Welcome to the latest edition of Osborne Clarke’s quoted company legal and regulatory news update.
We hope that you find it interesting. If you would like to discuss any of the content, or have a subject that you would like us to cover in next edition, please let one of us know. Our contact details are set out below.
Jon King, James Massy-Collier, Mark Wesker, Rebecca Gordon, Nick Thody and Tom Harvey
A dangerous precedent or a principled view? Share-splitting tactics on a takeover scheme defeated by the High Court
Effecting a takeover by scheme of arrangement has long offered one key attraction over a traditional contractual offer – a lower threshold to enable the purchaser to compulsorily acquire the entire issued share capital of the target. However, this advantage hides a potential trap for bidders which has long been identified as a risk but which, until recently, target shareholders opposed to a takeover bid had not sought to exploit.
It is precisely this trap that some employees of Dee Valley, a water utility company and the target of a recent takeover bid by Severn Trent, tried to spring. In sanctioning the scheme despite the intended spoiling tactics, the court has developed a new principle restricting the right of shareholders to vote freely on a scheme.
Continental drift: FCA consultation on improving the availability of information during the UK IPO process
The FCA has issued a consultation paper looking at ways of improving the flow of information to potential investors during a typical UK IPO process. It forms part of the FCA’s wider investigation into investment and corporate banking and follows an earlier discussion paper on the availability of information in the UK IPO process.
In the consultation paper, the FCA addresses two key issues: the timing of the publication of the prospectus and the perceived problems with potential investors being fed a pre-IPO information diet consisting largely of connected research. The proposals would likely involve a move away from the current pathfinder model, towards a more continental model of the split publication of a pre-marketing registration document and subsequent issue and pricing information.
Filling the gaps: the FCA’s discussion paper on the UK’s primary markets landscape
The FCA has published a discussion paper looking at the continued effectiveness of the UK’s capital markets. The FCA’s aim is to “prompt a broad discussion about the effectiveness of the UK’s primary markets landscape, looking in particular at access to capital for issuers and investment opportunities for investors.”
The discussion paper covers three core issues:
- revisiting the unloved standard segment of the Main Market and whether redrawing the lines between premium and standard segments might improve market effectiveness and sentiment towards the standard segment
- identifying gaps in the UK’s market framework, and in particular the effectiveness of the primary markets in providing capital for early stage science and technology companies and
- the listing of debt securities and facilitating retail access to the debt markets.
It is the second element of the discussion paper which is particularly eye-catching as the FCA looks to assess the role of primary market structure and regulation in encouraging scale-up and patient capital in those sectors.
Blockchain in the capital markets: an early regulatory assessment by ESMA
Blockchain or Distributed Ledger Technology is currently generating a lot of hype in the tech world, especially in relation to its possible application in the financial services sector. Proponents of DLT for use in this industry believe it has the power to drive significant efficiencies and cost savings for those operating in financial services, by improving post-trade processes and regulatory reporting, and improving transaction speeds.
In a report published last month, the European Securities and Markets Authority explores these potential benefits of DLT as they apply to the European securities markets. The report highlights what it sees as the key challenges and risks faced by the sector as a result of the increasing adoption of DLT. Importantly, it determines that DLT adoption does not yet warrant regulatory intervention or amendment; it envisages DLT fitting (for the time being) within the existing regulatory framework.
Corporate governance: the McGregor-Smith review on race in the workplace
Baroness McGregor-Smith has published her review on race in the workplace, accompanied by the Government’s response to her findings. The Review makes a number of recommendations to improve diversity within organisations.
Drawing parallels with the Davies Report and its positive impact on the representation of women on boards, in its response the Government states that it believes that “in the first instance, the best method is a business-led, voluntary approach and not legislation as a way of bringing about lasting change” but that it “will monitor progress and stand ready to act if sufficient progress is not delivered“. Accordingly, Business Minister Margot James has written to the chief executives of all FTSE 350 companies urging them to improve diversity and inclusion in the workplace and implement some of the key recommendations in the Review.
Market Abuse Regulation: impact on share plans
Whilst almost all quoted companies will have updated their share dealing codes in the light of the introduction of the Market Abuse Regulation in July 2016, the impact of the new rules on employee share plans is sometimes overlooked.
Although in practical terms the operation of many share plans will not be significantly affected for companies which comply with the Investment Association’s current Principles of Remuneration, the rules of plans adopted before MAR came into force may be out of date in a number of respects.
In particular, the periods during which awards may be made (and the vesting and exercise of awards) should be updated to reflect MAR closed periods. In addition, historic references to the Model Code should be updated (unless the plans are drafted widely enough to extend to equivalent codes), and further changes may be necessary to ensure that the rules dovetail with the company’s new share dealing code.
Please contact Osborne Clarke’s Head of Incentives, Michael Carter, or your usual Osborne Clarke contact if you would like to discuss the impact of MAR on your share plans, or have any queries in relation to employee share plans generally.
Corporate law 101: capital contributions
Capital contributions are a bit of an oddity. Neither equity nor debt, they aren’t recognised in the UK’s statutory company law, nor do they benefit from a clear statement of their legal character in case law.
Nevertheless, we see them with increasing frequency in our corporate work, driven in part by overseas group treasury practice (especially in the US). So, understanding their essential characteristics (and some of the legal and tax uncertainties they can present in a UK context) is key.
Brexit: how OC can help your business
With Article 50 being triggered yesterday, the most complicated divorce proceedings in history are now underway. At Osborne Clarke, we have a dedicated team of Brexit Impact Advisors across Europe, the UK and the US to help your business navigate the uncertainties surrounding the UK’s departure from the EU.