30 March 2021

How fair is your SPP?

ANNA FUGLESTAD, SHAREHOLDER ENGAGEMENT

Over the past year as companies have taken advantage of buoyant equities market and COVID related exemptions to undertake capital raisings, retail shareholders have jumped on the opportunity to increasing their holdings through Share Purchase Plans.

FIRST Advisers recently analyzed all Share Purchase Plans that occurred between March 2020 and February 2021. How companies in this group acted with the over-subscriptions varied significantly. Some only accepted the targeted amount to be raised, others accepted all the valid applications received, and others still were somewhere in between.

As has been apparent in the media, Boards of companies who have scaled back applications have come under significant scrutiny regarding the fairness of their allocation policies on existing shareholders. For many of the SPPs reviewed by the FIRST Advisers team it appeared questionable as to how much analysis and consideration went into determining the scale back policy and final allocation formula, if any!

Outlining Scale back policy upfront

Many SPP booklets leave the scale back policy unclear, often merely stating that the allocation policy will be done at the Boards absolute discretion.  While this is an easy policy to draft, it could give the impression the Board is giving little upfront thought to protecting shareholder value when implementing any scale back, even though this may not be true.

Where written policies are vague and given little upfront thought, once the Offer closes, Boards have only a very limited time between knowing the final value of applications received and making an informed decision regarding allocations.  And it is for these SPPs, where FIRST Advisers noted that scale backs were too often implemented crudely, such as using ‘first-come-first-serve, or ‘straight pro rata to application size’, which unfortunately resulted in maximizing shareholder dilution and often adverse media attention.

Further, stating that an Offer may close early, risks unnecessarily disenfranchising many shareholders who intend to participate but may be unable to submit their application early.  For example, with currently delayed post, many shareholders now only receive their SPP documentation mid-way through the Offer period, and therefore have little time to participate.  Others may set their payment instructions in their bank to occur on, or close to, the Offer close date, providing them with time to obtain the required funds, or limit their funds being tied up for any longer than necessary.

Policy Alternatives

There are many things for Boards to consider, with a vague policy not necessarily acting in the best interest of retail shareholders. While it is very difficult to define allocation formula until all the applications are received, it is possible to retain complete discretion for Boards while indicating a policy which seeks to achieve one or more of the following:

  • minimize/optimise the dilution or accretion impacts;
  • achieve meaningful minimum allotments;
  • reduce the number of unmarketable parcels;
  • reward shareholders who have held for a particular timeframe (particularly useful where share prices have changed materially over that timeframe); or
  • avoid double dipping by shareholders who seek to game the SPP by splitting holdings, or who have already participated in a preceding placement.

 

Consideration of Scale Back Formula Options

There is no one-size-fits-all method of implementing a scale back and the possibilities available to Boards are endless.  In an ideal world, Boards should outline a considered policy upfront, which, among other things, considers the size of the Company, likelihood of oversubscription and the composition of their shareholder base.

This then provides them with the opportunity to receive and consider a detailed analysis of actual scale back scenarios, based on the number, value and identity of applications received, in the very limited timeframe following the close of the offer and allotment.

Although not every shareholder will be perfectly happy with any scale back, at least there is a pathway to minimize the chance of implementing a poor allocation formula and demonstrate to all shareholders the Board is keeping their interests front of mind.

4 June 2019

Time for Proxy Advisors

GILES RAFFERTY, Corporate Communications and Media Advisor AGM season may seem a long way off for many ASX listed companies but June and July are prime time for engaging with proxy advisors in advance of the peak months of proxy season, between August and October. Proxy advisors play a vital role in helping inform investment […]

Read More
3 September 2018

Deal Flow – Retail Investors Have a Point of View

Victoria Geddes, Executive Director Post results reporting season is a time when investment banks start engaging their clients, in advance of the year’s end, to get mergers, spin-offs and takeovers off and running. Witness the recent TPG and Vodafone merger as well as the Coles spin-off from Wesfarmers. The merits of engaging in Proxy Solicitation […]

Read More
29 June 2018

ASIC Review of Proxy Adviser Engagement Practices

Victoria Geddes, Executive Director Following FIRST Adviser’s ‘Time to talk to Proxy Advisers’ post last month, ASIC has published its review of proxy adviser engagement practices. The Australian Securities and Investments Commission acted after business organisations complained some proxy firms are unwilling to engage, correct inaccuracies or give time for companies to clarify errors. ASIC’s […]

Read More
7 December 2017

FIRST Advisers ranked the Number 1 Australian Proxy Solicitation firm

The FIRST Advisers’ Proxy Solicitation practice has taken a prime position in the 2017 Intermediary Awards, as the top ranked Australian Proxy firm and the 6th ranked globally. FIRST Advisers is the only Australian specialist in Activist campaigns to feature in the top 10 rankings, which are dominated by US and European firms, many of […]

Read More
10 April 2017

The Institutional Voting Process at AGM’s and the Value of Vote Tracking

Daniel Jones, Shareholder Analytics The Scenario We’ve all seen it; a company in the midst of a contentious voting situation at an AGM with management nervously waiting on the final proxy vote count. Less than 48 hours before proxy voting is due to close, a significant number of votes are lodged with the Share Registry […]

Read More
11 February 2016

IR Managers: Think your firm has no peers? Think again!

I’ve heard it time and time again. “We cannot target investors based on a peer analysis because we… …have no peers …no direct peers” …no local peers” …no peers of the same size” To you that subscribe to this view I would like to challenge your definition of a peer. Whilst in your eyes a […]

Read More
30 November 2015

It’s Enough to Give Your CEO Nightmares

FIRST Advisers, Investor Tracking and Solicitation An unknown shareholder has doubled their shareholding in your company overnight but they can’t be identified because they are protected by privacy legislation in their offshore jurisdiction. Or suddenly one day that unassuming one per cent shareholding held in a prime broker intermediary account disappears and is replaced by […]

Read More
2 December 2014

7 tips for Soliciting Shareholder Vote

In an age when the interactions between listed companies and their shareholders are increasingly automated and carried out electronically, the relatively low tech practice of soliciting votes still has a decisive role to play when companies need to win support from investors. The two strike rule at annual general meetings, increasingly bold activist investors and […]

Read More

Archives