The Pre-Emption Group has found that a majority of FTSE 350 companies have taken advantage of components of its updated Statement of Principles (see here) to seek disapplication authorities for higher amounts than before at their AGM.
What are the Principles?
The Principles provide guidance for UK listed companies seeking to issue shares for cash without regard to shareholders’ rights of first refusal. The updated Principles allow companies to obtain shareholder authority to issue new shares in an amount of up to 24% of existing share capital without further shareholder approval (compared with the previous 10% recommended maximum).
What are the report’s key findings?
The PEG looked at AGMs of FTSE 100 and FTSE 250 companies held between 4 November 2022 and 31 July 2023 to monitor use of the updated Principles.
Of the FTSE 350 companies with an AGM during the study period:
- 55.7% sought enhanced disapplication authority as allowed under the updated Principles (meaning that either the request for general corporate purposes or for a specified capital investment exceeded the authority previously allowed under the 2015 Statement of Principles).
- 65.7% requested authority for a specified capital investment, in addition to general corporate purposes.
- 98.3% had all disapplication resolutions passed by shareholders, with only a small number seeing significant votes against (20% dissent or greater of shareholders present and voting).
The report notes that shareholder dissent is very slightly higher on capital-related resolutions than it has been in previous years. The PEG is also aware of a small minority of investors which are voting against all resolutions seeking enhanced disapplication authority because of fundamental disagreement with the updated Principles.
Advice for companies and investors
The PEG is pleased to see widespread support from shareholders for the updated disapplication thresholds in the current Principles and is confident that dissent noted is company-specific.
The PEG notes that many companies continue to use elements of the 2015 Statement of Principles within their resolutions requesting disapplication authority but as the 2022 Statement of Principles now constitute best-practice, companies are advised they should aim to align their requests accordingly, even if they do not seek the full amount of enhanced authority.
The PEG continues to advocate that companies:
- engage with their shareholders on pre-emption rights in advance of tabling a resolution seeking pre-emption disapplication authority;
- aim to provide their investors with detailed, transparent disclosure when they choose to use any disapplication authority that they have been granted during a capital raising; and
- submit a post-transaction report to the PEG following a capital raising that utilises a pre-emption disapplication authority. The 2022 Statement of Principles includes a template for the disclosure.
For future monitoring of company practice, the PEG intends to set up a public database of post-transaction reports. Investors which become aware of companies misusing disapplication authorities, including through cash box structures, are asked to report these practices to the PEG.
Where can I find out more?
Click here for the report and here for the press release.
For information about developments and market practice relevant to AGMs to be held in 2024, including commentary on share capital and pre-emption disapplication authorities, see our AGMs Update 2024.
For further information, please contact:
Lucy Fergusson, Partner, Linklaters
lucy.fergusson@linklaters.com
