TIDMDGT TIDMASTR
RNS Number : 2877V
Dowgate Capital PLC
07 July 2009
Dowgate Capital plc
7 July 2009
Dowgate recommends acceptance of Astaire Offer
Dowgate Capital plc ("Dowgate" or the "Company") is today posting a circular to
shareholders in which the Directors recommend acceptance of the Offer from
Astaire Group plc which has been made on the following basis:
For every 10 Dowgate Shares: 30 pence in cash and 9 New Astaire Shares (the
"Basic Offer")
or
For every 10 Dowgate Shares: 60 pence in cash and 3 New Astaire Shares (the
"Alternative Offer")
Whilst the Directors recommend acceptance of the Astaire Offer, they make no
recommendation as to whether Shareholders should accept the Basic Offer or the
Alternative Offer and recommend that Shareholders seek their own independent
financial advice when deciding between the two forms of consideration..
Shareholders wishing to accept the Offer should refer to the Astaire Offer
document dated 24 June 2009 which provides information about the procedure for
acceptance of the Offer.
Copies of the Dowgate circular, an extract of which is appended below, will be
available on the Company's website, www.dowgatecapital.co.uk..
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| Enquiries: | |
+----------------------------------------+----------------------------------------+
| Dowgate Capital plc | |
+----------------------------------------+----------------------------------------+
| Neil Badger, Director | |
+----------------------------------------+----------------------------------------+
| Tel: 01293 517744 | |
+----------------------------------------+----------------------------------------+
| | |
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| Nominated Adviser and Financial | |
| Adviser to Dowgate Capital plc | |
+----------------------------------------+----------------------------------------+
| Grant Thornton UK LLP | |
+----------------------------------------+----------------------------------------+
| Philip Secrett / Colin | |
| Aaronson/Salmaan Khawaja | |
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| Tel: 020 7383 5100 | |
+----------------------------------------+----------------------------------------+
Dealing Disclosure Requirements
Under the provisions of Rule 8.3 of the Takeover Code (the "Code"), if any
person is, or becomes, "interested" (directly or indirectly) in 1% or more of
any class of "relevant securities" of Astaire, or of Dowgate, all "dealings" in
any "relevant securities" of that company (including by means of an option in
respect of, or a derivative referenced to, any such "relevant securities") must
be publicly disclosed by no later than 3.30 pm (London time) on the London
business day following the date of the relevant transaction. This requirement
will continue until the date on which the offer becomes, or is declared,
unconditional as to acceptances, lapses or is otherwise withdrawn or on which
the "offer period" otherwise ends. If two or more persons act together pursuant
to an agreement or understanding, whether formal or informal, to acquire an
"interest" in "relevant securities" of Astaire or Dowgate, they will be deemed
to be a single person for the purpose of Rule 8.3.
Under the provisions of Rule 8.1 of the Code, all "dealings" in "relevant
securities" of Astaire or of Dowgate by Astaire or Dowgate, or by any of their
respective "associates", must be disclosed by no later than 12.00 noon (London
time) on the London business day following the date of the relevant
transaction.
A disclosure table, giving details of the companies in whose
"relevant securities" "dealings" should be disclosed, and the number of such
securities in issue, can be found on the Takeover Panel's website at
www.thetakeoverpanel.org.uk.
Grant Thornton UK LLP, which is authorised and regulated in the United Kingdom
by the Financial Services Authority, is acting exclusively for the Company and
no-one else in connection with the Offer and, accordingly, will not be
responsible to anyone other than the Company for providing the protections
offered to clients of Grant Thornton UK LLP or for providing advice in relation
to the Offer, the contents of this announcement, or any transaction, arrangement
or matter referred to herein. No representation or warranty, express or implied,
is made by Grant Thornton UK LLP as to any of the contents of this document
(without limiting the statutory rights of any person to whom this document is
issued).
