TIDMOEC3
JOINT ANNOUNCEMENT
28 SEPTEMBER 2012
OCTOPUS ECLIPSE VCT PLC ("ECLIPSE")
OCTOPUS ECLIPSE VCT 2 PLC ("ECLIPSE 2")
OCTOPUS ECLIPSE VCT 3 PLC ("ECLIPSE 3")
OCTOPUS ECLIPSE VCT 4 PLC ("ECLIPSE 4")
(TOGETHER THE "COMPANIES" AND ECLIPSE 2, ECLIPSE 3 AND ECLIPSE 4 TOGETHER THE
"TARGET VCTS" AND EACH A "TARGET VCT")
RECOMMENDED PROPOSALS TO MERGE THE COMPANIES (TO BE COMPLETED PURSUANT TO
SCHEMES OF RECONSTRUCTION UNDER SECTION 110 OF THE INSOLVENCY ACT 1986), AN
ENHANCED BUYBACK FACILITY AND RELATED MATTERS
SUMMARY
The boards of the Companies ("Boards") announced on 16 August 2012 that they had
agreed terms in principle to merge the four companies. The Boards are pleased to
advise that discussions have now concluded and that they are today writing to
set out the merger proposals to their respective shareholders for consideration.
Each of the Companies is managed by Octopus Investments Limited ("Octopus").
The merger will be effected by the Target VCTs each being placed into members'
voluntary liquidation pursuant to schemes of reconstruction under Section 110 of
the Insolvency Act 1986 ("Schemes" and each a "Scheme"). Shareholders should
note that the merger by way of the Schemes will be outside the provisions of the
City Code on Takeovers and Mergers.
The merger will be completed on a relative net asset basis and the benefits
shared by each set of shareholders, with the costs being split proportionately
based on the merger net asset values. Each Scheme requires the approval of
resolutions by the relevant Target VCT's shareholders and Eclipse shareholders.
However, each Scheme is not conditional on the other Schemes and will proceed
independently and irrespective of the other Schemes.
The proposed merger follows discussions with Octopus concerning the future
direction and performance of the Companies. The proposed merger will, if
effected, result in an enlarged company ("Enlarged Company") with net assets of
approximately GBP40 million. Based on the estimated costs of the proposed merger
(being GBP387,500) and the expected annual costs savings for the Enlarged Company
(being GBP284,000), the Boards believe that the costs of the proposed merger would
be recovered within 17 months. Equally important to the tangible benefit of cost
savings and improved administrative efficiency, the proposed merger is also
intended to bring a number of other strategic benefits to all sets of
shareholders and a greater focus to the Enlarged Company's objective of
improving, in the longer run, the investment performance.
The Boards have each declared special dividends ("Special Dividends"), subject
to their respective Schemes (or in the case of Eclipse any one Scheme) becoming
effective.
Eclipse also proposes to provide shareholders with the ability to participate in
an enhanced buyback facility ("Enhanced Buyback Facility"). Implementation of
the Enhanced Buyback Facility requires the approval of Eclipse shareholders to
enable Eclipse to purchase existing shares and issue new shares under the
Companies Act 2006. The Enhanced Buyback Facility is not conditional on the
Schemes becoming effective. The Schemes are not conditional on the Enhanced
Buyback Facility.
In addition, Eclipse intends to take the opportunity to renew allotment,
disapplication of pre-emption rights and share purchase authorities, approve
amendments to its articles of association and approve the cancellation of share
premium and capital redemption reserves.
Further, Eclipse is seeking the approval of its shareholders to enter into a
related party transaction with Octopus in connection with the fees payable to it
pursuant to the Enhanced Buyback Facility.
Further details of the proposals are set out below. The approval of resolutions
in connection with these proposals will be proposed at general meetings of the
Companies ("Meetings") being convened as set out in the expected timetable
below.
BACKGROUND
Set out below is a summary of historical information of the Companies, together
with the latest published NAVs (taken from the unaudited management accounts to
31 July 2012 for Eclipse, Eclipse 3 and Eclipse 4 and the unaudited half-yearly
report for the six months ended 31 July 2012 for Eclipse 2), the number of
venture capital investments within the portfolios of each company and the
respective carrying value of these investments.
