Updated January 2011
an opportunity to strengthen the equity
Growth Shares
Growth Shares
Thanks
With thanks to Studio Legale Bonelli Erede Pappalardo
and Mediobanca Banca di Credito Finanziario
for their valuable contributions to the development
of the Growth Shares proposal.
growth shares
1
Why Growth Shares
Growth Shares are designed to promote the growth of Italian companies,
allowing them to raise additional resources while maintaining a stable
control structure.
What are they?
Growth Shares are an innovative category of
shares, which permit:
•• the entrepreneur to implement important
development projects without giving up control
of the company
•• the market to invest in companies with
innovative medium/long term industrial
projects, benefitting from higher dividends, with
conversion into Ordinary Shares in the event
of either loss of control by the party holding a
control position or a mandatory takeover bid.
What purpose do they serve?
Growth Shares promote the growth and the
development of Italian companies with low and
medium capitalisation (especially for already-listed
companies) uniting, on the one hand, the raising
of new risk capital by way of the stock exchange
and, on the other hand, the full exploitation of the
“leader” role of the entrepreneur.
They offer the market an instrument for investing
in medium/long term industrial projects, relying on
the entrepreneur’s “vision” and “business knowhow.”
2
Furthermore, Growth Shares counterbalance
the information mismatch between the company
and investors in cases where companies operate
or develop projects in sectors that are innovative
and/or have considerable discontinuity and have
an entrepreneurial formula strongly based on the
exploitation of intangible assets. In this way, they
offer investors, together with the entrepreneur,
the possibility of maximising the value of the
investment over time.
Legal Context
The Company Law Reform of 2003 has
significantly broadened the possibility of issuing
shares with categories other than Ordinary Shares.
This has allowed the formulation of administrative
and patrimonial rights in line with market
expectations, to create an innovative and attractive
instrument.
Shares without voting rights, or with limited voting
rights, cannot be issued in numbers greater than
Ordinary Shares with full voting rights. Growth
Shares do not require regulatory amendments.
B o r s a I ta l i a n a - A s s o l o m b a r d a
Automatic conversion and other characteristics
of Growth Shares
Growth Shares are designed to offer the market an easily understandable
and acceptable tool which, by way of a clause in the articles of association,
provides for automatic conversion to Ordinary Shares upon the occurrence
of specific investor-protection circumstances.
Automatic conversion to Ordinary
Shares
This takes place:
1.whenever the party holding a controlling
position reduces its stake to 30% or less
of the Issuer’s Ordinary Shares;
2.if, for whatsoever reason, the conditions arise
for a mandatory (and therefore legally required)
takeover bid.
Following conversion to Ordinary Shares, the
Growth Shares become subject to mandatory
takeover bid.
growth shares
Other Characteristics
•• At the time of issuing the Growth Shares, the
Issuer is directly controlled by a corporation
holding more than 30% of its Ordinary Shares.
•• No voting rights are assigned.
•• A proprietary lien is granted consisting in a
percentage increase (to be established at the
time of issue) with regards to the dividend
attributed to Ordinary Shares.
•• For the issuing of Growth Shares the company
is required to disactivate the “passivity rule”.
•• By law they may not exceed, together with any
other shares having limited or no voting rights,
50 percent of the company’s capital.
3
Strengths compared to Savings Shares
•• Growth Shares automatically convert to
Ordinary Shares whenever the party holding
direct control reduces its stake to 30% or less
of the Ordinary Shares or upon the occurrence
of conditions for a mandatory takeover bid.
4
•• The preferential proprietary rights are not
proportional to the nominal value of the Growth
Shares.
•• The consequent growth of the Issuer will
enable the shareholders, subscribers of Growth
Shares, on the one hand, to benefit by the
higher value created and, on the other, to enjoy
full entitlement to the control premium.
B o r s a I ta l i a n a - A s s o l o m b a r d a
Issuing Growth Shares
It is necessary to guarantee liquidity in the case of stock market listing.
Who can issue them
The importance of liquidity
•• Non-listed companies that intend to remain
as such (even with private equity participation)
The existence of an adequate free float of Growth
Shares is a requisite for a successful acceptance
by the stock market. To this end, it is strongly
recommended (although not compulsory) that the
Growth Shares represent at least 25 per cent of
total capital after their issuance.
•• Companies that are about to be listed (even
with a simultaneous issue of ordinary shares)
•• Listed companies.
issue process
SPV
Majority stake
(more than 30% of Ordinary Shares)
Listed and non-listed companies
issue of growth shares
growth shares
5
AN E X AMPLE O F G r o w t h S H A R E S
“Alfa” company:
•• not listed
•• 100% controlled by the entrepreneur
•• financial leverage used.
€ million
Assets
Assets
Total
Liabilities and
shareholders’ equity
100
100
Equity
50
Financial debt
50
Total
D*=1
E
100
* D/E is the ratio between Debts and Equity
Step 1- Listing
The entrepreneur issues 49 million Ordinary Shares at EUR 1, reducing his controlling interest to just
over 50 percent, and raises additional debts totalling EUR 49 million, maintaining a D/E ratio of 1.
