Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Thursday, March 11, 2010

Pre-emption rights; international standards emerging?

The FSA, as part of its review of the listing regime, has just launched new rules requiring foreign issuers in its Premium segment to follow UK practice in offering pre-emption rights to their shareholders. However the application of the principles remains very different around the world.

Last year 1,012 companies across the world raised $196.3bn via rights issues, according to information from Dealogic. Three-quarters of this sum was raised in Europe, much of it from existing shareholders, who are the key resource for new cash calls.

Pre-emption rights are jealously guarded by all shareholders. They give existing shareholders in a company the right to subscribe for their pro rata share of any new shares in that company issues for cash, providing them with protection against inappropriate dilution of their investments.

They are important to all shareholders, but in Europe, pre-emption varies country by country. The concept has been enshrined in European law since the 1970s. But the provisions in the 2nd Company Law Directive provide for variation between the regimes in different Member states.

In the US, only pre-emption rights that are enshrined in company charters are enforceable. Managements can sell what they want to the highest bidder and investors have limited protection from their actions. Many other countries impose rules on share issues, forcing companies to tell existing shareholders of their plans or give existing shareholders the right of first refusal of new shares.

Do the changes under way at the FSA to mandate pre-emption for foreign companies signal the start of a global regime?


  • At 7:08 pm, Anonymous Anonymous said…

    "Q:Do the changes under way at the FSA to mandate pre-emption for foreign companies signal the start of a global regime?"

    No. If anything Britain's obsession with pre-emption rights being enshrined in law over-eggs the pudding. The shareholders can get such things put into the corporate charter of US corporations and as for European companies, a lack of pre-emption rights in the case of additional shares being issued is probably way down the list of things to lose sleep over.


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