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#4841 - The Offer And Application Process - Public Companies and Equity Finance

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2. The offer and application process

  1. Methods of offer: offer for subscription, offer for sale and placing

There are two main types: retail and institutional offerings

Retail Institutional
Cost More expensive as must appoint receiving bank to deal with share applications. Also more advertising required which adds to cost Shares offerd through IB and broker directly to investors
Timing More marketing required and share application requests to be processed, so generally takes longer Fewer investors usually identified prior to Launch
Shareholder Liquidity Results in larger shareholder base Lower liquidity as shares held in hands of fewer SH

Retail Offers

  • Includes two elements: offer for subscription (in which new shares are sold to public) and offer for sale (in which existing shares sold). Often both are used in same floatation.
Offer for subscription: “…subscribe for securities not yet in issue..”
A. Company issues new shares as way of raising capital for company
B. Shares offered to public in IPO: Investors subscribe for shares; and
C. Company appoints receiving bank to accept applications from public and eal with payment for shares
Offer for Sale: “…purchase securities of issuer already in issue or allotted…”

  • Offer of existing shares. Sold to public in IPO by selling shareholders. Does not raise any new capital for company. Selling shareholder appoints bank to accept applications and receive payment

Institutional Offers

Placing: “…marketing of securities already in issue but not listed…”

  • Both new and existing shares can be offered by company and selling shareholders. Shares offered to “placees” (clients of sponser, broker, or IB) rather than public. Not usually necessary to appoint receiving bank as there are fewer places than subscribes in an IPO. Investment bank deals with proceeds of issue.

  • Documentation

  • Placing letter sent to places detailing terms of offer. Placees sign return

  • Placing agreement: is between sponsor and company to place shares

  • Bookbuilding: IB running book of interest in shares from interested investors.
Intermediaries:

  • Similar to placing but shares can be marketed only to firms who are intermediaries as defined in FCA Handbook.

  1. When a prospectus is required

Prospectus

Also used to market issue to investors. Must contain all relevant info an investor would require in order to make an informed decision as to whether to invest in shares. It is required either by s. 85(1) FSMA or s. 85(2) FSMA and with no relevant exemptions applying.

  1. Format of prospectus

PR 2.1.1-2.1.7 The Summary
PR 2.2.1 Can be single doc or separate doc

PR 2.2.2

PR 2.2.3

If separate, must divide the info into reg doc, sec note, and summary

Reg doc + sec note + summary = valid prospectus
PR 2.2.4 If already have a reg doc approved by FCA must only draw up sec note and summary on admission to trading (see PR 5.1.4: Reg doc valid 12 months so long as updated) and be aware of PR 2.2.5
PR 2.2.6 When requesting admission, can choose to file reg doc without approval. If do so, entire documentation including updated info, is subject to approval.
PR 2.2.10 Format of the prospectus, both if single document or separate documents.

  1. Contents of prospectus – specific and general disclosure obligations

s. 87A FSMA and PR 2.1.1 General Obligation of disclosure

Articles 3 – 6 and 21 PD Reg

Annexes I-III and XVIII as set out in PR App 3.1

 How to determine specific disc obligations
Art 24 PD as set out in PR 2.1.4 and Annex XXII of PD REg as set out in PR 3.1 Contents of Summary (use Annex XVIII as PRs not correctly shaded)
PR 2.1.7R Summary must also contain a warning

  1. Timetables for retail and institutional offers

Approval of Prospectus
PR 3.1.1, 3.1.3 Applying to FCA for approval of Prospectus and when this must be done (PR 3.3.3(2))
PR 3.1.4 Drafts of documents

PR 3.1.7

PR 3.1.10

 Approval of prospectus (echoes s 87A(1)) and must not be published until approved
PR 2.3.2 Final offer price and amount of securities not included in prospectus
Filing and Publication
s. 85(2) FSMA Unlawful to request the admission of transferable securities to which this subsection applies to trading on a regulated market situated or operating in the United Kingdom unless an approved prospectus has been made available to the public before the request is made.
PR 3.2.1 Must file prospectus with FCA after approed
PR 3.2.2-3.2.3

Prospectus must be filed and made available to public as soon as practicable and at least at beginning of the offer or the admission to trading of securities involved.

If IPO of class of shares not already admitted, prospectus must be made available to the public at least six working days before the end of the offer.
PR 3.2.4 When a prospectus is deemed made available to public
PR 3.2.5 Text and format of prospectus must be identical to the one submitted to FCA
PR 3.2.6 Even if electronically available, paper copy must be delivered to investor upon request.
Application for admission to listing
LR 3.2 Application for admission to listing:
LR 3.3 Shares: application, documents to be provided 48 hours in advance, docs to be provided on the day, other docs to be submitted, documents to be kept
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