Georgie Clayton 2022 ©
Corporate Finance – Consolidation
A. Equity finance
Any purple statutory references have been mentioned in detail in SGS so take priority over others.
Sources
Statute Rules/ Regulations Guidance
FSMA 2000 Listing Rules UK Corporate Governance Code
CA 2006 AIM Rules Share Capital Management Guidelines (SCMGs)
Prospectus Regulation Rules (PRRs) Pre-emption Group Statement of Principles
Disclosure Guidance and Transparency Rules (DTRs)
Market Abuse Regulations (MAR)
Primary share issues
A. Floatation
Under s. 755 CA 2006, private companies cannot offer their shares to the public (offer to the public defined: s. 756 CA 2006).
As such, as its business gets larger and more successful, its SH may decide to offer new or existing shares to the public at large, and so convert the private Co (Ltd) into a public company (plc).
Once converted, a Co may either:
(1) Seek a listing of its shares and thus become a listed Co (2) Seek admission to trading on a recognised IE / multilateral trading exchange like AIM
When shares are listed, they are: !/! Admission on AIM does not mean a Co is listed as its shares are not listed on the Official List.
Admitted to the Official List of the FCA
AND admitted to trading on a regulated market, i.e., Main Market of the LSE
!/! not all public Co (plc) are listed Co, but all listed Co are public Co.
!/! it can be a premium listing or a secondary listing.
1
,Georgie Clayton 2022 ©
A first offer of listed shares (primary issue) by a public Co is a flotation.
(1) Listing on the Official List and admission to trading on a regulated market, i.e. the Main Market of the LSE is a regulated market (LR 2.2.3R)
!/! We will be focusing on a Premium Listing on the Main Market of the LSE.
!/! If you get an overall Q in the exam of a Co about to go public:
aCo
Costatus Advantages
and constitution: mention (in detail) See Step 1
Why would Disadvantages
list its shares on o Re-registration as a public Co as private Co cannot offer shares to the public
the Official List?
o Access
Changes to name
to capital and growth
to fund articles (through acquisitions of other business or organic growth) and/or reduce debt Burden of disclosure and reporting requirements
AoA: mention (in detail) See Step 2 e.g., LPDT, MAR, LSE Admission and Disclosure Standards, PRR, DTRs, See Chapter 7
o Shares must be freely transferable
Providing a ready-made public market for the shares Management time – Co directors are expected to dedicate practically all of their time to a
o Shares must be capable of being settled electronically using CREST
flotation while continuing to run the business effectively
Valuation and share capital: See Step 4 and 7
o Raises
Market capitalisation
public should be atofleast
profile and confidence £700,000(due to the Co’s obligation to keep them informed of its financial
its investors Re-registration as a public Co + changes to the board – finding non-executive directors of
performance) the right experience may be difficult and costly
o Sub-division of share capital
o Issuing new shares Cost and Fees – should cost you 7-8% of the amount you intend to raise
o 25% of shares in public hands
e.g., advisers, etc
Accounts: See Step 4
o Last accounts Loss of control – directors of a listed Co are subject to additional influences and pressures
on the way they run the Co & SH have less equity so institutional investors with significant
o Consolidated accounts shareholdings may be able to block resolutions they do not approve of
Takeover target – potential for a hostile takeover
Which parties
play a role when a
Co is applying for Investment Bank Broker Sponsor Reporting Solicitors Other
a listing? accountants
‘Global co- General = Either broker or investment bank usually. Produces For the Co Public relations advisers
ordinator’ agents for financial Prepare legal due
clients who information diligence
want to buy There is an obligation to appoint: about the Co. Registrars to manage
Functions include: or sell shares on a premium listing: LR 8.2.1R. shareholder record-keeping
Financial in return for a Draft and verify the and administration for listed
adviser commission. prospectus Co, record share transfers
when involving a certain transfer of listing: LR on the register, send out
8.2.1A notices to SH and process
Lead Specific = For the investment bank: dividends
Underwriter finding Prepare and review
2
,Georgie Clayton 2022 ©
investors for when a premium-listed Co enters a class 1 documentation e.g.,
the shares transaction: LR 8.2.2 underwriting
Preparing agreement, Receiving bank – receives
research on prospectus and processes applications
the Co when a premium-listed Co enters a related party for the shares that are to be
transaction: LR 8.2.2 listed; makes relevant
Collaboration between the payments and allocates
Acting as different legal advisers on shares
Broker Appointment must be approved by the FCA: LR 8.6.2.R the documentation.
