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Earlier this year, the U.K. Financial Services
Authority issued a consultation paper
proposing amendments to the UK Listing Authority's Listing
Rules that would, among other things, amend the
regulations respecting reverse takeovers. According to the FSA, the
proposed changes would ensure that reverse takeovers could not be
employed as a "back-door" route to listing for otherwise
ineligible companies.
Definition of "reverse
takeover"
Under the amendments, a reverse takeover would be defined as
a transaction, whether effected by way of direct acquisition by
the issuer or a subsidiary, an acquisition by a new
holding company of the issuer or otherwise, of a
business, a company or assets:
(1) where any percentage ratio is 100% or more; or
(2) which in substance results in a fundamental change in the
business or in a change in the board or voting control of the
issuer.
When calculating the percentage ratio, the
issuer should apply the class tests [these
consist of a gross assets test, a profits test, a consideration
test and a gross capital test].
In considering whether a fundamental change in the business
occurred, the FSA would consider the extent to which the
transaction would change the strategic direction or nature of the
business, the impact the transaction would have on the industry
sector classification of the enlarged group and the impact on the
end users and suppliers. According to the consultation paper, the
proposed definition would remove "any uncertainty as to which
structures result in a reverse takeover".
Limited scope of exemption
Currently, an issuer completing a reverse takeover is generally required to cancel the listing
of their shares and re-apply for listing by
satisfying the relevant eligibility requirements. Exemptions,
however, are available where a listed issuer acquires another
listed issuer. The proposed amendments to the Listing Rules would
narrow this exemption to acquisitions of listed issuers within the
same listing category. The amendments would be consistent with the
principles of the rules respecting transfer between listing
categories and reflect the FSA's concern regarding reverse
takeovers being used as a way of "avoiding the assessment of
substantive eligibility conditions."
Suspension of shares
The Listing Rules currently allows the FSA to suspend the
listing of shares where the "smooth operation of the market is, or
may be, temporarily jeopardised" or where
necessary to protect investors. Shares are typically suspended
under this authority on the announcement or leak of a reverse
takeover that has been agreed to or is in contemplation, unless the
FSA is satisfied that there is sufficient publicly available
information about the proposed transaction.
Under the amendments, an issuer would be required to contact the
FSA as soon as possible once a takeover was agreed to or in
contemplation to discuss whether a suspension was appropriate.
Guidance is provided by the FSA regarding the circumstances under
which a suspension would not be necessary.
Feedback on the proposals is being accepted until April 26,
2012.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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