Weekly newsletter - year 16 - no. 39 - 4 October 2010
News of the week:
Protection of investors: notice
Recommendation on football clubs
Exemption from compulsory prospectus: query
Interpretation of MiFID provisions: query
Exemption from mandatory bid on Omnia Network shares
Voluntary takeover bid on Fondo Caravaggio fund units
N.B. measures adopted by Consob are published in the Bollettino and, where envisaged, also in the Gazzetta Ufficiale. This newsletter summarises the more important or general measures and their disclosure here is therefore merely to update readers on Commission activities.
- NEWS OF THE WEEK -
PROTECTION OF INVESTORS: NOTICE
The Hellenic Capital Market Commission (HCMC), the Greek supervisory authority, reports that Avgitidis Trading Group and Mr Sokratis Avgitidis are offering investment services without the required authorisation.
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The Slovene Securities Market Agency, the Slovenian supervisory authority, reports that Fuehrende Investitionen Limited (www.fiss-solutions.com and www.fiss-investments.com), with declared registered office in the UK, is offering investment services without the required authorisation.
LISTED FOOTBALL CLUBS: RECOMMENDATIONS ON MARKET DISCLOSURES
Given the specific features of football clubs, by Recommendation no. 10081191 of 1 October 2010 the Commission identified a number of areas for the improvement of market disclosures by listed football clubs, with particular reference to remuneration paid and/or payable to intermediaries and to the players, taking into consideration the significant amounts that such
remuneration often reaches.
The recommendation, integrating the content of the previous communication no. 2080535 of 9 December 2002 on "Recommendations on periodic accounting reports and significant events for listed football clubs", introduces no new obligations with respect to the current regulations, but does call listed football clubs' attention to the accurate application of IAS/IFRS in preparing
their accounting documents as prescribed by EU and national law.
Specifically, the opportunity was seen to improve reports in terms of accounting criteria adopted where contracts stipulated by the clubs with intermediaries envisage that the payment of fees to intermediaries is subject to certain terms, e.g. the time a player remains with the club ("conditional fee-based contracts") or where such a condition is not included in the contract
(“unconditional fee-based contracts").
Furthermore, disclosures by listed football clubs must now report the accounting treatment of any variable fees envisaged in contracts signed with the players, taking into account both the significant levels that such fees can reach and the stronger recourse to such contractual provisions under current practices.
In the recommendation, which in accordance with paragraphs 117 et seq. of IAS 1 (Summary of Accounting Policies) opens by pointing out that the notes to annual and half year financial statements must include a description of the accounting policies applied to the various types of contracts signed with intermediaries, specifying the reference IAS, and provides information that the Commission
considers useful in highlighting points in financial reports with regard to: unconditional fee-based contracts with intermediaries; conditional fee-based contracts with intermediaries; variable fee contracts between the club and players.
Lastly, as Communications no. 2080535 of 9 December 2002 and 6027054 of 28 March 2006 state, the Commission reiterated the need for football clubs to use maximum prudence in issuing declarations regarding player market negotiations, considering that warning the market of news on various agreements that are not yet defined is useful only if it necessary to guarantee equality of information.
Beyond this context, such disclosures could alter regular market operations.
APPLICATION OF COMPULSORY PROSPECTUS REGULATIONS IN PUBLIC OFFERINGS RESERVED FOR EMPLOYEES
The Commission has been asked to respond to a query regarding application of the rules on compulsory issue of a prospectus, pursuant to art. 34-ter, paragraph n) of Consob Regulation no. 11971/1999, in relation to an issue of shares offered to certain employees of the Italian companies in a multinational group with a view to offering them a profit-sharing option.
The issue planned is reserved for employees with a valid employment contract as at the closing date of the offer and with a minimum number of years’ service completed by the year prior to the offer. In addition to shares assigned to them by way of group profit-sharing, these employees can subscribe to shares of up to 25% of their annual gross salary in the year prior to the offer. The
share subscription procedure is through a share-based trust. For voluntary subscriptions the intervention of a financial intermediary authorised under Italian law is envisaged, to which the employees would make direct payment of the countervalue of the shares subscribed.
