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UKLR 7.1 Preliminary

Application

UKLR 7.1.1 R

1This chapter applies to a company that has a listing of equity shares in the equity shares (commercial companies) category.

Purpose

UKLR 7.1.2 G
  1. (1)

    1The purpose of this chapter is to set out:

    1. (a)

      the requirements for a listed company in relation to significant transactions and reverse takeovers; and

    2. (b)

      certain other transactions where a listed company must comply with the requirements for significant transactions.

  2. (2)

    The requirements are intended to ensure that holders of listed equity shares:

    1. (a)

      are notified of:

      1. (i)

        significant transactions;

      2. (ii)

        certain indemnities and similar arrangements;

      3. (iii)

        certain issues by major subsidiary undertakings; and

      4. (iv)

        reverse takeovers; and

    2. (b)

      have the opportunity to vote on reverse takeovers.

  3. (3)

    The requirements are also intended to ensure that a listed company discloses detailed information concerning the transactions in (2)(a)(i) to (iv) on a timely basis, to support engagement between the listed company and its shareholders and to enhance market transparency.

  4. (4)

    The requirements complement but do not displace a listed company’s wider obligations under articles 17 and 18 of the Market Abuse Regulation to manage and disclose inside information.

Meaning of ‘significant transaction’

UKLR 7.1.3 R

1In UKLR, a transaction is classified as a significant transaction where any percentage ratio is 25% or more.

Meaning of ‘reverse takeover’

UKLR 7.1.4 R
  1. (1)

    1In UKLR, a reverse takeover means a transaction consisting of an acquisition of a business, a company or assets:

    1. (a)

      where any percentage ratio is 100% or more; or

    2. (b)

      which in substance results in a fundamental change in the business or in a change in board or voting control of the issuer.

  2. (2)

    Paragraph (1) applies whether such acquisition is effected:

    1. (a)

      by way of a direct acquisition by the issuer or a subsidiary;

    2. (b)

      by way of the issuer introducing a new holding company to its corporate structure and then carrying out the acquisition through the new holding company; or

    3. (c)

      in any other way.

UKLR 7.1.5 G

1For the purpose of UKLR 7.1.4R(1)(b), the FCA considers that the following factors are indicators of a fundamental change:

  1. (1)

    the extent to which the transaction will change the strategic direction or nature of the issuer’s business;

  2. (2)

    whether its business will be part of a different industry sector following the completion of the transaction; or

  3. (3)

    whether its business will deal with fundamentally different suppliers and end users.

Meaning of ‘transaction’

UKLR 7.1.6 R

1In this chapter (except where specifically provided to the contrary) a reference to a transaction by a listed company:

  1. (1)

    includes:

    1. (a)

      (subject to paragraph (2)(a) to (g)) all agreements (including amendments to agreements) entered into by the listed company or its subsidiary undertakings;

    2. (b)

      the grant or acquisition of an option as if the option had been exercised, except that, if exercise is solely at the listed company’s or subsidiary undertaking’s discretion, the transaction will be classified on exercise and only the consideration (if any) for the option will be classified on the grant or acquisition; and

    3. (c)

      joint venture arrangements; and

  2. (2)

    excludes:

    1. (a)

      a transaction in the ordinary course of business;

    2. (b)

      an issue of securities, or a transaction to raise finance, which does not involve the acquisition or disposal of any fixed asset of the listed company or of its subsidiary undertakings;

    3. (c)

      any transaction between the listed company and its wholly owned subsidiary undertaking or between its wholly owned subsidiary undertakings;

    4. (d)

      a break fee arrangement;

    5. (e)

      an indemnity or similar arrangement, except where the agreement or arrangement meets the conditions set out in UKLR 7.4.1R(1);

    6. (f)

      an issue of equity shares by a major subsidiary undertaking of a listed company, except where the issue meets the conditions set out in UKLR 7.4.4R; and

    7. (g)

      a transaction where the listed company purchases its own equity shares.

UKLR 7.1.7 G

1This chapter is intended to cover transactions that are outside the ordinary course of the listed company’s business and may change a security holder’s economic interest in the company’s assets and liabilities (whether or not the change in the assets or liabilities is recognised on the company’s balance sheet).

Meaning of ‘ordinary course of business’

UKLR 7.1.8 G
  1. (1)

    1The assessment of whether a transaction is in the ordinary course of business under this chapter will depend on the specific circumstances of the listed company.

  2. (2)

    Factors that may indicate whether a transaction is in the ordinary course of a company’s business include:

    1. (a)

      the size and incidence of similar transactions which the company has entered into;

    2. (b)

      the nature and size of the company’s existing business and common factors within the industry sector in which it operates;

    3. (c)

      the company’s corporate strategy for its business, including in relation to growth and industry focus, as set out in the company’s latest published prospectus or annual financial report;

    4. (d)

      the existing accounting treatment (for a disposal) or planned accounting treatment (for an acquisition or new arrangement) by the listed company; and

    5. (e)

      whether its shareholders could reasonably expect the company to enter into the transaction, taking into account:

      1. (i)

        the factors in (a) to (d);

      2. (ii)

        any further information that the company has already notified to a RIS;

      3. (iii)

        the subject matter of the transaction;

      4. (iv)

        the terms of the transaction;

      5. (v)

        the anticipated impact on the listed company; and

      6. (vi)

        the associated benefits and risks.

UKLR 7.1.9 G

1Transactions that are likely to be in the ordinary course of business include:

  1. (1)

    regular trading activities (if the company is a trading company);

  2. (2)

    ongoing commercial arrangements and purchases commonly undertaken as part of the existing business or within the industry sector in which the company operates;

  3. (3)

    capital expenditure to support and maintain the existing business and its infrastructure;

  4. (4)

    capital expenditure to add scale to the existing business in line with the company’s business strategy as previously notified to a RIS (including, for example, within the latest published prospectus or annual financial report); or

  5. (5)

    in the case of a listed property company, where the accounting treatment of a property that is acquired or disposed of is such that:

    1. (a)

      for an acquisition, the property will be classified as a current asset in the company’s published accounts; or

    2. (b)

      for a disposal, the property was classified as a current asset in the company’s published accounts.

