On August 19, the UK Financial Services Authority (FSA) issued clarification of the manner in which certain of its rules apply to activist shareholders wishing to work together.

The FSA addressed three areas of its rules: the market abuse regime, disclosure of substantial shareholdings and changes in control:

  • Trading on the basis of knowing another investor’s intentions or working jointly to avoid disclosure of shareholdings will generally constitute market abuse. On the other hand, market abuse rules do not prevent investors from engaging collectively with the management of an investee company.
  • The FSA rules on disclosure of major shareholdings require that investors who have agreed to pursue the same long-term voting strategy must aggregate their shareholdings for the purpose of disclosure thresholds. This disclosure obligation is not likely to be triggered by ad hoc discussions between investors on particular corporate issues.
  • Under the EU Acquisitions Directive, where investors are “acting in concert” they require FSA approval if they reach a controlling shareholding (10% or more of a company’s shares) in firms regulated by the FSA. “Acting in concert” is not defined in the Directive. The FSA does not view ad hoc discussions or understandings between investors intended solely to promote generally accepted principles of good corporate governance in firms in which they have invested to be “acting in concert” for this purpose.  

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