The Financial Services Authority (FSA) has today censured BDO LLP (BDO) for failings while acting as a sponsor during Shore Capital Group PLC’s (Shore Capital) takeover of Puma Brandenburg Limited (Puma). This is the first public censure of a sponsor, by the FSA, in relation to the Listing Rules.
In May 2009 BDO was approached by Shore Capital to provide advice as a sponsor on its proposed merger with Puma. BDO was made aware that the transaction might constitute a reverse takeover due to the significant size of the target company. Shore Capital’s shares were listed on the Official List and traded on the London Stock Exchange.
The Listing Rules state that a suspension of the listed company’s shares will often be appropriate upon the announcement of a reverse takeover, unless the UK Listing Authority (UKLA) is satisfied that there is sufficient information already in the market about the proposed transaction. These requirements are in place to ensure the smooth operation of the market and in the interests of investor protection and market confidence.
The UKLA relies on sponsors to ensure that issuers meet their obligations under the Listing Rules and it is therefore crucial that sponsors deal with the FSA in an open and co-operative manner, and perform sponsor services with due care and skill.
Despite these requirements, BDO failed to liaise with the UKLA in advance of the announcement of the transaction to ascertain whether Shore Capital’s shares should be suspended. Instead BDO:
- Agreed with Shore Capital from the outset that it would delay contacting the UKLA until after the announcement; and
- Attempted to avoid classifying the transaction as a reverse, despite recognising at the time that this strategy was highly unlikely to succeed.
The FSA has concluded that BDO’s conduct did not satisfy the requirements for a sponsor under the Listing Rules.
Marc Teasdale, head of department, UKLA said:
"Sponsors provide important protections for investors and the market under the Listing regime. They are entrusted to provide sound and expert guidance to issuers on their obligations, and are relied upon to be open with the UKLA.
"BDO failed in its responsibilities as a sponsor on this transaction and we are sending a clear message with this public censure about the importance we attach to the sponsor role."
BDO and the former partner who led the BDO team on the transaction have accepted the FSA’s decision and cooperated fully with the FSA’s investigation. BDO have made changes to their operations which are designed to ensure compliance with the sponsor rules in the future.
Background
- The Final Notice.
- The Listing Rules and more detail regarding sponsors can be found on the FSA website.
- The contraventions relate to BDO’s conduct as sponsor on the proposed merger between Shore Capital Group PLC and Puma Brandenburg Limited, details of which were announced to the market on 11 June 2009.
- The FSA has the power under s.89 of the Financial Services and Markets Act 2000 (FSMA) to publicly censure sponsors for a breach of the Listing Rules. The FSA can also refuse or cancel a person’s approval as a sponsor under s.88. There is no additional power under FSMA for the FSA to fine a sponsor.
- Listing Rule 8.7.19R states that if the FSA considers that a sponsor has breached any provision of the Listing Rules and considers it appropriate to impose a sanction it will publish a statement censuring the sponsor. LR 8.7.20G states that the Enforcement Guide sets out the FSA’s policy on when and how it will use its disciplinary powers, including in relation to a sponsor. The FSA expects sponsors to comply with all of the six Principles for sponsors, including those at Listing Rules 8.3.3R and 8.3.5R.
- Listing Rule 10.2 sets out the basis for classifying a transaction, by assessing its size relative to that of the listed company proposing to make it. The class tests are set out in LR 10 Annex 1 R for the purpose of calculating this. A reverse takeover is defined in Listing Rule 10.2.4(4) and includes an acquisition by a listed company of a larger unlisted company.
- The FSA, when it acts as the competent authority under Part VI of FSMA, is referred to as the UK Listing Authority or UKLA. In this role, the FSA is a securities regulator, focused on the companies which issue the securities traded in financial markets. By making and enforcing the Disclosure and Transparency Rules, the Listing Rules and the Prospectus Rules, the FSA aims to protect investors and foster appropriate standards of transparency, conduct, shareholder rights and due diligence.
- The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; securing the appropriate degree of protection for consumers; fighting financial crime; and contributing to the protection and enhancement of the stability of the UK financial system.