Market Tracker weekly bulletin – 14 March 2019

Market Tracker weekly bulletin – 14 March 2019

A round up of key developments in corporate transactions covered by Lexis®PSL Corporate and Market Tracker this week, including an update on Non-Financial Standard’s hostile offer for Provident Financial, the post-IPO performance of Funding Circle, a look at the biggest law firm IPO on the LSE to date, coverage of the competitive bids for plastics group RPC and analysis of recent developments in gender diversity.


Non-Financial Standard push ahead with hostile bid for Provident Financial

On 22 February 2019, Non-Financial Standard (NFS) made an unsolicited all-share offer for the entire issued and to be issued share capital of rival company Provident Financial plc (Provident). The all-share offer is valued at £1.3 billion. On 25 February 2019, Provident announced its ‘disappointment’ at NFS’ unsolicited ‘highly opportunistic approach’, and its decision not to engage with the board prior to the announcement.

On 7 March, Philip Salter, director of retail lending at the Financial Conduct Authority (FCA), wrote a letter to NFS’ group chief executive and founder, John Van Kuffeler, outlining ‘the regulatory position on standards in the market and the considerations the FCA would apply to any transformation plans’. In its letter, the FCA warned NFS that ‘any changes to the business model of Provident will need to be consistent with our expectations of a firm satisfying FCA threshold conditions and our requirements relating to the provision of high-cost credit.’

Mr Salter confirmed that ‘any change in controls or a shift in culture towards one that is driven by profits and incentives at the cost of good customer outcomes resulting in unaffordable lending will be something we act on immediately’.

Provident restated that shareholders should not take any action and listed a number of issues that they considered that NFS had not yet addressed.

Despite the rejection of the offer by Provident’s board, 29.9% of non-director shareholders have given semi-hard irrevocable undertakings and letters of intent to accept NFS’s offer (representing, in aggregate, over 50% of Provident's issued share capital). However, on 8 March, major shareholder Invesco Asset Management Limited informed NFS it had sold a further 53,018 of the controlled shares. Although it confirmed that its intention with respect to the remaining controlled shares remained unchanged, the significant decrease in controlling shares will reduce support for NFS’s offer.

NFS published its offer document on 11 March, to which Provident reiterated that the offer was ‘strategically and financially flawed and presents significant risk in terms of both execution and shareholder value’.

The offer for Provident remains subject to approval from both the FCA and Prudential Regulation Authority and neither regulator has announced its opinion regarding the offer. Market Tracker will continue to monitor developments in this transaction.

Berry victorious in tussle with Apollo for plastics group RPC

RPC Group plc (RPC) has been at the centre of a series of competitive bids which began on 10 September 2018 when it received possible competing offers from two US private equity funds, Apollo Global Management, LLC (Apollo) and Bain Capital Private Equity, LP (Bain Capital).

While the possible offer made by Bain Capital was terminated on 3 December 2018, Apollo’s possible offer progressed to a firm offer on 23 January 2019. Apollo’s cash offer was valued at £3.23 billion with a consideration value of 782 pence per RPC share, to be structured by way of a scheme of arrangement. In its 2.7 announcement, Apollo noted that the offer was final, and the consideration would not be increased.

On 31 January, RPC received a third possible competing offer by another US private equity fund, Berry Global Group, Inc. (Berry). The Takeover Panel intervened and imposed a deadline of 13 March 2019 for Berry to confirm its intentions. On 8 March, Berry announced a firm offer structured by way of a scheme of arrangement. Berry’s superior cash offer valued RPC at £3.34 billion with a consideration of 793 pence per share, 11 pence higher than the final offer announced by Apollo.

A number of analysts have commented that Apollo’s announcement that its offer was final meant that Berry was able to put forward a relatively conservative counter-offer. Nevertheless, Berry’s offer was recommended by RPC’s board and RPC subsequently withdrew its recommendation for Apollo’s offer.

Jamie Pike, Chairman of RPC, commented: ‘The board of RPC is pleased to recommend Berry's cash offer for the Group which is at an 11p per share premium to the Apollo proposal and provides shareholders with significant value in cash for their shares. The combination of RPC and Berry would create a leading global plastics products design and engineering company and represents a strong strategic fit. Both companies are highly complementary in terms of product portfolio, customer base, polymer conversion technologies and geographic footprint.’

Equity Capital Markets

DWF bucks quiet listing period in largest law firm float to date

On 11 March 2019, law firm DWF Group was admitted to trading on the London Stock Exchange’s (LSE) Main Market. The company raised £95 million, higher than the £75 million initially anticipated. DWF intends to use the cash to repay debt, to invest in new IT systems, and to possibly fund future acquisitions. The company has issued 61.5 million new shares, and 16.6 million shares to existing shareholders, at a final offer price of 122 pence each. The share price peaked at 125 pence per share after two days of trading.

