Included in this issue: Changes to the exemptions from the requirement to produce a prospectus, Takeover Panel consultation: asset sales in competition with an offer and other matters and more...

Equity Capital Markets

Changes to the exemptions from the requirement to produce a prospectus 

As a result of the early implementation of parts of the EU Prospectus Regulation (No.2017/1129), changes have been made to the exemptions from the requirement to produce a prospectus in respect of an admission to trading of transferable securities on a regulated market. The changes, which came into force on 20 July 2017, mean that: 

• the "less than 10%" cap on the number of shares that companies were able to issue before a prospectus was required has been extended to "less than 20%" and applies to all securities (not just shares). The threshold is calculated by reference to the number of securities of the same class already admitted to trading on the same regulated market. over a period of 12 months; and
• subject to certain conditions, the number of shares that may result from a conversion or exchange of securities, or from the exercise of rights conferred by securities before a prospectus is required will be capped at less than 20% (over a period of 12 months).

The Financial Conduct Authority's (FCA) Prospectus Rules have been amended accordingly. 

Notwithstanding this new flexibility, the Pre-Emption Group has announced that it does not intend to amend its 2015 Statement of Principles which allows a company to seek a general authority to issue on a non-pre-emptive basis for cash shares representing no more than 10% of the company's issued share capital (taken by way of two separate 5% resolutions – the first relating to general corporate purposes and the second to acquisitions and capital investments). In turn, this means that if a company wishes to take advantage of the ability to issue shares that represent up to 20% of shares of the same class without the need to issue a prospectus (and assuming that it is not making a public offer), it will still need to seek a specific disapplication authority from shareholders to do so. The Pre-Emption Group has also confirmed that the Investment Association and the Pension and Lifetime Savings Association continue to support the current 10% threshold as set out in the 2015 Statement of Principles.

The EU needs to produce a significant number of implementing standards before a complete picture of the extent of the other changes to the prospectus regime will emerge. This process commenced in early July with the publication of three consultations dealing with the:

• content and format of prospectuses;
• content and format of EU Growth prospectuses for those issuers able to take advantage of this reduced disclosure regime; and
• scrutiny and approval of prospectuses.

The deadline for responses to all three consultations is 28 September 2017. 

LSE launches consultation on changes to AIM Rules regime

The London Stock Exchange has issued a discussion paper on proposed changes to the AIM Rules for Companies (AIM Rules) and the AIM Rules for Nominated Advisers. The proposals:

• suggest formalising and extending the process of holding early confidential discussions with Nomads about prospective admissions to AIM;
• consider the inclusion of guidance for Nomads on issues which may cause the LSE concern in relation to a forthcoming admission;
• consider whether the LSE should mandate a minimum free float requirement and, if so, at what level;
• consider whether all or only non-revenue generating companies should be required to raise more than a prescribed minimum amount as is currently the case for AIM investing companies and, if so, at what level;
• ask whether the current requirements as regards board composition and the role of the Nomad in considering the efficacy of the board at admission is effective;
• seek views on whether AIM companies should be required to report annually against a governance code;
• contemplate automatic fines for breaches of the AIM Rules.

Responses are requested by 8 September 2017.

FCA consults on new category of premium listing for sovereign controlled companies

The FCA has accelerated a proposal emanating from its "Review of the Effectiveness of Primary Markets" and is seeking views on a targeted set of changes to the premium listed regime to address the issue of companies controlled by a shareholder that is a sovereign country (CP17/21). In short, the proposals aim to enable companies which may be the subject of a major privatisation to choose the higher standard of premium listing, rather than a standard listing.

If adopted, the proposals would mean the addition of a new Chapter 21 to the Listing Rules which would only be available to companies with a sovereign controlling (30%+) shareholder. Such a shareholder would need to be recognised as a State by the UK government at the time of the application for admission.

According to the FCA, the new premium listing category would include the "full suite" of investor protections available to those invested in companies in the existing premium listing category with two principal modifications:

• the related party rules in LR11 would apply on a modified basis; the sovereign controlling shareholder would not be considered to be a related party; and
• the existing controlling shareholder rules in LR6 would not apply in respect of the sovereign controlling shareholder.

The proposals have had a mixed response in the market. Responses to the consultation have been requested by 13 October 2017. 

Public M&A and the Takeover Code

Takeover Panel consultation: asset sales in competition with an offer and other matters

In late 2016, there were two cases where the board of a target company in receipt of a unilateral offer decided that better value could be delivered to shareholders through the company selling all of its assets to a third party, returning the proceeds to shareholders and winding up the company. These cases raised a number of issues with the application of the Takeover Code such that the Code Committee of the Takeover Panel has published a consultation paper (PCP2017/1) proposing various changes to address the issues raised.

The Code Committee is also proposing amendments relating to:

• Rule 2.8 statements, suggesting that any "no intention to bid statement" should specify the circumstances in which the person making it reserves the right to set it aside;
• removing the restrictions on the use of social media for the publication of information about a party to an offer and permitting the publication via social media of videos approved by the Panel in accordance with Rule 20.3; and
• the codification of a further dispensation from the Rule 9 mandatory offer requirement.

The consultation closes on 22 September 2017.

Takeover Panel publishes Practice Statement on strategic reviews, formal sale processes and other circumstances where company seeks potential bidders

The Takeover Panel Executive has published Practice Statement No. 31 which sets out the Panel's position where a company initiates a strategic review that may result in a public offer, conducts a formal sale process or is otherwise seeking potential bidders. It has also withdrawn Practice Statements No. 3 and No. 6, the relevant aspects of which have been incorporated into Practice Statement No. 31.

Narrative Financial Reporting

ESMA updates Q&A on alternative performance measures (APMs)

The European Securities and Markets Authority (ESMA) issued four new Q&As on the implementation of its guidelines for listed issuers on APMs. The new questions provide information on:

• the definition of APMs in the context of interim financial statements;
• the prominence of APMs, i.e. the way they are presented compared to IFRS figures outside financial statements;
• the "result of operating activities" APMs; and
• the use of the "compliance by reference" principle as set out in the guidelines

The guidelines, which were published in October 2015, applied from July 2016. By way of reminder, they are designed to promote the usefulness and transparency of APMs used in prospectuses and other regulated information (for example, annual reports) published by listed companies. The guidelines define an APM as a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework.

ICAEW consultation on prospective financial information

The ICAEW has published a consultation paper in which it sets out its plans to update its 2003 guidance for UK directors on prospective financial information. 

The deadline for responses is 31 October 2017.