Market Tracker weekly bulletin – 7 March 2019

A round up of key developments in corporate transactions covered by Lexis®PSL Corporate and Market Tracker this week, including the offer for Findel plc by Sports Direct International plc and an update on the IPO by legal services provider DWF Limited.

Transactions

Takeovers

Findel's board rejects Sports Direct offer

On 4 March 2018, Sports Direct International plc (Sports Direct) announced that it had made a mandatory cash offer for the entire issued and to be issued share capital of Findel plc (Findel) for £139.2 million.

The mandatory offer under Rule 9 of the Takeover Code was triggered after Sports Direct unconditionally agreed to acquire 36.8% of the existing issued share capital of Findel, currently held by City Financial Absolute Equity Fund. The mandatory offer requires Sports Direct to acquire the remaining Findel shares not already held by Sports Direct International, at a price of 161 pence per Findel share.

Findel responded and noted that the offer significantly undervalued the company’s values and the board was unanimous in its rejection of the offer. Findel urged shareholders not to take any action.

Sports Direct has attracted media attention with its recent takeover activity. In February 2019, Sports Direct made an offer to food & beverage company Patisserie Holdings plc, to acquire its business and assets out of administration as a result of a long term accounting fraud. Patisserie Holdings commented in a statement: 'The work carried out by the company's forensic accountants since (October) has revealed that the misstatement of its accounts was extensive, involving very significant manipulation of the balance sheet and profit and loss accounts'. However, Sports Direct withdrew their offer two days later due to lack of information for continuing the bid.

Sports Direct is emerging as a ‘high street saviour’, rescuing a number of retail companies facing administration in the past few months, including House of Fraser, Evans Cycle and music company HMV.

Equity Capital Markets

Legal services provider DWF confirms plans to list

On 8 February 2019, DWF confirmed its intention to float. The company had announced plans for a potential IPO on 31 January 2019 and the confirmation of its intention to float suggests that there is sufficient investor appetite to proceed with the IPO.

The company announced the publication of its registration document on 1 February 2019, in which it outlined plans to undertake a reorganisation of its structure, governance and internal contractual arrangements.

DWF are the latest legal services provider to mull over plans to go public.  Last year, Knights Group announced plans to list on AIM. On 26 June 2018, the company went public, raising £50m in gross proceeds. 

Gateley was the first UK firm to list on AIM in June 2015, raising 30m from the float. Gateley was followed by Gordon Dadds, which listed in August 2017, raising 20m from the IPO. Virtual firm Keystone Law was the third firm to apply for admission to AIM in November 2017, raising approximately 15m.

Rosenblatt Solicitors were admitted to trading on 8 May 2018, surpassing Gateley and raising £43m from the float. This has therefore been the most lucrative law firm IPO to date.

The growing number of law firms opting to float suggests that there is real investor appetite for public professional services companies.

Latest developments

Takeover Panel publishes response statement relating to amendments to the Code arising from Brexit

The Takeover Panel (Panel) has published a response statement following its November 2018 public consultation paper (PCP 2018/2) on proposed amendments to Takeover Code (Code) arising from the UK’s withdrawal from the EU. The Panel has adopted most of its proposed amendments, which included the removal of the shared jurisdiction rules and aligning the treatment of EEA shareholders with other overseas shareholders. As outlined in PCP 2018/2, the Panel is not intending to amend the Code provisions dealing with the European Commission competition proceedings. For more on this story see our news article: Takeover Panel publishes response statement relating to amendments to the Code arising from Brexit - (a subscription to Lexis®PSL is required).

CMA proposes changes to the competition regime

On 25 February 2019, the CMA published a letter from Lord Tyrie, CMA Chair, to the Secretary of State for BEIS, outlining proposals for legislative and institutional reforms to the UK’s competition and consumer law regimes. The proposals if implemented have the potential to change significantly the UK’s competition law regime. The proposals would entail a massive increase in ‘red tape’ with less judicial oversight over the CMA. The most eye-catching proposals are in relation to antitrust appeals and the merger control process. For more on this story see our news article: CMA proposes changes to the competition regime - (a subscription to Lexis®PSL is required).

