Untying the Knots: Simplifying Corporate Actions

Understanding the impact of corporate actions is necessary when contemplating the right investment strategy. This impact is driven by timely awareness, accuracy, and attention to detail. In this blog, IHS Markit's Managed Corporate Actions™ team will discuss some of the most dominant corporate actions announced each month and the roles they take in the marketplace.

US, and Europe, and Asia—Oh My!

Since the beginning of 2019, the world has heard all about the prominent spike in Special Purpose Acquisition Companies (SPAC) throughout the United States. While the SPAC industry began to dip its toes in European countries like Germany and the Netherlands, it was still apparent the other side of the Atlantic wasn't yet fully motivated to step up to the plate… until now.

In August 2021, the UK announced the new chapter of their SPAC regulations through the Financial Conduct Authority's rulings which reduced some of the regulatory burden on SPACs. A few of the most welcomed adjustments have to do with the minimum amount required at IPO, dropping from £200 million to £100 million, as well as the new rules blocking the SPAC from having to automatically suspend trading once it finds its acquisition target. Complete regulation updates can be found here.

Now you've probably heard about the UK's announcement from last month. However, have you heard about Asia?

As of September 3, 2021, the Singapore Exchange (SGX) announced that Special Purpose Acquisition Companies can officially list on their SGX Mainboard. This makes SGX the first major Southeast Asian exchange to introduce this new SPAC listing framework. Looks like SGX is ready to do something about the 50% drop in the number of listings from the first half of 2021 compared to the same timeframe just over a year ago [1].

Please see the following link for the full framework necessary to officially list on SGX's Mainboard.

How's the marketplace responding?

Weeks after the Exchange's announcement to publicly list SPACs, SGX publicized that they could receive their first application in "the next couple of weeks." In addition, SGX's CEO, Loh Boon Chye, stated that the exchange has been speaking with multiple potential sponsors and is seeing a "robust pipeline" for potential listings. Only time will tell!

Is MCA ready?

As the current SGX SPAC framework is still at a nascent stage, MCA's Subject Matter Experts are continuing to closely follow the marketplace for this first of its kind SPAC listing. Therefore, from a corporate actions' perspective, IHS Markit should follow the existing SPAC procedure as found within the U.S. and will create the following event types with the proper Mandatory/Voluntary flag to reflect the respective corporate actions unless the future says any different:

Scenario 1: Acquisition proceeds

• Mandatory Security Separation/Merger-Securities/Name Change ID: the action of merging with the acquired company if successfully approved at the meeting
• Voluntary Security Separation/Tender Offer/Reorganization: the option for dissenting holders to cash out of the merger.

Scenario 2: Acquisition will not proceed or delayed

• Mandatory Liquidation/Reorganization: the liquidation of the SPAC when holders do not approve the extension and the acquisition cannot proceed
• Voluntary Tender Offer/Reorganization: a request for an extension to holders to complete the formation of the new business combination.

Brexit: Have the repercussions passed?

Considered to be one of the most trended words throughout 2019-2021, there hasn't been an ear around the globe who could have fallen deaf to the term "Brexit." In the UK's decision to exit the European Union, there were hundreds of market, trade, and political forecasts posted in preparation for what the economy was to potentially endure. In one particular report posted by the Institute for Government, "Understanding the economic impact of Brexit" predicted that consumer electronics, pharmaceutical and medical chemicals, and air and spacecraft would be a few of the sectors which would be hit the hardest [2].

Well, were they right?

If we were to focus on one particular sector—Aviation—all we can say is we are still seeing the repercussions faced by multiple airlines today in the world of corporate actions. On September 9th and 15th, both easyJET (LSE:EZJ) and Ryanair Holdings (ISE:RYA), respectively, initiated the forced sale of shares as a result of Brexit through the use of different transactions. According to EU Regulation 1008/2008:

• easyJet currently deems certain Shares held by Non-EU Nationals to be "Affected Shares". The holder of Shares that are designated as Affected Shares cannot attend, speak or vote at a general meeting in respect of such Shares until such time that such Shares cease to be Affected Shares [3].
• As a result of Brexit, Ordinary Shares in Ryanair which have been acquired by or on behalf of UK nationals (like all other non-EU nationals) since 1 January 2021 have been treated as "Restricted Shares" and such non-EU national investors have been issued with Restricted Share Notices by the Company requiring them to dispose of their interests in such Restricted Shares to EU nationals [4].

Discussed and established back in the early 2000s, we now sit with an Exchange Notice calling out Investors who have not complied with the above requirements and have resulted with Ryanair's initiation to sell approximately 1 million ordinary shares—of its 222 million ordinary shares, in which the net proceeds will be transmitted to relevant investors in due course.

How's it all going down?

