TIDMARCH
RNS Number : 7107N
ARC Capital Holdings Limited
30 July 2014
ARC Capital Holdings Limited
Update on Sale of FGL Group Limited
On 4 July 2014 and 23 July 2014, ARC Capital Holdings Limited
("ARCH") (AIM: ARCH) provided an update in respect of the sale of
ARCH's equity stake in Fortress Group Limited ("FGL") to its
shareholders, held through its wholly owned subsidiary, ARCH
Digital Holdings Limited ("ARCH Digital").
Capitalised terms used but not defined in this announcement have
the same meanings as set out in ARCH's announcements dated 4 July
2014 and 23 July 2014.
As stated in ARCH's announcements dated 4 July 2014 and 23 July
2014, the transaction between ARCH Digital and the Purchaser has
not completed. The Board of ARCH has been notified that FGL has
entered into an agreement for the sale of its 100% equity interest
in Funtalk to the Purchaser ("FGL Sale"). FGL has proceeded with
the FGL Sale despite ARCH raising a number of concerns and requests
for information regarding the transaction by way of a letter to
each of the directors on the Board of FGL dated 28 July 2014.
Although a meeting of the Board of FGL had been scheduled for 30
July 2014 to discuss the FGL Sale, after the receipt of the letter
from ARCH dated 28 July 2014, on 29 July 2014 this Board meeting
was abruptly cancelled and an email was sent by Mr Weijian Shan,
the Chairman of FGL and Group Chairman and CEO of PAG Asia Capital
("PAG"), stating that the FGL Sale had been "completed". ARCH is
considering its options.
ARCH has not received a copy of the executed transaction
documents relating to the FGL Sale. FGL has not provided ARCH with
any substantive information regarding the terms of the FGL Sale.
While the Board of ARCH expects that a significant write-down will
be required to be made with respect to ARCH's investment in FGL,
they do not presently have sufficient information to make a proper
assessment; the Board will provide an update in this regard when it
is in a position to do so.
Based on the limited information available to ARCH, ARCH has the
following concerns regarding the FGL Sale:
1. The directors of FGL as a body have not been provided with
sufficient information to enable them properly to assess whether
the FGL sale is in the best interests of FGL as a whole. In
particular:
1.1 The directors of FGL have been informed that the FGL Sale is
necessary and must be entered into without delay. However, the
directors of FGL as a body have not been provided with sufficient
information to come properly to the view that this is so.
1.2 The directors of FGL as a body have not been provided with
sufficient information regarding the actual financial position of
Funtalk, such that they could not properly come to the view that
the FGL Sale is in the best interests of FGL as a whole.
1.3 The directors of FGL as a body have not been given adequate
information regarding any due diligence process that FGL has
undertaken in assessing the FGL Sale.
2. Three of the seven directors appointed to the Board of
Directors of FGL were appointed by, and hold concurrent positions
with, the PAG group ("PAG Directors"). The interests of PAG are not
aligned with that of the other shareholders of FGL due to PAG's
debt claims against FGL. ARCH is concerned that ARCH Digital's
representative on the Board, Mr Cosimo Borrelli, has not been given
the information and time required to assess properly whether the
FGL Sale is in the interests of FGL as a whole.
3. The directors of FGL as a body have not been given adequate
opportunity to consider the transaction documents.
4. The circumstances above raise legitimate concerns as to
whether the FGL Sale is in the best interests of FGL as a whole and
for proper purposes.
5. In light of the above concerns, ARCH is concerned that the
internal processes adopted by FGL for the approval of the FGL Sale
have been, and the FGL Sale itself will be, conducted in a way that
unfairly prejudices and is oppressive towards ARCH Digital's
position as a minority shareholder of FGL.
In light of the above, ARCH and ARCH Digital has sought from FGL
the information regarding the FGL Sale, including:
1. Detailed information regarding the due diligence undertaken
by the Board of Directors of FGL to ensure that the FGL Sale is in
the best interests of FGL as a whole, including regarding:
1.1 What steps were taken by FGL to value its interest in
Funtalk, both internally and through one or more independent third
party valuation professionals?
1.2 What attempts did FGL take to seek interest from, solicit
offers from and negotiate transactions with parties other than the
Purchaser, including any competitive tendering process?
1.3 What legal, financial and other independent third party
advice did FGL obtain regarding the advisability of the sale from
the perspective of the best interests of FGL as a whole?
1.4 Who on behalf of FGL led the negotiations with the
Purchaser, and what efforts were made in the negotiations to
improve the terms of the FGL Sale?
2. Detailed financial information regarding Funtalk, including a
copy of the June 2014 Funtalk management accounts (and the July
2014 management accounts as soon as these become available), the
status of the account receivables and prepayments, and the audited
financial statements for the financial year ended 31 March 2014 for
Funtalk and FGL (if available), whether finalised or in draft
form.
3. Detailed information, including legal advice, regarding the
structure of the FGL Sale, how the directors of FGL have satisfied
themselves that these arrangements were in the best interests of
FGL as a whole, and a copy of the draft transaction documents with
respect to the FGL Sale.
4. The reasons why the PAG Closing did not take place, the
reason why the original transaction between the Purchaser and each
of the shareholders of FGL have been superseded by a transaction
between the Purchaser and FGL directly, and the reason why this
arrangement is considered by the directors to be more in the
interests of the shareholders of FGL than the original
transactions.
5. Whether there is anything else that the shareholders of FGL
should know about the FGL Sale or the financial or operational
position of FGL or Funtalk.
ARCH considers that the directors of FGL were required to,
consistently with their duties, in deciding whether the FGL Sale is
in the best interests of FGL as a whole, properly address the
concerns raised and consider the information set out above, and
that they have failed in discharging this responsibility.
On 28 July 2014, the legal advisors for ARCH and ARCH Digital
sent a letter to each of the directors of FGL setting out ARCH's
concerns, seeking further information (including that set out
above), and notifying that ARCH considered that each of the
directors must, at a minimum, discharge their duties to FGL by
properly addressing these concerns and considering this
information. In light of the statement by Mr Shan that the FGL Sale
has "completed", ARCH is considering its options.
A further announcement will be made in respect of any material
developments on this matter.
For more information please contact:
ARC CAPITAL HOLDINGS LIMITED:
Steve Feniger, Chairman of the Board
E: steve.feniger@gmail.com
Cosimo Borrelli
Managing Director, Borrelli Walsh Limited
Consultant to the Board
T: (852) 3761 3800
E: cb@borrelliwalsh.com
NOMINATED ADVISER:
Philip Secrett, Grant Thornton UK LLP
T: (44) 20 7383 5100
E: Philip.J.Secrett@uk.gt.com
BROKER:
David Benda / Hugh Jonathan, Numis Securities Limited
T: (44) 20 7260 1000
E: d.benda@numiscorp.com
This information is provided by RNS
The company news service from the London Stock Exchange
END
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