TIDMWTG
RNS Number : 4417B
Watchstone Group PLC
08 October 2020
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU) No. 596/2014 ("MAR").
Watchstone Group plc ("Watchstone" or the "Company")
Proposed disposal of the Ingenie Business ("the Disposal") and
Notice of General Meeting
Watchstone Group Plc announces the proposed disposal of the
Ingenie Business to A-Plan Group Limited ("A-Plan Group") acting
through its related companies Endsleigh Insurance Services Limited
("Endsleigh") and Trafalgar Bidco Limited (together "the Buyer")
for cash consideration of up to GBP5.5 million including an
aggregate of GBP3 million in cash payable on completion ("Initial
Consideration"). In addition to the Initial Consideration, the
Group will be entitled to up to an aggregate of GBP2.5 million in
cash payable conditional on the financial performance of the
Ingenie Business during 2021. The Company will also retain its
subsidiary ISL which is seeking repayment of overpaid VAT in the
sum of over GBP2 million from HMRC.
The Disposal will be effected through the sale of the entire
issued share capital of Romeo Newco (which has acquired certain of
the assets and liabilities of IL) and the transfer of the general
insurance broking business operated by ISL under the name
"Ingenie".
In view of the size of the Ingenie Business relative to the
Company, the Disposal will result in a fundamental change in the
business of the Company for the purpose of Rule 15 of the AIM Rules
and it is therefore conditional upon the approval of Shareholders,
amongst other matters. That approval will be sought at a general
meeting of the Company to be held at Aldwych House, 71-91 Aldwych,
London WC2B 4HN at 9.30 a.m. on 28 October 2020.
The Circular, along with a notice of general meeting, to be held
at Aldwych House, 71-91 Aldwych, London WC2B 4HN at 9.30 a.m. on 28
October 2020 will be posted to Shareholders shortly and made
available on the Company's website www.watchstonegroup.com.
The release of this announcement has been authorised by Stefan
Borson, Group Chief Executive Officer and Company Secretary of the
Company.
For further information:
Watchstone Group plc Tel: 03333 448048
WH Ireland LLP, Nominated Adviser and Broker Tel: 020 7220 1666
Chris Hardie
Lydia Zychowska
Extracts from the Circular
The following has been extracted from, and should be read in
conjunction with, the Circular, which will be posted to
Shareholders shortly and made available on the Company's website
www.watchstonegroup.com.
1. The Disposal
1.1 Background
The stated strategy of the Group has been to resolve its legacy
issues and prepare its operating businesses for disposal. Following
the sale of Healthcare Services earlier this year, the Ingenie
Business is the remaining operating business in the Group.
The Ingenie Business is a technology provider and an insurance
broker focused on helping young drivers use the road safely and
affordably. Using telematics technology, the Ingenie Business gives
its community discounts, feedback and bespoke advice via its Driver
Behaviour Unit to help them improve their driving skills whilst
staying safe. It also provides its telematics technology and
analytics capability to certain third parties as a technology
solutions provider.
As announced on 30 September 2020, the results of the Ingenie
Business for the first half of 2020 have improved significantly
from H1 2019 despite the impact of COVID-19 restrictions, which
included a temporary halt to driving tests in the UK. The board of
ISL has taken the steps necessary to protect the business for when
the situation resolves. Revenue for the period to 30 June 2020 was
GBP4.8 million compared to GBP3.3 million for the same period in
2019. The loss for the period, net of tax was GBP671,000 (six
months to 30 June 2019, loss of GBP1.8 million). For the year ended
31 December 2019, the Ingenie Business recorded total revenues of
GBP7.3 million, gross profit of GBP2.0 million and an EBITDA loss
of approximately GBP2.6 million.
The Ingenie Business has been developing and recovering from a
difficult period of trading and has inevitably been impacted by the
COVID-19 restrictions. Accordingly, the Board feels that now is the
right time for a new owner to further leverage its market leading
proposition.
1.2 Reasons for the Disposal
The Directors believe that the Ingenie Business is a
high-quality business with a robust operating model, strong systems
and dedicated people. However, without the scale of a more
established insurance business in the UK and/or without investing a
substantial amount in marketing and building further market
presence, the Directors believe that growth opportunities are
limited as a standalone entity. The COVID-19 restrictions further
complicate the development of its proposition and its growth in the
short to medium term.
Accordingly, the Directors have decided to dispose of the
Ingenie Business whilst retaining an interest in its performance in
2021 through deferred consideration. In addition, the Company will
retain the benefit of historic tax claims in ISL which the
Directors are advised have substantial value (albeit this remains
subject to challenge by HMRC).
The sale of the Ingenie Business represents an opportunity for
the Company to realise cash proceeds and for Shareholders to
participate in that cash realisation. The Disposal is in line with
the Board's broader objective of generating value for Shareholders
and returning cash to Shareholders.
If the Resolution is not passed, the Disposal will not proceed,
and the Board would continue to operate the Ingenie Business in the
best interests of Shareholders in line with the Board's
strategy.
1.3 Summary terms of the Disposal
Through the Transaction Documents, the Buyer has conditionally
agreed to acquire the Ingenie Business. The Disposal will be
effected through the sale of the entire issued share capital of
Romeo Newco (which has acquired certain of the assets and
liabilities of IL) to A-Plan Group and the transfer of the general
insurance broking business operated by ISL under the name "Ingenie"
to Endsleigh.
The Disposal is subject to fulfilment of conditions including,
inter alia, the approval of the Shareholders at the General Meeting
and the agreement by certain counterparties of the novation of
contracts with IL and ISL. On completion, which is expected to
occur on or around 31 October 2020, the Buyer will pay initial cash
consideration of an aggregate of GBP3 million in cash with further
deferred contingent cash consideration of up to an aggregate of
GBP2.5 million depending on the revenue of the Ingenie Business in
the calendar year 2021.
