UKLR 13.4 Initial transactions

For the purpose of UKLR 13.4.2R, the FCA considers that:

1. (1)

   the first transaction that a listed shell company enters into will generally constitute an initial transaction; and

2. (2)

   provided that a transaction falls within UKLR 13.4.2R, a transaction of any size may constitute an initial transaction.

Examples of where the FCA will consider that an initial transaction is in contemplation include situations where:

1. (1)

   the listed shell company has approached the target’s board;

2. (2)

   the listed shell company has entered into an exclusivity period with a target; or

3. (3)

   the listed shell company has been given access to begin due diligence work (whether or not on a limited basis).

Generally, when an initial transaction between a listed shell company and a target is announced or leaked, there will be insufficient publicly available information about the proposed transaction (which includes transactions under contemplation as well as those where terms have been agreed) and the listed shell company will be unable to assess accurately its financial position and inform the market accordingly. In this case, the FCA will often consider that suspension will be appropriate, as set out in UKLR 21.1.2G(3) and (4). However, the FCA may agree with the listed shell company, through its sponsor, that a suspension is not required if the FCA is satisfied that:

1. (1)

   there is sufficient publicly available information about the proposed transaction (which includes transactions under contemplation as well as those where terms have been agreed); or

2. (2)

   where the listed shell company is an issuer which falls within UKLR 13.1.2R(2), the listed shell company has sufficient measures in place to protect investors and so that the smooth operation of the market is not temporarily jeopardised.

UKLR 13.4.8G to UKLR 13.4.21R set out circumstances in which the FCA will generally be satisfied that a suspension is not required.

The FCA will generally be satisfied that there is sufficient information in the market about the proposed transaction if:

1. (1)

   the target has equity shares or certificates representing equity securities admitted to a regulated market; and

2. (2)

   the listed shell company makes an announcement stating that the target has complied with the disclosure requirements applicable on that regulated market and providing details of where information disclosed pursuant to those requirements can be obtained.

The FCA will generally be satisfied that there is sufficient publicly available information in the market about the proposed transaction if the target has equity securities admitted to an investment exchange or trading platform that is not a regulated market and the listed shell company:

1. (1)

   confirms, in a form acceptable to the FCA, that the disclosure requirements in relation to financial information and inside information of the investment exchange or trading platform on which the target’s securities are admitted are not materially different from the disclosure requirements under DTR and the disclosure requirements; and

2. (2)

   makes an announcement to the effect that:

   1. (a)

      the target has complied with the disclosure requirements applicable on the investment exchange or trading platform to which its securities are admitted and provides details of where information disclosed pursuant to those requirements can be obtained; and

   2. (b)

      there are no material differences between:

      1. (i)

         the disclosure requirements applicable on the investment exchange or trading platform to which its securities are admitted; and

      2. (ii)

         the disclosure requirements under DTR and the disclosure requirements.

Where the target in an initial transaction by a listed shell company is not subject to a public disclosure regime, or if the target has securities admitted on an investment exchange or trading platform that is not a regulated market but the listed shell company is not able to give the confirmation and make the announcement contemplated by UKLR 13.4.10G, the FCA will generally be satisfied that there is sufficient publicly available information in the market about the proposed transaction such that a suspension is not required where the listed shell company makes an announcement containing:

1. (1)

   financial information on the target covering the last 3 years. Generally, the FCA would consider the following information to be sufficient:

   1. (a)

      profit and loss information to at least operating profit level;

   2. (b)

      balance sheet information, highlighting at least net assets and liabilities;

   3. (c)

      relevant cash flow information; and

   4. (d)

      a description of the key differences between the listed shell company’s accounting policies and the policies used to present the financial information on the target;

2. (2)

   a description of the target, to include key non-financial operating or performance measures appropriate to the target’s business operations and the information as required under section 10 of Annex 1 (Trend information) of the PR Regulation (see PRR App 2) for the target;

3. (3)

   a declaration that the directors of the listed shell company consider that the announcement contains sufficient information about the business to be acquired to provide a properly informed basis for assessing its financial position; and

4. (4)

   a declaration confirming that the listed shell company has made the necessary arrangements with the target vendors to enable it to keep the market informed without delay of any developments concerning the target that would be required to be released were the target part of the listed shell company.