LETTER FROM THE CHAIRMAN
Dowgate Capital plc
(Incorporated and registered in England & Wales with registered No. 4170143)
+----------------------------------------+----------------------------------------+
| Directors: | Registered Office: |
| Ian Carysfort Buckley (Non-Executive | 46 Worship Street |
| Chairman) | London EC2A 2EA |
| 46 Worship Street | |
| Neil Ivor Badger (Executive Director) | |
+----------------------------------------+----------------------------------------+
7 July 2009
To Dowgate Shareholders and, for information only, holders of options and
warrants Dear Shareholder,
1. Introduction
It was announced on 22 June 2009, that Astaire Securities PLC had made a formal
offer on behalf of Astaire for the entire issued share capital of Dowgate on the
following basis:
For every 10 Dowgate Shares: 30 pence in cash and 9 New Astaire Shares (the
"Basic Offer")
or
For every 10 Dowgate Shares: 60 pence in cash and 3
New Astaire Shares (the "Alternative Offer")
On the basis of Astaire's closing share price of 4.75 pence on 6 July 2009,
being the last practicable date prior to the date of this document, the Basic
Offer values the Group at GBP2.87 million and the Alternative Offer values the
Group at GBP2.93 million. The Basic Offer represents a value for each Dowgate
Share of approximately 7.3 pence and the Alternative Offer represents a value of
7.4 pence for each Dowgate Share representing a premium of respectively circa
143 per cent. and 148 per cent. over the closing price of a Dowgate Share of 3.0
pence on 9 April 2009, being the last Business Day before the announcement by
Dowgate that the Board had received an approach from a third party regarding a
possible offer for Dowgate.
The purpose of this letter is to explain the background to the Astaire Offer and
the reasons why the Directors of Dowgate, who have been so advised by Grant
Thornton, consider the terms of the Offer to be fair and reasonable.
2. Background to the Group
Dowgate is a financial advisory and stockbroking business comprising two
wholly-owned companies, DCA and DCS.
DCA, formerly known as City Financial Associates Limited, was acquired by the
Company in December 2001 as a start up operation. Its business has steadily
developed a niche as an authorised AIM Nominated Adviser, PLUS Corporate
Adviser, Sponsor, City Code specialist and financial adviser, working mainly but
not exclusively with smaller quoted companies. DCA currently has a team of eight
corporate finance specialists. It operates from offices at 46 Worship Street,
London EC2A 2EA. DCA currently has 42 retained clients where, for the most part
it acts as Nominated Adviser, PLUS Corporate Adviser or Sponsor and, in
addition, it manages corporate finance transactions for both retained and other
clients.
DCA's key employees are Tony Rawlinson, James Caithie and Liam Murray.
DCS, formerly known as Seymour Pierce Ellis Limited, was acquired by the Company
in October 2006, principally to enhance the Group's ability to raise funds for
corporate advisory clients. DCS is a private client agency stockbroker that also
specialises in the provision of corporate broking services to AIM and PLUS
traded companies.
DCS's main fee earner is Clive Mattock and DCS has historically been reliant on
Mr Mattock for generating a significant proportion of its revenues. In view of
his significance to the profitability of the DCS business, on 28 September 2006
Mr Mattock entered into a three year service contract with DCS under which he
would devote himself full time to providing his services to DCS. This agreement
is terminable on six months' notice, such notice to take effect no earlier than
28 September 2009.
In order to broaden its reach, particularly to institutional clients, DCS
established a City based corporate broking business in March 2008 based at
Dowgate's offices at 46 Worship Street. Unfortunately, this development took
place shortly before the onset of the present global financial crisis and the
effective closure of equity capital markets for smaller quoted companies and,
whilst it added significantly to the Group's overheads, it generated very
limited new income.
