PA SGS 1 Consolidation

Learning Outcomes
1. appreciate the regulatory concerns of a seller on a share sale including the FCA, competition and data
protection;
2. appreciate that pre-completion consents for a corporate transaction may be necessary from regulators and/or
shareholders;
3. outline the early stages of a corporate transaction; and
4. identify some particular concerns for a buyer or seller of a publicly listed company.

LO1: regulatory concerns of seller

a. FCA – General Prohibition

 Client:
 NB: FSMA only applies to share sales bcs shares are a specified investment Art 76 RAO
 NB: FSMA restrictions can apply to clients as well as to their solicitors.

o Could the auction process be a ‘specified activity’ (client and solicitor)?
1. S.19 FSMA -‘general prohibition’ unless authorised or exempt
2. s.22(1) FSMA - is it a ‘regulated activity’? -> i.e activity of a specified kind - RAO
3. Activity of a specified kind – RAO
o Auction process:
 ‘dealing in investments’ (art. 14 RAO); or
 ‘arranging deals in investments’ (art. 25 RAO)
4. Exclusions to s.19 FSMA -> RAO and they very often apply:
o Art. 70 (sale of shares in body corporate) – where 50% or more of voting shares in a company
are being sold- most likely to apply to target;
o Art. 28 (arranging transactions to which arranger is the party) – this would apply to the seller
as it is one of the parties to the share sale agreement.

 Seller’s solicitors could be subject to the general prohibition under s. 19 FSMA:
1. ‘advising’ (art. 53 RAO) on the merits of selling securities; or
2. ‘arranging deals in investments’ (art. 25 RAO).
 However -> seller’s solicitors would be able to rely on the same exemptions under art. 70
RAO; or
 Art. 29 RAO - ‘arranging deals’ specified activity if the deal is arranged through an authorised
person (i.e seller’s financial advisor is authorised).

b. FCA: Financial promotion (only share sale)
 In share sales or sale of business (including shares!) of target -> Information Memorandum may constitute a
financial promotion falling under restrictions in s.21 FSMA
o criminal offence for an unauthorised person (i.e not authorised under s.31 FSMA) to communicate a financial
promotion unless an authorised person has approved its contents or a relevant exemption applies under FPO
 FPO exemptions (can include this in IM)
o Art.62 FPO – either
 Acquire/sale of 50% or more of voting rights in share capital of a body corporate; OR
 together with any shares already held by the persons acquiring the shares, they carry not less than
50% of the voting rights; AND
 in either case, the seller is a body corporate/partnership/ individual/group of connected individuals
and buyer is also one
 this exemption is commonly available for acquisitions of private limited companies
o Art.62 FPO (2) (b) (ii) – if above not satisfied:
 IM can still be subject to exemption if:
 IM is made by or on behalf of a body corporate/partnership/ individual/group of
connected individuals; and
 Relates to a transaction of acquiring/disposing shares in a body corporate; and
 Object of transaction may reasonably be regarded as being the acquisition of da-to-
day control of the company.
o Art. 49 (2) FPO – IM is given to ‘investment professionals’ (Art. 19 FPO)

 Prospectus Requirement: Public Companies
 s. 85(1) FSMA - prospectus is required if shares are to be offered to the public
 s. 86(1) FSMA – exemptions: i.e distribution of info to less than 150 persons –OR- sent out only to ‘qualified
investors’ (i.e banks, investment institutions)