Linklaters

Previously, following the leak (or announcement) of a proposed reverse takeover of an unlisted target or group of assets within a listed group, the UKLA would normally require suspension, often for some months, until audited financials on the target assets could be published. (The UKLA had previously allowed issuers to avoid suspension in the context of a reverse takeover where a new topco was used to effect a transaction that, were it structured differently, would have been treated as a reverse takeover).

The UKLA’s new position is that:

• the use of a new holding company structure will no longer have the effect of taking an acquisition outside the reverse takeover regime. The new focus will be on substance rather than form;
• the minimum level of financial information to be provided on the whole business to be acquired will still need to cover a period of three years and include profit and loss information to the operating profit level, balance sheet information and relevant cash flow information. However, neither notes to the financial statements nor an audit opinion will be required, so any period of suspension is likely to be significantly shorter;
• important new provisions require a public confirmation to be made by the issuer’s directors that they consider the information about the business to be acquired in their announcement as sufficient to provide a properly informed basis for assessing the issuer's financial position and a private comfort letter addressed to the UKLA from the sponsor(s) confirming the sufficiency of the information about the business to be acquired. Issuers and sponsors would be expected to consider the appropriate level of comfort required;
• also required are: (a) a commentary on the trading of the target business since the most recent financial information; (b) disclosure on the key differences between the issuer’s accounting policies and the policies used to present the financial information on the target business; and (c) disclosure on relevant non-financial operating or performance measures, depending upon the target business’ operations. Note that the announcement can explain that the financial information may change when re-presented in the issuer's accounting policies;
• as before, the issuer must give a commitment to keep the market informed of any developments in relation to the target business as if the enlarged group were listed (i.e. without delay). The UKLA will require private comfort from the sponsor(s) that the issuer is in a position to do this. Issuers and sponsors will want to give thought to what comfort package they will require and what undertakings they will need from the target group; and
• the UKLA retains the right to override the issuer’s and sponsor’s view that sufficient information about the business to be acquired has been made available and to suspend an issuer’s securities should it subsequently appear the market is unable to continue trading on a properly informed basis.
  
  

As before, an acquisition of one main market-listed company by another cannot be a reverse takeover for the purposes of Listing Rule 10. Such a transaction can still be a Class 1 transaction. Note, too, that the general suspension regime in the Listing Rules remains applicable.

Commentary: This rule change should allow transactions to proceed with much reduced suspension risk in that, with the co-operation of - and appropriate undertakings from - the target group, an issuer should be able to produce the information required to cleanse suspension much more quickly than had previously been possible.

Click here for List! 25.