RNS Number : 5488H

Rockwood Realisation PLC

07 April 2022


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.


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.


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 



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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(END) Dow Jones Newswires

April 07, 2022 02:01 ET (06:01 GMT)

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