CORPORATE FINANCE NOTES
SGS 1: FLOTATIONS I: PREPARATION FOR LISTING (re-registering as a public co.)
When a company applies for listing, provided it satisfies the applicable eligibility requirements, it can apply for
its equity shares to be subject either to a “premium listing” or a “standard listing”.
Standard listing- have to comply with all EU Standards
Premium- have to comply with all EU Standards as well as with the stringent UK Standards (FTSE Co.)
Unless said otherwise a co. on the course stated as a listed co. will imply a premium co.
if you have any restrictions in articles of association or shareholder's agreement these need to be removed
for the shares to be freely transferable before listingti
Institutional/ Retail Investors
Or already a famous co./ well known brand- retail investor generally
Institutional investors- Niche co. operating in a niche area lot of influence in the co. for instance on corporate
governance matters
Nirali Kothari 1
,Types of offers
Retail offer- refers to general public
Institutional- Specialized- Pension funds, hedge funds, insurance companies
Global- Overseas investors can buy these shares
Retail offers come in two forms:
The fundamental difference between these two methods of issue is who is making the offer:
o Subscription - company offers new shares to public (raises capital for company)
o Sale - existing SH offers existing shares to public (no capital for company; instead, SH realises investment)
2 types of prospectus
- Final form of prospectus except in relation to price- price is a range- used for both retail and
institutional offer
Used in Aston martin and royal mail IPOs
Used to work out what the level of interest is in that co., based on the demand co. is used to fix the price
- Pathfinder
Only used for institutional offers
Not technically a prospectus (but is a financial promotion- so FSMA 21 would apply), not approved by FCA,
doesn’t contain any info as to price
All dates are calculated in relation to the impact day i.e. the intended day approval day
Exam question
Always mention at the beginning if the code is compulsory and if not why the co. would still comply with it
Both of these are binding even though corporate governance code is not.
Most students correctly noted that the first step was to pass a special resolution in order to re-register Dante
as a public company (s.90(1) (‘CA 2006’)). Its articles would have needed to be amended to be suitable for a
listed company, including making its shares eligible for CREST and the shareholders’ agreement, referred to in
the corporate profile, would have needed to have been terminated to remove the existing pre-emption rights
on transfer (to comply with LR 2.2.4).
Some students also noted potential issues with the free float requirement for sufficient shares (25%) to be in
public hands at the time of admission. There was also a requirement for a controlling shareholder agreement
as one shareholder controlled 30% or more of votes. Some good candidates also noted that the company
might have been required to enter into a relationship agreement due to the number of shares to be held by
members of the Winter shareholders in Dante following admission.
Students generally performed well when considering the requirements of the UK Corporate Governance Code
against the facts. Most students were able to refer to the “comply or explain” principle set out in LR
9.8.6(5)&(6) and DTR 7.2 as the reason why it needed to be considered and some students also discussed the
need to make changes before the flotation in order to attract investors by demonstrating good corporate
governance.
The various changes which should have been highlighted included that the role of chairperson and chief
executive should not be taken on by the same person and therefore a new independent chairman should be
sought. Another recommendation should have been to appoint an additional number of independent non-
executive directors. Dante also needed to establish a number of committees: nomination, remuneration and
audit. Many students correctly noted that an audit committee is a mandatory requirement under DTR 7.1.1.
Nirali Kothari 2
, SGS 2: FLOTATIONS II: THE OFFER AND LISTING APPLICATION PROCESS (Bookbuilding and 2 tests)
Institutional investors and global offer benefits
Which types of investors were offered shares by Ten Entertainment Group plc (‘TEG’)? Would you
recommend that Aqua makes a retail global offer (as opposed to an institutional offer to investors) in the
UK?
TEG offered only existing shares mainly to institutional investors in the UK. However, the prospectus
envisaged that the offer might be accepted by institutional shareholders in EEA states (excluding the UK).
