PCF WS9 Task - PCF WS9 Task PDF

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PCF WS9 Task...

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PCF WS9 Prep task When we are talking about “routine”, it’s not saying there can’t be a disapplication more than this – it’s saying that those can be recommended to investors as routine and taken by investors in their stride But would need a GM to do this

Notice of AGM 1. Why is it considered advantageous to obtain authority to allot shares at the AGM rather than via a GM ? -

Could obtain authority at either – this is a commercial qn rather than legal

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More people may turn up to an AGM – a representative result

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Have to have GM: If they are having an AGM anyway, no point in having a GM as well - which will also assist with timing

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Certainty of knowing you have this in place already – get it in advance o

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On page 4 - the notice says no present plans to undertake a rights issue or undertake new shares, but board considers desirable to have maximum flexibility permitted by corp gov guidelines, poised to respond

Less cost too if no need to engage advisors at short notice

2. Resolution 16: I’m a little unclear as to the different types of issue envisaged by this resolution. Can you explain the purpose of this resolution? -

The two different types of issue here are for an open offer and for a rights issue. o

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The first would be to the public in general, whereas a rights issue would be limited to existing shareholders (so by definition, pre-emption rights would be applied).

Routine s551 Ds given authority to allot – o

(a) 1/3 of the issued share capital,

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(b) then second 1/3 only in connection with a rights issue

Reflects the investment association guidelines, share capital management – 1.1.1; says that you’d expect 2/3 of the existing issued share capital, anything beyond 1/3 would have to be fully pre-emptive (first third doesn’t have to be) o

Guidelines provide influence and guidance to SHs, but they aren’t legally enforceable

3. Similarly, with resolution 20, what type of issue is envisaged by this resolution and what is the purpose of the resolution? -

SO we have the authority to allot out of the way, then this linked topic of disapplication of s 561 (although here the company’s articles do the same job as that section)

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Since UBM is seeking to issue shares for wholly cash consideration, pre-emption rights apply to the issue (s 561, CA) which means that all existing SH should be offered the shares in proportion to their existing holdings.

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The purpose of the resolution is to disapply these pre-emption rights for a specific % of the proposed issue (s 571), i.e. these shares do not need to be offered to the existing SH first.

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Following the Pre-Emption Group principles, the Board is seeking to disapply them for only 5% (i.e. the

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£1m) of the issued share capital (Part 2A) -

1.2.1-2 of Investment Guidelines – you should following pre-emption group guidance, then gives further information

Circular and notice of GM 4. Why was this document necessary? If authority to allot was dealt with at the AGM in May 2014, why hold the GM in November? What were the shareholders voting on and why? -

Circular (notice of a meeting is a circular) – defined in LR Appendix

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LRs require a premium listed company to communicate new issue to shareholders via a circular (class 1 announcement – Chapter 10) o May take form of notice of GM and incorporate by reference information in any prospectus o Circular must conform with requirements of LR 13.3 o Requirements of class 1 transaction Page 10 of Circular: shareholders needed to vote on acquisition of Avanstar by UBM as acquisition classified under LRs as a Class 1 transaction – requires shareholder approval Want to issue more shares than they have permission to issue o Can’t rely on AGM authority to allot – authority to allot 66%

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While the authority to allot was dealt with at the AGM, the rights issue is to fund the acquisition of Advanstar. The size of the transaction means it is Class 1 transaction under the Listing Rules (which applies to UBM as a premium listed Co – LR 10.1.1R; size – LR 10.2.2R, Annex 10), and requires SH approval and a circular (LR 10.5.1R) – b/c at least one of the percentage ratios is above 25% o

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Letter from the chairman on p 10 states explicitly that this is a Class 1 transaction; p 19 has approval of the Class 1 transaction

Also, the authority to allot granted (as increasing larger % than was authorized for) at the AGM was limited to an aggregate nominal amount of £16,384,588 (see Resolution 16, p. 4) whereas the Board is seeking to allot shares up to a maximum aggregate nominal amount of £19,671,748.30 (Resolution 2, p. 19). The authority to disapply pre-emption rights is similarly limited to 5% of UBM’s current issued share capital (Resolution 20, p. 5), whereas the Board is seeking to disapply it for the entire rights issue relating to the acquisition, i.e. 80% of the total issued share capital (Resolution 3, p. 19). NB: LR 9.3.11R reiterates application of pre-emption rights. o