Date of Funds Unaudited NAV per Number of Carrying
launch raised net assets share venture value of the
since ( GBP)* (p) * capital venture
launch investments* capital
( GBP) investments
( GBP)*
Eclipse April 35.4 15,866,366 49.4 25 10.5 million
2004 million
Eclipse 2 January 21.2 9,934,316 53.4 20 6.5 million
2005 million
Eclipse 3 August 29.2 12,008,843 47.2 16 7.9 million
2005 million
Eclipse 4 August 29.2 12,019,060 47.2 16 7.9 million
2005 million
The objective of each of the Companies is the same, to invest in a broad range
of AIM-quoted and UK smaller companies which meet the relevant criteria for VCTs
in order to generate income and capital growth over the long-term. The Companies
also have the same investment policies to invest in a broad range of industry
sectors and in companies at various stages of maturity in the corporate
development cycle. The normal investment holding period is in the range from
three to seven years. Each Company and Octopus have agreed that the investment
focus going forward (in particular, for the Enlarged Company following the
proposed merger) will be on the provision of growth and development capital to
companies which are profitable or on a clear path to profitability, but there is
no intention to change the investment policy of the Enlarged Company following
completion of the proposed merger.
The separate 'Eclipse' named VCTs were originally established so as to provide
the ability to access larger deals through co-investment. As a result, 93.9% of
the aggregate portfolio across the Companies is represented by venture capital
investments held by two or more of the Companies as at 31 July 2012 (this
representing GBP30.8 million out of the aggregate GBP32.8 million of venture capital
investments). As the portfolios of the Companies are now materially invested,
and due to the changes made to the VCT investment limits and size tests (in
particular, the removal of the GBP1 million investment limit per VCT), the benefit
of 'sister' VCTs is now significantly reduced.
VCTs are required to be 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 facilitate
better liquidity management and, as a result, may be able to maximise investment
opportunities and sustain a higher level of dividends to shareholders over its
life.
In September 2004, the Merger 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 have taken advantage of these
regulations to create larger VCTs for economic and administration efficiencies,
as well as to improve portfolio diversification.
With the above in mind, the Board entered into discussions with the boards of
the Target VCTs to merge the Companies to create a single, larger VCT. The aim
is to achieve long-term strategic benefits and reductions in the annual running
costs for all shareholders. In light of the proposals, the Company has extended
its current accounting period to 30 September 2012 so as to avoid financial
statements needing to be published part way through the merger process.
THE SCHEMES
The mechanism by which the proposed merger will be completed is as follows:
* each Target VCT will be placed into members' voluntary liquidation pursuant
to a scheme of reconstruction under Section 110 of IA 1986; and
* all of the assets and liabilities of each Target VCT will be transferred to
the Company in consideration for the issue of new ordinary shares of 10p
each in the capital of Eclipse ("New Eclipse Shares") (which will be issued
directly to the shareholders of the relevant Target VCT).
In respect of each Scheme, the New Eclipse Shares to be issued will be
calculated on a relative net asset value basis. The relative net asset values
will be the unaudited net asset values of the Companies as at the Calculation
Date (this being 30 October 2012), adjusted to take into consideration each
company's allocation of the estimated merger costs.
Each Scheme is conditional upon certain conditions being satisfied as further
set out in the circulars being posted to shareholders today, including
resolutions to be proposed to shareholders of each of the Companies. Each Target
VCT will apply to the UKLA for cancellation of the listing of its shares, upon
the successful completion of its Scheme, such cancellation is anticipated to
take place on 29 November 2012 (the cancellation requiring the approval of the
relevant Target VCT's shareholders).
The proposed merger, if effected, will result in the creation of an enlarged
company and should result in savings in running costs and simpler
administration. As all of the Companies have the same investment policies, a
number of common investments and are managed by Octopus, this is achievable
without material disruption to the Companies and their combined portfolio of
investments.
The Boards consider that the proposed merger will bring a number of benefits to
all of the Companies' groups of shareholders through:
* a reduction in annual running costs for the Enlarged Company compared to the
aggregate annual running costs of the separate Companies;
* the creation of a single VCT of a more economically efficient size with a
greater capital base over which to spread annual running costs;
* a greater focus to the objective of improving, the investment performance in
the longer term, in particular, through the agreed investment strategy for
the Enlarged Company;
* participation in a larger VCT with the longer term potential for a more
diversified portfolio, thereby spreading the portfolio risk across a broader
range of investments;
* increasing the ability to support follow-on investments and new investments
in the future due to the increased size and reduced running costs of the
Enlarged Company; and
* the potential to enhance the ability to pay dividends and buy back shares in
the future due to the increased size and reduced running costs of the
Enlarged Company, as well as improve liquidity in the secondary market, as
it is hoped that a larger vehicle will attract increased interest.
To the extent only one or more of the Schemes are completed, the benefits of the
Enlarged Company may not be fully realised (in particular, the annual costs
savings would be reduced accordingly).
