TIDMEKT
RNS Number : 3272H
Elektron Technology PLC
31 July 2019
Elektron Technology Plc
(AIM: EKT, "Elektron" or the "Group")
Sale of Elektron Technology UK Limited (which holds the Bulgin
business)
Proposed Payments to Directors
Proposed Change of name to Checkit plc
and
Notice of General Meeting
Elektron Technology plc announces that it has entered into a
conditional agreement with a special purpose vehicle wholly-owned
by Equistone Partners Europe, one of Europe's leading mid-market
private equity investors, to sell the entire issued share capital
of Elektron Technology UK Limited (which holds the Bulgin business)
for a total cash consideration of GBP105 million, before adjusting
for net debt/cash and subject to working capital and other
adjustments at Completion (the "Proposed Transaction"). Net
proceeds after all costs including the settlement of the LTIP
liability are expected to be in the region of GBP94 million. The
Proposed Transaction creates significant value for Shareholders and
will result in a major restructuring of the Group, as outlined
below.
Details of the proposals are set out in a circular (the
"Circular") which is being sent to Shareholders today and will also
be made available for download from the Company's website at
www.elektron-technology.com/investors/.
As the Proposed Transaction will constitute a fundamental change
of business of the Company and its subsidiaries ("Group") pursuant
to the AIM Rules it will require the approval of Shareholders at a
general meeting ("General Meeting") to be held at 11.00 a.m. on 3
September 2019 at the offices of Fieldfisher LLP, 9th Floor,
Riverbank House, 2 Swan Lane, London EC4R 3TT. Shareholders will
also be asked to approve certain bonus and incentive payments to be
made to the Executive Directors and recommended by the Remuneration
Committee.
It is intended that John Wilson, Group CEO, will remain with the
Bulgin business being sold. He will also continue as a Director of
the Group in a non-executive capacity to ensure continuity and to
enable the Group to benefit from his commercial and technical
expertise. Keith Daley will remain as Executive Chairman and become
solely responsible for the running of the Group alongside Andy
Weatherstone, Chief Financial Officer.
Following Completion of the Transaction and the issuance of the
Group's Interim Report for the six months to 31 July 2019
(currently expected to be announced in October 2019), the Board,
subject to applicable Company law, currently expects to return a
majority of the net proceeds from the transaction by giving
Shareholders the opportunity to sell a proportion of their shares
back to the Company by way of a tender offer.
Subject to Shareholder approval and conditional on completion of
the Proposed Transaction, the Group proposes to change its name to
Checkit plc.
Highlights
-- Fundamental transformation of the Group from a specialist
electronics manufacturer to a Service as a Software company
focussed on the fast growing field of real time operations
management
-- Total cash consideration of GBP105 million, represents a
15.1% premium to the market capitalisation of the Group as at the
close of business on 30 July 2019
-- Following the Proposed Transaction, it is estimated that the
Group's net cash position will be approximately GBP95 million
-- The Board has formed the view that the Proposed Transaction
provides the Group with the most appropriate option in terms
of:
o maximising the amount of cash that will be available for
reinvestment or distribution to the Shareholders;
o giving the highest level of certainty for Shareholders;
o maximising the value received for the Group's trade and assets
being disposed of and;
o separating very different business activities.
-- The Board currently expects to return the significant
majority of the net proceeds after costs to Shareholders by way of
a tender offer
-- The retained sale proceeds (after returning funds to
shareholders) are expected to be applied to drive the future growth
of Checkit, in combination with Next through investment in new
product development, organisational development, sales and
marketing. The Board will also examine selectively potential
acquisitions as a source of growth
-- Proposed name change to Checkit plc which will more
appropriately reflect the future business of the Group
Performance of the Next acquisition
The Board is pleased to report the Next is performing according
to expectations. Plans to integrate Checkit and Next (including the
recruitment of new key senior roles) are well advanced.
