Kate DaSilva and Stanley McKeen -
Earlier this year, the U.K. Financial Services Authority issued a consultation paper proposing amendments to the UK Listing Authority's Listing Rules that would, among other things, amend the regulations respecting reverse takeovers. According to the FSA, the proposed changes would ensure that reverse takeovers could not be employed as a "back-door" route to listing for otherwise ineligible companies.
Definition of "reverse takeover"
Under the amendments, a reverse takeover would be defined as
a transaction, whether effected by way of direct acquisition by the issuer or a subsidiary, an acquisition by a new holding company of the issuer or otherwise, of a business, a company or assets:
(1) where any percentage ratio is 100% or more; or
(2) which in substance results in a fundamental change in the business or in a change in the board or voting control of the issuer.
When calculating the percentage ratio, the issuer should apply the class tests [these consist of a gross assets test, a profits test, a consideration test and a gross capital test].
In considering whether a fundamental change in the business occurred, the FSA would consider the extent to which the transaction would change the strategic direction or nature of the business, the impact the transaction would have on the industry sector classification of the enlarged group and the impact on the end users and suppliers. According to the consultation paper, the proposed definition would remove "any uncertainty as to which structures result in a reverse takeover".