UKLR 7.1.10 G

1Transactions that are unlikely to be in the ordinary course of business include:

  1. (1)

    mergers with, or acquisitions of, other businesses (whether structured by way of a share or asset acquisition);

  2. (2)

    transactions that would lead to a substantial involvement in a business activity that did not previously form a significant part of the listed company’s principal activities;

  3. (3)

    transactions that would lead to the listed company no longer having a substantial involvement in a business activity that forms a significant part of its principal activities; or

  4. (4)

    transactions which are entered into to alleviate financial difficulty.

UKLR 7.1.11 R

1For the purposes of UKLR 7.1.6R(2)(a), a transaction in the ordinary course of business excludes a reverse takeover.

Sponsors

UKLR 7.1.12 R

1A listed company must appoint a sponsor where it proposes to make a request to the FCA to modify, waive or substitute the operation of UKLR 7.

UKLR 7.1.13 R

1A listed company must appoint a sponsor where it proposes to make a request to the FCA for individual guidance in relation to the listing rules, the disclosure requirements or the transparency rules in connection with a matter referred to in UKLR 7.

UKLR 7.1.14 R

1If a listed company is proposing to enter into a transaction which – due to its size or nature – could amount to a reverse takeover, it must obtain the guidance of a sponsor to assess the application of the listing rules, the disclosure requirements and the transparency rules.

UKLR 7.2 Classifying transactions

Classifying transactions

UKLR 7.2.1 G

1A transaction is classified by assessing its size relative to that of the listed company proposing to make it. The comparison of size is made using the percentage ratios resulting from applying the class test calculations to a transaction. The class tests are set out in UKLR 7 Annex 1 (and modified or added to for specialist companies under UKLR 7.2.3R to UKLR 7.2.8R).

UKLR 7.2.2 G

1The class tests set out in UKLR 7 Annex 1 are applicable for the purposes of determining whether a transaction is a significant transaction or a reverse takeover.

Classification of transactions by listed property companies

UKLR 7.2.3 R

1 UKLR 7 Annex 1 is modified as follows in relation to acquisitions or disposals of property by a listed property company:

  1. (1)

    for the purposes of paragraph 2R(1) (the gross assets test), the assets test is calculated by dividing the transaction consideration by the gross assets of the listed property company and paragraphs 2R(5) and 2R(6) do not apply;

  2. (2)

    for the purposes of paragraph 2R(1) (the gross assets test), if the transaction is an acquisition of land to be developed, the assets test is calculated by dividing the transaction consideration and any financial commitments relating to the development by the gross assets of the listed property company and paragraphs 2R(5) and 2R(6) do not apply;

  3. (3)

    for the purposes of paragraph 2R(2), the gross assets of a listed property company are, at the option of the company:

    1. (a)

      the aggregate of the company’s share capital and reserves (excluding minority interests);

    2. (b)

      the book value of the company’s properties (excluding those properties classified as current assets in the latest published annual report and accounts); or

    3. (c)

      the published valuation of the company’s properties (excluding those properties classified as current assets in the latest published annual report and accounts);

  4. (4)

    paragraph 4R(1) (the consideration test) does not apply but instead the test in UKLR 7.2.4R applies; and

  5. (5)

    paragraph 6R(1) (the gross capital test) applies to disposals as well as acquisitions of property.

UKLR 7.2.4 R
  1. (1)

    1In addition to the tests in UKLR 7 Annex 1, if the transaction is an acquisition of property by a listed property company and any of the consideration is in the equity shares of that company, the listed company must determine the percentage ratios that result from the calculations under the test in (2).

  2. (2)

    The share capital test is calculated by dividing the number of consideration shares to be issued by the number of equity shares in issue (excluding treasury shares).

UKLR 7.2.5 R
  1. (1)

    1In addition to the tests in UKLR 7 Annex 1, a listed property company must determine the percentage ratios that result from the calculation under the test in (2).

  2. (2)

    The net annual rent test is calculated by dividing the net annual rent attributable to the assets the subject of the transaction by the net annual rent of the listed company.

  3. (3)

    For the purposes of calculating the net annual rent test, except as otherwise stated in (4) to (7), figures used to classify net annual rent must be the figures shown in the latest published audited consolidated accounts or, if a listed company has, or will have, published a preliminary statement of later annual results at the time the terms of a transaction are agreed, the figures shown in that preliminary statement.

  4. (4)
    1. (a)

      The figures of the listed company must be adjusted to take account of transactions completed during the period to which the figures referred to in (3) relate, and subsequent completed transactions where any percentage ratio was 5% or more at the time the terms of the relevant transaction were agreed.

    2. (b)

      The figures of the target company or business must be adjusted to take account of transactions completed during the period to which the figures referred to in (3) relate, and subsequent completed transactions where any percentage ratio would have been 5% or more at the time the terms of the relevant transaction were agreed when classified against the target as a whole.

  5. (5)

    Figures on which the auditors are unable to report without modification must be disregarded.

  6. (6)

    The principles in (3) to (5) also apply (to the extent relevant) to calculating the net annual rent of the target company or business.

  7. (7)

    The FCA may modify (5) in appropriate cases to permit figures to be taken into account.

Classification of transactions by listed mineral companies

UKLR 7.2.6 R
  1. (1)

    In addition to the tests in UKLR 7 Annex 1, a listed mineral company undertaking a transaction involving significant mineral resources or rights to significant mineral resources must determine the percentage ratios that result from the calculations under the test in paragraph (2).

  2. (2)

    The reserves test is calculated by dividing the volume or amount of the proven reserves and probable reserves to be acquired or disposed of by the volume or amount of the aggregate proven reserves and probable reserves of the mineral company making the acquisition or disposal.

UKLR 7.2.7 G

1If the mineral resources are not directly comparable, the FCA may modify UKLR 7.2.6R(2) to permit valuations to be used instead of amounts or volumes.