Commenting Keith Daley, Executive Chairman, said:
"We have been working on a sale of Bulgin for many months and
are delighted to have reached agreement on this deal which will
realise significant value for Shareholders.
Subject to shareholder approval, once we have completed the
transaction the remaining group and team shall be able to focus all
of our energies on Checkit. The vision is to create a global leader
in real-time operations management software. The early signs of the
Checkit/Next combination are encouraging and we view the future
with enthusiasm and confidence."
For further information:
Elektron Technology plc +44 (0) 1223 371 000
Keith Daley (Executive Chairman)
John Wilson (Chief Executive Officer)
Andy Weatherstone (CFO & Company Secretary)
Yellowstone Advisory (Investor Relations
Consultant)
Alex Schlich / Kate Divito +44 (0)7710 164 120
N+1 Singer (Nominated Adviser and Broker) +44 (0)20 7496 3000
Shaun Dobson / Jen Boorer
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulation (EU) No. 596/2014 (MAR). Upon
publication of this announcement, this inside information is now
considered to be in the public domain.
The following summary is extracted from the Circular being sent
to Shareholders. It should be read by Shareholders in conjunction
with the Circular, which includes definitions of terms used but not
otherwise defined in this announcement. Such terms shall have the
same meaning as are given to them in the Circular.
Dear Shareholder,
Proposed sale of the entire issued share capital of ETUK (which
holds the Bulgin Business), approval of payments to Directors,
change of name and Notice of General Meeting
1. Introduction
Elektron Technology plc (AIM: EKT), has announced today that the
Company has entered into a conditional agreement for the sale of
the entire issued share capital of ETUK (which holds the Bulgin
Business) to the Purchaser. The consideration due to the Sellers
under the SPA corresponds to an enterprise value for ETUK of
GBP105m on a debt-free, cash-free basis. The consideration due is
subject to customary adjustments, as set out in paragraph 14 below.
The net proceeds due to the Company after deductions and expenses
are expected to be approximately GBP94 million. The Proposed
Transaction is intended to maximise value to Shareholders and will
result in a major restructuring of the Group, as outlined
below.
The Proposed Transaction would be a significant step in the
ongoing rationalisation of the various businesses in the Group,
leaving Checkit (including the recently acquired Next) as the main
business. The Proposed Transaction, if approved, will realise more
than GBP90m, which compares with the Group's market capitalisation
of c. GBP10m on 31 July 2016. This demonstrates the exceptional
period of success since that time for the Group.
Following Completion of the Transaction and the issuance of the
Group's Interim Report for the six months to 31 July 2019
(currently expected to be announced in October 2019), the Board,
subject to applicable Company law, currently expects to give
Shareholders the opportunity to sell a proportion of their shares
back to the Company by way of a tender offer. Further details of
the proposed tender offer are set out in paragraph 7 below.
In addition, the Remuneration Committee has recommended to the
Board that certain bonus and incentive payments be made to the
Executives. These bonus payments comprise the Transaction Scheme,
details of which are set out in paragraph 11 below. It should be
noted that whilst there is no legal or regulatory requirement for
these payments to be voted on and approved by Shareholders, the
Remuneration Committee and the Board consider it a matter of good
corporate governance that they ask Shareholders to consider and
approve them, noting that those payments payable to John Wilson and
Andy Weatherstone are integral to the Proposed Transaction.
Separately, the outstanding obligations payable to each of the A
Ordinary Shareholders under the 2016 LTIP will be settled as part
of the Proposed Transaction and the 2016 LTIP cancelled.
Finally, conditional upon the Proposed Transaction being
approved, the Board would like to ask Shareholders to approve the
change of name of the Company to "Checkit plc".
As the Proposed Transaction exceeds 75 per cent under one or
more of the class tests prescribed by the AIM Rules, it constitutes
a disposal resulting in a fundamental change of business pursuant
to Rule 15 of the AIM Rules. Accordingly, the Proposed Transaction
is conditional upon the approval by Shareholders of the Resolution
1 as set out in the Notice of General Meeting.