Well, for Ryanair—its official. The airline has chosen to take a the more private route in appointing a broker to conduct the sale "independently of, and uninfluenced by, the company over the coming weeks." Not only that, but Ryanair has also stated they may have to do this from time to time in the future to ensure compliance and may elect to do so without any further announcement. Take that as you will.

easyJET, on the other hand, hasn't yet fully taken the drastic measures of "forced sales", but has very explicitly stated in their upcoming Rights Offering that "new shares taken up by Relevant Persons in the Rights Issue may be deemed to be Affected Shares and may accordingly be subject to disenfranchisement in accordance with the Articles." Considering easyJET sits at 52.65% owned by non-EU shareholders, it is clear that the company needs the Rights Offering to go as planned through the use of "relevant" persons in order to make this work [5].

National Day for Truth and Reconciliation

If you're an investor trading in the Canadian TMX market, you probably recognized that September 30, 2021, wasn't as 'BAU' as you might have been expecting. Let us tell you why.

Effective for the first time in 2021, the Canadian Government dubbed this day as a non-settlement holiday known as the National Day for Truth and Reconciliation.

What's this new holiday commemorate?

The new statutory holiday commemorates the victims and survivors of Indigenous residential schools. Back in 1831 - 1998, there were 140 federally-run Indian Residential Schools in Canada which separated hundreds of thousands of Indigenous children from their families in an effort to assimilate them into Canadian society. This resulted in the death of thousands due to disease and other circumstances. September 30th will now honor the lost children and survivors of these years as the country begins its reconciliation process [6].

MCA Steps

MCA's Subject Matter Experts were made aware on the passing of this resolution back on August 3, when it officially came into force. In order to proactively prepare for the holiday MCA reached out to the US Depository and all US Exchanges to officiate how US listed, CA incorporated corporate actions falling on September 30 and October 1 would be handled. After many legal discussions with the OTC Exchange, it was determined that the September 30 holiday would also be recognized in the US and that all US listings would follow the trade settlement cycle of Canada.

MCA made accommodations to over 150 corporate actions with a Book of Record or Ex-Date and has ensured that moving forward this will continue to be accommodated for in MCA's in-house Holiday Calendar.

Nothing changes if nothing changes

As declared in 2021, CUSIP Global Services (CGS) will enact a new assignment procedure known as 'CUSIP permanence', allowing for corporate and mutual fund securities which are undergoing an entity name change to keep their current security identifiers even when there is a "significant impact on the alpha-numeric sequencing within the CUSIP system [7]."

Effective October 1, 2021, this permanence strictly applies to one corporate action only, and that is a 'Name Change'. Previously, as companies change their name, a new CUSIP is assigned to equity securities while debt securities keep their current CUSIPs. With CUSIP permanence, both equity and debt securities could now keep their same respective CUSIPs. However, keep in mind that because this only applies to a 'Name Change' a newly updated CUSIP/ISIN will still be assigned for Reverse Stock Splits and offerings that result in a creation of a new legal entity such as Mergers and IPOs.

How will this affect Subject Matter Expertise?

Considering this is a change of a long-standing procedure, further research and close monitoring is now even more valuable to determine whether a rebranding would result in a CUSIP change or not, as both outcomes are now possible.

Patient Zero

On September 24, 2021, j2 Global, Inc. (NASDAQ:JCOM) announced a name change to Ziff Davis, Inc. (NASDAQ:ZDVSV) effective October 8, 2021. At first glance, this might seem to be an ordinary name change which would have previously resulted in an updated security ID given the change from 'J' to 'Z'. However, with CUSIP permanence, the company has indicated they will keep its current CUSIP 48123V102 [8].

According to CUSIP Global Services, the inception of CUSIP permanence is due to unanimous feedback that keeping the same CUSIP for entity name changes would be more efficient and beneficial to CUSIP requestors. However, after speaking with MCA's Reference Data Expert, Joseph Pozolante, it might not be as simple as it seems:

"I can understand the benefits for such an implementation, especially when reviewing the historical beginnings of security identifiers or even in accommodation of the nuances relating to security identifiers in countries like Norway, Israel, and Ireland. However, my main concern lies with "when" such security ID announcements are publicized. So far, we have seen the NASDAQ Exchange explicitly state CUSIP Permeance in the corporate action announcement—but it's not so clear from the CUSIP Global Services. Will we have to wait until the morning of the Name Change's Effective Date? These are the corporate action repercussions we need to prepare for."

Our Managed Corporate Actions Experts will continue to track the developments of the CUSIP Permeance as updated by CGS and will continue to keep our clients informed on new procedures. Please reach out for more information or questions.

All Aboard!