UKLR 7.2.8 R

1When calculating the size of a transaction under UKLR 7 Annex 1 and UKLR 7.2.6R(2), account must be taken of any associated transactions or loans effected or intended to be effected, and any contingent liabilities or commitments.

Classifying joint ventures

UKLR 7.2.9 R

1When classifying a joint venture under UKLR 7, a listed company must classify both sides to a joint venture, so that both the disposal into the joint venture and the acquisition of an interest in the joint venture are classified. The 2 sets of class tests must not be aggregated and the highest result from the class tests will determine the overall classification of the transaction.

UKLR 7.2.10 G
  1. (1)

    1It is common, when entering into a joint venture, for the partners to include exit provisions in the terms of the agreement. These typically give each partner a combination of rights and obligations to either sell their own holding or to acquire their partner’s holding should certain triggering events occur.

  2. (2)

    If the listed company does not retain sole discretion over the event which requires them to either purchase the joint venture partner’s stake or to sell their own, UKLR 7.1.6R(1)(b) requires this obligation to be classified at the time it is agreed as though it had been exercised at that time. Further, if the consideration to be paid is to be determined by reference to the future profitability of the joint venture or an independent valuation at the time of exercise, this consideration will be treated as being uncapped. If this is the case, the initial agreement will be classified in accordance with UKLR 7 Annex 1 4R(3) at the time it is entered into.

  3. (3)

    If the listed company does retain sole discretion over the triggering event, or if the listed company is making a choice to purchase or sell following an event which has been triggered by the joint venture partner, the purchase or sale must be classified when this discretion is exercised or when the choice to purchase or sell is made.

  4. (4)

    Where an issuer enters into a joint venture exit arrangement which takes the form of a put or call option and exercise of the option is solely at the discretion of the other party to the arrangement, the transaction should be classified at the time it is agreed as though the option had been exercised at that time.

Aggregating transactions – significant transactions

UKLR 7.2.11 R
  1. (1)

    1Subject to paragraph (2), transactions completed during the 12 months before the date of the latest transaction must be aggregated with that transaction for the purposes of classification as a significant transaction if:

    1. (a)

      they are entered into by the company with the same person or with persons connected with one another;

    2. (b)

      they involve the acquisition or disposal of securities or an interest in one particular company; or

    3. (c)

      together they lead to substantial involvement in a business activity which did not previously form a significant part of the company’s principal activities.

  2. (2)

    Transactions completed during the 12-month period in (1) are not required to be aggregated with the latest transaction if they have previously been classified as a significant transaction (either individually or collectively).

UKLR 7.2.12 R

1If under UKLR 7.2.11R any of the aggregated percentage ratios is 25% or more, the aggregated transactions will be classified as a significant transaction, in which case the listed company must comply with the requirements in UKLR 7.3 (Significant transactions) in respect of the aggregated transactions, modified as follows:

  1. (1)

    Where the aggregated transactions involve the acquisition or disposal of securities or an interest in one particular company, the requirements in UKLR 7.3 apply to the transactions as a whole.

  2. (2)

    If (1) does not apply, the requirements in UKLR 7.3 apply:

    1. (a)

      to each individual transaction that has been aggregated where any percentage ratio for the individual transaction is 5% or more; or

    2. (b)

      if there are no such individual transactions, to the one that led to the relevant aggregated percentage ratio reaching or exceeding 25%.

UKLR 7.2.13 G
  1. (1)

    The purpose of UKLR 7.2.12R is to set out how the requirements in this chapter apply to transactions that are only treated as significant transactions on an aggregated basis.

  2. (2)

    UKLR 7.2.12R(1) is intended to support a clearer and more succinct explanation of an acquisition or disposal in a particular company by allowing the relevant information to be provided in an aggregated way.

  3. (3)

    In other situations, UKLR 7.2.12R(2) ensures that the disclosure requirements apply in a proportionate way so that, while the relevant information must be provided for each transaction, information is not generally required about transactions below a de minimis threshold.

  4. (4)

    UKLR 7.3.1R(2)(a) requires any notification about a significant transaction to state why the transaction is notifiable under UKLR 7. Where a notification relates to aggregated transactions, it should explain why the transactions have been aggregated, having regard to whether UKLR 7.2.11R(1)(a), (b) or (c) applies.

  5. (5)

    UKLR 7.3.13R sets out where the listed company must make a supplementary notification in relation to further transactions entered into after aggregated transactions have been classified as a significant transaction.

UKLR 7.2.14 G

The FCA may modify these rules to require the aggregation of transactions in circumstances other than those specified in UKLR 7.2.11R.

Aggregating transactions – reverse takeovers

UKLR 7.2.15 R
  1. (1)

    1Subject to paragraph (2), transactions completed during the 12 months before the date of the latest transaction must be aggregated with that transaction for the purposes of classification as a reverse takeover if:

    1. (a)

      they are entered into by the company with the same person or with persons connected with one another;

    2. (b)

      they involve the acquisition or disposal of securities or an interest in one particular company; or

    3. (c)

      together they lead to substantial involvement in a business activity which did not previously form a significant part of the company’s principal activities.

  2. (2)

    Transactions completed during the 12-month period in (1) are not required to be aggregated with the latest transaction if they have previously been classified as a reverse takeover (either individually or collectively).

UKLR 7.2.16 R

1If under UKLR 7.2.15R the aggregation of transactions results in a reverse takeover, the listed company must comply with the requirements in UKLR 7.5 (Reverse takeovers) in respect of the aggregated transactions as a whole but the requirement for shareholder approval applies only to the latest transaction.

UKLR 7.2.17 G

1The FCA may modify these rules to require the aggregation of transactions in circumstances other than those specified in UKLR 7.2.15R.

UKLR 7.3 Significant transactions

Notification of significant transactions

UKLR 7.3.1 R
  1. (1)

    1A listed company must notify a RIS as soon as possible after the terms of a significant transaction are agreed.

