Transcript Slide 1

David Broadley, Partner
Simon Toms, Senior Associate
Secondary Fundraisings
3 April 2009
98050-00111 BS:2232560.1
Overview
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Market overview
Refresher on secondary fundraisings
Documentation including underwriting agreements
Rights issue reform
Premarketing activity
Cashboxes
Short selling
PIPEs
Market Overview
 Significant increase in secondary issues
 Bank recapitalisations account for large portion of overall
amount raised
2008
2009 YTD
21%
38%
62%
79%
Other issuers
Source: Thomson Financial
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Bank recapitalisations
Market Overview
 Companies raising cash for balance sheet repair,
prior to refinancing or for acquisitions
 Total equity issued (excluding bank recaps):
 2008: £11 billion
 YTD 2009: £10 billion
 Most active sectors to date in 2009:
 Banks
 Real Estate
 Building/Construction & Engineering
Source: Thomson Financial
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Equity Issues - Volumes
30
25
20
(£ bn) 15
10
5
0
Q1 2008
Q2 2008
Q3 2008
Bank recapitalisations
Source: Thomson Financial
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Q4 2008
Other issuers
Q1 2009
IPOs – markets effectively remain shut
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Number
of new
London
Main
Market
listings
8
6
4
2
0
Q1 2008
Source: Thomson Financial
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Q2 2008
Q3 2008
Q4 2008
Q1 2009
Refresher of Secondary Fundraisings
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Rights Issues
Open Offer
Cash/Cashbox Placing
Shareholder
Approvals
Likely to need to increase
authority to allot
May need to increase
authority to allot
No shareholder approvals if sufficient authority
to allot
Documents
Prospectus
Prospectus
No prospectus needed if <10% of issued
share capital (incl. shares issued in previous
12 months) and no public offer
Discount
No limit on discount
Maximum discount: 10%
(Listing Rules); 7.5%
(ABI)
Maximum discount: 10% (Listing Rules);
5% (Pre-emption Group/ABI)
Size
No limit on issue size
Limit on issue size c.18%
(ABI)
Maximum cash
placing issue
size 5% (7.5% in
rolling three
year period)
(Pre-emption
Group)
Speed
Offer can only start once
necessary shareholder
approvals obtained (nil
paid rights trade on
unconditional basis)
Offer must be open for 10
business days (LSE
A&DS); notice of general
meeting can run
concurrently
No offer to shareholders; up to five days for
placing, settlement and admission
No limit on cashbox
placing size but
typically <10% (ABI
guidelines on
shareholder claw back
on placings); rarely
used where prospectus
needed
Documentation
 Underwriting documentation broadly unchanged
 Greater focus on termination provisions and MACs
 Use of specific events (e.g. ratings downgrade)
 Public documentation is main hurdle to swift
execution
 Must be significantly advanced/finalised prior to any
announcement
 Underwriter risk on diligence/disclosure
 Volatile markets have forced time between
announcement and documentation to be reduced
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Rights Issue Reform
 Rights Issue Reform Group
 Industry representatives co-chaired by FSA and HMT
 UKLA reduced rights issue offer period from 21 days to
10 business days (LR9.5.6.R)
 FSA currently consulting on open offer structure
 Compensation for non-participating shareholders
 ABI has reviewed its guidelines to increase headroom
from 1/3 to 2/3 (additional 1/3 on pre-emptive basis only)
 Short form prospectus for rights issues and greater use
of shelf registration documentation in future?
 FSA considering accelerated rights issue models
(e.g. Australian RAPIDS model)
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Pre-marketing Activity
 Increased activity prior to announcement
 Deal by deal consideration
 Issuers wanting to ensure successful issue
 Underwriters seeking increased certainty to cover
exposure before announcement
 Period for which investors will become “insiders”
 Impact on liquidity
 Process of making an investor an “insider” and
implications for confidentiality and disclosure
 Use of NDAs?
 Pre-marketing presentations
 Leak scenario planning
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Cashbox Placings
 Mechanism to permit a cash placing outside the Companies
Act restrictions on shareholders’ pre-emption rights
Placees
Cash proceeds of
placing on closing
Issue of new ordinary
shares conditional on
Admission
Transfer of
ordinary shares
and preference
shares in
JerseyCo
Issuer
Issue of ordinary
shares
Cash on trigger
of underwriting
risk
Banks
Payment of net
cash proceeds of
placing to satisfy
preference share
subscription
JerseyCo
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Banks (as
underwriter)
Issue of ordinary
Shares and
preference
shares
Cashbox Placings
 Historically used in connection with acquisitions
 Recent concerns raised by investors bodies as to
their use
 Letter from ABI to listed companies:
“…investors do not welcome issues that breach the
Pre-Emption Group guidance and will hold boards
to account for such breaches.”
“…we are doubly anxious that the pre-emption
principle [should] not be eroded through abuse of
cash-box issues.”
 Greater consultation pre-announcement likely
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Short Selling
 Current temporary disclosure regime in place until
30 June 2009
 Disclosure required of net short positions >0.25% in
stocks of listed UK financial sector companies
 FSA consulting on permenant regime including:
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Extending to all UK stocks across all sectors
Disclosure of individual short positions >0.50%
Retain >0.25% disclosure during rights issues
No ban on underwriters short selling proposed
Exemption for market makers
Private Investment in Public Equity
 Companies with significant/urgent cash needs
 Unable to access debt capital markets
 Bank debt unavailable
 Current shareholders indicated no support for equity raising
 Opportunity for PE/SWF to invest capital on attractive terms to
support viable businesses with currently inappropriate capital
structure
 Ordinary share investment most common form
 Firm/conditional placing
 Underwriting of rights issue
 Use of relationship agreements
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Any Questions?
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