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Flotations The Offer And Listing Application Process Notes

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Corporate Finance: SGS 2: Flotations (II): The Offer and Listing Application Process INDEX OF ABBREVIATIONS
- RIE - Recognised Investment Exchange
- IPO - Initial Public Offering
- PR - Prospectus Rules
- LR - Listing Rules
- DTR - Disclosure Guidance and Transparency Rules
- LP - Listing Principles
- PLP - Premium Listing Principles
- FSMA 2000 - Financial Services and Markets Act 2000
- RAO - Financial Services and Markets Act 2000 Regulated Activities Order 2001
- FPO - Financial Services and Markets Act 2000 Financial Promotions Order 2005
- MAR - Market Abuse Regulations
- CJA - Criminal Justice Act 2002
- FSA - Financial Services Act 2012
- UK CGC - UK Corporate Governance Code
- RCF - Revolving Credit Facility
- LSE - London Stock Exchange
- AIM - Alternative Investment Market
- FCA - Financial Conduct Authority
- MAC - Material Adverse Change
- EoD - Event of Default PRE-SGS ACTIVITY: CIRCASSIA PHARMACEUTICALS PLC (1) Type of Investors
- Circassia's shares offered to institutional/professional investors in the UK and other non-US countries and to Qualified Institutional Buyers in the US - suggests that the offer was a global institutional only offer.
- Aqua are intending to make a bookbuilt global offer to institutional investors - reduced marketing costs but small shareholder base - institutional investors individually acquire larger shareholdings/greater influence - reduced liquidity of shares.
- Public retail offer would allow for access to greater number of potential investors + increase liquidity of shares due to greater number of shareholders + larger number of shareholders with smaller individual shareholdings would decrease level of control exercised by individual shareholders BUT increased marketing costs associated with a public offer and more onerous regulatory requirements. (2) Bookbuilding
- Bookbuilding - Means of marketing an issue of shares - investment bank/broker/bookrunner operates a 'book of interest' in shares being offered to record interest in those shares from potential investors - usually begins when the price range prospectus approved by the FCA/published and runs until final offer price announced (usually around one week before admission day.
- Price range prospectus/pathfinder used by investment bank/broker/bookrunner to provide potential investors with information about the issue - potential investors then use the information to determine whether they would be interested in subscribing for the shares being offered and if so, at what price.
- Investment bank/broker/bookrunner uses responses of potential investors to set attractive/marketable share price and gauge overall level of interest in proposed share issue.
- Circassia Flotation - Bookbuilding may have been used to determine level of interest amongst institutional investors targeted by issue + assist in setting price for the shares being issued - important considerations as company could have sought alternative source of financing (e.g. debt finance) if there was an insufficient amount of investor demand for the shares to raise the required funds via equity finance.
- Aqua Flotation - Bookbuilding could be used as the offer is targeted at institutional investors - would assist Aqua in determining the level of demand for the shares being issued + whether it would be likely to raise the PS225m required +
whether/type of underwriting provisions required + would assist in setting final share price + would provide reassurance to selling shareholders that they would be able to dispose of their shareholdings at particular price. (3) Marketing
- Circassia Marketing - Focused on the size of the market for treatments for allergic reactions + advanced development of new treatments which it considers to be superior to rival treatments and which have the potential to generate large amounts of revenue + potential for company to become dominant market leader due to retention of commercialisation rights and strong intellectual property protections.
- Aqua Marketing - Aqua could seek to emphasise its recent expansion into new geographical markets and the production of new products, with the potential for increased revenue as a result + potential financial benefits of the paint/corrosion protection for oil rigs + value of the joint venture with Corby Steel Ltd concerning application of anti1