  2. (2)

    The notification must:

    1. (a)

      state why the transaction is notifiable under UKLR 71;

    2. (b)

      contain an overview of the transaction and the company’s reasons for entering into it, which includes the information required by UKLR 7 Annex 2 Part 1 (Information relating to the transaction); and

    3. (c)

      include any further information the company considers relevant, having regard to the purpose of this chapter set out in UKLR 7.1.2G.

UKLR 7.3.2 R
  1. (1)

    1A listed company must notify a RIS as soon as possible after:

    1. (a)

      the terms of a significant transaction are agreed; and

    2. (b)

      the information in (2) has been prepared or the listed company becomes, or ought reasonably to have become, aware of the information,

    and in any event by no later than the completion of the transaction.

  2. (2)

    The notification must include:

    1. (a)

      for a disposal, the information required by UKLR 7 Annex 2 Part 2 (Disposals – financial information); and

    2. (b)

      for all transactions, the information required by UKLR 7 Annex 2 Part 3 (Non-financial information).

UKLR 7.3.3 R
  1. (1)

    1A listed company must notify a RIS as soon as possible after the completion of the significant transaction.

  2. (2)

    The notification must state that:

    1. (a)

      completion of the transaction has taken place; and

    2. (b)

      except as disclosed, there has been no material change affecting any matter contained in a notification under UKLR 7.3.1R or UKLR 7.3.2R.

  3. (3)

    In (2)(b), ‘material’ has the meaning in UKLR 7.3.14R.

UKLR 7.3.4 R
  1. (1)

    1Where a listed company includes details of estimated synergies or other quantified estimated financial benefits expected to arise from a significant transaction in a notification required by UKLR 7.3.1R, UKLR 7.3.2R or UKLR 7.3.3R, the notification must include the information required by UKLR 7 Annex 2 Part 4.1 (Synergy benefits).

  2. (2)

    Where a listed company includes financial information (including the information required by UKLR 7 Annex 2 Part 2) in a notification required by UKLR 7.3.1R, UKLR 7.3.2R or UKLR 7.3.3R, the notification must include the information required by UKLR 7 Annex 2 Part 4.2 to 4.4 (Sources of information).

  3. (3)

    Where a listed company includes pro forma financial information in a notification required by UKLR 7.3.1R, UKLR 7.3.2R or UKLR 7.3.3R, the notification must include the information required by UKLR 7 Annex 2 Part 4.5 (Pro forma financial information).

UKLR 7.3.5 G
  1. (1)

    1The purpose of UKLR 7.3.1R to UKLR 7.3.4R is to support engagement between the listed company and its shareholders and to enhance market transparency.

  2. (2)

    When complying with UKLR 7.3.1R to UKLR 7.3.4R, a listed company should consider the nature and circumstances of the relevant transaction and what information it is necessary to disclose to support shareholder engagement and market transparency.

  3. (3)

    For example, where a listed company has entered into the transaction to alleviate financial difficulty (including anticipated financial difficulty), the notification required by UKLR 7.3.1R should describe the nature, urgency and severity of that financial difficulty. The notification may also contain information about financing arrangements connected to the transaction, and about what may happen if a proposed transaction does not complete.

Incorporation by reference

UKLR 7.3.6 R

1Information may be incorporated in a notification made by a listed company under UKLR 7.3.2R by reference to relevant information contained in:

  1. (1)

    an approved prospectus or listing particulars of that listed company; or

  2. (2)

    any other published document of that listed company that has been filed with the FCA.

UKLR 7.3.7 R

1Where a notification made by a listed company under UKLR 7.3.1R, UKLR 7.3.2R or UKLR 7.3.3R includes information in accordance with UKLR 7.3.4R, that information may be incorporated in such notification by reference to relevant information contained in:

  1. (1)

    an approved prospectus or listing particulars of that listed company; or

  2. (2)

    any other published document of that listed company that has been filed with the FCA.

UKLR 7.3.8 R

1Information incorporated by reference must be the latest available to the listed company.

UKLR 7.3.9 R

1Information required by UKLR 7.3.1R and UKLR 7.3.3R must not be incorporated by reference to information contained in another document.

UKLR 7.3.10 R

1When information is incorporated by reference, a cross-reference list must be provided in the notification to enable security holders to easily identify specific items of information. The cross-reference list must specify where the information can be accessed by security holders.

Omission of information

UKLR 7.3.11 G

1The FCA may authorise the omission of information required by UKLR 7.3.1R to UKLR 7.3.4R if it considers that:

  1. (1)

    disclosure of that information would be:

    1. (a)

      contrary to the public interest; or

    2. (b)

      seriously detrimental to the listed company; and

  2. (2)

    the omission would not be likely to mislead the public with regard to facts and circumstances that are essential for the assessment of the matter covered by the notification.

UKLR 7.3.12 R

1A request to the FCA to authorise the omission of specific information in a particular case must:

  1. (1)

    be made in writing by the listed company;

  2. (2)

    identify the specific information concerned and the specific reasons for the omission; and

  3. (3)

    state why, in the listed company’s opinion, one or more grounds in UKLR 7.3.11G apply.

Supplementary notification

UKLR 7.3.13 R
  1. (1)

    1A listed company must notify a RIS as soon as possible if, after the notification under UKLR 7.3.1R or UKLR 7.3.2R and before completion of the transaction:

    1. (a)

      it becomes aware that there has been a material change affecting any matter contained in that earlier notification;

    2. (b)

      it becomes aware that a material new matter has arisen which would have been required to be mentioned in that earlier notification if it had arisen at the time of the preparation of that notification;

    3. (c)

      it has agreed a material change to the terms of the transaction; or

    4. (d)

      it has agreed the terms of one or more further transactions that are of a type referred to in UKLR 7.2.11R(1)(a), (b) or (c) and are material but are not a significant transaction in their own right (individually or together).

  2. (2)

    The supplementary notification in (1)(a), (b) or (c) must:

    1. (a)

      give details of the change or new matter; and

    2. (b)

      contain a statement that, except as disclosed:

      1. (i)

        there has been no material change affecting any matter contained in the earlier notification; and

      2. (ii)

        no other material new matter has arisen which would have been required to be mentioned in that earlier notification if it had arisen at the time of the preparation of that notification.

