The UK’s Pre-emption Group has issued a revised Statement of Principles on the disapplication of shareholders’ pre-emption rights, together with template AGM resolutions. The changes should enable UK quoted companies to raise larger amounts of equity finance without the costs and delays involved in a rights issue or other formal pro rata offer to existing shareholders. The Pre-emption Group has amended its Statement of Principles following the recommendations of the UK’s Secondary Capital Raising Review, which it committed to implement in full.
The key changes to the Statement of Principles are as follows:
- AGM resolutions. Shareholders are likely to support AGM resolutions seeking general authority for a company to issue equity securities for cash on a non-pre-emptive basis (i.e. without the cost or process involved in a rights issue or other formal pro-rata offer to existing shareholders) up to the following new limits:
- 10 per cent of existing issued ordinary share capital for general corporate purposes (together with a further amount not to exceed 20 per cent of any placing made under this power, to be used only for the purposes of making a ‘follow-on offer’ – see below).
- An additional 10 per cent of existing issued ordinary share capital, provided that the company confirms in the AGM circular that it intends to use it only in connection with an acquisition or a specified capital investment which is announced contemporaneously with the issue, or which has taken place in the preceding 12 month period and is disclosed in the announcement of the issue (together with a further amount not to exceed 20 per cent of any placing made under this power, to be used only for the purposes of making a follow-on offer).
- Capital hungry companies. A ‘capital hungry’ company (as flagged to investors, for example, in its IPO prospectus) should not be discouraged from asking its shareholders for general authority to issue further shares on a non-pre-emptive basis above these limits, where it can make a compelling case for this. However, a company that is not a growth company should only make this request when it is in a position to justify this approach by providing relevant information. Otherwise, the company should convene a general meeting at the time it contemplates having to make a specific share issue. For the time being, the overall 20 per cent annual limit on share issues without publishing a prospectus will continue to constrain companies admitted to the London Stock Exchange’s main market, but this is expected to change in the future when the proposed reforms to the UK prospectus regime and the remaining recommendations of the Secondary Capital Raising Review are implemented.
- Conducting a placing. Where possible, a company should consult its major shareholders before undertaking a placing using these authorities. It should also provide a full explanation to the market, as far as practicable conduct the placing on a ‘soft pre-emptive’ basis and give due consideration to the involvement of existing retail and other investors not allocated shares as part of the soft pre-emptive process. Company management should also be involved in the allocation process.