Albion Inc&Gth VCT Albion Income & Growth Vct Plc : Proposed Merger
October 10 2013 - 10:40AM
UK Regulatory
TIDMAAIG
JOINT ANNOUNCEMENT
ALBION TECHNOLOGY & GENERAL VCT PLC ("AATG")
ALBION INCOME & GROWTH VCT PLC ("AAIG")
10 OCTOBER 2013
RECOMMENDED PROPOSALS TO MERGE AATG AND AAIG (TO BE COMPLETED PURSUANT
TO A SCHEME OF RECONSTRUCTION UNDER SECTION 110 OF THE INSOLVENCY ACT
1986) AND RELATED MATTERS
SUMMARY
The boards of AATG and AAIG announced on 8 August 2013 that they had
agreed in principle to merge the companies. Both boards are pleased to
advise that discussions have now concluded and circulars are being
despatched to convene shareholder meetings to approve the scheme. Both
companies are managed by Albion Ventures LLP ("Albion").
The merger is expected to deliver cost savings and benefits to both sets
of shareholders and will, if effected, result in an enlarged company
("Enlarged Company") with net assets of over GBP60 million.
BACKGROUND
AATG (formerly Close Technology & General VCT PLC) was launched in
December 2000 and raised funds through the issue of ordinary shares.
AATG subsequently raised further funds through an issue of C shares in
2006. The C shares were merged with the ordinary shares in 2011,
resulting in the AATG Shares now in issue.
As at 30 June 2013, AATG had unaudited net assets of GBP36.2 million
(84.6 pence per AATG Share) and venture capital investments in 42
companies with a carrying value of GBP34.2 million. The unaudited net
asset value total return per AATG Share to AATG shareholders as at 30
June 2013 for every GBP1 invested at launch was 158.1 pence (in respect
of the AATG Shares) and 86.9 pence (in respect of the former C shares),
excluding the dividend of 2.5 pence per AATG Share to be paid on 31
October 2013.
AAIG (formerly Close Income & Growth VCT PLC) was launched in August
2004. As at 30 June 2013, AAIG had unaudited net assets of GBP28.6
million (65.3 pence per AAIG Share) and venture capital investments in
38 companies with a carrying value of GBP26.3 million. The unaudited net
asset value total return per AAIG Share to AAIG shareholders as at 30
June 2013 for every GBP1 invested at launch was 92.0 pence.
Both of the companies have essentially the same investment policy, with
the overall aim of providing investors with a regular and predictable
source of dividend income combined with the prospect of long term
capital growth. As a result, the venture capital investments which are
common across the companies' respective portfolios represented
approximately 92.9 per cent. of the aggregate value of the venture
capital investments of the combined portfolio as at 30 June 2013 (36 out
of 44 in respect of the number of venture capital investments across the
combined portfolio). The boards believe that the difference in
performance of the companies is largely attributable to the point in the
economic cycle when investments were made.
VCTs are required to be listed on a European Union/European Economic
Area regulated market. The companies are, therefore, listed on the
premium segment of the Official List, which involves a significant level
of listing costs as well as related fees to ensure they comply with all
relevant legislation. A larger VCT should be better placed to spread
such running costs across a larger asset base and, as a result, may be
able to maximise investment opportunities and pay a higher level of
dividends to shareholders over its life.
In September 2004, regulations were introduced allowing VCTs to be
acquired by, or merge with, each other without prejudicing the VCT tax
reliefs obtained by their shareholders. A number of VCTs (including
other VCTs managed by Albion) have taken advantage of these regulations
to create larger VCTs for economic and administration efficiencies.
With the above in mind, the two boards and Albion entered into
discussions to consider a merger of the companies to create a single,
larger VCT. The aim of the boards is to create a more stable and
resilient base for providing long-term returns to shareholders and to
achieve benefits and reductions in the annual running costs for both
sets of shareholders.
Following detailed consideration of the portfolios, the financial
position of the companies and the principles on which any merger should
be effected, the boards have reached agreement to put proposals to their
respective shareholders to merge the companies.
