TIDMIVO
RNS Number : 3571J
Touchstone Innovations PLC
28 June 2017
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN
PART, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD
CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH
JURISDICTION
This announcement contains the text of a letter from the
Chairman of Touchstone Innovations plc that is being despatched to
all shareholders of Touchstone Innovations plc and persons with
information rights with respect to Touchstone Innovations plc.
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE
ATTENTION. If you are in any doubt as to the action you should
take, you are recommended to seek your own financial advice
immediately from your stockbroker, bank manager, solicitor,
accountant, fund manager or other appropriate independent financial
adviser authorised under the Financial Services and Markets Act
2000, as amended ("FSMA") if you are resident in the United Kingdom
or, if not, from another appropriately authorised independent
financial adviser.
28 June 2017
Touchstone Innovations plc
Chairman's letter to shareholders
Dear Shareholder
I wrote to you on 1(st) June 2017 to explain the chronology of
events and the reasons which resulted in our rejection of IP Group
plc's ("IP Group") approach to the Board of Touchstone Innovations
plc ("Touchstone") regarding a possible combination of the two
businesses (the "Possible Offer").
On 20(th) June 2017, IP Group announced a firm intention to make
an offer for the entire issued and to be issued share capital of
Touchstone (the "Offer") (the "Firm Intention Announcement").
IP Group has received support for the Offer from three of our
largest shareholders (Invesco Asset Management ("Invesco"),
Woodford Investment Management LLP ("Woodford") and Lansdowne
Developed Markets Master Fund LLP ("Lansdowne") (together the
"Large Shareholders") in respect of 74.3% of Touchstone's shares.
These three Large Shareholders also own approximately 50% of IP
Group.
As I noted in my letter 1(st) June 2017, I first received a
letter from IP Group setting out the indicative non-binding terms
for a recommended all-share merger of Touchstone and IP Group on
4(th) April 2017. Since that time a possible transaction has been
described by IP Group variously as a "merger", a "takeover" and a
"combination". Notwithstanding these differing descriptions, the
Offer represents an unwelcome hostile takeover offer.
During the discussions that the Board of Touchstone ("your
Board") has had with IP Group since April, we have raised a number
of topics that we believe would need to be addressed in order for a
combination to be capable of being recommended by your Board. These
included the need for agreement on valuation, people, strategy and
business model, and portfolio balance.
Having considered the Firm Intention Announcement carefully,
your Board notes that the Offer does not address the concerns that
your Board had surrounding the Possible Offer and that consequently
the Offer is also not capable of recommendation by your Board.
I address each of these topics below.
1. Valuation (and terms)
The financial terms of the Offer remain unchanged from those of
the Possible Offer, and your Board continues to believe that these
fundamentally undervalue Touchstone on a standalone basis and do
not fully reflect:
- the value in Touchstone which has been built up over 10 years;
- the breadth and diversity of its portfolio (some 90% of the
value of which lies in unquoted companies);
- the potential of its therapeutics assets, which are attracting
interest from leading pharmaceutical companies (as illustrated by
PsiOxus and Crescendo which have recently signed significant
partnering deals with BMS and Takeda respectively);
- its unique access to opportunities arising from Imperial
College London and UCL, as well as its close relationships across
the 'Golden Triangle';
- its close relationships with major pharmaceutical companies,
as evidenced by the Apollo Therapeutics joint venture alongside
GSK, AstraZeneca, and Johnson & Johnson; and
- its relationships with co-investors and numerous other industry partners.
Based on the closing price of 134 pence per IP Group share on 19
June 2017 (being the last business day prior to the date of the
Firm Intention Announcement), the Offer is stated to value each
Touchstone share at 289 pence.
Your Board also notes that no premium is being offered for
control.
The only consideration being offered to holders of Touchstone
shares pursuant to the Offer is new IP Group shares. Whilst the
Large Shareholders have all indicated their support for the Offer,
they are already shareholders in IP Group. Consequently, the other
Touchstone shareholders (the "Remaining Shareholders") are not all
in the same position as the Large Shareholders.
Your Board notes that no cash alternative is being offered.
The Remaining Shareholders are left in a difficult position by
the Offer. IP Group has indicated that if it receives acceptances
under the Offer in respect of, and/or otherwise acquires, 90 per
cent. or more of the Touchstone shares, it intends to exercise its
rights pursuant to the Companies Act to squeeze out the remaining
Touchstone shares in respect of which the Offer is not accepted.
Furthermore, IP Group has indicated that if it acquires Touchstone
shares carrying 75 per cent. of the voting rights of Touchstone it
intends to procure the making of an application by Touchstone for
the cancellation of admission of the Touchstone shares to trading
on AIM.
Bearing in mind that IP Group has received support from the
Large Shareholders in respect of 74.3 per cent. of the Touchstone
shares, the Remaining Shareholders are being offered a choice
between accepting IP Group shares or retaining Touchstone shares
that will not be publicly traded, if the Offer becomes wholly
unconditional.