corrosion paint during the steel manufacturing process + development of state of the art technology/industry leading products (especially if intellectual property relating to such technologies/products is well protected and the company has retained exclusive commercialisation rights). REQUIREMENT FOR A PROSPECTUS (1) Test 1: Public Offer of Transferable Shares
- FSMA 2000 s.85(1): Test 1 - Prospectus required where there is a PUBLIC OFFER of transferable securities in the UK.
- FSMA 2000 s.102B(1): 'Offer of Transferable Securities to the Public' - Includes a communication made to ANY PERSON which presents sufficient information concerning transferable securities being offered AND terms on which the transferable securities are offered to enable an investor to decide whether to purchase/subscribe for the transferable securities being offered.
- Can apply to BOTH offers of new shares and sale of existing shares.
- s.102B(2): Effect - To extent that offer of transferable securities made to any person in the UK it is deemed to be an offer of transferable securities to the public in the UK for the purposes of FSMA 2000 Pt 6.
- s.102B(3): Form/Means of Communication - Communication of offer of transferable securities may be made in ANY FORM and by ANY MEANS.
- s.102B(4): Placings - Offer of transferable securities to public in UK includes PLACING of securities through a financial intermediary.
- s.102B(5): No Prospectus for Secondary Marketing - Offer of transferable securities to public in the UK does NOT include communications in connection with trading on a regulated market/multilateral trading facility/prescribed market (i.e. broker offering to sell shares it has subscribed for to other investors on secondary market is NOT required to produce a prospectus).
- FSMA 2000 s.86(1): Exempt Offers - 2 main types of exempt offers are: (1) Offers to 'Qualified Investors' Only - 'Qualified investors' defined in s.86(7) FSMA 2000 - includes financial institutions + qualified/professional investors - usually applies to offers conducted by way of a PLACING. (2) Small-Scale Offers - Offers made to less than 150 PERSONS PER EEA MEMBER STATE (excluding qualified investors) - also likely to apply to offers conducted by way of a PLACING even if places do not all qualify as 'qualified investors'.
- FSMA 2000 s.85(5): Exempt Securities - 2 main types of exempt securities: (1) FSMA 2000 s.85(5)(a) - Securities contained within FSMA 2000 Schedule 11A Parts 1-2 (includes non-equity securities issued by public authorities/shares in central banks/transferable securities issued by charities) BUT if issuer wishes to list securities on Official List then LISTING PARTICULARS must be produced containing information almost identical to information required for a prospectus under LR 4.2. (2) FSMA 2000 s.85(5)(b) - Securities contained in PR 1.2.2R including: (a) PR 1.2.2R(1) - Offers of shares in substitution for shares of the same class already in issue where issue of shares does not involve an increase in share capital; (b) PR 1.2.2R(2) - Offers of securities in connection with a takeover offer provided that document containing information which FCA regards as being equivalent to a prospectus is made available; (c) PR 1.2.2R(3) - Offers of securities in connection with a merger/division provided that a document containing information which the FCA regards as being equivalent to prospectus is made available; (d) PR 1.2.2R(4) - Dividends paid in form of shares of same class of shares as those in respect of which the dividend is paid (e.g. scrip dividends to existing shareholders); (e) PR 1.2.2R(5) - Offer of transferrable securities to existing/former directors/employees of the issuing company provided that certain documents containing prescribed information provided.
- Exempt Offer/Security - If Test 1 in s.85(1) FSMA 2000 is satisfied BUT either the offer or the security being offered in EXEMPT under s.86(1)/s.85(5) FSMA 2000 then Test 2 in s.85(2) FSMA 2000 must be applied in order to determine whether a prospectus will be required. (2) Test 2: Admission of Securities to a Regulated Market
- FSMA 2000 s.85(2): Test 2 - Prospectus required where transferable securities are admitted for trading on a REGULATED MARKET in the UK - includes LSE Main Market but NOT AIM.
- FSMA 2000 s.85(6): Exempt Securities - 2 categories of exempt securities which will NOT require prospectus even though shares being admitted to trading on a regulated market in the UK: (1) FSMA 2000 s.85(6)(a) - Securities listed in FSMA 2000 Schedule 11A Part 1 - includes non-equity transferable securities issued by government/public authorities + shares guaranteed by governments + shares in central banks of an EEA Member State. (2) FSMA 2000 s.85(6)(b) - Securities listed in PR 1.23R including: (a) PR 1.2.3R(1) - Shares representing over a period of 12 months, less than 10% of the shares of same class already admitted to trading on the same regulated market (would not apply to an IPO because there will not be any shares of the same class being issued already being traded on the regulated market); (b) PR 1.2.3R(2) - Shares issued in substitution for shares of the same class already admitted to trading on same regulated market if the issue does NOT involve an increase in issued share capital; 2

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