Market Tracker weekly bulletin – 29th November 2018

29 Nov 2018 | 9 min read

A round up of key developments in corporate transactions covered by Lexis®PSL Corporate and Market Tracker this week, including the withdrawal of the possible offer for Intu Properties plc, a hostile bid for Faroe Petroleum plc, a listing of GDRs by Huatai Securities via a link between the Shanghai Stock Exchange and the London Stock Exchange, an IPO by investment platform AJ Bell and an update on the Investment Association’s findings on voting at the AGM and board diversity.

Transactions

Takeovers

Possible offer for Intu Properties withdrawn

On 29 November, the consortium comprising the Peel Group, the Olayan Group and Brookfield Property Group (the Consortium) announced that they had withdrawn their possible cash offer for Intu Properties plc (Intu), citing ‘uncertainty around current macroeconomic conditions and the potential near-term volatility across markets’ as key factors.

In its response, Intu noted that ‘good progress’ had been made since the offer was initially announced on 4 October. The original ‘put up or shut up’ (PUSU) deadline of 1 November had been extended three times, in which time the Consortium had largely completed its due diligence. Intu stated that the Consortium had confirmed on 21 November that ‘nothing had arisen from its due diligence workstreams that would lead it to alter the terms of its revised indicative proposal of 210.4 pence per share’. Despite this, the Consortium eventually concluded that they felt unable ‘to proceed with an offer within a timeframe which is manageable within the confines of the Code timetable’.

This is the second failed offer for Intu, following Hammerson’s withdrawal from acquiring Intu in April 2018. Hammerson cited the deterioration of the UK property market as the primary reason behind the decision not to go ahead with the offer, stating that ‘the equity market now perceives a heightened level of risk associated with the UK retail property sector as a whole.’

Intu took the opportunity in its response to the withdrawal of the offer by the Consortium to reassure shareholders of its market position, claiming that ‘whilst market sentiment towards retail and retail property remains negative, Intu is confident of its commercial prospects’. Nevertheless, Intu’s share price took a hit following the announcement that the offer had been withdrawn, falling almost 40% from a closing price of 192.6 pence per share to a low of 117.3 in early trading on 29 November.

DNO ASA makes £608 million hostile bid for Faroe Petroleum plc

On 26 November, DNO ASA (DNO) announced an all-cash offer for Faroe Petroleum plc (Faroe), to be structured by way of a contractual offer. The offer of 152 pence per share values Faroe at approximately £607.9 million.

DNO is the majority shareholder in Faroe. It acquired 28.7% of shares in April 2018, but this was diluted to 28.2%, which DNO claimed to be due to ‘the vesting of share awards in favour of Faroe directors and others’. In its background to the offer, DNO suggested that based on its assessment of publicly disclosed information, existing shareholders’ interests would be significantly diluted by share awards and options yet to be vested or exercised.

DNO has stated that the offer is being made to safeguard its interests as Faroe’s largest shareholder against: Faroe’s unwillingness to consider proposing board representation; a lack of protection against dilution of its shareholding; and no assurance of Faroe achieving its full value potential in a volatile commodity and financial markets environment.

Faroe confirmed in an announcement made the same day that DNO did not engage with them prior to the announcement and urged shareholders to take no action in respect of their shares. Of the 40 firm offers announced in 2018, the offer for Faroe is the third hostile offer to be announced this year, following the offer for Phaunos Timber Fund Limited by Stafford Capital Partners Limited announced in July and the offer for GKN plc by Melrose Industries plc announced in January.

Equity Capital Markets

First international listing to link the London and Shanghai Stock Exchanges

Huatai Securities (Huatai), one of China’s largest brokerages, has announced plans to list on the London Stock Exchange.  This will be the first offering of shares through a link between the LSE and a Chinese bourse.

Global Depositary Receipts (GDRs) for Chinese companies are part of a project that seeks to link the Shanghai Stock Exchange with the London Stock Exchange. Chinese traded A-Shares will become available (via GDRs) on the LSE, and in turn, London-traded firms will have the option to list Chinese Depository Receipts (CDRs) in Shanghai, allowing international businesses to list directly on an exchange in mainland China. An agreement for an exchange connection between London and Shanghai was initially announced by the then chancellor of the exchequer, George Osborne, in 2015.

Huatai aims to list $500 million worth of GDRs. The all primary offering will include up to 82.5 million GDRs sold to investors in the UK and EEA. Each GDR will represent 10 of the Company’s A-shares, which trade at $2.36 a share. Huatai currently expect to receive no less than $500 million in gross proceeds.

Huatai is a Shanghai listed company, which will give international investors access to its shares on the LSE. China is exploring options for offering Chinese securities to a broader range of investors at home and abroad. The listing comes as a number of Chinese companies aim to list internationally. Earlier this year Chinese smartphone maker Xiaomi announced plans to issue CDRs but later postponed the plans.

