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Continuing Obligations 3 – Significant and Related Party Transactions
Classification of Transactions
Acquisitions and Disposals
Classification Regime:
o Chapters 5 and 10 – divide transactions into 3 different classes – according to
transaction size and Listed C size comparison
o Comparison – made via 4 calculations – ‘Class Tests’ in LR 10 Annex 1
o Calculation = percentage figure – referred to as: ‘percentage ratio’
Why is a Classification Regime necessary?
o To protect shareholders
o Listing Rules – determine the extent to which the transaction needs to be regulated
o Chapter 10 – regulates transactions on SIZE:
o Significant size = stricter procedural requirements (e.g. SH approval)
o Non-significant size = less strict procedural requirements
o Reflects practical reality – big transactions = greater risk
Step 1 – Does Chapter 10 apply?
LR 10.1.1R – Chapter 10 applies to premium listing C on the Main Market (no AIM)
o Consider each Premium Listed party to the transaction separately
o Chapter 10 only applies if Premium Listed C itself is a party to the transaction
E.g. don’t apply test to both Cs on a takeover where one party is a SH (share sale)
Step 2 – What is a transaction?
LR 10.1.3R(1) – defines ‘transaction’ – “all agreements entered into by a listed company or any of its
subsidiaries” – except:
o LR 10.1.4G:
Transaction in the ordinary course of C’s business
Issue of shares or transaction to raise finance – excluding fixed asset transactions
Transaction between Listed C and Wholly Owned Subsidiary / between Wholly Owned
Subsidiary (intra-group transactions)
LR 10.1.4G – provides general guidance – on FCA’s intention regarding Chapter 10 regime – covers:
o Transactions outside the ordinary course of C’s business; and
o May change a SH’s (or other security holder’s) economic interest in C’s assets/liabilities
Regime focused on potential impact of the transaction on C
Exam Tip: ‘transaction’ means ACQUISITIONS AND DISPOSALS of assets or shares
(inc. Listed C buying/selling another C or business / entering into a joint venture)
, Step 3 – If there is a transaction, apply Class Tests
LR 10.1.2G – transactions must be ‘classified’
o Classified via assessing transaction size RELATIVE to size of Listed C
o If x2 or more Premium Listed C involved – apply Double Classification rules (LR 10 – Annex 1)
Exam Tip: ONLY base answers on tests you CAN perform
Otherwise, say: “There is not enough information to complete X test. My class finding is therefore
based on the other tests.”
Results = ‘percentage ratios’
1. GROSS ASSETS TEST (para 2R)
Gross assets which are subject of transaction(i . e . gross assetsof target business)
• ' x 100
Gross Assets of listed Co(i . e . of the buying∨selling company yo u ℜlooking at )
o Annex 1 Para 8R – figures taken from most recent & accurate preliminary audited consolidated
accounts OR (if listed) published preliminary statement of later annual results
o Seller’s perspective – Listed C is the Seller itself (transaction involves selling part of their business)
E.g. – if target 15m of whole 50m business – will do 15/50 to find proportion
disposal is to rest of Seller’s business
2. PROFIT TEST (para 4R)
•
Profits attributable ¿ assets which are subject of transaction(i. e . profits of thetarget ) ¿
Profits of listed Co that
x100
o Annex 1 Para 8R - figures taken from most recent & accurate preliminary audited consolidated
accounts OR (if listed) published preliminary statement of later annual results
3. CONSIDERATION TEST (para 5R) – in practice the KEY test*
Consideration for thetarget
• x100
aggregate market value of listed company ’ s ordinary ( voting ) shares
o Annex 1 Para 5R(5) – take share market value from close of business of last business day before
transaction is announced
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