  3. (3)

    The supplementary notification in (1)(d) must include the information set out in UKLR 7 Annex 2 Part 1 (Information relating to the transaction) in relation to the further transaction or transactions.

UKLR 7.3.14 R

1In UKLR 7.3.13R, ‘material’ means material for the purpose of making an informed assessment of the assets and liabilities, financial position, profits and losses and prospects of the listed company and the rights attaching to any securities forming part of the consideration. It includes:

  1. (1)

    a change in the terms of the transaction that increases any of the percentage ratios by 10% or more; and

  2. (2)

    where the further transaction or transactions referred to in UKLR 7.3.13R(1)(d) would, if they were aggregated with the transaction or aggregated transactions (as applicable), result in an increase of any of the percentage ratios by 10% or more.

UKLR 7.4 Indemnities and major subsidiary undertakings

Indemnities and similar arrangements

UKLR 7.4.1 R
  1. (1)

    1Where a listed company proposes to enter into any agreement or arrangement with a party (other than a wholly owned subsidiary undertaking of the listed company):

    1. (a)

      under which a listed company agrees to discharge any liabilities for costs, expenses, commissions or losses incurred by or on behalf of that party, whether or not on a contingent basis;

    2. (b)

      which is exceptional; and

    3. (c)

      under which the maximum liability is either unlimited, or is equal to or exceeds an amount equal to 25% of the average of the listed company’s profits for the last 3 financial years (using the figures shown in the audited consolidated accounts or preliminary statement of later annual results published before the terms are agreed, with losses taken as nil profit and included in the average),

    a listed company must notify a RIS as soon as possible after the terms of any agreement or arrangement have been agreed.

  2. (2)

    The notification under (1) must comply with the requirements in UKLR 7.3 (Significant transactions) as applicable.

  3. (3)

    Paragraph (1) does not apply to a break fee arrangement.

  4. (4)

    In (1)(c), ‘profits’ means profits after deducting all charges except taxation.

UKLR 7.4.2 G

1For the purposes of UKLR 7.4.1R(1)(b), the FCA considers that the following indemnities are not exceptional:

  1. (1)

    those customarily given in connection with sale and purchase agreements;

  2. (2)

    those customarily given to underwriters or placing agents in an underwriting or placing agreement;

  3. (3)

    those given to advisers against liabilities to third parties arising out of providing advisory services; and

  4. (4)

    any other indemnity that is specifically permitted to be given to a director or auditor under the Companies Act 2006.

UKLR 7.4.3 G

1If the calculation under UKLR 7.4.1R(1)(c) produces an anomalous result, the FCA may disregard the calculation and modify that rule to substitute other relevant indicators of the size of the indemnity or other arrangement given – for example, 1% of market capitalisation.

Issues by major subsidiary undertakings

UKLR 7.4.4 R

1If:

  1. (1)

    a major subsidiary undertaking of a listed company issues equity shares for cash or in exchange for other securities or to reduce indebtedness;

  2. (2)

    the issue would dilute the listed company’s percentage interest in the major subsidiary undertaking; and

  3. (3)

    the economic effect of the dilution is equivalent to a disposal of 25% or more of the aggregate of the gross assets or profits (after the deduction of all charges except taxation) of the group,

a listed company must notify a RIS as soon as possible after the terms of the issue have been agreed.

UKLR 7.4.5 R

1The notification required in UKLR 7.4.4R must comply with the requirements set out in UKLR 7.3 (Significant transactions) as applicable.

UKLR 7.5 Reverse takeovers

Notification and shareholder approval

UKLR 7.5.1 R

1An issuer must, in relation to a reverse takeover:

  1. (1)

    comply with the requirements of UKLR 7.3 other than UKLR 7.3.2R for the reverse takeover;

  2. (2)

    send a reverse takeover circular to its shareholders and obtain their prior approval in a general meeting for the reverse takeover; and

  3. (3)

    ensure that any agreement effecting the reverse takeover is conditional on that approval being obtained.

UKLR 7.5.2 G

1 UKLR 10 sets out requirements for the content and approval of reverse takeover circulars.

Material change to terms of a reverse takeover transaction

UKLR 7.5.3 R

1If, after obtaining shareholder approval but before the completion of a reverse takeover, there is a material change to the terms of the transaction, the listed company must comply again separately with UKLR 7.5.1R in relation to the transaction.

UKLR 7.5.4 G

1The FCA would (among other things) generally consider an increase of 10% or more in the consideration payable to be a material change to the terms of the transaction.

Supplementary circular

UKLR 7.5.5 R
  1. (1)

    1If a listed company becomes aware of a matter described in (2) after the publication of a reverse takeover circular, but before the date of a general meeting, it must, as soon as practicable:

    1. (a)

      advise the FCA of the matters of which it has become aware; and

    2. (b)

      send a supplementary circular to holders of its listed equity shares, providing an explanation of the matters referred to in (2).

  2. (2)

    The matters referred to in (1) are:

    1. (a)

      a material change affecting any matter the listed company is required to have disclosed in a reverse takeover circular; or

    2. (b)

      a material new matter which the listed company would have been required to disclose in the reverse takeover circular if it had arisen at the time of its publication.

  3. (3)

    The listed company must have regard to UKLR 10.3.1R(3) when considering the materiality of any change or new matter under UKLR 7.5.5R(2).

UKLR 7.5.6 G

1 UKLR 10 applies in relation to a supplementary circular. It may be necessary to adjourn a convened shareholder meeting if a supplementary circular cannot be sent to holders of listed equity shares at least 7 days prior to the convened shareholder meeting as required by UKLR 10.1.9R.

Cancellation of listing

UKLR 7.5.7 G

1If an issuer is proposing to enter into a transaction classified as a reverse takeover, it should consider UKLR 21.2.2G and UKLR 21.2.5G.

UKLR 7.5.8 G

1Where an issuer completes a reverse takeover, the FCA will seek to cancel the listing of an issuer’s equity shares unless the FCA is satisfied that circumstances exist such that cancellation is not required. The FCA will have regard to UKLR 21.2.1R and the individual circumstances of the case.

