Equity Capital Markets

LSE guidance on free float and AIM Rule 31

The London Stock Exchange (LSE) has published guidance in a revised format of Inside AIM which deals with:

  • the free float "requirement" when bringing a company to AIM;
  • the circumstances a Nomad should consider when looking at the systems, procedures and controls put in place by a company under AIM Rule 31.

All previous editions of Inside AIM can be found on this page of the LSE website together with a table which sets out in which previous editions of Inside AIM guidance on certain rules has been given.

LSE amends rule definitions

A number of amendments have been made to the Rules of the London Stock Exchange as part of a periodic review. Changes have been made to the definitions of 'order book' security and 'sponsored access', while the terms 'market close' and 'market hours' have been removed. The revisions to the rules and guidance applied from 5 May 2015.

Transparency Directive: disclosure of major shareholdings published in the Official Journal

At the beginning of the year we reported that the European Commission had published in December 2014 a draft regulation containing technical standards on the notification of major holdings under the amended Transparency Directive. These have now been published (with no change to the text from the draft published in December 2014) in the Official Journal and will enter into force on 2 June and apply from 26 November 2015. Proposals to change the content of DTR 5 are expected to be published by the Financial Conduct Authority (FCA) shortly.

One minute guide on the Market Abuse Regulation

The FCA has published a one minute guide to the Market Abuse Regulation covering its objectives, to whom it applies to and its key requirements. We will be covering this in more detail as the practicalities of the revised market abuse regime emerge over the coming months in the run up to the Regulation coming into force in July 2016.

ESMA responds to Prospectus Directive review public consultation

The European Securities and Markets Authority (ESMA) has responded to the European Commission's February 2015 consultation on the future of the 2003 Prospectus Directive.

Its response, given the weight likely to be ascribed to it, makes for interesting reading not least because it recommends a fundamental re-evaluation of when a prospectus is needed in the context of secondary issues by companies with securities admitted to trading on regulated markets and, to the extent that a prospectus is required, the necessary contents of the document relative to contents required of such a document on an IPO. In short, should the proposals in both areas be adopted, the regime will be considerably relaxed for those companies with securities traded on the main market of the London Stock Exchange.

The Commission is required to assess the application of the Directive by 1 January 2016 and is expected to set out more concrete proposals towards the end of this year.

Public M&A

Proposed changes to the City Code – Dividends

The Takeover Panel has issued a statement announcing the publication of consultation paper, PCP 2015/1, which sets out proposed amendments to the Takeover Code (City Code) in relation to the treatment of dividends paid by a target company to its shareholders. As currently proposed, changes to the City Code would mean that:

  • any bidder which has issued a "no increase" statement, would be obliged to reduce the value of its offer by the amount of any dividend subsequently paid by the target, unless a specific reservation has been included in the "no increase statement" such that target shareholders are, in addition to the offer consideration, entitled to receive dividends;
  • unless any other bidder has reserved the right to do so in each of its Rule 2.4 and 2.7 announcements and in its offer document, it will not usually be able to reduce the value of its offer by the amount of any dividend subsequently paid by the target; and
  • the provisions of the City Code will be made clearer as to how dividends are treated in calculating the minimum offer value.

Views are also sought relating to reservations of the right to reduce the offer consideration if a dividend is paid, the effect of a dividend where the bidder has made a 'no increase statement' and impact of dividends on the minimum offer price established by share purchases. The consultation closes on 12 June 2015.

Experian Business Research Monthly Review - May 2015

Experian has published its latest monthly review of M&A transaction activity finding:

  • UK M&A and ECM transactions dipped to under 400 during April for the first time since June 2013 - a decline of 13%.
  • Activity in the Financial Services' sector accounted for more than one third of UK deals despite the decline in overall transactions.
  • In Asia Pacific, Chinese businesses were the most active undertaking 33.4% of all transactions in the region with manufacturing being the top sector.

Governance, Reporting & Compliance

ICSA guidance on general meeting notice periods

The Institute of Chartered Secretaries and Administrators (ICSA) has published a guidance note on Provision E.2.4. of the 2014 UK Corporate Governance Code and the general meeting notice requirements under the Companies Act 2006.

By way of reminder, under the Companies Act 2006, the statutory notice period for general meetings (other than AGMs) is 14 clear days' notice. This excludes the date on which the notice is given and the date of the meeting. However, provision E.2.4 of the Code, introduced in 2014 in respect of general meetings other than AGMs, states that at least 14 working days' notice must be given, excluding the date of the meeting. This is longer than the statutory period. ICSA's guidance states:

  • The Code recommends earlier publication dates for notices of meetings than the statutory requirements and where companies are not able to meet the Code recommendations this should be explained in the Annual Report in the same way as any other departure from the Code.
  • It expects that a company will only use the reduced notice period where there is a need for urgency. Consequently, an explanation of these circumstances will be required where the company does not comply with Provision E.2.4.

Differential ownership rights proposals for shareholders is flawed, says ICGN

The International Corporate Governance Network (ICGN) has issued a report expressing concerns about the proposals for the introduction of differential ownership rights (such as enhanced dividend and voting rights for those that own shares for longer than a certain period of time) as part of the revised Shareholder Rights Directive. In short, ICGN does not see that the proposal will encourage greater long-term thinking by institutional investors nor enhance stewardship. The Financial Reporting Council are also lobbying against the proposals.

Financial Reporting and audit quality evaluation

The Financial Reporting Council (FRC) has published two recent updates of interest.

The first heralds the launch of a programme of measures to help smaller listed and AIM companies improve the quality of their corporate reports. This follows concerns expressed by the FRC over a number of years at the high number of poorer quality annual reports produced by such companies as compared with their larger counterparts.

The second is the publication of a practice aid to assist audit committees in evaluating audit quality. This sets out a number of issues of which audit committees may wish to take account when designing or updating their own assessment processes.

For more detail, please read our CQC – Compliance for Quoted Companies update – click here.

Pro forma financial information

Two technical notes have been published by the Institute of Chartered Accountants in England and Wales (ICAEW) and UK Listing Authority (UKLA) in relation to pro forma financial information.

  • TECH 01/15 published by the ICAEW provides guidance for preparers and includes advice on the sort of items which should (and should not) be reflected as adjustments in pro forma financial information.
  • Technical Note, UKLA/TN/633 issued by the UKLA on pro forma financial information in prospectuses provides guidance on what they consider is (and is not) a significant gross change, when pro forma income statements are needed, voluntary pro forma financial information, and illustrations of periods required.