3. Financial information on the Group
Results for the three years ended 31 December 2008 are available on the
Company's website,
+-------------------------------------------+--------------+-----------+----------+
| www.dowgatecapital.co.uk and are | | | |
| summarised below: | | | |
+-------------------------------------------+--------------+-----------+----------+
| | 2008 | 2007 | 2006 |
+-------------------------------------------+--------------+-----------+----------+
| | GBP'000 | GBP'000 | GBP'000 |
+-------------------------------------------+--------------+-----------+----------+
| Financial Advisory | | | |
+-------------------------------------------+--------------+-----------+----------+
| Revenue | 2,551 | 2,740 | 2,896 |
+-------------------------------------------+--------------+-----------+----------+
| Segmental profit | 371 | 474 | 702 |
+-------------------------------------------+--------------+-----------+----------+
| Broking | | | |
+-------------------------------------------+--------------+-----------+----------+
| Revenue | 2,548 | 3,511 | 673 |
+-------------------------------------------+--------------+-----------+----------+
| Segmental profit/(loss) | (2,725) | 713 | 152 |
+-------------------------------------------+--------------+-----------+----------+
| Head office costs | (423) | (174) | (39) |
+-------------------------------------------+--------------+-----------+----------+
| Group Revenue | 5,099 | 6,251 | 3,569 |
+-------------------------------------------+--------------+-----------+----------+
| Group profit/(loss) before tax | (2,777)* | 1,013 | 815 |
+-------------------------------------------+--------------+-----------+----------+
* Group trading loss (before tax, impairment charges, exceptional costs and the
cost of share based payments) amounted to GBP390,000.
The Directors believe that the medium term prospects for a niche corporate
advisory and broking business such as the Group remain positive. However market
conditions in 2009 have been very difficult and, whilst they are likely to
improve, conditions are expected to remain challenging in the short term.
4. Background to and reasons for recommending the Offer
Dependence on key personnel
The Directors recognise the challenges facing smaller businesses providing
financial advisory and stockbroking businesses and in particular their
dependence on key personnel.
As has been stated above, DCS is dependent to a large extent for its revenues
and profits on Clive Mattock, who is entitled to leave the Group on six month's
notice. Mr Mattock has indicated that he considers that his operations would
benefit from being part of a larger group such as Astaire and has given an
irrevocable undertaking to accept the Offer.
DCA is dependent to a large extent on four qualified executives, in particular,
Tony Rawlinson, James Caithie and Liam Murray. Shortly before the announcement
by Astaire (formerly Blue Oar plc) on 16 April 2009 of a possible offer for the
Company, the Company was about to publish a circular to Shareholders
recommending the sale of DCA to a company owned beneficially by, inter alios,
Tony Rawlinson, James Caithie and Liam Murray. However, once an approach from
Astaire was received, the potential management buy-out of DCA was terminated.
Tony Rawlinson resigned from the Board of the Company on 30 June 2009 and,
unless otherwise agreed, will leave the Group on 31 October 2009. James Caithie
and Liam Murray will leave the Group eight weeks after the Offer becomes
unconditional as to acceptances, should it do so, unless otherwise agreed.
In considering the terms of the Offer, the Directors have had regard to the
dependence of the Company on key individuals who are responsible for many of the
Group's key client relationships.
Market conditions
In considering the alternatives open to Shareholders, the Directors have also
taken into account the risks facing the financial services sector in general and
financial advisory and stockbroking businesses such as the Group. The historical
financial performance of DCA has depended to a significant extent on the
buoyancy and levels of activity of AIM.
AIM market conditions have resulted in a number of AIM companies deciding to
cancel their admission to AIM. Additionally, clients are keen to preserve cash
and are seeking to reduce costs, including AIM related fees. Furthermore, the
number of companies seeking a quotation on AIM has significantly reduced
compared to previous years. As a result, the Group's business, in common with
other specialist AIM advisers, has experienced a major downturn and the timing
of the recovery is uncertain.