The purpose of the Circular is to provide Shareholders with
information on the Proposed Transaction and the Transaction Scheme
and to explain why the Directors consider the Proposed Transaction
and the Transaction Scheme to be in the best interests of the Group
and the Shareholders as a whole and why those Directors entitled to
vote and count in the quorum recommend that you vote in favour of
the Resolutions to be proposed at the General Meeting to be held at
11.00 a.m. on 3 September 2019 at the offices of Fieldfisher LLP,
9th Floor, Riverbank House, 2 Swan Lane, London EC4R 3TT.
Shareholders should read the Circular in its entirety.
2. Background to and reasons for the Proposed Transaction
Bulgin is a designer and manufacturer of connectors, switches
and bespoke applications (being products which are custom-developed
for a specific customer application). Bulgin's product range
includes ruggedised products used in harsh environments where a
high level of ingress protection is required. Market launches of
substantial newly-developed products, combined with iterative
product development and bespoke solutions, are key to Bulgin's
strategic offering.
Over the past six years, management has focused on improving
profitability and generating organic growth, with an increasing
proportion of sales from its higher value non-commoditised product
offering. In addition, the business has undergone significant
distributor and product rationalisation activity and investment in
new product development. Its engineering expertise has been
leveraged to introduce value add, product customisation capability
to the offering. The strategic transformation of the Bulgin
Business has been designed to focus on exploiting growth markets
through innovative new products to unlock higher levels of sales
and margin growth. Recent results demonstrate the continued
successful execution of this strategy.
Simultaneously, the Board has executed a strategy of focusing on
the two most promising opportunities, namely Checkit and Bulgin by
divesting all of the Group's smaller businesses. This process is
almost complete and a buyer is being sought for the last of the
thirteen disposals, Elektron Eye Technology. As announced in 2018,
Checkit has progressed from its start-up phase to scale-up and the
Group announced the acquisition of Next in May 2019. This is a
transformational deal for Checkit, immediately adding scale by
increasing the size of the enlarged technology business
approximately nine-fold and one which the Board believes will
accelerate Checkit's path to profitability.
As a result of the development of both Bulgin and Checkit, the
Board concluded that it is no longer appropriate to maintain a
Group consisting of two businesses with very different activities
namely manufacturing and SaaS. It had already received an approach
from a third party, as announced on 5 February 2019, which valued
Bulgin at a substantial premium to the then market capitalisation
for the whole Group. As a consequence, the Board decided to place
the Bulgin Business for sale assisted by Livingstone Partners LLP,
an independent global mergers & acquisitions adviser, by
undertaking a competitive bidding process for Bulgin, which has led
to the Proposed Transaction.
3. Effect of the Proposed Transaction on the Group
Following the Proposed Transaction, it is estimated that the
Group's net cash position will be approximately GBP94 million after
taking account of the costs associated with the matters set out
herein and initial restructuring costs but before deduction of the
proposed return of capital by way of tender offer, as described
below. Further details of expected costs are given in paragraph 14
below.
The Board has carefully considered the merits of the Proposed
Transaction and has formed the view, based on its analysis, that
the Proposed Transaction provides the Group with the most
appropriate option in terms of (i) maximising the amount of cash
that will be available for reinvestment or distribution to the
Shareholders; (ii) giving the highest level of certainty for
Shareholders; (iii) maximising the value received for the Group's
trade and assets being disposed of and (iv) separating very
different business activities.
4. Information on the Purchaser
The Purchaser is a special purpose vehicle which is wholly-owned
by Equistone Partners Europe and which has been newly incorporated
for the purposes of the Proposed Transaction. Equistone
(www.equistonepe.com) is an independent mid-market European private
equity firm, which operates across France, Germany, Switzerland and
the UK, investing as a strategic partner alongside management
teams. In each of its markets, it looks for strong businesses with
the potential to grow, supported by its capital and guided by its
experience.
