Market Tracker weekly bulletin – 19th October 2018

Market Tracker weekly bulletin – 19th October 2018

A round up of key developments in corporate transactions covered by Lexis®PSL Market Tracker this week.



Takeover Panel launches a new consultation on Rule 29 of the Code

The Code Committee of the Takeover Panel has published a consultation on proposed amendments to Rule 29 of the Takeover Code which relates to asset valuations. Rule 29 requires that when a valuation of assets is given by a party to an offer ‘in connection with an offer’ an independent valuer’s opinion must be provided in support of that valuation.

The Code Committee proposes that Rule 29 is amended as set out in the consultation paper to more accurately reflect current practice, provide a more logical framework for it and provide better clarity in certain areas, including the circumstances in which a valuation is subject to it. The Code Committee proposes deleting the current Rule and replacing it with one which has been drafted broadly so that in addition to applying to property valuations it also applies to valuations of other classes of assets, in particular to mineral, oil and gas reserves and unquoted investments.

Market view: Selina Sagayam, Head of UK Transactional Practice Development at Gibson Dunn

'The Panel is proposing a more purposive approach which is to be welcomed by looking to capture valuations which gives the Panel the discretion not to require a Rule 29 valuation if it considers this not material for target shareholders in reaching an informed decision. This codifies the general purposive approach the Executive takes in granting dispensations with the interests of target shareholders being a fundamental consideration. Although the Panel states that it is not its intention to expand the scope of assets to which Rule 29 applies, the “future-proofing” wording of the new rule does in fact give the Panel the ability to expand the scope of Rule 29 to assets to which it may not apply (or even exist) today. The consultation paper refers to the ability to capture “more unusual classes of assets where appropriate” … or perhaps “unusual” (or uncommon) looked at through the lenses of today.'

The deadline for sending comments is 7 December 2018. For more detail on this story, see our LexisPSL Corporate news analysis (subscription required).

Equity Capital Markets

Patisserie Holdings plc

On 10 October 2018 Patisserie Holdings plc (the company) sought a temporary suspension of trading in its shares on AIM. On 12 October the company announced that it had begun an investigation into its finances. The company’s directors have since concluded that an immediate cash injection is necessary. An estimated £20 million is required to enable the company to continue trading in its current form. Without this immediate cash injection, it is likely that the company will have to appoint administrators and commence winding up proceedings.

The company confirmed that the group has a net debt of approximately £9.8 million. Historical statements on the company’s financial position were mis-reported and subject to fraudulent activity and various other irregularities.

The company further announced a placing to raise approximately £15 million through the issue of 30m new ordinary shares, at a price of 50 pence per share, by way of an accelerated bookbuild. The placing comprises a firm placing of 10m shares, and a conditional placing of 20m shares (the latter to be admitted to trading following approval at general meeting).

The results of the placing on 12 October 2018 confirmed that application will be made for the admission of 31,451,100 ordinary shares to trading on AIM. It is expected that admission of the 10m firm placing shares will take place on 18 October 2018. The conditional placing shares are expected to be admitted the day after the company’s General Meeting, to be held on 1 November 2018. Dealings in the placed shares will only commence once the company's shares cease to be suspended from trading.

Along with the placing, the company proposes to enter into a new £10 million loan agreement with Luke Johnson, the company’s executive chairman. The loan is expected to be for a three-year term. In addition, Luke Johnson will provide a bridging loan worth £10 million, to enable the company to meet its outstanding liabilities. Luke Johnson’s loan constitutes a related party transaction under Rule 13 of the AIM Rules.

Sustainable Development Capital LLP

Sustainable Development Capital LLP announced that it is exploring the launch of a new investment vehicle focused on the energy efficiency sector.  The new investment trust, SDCL Energy Efficiency Income Trust plc, will be the first listed company specialising in the Energy Efficiency sector. The company expects the new investment trust to launch in November, with Jeffries International Limited acting as sponsor and global coordinator.

Latest developments

ESMA publishes EEA prospectus activity report for 2017

The European Securities and Markets Authority (ESMA) has published its annual report on prospectus activity in the European Economic Area (EEA) for 2017. The report shows that in 2017 the number of prospectus approvals across the EEA increased by around 1.9% compared to 2016 (from 3,499 to 3,567), putting an end to a decade-long decline observed since the start of the financial crisis.

BEIS select committee questions firms including Royal Mail and Unilever on executive pay

On 16 October 2018, The Business, Energy and Industrial Strategy Committee questioned firms including Royal Mail and Unilever on executive pay and measures being taken to tackle excessive boardroom pay awards.

The session was part of the inquiry ‘Corporate Governance – Delivering on fair pay’, which is examining progress in simplifying the structure of executive pay and reporting and the role of remuneration committees, investors and shareholders in curbing excessive pay. It is also examining steps being taken by the Government, particularly the progress made following a previous BEIS Committee report published in April 2017.

