LR 5.6 Reverse takeovers

Application

LR 5.6.1RRP

Categories of reverse takeover to which this section does not apply

LR 5.6.2RRP

LR 5.6 does not apply where an issuer acquires the shares or certificates representing equity securities of a target with the same category of listing as the issuer.

Class 1 requirements

LR 5.6.3RRP

Notwithstanding the effect of LR 5.6.2 R, an issuer with a premium listing must in relation to a reverse takeover comply with the requirements of LR 10.5 (Class 1 requirements) for that transaction.

Definitions

LR 5.6.4RRP

A reverse takeover is a transaction, whether effected by way of a direct acquisition by the issuer or a subsidiary, an acquisition by a new holding company of the issuer or otherwise, of a business, a company or assets:

  1. (1)

    where any percentage ratio is 100% or more; or

  2. (2)

    which in substance results in a fundamental change in the business or in a change in board or voting control of the issuer.

When calculating the percentage ratio, the issuer must5 apply the class tests and LR 10.2.10R (Aggregating transactions)5.

LR 5.6.5GRP

For the purpose of LR 5.6.4R (2), the FCA considers that the following factors are indicators of a fundamental change:

  1. (1)

    the extent to which the transaction will change the strategic direction or nature of its business; or

  2. (2)

    whether its business will be part of a different industry sector following the completion of the transaction; or

  3. (3)

    whether its business will deal with fundamentally different suppliers and end users.

LR 5.6.5ARRP

6A shell company is an issuer whose:

  1. (1)

    assets consist solely or predominantly of cash or short-dated securities; or

  2. (2)

    predominant purpose or objective is to undertake an acquisition or merger, or a series of acquisitions or mergers.

Requirement for a suspension

LR 5.6.6RRP

A shell company6, or in the case of a shell company6with a premium listing, its sponsor, must contact the FCA as early as possible:

  1. (1)

    before announcing a reverse takeover which has been agreed or is in contemplation, to discuss whether a suspension of listing is appropriate; or

  2. (2)

    where details of the reverse takeover have leaked, to request a suspension.

LR 5.6.7GRP

Examples of where the FCA will consider that a reverse takeover is in contemplation include situations where:

  1. (1)

    the shell company6 has approached the target's board;

  2. (2)

    the shell company6 has entered into an exclusivity period with a target; or

  3. (3)

    the shell company6 has been given access to begin due diligence work (whether or not on a limited basis).

LR 5.6.8GRP

Generally, when a reverse takeover between a shell company and a target6 is announced or leaked, there will be insufficient publicly available information about the proposed transaction and the shell company6 will be unable to assess accurately its financial position and inform the market accordingly. In this case, the FCA will often consider that suspension will be appropriate, as set out in LR 5.1.2G (3) and (4). However, if the FCA is satisfied that there is sufficient publicly available information about the proposed transaction it may agree with the shell company6 that a suspension is not required.

LR 5.6.9GRP

LR 5.6.10 G to LR 5.6.18 R set out circumstances in which the FCA will generally be satisfied that a suspension is not required.

Reverse takeover by a shell company: target admitted to a regulated market

LR 5.6.10GRP

The FCA will generally be satisfied that there is sufficient information in the market about the propos ed transaction if:

  1. (1)

    the target has shares or certificates representing equity securities admitted to a regulated market; and

  2. (2)

    the shell company6 makes an announcement stating that the target has complied with the disclosure requirements applicable on that regulated market and providing details of where information disclosed pursuant to those requirements can be obtained.

LR 5.6.11RRP

An announcement made for the purpose of LR 5.6.10G (2) must be published by means of an RIS.

Reverse takeover by a shell company: target subject to the disclosure regime of another market

LR 5.6.12GRP

The FCA will generally be satisfied that there is sufficient publicly available information in the market about the proposed transaction if the target has securities admitted to an investment exchange or trading platform that is not a regulated market and the shell company6:

  1. (1)

    confirms, in a form acceptable to the FCA, that the disclosure requirements in relation to financial information and inside information of the investment exchange or trading platform on which the target's securities are admitted are not materially different from the disclosure requirements4; and

  2. (2)

    makes an announcement to the effect that:

    1. (a)

      the target has complied with the disclosure requirements applicable on the investment exchange or trading platform to which its securities are admitted and provides details of where information disclosed pursuant to those requirements can be obtained; and

    2. (b)

      there are no material differences between those disclosure requirements and the disclosure requirements under DTR.

LR 5.6.13RRP

Where a shell company6 has a premium listing, a written confirmation provided for the purpose of LR 5.6.12G (1) must be given by the shell company's6 sponsor.

LR 5.6.14RRP

An announcement made for the purpose of LR 5.6.12G (2) must be published by means of an RIS.