The percentage being disapplied is no longer routine – so need GM

5. Pages 13 - 14: can you explain the calculation of the discount figures and percentages? Why are two different percentage figures given? -

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Company has to provide discount in order to incentivise shareholders o Otherwise, they could just go and buy on the Stock Market Page 13 Circular: proposing to raise £565 million by way of Rights Issue of 196,717,483 Page 14 Circular: this represents a 47% discount (to market price) to Closing Price of 546 pence per existing ordinary share on 5 November 2014 (last trading day prior to announcement) and a 33.4% discount (to the theoretical ex-rights price) of 431 pence per New Ordinary Share calculated by reference to the Closing Price on the same day 546p is open market value – 287p is price shares offered to shareholders at o Discount is 259p = 47% Discount to the theoretical ex-rights price = market value of shares pre-rights issue, plus cash raised from rights issue, divided by number of shares after rights issue = best guess after rights issue after rights issue o What is the point of this?  More to it than just market price  Takes in to account the likely drop in share price after the rights issue has taken place This is the more useful figure for shareholders – of the benefit

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In rights issue - 546p is open market value; 287p is what is being offered to SHs at – so amount of the discount is 259p o

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259p is 47.4% - i.e. the discount to the open market price

Discount to the theoretical ex-rights price (TERP) o

431p – 287p = 144p; Reduction of 33.4%

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TERP – Market value of shares pre-rights issue, plus cash raised from rights issue, divided by number of shares after rights issue

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Point of TERP – more to it than just market price, flood in market of these new shares will make a difference – increase in supply in the market is a notional dilution in the value of the shares

6. Page 14: says fractional entitlements will not be allotted and “ will be rounded down to the nearest whole number ” …and the “aggregated fractions will be issued in the market nil - paid and sold for the benefit of UBM ”. What does this mean and why did the company do this? Is this a common practice? -

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S 561 CA06 states “as nearly as practicable” –means round down to nearest whole number – can’t have part of share

Shareholders could end up entitled to fractions if offered exact proportional entitlements o Can’t have a fraction of a share – must have a whole share Companies usually round down each shareholder’s entitlement to nearest whole share When pre-emption rights are disapplied, fractional entitlements which haven’t been offered have potential to raise further finance, if company can aggregate them and sell the aggregate o Company can take both the subscription price and any premium over the subscription price which it receives Subject to LR 9.5.13R for premium listed companies: if the fractional entitlement for that particular shareholder exceeds £5, the whole entitlement should go to the shareholder

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Since 4 new shares are being offered for every 5 existing shares held, SH could end up being entitled to fractions of shares. Under LR 9.3.12R (2)(a), pre-emption rights can be disapplied just for fractional shares.

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LR 9.5.13R permits UBM to sell the aggregated fractions for the benefit of the Company as long as the value (per share) does not exceed £5.00. It is common practice for companies to round down the fractions and to sell these shares for its benefit (p 23) o

As can’t do anything with regard to SHs – can go into open market and issue them there – beneficiary is the Co itself

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If Co didn’t need a GM for any other reason, it’d make a financial judgment and may decide to actually just round down – i.e. decide whether it’s worth calling one to disapply

Prospectus 7. Page 22 – E3: the United States and other Excluded Territories were not allowed to take part in the rights issue. Why exclude them? -

There are certain formalities required for shares trading in those territories, so UBM could be contravening the law in those jurisdictions if SHs based there take up shares.

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Certain jurisdictions (e.g. Japan, Canada, USA) have very strict laws concerning offering securities o Makes it very expensive and time-consuming to offer securities in those jurisdictions o Many companies prefer not to

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Page 89 Prospectus: ‘Having considered the circumstances, the Directors have formed the view that it is necessary or expedient to restrict the ability of persons with a registered address or located or resident in the United States and the Excluded Territories to take up rights to New Ordinary Shares…’ Page 91 Prospectus: special category: qualified investment buyers in the US: have privileged status and probably the only ones eligible in excluded territories If you can prove that you fall under an exception within overseas securities law, you can take part

8. What are the formalities for excluding overseas shareholders? -

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Gazette route OR disapply pre-emption rights Arrange for the entitlements of overseas shareholders to be aggregated and sold in the market, nil-paid Any premium the company receives over the subscription price will usually be given to overseas shareholders o Done in accordance LR 9.5.4R for premium listed companies  Subject to company’s right to retain amounts under £5 per shareholder if it wishes Page 90 Prospectus: ‘The net proceeds of such sales (after deduction of the aggregate of the Rights Issue Price and expenses) will be paid to the relevant Shareholders pro-rata to their holdings of Existing Ordinary Shares at the close of business on the Record Date as soon as practicable after receipt…’ o Unless less than £5 per holdings o Basically, if underwriters sell the shares at a premium, proceeds will be paid to overseas shareholders ----

