ESMA issues prospectus exemption guidance for listed entities

The European Securities and Markets Authority (ESMA) has published technical advice on the minimum information content of documents describing a takeover, merger or division where a prospectus is not required

The new requirement is part of the EU’s Prospectus Regulation (Regulation 2017/1129), which replaced the Prospectus Directive (2003/71/EC).

In the UK the regulations were enacted via amendment to the Financial Services and Markets Act 2000 (Prospectus and Markets in Financial Instruments) Regulations 2018.

Under the new rules, which came into force in July 2018 and have to be fully implemented by 21 July 2019, issuers are able to offer/admit securities in connection with takeovers, mergers or divisions without publishing a prospectus, provided that a document is made available to investors describing the transaction and its impact on the issuer.

The Regulation is a key step in the EU’s plans for the Capital Markets Union.

The technical advice sets out the minimum information content of this document in relation to:

the offer of securities to the public or the admission to trading of securities on a regulated market; and

the description and impact that a takeover, merger or division may have on the issuer’s operational and financial activities.

This includes technical advice on the minimum information content of documents describing a merger, division or takeover where entities can apply for an exemption from publishing an approved prospectus (Article 1 (7) of the Prospectus Regulations).

ESMA also points out that in the event of a no deal Brexit, where the UK leaves the EU without a withdrawal agreement in place, any issuer making an offer of non-equity securities to the public in Sweden, for example, will need to review its public offering and change jurisdictional process.

In a case where a entity ‘has a base prospectus, approved by the UK Financial Conduct Authority (FCA) and passported to Sweden before the UK’s withdrawal, which still has a number of months left of its validity under PD Article 9, ESMA is of the view that the issuer would need to have a prospectus approved in its new EU27/EEA EFTA home member state in order to make an offer to the public in Sweden’.

In the responses to the consultation, there were concerns about the use of the exempted document, with a representative from the banking sector noting that issuers ‘will always opt for a prospectus given the uncertainty that will surround the Exempted Document’.

ESMA stated that it ‘believes that the Exempted Document will bring transparency to the market regarding the information that needs to be disclosed in the context of public offers/admissions to trading connected with takeovers, divisions or mergers in particular when these transactions have a cross-border element as, in this case, a single document, complying with the requirements set out in the Commission Delegated Act, would need to be published… the content of the Exempted Document will ensure a harmonised approach in all jurisdictions with regard to the information provided to investors when 12 takeovers, mergers and divisions are connected with public offers of securities or admissions to trading on regulated markets’.

The technical advice also takes into account that some disclosure items overlap with the disclosure requirements included in the Takeover Bids and Merger and Division Directives. In order to avoid duplication of information, it explicitly allows incorporation by reference in the Exempted Document of the information prepared for the purpose of such directives.

ESMA also stressed that the application of an overarching principle of materiality is key in order to provide investors with the information that would be material in each case.

This advice on the minimum information content is targeted at national competent authorities, issuers, their advisers and financial market participants in general.

This forms part of a long-running project to produce guidance. ESMA will follow up with a further guidance document focusing on technical advice regarding the general equivalence criteria that should be applied in respect of the information requirements imposed by third countries (Article 29 (3) of the PR). This is due to be released by 31 March 2020.

The advice is published in response to a mandate from the European Commission following a public consultation between July and October 2018.

The technical advice will form the basis for the delegated acts to be adopted by the European Commission, and subsequently EU member states. Once the PR is adopted, Directive 2003/71/EC (the Prospectus Directive) will be repealed.

The new Prospectus Regulation is intended to be of particular benefit to European small and medium enterprises when issuing shares or debt. Companies already listed on public markets will also benefit when they list additional shares or issue corporate bonds.

The Department for Business, Energy and Industry Strategy (BEIS) was supposed to lay a Statutory Instrument giving the UK the powers to adopt these standards at Exit. However, to date this SI has not been laid in parliament.

ESMA Final Report Technical advice on Minimum Information Content for Prospectus Exemption, issued 29 March 2019

Prospectus Regulations (PR) – Regulation (EU) 2017/1129, via Eur-Lex

Financial Services and Markets Act 2000 (Prospectus and Markets in Financial Instruments) Regulations 2018

Report by Sara White

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