THE MERGER PURSUANT TO THE SCHEME
The mechanism by which the merger will be completed is as follows:
-- AAIG will be placed into members' voluntary liquidation pursuant to a
scheme of reconstruction under Section 110 of the Insolvency Act 1986;
and
-- all of the assets and liabilities of AAIG will be transferred to AATG in
consideration for the issue of new AATG Shares (which will be issued
directly to AAIG shareholders) ("the Scheme").
The merger will be completed on a relative net asset value basis,
adjusted for merger costs. The merger is conditional upon the approval
by the shareholders of both companies of resolutions to be proposed at
their respective general meetings (as further detailed below) and
certain other conditions being satisfied (as further set out in the
circulars being posted to shareholders).
The merger will result in the creation of an enlarged company and should
result in savings in running costs and simpler administration. As both
companies have essentially the same investment policy, investment
manager and other main advisers, this is achievable without major
additional cost or disruption to the companies and their combined
portfolio of investments.
The boards consider that this merger will bring a number of benefits to
both groups of shareholders through:
-- participation in a more substantial VCT with assets of over GBP60 million,
resulting in a more stable and resilient base for providing long-term
returns for shareholders;
-- amalgamation of the companies' portfolios, which are substantially the
same, for efficient management and administration and a reduction in
annual running costs for the Enlarged Company compared to the total
annual running costs of the separate companies;
-- enhancing the potential for the Enlarged Company to raise new funds, as
well as pay dividends and support buybacks in the future, whilst
potentially increasing liquidity for shareholders; and
-- consolidating the shareholdings for the substantial number of
shareholders who have holdings in both companies.
In support of the proposals, Albion has agreed, subject to the merger
becoming effective, to reduce AATG's annual running costs cap from an
amount equal to 3.5 per cent. of the net assets of AATG to an amount
equal to 3 per cent. of the net assets of the Enlarged Company. In
addition, the changes to the VCT investment limits and size test, in
particular the removal of the GBP1 million per annum investment limit
per VCT in an investee company (effective for investments made on or
after 6 April 2012), reduces the need for co-investment between sister
VCTs to participate in larger investments.
Normal annual running costs for AATG and AAIG are approximately
GBP1,116,000 and GBP928,000 respectively (GBP2,044,000 in aggregate).
Normal running costs means the annual expenses incurred in the ordinary
course of business including investment management and administration
fees, directors' remuneration, listing fees and normal fees payable to
service providers. It does not include exceptional items, for example
merger costs or performance fees if earned. These annual costs represent
approximately 3.1 per cent. of AATG's unaudited net assets and 3.2 per
cent. of AAIG's unaudited net assets, in each case as at 30 June 2013.
The aggregate anticipated cost of undertaking the merger is
approximately GBP325,000, including VAT, legal and professional fees,
stamp duty and the costs of winding up AAIG. The costs of the merger
will be split proportionately between the companies by reference to
their respective merger net assets at the calculation date (ignoring
merger costs).
On the assumption that the net assets of the Enlarged Company will
remain the same immediately after the merger, annual cost savings for
the Enlarged Company are estimated to be approximately GBP182,000 per
annum (this represents a saving of GBP83,000 in respect of directors'
fees, GBP62,000 for registrars, auditors and tax compliance fees, with
the balance of the savings being made up of regulatory fees, insurance
and printing costs and general day-to-day expenses). The expected annual
cost saving of GBP182,000 would represent 0.3 per cent. of the expected
net assets of the Enlarged Company. On this basis, and assuming that no
new funds are raised or investments realised to meet annual costs, the
boards believe that the costs of the merger would be recovered within 22
months.
The boards believe that the Scheme provides an efficient way of merging
the companies with a lower level of costs compared with other merger
routes. Although either of the companies could have acquired all of the
assets and liabilities of the other, AATG was selected as the acquirer
because of its larger size, which would result in a lower amount of
stamp duty compared with AAIG being the acquiring VCT. The merger by way
of the Scheme will be outside the provisions of the City Code on
Takeovers and Mergers.
