The spotlight has recently fallen on the ease with which some companies are able to de-list from AIM and leave their minority shareholders with no market for their shares.
The general rule under the Takeover Code is that a shareholder who acquires 30% or more of the voting rights in a quoted company must make an offer to purchase all of the shares in that company. However, if that shareholder holds over 50% of the voting rights already, then he can increase his stake without restriction. A shareholder could own over 50% of the voting rights of a company because he owned that stake when it came to market or because he has increased his stake and obtained a waiver of the obligation under Rule 9 of the Takeover Code, allowing him to own shares equal to or in excess of 30% of the voting rights of the company without having to make a general offer for all of the shares in the company. Such a waiver may be given by the Panel in specific circumstances, for example where new shares in the company are issued as consideration for an acquisition or where an underwriter incurs an obligation to make a general offer as a result of underwriting an issue of shares.
With a 75% vote being required to delist a company from AIM, it is possible for a company to delist and leave its minorities high and dry on the vote of just one major shareholder. Following such a delisting, shareholders may find themselves with no market for their shares, other than the possibility of a matched bargain service. An example is Metnor Group plc, which delisted earlier this year. Metnor’s controlling shareholders had enough votes amongst themselves and their families to carry the de-listing resolution. Minority shareholders were left with no market in their shares, with the exception of a matched bargain service and they could not have any influence on the vote.
The whole Metnor saga highlights a major issue in relation to AIM companies seeking to de-list. It is not unusual for an AIM company to come to market with a single shareholder owning over 50% of its shares. From thereon, that shareholder is free to stake build. Alternatively, as was the case with Metnor, less than a year before its de-listing, the majority shareholders increased their stakes to over 50% following a Rule 9 waiver, which was given because the company wanted to undertake a buyback of its shares.
There are various solutions that AIM could consider, including a requirement for a positive vote of 75% of all of a company’s shareholders, not only of those present and voting at a general meeting to de-list or, it could increase the voting threshold up to, say, 90%. Another possible solution would be for majority shareholders in companies coming to market to be required by their nominated advisor to enter into a relationship agreement with their companies, undertaking not to exercise their votes in respect of some or all of their shares on any future de-listing resolution. Such shareholders though in companies already on AIM are unlikely to agree to this.
If AIM does not strengthen its regulation of de-listings, then minority power might be able to exert some pressure on AIM quoted companies; the recent example of GSH Group plc is a case in point. When GSH informed its shareholders that it was intending to delist from AIM, the minorities had no options – one shareholder controlled over 80% of GSH’s shares and he had requisitioned the AIM cancellation general meeting. The shareholder informed the GSH Board that he intended to vote against any proposal by the company to make a tender offer for its shares prior to the cancellation. Minorities were therefore left in a position where their shares would have no market and the option of tendering their shares to the company for cash had been barred. Although minority pressure won the day, “following consultation with the Board and stakeholders of the Company [GSH]”, the shareholder re-considered his position and indicated in writing to the Board his support of a tender offer prior to the delisting at a good price.
There seems to be no satisfactory solution to the issues raised by Metnor. The example of GSH shows that dissatisfied minorities can sometimes force the hand of a majority shareholder but this will clearly not always be the case. The effect of all this may be that institutional investors stop investing in companies coming to or already on the market, which are in the grip of one large shareholder; short term at least, this cannot be good for AIM.
Clive Garston is a corporate partner at Halliwells LLP and Melissa Needham is a solicitor in the corporate department.