5. Information on Bulgin and its financial performance
Bulgin is widely-recognised as a provider of environmentally
sealed connectors and critical components, with over 95 years'
standing in the industry.
The recent financial performance of Bulgin was set out in the
Group's preliminary results announcement released on 12 June 2019.
Bulgin's orders and sales for the year ended 31 January 2019 were
both at record levels of GBP32.0 million and GBP30.1 million
respectively and c. 10% ahead of the previous year, benefitting
from distribution sales growth, end user growth and new product
introductions. For the year ended 31 January 2019, Bulgin reported
EBITDA of GBP9.4million and operating profit of GBP9.0 million.
As at 31 January 2019, the net book value of the net assets
attributable to the Bulgin Business, excluding cash was GBP3
million.
6. Summary of the SPA
On 31 July 2019, the Purchaser and the Sellers entered into the
SPA, pursuant to which the Sellers have conditionally agreed to
sell the entire issued share capital of ETUK to the Purchaser for a
total consideration of approximately GBP105 million (gross).
The consideration corresponds to an enterprise value of ETUK of
GBP105m on a debt-free, cash-free basis. After adjusting for net
debt, debt-like items and working capital, this corresponds to
total consideration for the shares in ETUK of GBP104.5m, subject to
customary post-closing adjustments.
The aggregate consideration is subject to adjustments in respect
of working capital and net debt/cash and will be reduced by the
expenses to be incurred in connection with the Proposed
Transaction, which are detailed in paragraph 14 below. Accordingly,
it is expected that the net proceeds receivable by the Company will
be approximately GBP94 million.
The consideration due to John Wilson will take the form of both
cash and GBP675,000 of consideration loan notes to be issued by the
Purchaser (the "Consideration Loan Notes"). The intention is for
the Consideration Loan Notes to be exchanged ultimately for shares
in Regatta Topco Limited, being the top holding company in the
Purchaser's group and loan notes issued by Regatta Midco Limited,
being a wholly owned subsidiary of Regatta Topco Limited, through a
series of put and call option arrangements which will be
implemented immediately following Completion.
Completion of the SPA is subject to the satisfaction of a number
of conditions, including:
-- the passing of the Resolution numbered 1 as set out in the
Notice of General Meeting (the "Shareholder Approval Condition");
and
-- the Austrian competition authorities clearing the market
concentrations arising as a result of the Proposed Transaction or
the market concentrations otherwise being deemed to be cleared (the
"Antitrust Condition").
In the event that the Shareholder Approval Condition is not
satisfied by 31 October 2019 (or such other date as may be agreed
between the parties), the SPA shall lapse. The General Meeting has
accordingly been convened for 3 September 2019.
In the event that the Antitrust Condition is not satisfied by 31
October 2019, the Sellers and the Purchaser shall seek to agree a
mutually acceptable solution in order to obtain satisfaction of the
Antitrust Condition. In the absence of any such agreement, the SPA
shall lapse. The Directors believe that the clearance from the
Austrian antitrust authorities is expected to be received within
the next four weeks. However, the Austrian competition authorities
could require a longer period to complete their review.
The Board currently expects that Completion will occur on or
around 24 September 2019.
The Board has taken specific advice on the structure of the
Proposed Transaction and has been advised that the sale of the
shares in ETUK pursuant to the SPA should qualify for Substantial
Shareholding Exemption (as defined in the Taxation of Chargeable
Gains Act 1992) and as such no taxation should arise.
Further details of the apportionment of the consideration
between the Sellers and the form it takes is set out in paragraph
10.2 below.
Conditional upon Completion of the SPA, Elektron has also
entered into the TSA by which Elektron shall continue to provide
and receive from ETUK certain services. This is necessary to ensure
a successful separation of the businesses.
7. Proposed return of cash to Shareholders by way of tender offer
Following Completion, it is estimated that the Group's net cash
position will be approximately GBP95 million after taking account
of the costs of the Proposed Transaction and the other matters set
out herein, including those costs set out in paragraph 14
below.
