The UKLA has published issue 25 (July 2010) of List! The main articles in List! 25 clarify the UKLA's approach on reverse takeovers and break fees based on recent experience and discussions with the Listing Authority Advisory Committee.

UKLA approach to reverse takeovers

Under LR 5.1.1R(1), the FSA may suspend the listing of any securities if the smooth operation of the market is, or may be, temporarily jeopardised or it is necessary to protect investors. LR10.6.3G creates a rebuttable presumption that an issuer's equity shares will be suspended upon announcement or leak of a reverse takeover which has been agreed or is in contemplation. This presumption can be rebutted "if the FSA is satisfied that there is sufficient information in the market about the proposed transaction".

Where the target business is not subject to a public disclosure regime, the FSA has summarised the minimum level of information required to avoid a listing suspension in this context. These minimum requirements will not apply to acquisitions by a cash shell, or in situations where the acquisition would fundamentally change the nature or strategic direction of the issuer.

The new minimum requirements include unaudited financial information on the whole business to be acquired, covering a period of three years, to include profit and loss information to at least the operating profit level, balance sheet information highlighting at least net assets and liabilities and relevant cash-flow information. This must be supported by a statement from the directors and a comfort letter from the sponsor that the announcement contains sufficient information about the business to be acquired to provide a properly informed basis for assessing its financial position.

The listed issuer must also provide a public commitment to keep the market informed without delay of any developments concerning the target business that would be required to be released were the enlarged group listed.

UKLA approach to break fees

The UKLA considers that a break fee is an obligation of an issuer for payment of a sum to the counterparty to a proposed transaction which will be triggered by, or linked to, the occurrence of certain specified events which have the effect of materially impeding a transaction or causing the transaction to fail. A crucial part of this test is that the issuer must be obliged to make the payment to the other party to the failed transaction.

The UKLA has clarified that this test should be applied irrespective of the particular arrangement.

Therefore, if an arrangement has been structured to replicate a break fee's effect, or to serve the same purpose as a break fee, it will be treated as a break fee under LR 10.2.7.

Policy and regulatory updates

List! 25 also briefly considers:

when a three-year track record is not a three-year track record; classifying joint venture transactions in the class test regime; exceptional items for the profits tests; and the advertising provisions of the Prospectus Directive.  

For further information, see: www.fsa.gov.uk/pubs/ukla/list_jul10.pdf