TIDMRKW
RNS Number : 5488H
Rockwood Realisation PLC
07 April 2022
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
Rockwood Realisation plc
("Rockwood Realisation" or the "Company")
Recommended proposal for change of investment strategy, adoption
of new investment policy and Notice of General Meeting
The Board of Rockwood Realisation (AIM : RKW) announces that it
intends later today to post a circular (the "Circular") convening a
general meeting (the "General Meeting") for Shareholders to vote on
a proposal to change its investment strategy from its current
realisation strategy to instead enable the Company to continue as a
going concern and to make new investments (the "Proposal") as
summarised below. The new investment strategy will be overseen by
the Company's current investment manager, Harwood Capital LLP
("Harwood") led by Richard Staveley and Christopher Mills.
The Proposal will require Shareholder approval, by way of an
ordinary resolution (the "Resolution") which will be proposed at
the General Meeting, details of which are set out below.
Rationale for, and Summary of, the Proposal
On 11 October 2021, the Company announced the conclusion of its
strategic review which resulted in the appointment of Harwood as
the Company's new investment manager.
On 15 October 2021, the Company announced that it had received a
notice of requisition from Rock Nominees Limited (on behalf of
Gresham House plc, which is the ultimate parent company of the
Company's old investment manager, Gresham House Asset Management
Limited) convening a meeting to propose various resolutions which
included a resolution to commence the complete realisation of the
Company's assets, with such realisation and return of capital to be
completed within a period of 24 months (the "Managed
Wind-Down").
On 15 December 2021, Shareholders approved the Managed Wind-Down
and the adoption of its new investment policy to reflect the
Managed Wind-Down.
The Company has since returned approximately GBP25 million to
Shareholders since the start of the realisation strategy. As at
close of business on 1 April 2022, being the latest practicable
date prior to the date of this announcement, the Company's net
asset value ("NAV") was GBP40.7 million.
On 21 March 2022, the Company announced that Gresham House plc's
entire c.23.7 per cent interest in the Company (being 602,866
ordinary shares in the capital of the Company) had been sold to a
number of institutional investors, including Harwood, resulting in
Harwood's interest in the Company increasing to 28.9 per cent (or
29.9 per cent when aggregated with Richard Staveley's holding of
1.0 per cent, who is deemed to be acting in concert with
Harwood).
The Company further announced that Harwood has indicated to the
Board that it believes that the current investment policy does not
operate in the best interests of the Shareholders and should be
reviewed.
Following detailed discussion with Harwood (and several other
significant shareholders), the Board agrees that the current
investment policy does not operate in the best interests of
Shareholders as a whole. The Board is therefore proposing that the
Company adopts a new strategy of active investment and believes
that the experience of the Harwood investment team will provide the
opportunity to create long-term value for Shareholders.
The Board believes that the change in the Company's investment
policy will enable the Company to take advantage of the
inefficiencies in the UK small cap market to generate positive
returns for Shareholders, through the use of an active management
strategy which will engage with portfolio companies to enhance
outcomes.
The Company and Harwood therefore also announce that they have
entered into:
-- an amendment to the Harwood IMA, conditional on the passing
of the Resolution. A summary of the amendments to the Harwood
IMA is set out below; and
-- a relationship agreement, conditional on the passing of
the Resolution, on near identical terms to the relationship
agreement that was entered into between the parties on
10 October 2021 but which was subsequently terminated when
Shareholders approved the Managed Wind-Down on 15 December
2021. On almost all matters to be approved by Shareholders,
Harwood has restricted its voting rights in respect of
any shareholding it has in excess of 10 per cent. of the
issued share capital of the Company, but Harwood retains
its full voting rights in matters related to a change in
going concern status, tender offers and investment policy
or investment strategy changes.
Subject to the Proposal being approved at the General Meeting,
the Board also intends to change the name of the Company to
Rockwood Strategic plc pursuant to the authority given to the
Directors in article 168 of the articles of association of the
Company for that purpose. A further announcement would be made in
due course confirming when the name change will become
effective.
If Shareholders do not approve the change in investment policy,
the realisation strategy approved by Shareholders in December 2021
will continue.
If the Resolution is passed, the Company proposes to (i) amend
its current investment policy to reflect an active investment
strategy; and (ii) recommence making new investments as detailed in
the appendix to this announcement. The proposed amendments to the
current investment policy are considered a material change, which
requires the consent of Shareholders in accordance with the AIM
Rules.