As stated in the Chairman's statement in the Company's 2008 annual report,
although DCA traded satisfactorily up to the end of 2008, trading conditions in
the first 4 months of 2009 were significantly more challenging. Similarly,
trading conditions remained harsh for DCS in the first quarter of 2009 with
total income declining further. However, private client trading volumes have
increased since mid March 2009.
In making their recommendation, the Directors had regard to the risks facing
smaller organisations such as the Group as compared to larger, better
capitalised research-based companies.
Future prospects
On 22 May 2009, the Board stated that it believed the Astaire approach was
opportunistic and undervalued Dowgate. The Directors continue to believe that
the Offer does not fully reflect the potential future value of the Group,
particularly if revenues and profits were to reach and grow beyond levels
reached in 2007.
However, in making their recommendation, the Directors recognise the risks
attaching to the Group and the benefits of an immediate and more certain return
that Shareholders would receive in cash should the Offer go unconditional as to
acceptances, compared with the longer term and less certain prospects should
Shareholders choose to retain their investment in the Company.
Effect of the approach by Astaire
The approach by Astaire has taken up significant management time and has forced
the Group to incur substantial professional fees while the Directors have sought
to negotiate an improved offer for Shareholders and to meet their obligations
under the City Code. The Directors believe that these factors will have an
adverse effect on the financial performance of the Group in the short to medium
term.
Share price performance and related considerations
In October 2008, the Company's share price was 10.25 pence and fell to a low of
3.0 pence per Dowgate Share in April 2009. Whilst it is possible that the
Dowgate share price may in the future be worth more than the current value of
the Offer, there is a risk that the share price may not increase for a
considerable time, if at all. In addition, in making their recommendation the
Directors have had regard to the following:
* the Offer represents a premium of almost 150 per cent. over the closing price of
Dowgate Shares on 9 April 2009 (being the last Business Day before the
announcement by the Company that the Board had received an approach from a third
party regarding a possible offer for the Company);
* the Offer also removes the risk of further share price deterioration resulting
from market conditions and potential losses within Dowgate;
* there is limited trading and liquidity in Dowgate Shares;
* as at 3 July 2009, Astaire owned or had received irrevocable undertakings to
accept the Offer in respect of 27.8 per cent. of Dowgate Shares;
* as at 3 July 2009, Astaire held approximately 10.9 per cent. of Dowgate Shares.
If the Offer does not go unconditional as to acceptances, there is a risk that
Astaire could seek to dispose of its Dowgate Shares, which may put further
downward pressure on the share price; and
* by accepting the Offer, Shareholders can dispose of their Dowgate Shares without
dealing costs.
Alternatives available to the Group
Although no formal sale process was undertaken, since the approach by Astaire,
the Directors have received several other approaches for all or part of the
Group. However, as at the date of this document, no firm offer has been received
and all discussions have been terminated.
Accordingly, in view of the challenging market conditions, the difficulty faced
by many potential buyers in accessing finance and the lack of an alternative
offer for the Company, should the Offer fail to go unconditional as to
acceptances, there can be no certainty that an alternative offer would be
forthcoming.
5. Information on Astaire
Astaire is the holding company of a group of businesses engaged in stockbroking
and corporate advisory work. On 8 December 2008 an offer was announced for
Astaire by Evolve Capital plc that led to Evolve Capital plc becoming the
beneficial owner of approximately 65 per cent. of the Astaire shares in issue.
As its major shareholder, Evolve Capital plc has instituted strategic and
management changes within Astaire.
Astaire announced its results for the year ended 31 December 2008 on 15 April
2009. These included a loss before tax of GBP16.1 million and an underlying loss
of GBP3.3 million before impairment of goodwill, share based payments,
amortisation of intangibles and certain other costs, on turnover of GBP15.0
million. As at that date, the Astaire Group had net assets of GBP20.1 million,
including cash and cash equivalents of GBP13.6 million.
Over the last 12 months, Astaire's share price has been as high as 13 pence in
December 2008 and has fallen as low as 3.25 pence per share in February 2009.
