The FCA has today published a consultation paper proposing changes to the Listing Rules applicable to Special Purpose Acquisition Vehicles (SPACs). A link to the consultation paper can be found here.
The FCA's main proposal is to remove the existing presumption in the Listing Rules that the listing of a SPAC will be suspended when it identifies a potential acquisition target.
The removal of the suspension presumption would be contingent on a SPAC having certain features built into its structure and providing certain disclosures to the market.
In order to avoid a suspension of its listing, a SPAC would need to satisfy the following criteria:
The SPAC would need to raise gross proceeds from public shareholders at its initial admission of at least £200m. This amount excludes any funds the founders/sponsors provide to the SPAC (including through any participation in the IPO).
SPACs should adequately ring-fence, via an independent third party, proceeds raised from public shareholders. The ring-fencing should be structured such that the proceeds can only be used to fund:
- an acquisition;
- redemptions of shares from shareholders;
- repayment of capital to shareholders if the SPAC winds up/fails to make an acquisition.
A SPAC should have a time limit and not be "open-ended" and this should be built into its constitution. The FCA has proposed a 2-year deadline which can be extended by up to 12 months with the approval of shareholders.
Board and shareholder approval of an acquisition
Proposed acquisitions should be subject to the approval of the board, excluding from the discussion and vote any director who:
- is a director of the target (or an associate of a target director);
- has a conflict of interest in relation to the target group.
Proposed acquisitions must also be approved by a majority of public shareholders. The sponsors/founders should be prevented from voting.
Fair and reasonable statement
Where any of the SPAC directors has a conflict in relation to the target group, the board of the SPAC should also publish a statement that the proposed transaction is fair and reasonable as far as the public shareholders of the SPAC are concerned. This statement should reflect advice by an appropriately qualified and independent adviser.
Shareholder redemption rights
SPACs should provide a redemption option to shareholders at the time of the acquisition. Any redemption option should specify a predetermined price at which shares will be redeemed (either a fixed amount or a fixed pro rata share of ring-fenced proceeds).
At the time of the acquisition the SPAC should release an announcement containing:
- A description of the target business and the material terms of the proposed transaction;
- An indication of how the SPAC has assessed the value of the target business;
- Any other details of which investors should be aware in order to make a properly informed decision.
The FCA consultation process will last for 4 weeks and the new rules are expected to be in force by early summer.
In some instances, such as the exclusion of the sponsor's investment from the minimum value calculation and preventing sponsors voting on the acquisition, the FCA's proposals go beyond the requirements in most other jurisdictions and it will be interesting to see how this is viewed by the market.
In general though, we believe the majority of market participants will welcome the proposals set out in the consultation paper which, in line with the recommendation contained in Lord Hill's UK Listings Review report, will put the UK regime on a footing similar to the regulatory regimes of competing financial centres in the US, Asia and Europe.
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