The proposed resolution to change the current investment policy
will be set out in the Notice of General Meeting at the end of the
Circular. Part 2 of the Circular will also set out the new
investment policy in full (which is also set out in the appendix to
this announcement).
Related party transaction - Amendments to the Harwood IMA
In connection with Harwood's appointment as investment manager
of the Company, the Company and Harwood are party to an investment
management agreement dated 10 October 2021 (as amended and restated
on 29 November 2021) ("Harwood IMA").
The amendment and restatement of the Harwood IMA on 29 November
2021, which became effective on 15 December 2021 when Shareholders
approved the Managed Wind-Down, had the effect of Harwood agreeing
to continue to manage the Company in return for which it received
no investment management or performance fee. Now that the Board
proposes to change the current investment policy so that the
Company is no longer in a managed wind-down, the Board believes it
is appropriate that Harwood receives investment management fees
and, if applicable, performance fees, again, as was agreed when
Harwood was first appointed as the investment manager of the
Company in October 2021. The Board and Harwood have therefore
agreed that the investment management fees and performance fee that
applied when Harwood was first appointed last year will be
reinstated, conditional upon Shareholder approval of the
Resolution, save that whilst the Company's NAV remains below GBP60
million, Harwood will receive a reduced investment management fee
fixed at GBP120,000 per annum (inclusive of VAT, if any).
Accordingly, on 7 April 2022, the Company and Harwood entered
into a deed of amendment and restatement in respect of the Harwood
IMA, conditional upon Shareholder approval of the Resolution (the
"Amended Harwood IMA").
With effect from the passing of the Resolution, the key
amendments to the Harwood IMA are as follows:
-- Harwood's appointment as investment manager is subject to
a minimum term of one year, expiring on 5 November 2022;
-- until such time that the Company's NAV equals GBP60 million
or higher, Harwood will receive a management fee of GBP120,000
per annum (inclusive of VAT, if any);
-- once the Company's NAV equals GBP60 million or higher, Harwood
will be entitled to a management fee of 1 per cent. of NAV
(plus VAT, if any), calculated as 1/12th of an amount equal
to 1 per cent. of the NAV before deduction of that month's
investment management fee and before deduction of any accrued
performance fees, payable monthly;
-- Harwood is entitled to a performance fee equal to 10 per
cent. of outperformance over the higher of a 6 per cent.
per annum total return hurdle and the high watermark. The
6 per cent. per annum compounds weekly. The performance
fee is calculated annually;
-- provided that the Company's average NAV is at or below GBP100
million, performance fees in any performance fee period
are capped at 3 per cent. of the Company's average NAV for
the relevant performance fee period. In such instance, performance
fees in excess of the 3 per cent. cap will not be paid and
will instead be deferred into the next performance fee period;
-- if the average NAV exceeds GBP100 million, the performance
fee shall be further limited such that the combined investment
management and performance fees shall not exceed 3 per cent.
of the Company's average NAV. In such instance, performance
fees in excess of the cap will not be deferred and will
not become payable at any future date; and
-- the services of Harwood as investment manager have been
amended to reflect that it will be the investment manager
of the Company in accordance with the new investment policy.
Richard Staveley will act as lead fund manager, advised by
Christopher Mills.
Harwood is treated as a related party for the purposes of the
AIM Rules for Companies. Accordingly, the proposed entry into the
Amended Harwood IMA as set out above constitute a related party
transaction in accordance with rule 13 of the AIM Rules for
Companies. The Directors, having consulted with finnCap, in its
capacity as nominated adviser to the Company, consider the terms of
the proposed entry into the Amended Harwood IMA to be fair and
reasonable insofar as the Shareholders are concerned.
Details of the General Meeting
Location, Date and Time
The Proposal is subject to Shareholder approval. The General
Meeting will be held at the offices of finnCap, One Bartholomew
Close, London, EC1A 7BL at 10:00.a.m. on 25 April 2022.
Resolution
The Resolution will be proposed as an ordinary resolution which
authorises the Directors to change the Company's investment
strategy from a realisation strategy to an active investment
strategy and in connection with this, to adopt the new investment
policy, as set out in the appendix to this announcement, in
substitution for the current investment policy.