The Directors do not know how Astaire will perform in 2009 and beyond and cannot
assess the value at which Shareholders could dispose of any New Astaire Shares
they acquire.
The Directors believe that Astaire enjoys similar opportunities and is subject
to similar market risks as Dowgate. However, in addition to the effect of the
general risks facing such businesses, including risks relating to regulatory
approvals and authorisations, the Directors are unable to assess the effect that
recent management changes and the public censure and fine on Astaire, announced
on 22 June 2009, will have on its business.
In order to enable it to assess the value of the Astaire securities offered
under the Offer, the Company requested information from Astaire that it declined
to provide. Accordingly, in making their recommendation, the Directors have only
relied on publicly available information on Astaire.
6. The Basic Offer and the Alternative Offer
The Basic Offer comprises 30 pence in cash and 9 New Astaire Shares for every 10
Dowgate Shares, which values the Group at GBP2.87 million, based on Astaire's
closing share price of 4.75 pence on 6 July 2009, being the last practicable
date prior to the date of this document. On the same basis, the Alternative
Offer, which comprises 60 pence in cash and 3 New Astaire Shares for every 10
Dowgate Shares, values the Group at GBP2.93 million.
In the Offer Document Astaire stated its belief that there is an attractive
market opportunity for companies that combine the provision of advisory and
stockbroking services to smaller publicly listed companies and the institutions
that invest therein, with the provision of wealth management and broking
services to private clients. In that document, Astaire also articulated the
reasons why it believes that it will prosper when markets recover.
The future performance of a business is subject to risks and uncertainties. The
price of Astaire securities can fall as well as rise and will depend on factors
outside of the control of Astaire and there could be limited liquidity in the
shares at the time that Shareholders seek to sell their New Astaire Shares. Even
if Astaire prospers as its board anticipates and even if the price of its
securities were to rise, there can be no certainty as to when, if ever,
Shareholders will be able to sell their New Astaire Shares for more than the
current price.
Whether Shareholders should accept the Basic Offer or the Alternative Offer will
depend upon their own investment objectives as well as other factors. The
Directors give no recommendation as to whether Shareholders should accept the
Basic Offer or the Alternative Offer and recommend that Shareholders seek their
own independent financial advice when deciding between the two forms of
consideration being offered.
7. Astaire's intentions towards directors, management, employees and locations
The Directors welcome the importance attached by Astaire to the skills and
experience of existing Dowgate management and Astaire's statement that its
current plans do not involve any change to the conditions and employment of
Dowgate's employees and that their contractual rights will be fully safeguarded.
They also welcome the present intention of Astaire to maintain Dowgate's current
locations although recognise that this is subject to review.
8. Irrevocable Undertakings
On 22 May 2009, Astaire announced that it had received irrevocable undertakings
to accept, or procure the acceptance of the Offer in respect of, in aggregate,
6,667,281 Dowgate Shares, representing 16.9 per cent. of Dowgate Shares.
As at the close of business on 3 July 2009, (being the last practicable date
prior to the posting of this document), Astaire owned 4,316,794 Dowgate Shares,
representing 10.93 per cent. of Dowgate Shares. Accordingly, Astaire already
holds or has received irrevocable undertakings in respect of 10,984,075 Dowgate
Shares representing approximately 27.8 per cent. of Dowgate Shares.
9. Cancellation of Dowgate's AIM admission and compulsory acquisition
The Offer is subject to a 90 per cent. acceptance condition. If the Offer
becomes or is declared unconditional in all respects and if Astaire receives
acceptances in respect of 90 per cent. or more of all Dowgate Shares which are
subject to the Offer, it intends compulsorily to acquire the remaining shares.
However, the 90 per cent. condition may be waived by Astaire, who may still seek
to have cancelled the Company's admission to AIM.