DWF initially announced its flotation plans in February. The company’s market price on admission is estimated to be £366 million, making it the largest law firm flotation on the LSE to date. In June 2018, legal services provider Knights Group Holdings listed, raising proceeds of £50 million, with an estimated market capitalisation of £100 million.

DWF's joint global coordinators are Stifel Nicolaus Europe Ltd and Jefferies International Ltd, while Zeus Capital Ltd has joined them as lead managers.

Funding Circle point to Brexit as key cause for poor performance

Funding Circle Holdings recently reported pre-tax losses of £50.7m.  Brexit was identified as a key cause of uncertainty and a possible factor in their poor financial performance, the company stating that it recognised ‘the increasing economic uncertainty caused by Brexit and we remain vigilant and prepared for the possible outcomes. Our international operations represent approximately 30% of our overall business’.

Funding Circle listed on the London Stock Exchange’s Main Market in October 2018 and these losses are reported despite a positive January trading update which presented a 55% year on year increase in revenues.

Samir Desai, CEO and co-founder, commented that ‘2018 was another record-breaking year for Funding Circle. The business delivered against the guidance set out at the time of our IPO and it is especially pleasing to report revenue growth of 55% with revenue of £141.9 million and a positive segment adjusted EBITDA of £7 million.

Looking forward, the company stated that its 2019 outlook includes profits of £200 million.

In focus: Diversity remains key concern in corporate governance

This week, we look at recent developments that have confirmed diversity remains at the forefront of the business agenda.

Diversity high on AGM season voting guidelines

With the AGM season in full swing, a number of shareholder advisory bodies and investors have highlighted that diversity is once again a hot topic. There are signs that despite the initial enthusiasm and rush to meet voluntary targets set by the Davies Review, companies have stalled when it comes to increasing the representation of women on their boards. In our AGM season 2018 Trend Report, we identified that although progress showed signs of continuing in improving gender diversity in the boardroom, it had slowed in comparison to recent years and there were still 5 FTSE 350 companies with all-male boards. We also identified that progress remained slow in relation to women appointed to executive board roles. During the research carried out last year, only 16.4% of FTSE 350 companies had at least one woman in an executive director position.

This season, it would appear that with the target of all FTSE 350 boards having 33% female representation by 2020 being only a year away, there is a push to once again move this issue to the top of the agenda. The Investment Association recently outlined proposals to ‘red top’ companies with only one or no women on the board, and the Church Investors Group announced in its voting guidelines that it ‘will vote against the Chair of the Nominations Committee of companies that are constituents of the main indexes in Europe, USA, Australia and New Zealand but do not have at least one female director’, noting that these expectations already applied to UK companies. Similarly, Glass Lewis had proposed voting down the nominations committee chair where ‘a board fails to make progress towards best practice prevalent in the market and has not disclosed any cogent explanation or plan to address the issue’ in its 2019 proxy guidelines.

This week also saw Institute of Directors’ Chair, Charlotte Valeur, reveal in an interview with the Guardian ahead of Women’s Day that she intended to ‘start calling for new laws next year to force firms to improve their diversity if FTSE 350 companies failed to make faster progress.’

Voluntary code to reveal scale of funding to female-led businesses

The opportunities and funding available to female entrepreneurs has also been under the spotlight this week, with several initiatives aimed to redress the gender disparity identified in this area.

In September 2018, the government published the Rose Review, which outlined the findings of Alison Rose, CEO of commercial and private banking at the Royal Bank of Scotland, who had conducted a review into barriers to female entrepreneurship. Among other things, the report revealed a significant gender gap when it came to investment and entrepreneurship, with the UK lagging behind its ‘peer countries’ with regard to the relative percentage of women choosing to start their own business. The report also identified a perceived bias within the male-dominated UK venture finance community, which it considered to be an obstacle to women successfully obtaining investment.

The report made three key recommendations to help women succeed as entrepreneurs:

  • increase funding directed towards female entrepreneurs
  • provide greater family care support for female entrepreneurs.
  • make entrepreneurship more accessible for women and increase support locally, through relatable and accessible mentors and networks.

The report also identified eight initiatives, broadly intended to diversify the landscape for aspiring businesswomen. It recommended that these be taken forward immediately by the private sector, while acknowledging that all would benefit from public sector support. These include:

  • launching new investment vehicles to increase funding going to female entrepreneurs
  • encouraging UK based institutional and private investors to further support and invest in female entrepreneurs
  • reviewing existing and create new banking products aimed at entrepreneurs with family care responsibilities
  • improving access to professional expertise by expanding the entrepreneur and expert in residence programme
  • expanding existing mentorship and networking opportunities
  • accelerating development and roll-out of entrepreneurship related courses to schools and colleges
  • creating an entrepreneur first-stop shop

On 8 March 2019, the government published a response to the Rose Review, introducing an initiative from HM Treasury by way of the establishment of a new code, Investing in Women, which will report annually. The code is aimed at financial institutions and will track the gender split of their funding. Although the code is voluntary, banks and financial institutions are encouraged to sign up to it, and Lloyds, UK Finance and UK Business Angels Association have already indicated that they intend to comply with its provisions.