In May of 2021, Canadian National Railway Company (NYSE:CNI) and Kansas City Southern (NYSE:KSU) announced that they had entered into a Merger Agreement with the aim of creating the "Premier Railway of the 21st Century", the given moniker of the first ever railway spanning Canada, the United States, and Mexico. According to the original terms, KCS shareholders were to receive $200 in cash, and 1.129 in shares of CN common stock for every KCS share held. As a result, it was expected for KCS to own at least 12.6% of the combined company - an offer valued at $33.7 billion dollars [9].

When this announcement first hit the marketplace, it was as if the industry had forgotten about the previous Merger Agreement bid for Kansas City Southern implemented by Canadian Pacific Railway Limited (NYSE: CP) only months prior in March. According to this Merger Agreement, KCS shareholders were to receive $90 in cash, and 0.489 in shares of CP common stock for every KCS share held- an offer valued at $29 billion dollars.

According to CP's President and CEO, Keith Creel, ""This transaction [was to be] transformative for North America, providing significant positive impacts for our respective employees, customers, communities, and shareholders [10]".

So, what ended up happening?

One's immediate assumption is that CP probably raised their offer to compete with CNI's big numbers. However, that is precisely what CP did not do… (at least, immediately). Rather, CP's CEO came out and stated that CNI's offer was "illusory and inferior" and was too "massively complex and likely to fail." Nonetheless, Kansas City Southern persisted and maintained that the Canadian National Deal was the superior proposal up until August 2021—with numbers like that, who wouldn't [11]?

Then what's been the hold up?

While decisions remained pending, the Surface Transportation Board (STB), an independent federal agency charged with the economic regulation of various modes of surface transportation, reviewed the proposed merger and on August 31, 2021, refused CNI and KCS's joint motion on voting trust approval. Upon questioning, STB claimed this was the right move for all rail shippers, the freight rail industry, and the North American economy [12]. Apparently CNI's "voting trust" proposal, which would have allowed KCS shareholders to accept the deal without waiting for full regulatory approval, backfired and may have even rubbed the STB the wrong way.

Not surprisingly, on September 15, 2021, Kansas City Southern announced they have unanimously determined that CP's acquisition proposal has been deemed the 'Company Superior Proposal.' Upon the closing of this railway chronicle, each share of KCS common stock will be exchanged for $90 in cash and 2.884 shares of CP common stock. In addition, holders of KCS preferred stock will receive $37.50 in cash for each share of KCS preferred stock held [13].

More to follow as shareholder approval is set to take place within the upcoming months!

Puerto Rico - Voting and Election Notices: MCA Spotlight

In May 2017, Puerto Rico filed bankruptcy like proceedings to address its approximate USD 120 billion in public debt and pension liabilities under PROMESA Title III, since the Commonwealth had no access to Chapter 9 of the Bankruptcy Code. PROMESA was passed by Congress to specifically address the crisis in Puerto Rico and to create a mechanism for the government and stakeholders to restructure the territory's debt.

On July 13, 2021, Puerto Rico's financial oversight board struck a deal with the main group of the island's unsecured creditors, a breakthrough in the government's bankruptcy that removes one roadblock to the current plan for slashing USD 35 billion of its remaining debt. The debt restructuring plan includes cutting principal payments on USD 22 billion of general-obligation and commonwealth-guaranteed securities and pension bonds. That deal was reached between the board, investment firms that are major bondholders and insurers Assured Guaranty Ltd. and MBIA's National Public Finance Guarantee Corp. It would cut USD 18.8 billion of general-obligation and Public Buildings Authority debt. Investors would receive USD 7 billion of cash and another USD 7.4 billion of new securities. They would also get a so-called contingent-value instrument that would pay off if sales-tax revenue surpasses estimates.

On September 8, Prime Clerk sent out a cover memo with information on the voting and elections on applicable Puerto Rico bonds that would expire October 4, 2021. Holders have the option to vote on the Plan to receive distribution(s) pursuant to the terms of the Plan, if confirmed by the Court. As per the Depository Trust Company, they anticipated 1,230 impacted CUSIPs which could translate into upwards of 2,500 plus options. MCA received more than 1300 individual records for these events. The events were brought to a Conditionally approved status within 24 hours of MCA being notified of the announcements.

Update: On September 28, Prime Clerk confirmed that the majority of offers with the original Expiration Date of October 4th have been extended to October 18, 2021, affecting a total of 655 target-securities. For a full list of affected securities, please click here.

Our Managed Corporate Actions Experts will continue to monitor future announcements made to all the above postings to ensure the most accurate and reliable corporate actions data coverage. Please reach out for more information or questions.

Interested in more? Please find:

Managed Corporate Action's August Postings

Managed Corporate Action's July Postings

Managed Corporate Action's June Postings

Posted 30 September 2021 by Madhu Ramu, Managing Director, Corporate Actions, S&P Global Market Intelligence

S&P Global provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.