The UKLA has published the 23rd edition of its List! newsletter, providing informal guidance on a number of commonly encountered issues. Points covered include the following.
Share buybacks – mix and match
Where an issuer uses an intermediary to implement a tender offer for its own shares, the shares bought by the intermediary are usually automatically cancelled or held as treasury shares by the company. The UKLA has seen recent examples of a “mix and match facility”: after buying the shares under the tender offer the intermediary will offer the same shares to certain other shareholders before the eventual sale back to the issuer. The UKLA confirms that any shares bought by the intermediary under the tender offer should be treated as treasury shares for the purposes of the Listing Rules. Therefore, any offer for sale of these shares under the mix and match facility should be conducted in line with rules 9.5.10 (discounts not to exceed 10%), 12.6 (no transfers of treasury shares during a prohibited period and notification requirements) and, for closed-end investment funds, 15.4.11 (price of further issues), as well as any other rules applicable to the sale of treasury shares.
Schemes of arrangement – prospectus requirement for mix and match
It is generally accepted that the issue of new securities pursuant to a scheme of arrangement under the Companies Act 2006 will not constitute a public offer for the purposes of Section 102B of the Financial Services and Markets Act 2000. However, the UKLA states that, in its view, where a scheme offers mix and match facilities such that individual shareholders can elect for a preferred combination of cash and shares, an investment decision is being made and so a prospectus would be required unless an exemption applied.
Prospectus display documents
List! 23 refers to the FAQs published by the Committee of European Securities Regulators regarding documents required to be placed on display in connection with a prospectus. It states that Item 24 of Annex I to the Prospectus Directive Regulations, which requires certain documents to be put on display, should be interpreted as including “all reports, letters and other documents, and historical information, which are either referred to or included in the registration document” irrespective of “whether or not they have been prepared by an expert”.
CESR’s FAQ responses also state that, notwithstanding the above, there is no requirement to display material contracts that have been summarised in the prospectus pursuant to Item 22 of Annex I. The UKLA clarifies that this does not mean that non-material contracts should be put on display. However, for a Class 1 Circular the UKLA would still expect a SPA (or similar) to be put on display.
Accountants’ opinions in class 1 circulars
Where an issuer is making a class 1 acquisition of a publicly traded company, and a material adjustment would need to be made to the target’s financial statements to achieve consistency with the acquiring issuer’s accounting policies, the class 1 circular must include a reconciliation of the target’s financial information on the basis of the issuer’s accounting policies, together with an accountants’ opinion (LR 13.5.27-28). This rule provides a concession from the requirements where targets that are not publicly traded to restate the target’s financial information to the issuer’s accounting policies and provide a true and fair opinion.
For the purposes of this concession, a publicly traded company is one that is (i) admitted to trading on an EU regulated market or (ii) listed on an overseas investment exchange or admitted to trading on an overseas regulated market. The concession reflects the fact that the target will be subject to a financial reporting regime as a result of its listing. The UKLA expects issuers wishing to rely on LR 13.5.27-28 on the basis that the target is a publicly traded company within the second limb to make a qualitative assessment of the overseas investment exchange or regulated market in comparison to the standards for issuers on the Official List. List! 23 includes a list of factors that will be relevant to the assessment. These issuers should contact the UKLA in advance if they propose to rely on the concession.
List! 23 also highlights that the accountants’ opinion is not required to address any modification in the target’s underlying audited accounts, but any such modifications in the target’s last three financial years should be brought to the attention of the UKLA.
Ordinary course arguments for related party transactions
An arrangement pursuant to which an issuer and a related party each invests in, or provides finance to, another undertaking or asset falls within the definition of “related party transaction” for the purposes of the Listing Rules (LR 11.1.5(2)). Unlike the other limbs of the definition of related party transaction, this second limb does not currently contain an express carve-out for ordinary course revenue transactions. The UKLA states that it is “prepared to listen to” arguments that a co-investment or co-financing arrangement is a transaction of a revenue nature in the ordinary course of business to the issuer and could fall outside the ambit of the definition of related party transaction in LR 11.1.5(2). The FSA proposes to clarify this position by the way of a rule change in due course. However, the UKLA considers that unless the company is a bank or similar it will be difficult to show that such arrangements are of a revenue nature.
Leaks and rumours
List! contains a reminder as to the handling of leaks or rumours. DTR 2 requires an issuer to notify an RIS as soon as possible of all inside information in its possession (subject to a limited ability to delay). If delaying disclosure, issuers and their advisers should continuously monitor various media for signs of possible leaks and related price fluctuations. Even though an issuer is not required to respond to a false rumour (DTR 2.7.3), when the rumour or speculation is largely true, it is likely that it will no longer be possible to delay disclosure of the inside information. In such circumstances the UKLA may make contact with the issuer or adviser and seek to establish the truth or otherwise of a story and the presence (or likelihood) of a related price movement. Inaccuracies of some aspects of a story alone will not justify non-disclosure. Should a leak occur and a full disclosure not be possible, a holding announcement should be made in a manner that would at least reflect the extent to which the leak or rumour is truthful. The UKLA can require information to be published in “such form and within such time limits as it considers appropriate to protect investors and ensure the smooth operation of the market” (DTR 1.3.3).
Assignment of listing categories
List! 23 sets out some of the practical measures that the UKLA will be undertaking as a part of the Listing Rules changes to be implemented on 6 April 2010. Under the new regime, securities will be categorised into one of two segments: premium or standard. Then securities will be put into eight sub-categories, depending on their particular characteristics, to form an overall listing category. In order to ensure that each listed security is in the appropriate listing category, the UKLA is writing to issuers and sending them a schedule of the relevant company’s securities currently admitted to the Official List.
An issuer should contact the UKLA by 22 January 2010 only if the schedule appears to assign an incorrect listing category, or if any other related information in the schedule is incorrect. New securities admitted after the date of the letter will be provisionally assigned the appropriate listing category.
Issue 23 of List!, published on 30 December 2009, is available here.