UKLR 7.5.9 R

1Where the issuer’s listing is cancelled following completion of a reverse takeover, the issuer must re-apply for the listing of the shares.

UKLR 7.5.10 R

1A sponsor must contact the FCA on behalf of an issuer as early as possible:

  1. (1)

    before a reverse takeover which has been agreed or is in contemplation is announced; or

  2. (2)

    where details of the reverse takeover have leaked,

to discuss whether a cancellation of the issuer’s listing is appropriate on completion of the reverse takeover.

UKLR 7.5.11 G

1 UKLR 7.5.12G to UKLR 7.5.15G set out circumstances in which the FCA will generally be satisfied that a cancellation is not required.

Acquisitions of targets within the same listing category: issuer maintaining its listing category

UKLR 7.5.12 G

1Where:

  1. (1)

    an issuer acquires the shares of a target;

  2. (2)

    those shares are also listed in the equity shares (commercial companies) category; and

  3. (3)

    the issuer wishes to maintain its listing of shares in the equity shares (commercial companies) category,

the FCA will generally be satisfied that a cancellation is not required on completion of a reverse takeover.

Acquisitions of targets from different listing categories: issuer maintaining its listing category

UKLR 7.5.13 G

1Where an issuer acquires the shares of a target with a different listing category from its own and the issuer wishes to maintain its listing in the equity shares (commercial companies) category, the FCA will generally be satisfied that a cancellation is not required on completion of a reverse takeover if:

  1. (1)

    the issuer will continue to be eligible for the equity shares (commercial companies) category following completion of the transaction;

  2. (2)

    a sponsor provides an eligibility letter to the FCA setting out how the issuer as enlarged by the acquisition satisfies each listing rule requirement that is relevant to it being eligible for the equity shares (commercial companies) category not less than 20 business days prior to the announcement of the reverse takeover; and

  3. (3)

    the issuer makes an announcement or publishes a circular explaining:

    1. (a)

      the background and reasons for the acquisition;

    2. (b)

      any changes to the acquiring issuer’s business that have been made or are proposed to be made in connection with the acquisition;

    3. (c)

      the effect of the transaction on the acquiring issuer’s obligations under the listing rules;

    4. (d)

      how the acquiring issuer will continue to meet the relevant requirements for listing; and

    5. (e)

      any other matter that the FCA may reasonably require.

Acquisitions of targets from different listing categories: issuer changing listing category

UKLR 7.5.14 G

1The FCA will generally be satisfied that a cancellation is not required on completion of a reverse takeover if:

  1. (1)

    the target is listed with a different listing category from that of the issuer;

  2. (2)

    the issuer wishes to transfer its listing to a different listing category in conjunction with the acquisition; and

  3. (3)

    the issuer as enlarged by the relevant acquisition complies with the relevant requirements of UKLR 21.5 to transfer to a different listing category.

UKLR 7.5.15 G

1Where an issuer is applying UKLR 21.5 in order to avoid a cancellation as contemplated by UKLR 7.5.14G, the FCA will normally waive the requirement for shareholder approval under UKLR 21.5.6R(3) where the issuer is obtaining separate shareholder approval for the acquisition.

UKLR 7 Annex 1 The class tests

UKLR 7 Annex 1

Class tests

1

G

This annex sets out the following class tests:

(1)

the gross assets test;

(2)

the consideration test; and

(3)

the gross capital test.

The gross assets test

2

R

(1)

The gross assets test is calculated by dividing the gross assets the subject of the transaction by the gross assets of the listed company.

(2)

The ‘gross assets of the listed company means the total non-current assets, plus the total current assets, of the listed company.

(3)

For:

(a)

an acquisition of an interest in an undertaking which will result in consolidation of the assets of that undertaking in the accounts of the listed company; or

(b)

a disposal of an interest in an undertaking which will result in the assets of that undertaking no longer being consolidated in the accounts of the listed company,

the ‘gross assets the subject of the transaction’ means the value of 100% of that undertaking’s assets, irrespective of what interest is acquired or disposed of.

(4)

For an acquisition or disposal of an interest in an undertaking which does not fall within (3), the ‘gross assets the subject of the transaction’ means:

(a)

for an acquisition, the consideration together with liabilities assumed (if any); and

(b)

for a disposal, the assets attributed to that interest in the listed company’s accounts.

(5)

If there is an acquisition of assets other than an interest in an undertaking, the ‘assets the subject of the transaction’ means the consideration or, if greater, the book value of those assets as they will be included in the listed company’s balance sheet.

(6)

If there is a disposal of assets other than an interest in an undertaking, the ‘assets the subject of the transaction’ means the book value of the assets in the listed company’s balance sheet.

3

G

The FCA may modify UKLR 7 Annex 1 2R to require, when calculating the assets the subject of the transaction, the inclusion of further amounts if contingent assets or arrangements referred to in UKLR 7.4.1R (Indemnities and similar arrangements) are involved.

The consideration test

4

R

(1)

The consideration test is calculated by taking the consideration for the transaction as a percentage of the aggregate market value of all the ordinary shares (excluding treasury shares) of the listed company.

(2)

For the purposes of (1):

(a)

the consideration is the amount paid to the contracting party;

(b)

if all or part of the consideration is in the form of securities to be traded on a market, the consideration attributable to those securities is the aggregate market value of those securities; and

(c)

if deferred consideration is or may be payable or receivable by the listed company in the future, the consideration is the maximum total consideration payable or receivable under the agreement.

(3)

If the total consideration is not subject to any maximum (and any of the other class tests indicate a percentage ratio of at least 5%), the transaction is to be treated as a significant transaction.

(4)

For the purposes of (2)(b), the figures used to determine consideration consisting of:

(a)

securities of a class already listed must be the aggregate market value of all those securities on the last business day before the announcement of the transaction; and

(b)

a new class of securities for which an application for listing will be made must be the expected aggregate market value of all those securities.