Under the planned offer, with specific exceptions, the target subscribers are unable to transfer the shares for five years, after which sale may be to a group company only. After the first five years the employee has several options: sell the shares to group companies; withdraw the countervalue in cash from the current account; maintain the capital
investment (in this case the employee can claim redemption at any time). The employee can dispose of the shares in the first five years only under specific circumstances, and even then only to group companies.
The offer as prospected involves a transaction of shares not tradable on any capital market, and with a transferability restriction functional to the employees' access to company profit-sharing.
The exceptions to the rules for exchange tender offers are referred to in art. 100 of the Consolidated Law on Finance and art. 34-ter of the Issuers’ Regulation. Specifically, as permitted under art. 34-ter, subsection 1, paragraph n), offers “involving securities that cannot be traded on a capital market as they are non-transferable, either fully or in part,
offered, assigned or to be assigned to existing or former directors or existing or former employees by an issuer or by the parent company, a subsidiary, an affiliate or company subject to joint control” are exempt.
Given the above, the Commission considers that the case prospected in the query offers exemption from the compulsory prospectus preparation under the terms of art. 34-ter, paragraph n) of Regulation 11971/1999.
Specifically, the offer contains the details of a case of partial transfer restriction as explicitly envisaged in the aforementioned regulation. In fact, not only are target subscribers unable to transfer the shares for five years, but after that any sale can be to group companies only. Furthermore, even for the exceptions allowing sale within the first five years, the shareholders can only
sell back the shares to group companies.
Lastly, the Commission recommended that information be disclosed at the time of the offer regarding the criteria for setting the subscription price and for buy-back of the shares in question.
INTERPRETATION OF MIFID PROVISIONS ON POST-TRADING TRANSPARENCY AND TRANSACTION REPORTING FOR TRANSACTIONS RECORDED TO THE ERRORS ACCOUNT
A query was submitted to the Commission regarding interpretation of the provisions of Directive 2004/39/EC (the MiFID) and related level 2 measures on post-trading transparency and transaction reporting of transactions recorded to the errors account as a result of incorrect implementation of customer orders.
Two scenarios in particular were presented in relation to buy orders on financial instruments listed on regulated markets (RMs): 1) against a customer order an intermediary acts on the order at the price indicated but for a quantity less than that requested, therefore needing to complete the order by buying the remainder later through a further RM transaction. On transfer to the customer,
the intermediary records a balancing entry for the transaction in his errors account along with any price difference; 2) against a buy order with a price limit, the intermediary carries out the order for the correct quantity but at a different, higher price, attributing the transaction to his errors account and then needing to record an OTC transaction from the errors account to the
customer at the original price, the intermediary therefore assuming liability for the loss deriving from conclusion of the RM transaction at the higher price.
This is a double query, on the one hand concerning the need (or not) to publish post-trading information for the above-mentioned OTC transactions performed to rectify RM trading errors against customer orders, and on the other hand the need (or not) for intermediaries to report the transactions concluded against the errors account to Consob as part of transaction reporting
These queries were analysed with a view to the disclosures already published (post-trading transparency) or reported to Consob (transaction reporting), and the contribution to the pricing process (transparency), i.e. the reliability of transaction reporting information available to Consob as part of a regulatory framework established by art. 29 and art. 23 of the Market Regulation no.
In application of this regulation it was found that information on transactions completed on the regulated market had already been published by the market and submitted to Consob as part of RM transaction reporting.
Regarding the contribution to the pricing process and reliability of the information available to Consob, a distinction has to be made between transparency obligations and transaction reporting obligations in order to respond to the two queries.
In terms of transparency obligations, the OTC transaction is nothing more than the transfer to the customer of securities purchased by the intermediary on the market, a market that has already arranged publication of the relevant information, i.e. quantity and price terms. So the OTC transactions passed through the intermediary’s errors account and deriving from incorrect execution of
customer orders should not be subject to post-trading transparency as such action would result in duplication.