Voting and attendance
Voting on the Resolution will be conducted on a poll. An
ordinary resolution will require more than 50 per cent. of the
votes cast (whether in person or by proxy) to be in favour in order
for it to be passed.
All Shareholders are entitled to attend and vote at the General
Meeting.
In accordance with the articles of association of the Company,
all Shareholders entitled to vote and be present in person or by
proxy at the General Meeting shall upon a poll have one vote in
respect of each Share held. In order to ensure that a quorum is
present at the General Meeting, it is necessary for two or more
Shareholders to be present in person or by proxy (or, if a
corporation, by representative).
All Shareholders are encouraged to vote in favour of the
Resolution to be proposed at the General Meeting and if Shares are
not held directly, to arrange for their nominee to vote on their
behalf.
The results of the General Meeting will be announced through a
Regulatory Information Service and the Company Website as soon as
possible once known. It is expected that this will be on 25 April
2022.
Recommendation
The Directors consider that the Proposal is in the best
interests of Shareholders as a whole. Accordingly, the Directors
unanimously recommend that Shareholders vote in favour of the
Resolution, as they intend to do in respect of their own
shareholdings, which in aggregate total 22,517 ordinary shares in
the capital of the Company representing approximately 1 per cent.
of the issued ordinary share capital of the Company.
The person responsible for arranging for the release of this
announcement on behalf of the Company is Thomas Verlander,
representative of the Company Secretary.
For further information, please contact:
Rockwood Realisation plc
Chairman Noel Lamb 020 7264 4444
Harwood Capital LLP
Investment Manager Christopher Hart 020 7640 3200
Carl Holmes
finnCap William Marle
(Nominated Adviser and Broker) Mark Whitfield 0207 220 0500
Appendix
PROPOSED NEW INVESTMENT POLICY
It is proposed that, if the Resolution is approved, the current
investment policy will be deleted in its entirety and replaced with
the new investment policy set out below.
Investment Policy:
The Company will have an active investing policy and will invest
predominantly in publicly listed UK equities capitalised under
GBP250 million at the point of investment. Investments will be
sought where the shares are valued at less than the Investment
Manager's view of their intrinsic value. They will primarily be
businesses which the Investment Manager believes offer
opportunities for value to be unlocked or created through
strategic, management or operational changes, typically leading to
improved returns, profits and growth. The Company will seek
investments that can generate a 15 per cent. IRR over the medium to
long-term principally through capital appreciation.
The Company intends to invest the majority of its capital in a
concentrated portfolio of up to 10 'core' investments (initial
holding weightings are expected to represent 4-15 per cent. of
NAV). For these holdings, the Company will seek to acquire
influential block stakes (typically between 5 per cent. and 25 per
cent. of their issued share capital) for cash or share
consideration and would typically expect a holding period of at
least three to five years. This may be in conjunction with other
funds run by the Investment Manager when additional capital is
needed. The remainder of the portfolio will be invested in a
focused group of between 15-25 investments. These will meet the
investment criteria but are where the opportunity to establish a
'core' size investment has not arisen yet, or are more liquid
corporate recovery/'special' situations where the targeted return
objectives can be expected but where a large stake is not deemed
necessary to influence or generate change.
Significant due diligence will be completed on all 'core'
investments by the Investment Manager and the Company will seek to
incorporate the benefits of the networks, experience and insights
of both its Board and the members of its Investment Advisory Group
to enhance this process. No 'core' investment will be made until
the above have been consulted.
For maximum flexibility, given the full range of potential
future corporate situations 'core' investments may result in, the
Company may invest in companies listed in non-UK OECD countries
(e.g. demerged overseas division or a re-listing elsewhere). Non-UK
OECD investments will not exceed 25 per cent. of NAV at the time of
investment.
The investment policy will not be to seek or target investments
in privately held companies, however, in order to ensure
maximisation of shareholder value, these will be allowable if a
public-to-private transaction occurs. Additionally unlisted
preferred equity and convertible debt and other debt instruments
are allowable to enable flexibility of exposure within the capital
structure when 'core' investments are identified. Non-listed
investments will not exceed 15 per cent. of NAV in the above
circumstances at the time of investment.
The Company may put a bank facility in place but will limit
borrowing to no more than 20 per cent. of gross assets.
Any material change to the new investment policy would require
Shareholder approval in accordance with the AIM Rules.
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April 07, 2022 02:01 ET (06:01 GMT)
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