A cash box placing is a method of raising cash from the issue of equity securities structured as an issue of shares for non-cash consideration. This allows companies to issue shares without seeking any shareholder consent or convening a general meeting and is very useful for a company that needs to raise funds quickly. It allows for an issue when there is either none or not sufficient disapplication of pre-emption rights authority and enables a larger issue than would be authorised by a standard disapplication, although a general authority to allot shares is still required. In addition, this structure may allow distributable reserves to be created by using merger relief.
Note that this is in addition to the usual general authority required by the directors to allot shares
The issuer issues shares in exchange for the transfer to it of redeemable preference shares in a special purpose subsidiary. The only material asset of the subsidiary is the cash paid to it upon a subscription of shares by an investment bank (or broker). The bank/broker funds the subscription price for the preference shares from the proceeds of the placing of the company's equity securities.
Whilst avoiding the pre-emption rules is one of the key advantages to a cash box placing, it also helps avoid the costs of producing and distributing a circular (where applicable) and notice of meeting, the delay in waiting for the requisite resolutions to be passed and the risk that the resolutions might not be passed.
How does the structure work?
The issuer incorporates a new company (Newco), most likely in Jersey, which will be established with par value ordinary shares and par value fixed rate redeemable preference shares (see section Why Jersey? below for further information).
The issuer's investment bank or broker will subscribe for some of the Newco ordinary shares (usually in excess of 10%) and the issuer will hold the balance of the Newco ordinary shares (which must be below 90% if merger relief is required).
Conditional on the issuer's new ordinary shares being listed or admitted to trading on AIM, the bank/broker will agree to subscribe for Newco redeemable preference shares at an aggregate price equal to the net placing proceeds (less commissions and other expenses in respect of the placing) and will undertake to pay to Newco the subscription price for those shares.
At the same time as step 3, the issuer will agree to allot new ordinary shares to placees selected by the bank/broker in consideration for the transfer to the issuer of the Newco ordinary shares and preference shares held by the bank/broker.
Placees pay the placing price for the new ordinary shares to the bank/broker as principal and the bank/broker will use the placing proceeds to discharge its undertaking to pay the subscription price for the preference shares in Newco.
Once the issuer becomes 100% shareholder of Newco (following steps 4 and 5), the issuer is free to extract the cash sitting in Newco by way of a loan, declaring dividends, redemption of the preference shares or a liquidation of Newco.
There will normally be a put and call option agreement in place between the issuer and the bank (or broker). In the event the placing does not proceed for whatever reason, a put and call option agreement will enable the bank/broker to transfer to the issuer the ordinary shares it holds in Newco.