In reference to transaction reporting obligations, different considerations have to be made in terms of the related aims of supervision: the information submitted to Consob is used for supervisory purposes regarding orderly trading and conduct potentially qualifying as market abuse. Failing to report the OTC transaction to Consob would mean the supervisory authority would not have a
complete picture or correct information on trading performed by the intermediary on behalf of the customer. Therefore OTC transactions performed by the intermediary through his errors account and resulting from the incorrect execution of customer orders must be reported to Consob through the transaction reporting system, as the data – price and/or quantity – of the customer
order lead to a change in the flow of information already submitted to Consob (by the RM), without prejudice to other future new introductions to EU regulations as part of the MiFID reform currently being studied by the European Commission.
NEW REQUEST FOR EXEMPTION FROM THE MANDATORY BID ON OMNIA NETWORK SHARES (SETECO INTERNATIONAL)
With regard to the mandatory global bid on Omnia Network spa shares (now Seteco International spa) following the acquisition of 79.4% of the issuer's share capital by the shareholder Società Italiana di Partecipazioni e Investimenti srl (SiPix) through subscription to a share capital increase, the Commission did not consider there were grounds for “bail
out” exemption – pursuant to art. 106, subsection 5, paragraph a) of the Consolidated Law on Finance and art. 49, subsection 1, paragraph b) of Consob’s Issuers’ Regulation – given the lack of an essential element, i.e. a firm debt rescheduling plan approved by the creditors (see Consob Informs no. 35/2010).
Seteco did not arrange launch of the bid by the planned date (2 September 2010) and asked for a review of the Commission’s decision to verify whether there are grounds to apply art. 106, subsection 6 of the Consolidated Law on Finance. This regulatory provision states that “where justified, Consob can order that exceeding the shareholding indicated in subsection 1 … does
not trigger a mandatory bid in reference to cases referred to in subsection 5, but not expressly envisaged in the regulation approved pursuant to that subsection”.
In order to accept that there are grounds for application of the exemption according to the aforementioned final subsection of art. 106, therefore, it is important to at least identify a rationale based on one of the cases indicated in subsection 5 and hence, in the case in point, the case of a “direct bail-out of a company in crisis” pursuant to subsection 5, paragraph
Clearly such an identification can only be made in cases in which the “bailing out” of the company, based on the specific features of the case, is not through a “debt rescheduling plan” but through a different transaction (or chain of transactions) all with a view to returning the company to performing status as well as subscription to the share capital
This excludes application of subsection 6 in cases where there is no debt rescheduling plan because it has not yet been defined and, in its place, there are no other bail-out operations.
Vice versa there would be the risk that application of art. 106, subsection 6 of the Consolidated Law on Finance becomes a form of “evasion” of specific regulatory requirements.
Furthermore, the different transaction has to be defined at least in general terms at the time of the purchase.
In the case in question, as already clarified by Consob, in addition to the crisis status only one of the requisites necessary for the application of art. 49, subsection 1, paragraph b) of the Issuers’ Regulation has been met (i.e. the share capital increase). Moreover, and in place of the debt rescheduling plan, there are no other transactions (or even only other elements)
sufficiently defined to remotely consider them suitable to pursuing the aim of bailing out the company, and therefore none that could be considered appropriate for the application of art. 106, subsection 6 of the Consolidated Law on Finance.
SIPI’s subscription to the Omnia/Seteco share capital increase cannot be considered an element sufficient per se to qualify as a “direct bail-out of a company in crisis”.
Regarding the other elements provided by SIPI, these were characterised at the time of purchase, and remain so, by a degree of uncertainty – so much so that they cannot be considered significant for the exemption in question.
In fact, these were initially “guidelines” prepared by SIPI for a “restructuring plan” not yet approved by the other interested parties. Amongst other things, these guidelines envisage repayment of part of the debt from cash flows that should have come from revenues produced from the development of new business for which the actual implementation terms, however, are
not known, also because at the time of purchase and even now SIPI does not have a business plan.
All of the above considered, the Commission confirms that the following did not exist both at the time of the acquisition and now: (i) a debt rescheduling plan, and therefore there are no grounds for exemption pursuant to art. 106, subsection 5, paragraph a) of the Consolidated Law of Finance and art. 49, subsection 1, paragraph b) of the Issuers' Regulation; (ii) in place of the debt
rescheduling plan, a different bail-out operation that can be considered for the purpose of application of art. 106, subsection 6 of the Consolidated Law on Finance, given that no agreement of any kind has been defined with creditors and SIPI has not yet outlined a clear plan of action to be implemented in business terms or ownership structure terms to return the issuer to a performing
Given the above, therefore, the exemption envisaged in art. 106, subsection 6 of the Consolidated Law on Finance is not applicable.