Shareholders should be aware that if they do not accept the Offer, there is a
risk that they may hold shares in a company whose shares are no longer traded on
a public market. The cancellation of the admission to trading of Dowgate Shares
on AIM would significantly reduce the liquidity and marketability of any Dowgate
Shares which are not acquired under the Offer and the Directors believe that
their value would be likely to be materially and adversely affected as a
consequence.
10. The Directors' recommendation
The Directors, who have been so advised by Grant Thornton, consider the terms of
the Offer to be fair and reasonable. In providing such advice Grant Thornton has
taken into account the commercial assessment of the Directors.
Accordingly, the Directors unanimously recommend that you accept the Offer, as
they intend to do in respect of their own beneficial holdings of, in aggregate,
1,237,179 shares, representing approximately 3.13 per cent. of Dowgate Shares.
However, the Directors express no opinion as to whether Shareholders should
accept the Basic Offer or the Alternative Offer. Shareholders are recommended to
seek their own independent financial advice when deciding whether to accept the
Basic Offer or the Alternative Offer.
Yours faithfully
Ian Buckley
Chairman
DEFINITIONS
+-------------------------------+------------------------------------------------+
| "AIM" | the market of that name operated by London |
| | Stock Exchange plc |
| | |
+-------------------------------+------------------------------------------------+
| "Astaire" | Astaire Group plc |
| | |
+-------------------------------+------------------------------------------------+
| "Astaire Offer" or "Offer" | the offer to acquire Dowgate made by Astaire |
| | |
+-------------------------------+------------------------------------------------+
| "Astaire Group" | Astaire and its subsidiaries |
| | |
+-------------------------------+------------------------------------------------+
| "Board" or "Directors" | the board of directors of the Company whose |
| | names are set out in paragraph 2 of Part 2 of |
| | this document |
| | |
+-------------------------------+------------------------------------------------+
| "Business Days" | a day (excluding Saturdays, Sundays and public |
| | holidays) on which banks are generally open |
| | for business in the City of London |
| | |
+-------------------------------+------------------------------------------------+
| "Dowgate Shares" | ordinary shares of 7.5p each in the capital of |
| | the Company, |
| | excluding shares held in treasury |
| | |
+-------------------------------+------------------------------------------------+
| "DCA" | Dowgate Capital Advisers Limited |
| | |
+-------------------------------+------------------------------------------------+
| "DCS" | Dowgate Capital Stockbrokers Limited |
| | |
+-------------------------------+------------------------------------------------+
| "City Code" or "Code" | the City Code on Takeovers and Mergers |
| | |
+-------------------------------+------------------------------------------------+
| "Company" or "Dowgate" | Dowgate Capital plc |
| | |
+-------------------------------+------------------------------------------------+
| "FSA" | the Financial Services Authority |
| | |
+-------------------------------+------------------------------------------------+
| "Grant Thornton" | Grant Thornton UK LLP |
| | |
+-------------------------------+------------------------------------------------+
| "Group" | the Company, DCA and DCS |
| | |
+-------------------------------+------------------------------------------------+
| "New Astaire Shares" | the new ordinary shares of 0. 1p each in the |
| | capital of Astaire to be issued pursuant to |
| | the Astaire Offer |
| | |
+-------------------------------+------------------------------------------------+
| "PLUS" | the primary market operated by PLUS Markets |
| | plc |
| | |
+-------------------------------+------------------------------------------------+
| "Shareholders" | holders of Dowgate Shares |
| | |
+-------------------------------+------------------------------------------------+
| "the Offer Document" | the Offer document issued by Astaire in |
| | respect of the Astaire Offer on 24 June 2009 |
| | |
+-------------------------------+------------------------------------------------+
| "the Offer Period" | the Offer period for the purposes of the Code, |
| | which commenced on 14 April 2009 |
+-------------------------------+------------------------------------------------+
This information is provided by RNS
The company news service from the London Stock Exchange
END
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