Aqua would also most likely be advised to make an institutional offer rather than a retail offer because as it is
a specialist niche company that is relatively unknown to the public, it is unlikely to attract the same demand
from retail investors as a recognised household name (such as Direct Line Insurance or the Royal Mail). Aqua
may also find that the process is slightly cheaper than a retail offering, depending on the extent of the
marketing process.
The benefits of carrying out a Global Offer, as opposed to a UK domestic issue, are that the shares are offered
to a wider group of investors, in particular investors in the European or US markets where Aqua already has a
large customer base. Aqua’s flotation could potentially increase its profile further in these markets. Additional
interest in the fundraising should also increase the price at which Aqua’s shares are sold to investors.
Bookbuilding
Def: Bookbuilding allows a company to gain an idea of the level of demand for its shares and to set a realistic
price for them.
It is frequently used for institutional equity offerings. On an institutional offer that has no retail element, the
issuer may use a pathfinder in the bookbuilding process to provide potential investors with information about
the company. On a retail offer, the issuer will often use a price-range prospectus for this purpose.
Timing:
o Generally begins on/shortly after Launch and continues until offer price is determined and announced
(generally 1-2 weeks after Launch)
o NB - Launch will differ based on whether a price-finding prospectus (Retail) or Pathfinder (Institutional) is
used.
Process:
o Presentations are made in form of roadshows to potential institutional investors, who make a non- legally
binding bid in advance of offer for shares.
o Investors state number of shares and price they are willing to pay from within the "price range" provided.
o Price range is either given by the price-range prospectus or the global co-ordinator.
Advantages for the issuer:
o Company can assess demand for shares in advance of setting issue price, allowing the final price to be more
accurately and realistically set.
o It also provides significant comfort that the company will raise the funds it requires from the issue.
Application to the current scenario
Offer Price was determined by Numis (the bookrunner), the Company and the Selling Shareholders and the
basis of allocation of shares under the Offer was based on the level and nature of demand for the shares and
Nirali Kothari 3
SGS 1: FLOTATIONS I: PREPARATION FOR LISTING (re-registering as a public co.)
When a company applies for listing, provided it satisfies the applicable eligibility requirements, it can apply for
its equity shares to be subject either to a “premium listing” or a “standard listing”.
Standard listing- have to comply with all EU Standards
Premium- have to comply with all EU Standards as well as with the stringent UK Standards (FTSE Co.)
Unless said otherwise a co. on the course stated as a listed co. will imply a premium co.
if you have any restrictions in articles of association or shareholder's agreement these need to be removed
for the shares to be freely transferable before listingti
Institutional/ Retail Investors
Or already a famous co./ well known brand- retail investor generally
Institutional investors- Niche co. operating in a niche area lot of influence in the co. for instance on corporate
governance matters
Nirali Kothari 1
,Types of offers
Retail offer- refers to general public
Institutional- Specialized- Pension funds, hedge funds, insurance companies
Global- Overseas investors can buy these shares
Retail offers come in two forms:
The fundamental difference between these two methods of issue is who is making the offer:
o Subscription - company offers new shares to public (raises capital for company)
o Sale - existing SH offers existing shares to public (no capital for company; instead, SH realises investment)
2 types of prospectus
- Final form of prospectus except in relation to price- price is a range- used for both retail and
institutional offer
Used in Aston martin and royal mail IPOs
Used to work out what the level of interest is in that co., based on the demand co. is used to fix the price
- Pathfinder
Only used for institutional offers
Not technically a prospectus (but is a financial promotion- so FSMA 21 would apply), not approved by FCA,
doesn’t contain any info as to price
All dates are calculated in relation to the impact day i.e. the intended day approval day
Exam question
Always mention at the beginning if the code is compulsory and if not why the co. would still comply with it
Both of these are binding even though corporate governance code is not.