Following both Completion and the issuance of the Group's
Interim Report for the six months to 31 July 2019 (currently
expected to be announced in October 2019), the Board, subject to
applicable Company law, currently expects to return the significant
majority of the cash by providing Shareholders the opportunity to
sell a proportion of their shares back to the Company by carrying
out a tender offer.
The Board currently expects the tender offer price to be 65p per
Ordinary Share (which the Independent Board, having consulted with
N+1 Singer, the Company's nominated adviser, considers to represent
a fair valuation for the Group). However, as the share price of the
Company at the time of making of the offer cannot currently be
known, the Board reserves the right to alter this price if the
share price of the Company following Completion does not perform as
currently expected or, following consultation with Shareholders, a
different price would be in the best interests of Shareholders as a
whole.
The specific terms of the tender offer will be set out in a
separate circular in due course and will be subject to Shareholder
approval.
The Board intends to consult with Shareholders and further
updates will be made, following completion of the Proposed
Transaction, as appropriate.
8. Board composition following Completion
Following Completion, it is intended that John Wilson will
remain with the Bulgin Business and will remain the CEO of
ETUK.
He will also continue as a Director of the Company, but this
will be in a non-executive capacity to ensure continuity and to
enable the Group to benefit from his commercial and technical
expertise. Keith Daley will remain as Executive Chairman and will
take over the executive running of the Group alongside Andy
Weatherstone as Chief Financial Officer.
It is intended that the composition of the Board will be
reviewed following the proposed return of cash to shareholders.
9. Description of the business of the Group following Completion and proposed change of name
Following Completion, the Group's operations will comprise
Checkit (incorporating Next, which has recently been acquired) and
Elektron Eye Technology.
The Checkit Real-Time Operations Management System helps
businesses where critical tasks, measurements and processes are
essential for managing an efficient operation, but which are
currently performed, recorded and monitored inadequately in almost
all cases - wasting cost, placing revenues and growth at risk and
denying managers visibility. Checkit supports customers by
continuing to expand its portfolio of capabilities and services
which in turn enable customers to manage their businesses more
effectively using its Work Management processes, Internet-of-Things
technologies and data analytics.
As noted above, the Group recently completed the acquisition of
Next. Like Checkit, Next enables management teams to connect with,
monitor and control businesses to optimise productivity and
profitability. Through its Tutela brand Next provides high-end
service based temperature monitoring for healthcare and life
sciences businesses within the UK. In addition, through its Next
and Axon brands it provides data related Building Energy Management
System ("BEMS") services. Next has a major relationship with a
leading retailer covering both of the foregoing areas.
As previously announced, Elektron Eye Technology is non-core and
the Group will look to sell this business in due course.
The Board intends to use the retained portion of the sale
proceeds from the Proposed Transaction (i.e. the balance of the
consideration received, following the tender offer) to drive the
future growth of Checkit, in combination with Next. Funds will be
spent on new product development, organisational development, sales
and marketing. The Board will also examine selectively potential
acquisitions as a source of acquisitive growth. It should be noted
that as a fast growing business that is in the early stages of its
development, Checkit (including Next) is expected to be loss making
in the current year.
It is the view of the Directors that the name Elektron would no
longer be appropriate following the sale of Bulgin. Accordingly,
the Directors propose changing the Company's name to Checkit plc,
subject to Shareholder approval. This will more appropriately
reflect the focus of the Group and will have efficiency benefits by
reducing the number of websites to be maintained. Should
Shareholder approval be granted for the name change, the Group
intends to change its ticker to CKT.L. The Company's investor
website www.elektron-technology.com will be transferred to
www.checkit.net.
10. Cancellation of 2018 LTIP and satisfaction of outstanding
obligations
10.1 Background and settlement of existing obligations
The 2016 LTIP was structured under the tax-advantaged Employee
Shareholder Shares scheme.
