The Bank of England Guidance was developed by the Bank in conjunction with the Association and other bodies and its publication met a long held need for sound guidance on equity issuance. It followed the recommendations of the MMC that the use of tendering for sub-underwriting should be encouraged and that the benefits of deep-discounted share issues should be explained to issuers.
At paragraph 12 the Bank of England Guidance mentions that issuers may also wish to take into account recommendations made by The Association of Corporate Treasurers to its members. These recommendations outline the information that issuers might request from their advisers when contemplating a share issue in order to evaluate the benefits of using a tender or a deep discounted approach.
The twin themes of the Bank of England recommendations lie at the heart of the principal dilemma of the treasurer: how to minimise the cost of the issue within an acceptable limit on the risk of its failure. The competitive tendering of underwriting in a carefully managed process opens up the opportunity for cost savings. These savings are increased as the discount to market price for the new shares to be issued is increased. At deeply discounted levels the need for underwriting the share issue may fall away completely.
Pre-emption rights give existing shareholders in a company the right to subscribe for their pro rata share of any new shares in that company issued for cash, providing them with protection against inappropriate dilution of their investments. Pre-emption rights are enshrined in law and, under the Companies Act 1985, may be disapplied only by a special resolution of shareholders at a general meeting of the company (Sect 95 CA 1985).
The Principles provide guidance on issues of equity securities for cash other than on a pre-emptive basis pro rata to existing shareholders and relate to all UK companies which are primary listed on the Main Market of the London Stock Exchange. The issue of the updated Principles follows a recommendation of the Myners Report in February 2005.
CMS Cameron McKenna: Treasury shares, an update (Dec 2003)
www.law-now.com/law-now/2003/treasurysharesanupdate.htm?&MSHiC=65001&L=1...
The Companies (Acquisition of Own Shares)(Treasury Shares) Regulations 2003: SI 2003/1116
www.opsi.gov.uk/si/si2003/20031116.htm
The Companies (Acquisition of Own Shares) (Treasury Shares) No. 2 Regulations 2003: SI 2003/3031
www.opsi.gov.uk/si/si2003/20033031.htm