In addition to promoting diversity in funding, the government response also voiced its support for the initiatives set out in the review, identifying a number of existing practices and possible avenues for development.

The report identifies a goal of seeing ‘the UK matching some of the best performing major economies for gender parity in entrepreneurship, such as France, Canada and the US’ by 2030, and confirmed plans to ‘set out further action to improve financial independence and resilience for all women, particularly those who are low paid and financially fragile as part of its forthcoming Gender Equality and Economic Empowerment Strategy’.

Market Tracker will continue to monitor developments in relation to diversity and other corporate governance topics during the AGM season 2019 and will publish the results of this research towards the end of the year in its annual trend report.

Latest developments

Digital Competition Expert Panel recommends reforms to tackle challenges posed by digital markets

On 13 March 2019, the Digital Competition Expert Panel (the Panel) published its report entitled ‘Unlocking digital competition’. The Panel’s report makes recommendations to the UK’s competition framework to address the challenges posed by digital markets, in the UK and internationally. The Panel recommended updating the UK rules governing mergers and antitrust enforcement, as well as establishing a digital markets unit. For more on this story see our news article: Digital Competition Expert Panel recommends reforms to tackle challenges posed by digital markets - (a subscription to Lexis®PSL is required).

New regulator to reform UK audit regime

The Business Secretary Greg Clark has announced a new enhanced regulator to transform the audit and accounting sector in response to the comprehensive Independent Review led by Sir John Kingman. As per the review’s recommendations, the Financial Reporting Council (FRC) will be replaced with a new regulator called the Audit, Reporting and Governance Authority.

The new regulator will for the first time:

  • be a statutory body with powers such as those to make direct changes to accounts rather than apply to court to do so, and more comprehensive, visible reviews for greater transparency
  • have strategic direction and duties to protect the interests of customers and the public by setting high standards of statutory audit, corporate reporting and corporate governance, and by holding companies and professional advisors to account
  • regulate the biggest audit firms directly (rather than those being delegated)
  • have a new, diverse board and strong leadership to change the culture and rebuild respect of those it regulates

There will also be greater sanctions available to the new body in cases of corporate failure, including new powers to require rapid explanations from companies and in the most serious cases publish a report about the company's conduct and management.

The government further notes that the establishment of new leadership at the top of the FRC, which will transition into the Audit, Reporting and Governance Authority will also begin, with the recruitment for the Chair and Deputy Chair opening shortly.

LSE proposes changes to its primary and secondary market rulebooks in the event of a no deal Brexit

The London Stock Exchange (LSE) has announced, as part of its ongoing contingency planning, proposed changes to its Primary and Secondary Market Rulebooks in the event of a no deal Brexit which includes amendments to the Admission and Disclosure Standards, the AIM Rules for Companies and the AIM Rules for Nominated Advisers. Such amendments will allow the LSE to continue to operate its markets effectively and meet its regulatory obligations.

Amendments to the LSE’s Primary and Secondary Market Rulebooks (together, the Rulebooks) are necessary because they currently refer to EU legislation and to UK law which relates/refers to the EU. In addition, the Rulebooks also refer to EU concepts.

Accordingly, the proposed changes are required in order to reflect the UK’s new legal and regulatory framework in the event of a no deal Brexit and follow amendments the UK government is proposing under the European Union (Withdrawal) Act 2018.

Since the proposed amendments to the Rulebooks ensure alignment with the UK government’s legislative changes and reflect the UK’s new position outside of the EU, no consultation was required.

In the event of a no deal Brexit, the proposed amendments to the Rulebooks will become effective from 11:00PM on 29 March 2019. Updated versions of the Rulebooks will be available on the LSE’s website. Otherwise, the proposed amendments will not come into effect on 29 March 2019.

BEIS launches consultation on recommendations made by the Independent Review of the FRC

The Department for Business, Energy & Industrial Strategy (BEIS) has launched a consultation on 11 March 2019 which is seeking views on the recommendations made by the Independent Review of the Financial Reporting Council (FRC) to create a new regulator responsible for audit, corporate reporting and corporate governance. The consultation will close at 11:45 pm on 11 June 2019. For more on this story see our news article: BEIS launches consultation on recommendations made by the Independent Review of the FRC - (a subscription to Lexis®PSL is required).

Commission launches gender equality consultation

The European Commission is launching a public consultation to gather opinions from all interested groups about the current situation regarding gender equality in the EU and the priorities for the next 5 years. The consultation runs from 8 March 2019 to 31 May 2019.




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Market Tracker is a unique service for corporate lawyers housed within Lexis®PSL Corporate. It features a powerful transaction data analysis tool for accessing, analysing and comparing the specific features of corporate transactions, with a comprehensive and searchable library of deal documentation across 14 different deal types. The Market Tracker product also includes news and analysis of key corporate deals and activity and in-depth analysis of recent trends in corporate transactions.