The FCA will generally be satisfied that a listed shell company which falls within UKLR 13.1.2R(2) has sufficient measures in place to protect investors and so that the smooth operation of the market is not temporarily jeopardised such that a suspension is not required where the following conditions are met:

1. (1)

   at the date of admission, the aggregate gross cash proceeds received by the listed shell company in consideration for the listed shares issued by it to public shareholders were at least £100 million;

2. (2)

   the listed shell company has adequate binding arrangements in place with an independent third party to ensure that the aggregate gross cash proceeds received in consideration for any listed shares that it has issued, or issues, to (where relevant) public shareholders are protected from being used for any purpose other than:

   1. (a)

      to provide the consideration for an initial transaction which has been approved by:

      1. (i)

         its board, in accordance with (4); and

      2. (ii)

         its public shareholders, in accordance with (5);

   2. (b)

      to redeem or purchase listed shares held by public shareholders following the exercise of the right to be redeemed or purchased referred to in (7);

   3. (c)

      to be distributed to public shareholders if an initial transaction has not been completed by the date specified in UKLR 13.2.1R; or

   4. (d)

      to return capital to public shareholders in the event of a winding up of the company;

3. (3)

   the listed shell company’s constitution provides for the matters set out in UKLR 13.2.1R;

4. (4)

   the listed shell company’s constitution:

   1. (a)

      provides that the listed shell company must obtain the approval of its board for an initial transaction before it is entered into; and

   2. (b)

      ensures that the following do not take part in the board’s consideration of the initial transaction and do not vote on the relevant board resolution:

      1. (i)

         any director who is, or an associate of whom is, a director of the target or of a subsidiary undertaking of the target; and

      2. (ii)

         any director who has a conflict of interest in relation to the target or a subsidiary undertaking of the target;

5. (5)

   the listed shell company’s constitution:

   1. (a)

      provides that the listed shell company must obtain the approval of its shareholders for an initial transaction either:

      1. (i)

         before the transaction is entered into; or

      2. (ii)

         if the transaction is expressed to be conditional on that approval, before it is completed; and

   2. (b)

      ensures that any founding shareholder, shell company sponsor or director does not vote on the relevant resolution;

6. (6)

   the listed shell company’s constitution provides that where any director has a conflict of interest in relation to the target or a subsidiary undertaking of the target, the listed shell company must publish, in sufficient time before shareholder approval for an initial transaction is sought, a statement by the board that:

   1. (a)

      the proposed transaction is fair and reasonable as far as the public shareholders of the listed shell company are concerned; and

   2. (b)

      the directors have been so advised by an appropriately qualified and independent adviser;

7. (7)

   the holders of the listed shares have the right to require the listed shell company to redeem or otherwise purchase their shares for a pre-determined amount, which is exercisable:

   1. (a)

      at the discretion of the holder prior to completion of an initial transaction; and

   2. (b)

      whether or not the holder voted in favour of the initial transaction on any shareholder resolution to approve the transaction; and

8. (8)

   the listed shell company has disclosed the matters set out in (2) to (7) in the prospectus published in relation to the admission to listing of the listed shell company’s shares.

1. (1)

   A specified amount or proportion of the cash proceeds referred to in UKLR 13.4.17G(2) may be excluded from the amount which is protected, and may be retained to be used by the listed shell company for legitimate purposes prior to the completion of any proposed initial transaction, where that amount or proportion has been disclosed in the prospectus published in relation to the admission to listing of the listed shell company’s shares.

2. (2)

   For the purposes of (1), legitimate purposes prior to the completion of any proposed initial transaction include:

   1. (a)

      quantified costs relating to the proposed initial transaction;

   2. (b)

      deferred underwriting costs;

   3. (c)

      operating costs and taxes relating to a binding arrangement under UKLR 13.4.17G(2), where applicable; and

   4. (d)

      due diligence costs in relation to the proposed initial transaction.

If a listed shell company is proposing to enter into a transaction classified as an initial transaction, it should consider UKLR 21.2.2G and UKLR 21.2.5G.

As set out in UKLR 21.2.5G, where a listed shell company completes an initial transaction, the FCA will generally seek to cancel the listing of a shell company’s equity shares and, where relevant, the shell company’s other listed securities.

Where a shell company re-applies for the listing of the shell company as enlarged by the initial transaction, the FCA will take into account any information it considers appropriate, including whether the shell company has complied with, since listing, its obligations under the listing rules, disclosure requirements, transparency rules and corporate governance rules.

A listed shell company should consider the impact of an initial transaction on any other of its listed securities, such as warrants.

On the completion of an initial transaction, if the shell company’s equity shares are admitted to the equity shares (shell companies) category following re-application, the FCA will generally be satisfied that a cancellation of the listing of the shell company’s other listed securities will not be required.

1Where, on completion of an initial transaction, the shell company’s equity shares are not admitted to the equity shares (shell companies) category, a shell company should re-apply for the listing of a shell company’s listed securities, other than its equity shares, and satisfy the relevant requirements for listing.