(5)

For the purposes of (1), the figure used to determine market capitalisation is the aggregate market value of all the ordinary shares (excluding treasury shares) of the listed company at the close of business on the last business day before the announcement of the transaction.

5

G

The FCA may modify UKLR 7 Annex 1 4R to require the inclusion of further amounts in the calculation of the consideration – for example, if the purchaser agrees to discharge any liabilities, including the repayment of inter-company or third-party debt, whether actual or contingent, as part of the terms of the transaction.

The gross capital test

6

R

(1)

The gross capital test is calculated by dividing the gross capital of the company or business being acquired by the gross capital of the listed company.

(2)

The test in (1) is only to be applied for an acquisition of a company or business.

(3)

For the purposes of (1), the ‘gross capital of the company or business being acquired’ means the aggregate of:

(a)

the consideration (as calculated under UKLR 7 Annex 1 4R);

(b)

if a company, any of its shares and debt securities which are not being acquired;

(c)

all other liabilities (other than current liabilities) including for this purpose minority interests and deferred taxation; and

(d)

any excess of current liabilities over current assets.

(4)

For the purposes of (1), the gross capital of the listed company means the aggregate of:

(a)

the market value of its shares (excluding treasury shares) and the issue amount of the debt security;

(b)

all other liabilities (other than current liabilities) including, for this purpose, minority interests and deferred taxation; and

(c)

any excess of current liabilities over current assets.

(5)

For the purposes of (1):

(a)

figures used must be, for shares and debt security aggregated for the purposes of the gross capital percentage ratio, the aggregate market value of all those shares (or, if not available before the announcement of the transaction, their nominal value) and the issue amount of the debt security; and

(b)

for shares and debt security aggregated for the purposes of (3)(b), any treasury shares held by the company are not to be taken into account.

Figures used to classify assets

7

R

(1)

For the purposes of calculating the tests in this annex, except as otherwise stated in (2) to (6), figures used to classify assets must be the figures shown in the latest published audited consolidated accounts or, if a listed company has, or will have, published a preliminary statement of later annual results at the time the terms of a transaction are agreed, the figures shown in that preliminary statement.

(2)

If a balance sheet has subsequently been published in an interim statement, gross assets and gross capital should be taken from the balance sheet published in the interim statement.

(3)

(a)

The figures of the listed company must be adjusted to take account of transactions completed during the period to which the figures referred to in (1) or (2) relate, and subsequent completed transactions where any percentage ratio was 5% or more at the time the terms of the relevant transaction were agreed.

(b)

The figures of the target company or business must be adjusted to take account of transactions completed during the period to which the figures referred to in (1) or (2) relate, and subsequent completed transactions where any percentage ratio was 5% or more at the time the terms of the relevant transaction were agreed.

(4)

Figures on which the auditors are unable to report without modification must be disregarded.

(5)

When applying the percentage ratios to an acquisition by a company whose assets consist wholly or predominantly of cash or short-dated securities, the cash and short-dated securities must be excluded in calculating its assets and market capitalisation.

(6)

The principles in this paragraph also apply (to the extent relevant) to calculating the assets of the target company or business.

8

G

The FCA may modify UKLR 7 Annex 1 7R(4) in appropriate cases to permit figures to be taken into account.

Anomalous results

9

G

If a calculation under any of the class tests produces an anomalous result or if a calculation is inappropriate to the activities of the listed company, the FCA may modify the relevant rule to substitute other relevant indicators of size, including industry-specific tests.

Adjustments to figures

10

G

Where a listed company wishes to make adjustments to the figures used in calculating the class tests pursuant to UKLR 7 Annex 1 9G, it should discuss this with the FCA before the class tests crystallise.

UKLR 7 Annex 2 Notification requirements

UKLR 7 Annex 2

1This annex sets out the information to be included in a notification required by UKLR 7.3.1R, UKLR 7.3.2R, UKLR 7.3.3R and UKLR 7.5.1R.

Part 1

Information relating to the transaction

1.1

R

A notification required by UKLR 7.3.1R and UKLR 7.5.1R must include the following information:

(1)

details of the transaction, including the name of the other party to the transaction;

(2)

an explanation of the reasons for entering into the transaction;

(3)

a description of the business carried on by, or using, the net assets the subject of the transaction;

(4)

the consideration, and how it is being satisfied (including the terms of any arrangements for deferred consideration);

(5)

the value of the gross assets the subject of the transaction;

(6)

the profits attributable to the assets the subject of the transaction;

(7)

the effect of the transaction on the listed company, including any benefits which are expected to accrue to the company, and any risks to the company, as a result of the transaction;

(8)

a statement of the effect of the transaction on the group’s earnings and assets and liabilities;

(9)

details of any service contracts of proposed directors of the listed company;

(10)

details of any break fee arrangements;

(11)

for a disposal, the application of the sale proceeds;

(12)

for a disposal, if securities are to form part of the consideration received, a statement as to whether the securities are to be sold or retained;

(13)

details of key individuals important to the business or company the subject of the transaction;

(14)

if the transaction is a joint venture, details of any exit arrangement;

(15)

if the transaction is required to be aggregated under UKLR 7.2.11R, details of transactions completed during the relevant period; and

(16)

a statement by the board that the transaction is, in the board’s opinion, in the best interests of security holders as a whole.

Part 2

Disposals - financial information

2.1

R

A notification required by UKLR 7.3.2R must include the information in UKLR 7 Annex 2 2.2R where the transaction involves a disposal.

