Market Tracker weekly bulletin – 14 February 2019

A round up of key developments in corporate transactions covered by Lexis®PSL Corporate and Market Tracker this week, including an update on the competing offers for Earthport plc by Visa and Mastercard and a look at developments in the regulation of dividend payments.

Transactions

Takeovers

Earthport’s board wooed by Visa’s beefed up bid

On 27 December 2018, Visa Inc (Visa) announced a recommended cash offer for the entire issued and to be issued share capital of Earthport plc (Earthport). The original offer was at £198 million with a cash consideration for 30 pence per Earthport share.

On 25 January 2019, Earthport received a higher competing cash offer from Mastercard International Inc. (Mastercard). The offer was valued at £233 million with a cash consideration of 33 pence per Earthport share, representing a 10% increase above Visa’s offer price of 30 pence per Earthport share.  As a result of the higher offer, Earthport withdrew its recommendation for the offer from Visa and recommended the Mastercard offer to its shareholders.

On 8 February 2019, Visa increased its offer to £247 million. The offer price was increased to 37 pence per Earthport share representing a premium of 12% to the Mastercard offer price of 33 pence per Earthport share. Visa also elected to switch the structure of the offer from a scheme of arrangement to a contractual offer. In light of the increased offer price, Earthport’s board re-recommended Visa’s offer and withdrew its recommendation of the offer from Mastercard.

In focus: Dividends

In August 2018, the Government issued a response to its March 2018 consultation; Insolvency and Corporate Governance, which was published in the aftermath of the Carillion collapse earlier that year. In its response, the Government outlined plans to strengthen the UK’s framework relating to dividend payments.

One of the issues highlighted was the practice of companies avoiding an annual shareholder vote on dividends through only paying interim dividends, which do not require shareholder approval.  Following the response, the Government asked the Investment Association to report on the prevalence of the practice. The results of their research are yet to be announced. The Government has made clear that if the Investment Association’s report shows that the practice of paying interim-only dividends is widespread, it intends to take further steps to ensure that shareholders have an annual vote.

Prior to the Government issuing their response to the consultation, in June 2018, the Lexis®PSL Marker Tracker Team produced a Trend Report on Dividends, investigating dividend payment practices across the FTSE 350. The research revealed that the vast majority of FTSE 350 companies paid at least one interim dividend (82%). However, 12% of FTSE 350 companies paid interim dividends but did not make any final dividend payments. The report also found that a small number of companies paid their final dividends as if they were interim dividends by giving their directors special authority in their articles of association to approve final dividends and thereby bypass the requirement to obtain shareholder approval for final dividends. This practice is not aligned with the Government’s stated preference for shareholders to have an annual vote on dividends.

In light of the Government’s consultation, and our findings within the last report, Market Tracker have undertaken further research to assess the development of dividend payment practices. Our initial research indicates little change in the issuance of interim dividends. However, we have observed a slight increase in companies circumventing shareholder approval for their final, or equivalent dividend payment.

The report, due to be published in March 2019, will review FTSE 350 dividend payments overall and provide an in-depth analysis on whether shareholders are being given an opportunity to vote on dividend payments.

Latest developments

New government guidance on understanding and reducing an organisation's gender pay gap

The Government Equalities Office (GEO) has published two new pieces of guidance for employers to help them identify the potential causes of any gender pay gap (or GPG) within their organisation and develop an effective approach to tackle it: Eight ways to understand your organisation's gender pay gap and Four steps to developing a gender pay action plan. The guidance is timely, as the deadline for public sector employers to report their GPG this year is 30 March 2019, while for large private and voluntary sector employers it is 4 April 2019. For more on this story see our news article: New government guidance on understanding and reducing an organisation's gender pay gap - (a subscription to Lexis®PSL Corporate is required).

Takeovers (Amendment) (EU Exit) Regulations 2019

This enactment is made in exercise of legislative powers under the European Union (Withdrawal) Act 2018 in preparation for Brexit and amends Part 28 of the Companies Act 2006 to enable the domestic takeovers regime to operate effectively on a freestanding basis outside the EU framework. Shareholders should continue to receive the protection of takeover regulation which ensures, so far as possible, fair treatment during a takeover bid. It comes into force on exit day.

ESMA publishes list of national thresholds below which a prospectus is not required

The European Securities and Markets Authority (ESMA) has published a document listing the thresholds below which an offer of securities to the public does not need a prospectus in the various EU Member States under the Prospectus Regulation (EU) 2017/1129. ESMA has drawn up this document to create transparency around the regimes adopted across the EU.

FCA paper says regulators should encourage funds to focus on corporate governance

The Financial Conduct Authority (FCA) has published a research note reviewing recent academic research on the impact of the growth of passive investing on market efficiency and market effectiveness. The paper suggests that, rather than examining the asset management market from a strictly investor protection perspective, regulators should design a regime that encourages both active and passive funds to focus more on corporate governance. For more on this story see our news article: FCA paper says regulators should encourage funds to focus on corporate governance - (a subscription to Lexis®PSL Corporate is required).

Parliament seeks public views on Financial Services (Implementation of Legislation) Bill

The UK Parliament is seeking views on the Financial Services (Implementation of Legislation) [Lords] Bill (the Bill), which is currently passing through Parliament. It has published on its website a request for members of the public with relevant expertise and experience or a special interest in the Bill to submit their views in writing to the House of Commons Public Bill Committee, which will be considering the Bill.

Results of statutory audit market study published

The CMA has published the responses to the update paper for its market study into the statutory audit market, which aims to see if the market is working as well as it should. The update paper included proposals for remedies for consultation and the CMA has published over 70 responses. Responses were mixed, particularly in regard to the concept of mandatory joint audit.

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