Will not be posted PAL or have CREST accounts credited, if registered address / located / resident in US or excluded territories (6.4, p. 92) o

We’ve excluded them by disapplying pre-emption rights – as don’t then have to offer shares prorata to their shareholdings, thus excluding them

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OR can make an offer dealing with overseas SHs through the London Gazette, which doesn’t need a GM

If underwriters sell the shares at a premium, proceeds will be paid to the overseas SHs on their ration

9. How do pre-emption rights in LR 9.3.11 and 9.3.12 interrelate with the CA 2006 pre-emption rights ? -

Don’t cause problem AS:

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LR 9.3.11 refers to the general application of pre-emption rights if the issuer is looking to allot shares (ss 560-1, CA) – gazette route

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LR 9.3.12 refers specifically to the ability for these rights to be disapplied by SR under s 570 or 571, CA, but also dealing with fractional entitlements (which the CA does not deal with explicitly) – disapply preemption rights

10. What should an overseas shareholder do if they are not sure if they can participate? -

They should seek appropriate professional advice (para. 6, pp 88, 93)

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Page 88 Prospectus: consult professional advisers as to whether they require any governmental or other consents or need to observe any other formalities to enable them to take up their entitlement

11. For those overseas shareholders who can participate, what options do they have when responding to the offer and what do these options involve? -

FOUR OPTIONS o 1. Sell at profit to 3rd party o 2. Buy all of your entitlement o 3. Buy some of shares and sell the rights to others (splitting the PAL) o 4. Can do nothing and be lazy shareholders if they want  Same treatment as those in UK  Entitlement sold, premium received

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Can do nothing and be lazy shareholders – same treatment as those in the UK – entitlement sold, premium received

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Depending on CREST or non-CREST. Similar to holders in the UK except they must ensure they are not contravening the law (pp. 88-93) – electornic vs phsycial share certificate

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Page 90 Prospectus: ‘These Overseas Shareholders who wish, and are permitted, to take up their entitlement should note that payments must be made as set out in paragraphs 3.2 and 3.4 of this Part IV (Terms and Conditions of the Rights Issue)’ o All subscription monies must be paid in pounds sterling by cheque or banker’s draft and should be drawn on a bank in the UK

12. Broadly, in relation to progressing the above options, what difference does being a CREST shareholder make in comparison with holding in certificated form? Are the formalities different? Non-CREST SH

CREST SH

How they receive their Provisional Allotment Letter (PAL)

Through post (3.1, p. 74)

Credit to their CREST account, post if impracticable to credit accounts (4.1, pp 812)

How they take up PAL

Complete and return PAL, with payment via cheque or banker’s draft (3.2, p. 74; 3.4, p. 76)

Electronically (MTM instructions to Euroclear (4.2.1-2, pp 82-83)

How they take up part, sell on part

apply for split PAL (Form X), receive NPR can be transferred by means of CREST replacement letters. Payment same (so can sell on to others?) (4.1, p. 82) (cheque or banker’s draft) (3.2, pp 74-5)

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CREST is a non-certificated holding – is in electronic form

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As compared with holding shares in certificated form is paperwork (i.e. stock transfer form, fill in a PAL here)

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No substantive disadvantage in holding them in either way – but in terms of admin it’s easier to hold them in CREST form (instantaneous dealings at both initial issue and in subsequent details; saves on paperwork especially for institutional shareholders)

13. I understand that CA 2006 and LR pre-emption rights do not usually apply to preference shares. Can you walk me through the reasoning here? -

Preference shares are not usually equity securities (as defined in s 560 CA06) o

pre-emption is only needed equity securities (s 561 CA06)

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The general principle behind pre-emption rights is the protection of existing shareholders, ensuring their existing holdings (and correspondingly, the amount of control through the exercise of voting power) are not diluted.

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As such, the degree of participation attached to those rights are crucial in determining whether preemption rights apply. o

As preference SH rarely have the right to participate in decision-making through voting, the

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concern (dilution of control) does not apply. -

Only participating preference shares will be equity securities o Non-participating = fixed dividends only

OFFER: CA 2006 14 days open LR9.5.6 – keep open for 10 business day

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