule, and end up in control without ever having to offer minority holders a buyout.

Worked example

An activist investor holds 28% of a UK-listed company and wants to keep building its position. Under the creeper rule, it can add at most about 1% over the next 12 months without triggering Rule 9. If it instead bought 3% in one transaction, crossing 30%, it would be forced to launch a mandatory cash offer for all remaining shares, a far larger commitment than it may have intended.