ILLUSTRATIVE TERMS
As an illustration, had the merger been completed on 30 June 2013, every
AAIG Share in issue would effectively have been exchanged for 0.7947 new
AATG Shares (taking into account share buybacks in the companies between
30 June 2013 and 9 October 2013 and the dividend of 2.5 pence per AATG
Share to be paid by AATG on 31 October 2013). The actual merger ratio
will be calculated based on the relative net asset values of the
companies (adjusted for merger costs) immediately prior to the effective
date of the merger (expected to be 15 November 2013) on the calculation
date (this being 14 November 2013).
THE AATG BOARD
The AATG board has four non-executive directors: Dr Neil Cross
(Chairman), Lt Gen Sir Edmund Burton, Modwenna Rees-Mogg and Patrick
Reeve. The AAIG board also has four non-executive directors: Friedrich
Ternofsky (Chairman), Robin Archibald, Mary Anne Cordeiro and Patrick
Reeve.
The boards have considered what the size and future composition of the
Enlarged Company's board should be following the merger and it has been
agreed that to facilitate the merger Lt Gen Sir Edmund Burton will step
down as a director of AATG and that Robin Archibald and Mary Anne
Cordeiro (directors of AAIG) will be appointed as directors of AATG.
Albion has agreed, subject to the merger becoming effective, that no
fees will be charged going forward for the services of Patrick Reeve as
a director of AATG. This will result in reducing the aggregate number of
directors from seven across both companies to five for the Enlarged
Company, of which only four will be paid, with an aggregate annual cost
saving of approximately GBP83,000 (inclusive of National Insurance and
VAT).
On the assumption that the merger is approved, each board would like to
take the opportunity to thank Lt Gen Sir Edmund Burton and Friedrich
Ternofsky for their considerable commitment and guidance to their
respective VCT over the years.
ANNUAL INVESTMENT MANAGEMENT AND ADMINISTRATION ARRANGEMENTS
Albion is the investment manager of AATG and of AAIG and also provides
administration services to both companies.
Albion will continue to provide annual investment management and
administration services to the Enlarged Company following the merger on
the same basis as is currently in place with AATG, save that Albion has
agreed, subject to the merger becoming effective, to reduce the annual
running costs cap to an amount equal to 3 per cent. of the net assets of
the Enlarged Company.
REVISED PERFORMANCE INCENTIVE ARRANGEMENT
The boards have reviewed AATG's management performance incentive
arrangements in light of the proposed merger, VCT market practice and
performance to date, and proposes, subject to the approval of AATG
Shareholders, to introduce a revised arrangement, which both reduces the
hurdle and reduces the proportion of the excess performance that is
payable to Albion. In their review, the boards took account of Albion's
agreement to reduce the annual running costs cap to an amount equal to 3
per cent. of the net assets of the Enlarged Company, from the current
cap of 3.5 per cent. of net assets.
It is proposed that (i) the amount of the performance incentive fees be
reduced, from 20 per cent. currently, to 15 per cent. of the amount by
which the net asset value and aggregate dividends exceed 100 pence per
share as increased by the hurdle and (ii) the hurdle be amended to RPI
plus 2 per cent. per annum (uncompounded) from the date of first
admission to the Official List of the relevant class of share. Any such
amount would be reduced by previous performance incentive fees paid.
The aim of the proposed revised performance incentive arrangement is to
adjust the hurdle to a more realistic level and one which is more
consistent with VCT market practice, whilst still retaining the
principle that Albion should only be rewarded if shareholders have
experienced satisfactory returns since launch. Importantly, investment
performance would still have to improve by some considerable margin
before any fees would be paid. This reflects the confidence of the
boards and Albion in the longer term prospects for the portfolio of AATG
or, as the case may be, the Enlarged Company.
If the merger is effected but AATG shareholders do not approve the
revised arrangements, AATG will continue with the existing performance
incentive arrangement. If the merger is not effected but AATG
shareholders approve the revised arrangements, the revised arrangements
will apply to the existing capital of AATG.
The Company's investment manager is Albion and it is, therefore,
considered to be a related party to the Company pursuant to the Listing
Rules. Albion is one of the largest independent venture capital
investors in the UK, managing approximately GBP230 million across seven
VCTs.