2.2

R

Where the transaction involves a disposal, the notification must include the following:

(1)

(a)

when a listed company is disposing of an interest in a target which will result in the assets and liabilities which are the subject of the disposal no longer being consolidated:

(i)

the last annual consolidated balance sheet;

(ii)

the consolidated income statements for the last 2 years drawn up to at least the level of profit or loss for the period; and

(iii)

the consolidated balance sheet and consolidated income statement (drawn up to at least the level of profit or loss for the period) at the issuer’s interim balance sheet date if the issuer has published interim financial statements since the publication of its last annual audited consolidated financial statements;

(b)

the information in (1)(a) must be extracted without material adjustment from the consolidation schedules that underlie the listed company’s audited consolidated accounts or, in the case of (1)(a)(iii), the interim financial information, and must be accompanied by a statement to this effect; and

(c)

where a change of accounting policies has occurred during the period covered by the financial information required by (1)(a), the financial information must be presented on the basis of both the original and amended accounting policies for the year prior to that in which the new accounting policy is adopted unless the change did not require a restatement of the comparative;

(2)

when a listed company is disposing of an interest in a target that has been accounted for as an investment, and the target’s securities that are the subject of the transaction are admitted to an investment exchange that enables intra-day price formation:

(a)

the amounts of the dividends or other distributions paid in the past 2 years; and

(b)

the price per security and the imputed value of the entire holding being disposed of at the close of business at the following times:

(i)

on the last business day of each of the 6 months prior to the announcement of the transaction; and

(ii)

on the day prior to the announcement of the transaction;

(3)

when a listed company is disposing of an interest in a target that was accounted for using the equity method in the listed company’s annual consolidated accounts, the line entries relating to the target from its last audited consolidated balance sheet and those from its audited consolidated income statement for the past 2 years together with the equivalent line entries from its interim consolidated balance sheet and interim consolidated income statement, where the issuer has published subsequent interim financial information; and

(4)

where the information in (2) or (3) is not available or cannot be produced in accordance with the requirements in (1)(a):

(a)

a statement by the board that the information is not available or cannot be produced;

(b)

an explanation as to how the value of the consideration has been arrived at; and

(c)

a statement by the board that it considers the consideration to be fair as far as the security holders of the company are concerned.

Part 3

Non-financial information

3.1

R

A notification required by UKLR 7.3.2R must include the information identified (by reference to certain paragraphs of Annex 1 of the PR Regulation) in the following table relating to the listed company and the undertaking the subject of the transaction.

Information

Listed company

Undertaking the subject of the transaction

Annex 1 item 17.1 – Related party transactions

*

Annex 1 item 18.6.1 – Legal and arbitration proceedings

*

*

Annex 1 item 18.7.1 – Significant change in the issuer’s financial position

*

*

Annex 1 item 20.1 – Material contracts

*

*

3.2

R

The information required by Annex 1 item 20.1 (Material contracts) and Annex 1 item 18.6.1 (Legal and arbitration proceedings) must be presented as follows:

(1)

for an acquisition, in separate statements for the listed company for the undertaking, business or assets to be acquired; or

(2)

for a disposal, in separate statements for the listed company and its subsidiary undertakings (on the basis that the disposal has taken place), and for the undertaking, business or assets to be disposed of.

3.3

R

In determining what information is required to be included by virtue of Annex 1 item 20.1 (Material contracts) if a prospectus or listing particulars are not required, regard should be had as to whether information about that provision is information which securities holders of the issuer would reasonably require for the purpose of making a properly informed assessment of the transaction and its impact on the issuer.

3.4

R

The information required by Annex 1 item 17.1 (Related party transactions):

(1)

need only be given if it is relevant to the transaction; and

(2)

need not be given if it has already been published before the notification is made.

3.5

R

(1)

The information required by Annex 1 item 18.7.1 (Significant change in the issuer’s financial position) need only be given for the undertaking which is the subject of the transaction if:

(a)

the transaction involves a disposal; and

(b)

information required by UKLR 7 Annex 2 2.2R(1) or 2.2R(3) has been included in the notification.

(2)

Where information required by Annex 1 item 18.7.1 (Significant change in the issuer’s financial position) is given for both the listed company and the undertaking which is the subject of the transaction, the information must be presented in separate statements for the listed company and its subsidiary undertakings (on the basis that the disposal has taken place), and for the undertaking, business or assets to be disposed of.

Part 4

Synergy benefits, sources of information and pro forma financial information

Synergy benefits

4.1

R

Where a listed company includes details of estimated synergies or other quantified estimated financial benefits expected to arise from a transaction in a notification required by UKLR 7.3.1R, UKLR 7.3.2R, UKLR 7.3.3R or UKLR 7.5.1R, the notification must include the following:

(1)

the basis for the belief that those synergies or other quantified estimated financial benefits will arise;

(2)

an analysis and explanation of the constituent elements of the synergies or other quantified estimated financial benefits (including any costs) sufficient to enable the relative importance of those elements to be understood, including an indication of when they will be realised and whether they are expected to be recurring;

(3)

a base figure for any comparison drawn;

(4)

a statement that the synergies or other quantified estimated financial benefits are contingent on the transaction and could not be achieved independently; and

(5)

a statement that the estimated synergies or other quantified estimated financial benefits reflect both the beneficial elements and relevant costs.

Sources of information

4.2

R

Where a listed company includes financial information in a notification required by UKLR 7.3.1R, UKLR 7.3.2R, UKLR 7.3.3R or UKLR 7.5.1R, the notification must cite the source of all financial information that it discloses in the notification and include the following:

(1)

a statement of whether the financial information was extracted from accounts, internal financial accounting records, internal management accounting records, or an external or other source;

(2)

a statement of whether financial information that was extracted from audited accounts was extracted without material adjustment; and

(3)

an indication of which aspects of the financial information relate to:

(a)

historical financial information;

(b)

forecast or estimated financial information; or

(c)

pro forma financial information,

with reference made to where the basis of presentation can be found.

4.3

R

If financial information has not been extracted directly from audited accounts, the notification must include the following:

(1)

the basis and assumptions on which the financial information has been prepared; and

(2)

a statement that the financial information is unaudited or not reported on by an accountant.

4.4

R

A listed company must provide investors with all necessary information to understand the context and relevance of non-statutory figures.

Pro forma financial information

4.5

R

If a listed company includes pro forma financial information in a notification required by UKLR 7.3.1R, UKLR 7.3.2R, UKLR 7.3.3R or UKLR 7.5.1R, the notification must:

(1)

cite the sources of any unadjusted financial information that it discloses in the notification; and

(2)

include an explanation of the basis upon which the pro forma financial information has been prepared.