Chapter 6 Flashcards
(25 cards)
Prospectus Rules
FCA responsible for supervision and enforcement
Required for all public offers for securities where capital is raised including rights issues
If securities not available to the public, a prospectus is not required
Other exemptions:
- To qualified investors only
- To fewer than 150 natural persons
- For offers less than a total consideration of EUR 1m over 12M
- Where investors acquire at least EUR 100k each
- Bonus or scrip issue
- Non-transferrable securities
Listing Regulations (Official List)
FCA responsible for supervision and enforcement
Applications to join the LSE go to the UKLA who approve and then the LSE will then admit the company
Either premium or standard listing, where premium listings have higher regualtory thresholds but opens broader market with greater liquidity
Premium listing (^ for standard):
- Public company (plc)
- 3 years trading history (audited statements)
- 12 months working capital (solvent)
- Equity market value of £30m^ or debt market value of £200k^
- Management with sufficient experience and expertise^
- Sponsors
- Share ownership with 10% in public hands (free float)^
Listing Regulations (Alternative Investment Market)
FCA responsible for supervision and enforcement
Applications go to the LSE
AIM does not stipulate any company size / trading record / free float requirements
- Company requires a nominated advisor (NOMAD) which is a financial services firm responsible for the application
- Broker, that may be the same firm as the NOMAD, they have an obligation to provide liquidity
Conditions for entry:
- Public company (plc)
- Accounts must be IAS compliant
- Admissions document submission and approval
Listing Regulations (AQSE)
FCA responsible for supervision and enforcement
Formerly NEX, a competitor to the LSE
AQSE Exchange Main Board
- Similar to joining the LSE official list
- Same conditions for entry to the LSE official list
AQSE Exchange Growth Market, apply directly to AQSE
- Similar to AIM
- Appoint and retain an AQSE corporate adviser (NOMAD equivalent)
- 24 months audited accounts
- 10% free float
- 12 months working capital
- Demonstrate corporate governance
Disclosure Rules
FCA responsible for supervision and enforcement
Flotation
Simultaneous IPO and listing on a regulated exchange
UKLA
United Kingdom Listing Authority, or the FCA
Introduction
Company places securities for trading onto a recognised investment exchange (RIE), e.g.:
- LSE by either an official list (main market), “listed companies”, for well established companies or AIM (junior market), “quoted companies” for smaller businesses
- AQUIS, “quoted companies”
Principal-Agent Problem
Problem is self-interest
Company shareholders (principals) are investors looking for the best return
Company directors (agents) are advisers or managers looking for salary, fees or commission
Conflict of Interest Solutions
- UK Code of Corporate Governance
- Stewardship Code (e.g. shareholder activism)
- Retail Distribution Review (RDR)
- CFA Code of Professional Practice
UK Code of Corporate Governance
Encourages directors to run companies in an ethical/responsible manner
Complied with by all companies with premium listing on LSE
and all companies regulated by SYSC
1. Board Leadership & Company Purpose
- Responsible for long-term success
- Encourage participation from all stakeholders
2. Division of Responsibilities
- Chair leads with appropriate non-execs/execs and should not be the CEO
- Appropriate processes and policies
- Appropriate balance of skills
3. Composition, Succession & Evaluation
- Meritocratic and objective criteria to promote diversity#
- Annually reviewed
4. Audit, Risk & Internal Control
- Formal and transparent procedures
- Fair, balanced, understandable assessments
5. Remuneration
- Support strategy and long-term success
- Directors should exercise independent judgement
AGM
Annual General Meetings
Can be called by the board with minimum 21 calendar days notice
EGM
Extraordinary General Meetings
Can be called by the board or 5% of voting shares with minimum 14 days notice
Resolutions
Motion brought to AGM or EGM
Ordinary resolutions need >50% of votes recorded at meeting
- e.g. annual statements, board appointments, dividends
Special resolutions need >=75% of votes recorded at meeting
- e.g. company name, memorandum of association changes
Voting
- Show of hands, for likely to pass items
- Written ballot, where there is some controvery
Proxies can be appointed at least 48 hours before meeting via proxy form
Special proxy is directed by the shareholder
General proxy uses their discretion to decide which way to vote (shareholder trusts the proxy’s judgement)
Notifiable Interests
Significant shareholders to make identity known to the business and investors in the business and size of stake
Includes connected parties who own a combined significant stake, e.g. a company and its director both own 2% the combined investment is then 4% which will need disclosing
Within 2 business days of breach:
- Reaches 3%
- Each whole point above 3% (in either direction)
- Falls below 3%
The company then discloses it to the market
Concert Party
Agreement between shareholders that they’ll vote in the same direction which would need to be shared with the company
Enterprise & Regulatory Reform Act 2013
Empowers the CMA
Two phase test to assess the takeover / merger
CMA
Competition & Markets Authority
Division of the UK government
Government can block the merger before the takeover can take place
Qualifying Merger
If transaction meeets any of the three tests then it is qualifying merger then government moves to phase 2 which can take months / years
Takeover Panel
Independent statury body who write the takeover code (also City Code)
Its chairperson is appointed by the Bank of England
Funded by takeover panel levy, dunded by levies on LSE transactions
Takeover Code
Protects shareholders in both organisations
Listed and unlisted public companies resident in the UK, Channel Islands or Isle of Man
Complies with the EU takeover directive
- All shareholders must be treated equally (by classes) and protected until after takeover complete
- Shareholders must be given sufficient time and information to reach a decision on the bid
Compulsory Bid
Hostile bid must be bid if acquirer buys 30% of more of the voting rights in the target company which breaches threshold for “effective control”
Required to make an offer for all remaining shares
Offer must be in cash or cash alternative of the highest price paid by the acquirer in the last 12M leading to bid
Offer must remain open for at least 21 days
Unconditional once acquirer gains >50% (“legal control” of the target
Squeeze-out
Any takeover bid, either mandatory or voluntary where 90% have accepted, all remaining shareholders have to sell shares to acquirer at the latest offer price