Most students correctly noted that the first step was to pass a special resolution in order to re-register Dante
as a public company (s.90(1) (‘CA 2006’)). Its articles would have needed to be amended to be suitable for a
listed company, including making its shares eligible for CREST and the shareholders’ agreement, referred to in
the corporate profile, would have needed to have been terminated to remove the existing pre-emption rights
on transfer (to comply with LR 2.2.4).
Some students also noted potential issues with the free float requirement for sufficient shares (25%) to be in
public hands at the time of admission. There was also a requirement for a controlling shareholder agreement
as one shareholder controlled 30% or more of votes. Some good candidates also noted that the company
might have been required to enter into a relationship agreement due to the number of shares to be held by
members of the Winter shareholders in Dante following admission.
Students generally performed well when considering the requirements of the UK Corporate Governance Code
against the facts. Most students were able to refer to the “comply or explain” principle set out in LR
9.8.6(5)&(6) and DTR 7.2 as the reason why it needed to be considered and some students also discussed the
need to make changes before the flotation in order to attract investors by demonstrating good corporate
governance.
The various changes which should have been highlighted included that the role of chairperson and chief
executive should not be taken on by the same person and therefore a new independent chairman should be
sought. Another recommendation should have been to appoint an additional number of independent non-
executive directors. Dante also needed to establish a number of committees: nomination, remuneration and
audit. Many students correctly noted that an audit committee is a mandatory requirement under DTR 7.1.1.
Nirali Kothari 2
, SGS 2: FLOTATIONS II: THE OFFER AND LISTING APPLICATION PROCESS (Bookbuilding and 2 tests)
Institutional investors and global offer benefits
Which types of investors were offered shares by Ten Entertainment Group plc (‘TEG’)? Would you
recommend that Aqua makes a retail global offer (as opposed to an institutional offer to investors) in the
UK?
TEG offered only existing shares mainly to institutional investors in the UK. However, the prospectus
envisaged that the offer might be accepted by institutional shareholders in EEA states (excluding the UK).
Aqua would also most likely be advised to make an institutional offer rather than a retail offer because as it is
a specialist niche company that is relatively unknown to the public, it is unlikely to attract the same demand
from retail investors as a recognised household name (such as Direct Line Insurance or the Royal Mail). Aqua
may also find that the process is slightly cheaper than a retail offering, depending on the extent of the
marketing process.
The benefits of carrying out a Global Offer, as opposed to a UK domestic issue, are that the shares are offered
to a wider group of investors, in particular investors in the European or US markets where Aqua already has a
large customer base. Aqua’s flotation could potentially increase its profile further in these markets. Additional
interest in the fundraising should also increase the price at which Aqua’s shares are sold to investors.
Bookbuilding
Def: Bookbuilding allows a company to gain an idea of the level of demand for its shares and to set a realistic
price for them.
It is frequently used for institutional equity offerings. On an institutional offer that has no retail element, the
issuer may use a pathfinder in the bookbuilding process to provide potential investors with information about
the company. On a retail offer, the issuer will often use a price-range prospectus for this purpose.
Timing:
o Generally begins on/shortly after Launch and continues until offer price is determined and announced
(generally 1-2 weeks after Launch)
o NB - Launch will differ based on whether a price-finding prospectus (Retail) or Pathfinder (Institutional) is
used.
Process:
o Presentations are made in form of roadshows to potential institutional investors, who make a non- legally
binding bid in advance of offer for shares.
o Investors state number of shares and price they are willing to pay from within the "price range" provided.
o Price range is either given by the price-range prospectus or the global co-ordinator.
Advantages for the issuer:
o Company can assess demand for shares in advance of setting issue price, allowing the final price to be more
accurately and realistically set.
o It also provides significant comfort that the company will raise the funds it requires from the issue.
Application to the current scenario
Offer Price was determined by Numis (the bookrunner), the Company and the Selling Shareholders and the
basis of allocation of shares under the Offer was based on the level and nature of demand for the shares and
Nirali Kothari 3
