On December 3, 2019, Gibson Dunn published A Current Guide to Direct Listings discussing, among other things, a proposal submitted to the U.S. Securities and Exchange Commission (SEC) by the New York Stock Exchange (NYSE)that would permit a privately-held company to conduct a direct listing in connection with a primary offering. On December 11, 2019, the NYSE withdrew its proposal (as reported in An Interim Update on Direct Listing Rules) and was expected to submit a revised proposal consistent with past proposals related to direct listings. On December 11, 2019, the NYSE submittedthe revised proposal.
Today, a privately-held company may only conduct a direct listing in connection with an effective shelf registration statement for sales by existing shareholders. The NYSE’s revised proposal would allow companies to issue and sell shares and raise capital in a direct listing. The primary offering could be conducted alone or together with a secondary offering. A privately-held company seeking to conduct a primary offering in connection with a direct listing under the NYSE’s revised proposal would qualify for such a transaction if:
(i) the company issues and sells at least $100 million in market value in the opening auction on the first day of listing(reduced from $250 million in the initial proposal); or
(ii) the market value of shares sold in the opening auction by such company and the market value of publicly held shares immediately prior to listing, together, exceed $250 million. In addition, the NYSE’s revised proposal for a “Distribution Standard Compliance Period,” or a new 90-day compliance period to the NYSE’s requirement that a listing company have 400 round lot shareholders, remains unchanged. This will provide more flexibility to use the direct listing approach, particularly if the company plans to conduct a primary offering that increases the number of shareholders within the first 90 days of listing.
The proposed rules will be reviewed by the SEC, which may open the proposal for public comment and will issue, within 45 days as required by law, a public statement noting whether the proposal is approved, rejected or further time and/or proceedings are required before such a determination is made. If approved, the option for a company to raise capital in a direct listing and to phase into the round lot holder requirement are expected to make the direct listing route more attractive. That being said, there are many open questions and market practices that will need to be resolved with respect to a primary direct listing, and it is not expected to replace the traditional IPO option any time soon.