Takeover Panel publishes response statement to its consultation on asset valuations

The Takeover Panel (Panel) has published a response statement following its October 2018 public consultation paper (PCP 2018/1) on proposed amendments to Rule 29 of the Takeover Code (Code), which relates to asset valuations. The Panel has adopted most of its proposed amendments and these will take effect on 1 April 2019. For more on this story see our news article: Takeover Panel publishes response statement to its consultation on asset valuations - (a subscription to Lexis®PSL is required).

ESMA will recognise UK central securities depository in the event of a no-deal Brexit

The European Securities and Markets Authority (ESMA) has announced that, in the event of a no-deal Brexit, the central securities depository (CSD) established in the UK–Euroclear UK and Ireland Limited–will be recognised as a third-country CSD to provide its services in the EU. The recognition decision would take effect on the date following Brexit, in a no-deal scenario.

European Commission seeks views on draft guidelines on remuneration report

The European Commission (Commission) has published a consultation document seeking input from Member States and stakeholders on the draft guidelines on the remuneration report under the Shareholders Rights Directive (SRD). The consultation closes on 21 March 2019.

Directive 2007/36/EC, as amended by Directive (EU) 2017/828 (Revised Shareholder Rights Directive) requires companies (which have their registered office in an EEA Member State and whose shares are admitted to trading on an EEA regulated market) to prepare a detailed directors’ remuneration report. Member States have until 10 June 2019 within which to implement the amending Directive. If the UK leaves the EU with a withdrawal agreement in place that includes a transition period, the revised Shareholders Directive will need to be transposed in the UK. The requirements of the revised SRD regarding the directors’ remuneration report overlap with the existing requirements under the Companies Act 2006 regarding the content of this report.

The Commission has prepared draft non-binding guidelines to help companies disclose this information in a clear and understandable format, which meets the requirements of the Shareholder Rights Directive.

To promote better comparability for investors, the guidelines encourage companies to present this information in a standardised form, including:

  • a general overview of the last financial year
  • details of each individual director’s total remuneration split out by component and including any remuneration from group undertakings
  • information on any share-based remuneration
  • details of any ability to withhold or reclaim remuneration under ‘malus’ or ‘clawback’ provisions
  • details of compliance with the remuneration policy and any deviation from the policy
  • comparative information on the change of remuneration and company performance
  • details of how the advisory vote on the previous year’s remuneration report has been taken into account

Council of EU adopts Regulation establishing investment screening framework

The Council of the EU has adopted a Regulation establishing a framework for the screening of foreign direct investments into the EU. The proposal to create the first EU-wide framework for investment screening was announced by President Juncker in his 2017 State of the Union speech, and the European Parliament approved the text of the Regulation in February 2019 following three-way talks between the Parliament, the Council of the EU and the European Commission.

The new Regulation on the screening of foreign direct investment in the EU will create a co-operation mechanism enabling Member States and the Commission to exchange information and raise specific concerns. Member States will, however, retain the power to review and potentially block foreign direct investment on security and public order grounds, and to set up and maintain national screening mechanisms. The Commission will have the power to issue opinions where cases involve several Member States or have the potential to affect a project or programme of interest to the whole EU, eg Horizon 2020 or Galileo.

The Regulation will be published on 21 March 2019, will enter into force 20 days later, and will apply 18 months later.

FRC issues a position paper on the next steps for development of ethical and auditing standards

The Financial Reporting Council (FRC) has issued a position paper which sets out how ethical and auditing standards will be developed to respond better to the needs of users of audited financial information. The paper sets out the issues to be developed to support a public consultation on the text of revised standards over summer 2019. It also sets out how the FRC’s work on the standards responds to certain recommendations made by Sir John Kingman in his independent review of the FRC, how proposals are being developed to support the Market Study by the Competition and Markets Authority of the UK Statutory Audit Market, and how revisions made to the international Code of Ethics will be incorporated into the FRC ethical standard.

New rules to improve access to capital markets for smaller businesses

The European Parliament and Member States have reached an agreement on new rules that will assist small and medium-sized enterprises (SMEs) to finance growth and innovation. The rules, which are yet to be approved by the European Parliament and Council, will aim to make a wide range of sources of finance available to smaller businesses. The new rules will enable SMEs to use a new trading category dedicated to smaller issuers and allow for a lighter prospectus when transferring to a regulated market.

 

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