London, 10 February 2005
Pre-Emption Rights: Final Report
http:///ww w.dti.gov.uk/cld/report_pdfs/02 -08-final-report.pdf
A study by Paul Myners into the impact of shareholders' pre-emption rights on a public company's ability to raise new capital was published by DTI on 10 February 2005. Lord Sainsbury today welcomed a boost to the UK's hi-tech industries with the publication of Paul Myners' report on pre-emption rights.
The report concludes that more active shareholder engagement is the key to listed companies - such as those in the biotechnology sector - being able to raise the capital they need to grow and develop.
Paul Myners concludes that while the principle of shareholders having pre-emptive rights is valuable and should not be eroded, the current blanket approach to disapplying these rights - due to a rigid interpretation of the existing guidelines - is not working as intended.
The report recommends that:
* current guidelines should be replaced by new guidance with emphasis placed on a case by case engagement between a company's directors and shareholders;
* a new Pre-Emption Group should be formed with wider membership and take a more proactive approach to monitoring application of guidelines; and
* the current 5% non pre-emptive right authorisation level should be retained as a benchmark for individual applications.
The report follows Paul Myners' study of pre-emption rights, which give existing shareholders first refusal on any new shares that a company issues to raise cash, commissioned by DTI in September 2004.
The "Bioscience 2015" report, published by the Bioscience Innovation and Growth Team in November 2003, suggested that the guidelines constrained the growth of companies seeking to finance the transition from the R&D stage to the launch of a product.
Lord Sainsbury, Science and Innovation Minister, said: "Paul Myners has produced an excellent report on the way forward on pre-emption rights which should produce a win-win situation for companies and investors.
"The challenge is now to keep the momentum going and drive forward the report's recommendations.
"The bioscience industry plays a vital role in making the UK the best place for science. It stands to benefit greatly from increased flexibility which the industry and investor community can deliver by working more closely together."
Explaining that he is confident his recommendatins will bear fruit, Paul Myners said: "My task has been made much easier by the quality of the submissions that I have received and the willingness of all parties to engage constructively.
"There is an opportunity here for all parties to benefit - preserving the principle of shareholders rights to pre-emption, while delivering companies the flexibility they need to raise capital in ways that are most appropriate to their particular circumstances.
"The Pre-Emption Group is to be re-formed and I am confident that it will deliver what is required. But of course the proof of the pudding will be in the eating."
Notes for Editors
1. An independent study by Paul Myners was announced by the DTI on 7 September 2004. The study examined whether or not the current application of pre-emption rights when new shares are issued hinders companies from raising finance to innovate and grow their businesses. Paul Myners issued an Invitation to Comment on 3 November.
2. The full report and the responses to the Invitation to Comment are available on the DTI website at http://www.dti.gov.uk/cld/public. htm Hard copies of the report are available on request.
3. Paul Myners is chairman of Marks & Spencer Group plc, and a former chairman of Gartmore Investment Management Limited. He was assisted in his work by an Advisory Group.
4. The Advisory Group members were:
John Aston - Chief Financial Officer, Cambridge Antibody Technology
Kate Bingham - General Partner, SV Life Sciences
Peter Blythe - Director of Finance, GUS plc
Nigel Boardman - Corporate Partner, Slaughter and May
Giles Craven - Managing Director, Shell Pensions Management Services Ltd
Colin Mayer - Professor of Management Studies (Finance), Said Business School, University of Oxford
Michael McLintock - Chief Executive, M&G Investments
Calum Paterson - Chief Executive, Scottish Equity Partners
Charles Plowden - Partner, Baillie Gifford & Co
David Porter - Head of Private Equity, Nomura International plc
Norman Price - Chairman, Bede plc
Michael Queen - Finance Director, 3i
Robert Swannell - Co-Chairman, European Investment Bank, Citigroup
Tim Wise - Managing Director, Corporate Finance, Cazenove
5. The recommendation to examine the issue of pre-emption rights was put forward by the joint Government and industry task force known as the "Bioscience Innovation and Growth Team" in it's report "Bioscience 2015" published and announced by the Prime Minister in November 2003. The report and the Government's response can be found here: http:///www.dti.gov.uk /bio-igt/bio-igt-in dex.html
Paul Myners' study was commissioned following representations from the biotechnology industry that current application of pre-emption rights in the UK makes it difficult, and more expensive, for companies to finance research and product development.
News release No. P/2005/048
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