The Committee held the first session of its inquiry focussing on executive pay on Wednesday 6 June when its witnesses including the Chairs from the remuneration committees of Persimmon and Weir Group and representatives of institutional investors, including Aberdeen Standard Investments. In August, the Committee published its report on the gender pay gap.

In focus - Corporate governance for AIM companies

QCA Code emerges as AIM companies’ first choice under new reporting requirements

From 28 September 2018, all AIM companies are now required to report against a recognised corporate governance code chosen by the company’s board of directors. The AIM Rules require the company to ‘comply or explain’ with their chosen code, disclosing where and why any departures are made from the recommendations. The London Stock Exchange (LSE) is not prescribing a list of recognised corporate governance codes as it believes that it is preferable for AIM companies to have a range of options to suit their specific stage of development, sector and size.

Prior to the reporting requirement’s introduction, Lexis®PSL conducted research in May 2018 which found that:

  • 43% of companies stated that they had regard to the UKCG Code (either exclusively or with an overseas or industry specific code)
  • 28% of companies stated that they had regard to the QCA Code on an exclusive basis
  • 13% of companies stated that they had regard to both the UKCG Code and the QCA Code
  • 4% of companies stated that they had regard to an overseas or industry specific code
  • 12% of companies did not appear to follow any code

Although companies were most commonly referring to and/or reporting against the UKCG Code, we found that companies were frequently not providing meaningful disclosures explaining whether specific provisions of the code were being complied with. Further, many companies claiming compliance with the UKCG Code were citing out of date editions. Therefore, it is difficult to determine precisely how comparable the corporate governance practices of AIM companies were to the code they referred to.

Since the introduction of the requirement, we have completed further research, finding that for all AIM companies:

  • 6.5% have chosen to report against the UKCG Code
  • 89.5% have chosen to report against the QCA Code
  • 4% have chosen to report against an overseas governance code

Two companies state that they report against both the UKCG Code and the QCA Code and three companies report against the UKCG Code and an overseas governance code. Six companies follow the AIC Code for investment companies.

However, when considering the AIM 50 and AIM 100, we have found that the percentage of companies following the more onerous UKCG Code increased. For the top 50 AIM companies (market capitalisation of approximately £495m+) 40% reported against the UKCG Code, and for the top 50-100 AIM companies (market capitalisation of approximately £260m-£500m) 20% reported against the UKCG Code.

Market view

What factors are influencing the choice of corporate governance code?

Edward Craft, partner at Wedlake Bell, chair of the working group which produced each of the 2013 and 2018 QCA Codes:

‘When nominated advisors were asked to report back to LSE it was expected that around 80% of AIM companies would choose to follow the QCA Code. In fact, that number is nearly 90%.  This year has seen the publication of a new QCA Code (April) and the FRC’s UKCG Code (July). The market seems to be responding with great consistency: all but some of the largest AIM companies have started to follow the QCA Code, which adopts an approach of “think for yourself and explain your reasons” rather than “comply or explain”. For the QCA this is great news, but it represents the cause of potential embarrassment to the FRC, particularly at the present time. The FRC seems to be adopting an ever greater focus on large companies only, rather than addressing the whole of the market as it should. It will be interesting to see how Sir John Kingman will respond to calls for a proportionality objective for the FRC in his review.’

Gareth Jones, partner at Pinsent Masons:

‘The new QCA Code was well-timed, coming out at much the same time as the new AIM requirement to select a recognised corporate governance code and report against it.  Following their IPOs, AIM companies will often have a fairly tightly-held share register, with a significant or controlling shareholder, and with little liquidity in the stock.  The QCA Code is well drafted, relatively easy to follow and is written in a way that, for smaller companies at an early stage of development, is more likely to be suitable for their and their shareholders’ needs.’

Martin Webster, partner at Pinsent Masons:

‘There is no doubt that as the UKCG Code, in its 2018 edition, gets more prescriptive, with descriptions of workforce engagement and company purpose among its new requirements, the less detailed approach of the redrafted QCA Code can be very attractive. The QCA Code leaves a company to choose how it achieves good governance. On the other hand, much of the UKCGC is tried and tested and the greater freedom given by the QCA can challenge the creative skills of those having to devise and implement a bespoke corporate governance structure and then describe it in the annual report.’


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About the author:
Jenisa is Head of Market Insights for Lexis®PSL, with responsibility for the delivery of Market Tracker, a transaction analysis product that sits within Lexis®PSL Corporate. She has over 15 years of legal publishing experience, with a focus on researching and reporting on trends and developments in the corporate and commercial legal market. Previous roles include content developer for Lexis®PSL, Legal Podcaster at Informa, and Research Editor at Practical Law Company where she specialised in reporting on cross-border corporate and commercial developments from the firm’s New York office.