City law in practice… The IPO - Initial Public Offerings

The Government’s deregulation of the gaming industry, the World Cup and the internet all helped William Hill to successfully battle the IPQ elements. Husnara Begum provides the lowdown

William Hill, the UK’s second-largest bookmaker, made its stock market debut in June 2002 after completing an initial public offering (IPO) which saw its shares listed in London and offered to prospective investors across the world.

The timing of William Hill’s IPO was significant because it occurred at a time when plunging stock markets forced several companies including the Yell Group, DIY chain Focus Wickes and fashion house Prada – to call off their IPOs.

William Hill’s IPO was successful despite adverse stock market conditions, because the prospect of lucrative betting on the World Cup raised investors’ appetites for a stake in the company. So much so, shares in William Hill were 10 times oversubscribed.

What is an IPO?

An IPO, also known as a flotation, is an offer of shares or other securities by a company coming to the stock market for the first time.

A company seeking a listing must apply to the UK Listing Authority (UKLA) for its entire share capital to be admitted to the Official list. Simultaneously, the company must apply to the London Stock Exchange (LSE) for its share capital to be admitted to trading on the LSE’s market for listed securities.

Once the company’s securities are admitted to the Official List they can be bought and sold by investors at a price determined by supply and demand.

The benefits of obtaining a listing include:

Providing the company with greater access to capital. If the company needs additional capital in the future, it has a larger shareholder base from which to obtain such funds (see Lawyer 2B, December 2002, Case Study 6: Rights Issues).

listed securities are reasonably liquid because they can be freely traded.

Listed companies enjoy a higher profile – for example, the William Hill brand benefited from significant exposure during the IPO.

Listing can incentivise the company’s employees, because in some cases it enables them to hold a stake in their employer.

It is possible to use listed securities as a payment for an acquisition because they are easier to value.

To qualifY for listing, the company must register – or in the case of a private company reregister – as a public limited company (pIc). To do this, the company’s shareholders must pass a special resolution authorising it to adopt a constitution (the articles of association) tailored for public companies.

Additionally, the company must ~ comply with the following:

The minimum expected market value of the securities to be listed must be at least 70,000.

At least 25 per cent of the shares for which the listing is being sought must be in public hands and not owned by directors, major shareholders of the company or people connected to them. Securities for which the listing is being sought must be freely transferable.

The company must in most cases have a three-year trading record.

William Hill’s IPO

In 1999 Nomura, the then owner of William Hill, failed to list the company as there was insufficient demand for its shares. William Hill was instead bought by two venture capitalists, Cinven and evc Capital Partners, for cash through a trade sale.

Three years later, William Hill’s new shareholders decided to have another attempt at an IPO, because between 1999 and 2002 the company underwent significant growth, particularly in relation to its fledgling internet gaming business, which by last year was beginning to generate substantial profits. William Hill also believed that it would benefit from the future deregulation of the gaming industry.

William Hill offered up to 219,755,772 shares of lOp each at a price range of 190p-225p per share. The final offer price was set at 225p, raising proceeds of 735m. The final offer price was determined by the level of demand for William Hill shares from investors during international roadshows. William Hill used part of the net proceeds of the IPO to repay debts.

The IPO will also help William Hill grow in the future, enabling it to exploit the consolidation predicted in the betting industry. This is because it can use its listed shares to pay for selective acquisitions in the gaming sector.

William Hill’s IPO also involved a ‘144A’ placement of shares in the US, a method by which companies can offer shares to US investors without breaching complex US securities legislation.

The sponsor

The ULKA requires any company seeking a listing to appoint a sponsor in connection with the application. William Hill appointed investment bank Schroder Salomon Smith Barney (SSSB) (now Citigroup) as its sponsor and financial adviser. In exchange for a commission (typically a percentage of the proceeds), the sponsor manages the IPO and advises the company on the pricing of the shares to be issued. It is also the principal point of contact for theUKLA.

Also, the sponsor coordinates the activities of all the major parties, including the lawyers, reporting accountants, bookrunners and registrars.


SSSB also acted as joint bookrunner with Deutsche Bank, another investment bank. Bookrunners approach institutional investors (eg pension funds) to pass on their risk of taking up unwanted shares in advance of the offer. The institutional investors that are approached make non-binding applications for shares in the company in advance of the IPO on the basis of a preliminary offer document called the ‘pathfinder prospectus’, which sets the price range of the final offer.

This process, known as bookbuilding, typically lasts for around two weeks, and begins as soon as the pathfinder prospectus is approved by theUKLA.

The lawyers’ role

Throughout the IPO, William Hill received legal advice from Freshfields Brockhaus Deringer. A team oflawyers led by corporate partner Chris Mort carried out due diligence on William Hill to ensure the company was ready for the IPO and took it through the various steps described above.

Freshfields also drafted and negotiated a number of legal documents, including the underwriting agreement that William Hill entered into with SSSB and Deutsche bank and new service contracts for the company’s non-executive directors.

Freshfields worked alongside SSSB to draft the pathfinder prospectus, which is a 165-page document setting out the purpose of the IPO, facts about William Hill’s business and detailed financial information prepared by the company’s reporting accountants Deloitte & Touche.

Chapter 6 of the Listing Rules of the UKLA (commonly known as the Purple Book) lists the disclosures that must be included in a prospectus. The disclosures are necessary to enable investors to determine the health and future prospects of the company. The UKLA has the power to impose severe penalties on the company’s directors if the information is misleading or inaccurate, so Freshfields verified the contents of William Hill’s prospectus.

Katie Dilger, a trainee at Freshfields who worked on the IPO, says: “As a first seat trainee who’d never stepped into a bookies, the William Hill flotation was an educational experience. In between reading The Racing Post and contacting the UKLA regarding Listing Rules compliance, I helped prepare the documentation for the board meetings and assisted in the due diligence and verification process.”

SSSB and Deutsche Bank were advised by Freshfields’ fellow magic circle firm Clifford Chance.

The final stages

Because William Hill was a new applicant, it had to submit a draft version of the pathfinder prospectus to the UKLA at least 20 days before the intended date of publication.

The final version of the pathfinder prospectus and various other documents (see paragraph 7.5 of the Purple Book for a full list) must be submitted to the UKLA at least two business days before the intended date of publication.

Once the pathfinder prospectus was approved and stamped by the UKLA, the company’s directors went on roadshows to promote the IPO for a two-week period. The final offer price for the shares is determined by the level of investor demand at these roadshows. During this time, SSSB and Deutsche Bank also started bookbuilding and obtained bids from institutional shareholders.

William Hill eventually announced the final offer price of 225p on 17 June 2002 after final bids from institutional investors were received. On that date a supplementary prospectus containing the final offer price was published. William Hill’s shares were admitted to the Official List and dealings in the shares commenced on 20 June.


UK Listing Authority (ULKA)

Responsible for regulating the activities of the companies, the shares of which are listed on the London Stock Exchange (LSE).

UKLA Official List

A list of companies maintained by the UKLA, whose shares can be traded on the LSE.

Listed company

A company with shares listed on the UKLA Official List.


A lengthy document setting out certain information relating to the health and future prospects of the company.

Purple Book

Sets out the conditions and procedures for obtaining a listing and the ongoing obligations of listed companies.

Due diligence

A process involving the review of documents relating to a company’s business to ensure that its affairs are in order and to determine any liabilities.


The process undertaken by bookrunners to obtain non-binding bids for shares in the company in advance of an IPO.