The aggregate anticipated cost of undertaking the proposed merger is
approximately GBP387,500, including VAT, legal and professional fees, stamp duty
and the costs of winding up the Target VCTs. The costs of the merger will be
split proportionately between the Companies by reference to their respective
merger net assets (ignoring merger costs). Completion of the three Schemes at
the same time results in the aggregate merger costs (and, therefore, each
Company's estimated allocation of such costs) being lower than separate mergers
being completed with the Companies or other single VCTs (i.e. there are
economies of scale from merging four VCTs in one transaction). Each of the
Companies will be responsible for its allocation of the estimated merger costs
whether or not a particular Scheme is approved and becomes effective.
On the assumption that the net assets of the Enlarged Company will remain the
same immediately after the proposed merger, the reduction in the annual running
costs (ignoring annual management fees, performance incentive fees and
exceptional items) for the Enlarged Company is estimated to be at least GBP284,000
per annum, in particular, through the reduction in directors' and advisers'
fees, audit fees, secretarial fees, printing costs and listing fees, as well as
other fixed costs. This reduction would represent approximately 0.71% per annum
of the expected net assets of the Enlarged Company. On this basis, and assuming
that no new funds were to be raised or investments realised to meet annual
costs, the Boards believe that the costs of the proposed merger would be
recovered within 17 months.
As an illustration, had the merger been completed on 31 July 2012 (which
includes an adjustment for the Special Dividends), the number of New Eclipse
Shares that would have been issued for each existing Target VCT share held are
as follows:
Number of New Eclipse Shares
One Eclipse 2 share 1.155092
One Eclipse 3 share 1.020014
One Eclipse 4 share 1.020493
SPECIAL DIVIDENDS
The Boards have each declared special dividends ("Special Dividends"), subject
to their respective Schemes (or in the case of Eclipse any one Scheme) becoming
effective. The amount of these Special Dividends is as follows:
Special dividend per share (p)
Eclipse 11.00
Eclipse 2 9.00
Eclipse 3 8.00
Eclipse 4 8.00
The Special Dividends are, if they become payable, expected to be paid on 16
November 2012 to the shareholders on the register of the relevant company on 30
October 2012 (i.e. prior to the Schemes becoming effective).
ENHANCED BUYBACK FACILITY
The board of Eclipse has agreed to offer to its shareholders (including
shareholders who will roll across to Eclipse as part of the merger process) the
opportunity to participate in the Enhanced Buyback Facility. The terms of the
Enhanced Buyback Facility are set out in the Eclipse prospectus ("Prospectus")
which accompanies the circulars being sent out to the shareholders of the
Companies today.
* Eclipse shall offer (pursuant to a tender offer) to all UK shareholders
(including shareholders following the merger) on the register on 1 November
2012 to purchase up to 50% of the issued Eclipse share capital as at that
date.
* Shareholders eligible to participate may tender some or all of their
existing holding of Eclipse shares, such Eclipse shareholders:
* being entitled to sell up to a basic entitlement (this being up to 50%
of their holding on the register on 1 November 2012, rounded down to the
nearest whole Eclipse share); and
* being able to tender additional Eclipse shares that may be sold to the
extent that other Eclipse shareholders do not participate up to the
maximum available amount (any such excess to be allocated pro rata to
the number of Eclipse shares tendered, rounded down to the nearest whole
Eclipse share, subject to the discretion of the Eclipse Board).
* The purchase will be subject to the participating Eclipse shareholder
agreeing to reinvest all of the proceeds of sale in the purchase of New
Eclipse Shares.
* The purchase will be completed at a price equal to the most recently
published net asset value per Eclipse share at the time of purchase.
* The reinvestment will be completed at a price equal to the most recently
published net asset value per Eclipse share at the time of allotment,
divided by 0.95 (to take into account the costs of providing the facility,
referred to below).
* Allocations of New Eclipse Shares under the reinvestment will be rounded
down and fractions will not be allotted.
* Financial intermediaries will receive a commission of an amount equal to
2.5% of their client's reinvestment (which may be waived and reinvested for
additional New Eclipse Shares purchased on behalf of their client as part of
the Enhanced Buyback Facility) and annual trail commission.
Octopus will be paid an administration fee of 5% of the gross proceeds raised
through the issue of New Eclipse Shares (ignoring reinvested commission) from
which all costs and expenses will be paid, including initial intermediary
commission, but excluding annual trail commission. Any costs above this,
excluding annual trail commission, will be met by Octopus. There will,
therefore, be a corresponding small reduction to the net assets of Eclipse,
though the net asset value per Eclipse share is not expected to be affected,
save for in relation to the payment of trail commission (which is payable by
Eclipse).