Whilst the Large Shareholders have all indicated their support
for the Offer, your Board's view is that the terms of the Offer are
not a fair deal for the Touchstone shareholders as a whole. The
Remaining Shareholders (who constitute the vast majority by number
of shareholders on the Touchstone share register) include Imperial
College London, the founder of Touchstone.
2. People
An important test for us throughout the discussions was whether
the proposed combined organisation was one where our staff,
particularly our ventures investment team but also our technology
transfer office, would have been attracted to stay.
Your Board notes the commitments by IP Group in the Firm
Intention Announcement in relation to people and is pleased that IP
Group recognises the importance of the retention of Touchstone's
employees, the key individuals amongst whom we strongly believe are
important to the future success of any combined group. In
particular, your Board notes the intention to maintain stable
headcount in both companies' investment divisions for a minimum of
12 months.
Over the last 10 years, Touchstone has been able to attract
talented employees into its venture investment team, based around
the clarity and focus of its positioning. The members of this team
are in turn creating a high-quality network of partners,
co-investors and entrepreneurs from which Touchstone and its
portfolio companies derive significant benefit. It is the
collective skills, knowledge and experience that resides in these
people that we believe is crucial to future success.
In the Firm Intention Announcement, IP Group stated that:
"IP Group attaches great importance to the skills, knowledge,
and expertise of the existing management and employees of
Touchstone and expects that they will contribute to the future
success of the Combined Group. Accordingly, following completion of
the Offer, IP Group will ensure that existing contractual and
statutory employment rights of the employees of Touchstone are
fully safeguarded and that Touchstone continues to comply with its
pension obligations."
Whilst your Board welcomes IP Group's recognition of the
importance of the existing Touchstone team, it notes that these
statements do no more than comply with minimum legal
obligations.
Our people are highly sought after - indeed some have been
already been approached for roles in other organisations - but our
concern was not just about retaining people across our ventures
investment team and our technology transfer office. We are also
concerned to ensure that any combined entity remains able to
attract and retain talented employees.
The Firm Intention Announcement states that:
"We had a number of constructive conversations with the
management of Touchstone, in particular around building on the
Combined Group. Unfortunately, we could not come to an agreement
with the Touchstone Board."
We have stressed to IP Group from the outset the importance of
agreeing the structure of the organisation that would retain and
build on the best of both companies, if a merger were to be capable
of being recommended. We have engaged with IP Group, but have not
been able to reach a conclusion to this objective.
It would not be difficult to infer from the quote above that the
Touchstone management were in favour of the IP Group proposals, but
that IP Group had been unable to persuade the Touchstone
non-executive directors. However, this inference would not be
correct. The three executive directors of Touchstone are Board
members, and at every meeting where the overall structure of the
organisation has been discussed the view of your Board has been
unanimous.
3. Strategy and business model
In the Firm Intention Announcement IP Group states that "we
believe that the combination of IP Group and Touchstone Innovations
creates an international leader in IP commercialisation and a
business that is greater than the sum of the parts."
Your Board considers there to be significant differences between
the two companies, which in part derive from their very different
origins, with Touchstone being born out of Imperial College
London's Technology Transfer Office ("TTO") and IP Group being born
out of Beeson Gregory, a stockbroking firm.
Touchstone's focus has been on building companies funded by
venture capital and corporate venture syndicates in the unquoted
domain. IP Group has used the public markets more frequently than
Touchstone to encourage investment in its assets.
Furthermore, Touchstone's focus on nurturing the intellectual
property from Imperial College London, and the academic communities
of Cambridge University, Oxford University and UCL (the "Golden
Triangle"), differs from IP Group's stated broader international
approach.
Given these and other differences, your Board believes that,
without an agreed and clear approach to strategy, the benefits of
both approaches may be lost or diluted rather than maintained or
enhanced. Your Board is confident in Touchstone's stand-alone
strategy.
4. Portfolio balance
The Offer document states that:
"The Offer will allow Touchstone's shareholders to continue to
benefit from exposure to Touchstone's investments and, through IP
Group, gain access to its portfolio."
As noted above, Touchstone shareholders will only be able to
receive IP Group shares as consideration and, since the Offer is a
hostile offer, Touchstone has been unable to carry out any due
diligence on the IP Group portfolio. This has made forming any view
on the value of the IP Group portfolio difficult.
However, there is a concentration risk arising from the relative
size of Oxford Nanopore Technologies ("ONT") as against the balance
of IP Group portfolio. A number of commentators have noted that one
of the benefits for IP Group in proceeding with the Offer is that
it will reduce IP Group's reliance on its investment in ONT. For
Touchstone shareholders, the reverse is true.
Conclusion
This situation has now been live for nearly three months and
your Board believes that it has had a detrimental effect on new
business and on our relationships with co-investors. Morale is
being undermined, recruitment plans are on hold and our employees
are uncertain about their future.