All elements taken into consideration, the Commission believes that there are the grounds for application of art. 110, subsection 1-bis of the Consolidated Law on Finance, and by Resolution no. 17493 of 28 September 2010 has therefore ordered that a mandatory global bid be launched within twenty days of receipt of the resolution, at the share subscription price resulting from the
share capital increase (0.17587 euro).
VOLUNTARY TAKEOVER BID BY SORGENTE SGR ON FONDO CARAVAGGIO FUND UNITS
Authorisation has been given for publication of the bid document concerning the global takeover bid launched, pursuant to art. 102 of the Consolidated Law on Finance, by the Fondo Donatello - Comparto Iris, set up and managed by Sorgente sgr spa, on units of the Fondo Caravaggio, a closed-end real estate investment fund listed since 2005.
The bidder is the Comparto Iris segment of the unlisted, closed-end multi-segment fund reserved for institutional investors known as “Donatello”, managed by Sorgente sgr.
Comparto Iris equity, amounting to 142,943,760 euro, is represented by 2,859 fund units of which 90.8% held by Fondazione Enasarco and 9.2% by Cassa di Risparmio di Chieti.
The bidder holds 35,497 units of the Fondo Caravaggio, equal to approximately 73.6% of the total units issued. In compliance with applicable regulations, Sorgente sgr holds 960 units of the Fondo Caravaggio, equal to approximately 2% of the total units issued. The remaining units, totalling around 24.4% of the total, are held by public investors.
Investors in the asset management company (sgr), a member of the Sorgente Group, are as follows: Holding di Sorgente srl (63.36%), in turn 99.99% owned by Finnat Fiduciaria spa under the terms of a trust mandate on behalf of the Mainetti family; Sorgente Group spa (33.33%); Paolo Emilio Nistri (2.31%) and Veronica Mainetti (1%).
The asset management company is a specialist in the provision of asset management services through the promotion, setup and organisation of real estate investment funds. In addition to the Fondo Caravaggio and Fondo Donatello, Sorgente sgr manages another two operative, closed-end funds - Baglioni and Colonna - and has set up a further two funds, one a speculative multi-segment fund
(Tiziano) and the other closed-end (Bramante).
Through this bid, Comparto Iris intends to acquire the remaining Caravaggio units held by retail investors in order to launch the merger procedure between Fondo Caravaggio and Comparto Iris.
If the bid is successful, which could result in delisting of the Caravaggio units, Comparto Iris intends to launch the voluntary sell-out procedure to allow Caravaggio unit holders to liquidate their investment at the same price as for the takeover bid.
The special nature of the transaction lies in the fact that the bidder fund is managed by the same asset management company that managers the issuer fund, and therefore there is a structural conflict of interest. To handle this conflict of interest and ensure that no prejudice is created among investors in one or the other fund managed, Sorgente has appointed a financial advisor to act on
behalf of the Comparto Iris, so as to obtain a price recommendation on which the Sorgente board of directors calculated the price, and another financial advisor acting on behalf of the Caravaggio fund to issue a fairness opinion on the price.
The success of the bid is subject to the non-occurrence at national or international level of any extraordinary circumstances, events or situations, or in any event sufficiently prejudicial to substantially alter the economic, financial or equity profile of the issuer, and to no changes being made to the current legal or regulatory frameworks that would restrict or in any way prejudice
purchase of the units or block the takeover bid. The bidder therefore reserves the right to waive these conditions.
The bidder will pay each subscriber a cash sum of 2.936 euro for each unit subscribed to the bid. In the event of global subscription to the takeover bid the maxim outlay will be 34,547,912 euro.
The bid period begins on 11 October 2010 and ends on 12 November 2010 (inclusive), for a total of 25 trading days.
