|
Public Companies Update September 2005
4 THE STATUS OF DISCRETIONARY BROKERS
Over the past months there has been quite a lot of publicity
about discretionary brokers and how they fit into the Prospectus
Rules and the Takeover Code.
This article examines whether the recent legislative changes
to implement the Prospectus Directive have changed the exemption
from publishing a prospectus in relation to discretionary
brokers and considers the recent practice statement issued
by the Takeover Panel in relation to the definition of "acting
in concert" and funds managed on a discretionary basis.
4.1 Discretionary Brokers and the Prospectus Directive
Section 85 of the Financial Services and Markets Act 2000
("FSMA") makes it unlawful for transferable securities
to be offered to the public in the UK unless an approved prospectus
has been made available before the offer is made.
Previously the Public Offer of Securities Regulations 1995
(the "POS Regs") provided an exemption from the
requirement to issue a prospectus where securities were offered
to people "whose ordinary activities involve them in
acquiring … investments (as principal or agent) for the
purposes of their businesses".
Although not included in early drafts this position has been
preserved at least in part on implementation of the Prospectus
Directive by an amendment to section 86 of FSMA. Section 86(2)
now sets out clearly that offers to qualified investors (which
includes private client brokers) who can "make decisions
concerning the acceptance of offers of transferable securities
on the client's behalf without reference to the client"
are to be regarded as offers to the qualified investor and
should not be treated as an offer to the underlying client,
therefore falling outside of section 85 of FSMA.
4.2 Acting in concert and the shareholding of funds managed
on a discretionary basis
On 4 August 2005 the Takeover Panel Executive published a
Practice Statement on Rule 9 and the shareholdings of clients
whose funds are managed on a discretionary basis. In the Practice
Statement the Executive clarifies its interpretation of presumption
(4) of the definition of "acting in concert", which
states that:
| |
"the following persons will be presumed
to be persons acting in concert with other persons in
the same category unless the category is established:
… |
| |
(4) a fund manager (including an exempt
fund manager) with any investment company, unit trust
or other person whose investments such fund manager manages
on a discretionary basis, in respect of the relevant investment
accounts." |
The Executive interprets the definition to mean that funds
managed on a discretionary basis by a fund management organisation
will be treated for the purposes of the Takeover Code as controlled
by the fund management organisation concerned and not by the
persons on whose behalf the funds are managed. As a result,
the Executive will aggregate those shares held by the fund
management organisation on its own account and those that
it manages for its discretionary clients in assessing whether,
for example, the fund management organisation has triggered
an obligation to make a mandatory offer under Rule 9.1 of
the Code.
The Executive advises that organisations launching an investment
trust or investment company who wish to subscribe for shares
in the company either as a principal or on behalf of its discretionary
clients, should consider the following:
| 4.2.1 |
if the aggregate holdings of all persons
under the same control as the organisation, including
holdings managed by the organisation on a discretionary
basis, carry 30% or more of the company's voting rights,
the Executive advises that it would be good practice for
the aggregate percentage holding to be disclosed in the
offer documentation making clear that (a) if the aggregate
percentage holding is between 30% and 50% any additional
acquisitions may trigger an obligation to make a mandatory
offer under Rule 9.1 and (b) if the aggregate percentage
holding is more than 50% the organisation, and persons
under the same control as it, will normally be able to
increase their aggregate percentage holding without incurring
an obligation to make a mandatory offer; |
| 4.2.2 |
if the number of shares to be issued to
the organisation may vary, the maximum aggregate percentage
holding should be disclosed; |
| 4.2.3 |
if the group includes a principal trader
and the group's aggregate holding is between 30% and 50%
(or is just under 30%) the principal trader may, with
the Panel's prior consent, acquire shares in the company
without triggering a mandatory offer under Rule 9.1, provided
it is not an offer period and the traders' holding does
not exceed 3% of the voting rights of the company at any
relevant time; and |
| 4.2.4 |
if the organisation or any person acting
in concert with it holds rights to subscribe for shares
carrying voting rights in the company (whether, for example,
through options or warrants), or securities convertible
into such shares, which on exercise or conversion would
trigger a mandatory offer under Rule 9.1, normally no
obligation to make a mandatory offer will arise following
the exercise or conversion provided the terms are fully
disclosed in the relevant documentation and the text of
the proposed disclosure is cleared with the Executive. |
If you require further information on any matter covered in
this note, please contact your principal contact at Charles
Russell or Simon
Gilbert, Clive
Hopewell or Alexander
Keepin (London), Francis
Rundall , Richard
Norton, or Adrian
Mayer (Cheltenham), Catherine
Drew or Geoff
Sparks (Guildford) or Peter
Elliott (Oxford) on 0207 203 5000.
To download these articles in pdf format, please click
here
Please note that the summaries above are
a general indicative guide only. They are not exhaustive.
This information has been prepared by the firm as a service
to our clients. As it is a general guide, we recommend that
you seek professional advice before taking action. No liability
can be accepted by the firm for any action taken or not taken
as a result of this information. The firm is not authorised
under the Financial Services and Markets Act 2000 but we are
able in certain circumstances to offer a limited range of
investment services to clients because we are members of the
Law Society. We can provide these investment services if they
are an incidental part of the professional services we have
been engaged to provide.
|
