Euronext Amsterdam: new rules on reverse listings

In December 2017, Euronext Amsterdam issued a notice containing a new set of rules for reverse listings (also: “back door listings” Notice). Starting from 1 January 2018 any prospective issuer entering the stock exchange by means of a reverse listing, will need to comply with a new set of requirements, as set forth in the Notice. Below a short overview of the new requirements.

Reverse listings are effectuated by taking over an empty stock-exchange listed shell company, therewith circumventing the normal (time-consuming and expensive) procedures of an initial listing on a stock exchange and the preparation of a prospectus that needs approval of the Netherlands Authority for the Financial Markets (AFM) or another supervisory authority within the European Union (and passporting of the prospectus for use on the Netherlands financial markets).

Euronext describes a reverse listing as being “a transaction by an Issuer that lacks any meaningful assets (as determined by Euronext in its sole discretion), whether effected by way of a direct acquisition by the issuer or a subsidiary, an acquisition by a new holding company of the issuer, a legal merger, demerger or otherwise, of a business, a company or assets which in substance results in a fundamental change in the business.”

Euronext considers the following factors as indicators of the “fundamental change” as referred to above:

• the extent to which the transaction will change the strategic direction or nature of the issuer’s business; or
• whether the issuer’s business will be part of a different industry sector following the completion of the transaction; or
• whether the issuer’s business will deal with fundamentally different suppliers, clients and end users.

In case of a reverse listing Euronext requires the issuer to comply with the customary review and assessment policy. The issuer will be required to prepare and publish an extensive information document, the contents of which have been drawn up in consultation with the AFM and which are more or less comparable to the requirements applicable to prospectuses (in case of a regular listing, a prospectus, approved by the AFM is required). The requirements for the contents of the information document are listed in the annex to the Notice.

Other requirements for reverse listing include:

• a 3 year track record as referred to in the Euronext Rule Book (Rule 6702.1(ii)), which includes audited annual accounts;
• appointment of a listing agent (as is the case with the regular listing procedure)
• a sufficient number of securities be available for free float as referred to in the Euronext Rule Book (Rule 67021(i) being at least 25%.

Until the assessment has been completed and the application has been approved, Euronext will not complete steps in relation to the reverse listing, such as for example a name change.

In addition to the new requirements for reverse listings, the issuer will also be required to pay an administrative fee of EUR 40,000 and a subsequent admission fee for listing of shares to be issued and listed.

The proposed Euronext rules will lead to a regime with additional restrictions for reverse listings. This will in general offer the prospective investors more protection. In the past, several reverse listings have turned out to be extremely unsuccessful with investors ending up with losses. Euronext emphasizes that, as such, it is not opposed to reverse listings but it is opposed to the misuse thereof.