Your Board has reviewed the Offer carefully and, after taking
all the reasons set out above into account and receiving the advice
of our advisers, continues to be of the view that it cannot
recommend the Offer on its current terms.
Your Board notes that IP Group has said in the Firm Intention
Announcement that it remains open to engagement at any point
regarding the Offer. If IP Group were to seek to improve the terms
of the Offer, then your Board would similarly be open to engagement
to discuss any improved terms.
Your Board advises the Company's shareholders to take no action
in relation to the Offer. Further announcements will be made in due
course as appropriate and your Board will provide its formal views
on the Offer to shareholders no later than 14 days after
publication of IP Group's offer document.
Yours faithfully
David Newlands
Chairman, Touchstone Innovations
Enquiries:
Touchstone Innovations plc
Russ Cummings
Tel: +44 20 3727 2030
J.P. Morgan Cazenove
(Financial Adviser and Joint Corporate Broker to Touchstone
Innovations plc)
Michael Wentworth-Stanley
Tel: +44 20 7742 4000
James Robinson
Alec Pratt
RBC Capital Markets
(Joint Corporate Broker to Touchstone Innovations plc)
Marcus Jackson
Tel: +44 20 7653 4000
Instinctif Partners
Adrian Duffield /Melanie Toyne-Sewell/Chantal Woolcock
Tel: +44 20 7457 2020
Further Information
J.P. Morgan Limited, which conducts its UK investment banking
business as J.P. Morgan Cazenove ("J.P. Morgan Cazenove"), is
authorised and regulated in the United Kingdom by the Financial
Conduct Authority. J.P. Morgan Cazenove is acting as financial
adviser exclusively for Touchstone and no one else in connection
with the matters set out in this announcement and will not regard
any other person as its client in relation to the matters in this
announcement and will not be responsible to anyone other than
Touchstone for providing the protections afforded to clients of
J.P. Morgan Cazenove or its affiliates, or for providing advice in
relation to any matter referred to herein.
RBC Capital Markets is the business name used by RBC Europe
Limited, which is authorised in the United Kingdom by the
Prudential Regulation Authority ("PRA") and regulated by the
Financial Conduct Authority ("FCA") and the PRA and is a subsidiary
of the Royal Bank of Canada. RBC is acting as Corporate Broker to
the Company.
Forward-looking statements
This announcement (including information incorporated by
reference) may contain statements which are, or may be deemed to
be, "forward-looking statements".
All statements, other than statements of historical fact are, or
may be deemed to be, forward-looking statements. Forward-looking
statements are prospective in nature and are not based on
historical facts, but rather on current expectations and
projections of the management of Touchstone about future events,
and are therefore subject to risks and uncertainties which could
cause actual results, performance or events to differ materially
from those expressed or implied by the forward-looking statements.
The forward-looking statements contained in this announcement
include statements relating to the expected effects of the
transaction and other statements other than historical facts.
Often, but not always, forward-looking statements can be identified
by the use of forward looking words such as "plan", "expect",
"budget", "target", "aim", "scheduled", "estimate", "forecast",
"intend", "anticipate", "assume", "hope", "continue" or "believe",
or variations of such words and phrases or statements that certain
actions, events or results "may", "could", "should", "would",
"might" or "will" be taken, occur or be achieved. By their nature,
forward-looking statements involve risks (known and unknown) and
uncertainties (and other factors) that could cause actual results
to differ materially form those suggested by them. Much of the risk
and uncertainty relates to factors that are beyond the relevant
companies' or directors' ability to control or estimate precisely,
such as future market conditions and behaviours of other market
participants or changes in tax rates.
Each forward-looking statement speaks only as of the date of the
announcement. No representation, assurance or guarantee is provided
that the occurrence of the events expressed or implied in any
forward-looking statements in the information will actually occur.
All forward-looking statements contained in the information are
expressly qualified in their entirety by the cautionary statements
contained or referred to in this disclaimer. Readers are cautioned
not to place undue reliance on these forward-looking statements.
Other than in accordance with their legal or regulatory obligations
(including under the Takeover Code), Touchstone, the directors of
Touchstone, its subsidiaries and subsidiary undertakings are under
no obligation and undertake no obligation, and expressly disclaim
any intention or obligation, to update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise.
Responsibility
The directors of Touchstone accept responsibility for the
information contained in this announcement (including expressions
of belief) and, to the best of the knowledge and belief of the
Touchstone directors (having taken all reasonable care to ensure
that such is the case), the information contained in this
announcement is in accordance with the facts and does not omit
anything likely to affect the import of such information.
Additional Information
In accordance with Rule 26.1 of the Code, a copy of this
announcement will be available at www.touchstoneinnovations.com by
no later than 12 noon (London time) on the business day following
this announcement. The content of the website referred to in this
announcement is not incorporated into and does not form part of
this announcement.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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