EXPECTED TIMETABLE
AATG general meeting 10.00 a.m. 4
November 2013
AAIG general meeting 11.30 a.m. 4
November 2013
AAIG register of members closed 14 November 2013
Calculation date for the Scheme 5.00 p.m. 14
November 2013
Suspension of listing of AAIG shares 7.30 a.m. 15
November 2013
AAIG second general meeting 10.00 a.m. 15
November 2013
Effective date for the transfer of assets and liabilities 15 November 2013
of AAIG to AATG and issue of new AATG Shares
Announcement of results of the meetings and completion 15 November 2013
of the Scheme (if applicable)
Admission of and dealings in the new AATG Shares issued 18 November 2013
pursuant to the Scheme to commence
CREST accounts credited with new AATG Shares 18 November 2013
Certificates for new AATG Shares dispatched 22 November 2013
Cancellation of the AAIG share listing 8.00 a.m. 13
December 2013
DOCUMENTS AND APPROVALS
AATG shareholders will receive a copy of a circular convening the AATG
general meeting to be held on 4 November 2013 (together with a
personalised proxy card in respect of the AATG general meeting and, save
in respect of AATG Shareholders with a registered address in an overseas
jurisdiction, the AATG prospectus) at which AATG shareholders will be
invited to approve resolutions in connection with the Scheme, amending
the cap on directors' remuneration in the articles of association,
approval of the related party transaction with Albion, the renewal and
increase of the authority to issue and repurchase shares and cancelling
reserves.
AAIG shareholders will receive a circular convening the AAIG first
general meeting on 4 November 2013 and the AAIG second general meeting
on 15 November 2013 (together with personalised proxy cards in respect
of both AAIG general meetings and, save in respect of AAIG Shareholders
with a registered address in an overseas jurisdiction, the AATG
prospectus) at which AAIG shareholders will be invited to approve
resolutions in connection with the Scheme.
Copies of the AATG prospectus and the circulars for AATG and AAIG have
been submitted to the UK Listing Authority and will be shortly available
for download both from Albion's website (www.albion-ventures.co.uk) and
the national storage mechanism (www.morningstar.co.uk/uk/NSM).
Investment Manager, Administrator and Company Secretary for AATG and
AAIG
Albion Ventures LLP
Patrick Reeve/Henry Stanford
Telephone: 0207 601 1850
Solicitors to AATG and AAIG
SGH Martineau LLP
Kavita Patel/Robert Newman
Telephone: 0800 763 2000
Sponsor to AATG
Howard Kennedy Corporate Services LLP
Keith Lassman
Telephone: 020 3350 3350
The directors and proposed directors of AATG accept responsibility for
the information relating to AATG and its directors and proposed
directors contained in this announcement. To the best of the knowledge
and belief of such directors and proposed directors (who have taken all
reasonable care to ensure that such is the case), the information
relating to AATG and its directors and proposed directors contained in
this announcement, for which they are solely responsible, is in
accordance with the facts and does not omit anything likely to affect
the import of such information.
The directors of AAIG accept responsibility for the information relating
to AAIG and its directors contained in this announcement. To the best of
the knowledge and belief of such directors (who have taken all
reasonable care to ensure that such is the case), the information
relating to AAIG and its directors contained in this document, for which
they are solely responsible, is in accordance with the facts and does
not omit anything likely to affect the import of such information.
SGH Martineau LLP is acting as legal adviser for AATG and AAIG and for
no one else in connection with the matters described herein and will not
be responsible to anyone other than AATG and AAIG for providing the
protections afforded to clients of SGH Martineau LLP or for providing
advice in relation to the matters described herein.
Howard Kennedy Corporate Services LLP, which is authorised and regulated
in the United Kingdom by the Financial Conduct Authority, is acting as
sponsor for AATG and no one else and will not be responsible to any
other person for providing the protections afforded to customers of
Howard Kennedy Corporate Services LLP or for providing advice in
relation to any matters referred to herein.
This announcement is distributed by Thomson Reuters on behalf of Thomson
Reuters clients.
The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other
applicable laws; and
(ii) they are solely responsible for the content, accuracy and
originality of the
information contained therein.
Source: Albion Income & Growth VCT PLC via Thomson Reuters ONE
HUG#1734748
http://www.closeventures.co.uk/
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