Given the fact that Sorgente is the company managing both the bidder and the Fondo Caravaggio, the issuer disclosure pursuant to art. 103, subsection 3 of the Consolidated Law on Finance is, for the part relating to overall assessment of the bid, made via the inclusion of these assessments in the bid document, and for the part relating to financial assessment of the price via inclusion in
an attachment to the bid document of the fairness opinion issued by the advisor, Lazard & Co. srl, appointed by Sorgente sgr on behalf of the Fondo Caravaggio.
- COMMISSION DECISIONS -
(the documents with a link are already available on the Internet in Italian at www.consob.it; the other measures will be posted in the next few days)
Regulations, guidance and communications
Recommendations on information to be included in financial reports and press releases of football clubs (Communication no. 10081191 of 1 October 2010).
New request for exemption from mandatory bid regulations on Seteco International spa shares (formerly Omnia Network spa) pursuant to art. 106, subsection 6 of the Consolidated Law on Finance; order for the mandatory launch of a bid pursuant to art. 110, subsection 1-bis of the Consolidated Law on Finance (Communication no. 10079305 and
Resolution no. 17493 of 28 September 2010).
Application of the compulsory prospectus rules, pursuant to art. 34-ter, paragraph n) of Regulation 11971/1999, in relation to an issue of shares offered to certain employees of the Italian companies in a multinational group (Communication no. 10080236 of 30 September 2010).
Interpretation of MiFID provisions and related level 2 measures on post-trading transparency and transaction reporting of “errors account” transactions deriving from incorrect execution of customer orders (Communication no. 10080554 of 30 September 2010).
Takeover bids and exchange tender offers
Authorisation for publication of the bid document concerning the global takeover bid launched, pursuant to art. 102 of the Consolidated Law on Finance, by the Fondo Donatello - Comparto Iris, set up and managed by Sorgente sgr spa, on units of the Fondo Caravaggio, a closed-end real estate investment fund (decision of 30 September 2010).
Authorisation for publication of the base prospectus concerning the public offering programme of fixed rate, floating rate with floor option and step up bonds issued by CrediUmbria Banca di Credito Cooperativo sc (decision of 28 September 2010).
Authorisation for publication of the base prospectus concerning the public offering programme of fixed rate, floating rate and step up bonds issued by Banca di Credito Cooperativo di Ghisalba sc (decision of 28 September 2010).
Authorisation for publication of the securities notes and summaries concerning the public offering programmes and/or listing of fixed rate, floating rate, zero coupon, step up/step down bonds and cms, with range accrual option and call option, issued by Dexia Crediop spa (decision of 28 September 2010).
Authorisation for publication of the registration document and supplements to the securities notes and summaries concerning the public offering programmes of floating rate, fixed rate and step up/step down bonds issued by Credito Artigiano spa (decision of 28 September 2010).
Authorisation for publication of the supplement to the registration document and supplement to the base prospectus concerning the public offering programme of bonds issued by Banca Popolare di Vicenza scpa (decision of 28 September 2010).
Registers and lists
Authorisation granted to Family Advisory Sim spa – Sella & Partners, with registered office in Turin, for the provision of investment advisory services pursuant to art. 1, subsection 5, paragraph f), Italian Legislative Decree 58/1998 and for inclusion in the investment companies register pursuant to art. 20, subsection 1 of the Decree. Authorisation was granted
with the following operating limits: “without holding, even on a temporary basis, cash and cash equivalents or financial instruments of customers and with no assumption of risk by the company” (resolution no. 17494 of 28 September 2010).
CONSOB INFORMS (Rome Tribunal Registration no. 575 of 23/12/94) – Chief Editor: Alberto Aghemo - Editorial board: Antonella Nibaldi (coordinator), Laura Ferri, Claudia Amadio, Augusto Marciano, Claudia Paladini, Sante Vagnarelli - Text and layout: Alfredo Gloria, Piergiorgio Morandi - Address: CONSOB Via G. B. Martini, 3 - 00198 Rome - telephone: (06) 84771 - fax:
(06) 8417707. Documents or reports can be submitted via the interactive section of the web site www.consob.it, where CONSOB INFORMA can also be consulted via the "newsletter" link.