€ million
Assets
Assets
Total
Liabilities and
shareholders’ equity
198
198
Equity
99
Financial debt
99
Total
D =1
E
198
Thanks to the listing, the assets increased, also using added debt made available by the use
of financial leverage.
6
B o r s a I ta l i a n a - A s s o l o m b a r d a
Step 2 - Growth Shares
The entrepreneur, faced with important development projects, raises EUR 99 million by issuing
Growth Shares and has access to a further EUR 99 of debt, maintaining the D/E=1 ratio.
€ million
Assets
Liabilities and
shareholders’ equity
396
Assets
198
Equity
(of which 99 is Growth Shares)
Total
396
Financial debt
(of which 99 is added)
198
Total
396
Growth
Shares
After EUR 98 million from the listing, a further EUR 198 million for development.
BEFORE Growth shares
AFTER Growth shares
€ million
€ million
Assets
Assets
Total
Liabilities and
shareholders’ equity
198
198
Assets
Equity
99
Financial debt
99
Total
198
Assets
Total
Liabilities and
shareholders’ equity
396
396
Equity (of which 99
are Growth Shares)
198
Financial debt
(of which 99 is added)
198
Total
396
In conclusion
With the entrepreneur maintaining a little more than 50 per cent control, the “Alfa” company:
•• doubles its financial resources* issuing Ordinary Shares to the maximum allowed
•• quadruples its financial resources* issuing Growth Shares to the maximum allowed.
*Including financial debt
growth shares
7
Conclusions
Italy has an abundance of small and medium-sized companies which,
operating in a global context where they are forced to contend with larger
competitors, have a need to invest, grow and develop.
There are still only a small number of Italian businesses, particularly
those that are family-controlled, which choose to go public as a means
of financing growth, rather than use bank loans. This is partly due to the
desire to maintain control of the company, which instead would be lost if
the controlling person, to obtain adeguate resource, places a non-minority
stake on the market.
The Growth Shares offer a tool which, on the one hand, makes it possible
to raise adequate financial resources, enhancing the continuity of the
company’s control structure and industrial project and, on the other, allows
the subscribing shareholders to take advantage of both the consequent
growth in the Issuer’s business and the preferential proprietary rights, whilst
at the same time maintaining full entitlement to the control premium.
Actually, the Growth Shares, through the automatic conversion mechanism,
acquire full voting rights at the moment when this becomes relevant, namely
following the loss of control by the party holding a control position at the
time of issue.
Thus, they can provide an effective means of supporting the development
and growth of Italian companies
8
B o r s a I ta l i a n a - A s s o l o m b a r d a
The publication of this document does not represent solicitation, by Borsa Italiana S.p.A., of public saving and is not to be considered
as a recommendation by Borsa Italiana as to the suitability of the investment, if any, herein described. This document has not to be
considered complete and it is meant for information and discussion purposes only. Borsa Italiana accepts no liability, arising, without
limitation to the generality of the foregoing, from inaccuracies and/or mistakes, for decisions and/or actions taken by any party based
on this documents.
Trademarks Borsa Italiana and Borsa Italiana’s logo, IDEM, MOT, MTA, STAR, SeDeX, MIB, IDEX, BIt Club, Academy, MiniFIB, DDM,
EuroMOT, Market Connect, NIS, Borsa Virtuale, ExtraMOT, MIV BIt Systems Piazza Affari Gestione e Servizi, Palazzo Mezzanotte
Congress and Training Centre and PAGS are owned by Borsa Italiana S.p.A.
FTSE is a registered trademark of London Stock Exchange plc and The Financial Times Limited and is used by FTSE International
Limited under licence.
London Stock Exchange, the coat of arms device and AIM are a registered trade mark of Stock Exchange plc.
The above trademarks and any other trademark owned by the London Stock Exchange Group cannot be used without express written
consent by the Company having the ownership of the same.
Borsa Italiana S.p.A. and its subsidiaries are subject to direction and coordination of London Stock Exchange Group Holdings (Italy)
Ltd Italian branch.
The Group promotes and offers the post-trading services of Cassa di Compensazione e Garanzia S.p.A. and Monte Titoli S.p.A. in
an equitable, transparent and non-discriminatory manner and on the basis of criteria and procedure aimed at assuring interoperability,
security and equal treatment among market infrastructures, to all subjects who so request and are qualified in accordance with national
and community legislation, applicable rules and decisions of the competent Authorities.
© January 2011 Borsa Italiana - London Stock Exchange Group
All rights reserved.
For information:
Borsa Italiana
T +39 02 72426.1
[email protected]
Assolombarda - Finance Area
T +39 02 58370.309/704
[email protected]
www.borsaitaliana.it
www.assolombarda.it