Reverse takeover by a shell company: target not subject to a public disclosure regime

LR 5.6.15GRP

Where the target in a reverse takeover by a shell company6 is not subject to a public disclosure regime, or if the target has securities admitted on an investment exchange or trading platform that is not a regulated market but the shell company6 is not able to give the confirmation and make the announcement contemplated by LR 5.6.12 G, the FCA will generally be satisfied that there is sufficient publicly available information in the market about the proposed transaction such that a suspension is not required where the shell company6 makes an announcement containing:

  1. (1)

    financial information on the target covering the last three years. Generally, the FCA would consider the following information to be sufficient:

    1. (a)

      profit and loss information to at least operating profit level;

    2. (b)

      balance sheet information, highlighting at least net assets and liabilities;

    3. (c)

      relevant cash flow information; and

    4. (d)

      a description of the key differences between the shell company's6 accounting policies and the policies used to present the financial information on the target;

  2. (2)

    a description of the target to include key non-financial operating or performance measures appropriate to the target's business operations and the information as required under PR Appendix 3 Annex 1 item 12 (Trend information) for the target;

  3. (3)

    a declaration that the directors of the shell company6 consider that the announcement contains sufficient information about the business to be acquired to provide a properly informed basis for assessing its financial position; and

  4. (4)

    a declaration2 confirming that the shell company6 has made the necessary arrangements with the target vendors to enable it to keep the market informed without delay of any developments concerning the target that would be required to be released were the target part of the shell company6.

    2
LR 5.6.16RRP

An announcement made for the purpose of LR 5.6.15 G must be published by means of an RIS.

LR 5.6.17RRP

Where a shell company6 has a premium listing, a sponsor must provide written confirmation to the FCA that in its opinion, it is reasonable for the shell company6 to provide the declarations described in LR 5.6.15G (3) and (4).

LR 5.6.18RRP

Where the FCA has agreed that a suspension is not necessary as a result of an announcement made for the purpose of LR 5.6.15 G the shell company6 must comply with the obligation under article 17(1) of the Market Abuse Regulation3 on the basis that the target already forms part of the enlarged group.

Cancellation of listing

LR 5.6.19GRP

The FCA will generally seek to cancel the listing of an issuer's equity shares or certificates representing equity securities when the issuer completes a reverse takeover.

LR 5.6.20GRP

LR 5.6.23 G to LR 5.6.29 G set out circumstances in which the FCA will generally be satisfied that a cancellation is not required.

LR 5.6.21RRP

Where the issuer's listing is cancelled following completion of a reverse takeover, the issuer must re-apply for the listing of the shares or certificates representing equity securities and satisfy the relevant requirements for listing, except that for an issuer with a premium listing, LR 6.2.1R(3) and LR 6.2.4R(2)6 will not apply in relation to the issuer's accounts.

LR 5.6.22GRP

Notwithstanding LR 5.6.21 R, financial information provided in relation to the target will need to satisfy LR 6.2.1R(3) and LR 6.2.4R(2)6.

Acquisitions of targets from different listing categories: issuer maintaining its listing category

LR 5.6.23GRP

Where an issuer acquires the shares or certificates representing equity securities of a target with a different listing category from its own and the issuer wishes to maintain its existing listing category, the FCA will generally be satisfied that a cancellation is not required on completion of a reverse takeover if:

  1. (1)

    the issuer will continue to be eligible for its existing listing category following completion of the transaction;

  2. (2)

    the issuer provides an eligibility letter setting out how the issuer as enlarged by the acquisition satisfies each listing rule requirement that is relevant to it being eligible for its existing listing category; and

  3. (3)

    the issuer makes an announcement or publishes a circular explaining:

    1. (a)

      the background and reasons for the acquisition;

    2. (b)

      any changes to the acquiring issuer's business that have been made or are proposed to be made in connection with the acquisition;

    3. (c)

      the effect of the transaction on the acquiring issuer's obligations under the listing rules;

    4. (d)

      (where appropriate) how the acquiring issuer will continue to meet the eligibility requirements referred to in LR 5.6.21 R; and

    5. (e)

      any other matter that the FCA may reasonably require.

LR 5.6.24RRP

An announcement or circular published for the purpose of LR 5.6.23 G must be published by means of an RIS.

LR 5.6.25RRP

An eligibility letter prepared for the purposes of LR 5.6.23 G must be provided to the FCA not less than 20 business days prior to the announcement of the transaction referred to in LR 5.6.24 R.

LR 5.6.26RRP

Where an issuer has a premium listing, the eligibility letter provided for the purposes of LR 5.6.23 G must be provided by a sponsor.

Acquisitions of targets from different listing categories: issuer changing listing category

LR 5.6.27GRP

The FCA will generally be satisfied that a cancellation is not required on completion of a reverse takeover if the target is listed with a different listing category from that of the issuer and the issuer wishes to transfer its listing to a different listing category in conjunction with the acquisition and the issuer as enlarged by the relevant acquisition complies with the relevant requirements of LR 5.4A to transfer to a different listing category.

LR 5.6.28GRP

An issuer wishing to transfer a listing of its equity shares from a premium listing (investment company) to a standard listing (shares) should note LR 5.4A.2 G which sets out limitations resulting from the application of LR 14.1.1 R (application of the listing rules to a company with or applying for a standard listing of shares).

LR 5.6.29GRP

Where an issuer is applying LR 5.4A in order to avoid a cancellation as contemplated by LR 5.6.27 G, the FCA will normally waive the requirement for shareholder approval under LR 5.4A.4R (2)(c) where the issuer is obtaining separate shareholder approval for the acquisition.