4/10 FTSE 350 companies increase disapplication authorities

Following the publication of the Secondary Capital Raising Review (SCRR) in summer 2023, the UK Pre-Emption Group (PEG) published its revised statement of pre-emption principles on 4 November 2022.

PEG’s 2015 principles limited non-pre-emptive share issuances for cash by premium listed companies for general corporate purposes to 5 per cent of existing issued share capital in any one year and to 7.5 per cent in any three-year rolling period. In addition, if an issue was being made in connection with an acquisition or “specified capital investment”, a further 5 per cent of issued share capital could be issued non-pre-emptively each year.

As recommended by the SCRR, the 2022 principles now permit companies to seek
authority to:

• disapply pre-emption rights for up to 10% of issued share capital in relation to any share issue, and up to a further 10% of issued share capital in relation to a share issue in connection with an acquisition or specified capital investment that is announced contemporaneously or has taken place in the preceding 12-month period, rather than six months as in the 2015 principles
• disapply pre-emption rights in relation to follow-on share issues to existing shareholders up to a further 2% of issued share capital for each situation above, provided that certain conditions are met, such as a monetary limit of £30,000 per each ultimate beneficial owner.

We have analysed the AGM notices circulated to shareholders by FTSE 350 companies since the 2022 principles were published. Notwithstanding that less than half of companies have sent out their AGM notices, some interesting themes have begun to appear:

• 42% of companies have taken advantage of the increased flexibility offered by the new principles to seek larger disapplication resolutions than permitted under the 2015 principles
• 37% of companies have sought authorities of 20% or more (20% being the current restriction on issuing new shares admitted to the Official List without the need for a prospectus)
• 40% of companies have sought authorities in line with the previous PEG Statement of Principles, save that a quarter of these have extended the period in which an acquisition or specified capital investment must take place to 12 months from 6 months in line with the new principles
• 4% of companies have sought only to increase their general disapplication authority to 10% (i.e. no disapplication authority for an acquisition or specified capital investment). Half of these companies also sought the additional 2% disapplication authority for follow-on offers providing a maximum of 12%.
• 32% of companies have sought the full 4% follow-on disapplication authority with a further 2% seeking a follow-on disapplication authority for 2% (attached to the general disapplication authority) only
• increasingly companies are specifically confirming in their explanatory notes that they will follow the shareholder protections in Part 2B of the new principles, including the expected features of a follow-on offer in paragraph 3 of that part

Whilst not as many companies have utilised the additional flexibility offered by the 2022 principles as some might have hoped, some reticence is understandable. Many companies have stated that they are keeping a watching brief and will consider again next year as market practice beds down.

There will also be historic reasons why companies do not necessarily seek the maximum disapplication authorities. Equally, where companies are dual listed, there may be restrictions on what investors in other jurisdictions will support.

It is interesting to note that some companies have adopted a hybrid approach and mixed elements of both sets of principles and adopted an approach that works for them. The new regime clearly provides more options for a board to weigh up when considering what resolutions to propose.