FSPs were created to encourage a competitive and confidential sale process under the Takeover Code, but often they may signal that a company has run out of options. As a number of companies have launched FSPs in recent months, in this article we look at when an FSP is the right choice for a company.
What is a formal sale process?
A formal sale process (FSP) is a sell-side sale process run by a public company which is similar to a private company auction, but subject to the UK Takeover Code. A company launches an FSP by announcing, with the consent of the Takeover Panel, that it is putting itself up for sale and inviting interested parties to make an offer. There is no set procedure for an FSP under the Code and companies generally have the flexibility to run the auction process as they wish. That said, the Code continues to apply, and any firm offer announced will be subject to the usual Code timetable for a scheme of arrangement or a contractual offer, as the case may be.
A key advantage of an FSP is that the Takeover Panel will usually grant dispensations from specific Code rules which may help to foster interest among prospective bidders. An FSP is distinct from a strategic review (which is a more wide-ranging review by a listed company of its business looking at multiple strategic options and outcomes, one of which could be a takeover), although it is possible for a strategic review to incorporate a formal sale process.
Since the concept of an FSP was introduced in September 2011, over 85 FSPs have been launched. To date, they have often been undertaken by companies either in financial distress or which have reached the limits of their ability to operate independently, often because it would require significant capital to develop to the next stage (examples include companies in the oil and gas sectors). This has meant that FSPs can be perceived by investors or the wider market as a sign of failure or surrender. There has however been a recent trend of companies using FSPs to run a competitive process where they have received multiple expressions of interest, demonstrating the wider potential of the process.
Code dispensations on an FSP