Practical Application Impacted by Investor Guidance
It should, however, be noted that the Financial Reporting Council’s Pre-Emption Group – which publishes guidance on the disapplication of pre-emption rights and monitors and reports on how this guidance is applied – has not yet commented on the new regime.
One of the main challenges for UK PIPEs has historically been, and continues to be, the regulatory constraints around non-pre-emptive issuances of shares. Listed companies typically seek annual shareholder authorities to issue a limited percentage of shares on a non‑pre‑emptive basis.
The Pre-Emption Group Guidelines currently recommend up to 10% of the issued ordinary share capital in any one year, with a further 10% for acquisitions or specified capital investments announced contemporaneously or undertaken in the preceding 12 months. Shareholders can approve higher limits (for example, higher levels are not uncommon in the context of growth companies on AIM) although these tend to be fact specific and on a case by case basis.
There are also other regulatory and practical considerations relevant to UK PIPEs including:
| Shareholder approval for non-pre-emptive issues | If the issuer is listed on the Main Market, shareholder approval will be required for any issuances at a price representing more than a 10% discount. The Pre-Emption Group Guidelines recommend further restricting this to 5% if the shares are issued on a non-pre-emptive basis. |
| Takeover Code | Under the UK Takeover Code, 30% is the threshold for a mandatory offer. If an investor and its concert parties would cross that threshold, the investor and issuer may need to seek the Takeover Panel’s consent to the issuance and obtain a waiver of the obligation to make a mandatory offer (a ‘Code whitewash’). |
| Controlling Shareholder | If a Code whitewash (above) is granted, the UK Listing Rules set out a controlling shareholder (broadly a shareholder with 30% or more of the voting rights) regime which will need to be adhered to. However, following changes to the UK Listing Rules last year, written relationship agreements between an issuer and a controlling shareholder are no longer required. |
| Lock Up and Standstill | Investors often required to agree to a lock-up and standstill terms for a period of time, typically around six to 12 months depending on the size of the investment. |
| Information | If an investor receives material non-public information (e.g., via diligence or board/observer rights), trading in issuer shares is restricted until information is cleansed. |
| Fund Constitutional Restrictions | Significant minority investments in listed companies outside of a public to private strategy are not always permitted by a fund’s investment mandate, which will need to be reviewed for any restrictions. |
| Significant or Related Party Transactions | If the investor is an existing shareholder in the issuer, whether the PIPE transaction would classify as a significant or related party transaction under the UK Listing Rules, and any related disclosure requirements, should be considered. |
While regulatory considerations beyond the prospectus regime will continue to apply, the higher prospectus threshold for further issues is a welcome development for issuers and investors exploring PIPEs in the UK as a means to access and deploy capital.
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