The Group has agreed that, for a period of three years following
Completion, it will refrain from competing with Ingenie Business
and it has agreed to be subject to customary restrictive covenants
in this regard. The Group has given customary warranties to the
Buyer in respect of the Ingenie Business and the Group's liability
under those warranties is subject to certain customary limitations.
The Transaction Documents are governed by English law. The English
courts shall have exclusive jurisdiction to settle any disputes
arising out of or in connection with the Transaction Documents.
1.4 The Buyer
A-Plan Group was established in 1963 and is one of the largest
specialist insurance distribution groups in the UK. Its businesses,
which include A-Plan and Endsleigh, provide commercial and personal
lines cover for a varied range of clients through its network of
branches and centres, looking after the motor and home insurance
requirements of the general public, as well as the more specialist
needs of high net worth individuals, students, businesses and those
with specialist vehicles and homes.
1.5 Use of Proceeds
The net cash proceeds of the Disposal will be kept on deposit
and managed prudently until the Company's next distribution is
effected. The precise amount of any distribution to shareholders
has not yet been determined.
1.6 Strategy in respect of the remaining Company in the event of the Disposal
In the event that the Disposal completes, Watchstone will
comprise only of non-operating assets and will, under the AIM
Rules, be considered an AIM Rule 15 cash shell. At this stage, the
Board has not concluded whether it intends to undertake a reverse
takeover in accordance with the AIM Rules.
2. AIM Rule 15
In accordance with AIM Rule 15, the Disposal constitutes a
fundamental change of business of the Company. On Completion, the
Company would cease to own, control or conduct all or substantially
all, of its existing trading business, activities or assets.
Following completion of the Disposal therefore, the Company will
become an AIM Rule 15 cash shell and as such will be required to
make an acquisition or acquisitions which constitutes a reverse
takeover under AIM Rule 14 (including seeking re-admission as an
investing company (as defined under the AIM Rules)) on or before
the date falling six months from completion of the Disposal or be
re-admitted to trading on AIM as an investing company under the AIM
Rules (which requires the raising of at least GBP6 million) failing
which, the Company's Ordinary Shares would then be suspended from
trading on AIM pursuant to AIM Rule 40. Admission to trading on AIM
would be cancelled six months from the date of suspension should
the reason for the suspension not have been rectified.
3. General Meeting
The Disposal is conditional upon, amongst other things,
Shareholder approval being obtained at the General Meeting to be
held at Aldwych House, 71-91 Aldwych, London WC2B 4HN, at 9.30 a.m.
on 28 October 2020, at which the Resolution will be proposed.
The evolving COVID-19 situation and the related Government
restrictions will clearly impact the ability of Shareholders to
attend the General Meeting in person. In normal circumstances, the
Board greatly values the opportunity to meet Shareholders in
person. However, it fully supports the Public Gathering
Restrictions, and takes seriously the Company's responsibility to
slow the spread of COVID-19. In response to the current COVID-19
pandemic, the UK government introduced laws and associated guidance
restricting the movement of people.
The health and wellbeing of our Shareholders, employees,
advisers and of the general public is of paramount importance to
the Board, and the Company is committed to minimising the
unnecessary movement of people at this time and observing all
measures mandated and recommended by the UK government. As a
result, and in order that Shareholders and the Company are able to
comply with the Public Gathering Restrictions, the General Meeting
will be held as a closed meeting. Shareholders will not be
permitted to attend.
4. Recommendation
The Directors consider the Disposal to be in the best interests
of the Company and the Shareholders as a whole. The Directors have
received advice from Spectrum Corporate Finance Limited
("Spectrum") in connection with the Disposal. In providing advice
to the Directors, Spectrum has relied upon the Directors' and
management's commercial assessment of the Disposal. Accordingly,
the Board unanimously recommend that you vote in favour of the
Resolution, as the Directors intend to do in respect of their
beneficial holdings.
Part 2
DEFINITIONS
The following definitions and technical terms apply throughout
this announcement, unless the context otherwise requires:
"AIM" the AIM market, being a market of that name and operated
by the London Stock Exchange;
"AIM Rules" the AIM Rules for Companies (as amended from time to
time);
"Board" or "Directors" the board of directors of the Company;
"Buyer" A-Plan Group Limited acting through its related
companies, Endsleigh Insurance Services Limited and Trafalgar Bidco
Limited;
"Completion" completion of the Disposal expected to occur on or
about 31 October 2020;
"Disposal" the proposed sale of the Ingenie Business;
"General Meeting" the general meeting of the Company to be held
at Aldwych House, 71-91 Aldwych, London WC2B 4HN, at 9.30 a.m. on
28 October 2020;
"Group" the Company and its subsidiaries and subsidiary undertakings;
"HMRC" Her Majesty's Revenue and Customs;
"IL" Ingenie Limited;
"ISL" Ingenie Services Limited;
"Ingenie Business" the business that is the subject of the
Disposal being the entire issued share capital of Romeo Newco and
ISL's general insurance broking business;
"Ordinary Shares" ordinary shares of 10 pence each in the
capital of the Company;
"Romeo Newco" Project Romeo Newco Limited which has been
incorporated to acquire certain of the assets and liabilities of
IL;
"Resolution" the resolution to approve the Disposal to be
proposed at the General Meeting;
"Shareholders" holders of Ordinary Shares;
"Transaction Documents" the conditional sale and purchase
agreement relating to the sale of Romeo Newco and the conditional
business transfer agreement related to the ISL's general insurance
broking business; and
"Watchstone" or "Company" Watchstone Group plc.
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END
DISUBRARRWURRUA
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