Clifford Chance

On 21 February 2019, the FCA issued its first decision, using its Competition Act powers, against three asset management firms (Hargreave Hale Ltd, Newton Investment Management Limited and River and Mercantile Asset Management LLP (RAMAM)). Hargreave Hale Ltd was fined £306,300 and RAMAM was fined £108,600. Newton Investment Management Limited was not fined because it obtained immunity.

The FCA found that the 3 asset management firms had breached the Chapter I prohibition of the Competition Act 1998 and Article 101 of the Treaty on the Functioning of the EU by sharing strategic information (bilaterally) during one initial public offering and one placing, shortly before the share prices were set. The FCA announcement states that the firms accepted and/or otherwise disclosed confidential bidding intentions, in the form of the price they were willing to pay, and sometimes the volume they wished to acquire. 

The FCA's decision against the firms has not yet been published. However, the FCA has published a decision against an individual (Paul Stephany, a portfolio fund manager at Newton) under the Financial Services and Markets Act 2000 (FSMA) which is said to share some of the same facts. That decision explains that Mr Stephany sent an email to 11 competitor firms regarding an IPO which stated "Sorry for the out of the blue email but I wanted to urge those considering or in for the OTB IPO to think about moving to a 260m pre money valuation limit. I have done that first thing this morning with my 17m order." Subsequently, following a failure to generate sufficient demand at the target price, the Bookrunner then explored investors' interest in a new deal with a lower price and a smaller fundraising target. In the context of Newton reducing its order size, Mr Stephany stated in a chat message with an external fund manager that he was "in the midst of potentially getting an IPO canned single handedly… by pushing the price down." 

Whilst there is not yet a public version of the FCA's decision against the companies, the FCA's announcement says that the exchanges (which are likely to include those above) allowed one firm to know another's plans during the IPO or placing process when they should have been competing for shares. More specifically the FCA said that, if asset managers share detailed and otherwise confidential information about their bids with each other, they undermine the process by which prices are set. This can, in their view, reduce pressure to make bids that reflect what they really think the company is worth and therefore reduce the share price achieved by the IPO or placing and so raise the cost of equity capital for the issuing company. 

This decision underscores the risks associated with competitors exchanging strategic information with each other, particularly in relation to prices and volumes. Those who receive information about future pricing intentions (even if unsolicited) are at risk of breaching competition law. Unless companies take active steps to distance themselves from the receipt of that information they will be presumed to have accepted and acted upon it.