Acting as Is monitored by the FCA to ensure it continues to satisfy the
Sponsor criteria for approval as a sponsor: LR 8.7
FCA may make surprise visits: LR 8.7.1AR and LR 8.7.3G
Functions:
Helping the Co put its application for listing together and
submitting the application to the FCA
Provide assurance to the FCA that the R of the applicant
under the LT have been met, providing an explanation/
confirmation that the FCA requires and guides the
applicant In understanding and meeting its R under the LRs,
the disclosure requirements under MAR and the DTRs: LR
8.3.1.R
Take reasonable steps to ensure that any communication
or information it the sponsor provides to the FCA is to the
best of its knowledge and belief accurate and complete: LR
8.3.1A
Be the main point of contact with the FCA for any matter
referred to in the LR: LR 8.3.2
Take reasonable steps to satisfy itself that the D of the Co
understand their R and obligations: LR 8.3.4R
Satisfying itself that the Co meets all the relevant
requirements and conditions for listing
Making a declaration to the FCA that it has performed its R:
LR 8.3 LR 8.4
Dealing with the FCA in an open and co-operative manner
and dealing with all enquiries raised by the FCA: LR 8.5
!/! Breach of these LRs by the sponsor may result in enforcement
action being taken by the FCA. See liability below.
3
, Georgie Clayton 2022 ©
What is the When a Co lists on the Official List, it can pursue a premium listing or a standard listing.
difference
between
premium listing Standard listed Co = subject to the minimum standards in LR14 (which refers to LR 2)
and standard o Example of a standard listing: Deliveroo (2021) – due to its CEO retaining enhanced SH rights which is contrary to the PLP
listing?
Premium listed Co = subject to the minimum standards in LR14 + all other listing rules
Premium *focus of the LPC Standard
Three year accounting history required? Yes – LR 6 No
Sponsor? Yes – LR 8 No
Share dealing restrictions? Yes – MAR Yes – MAR
(see Chapter 6) (see Chapter 6)
Corporate governance standards? Yes - UK Corporate Governance DTR 7
Code, LR 9 and DTR 7
Inclusion in FTSE UK index series? Yes (provided the FTSE’s No
eligibility criteria are met)
Rules governing the relationship between company and a Yes – LRs 6 and 9 No
“controlling shareholder” (i.e. with 30% or more of the
shares)?
Shareholder approval required for significant Yes – LR 10 No
transactions?
LR 10.1.1 – application
LR 10.5.1 - the Co must comply
with LR 10.4, send an
explanatory circular to SH and
hold a GM for the transaction
and ensure that any agreement
effecting the transaction is
conditional on that approval
being obtained
Shareholder approval required for related party Yes – LR 11 No
transactions?
4
Corporate Finance – Consolidation
A. Equity finance
Any purple statutory references have been mentioned in detail in SGS so take priority over others.
Sources
Statute Rules/ Regulations Guidance
FSMA 2000 Listing Rules UK Corporate Governance Code
CA 2006 AIM Rules Share Capital Management Guidelines (SCMGs)
Prospectus Regulation Rules (PRRs) Pre-emption Group Statement of Principles
Disclosure Guidance and Transparency Rules (DTRs)
Market Abuse Regulations (MAR)
Primary share issues
A. Floatation
Under s. 755 CA 2006, private companies cannot offer their shares to the public (offer to the public defined: s. 756 CA 2006).
As such, as its business gets larger and more successful, its SH may decide to offer new or existing shares to the public at large, and so convert the private Co (Ltd) into a public company (plc).
Once converted, a Co may either:
(1) Seek a listing of its shares and thus become a listed Co (2) Seek admission to trading on a recognised IE / multilateral trading exchange like AIM
When shares are listed, they are: !/! Admission on AIM does not mean a Co is listed as its shares are not listed on the Official List.
Admitted to the Official List of the FCA
AND admitted to trading on a regulated market, i.e., Main Market of the LSE
!/! not all public Co (plc) are listed Co, but all listed Co are public Co.
!/! it can be a premium listing or a secondary listing.
1
,Georgie Clayton 2022 ©
A first offer of listed shares (primary issue) by a public Co is a flotation.
(1) Listing on the Official List and admission to trading on a regulated market, i.e. the Main Market of the LSE is a regulated market (LR 2.2.3R)
!/! We will be focusing on a Premium Listing on the Main Market of the LSE.
