On March 20, 2019, the Securities and Exchange Commission (“SEC”) approved a New York Stock Exchange (“NYSE”) rule modifying the price requirements that companies must meet to avail themselves of certain exceptions from the NYSE shareholder approval requirements. Shareholder approval was not previously required if an issuance of securities was made at a price at least as great as each of the book and market value of an issuer’s common stock. The new NYSE rule replaces this “market value” test with a “minimum price” test. Minimum price is defined as the lower of (i) the closing price of the issuer’s common stock immediately before the execution of the transaction agreement and (ii) the average closing price of the issuer’s common stock during the five days immediately preceding the transaction agreement. The five-day average closing price formulation is meant to avoid unanticipated and inequitable results that may occur if there is unexpected price volatility. Shareholder approval is required for transactions that are priced below the minimum price. The NYSE rule eliminates the requirement for shareholder approval of issuances at a price less than book value but greater than market value. The NYSE does not believe book value is a meaningful measure of whether a transaction is dilutive or should otherwise require shareholder approval. The changes align with Nasdaq’s recent amendments. The new NYSE rule may be found here.
