TheCorporateCounsel.net

The NYSE has proposed an amendment to Section 802.01D of the Listed Company Manual to allow the Exchange to commence immediate suspension and delisting procedures if a company changes its primary business focus. Specifically, discretion will apply if:

The company has changed its primary business focus to a new area of business that is substantially different from the business it was engaged in at the time of its original listing or which was immaterial to its operations at the time of its original listing. If the Exchange becomes aware of such a change in the company’s primary business focus, the Exchange’s assessment of the company’s suitability for continued listing in light of such change will also, where appropriate, take into consideration other changes that may have occurred in connection with the change in the company’s primary business focus, including, but not limited to, changes in the management, board of directors, voting power, ownership, and financial structure of the company.

The Exchange will focus its analysis of the company’s suitability for continued listing on whether it would have accepted the listed company for initial listing if it had been engaged in its modified business at the time of original listing. Any company that the Exchange determines to be unsuitable for continued listing due to a change in its primary business focus will be subject to immediate suspension and delisting in accordance with the procedures set out in Section 804.00.

The amendment is intended to address the NYSE’s concern that:

Investors who acquired the company’s stock prior to this change in operations (including, in many cases, in connection with the company’s initial public offering) may have made their investment decision based on the company’s disclosure about its original business and might not have made their investment if they had been aware of how the company would change. In addition, a wholesale change in business operations may give rise to a concern about the suitability for listing of the company had it been in engaged in that line of business at the time of its application for listing. The Exchange notes that, in some circumstances, there has been significant downward price movement subsequent to such a change in business focus, which resulted in significant investor losses and an inability to meet exchange continued listing standards.

The NYSE acknowledges that seeking to suspend and delist a company’s trading under this revised rule would be an extraordinary action. It expects to seldom rely on the new discretionary authority, and only after thorough analysis of all relevant facts & circumstances. Interestingly, this NYSE proposal comes at about the same time as one that would give more breathing room to SPACs looking to complete a business combination – which Meredith blogged about earlier this month.

The SEC has posted notice of the rule change. You can submit comments here.

– Liz Dunshee