Recent Developments for UK PLCs — May 2024

FCA Proposes Bundled Payment Option for Investment Research

On 10 April 2024, the FCA published its consultation paper (CP24/7) on payment optionality for investment research. This followed the Investment Research Review’s report from summer 2023, which recommended that the FCA should permit the rebundling of research and execution charges to help address the decline in investment research coverage in the UK.

However, rather than simply reversing the existing MiFID II unbundling requirements, the FCA proposes to introduce a regime under which firms choosing to offer asset managers a payment option that bundles research with execution charges would need to meet certain conditions relating to cost transparency and other investor protection features. Given the nature of these requirements, it is questionable whether this regulatory change (if implemented) would result in a material increase in research coverage for listed companies in the near term.

Comments are requested by 5 June 2024, and the FCA aims to publish final rules in the first half of 2024, subject to consultation feedback. Other focus areas for the FCA to consider include allowing more access to investment research for retail investors, and clarifying aspects of the UK regulatory regime for investment research.

For further details, see this Latham blog post.

Takeover Panel Proposes to Narrow Scope of Companies Subject to the Code

On 24 April 2024, the Takeover Panel published consultation paper PCP 2024/1, which seeks to narrow significantly the scope of companies subject to the Takeover Code.

Key points:

• Refocusing on UK listed and registered companies: the PCP proposes that the Code would only apply to companies that are both registered and listed in the UK, the Channel Islands, or the Isle of Man — and to such companies for a period of three years following a delisting. This means that the so-called “residency test” which applied the Code to UK PLCs listed elsewhere if they had their place of central management and control in the UK, the Channel Islands or the Isle of Man, is no longer relevant.
• Companies no longer subject to the Code: as a result, the Code would no longer apply to certain unlisted UK-registered public or private companies (unless the company had been UK-listed in the preceding three years). This includes private companies listed on a UK exchange more than three years previously or listed solely overseas, together with other miscellaneous categories of companies previously in-scope, such as those for which a price had been quoted outside a regulated exchange, companies whose shares were traded on a matched bargain facility, and private companies that had previously published a prospectus. The consultation paper also clarifies that the Code as amended would not apply to companies whose securities are to be traded solely on the proposed PISCES platform.
• Transitional arrangements: transitional arrangements would apply to companies subject to the Code immediately prior to the implementation date, but which would fall outside the Code under the new rules. For these companies, the Code would continue to apply for three years from the implementation date, with the aim of providing such companies and their shareholders time to implement alternative arrangements (e.g., replicating certain Code provisions in the constitutional documents or implementing arrangements to enable shareholders to exit).

The Panel intends to publish the final amendments to the Code in autumn 2024, with the amended Code coming into force approximately one month later.

Takeover Panel Issues New Guidance on Private Sale Processes

On 30 April 2024, the Takeover Panel updated Practice Statement 31 to, among other things, introduce the concept of “private sale processes” that arise when a company initiates sale discussions on a private basis with more than one potential offeror, as an alternative to the existing formal sale process technology.

Under the new guidance, the Takeover Panel will normally grant a dispensation from the Takeover Code requirement for a target company to identify all bidders with which it is in discussions in any announcement (whether made voluntarily or on a leak) when the company is genuinely initiating a private sale process. The dispensation must be sought by the company before any process or talks are commenced, and it will not save a bidder which has been specifically identified in the press from being “outed” (and therefore having a “put up or shut up” deadline set).

The updated Practice Statement 31 is also reorganised to address in greater detail the Takeover Panel’s approach to formal sale processes, strategic reviews, and public searches for potential offerors that are not conducted as formal sales processes.

The threat of being publicly identified in relation to a possible offer at an early stage was of significant concern to many bidders, so we expect the development of the private sale process regime to be welcomed and widely utilised by target companies.

FCA Updates Sponsor Competence Requirements to Address Low Transaction Levels

On 26 April 2024, the FCA updated its criteria for approval as a sponsor and its sponsor competence requirements. The final rules are broadly as consulted on in CP 23/31, with minor amendments to address feedback received. Broadly:

• A sponsor would be able to demonstrate competence by having submitted a sponsor declaration to the FCA within the past five (rather than three) years.
• If no sponsor declaration has been provided, a sponsor may demonstrate competence through the delivery of corporate finance advisory services to UK listed companies that meet certain minimum market capitalisation thresholds. The FCA has included guidance on the factors it would take into account when considering whether the relevant corporate finance advisory services satisfy the competency criterion.

As summarised in Primary Market Bulletin 48, the FCA is also consulting on consequential amendments to its technical notes on the Listing Rules to reflect the proposed changes to the UK Listing Regime, including notes that impact sponsors.

FCA to Notify Companies of Proposed “Mapping” to the New Listing Categories From Mid-May

According to Primary Market Bulletin 48, the FCA expects to notify listed companies from mid-May 2024 of their proposed mapping to the new listing categories under the new UK Listing Regime. Companies that believe they have been incorrectly allocated will have four weeks to revert to the FCA.

As explained in CP 23/31, existing premium listed companies (other than shell companies) would be mapped to the new single segment (i.e., the equity shares (commercial companies) segment). Standard listed companies with listings of equity shares (other than shell companies) would be mapped to the new transition or international secondary listings segments, depending on the nature of the company.

The FCA expects to seek board approval of the final rules in June or July 2024. Therefore, we anticipate that the new UK Listing Regime would be implemented in early H2.

Pre-Emption Group Releases Post-Transaction Reporting Database

The Pre-Emption Group has updated its webpages to include its public database of post-transaction reporting.

Part 2B of the Pre-Emption Group’s Statement of Principles, as updated in November 2022, requests that companies submit a post-transaction report following a capital raising in which they utilise authority to disapply pre-emption rights.