Huatai, JP Morgan and Morgan Stanley are global co-ordinators on the transaction, with Credit Suisse acting as bookrunner.

AJ Bell targets up to £675 million in IPO

On 27 November, AJ Bell Holdings (AJ Bell) released their prospectus and price range notice, following the announcement on 19 November of an intention to float on the LSE’s Main Market.

The offer will comprise only existing shares to be sold by selling shareholders. AJ Bell has made the offer available to certain qualifying customers in the United Kingdom in addition to institutional investors.

The price range for the offer has been set at £1.54 to £1.66 per ordinary share, implying a market capitalisation on admission of between £626 million and £675 million. The pricing is higher than some analysts had expected, indicating that AJ Bell expect solid investor take up and confidence in the projected share price. The company’s final pricing statement is due to be released on 7 December, with admission set for 13 December.

In focus: Investment Association looks at impact of board diversity on voting at AGM

On 22 November, the Investment Association (IA) published the IA Stewardship Survey 2018. The survey discusses the ‘stewardship activities’ of 59 asset management firms in respect of UK companies. The firms surveyed represent 71% of the funds managed in the UK by IA members, totalling approximately £5.6 trillion. Consistent with The UK Stewardship Code, the survey regards ‘stewardship’ as a combination of engagement and voting, whereby:

’engagement’ means the monitoring of and interaction with investee companies and ‘voting’ the exercising of voting rights attached to shares’

The survey found that:

  • 55% of asset managers use proxy voting service providers for recommendations
  • on average, 89% of the votes cast for UK companies were in favour, 9% against and 2% abstained
  • there were an average 158 engagements per asset manager
  • 75% of asset managers engaged collectively with other investors
  • the most important issue for engagement was company strategy followed by financial performance

Notably, the survey highlights the importance of gender diversity for asset managers, finding that 56% of participants engaged with UK companies on this issue and 42% of participants made a ‘voting decision’ based on this.

‘Asset managers will engage with a Board to understand how they are often seeking to improve their gender diversity before considering it a voting issue. Usually, it is only after a period of time and when the asset manager considers that progress has not been made that they will vote against a company based on their lack of gender diversity.’ (IA Stewardship Survey, November 2018)

Market Tracker has conducted separate research on both gender diversity and shareholder voting at the AGM in its upcoming AGM Season 2018 Trend Report. Although the Market Tracker AGM report does not consider whether the voting decisions of asset managers were influenced by the level of female representation on a company’s board, we found that four of the six (66.6%) all-male boards reviewed received a significant number of ‘no votes’ on at least one resolution at their most recent AGM. This compares to 28.6% of the FTSE 350 companies reviewed receiving a significant no vote generally.

Latest developments

Investment Association update Principles of Remuneration

On 22 November, the IA published an update of its Principles of Remuneration in light of investor concerns that companies are not listening to or responding to shareholders over pay. The remuneration principles aim to provide a guide to shareholder expectations and good practice, helping companies determine and structure remuneration.

The updated remuneration principles were released alongside a letter from Andrew Ninian (Director, Stewardship and Corporate Governance) which highlights the key changes. These include requiring companies to:

  • pay pension contributions to directors in line with the contribution rate given to the majority of the rest of the workforce
  • broaden the triggers under which malus and clawback provisions can be used to forfeit or recover remuneration
  • require directors to hold a proportion of their shares for a minimum of two years after their departure, so that they will consider the long-term value of the company

For more on this story see our news article: Investment Association publishes 2018 update of ‘principles of remuneration’ - (a subscription to Lexis®PSL Corporate is required).

Feedback period open in respect of draft Act for a simplified prospectus for companies and investors in Europe

The European Commission is seeking views on its draft delegated regulation ahead of finalising its initiative for a simplified prospectus for companies and investors in Europe. The feedback period is now open and ends on 26 December 2018. For more on this story see our news article: Feedback period open in respect of draft Act for a simplified prospectus for companies and investors in Europe - (a subscription to Lexis®PSL Corporate is required).

FRC publishes FAQs on the 2018 UK Corporate Governance Code

The Financial Reporting Council has published a list of frequently asked questions (FAQs) on the 2018 UK Corporate Governance Code, which will apply to premium listed companies with accounting periods beginning on or after 1 January 2019. The FAQs cover issues such as how the Principles should be reported on, the status of the revised Guidance on Board Effectiveness and how the ‘comply or explain’ regime operates in practice. For more on this story see our news article: FRC publishes FAQs on the 2018 UK Corporate Governance Code - (a subscription to Lexis®PSL Corporate is required).

 

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