The use by listed companies of accelerated book-built placing structures using an offshore special purpose vehicle, often referred to as "cash box placings", has become more commonplace in recent years. These placings enable listed companies to issue up to 10 per cent of their issued share capital quickly and at relatively low cost without having to get additional shareholder consent or prepare listing particulars. Brokers and investment banks often find these structures attractive because they keep both underwriting risk and documentation to a minimum while retaining good commission levels.
Under a cash box placing the listed company's broker or investment bank, on behalf of the listed company, offers the placing shares to and places them with institutional investors in the UK. The offer may also be extended to qualified institutional buyers in the US. No US registration statement or prospectus is required. The placing offer is typically made by reference to a press release which updates the published information about the listed company and provides details of any related acquisition that the placing will fund.
The Companies Act 1985 requires listed companies to obtain shareholder authority before issuing new shares for cash where those shares are not first to be offered pro rata to existing shareholders. In most cases listed companies follow the guidelines of the Association of British Insurers (ABI) and seek an authority to issue shares for cash on a non pre-emptive basis limited to 5 per cent of their issued ordinary share capital. If the number of shares the listed company wishes to issue will exceed this authority it will need to obtain a further shareholder approval - this requires the issue of a circular and results in delay while a meeting is held. If the listed company does not want to be limited to its existing 5 per cent authority it may, depending on the circumstances, be able to use a cash box placing. The new issue will not require listing particulars provided the number of existing listed shares is not increased by more than 10 per cent.
Whether a cash box placing can be used will depend on the circumstances of the listed company. Generally, institutional shareholders will wish to be satisfied that a cash box placing is used only when the company has recently made acquisitions for which the consideration was cash, or is proposing to do so.
The cash box placing structure is designed to take advantage of an exemption in the Act which allows shares to be issued to third parties on a non-pre-emptive basis provided that they are issued for a non-cash consideration, such as the shares of another company. The usual structure is as follows:
- The listed company and its broker establish a new Jersey company (Jerseyco) with both ordinary shares and redeemable preference shares (Jerseyco Preference Shares). The use of a Jersey company has the advantage that no stamp duty is payable on the subsequent transfer of its shares by the broker to the listed company, and because the company can use its share premium account to redeem the preference shares.
- The broker agrees to subscribe for Jerseyco Preference Shares for an amount equal to the net placing proceeds.
- The listed company agrees with the broker to allot and issue the placing shares to placees, who are required to pay the subscription price to the broker. In consideration of this, the broker agrees to transfer all the shares it holds in Jerseyco to the listed company - with the result being that the listed company issues the placing shares for a non-cash consideration.
- The broker conducts an accelerated book-building which usually lasts less than a day. Instead of underwriting the issue, the broker invites institutional investors to bid for placing shares. When the bids are in, the listed company and the broker set the issue price and the broker then notifies placees of their allocation of shares and the price payable.
- The placees are required to pay the subscription price for the placing shares to the broker within a set period after the placing shares are admitted to listing. The placing shares are issued to placees, the broker uses the subscription monies to pay up the Jerseyco Preference Shares (at which point Jerseyco becomes a "cash box") and then transfers all the shares it holds in Jerseyco to the listed company. At this point the listed company owns all the issued share capital of Jerseyco.
- Jerseyco then redeems the Jerseyco Preference Shares, paying the redemption proceeds which equal the net placing proceeds to the listed company.
For more information please contact Peter Smith on 020 7367 2816 or at [email protected], Mike Jones on 020 7367 3600 or at [email protected] or Ian Stevens on 020 7367 2597 or at [email protected]