The NYSE has filed a proposed rule change with the SEC that would allow the NYSE to commence immediate suspension and delisting procedures for a listed company if that 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.” Comments on the proposal are due 21 days after publication in the Federal Register.
Why make this change? The NYSE explains that sometimes listed companies “change the focus of their operations from the business they were engaged in at the time of initial listing to a business line that is completely unrelated or that was not material at the time of its original listing.” In that event, the NYSE indicates, concerns may arise about continued suitability of the company for listing. The NYSE is also concerned that investors who previously made their decisions to invest in the company’s stock (often in the IPO) on the basis of information about the company’s original business “might not have made their investment if they had been aware of how the company would change.” In addition, there have been occasions where there have been significant price declines after changes in business focus, resulting in “significant investor losses and an inability to meet exchange continued listing standards.”
As a result, the NYSE proposes to amend Section 802.01D of the NYSE Listed Company Manual, “Continued Listing Criteria—Other Criteria,” to add a new paragraph, “Change in Primary Business Focus.” The new paragraph would allow the NYSE, in its sole discretion, to commence immediate procedures to suspend and delist a listed company, in accordance with the NYSE’s delisting procedures, if that listed 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 NYSE were to learn of a change in the company’s primary business focus, the NYSE Staff would “conduct a thorough assessment of the company’s suitability for continued listing in light of such change,” focusing on the qualitative, not quantitative, aspects of the company’s suitability for listing. That assessment “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.”
The proposal provides that “[a]ny 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.” In case this proposal might be a bit unsettling to some, consider that the NYSE acknowledges “that seeking to suspend and delist a company’s stock under this revised rule would be an extraordinary action. The Exchange therefore anticipates seldom relying on this new discretionary authority, and only after thorough analysis of all relevant facts and circumstances.”
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