Following extensive consultation with the Association of British Insurers (ABI) and the National Association of Pension Funds (NAPF), the Association of Corporate Treasurers believes that it is possible for a treasury stock programme to co-exist with the maintenance of pre-emption rights for shareholders.
Following the issuing of a consultative document on share buy-backs in May last year, the Department of Trade & Industry supported an initiative by the Association to see if the three organisations, representing those responsible for corporate treasury stock and institutional investors, could agree a common position. Pre-emption rights have previously been seen as a hurdle in achieving a way forward on the re-issue of bought-in shares, with shareholders determined to retain control over possible dilution. However, the protection of pre-emptive rights and the use of treasury stock both have the same objective in the maintenance and possible improvement in shareholder value. The Association of Corporate Treasurers has therefore proposed guidelines (attached) for companies undertaking a treasury stock programme which are supported by the investment committees of the ABI and the NAPF.
The Association is broadly supportive of the DTI's initiative on treasury stock but believes that any such proposals should be subject to approval by shareholders as for any other purchases or re-issues and should not violate the principle that existing shareholders have pre-emptive rights over the issue of shares by a company in order to avoid involuntary dilution of their investments.
Dr David Creed, Director General of the Association of Corporate Treasurers said: "This is a clear example of companies and shareholders working closer together to find a way forward on what has historically been a difficult issue. We are encouraged by the constructive dialogue that has taken place to achieve these proposals."
In welcoming the proposals, Ms Lynn Ruddick, Chairman of the NAPF's Investment Committee, said:
Mr Richard Regan, Head of Investment Affairs at the ABI, added:
We are pleased that the dialogue with the corporate treasurers has identified our common interest in preserving and enhancing value for shareholders while giving companies the flexibility to adapt their capital structure as circumstances demand. Mr Richard Regan, Head of Investment Affairs at the ABI
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