!/! If you get an overall Q in the exam of a Co about to go public:
aCo
Costatus Advantages
and constitution: mention (in detail) See Step 1
Why would Disadvantages
list its shares on o Re-registration as a public Co as private Co cannot offer shares to the public
the Official List?
o Access
Changes to name
to capital and growth
to fund articles (through acquisitions of other business or organic growth) and/or reduce debt Burden of disclosure and reporting requirements
AoA: mention (in detail) See Step 2 e.g., LPDT, MAR, LSE Admission and Disclosure Standards, PRR, DTRs, See Chapter 7
o Shares must be freely transferable
Providing a ready-made public market for the shares Management time – Co directors are expected to dedicate practically all of their time to a
o Shares must be capable of being settled electronically using CREST
flotation while continuing to run the business effectively
Valuation and share capital: See Step 4 and 7
o Raises
Market capitalisation
public should be atofleast
profile and confidence £700,000(due to the Co’s obligation to keep them informed of its financial
its investors Re-registration as a public Co + changes to the board – finding non-executive directors of
performance) the right experience may be difficult and costly
o Sub-division of share capital
o Issuing new shares Cost and Fees – should cost you 7-8% of the amount you intend to raise
o 25% of shares in public hands
e.g., advisers, etc
Accounts: See Step 4
o Last accounts Loss of control – directors of a listed Co are subject to additional influences and pressures
on the way they run the Co & SH have less equity so institutional investors with significant
o Consolidated accounts shareholdings may be able to block resolutions they do not approve of
Takeover target – potential for a hostile takeover
Which parties
play a role when a
Co is applying for Investment Bank Broker Sponsor Reporting Solicitors Other
a listing? accountants
‘Global co- General = Either broker or investment bank usually. Produces For the Co Public relations advisers
ordinator’ agents for financial Prepare legal due
clients who information diligence
want to buy There is an obligation to appoint: about the Co. Registrars to manage
Functions include: or sell shares on a premium listing: LR 8.2.1R. shareholder record-keeping
Financial in return for a Draft and verify the and administration for listed
adviser commission. prospectus Co, record share transfers
when involving a certain transfer of listing: LR on the register, send out
8.2.1A notices to SH and process
Lead Specific = For the investment bank: dividends
Underwriter finding Prepare and review
2
,Georgie Clayton 2022 ©
investors for when a premium-listed Co enters a class 1 documentation e.g.,
the shares transaction: LR 8.2.2 underwriting
Preparing agreement, Receiving bank – receives
research on prospectus and processes applications
the Co when a premium-listed Co enters a related party for the shares that are to be
transaction: LR 8.2.2 listed; makes relevant
Collaboration between the payments and allocates
Acting as different legal advisers on shares
Broker Appointment must be approved by the FCA: LR 8.6.2.R the documentation.
Acting as Is monitored by the FCA to ensure it continues to satisfy the
Sponsor criteria for approval as a sponsor: LR 8.7
FCA may make surprise visits: LR 8.7.1AR and LR 8.7.3G
Functions:
Helping the Co put its application for listing together and
submitting the application to the FCA
Provide assurance to the FCA that the R of the applicant
under the LT have been met, providing an explanation/
confirmation that the FCA requires and guides the
applicant In understanding and meeting its R under the LRs,
the disclosure requirements under MAR and the DTRs: LR
8.3.1.R
Take reasonable steps to ensure that any communication
or information it the sponsor provides to the FCA is to the
best of its knowledge and belief accurate and complete: LR
8.3.1A
Be the main point of contact with the FCA for any matter
referred to in the LR: LR 8.3.2
Take reasonable steps to satisfy itself that the D of the Co
understand their R and obligations: LR 8.3.4R
Satisfying itself that the Co meets all the relevant
requirements and conditions for listing
Making a declaration to the FCA that it has performed its R:
LR 8.3 LR 8.4
Dealing with the FCA in an open and co-operative manner
and dealing with all enquiries raised by the FCA: LR 8.5
!/! Breach of these LRs by the sponsor may result in enforcement
action being taken by the FCA. See liability below.
3
, Georgie Clayton 2022 ©
What is the When a Co lists on the Official List, it can pursue a premium listing or a standard listing.
difference
between
premium listing Standard listed Co = subject to the minimum standards in LR14 (which refers to LR 2)
and standard o Example of a standard listing: Deliveroo (2021) – due to its CEO retaining enhanced SH rights which is contrary to the PLP
listing?
Premium listed Co = subject to the minimum standards in LR14 + all other listing rules
Premium *focus of the LPC Standard
Three year accounting history required? Yes – LR 6 No
Sponsor? Yes – LR 8 No
Share dealing restrictions? Yes – MAR Yes – MAR
(see Chapter 6) (see Chapter 6)
Corporate governance standards? Yes - UK Corporate Governance DTR 7
Code, LR 9 and DTR 7
Inclusion in FTSE UK index series? Yes (provided the FTSE’s No
eligibility criteria are met)
Rules governing the relationship between company and a Yes – LRs 6 and 9 No
“controlling shareholder” (i.e. with 30% or more of the
shares)?
Shareholder approval required for significant Yes – LR 10 No
transactions?
LR 10.1.1 – application
LR 10.5.1 - the Co must comply
with LR 10.4, send an
explanatory circular to SH and
hold a GM for the transaction
and ensure that any agreement
effecting the transaction is
conditional on that approval
being obtained
Shareholder approval required for related party Yes – LR 11 No
transactions?
4