The net effect for participating Eclipse shareholders is that they will
'substitute' 1,000 existing Eclipse shares with approximately 950 New Eclipse
Shares (plus any New Eclipse Shares issued pursuant to reinvested commission),
the small reduction in the value of the investment holding representing the
costs of implementing the Enhanced Buyback Facility, with the reinvestment
qualifying for upfront income tax relief of up to 30% of the amount reinvested
for qualifying shareholders.
The Enhanced Buyback Facility is conditional on the approval of resolutions by
Eclipse shareholders and the extent to which it will be implemented is further
conditional on Eclipse having sufficient reserves to effect the purchase of
shares pursuant to the Enhanced Buyback Facility.
The Enhanced Buyback Facility will open on 2 November 2012 (with, as mentioned
above, an Enhanced Buyback Facility record date for participation of 1 November
2012, i.e. after the Schemes are expected to become effective and New Eclipse
Shares have been issued to shareholders of the Target VCTs') and will close on
28 December 2012. The Eclipse Board may amend or extend (as applicable) these
dates at their discretion. The Enhanced Buyback Facility is not, however,
conditional on the proposed merger becoming effective.
INVESTMENT MANAGEMENT AND ADMINISTRATION ARRANGEMENTS
Octopus is the investment manager of all of the Companies and also provides
administration and secretarial services to all of the Companies.
In respect of Eclipse, Octopus receives an annual investment management fee of
an amount equal to 2% of the net assets of Eclipse at the end of the preceding
accounting period (this being GBP417,162 for the 12 months to 31 July 2012),
payable quarterly in advance (plus any applicable VAT). Octopus also receives an
annual administration fee equal to 0.3% of the net assets of the Company at the
end of the preceding accounting period (this being GBP62,574 for the 12 months to
31 July 2012), payable quarterly in advance (plus applicable VAT). These fee
arrangements will continue to apply to the Enlarged Company, but will be across
the enlarged net assets.
The Eclipse Board and Octopus have agreed that, subject to one or more of the
Schemes becoming effective, the performance related incentive fee arrangement
will be terminated. The Eclipse Board will consider implementing a new
performance related incentive fee arrangement with Octopus once the overall
assets of the Enlarged Company have improved.
THE ECLIPSE BOARD
The Boards have considered what the size and future composition of the Enlarged
Company's board should be following the proposed merger and it has been agreed
that (on the assumption that all of the Schemes become effective) David Lambert
(an Eclipse 2 director) and Alex Hambro (chairman of Eclipse 4) will be
appointed as additional directors of the Company. It is also proposed that Roger
Penlington will step down as chairman of the Audit Committee and David Lambert
will be appointed in his place.
In order to reflect the additional directors being appointed to the Eclipse
Board (and on the assumption that all of the Schemes become effective), Eclipse
is seeking shareholder approval to increase the cap on the directors' annual
ordinary remuneration from GBP75,000 to GBP95,000.
ECLIPSE CHANGES TO ITS ARTICLES, RENEWAL OF SHARE ISSUE AND BUYBACK AUTHORITIES
AND CANCELLATION OF SHARE CAPITAL AND RESERVES
Eclipse intends to renew and increase its authorities to issue shares (having
disapplied pre-emption rights) for general purposes and make market purchases of
shares reflecting the increased share capital of Eclipse following the proposed
merger.
Eclipse also proposes to seek the approval of its shareholders to cancel further
share premium and capital redemption reserves, subject to the sanction of the
Court.
In addition, Eclipse proposes to seek the approval of its shareholders to amend
its articles of association to (i) delete the statement of the authorised share
capital of the Company as at the date the articles of association were adopted,
(ii) provide for a new article permitting the name of Eclipse to be changed by
way of a board resolution and (iii) amend the directors' ordinary remuneration
cap (as detailed above).
RELATED PARTY TRANSACTION
In connection with the Enhanced Buyback Facility, Eclipse intends to enter into
the Enhanced Buyback Facility related party transaction. Arrangements whereby
the manager effectively underwrites the costs of the issue of shares, is
conventional in the VCT industry and provides certainty as to the overall costs
of the issue of new shares
Octopus is regarded as a related party pursuant to the Listing Rules of the UK
Listing Authority by virtue of it being the investment manager of the Company.
Shareholder approval is, therefore, required under the Listing Rules of the UK
Listing Authority to enter into these transactions.
Octopus is one of the UK's leading fund management companies with more than GBP2.7
billion under management (as at 31 May 2012). Octopus has more than 200 Staff,
including over 50 investment professionals, and has twice been voted as one of
the 'Top 100 Small and Medium-Sized Companies to Work For' in the Sunday Times.
