Investors may acquire securities in a company listed on the LSE or quoted on AIM solely to benefit from any economic upside during the period of the investment. Other investors may acquire securities to increase the likelihood of success of a bid to be made for the entire company (commonly referred to as "stakebuilding"). This note sets out certain key issues investors should be aware of prior to acquiring any such securities, although detailed advice should be obtained prior to making any acquisition.
a. Routes to investment
There are a number of ways in which investors may acquire securities in companies listed on the LSE or quoted on AIM. Most commonly, investors acquire securities through the market. Alternatively or in combination with acquisitions through the market, investors may acquire securities off-market from substantial shareholders and/or pursuant to an equity fundraising by the company.
b. Non-public information
No person should acquire (or encourage another to acquire) securities if it possesses any non-public information which could materially influence the price of the securities on the relevant exchange if it became publicly known ("MNPI"). This is known as insider dealing and constitutes market abuse. Liability affects individuals rather than companies and carries criminal sanctions including fines and/or imprisonment.
If an investor is involved in discussions with a company prior to acquiring any securities (whether stakebuilding in advance of a bid or not), it should try to ensure that the company does not disclose any MNPI in the course of such discussions. If an investor receives MNPI from a company, it should take detailed advice as to whether any planned acquisition of securities in such company would constitute insider dealing and/or market abuse.
If an investor is stakebuilding in advance of a bid and its only inside information is that it is contemplating making an offer, such inside information is "market information" rather than MNPI. Accordingly, any such investor may continue to stakebuild to increase the likelihood of success of any bid it may make.
c. Disclosure Guidance and Transparency Rules ("DTRs")
Once an investor holds 3% or more of the total voting rights attaching to shares in issue of a company listed on the LSE or quoted on AIM (whether as a shareholder and/or through a direct or indirect holding of financial instruments), or such holding changes to reach, exceed or fall below every 1% above such 3% threshold, the investor must notify the company within two trading days. If the company is listed on the LSE or quoted on AIM, but is not incorporated in the UK or its principal place of business is not the UK (a "non-UK issuer"), the percentage thresholds for notification to the company are 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75%.
To calculate whether it has reached, exceeded or fallen below a threshold, an investor should use the total number of voting rights according to the company's most recent disclosure. The calculation must be done on the date of the relevant trade and figures should be rounded down to the next whole number.
The notification to the company must:
- be in the standard form available on the FCA's website;
- be made within two trading days (or four trading days if the company is a non-UK issuer);
- state the resulting situation in terms of voting rights;
- identify the investor even if it is not entitled to exercise voting rights (and identify any person entitled to exercise voting rights on behalf of the investor);
- identify the chain of controlled undertakings through which voting rights are held (if applicable);
- include the date on which the applicable threshold was reached, exceeded or fallen below;
- in respect of financial instruments, include:
- for instruments with an exercise period, an indication of the date or time period where shares will
or can be acquired, if applicable;
- the date of maturity or expiration of the instrument;
- the identity of the holder; and
- the name of the underlying issuer.
The investor should also email a copy of the notification to the FCA at firstname.lastname@example.org.
The company must release details of the notification via a Regulatory Information Service (RIS) as soon as possible and by no later than the end of the following trading day (or the end of the third trading day if the company is a non-UK issuer).
An investor's disclosure obligations cannot be avoided by entering into an arrangement with a third party (such as a financial adviser) to acquire shares or financial instruments on its behalf. If any such agreement is entered into by an investor and a third party setting out a common policy in relation to the company, then the holdings of the investor and the third party are aggregated.
Non-compliance with disclosure obligations under the DTRs is not a criminal offence, but the FCA may impose penalties (including ordering that information is disclosed, trading by the investor in the relevant securities is prohibited and (in certain circumstances) the suspension of voting rights attaching to the relevant shares).
An investor may also be required by a company to disclose its interest in shares (whether held currently or during the preceding three years). Failure to do so is a criminal offence and the company may impose restrictions on the investor's shares. The company would not be under an obligation to release the relevant details via a RIS.
d. UK Takeover Code
If an investor intends to acquire securities in a company listed on the LSE or quoted on AIM and the purpose of such acquisition is to obtain control of the company, or the company is in an offer period, the investor must consider the provisions of the UK Takeover Code. Detailed advice should be sought prior to making any acquisition of interests in target shares. In particular, the following points should be borne in mind:
- when an investor acquires interests in shares and, following such acquisition, it and its concert parties together hold 30% or more of the voting rights of a company, the investor must make a cash offer to all other shareholders at the highest price paid in the 12 months before the offer was announced;
- any person who is interested (directly or indirectly) in 1% or more of the shares of the target must disclose via a RNS all dealings in securities of the target no later than midday on the trading day following the relevant transaction; and
- any dealings in target shares in the 12 months prior to an offer may impact the terms of the offer (including the price).
E. Regulatory Issues
The foreign direct investment regimes of a number of jurisdictions are being reviewed in light of the impact of COVID-19, which may prevent investors from acquiring major shareholdings in companies in certain sectors.
An acquisition of as little as 15% of a company can constitute a "merger" for antitrust purposes in the UK.