EXPECTED TIMETABLES
The Schemes
Eclipse General Meeting 2.00 pm 23 October 2012
Eclipse 2 First General Meeting 2.30 pm 23 October 2012
Eclipse 3 First General Meeting 3.00 pm 23 October 2012
Eclipse 4 First General Meeting 3.30 pm 23 October 2012
Target VCTs' register of members closed 30 October 2012
Special Dividends record date 30 October 2012
Calculation date for the Schemes after 5.00 pm 30 October 2012
Suspension of listing of Target VCT' shares 7.30 am 31 October 2012
Eclipse 2 Second General Meeting 1.00 pm 31 October 2012
Eclipse 3 Second General Meeting 1.30 pm 31 October 2012
Eclipse 4 Second General Meeting 2.00 pm 31 October 2012
Effective date for the transfer of assets and 31 October 2012
liabilities of the Target VCTs' to Eclipse and
issue of New Eclipse Shares
Announcement of results of the meetings and 31 October 2012
completion of the Schemes (as applicable)
Dealings in shares to take place ex Special 1 November 2012
Dividend
Admission of and dealings in the New Eclipse 1 November 2012
Shares issued pursuant to the Schemes to commence
CREST accounts credited with New Eclipse Shares 1 November 2012
Certificates for New Eclipse Shares dispatched 5 November 2012
Payment of the Special Dividends 16 November 2012
Cancellation of the Target VCTs' share listing (if 8.00 am 29 November 2012
applicable)
Enhanced Buyback Facility
Enhanced Buyback Facility Record Date 5.00 pm on 1 November 2012
Enhanced Buyback Facility opens 2 November 2012
Enhanced Buyback Facility closes noon on 28 December 2012
Purchase of existing shares and issue of New Eclipse 14 January 2013
Shares pursuant to the Enhanced Buyback Facility
Announcement of the results of the Enhanced Buyback 14 January 2013
Admission of and dealings in New Eclipse Shares 15 January 2013
issued pursuant to the Enhanced Buyback Facility
commence
Certificates for New Eclipse Shares issued pursuant 22 January 2013
to the Enhanced Buyback Facility dispatched
DOCUMENTS AND APPROVALS
Eclipse shareholders will receive a copy of a circular convening the Eclipse
general meeting to be held on 23 October 2012 (together with the Eclipse
Prospectus) at which Eclipse shareholders will be invited to approve resolutions
in connection with the proposals.
Target VCTs' shareholders will receive a joint circular convening the Target
VCTs' first general meetings on 23 October 2012 and the Target VCTs' second
general meetings on 31 October 2012 (together with the Eclipse Prospectus) at
which Target VCTs' shareholders will be invited to approve resolutions in
connection with their relevant Scheme.
Copies of the Eclipse Prospectus, the Eclipse circular and the joint Target
VCTs' circular have been submitted to the UK Listing Authority and will be
shortly available for download both from Octopus' website
(www.octopusinvestments.com) and the national storage mechanism
(www.morningstar.co.uk/uk/NSM).
For further information, please contact:
Investment Manager and Administrator for the Companies
Octopus Investments Limited
Paul Daniells/Patricia Standaloft
Telephone: 0800 316 2295
Solicitors to the Companies
SGH Martineau LLP
Kavita Patel/Robert Newman
Telephone: 0800 763 2000
Sponsor to Eclipse
Matrix Corporate Capital LLP
Jonathan Becher
Telephone: 0203 206 7000
The directors and proposed directors of Eclipse accept responsibility for the
information relating to Eclipse 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 Eclipse 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 Eclipse 2 accept responsibility for the information relating to
Eclipse 2 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 Eclipse 2and 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.
The directors of Eclipse 3 accept responsibility for the information relating to
Eclipse 3and 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 Eclipse 3and 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.
The directors of Eclipse 4 accept responsibility for the information relating to
Eclipse 4 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 Eclipse 4 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 are acting as legal advisers for the Companies and for no one
else in connection with the matters described herein and will not be responsible
to anyone other than the Companies for providing the protections afforded to
clients of SGH Martineau LLP or for providing advice in relation to the matters
described herein.
Matrix Corporate Capital LLP, which is authorised and regulated in the United
Kingdom by the Financial Services Authority, is acting as sponsor for Eclipse
and no one else and will not be responsible to any other person for providing
the protections afforded to customers of Matrix Corporate Capital 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: Octopus Eclipse VCT 3 plc via Thomson Reuters ONE
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