Pursuant to the LTIP, the A Ordinary Shares have been issued to
the A Ordinary Shareholders (being John Wilson and Andy
Weatherstone). The A Ordinary Shares are subject to certain
specific vesting conditions set out in the Articles of ETUK (being,
in summary, achieving a share price in excess of 20p for 100%
vesting and having GBP8m in cash as at 31 January 2019, evidenced
in the published 2019 annual audited accounts for the Group).
The A Ordinary Shares are currently scheduled to fully vest on 3
October 2019 or on completion of a "Sale Event" (as defined in the
Articles of ETUK). The Proposed Transaction represents a
substantial realisation of the underlying assets of the Group and
is being treated as a "Sale Event" for the purposes of the Articles
of ETUK.
As part of the Proposed Transaction, it has been necessary to
agree a value for the A Ordinary Shares payable to the A Ordinary
Shareholders by the Purchaser. The valuation mechanism for the A
Ordinary Shares upon a Sale Event is set out in the Articles of
ETUK, with reference to the volume weighted average price of an
Ordinary Share for the 30 day period post Completion (the "Post
Completion VWAP"). The Post Completion VWAP can only be used to
determine the valuation of an Ordinary Share following Completion.
As each of the Sellers and the Purchaser required certainty
regarding the amount of the consideration receivable at the time of
entering in to the SPA, the Independent Board determined that an
alternative mechanism be used.
Accordingly, the Independent Board has followed the pricing
mechanism set out in the Articles of ETUK so far as possible, but
instead of using the currently-unknowable Post Completion VWAP, it
has determined that a price of 65 pence should be used for the
purposes of the mechanism (that is, (A-B+C) x 1,000, where A is
65p, B is 10 pence and C is nil (being the amount of cash
distributions paid to Shareholders during a period)) to determine
the fixed consideration. The Independent Board has consulted with
N+1 Singer, the Company's nominated adviser, and considers that the
price of 65 pence per share reflects a fair valuation for the
Group.
The use of this pricing mechanism for a Sale Event is an
integral part of the Proposed Transaction as it is the mechanism by
which the consideration for the A Ordinary Shares has been
calculated. Accordingly, by approving the Proposed Transaction
pursuant to Resolution 1, Shareholders will also be approving the
Sale Event and the use of this method as set out in this
section.
It should be noted that should the Proposed Transaction have
taken place after the vesting date as per the Articles of ETUK,
John Wilson and Andy Weatherstone would have met all the vesting
hurdles and thus any further uplift in price appreciation. The
acquisition of the A Ordinary Shares pursuant to the SPA as
described herein will settle and extinguish the existing
obligations of the Group under the 2016 LTIP.
It should be noted that if Resolution 1 is not approved and the
Proposed Transaction does not go ahead, the 2016 LTIP will not be
cancelled and the matters set out in this paragraph will not take
effect. Accordingly, the A Ordinary Shares will vest as usual in
accordance with the terms of the 2016 LTIP.
10.2 Apportionment of consideration between the Sellers under the SPA
The consideration payable by the Purchaser to the Sellers
pursuant to the SPA corresponds to an enterprise value of GBP105m
on a debt-free, cash-free basis. After adjusting for net debt,
debt-like items and working capital, this corresponds to total
consideration for the shares in ETUK of GBP104.5m, subject to
customary post-closing adjustments payable to the Company. The
gross proceeds will be apportioned between the Company (the owner
of the Ordinary Shares) and John Wilson and Andy Weatherstone (the
owners of the A Ordinary shares) as follows:
Seller Cash Loan notes (convertible into equity in members of the Purchaser's Total
group)
Company GBP100.875m - GBP100.875m
------------ ---------------------------------------------------------------------- ------------
John Wilson GBP2.075m GBP0.675m GBP2.750m
------------ ---------------------------------------------------------------------- ------------
Andy Weatherstone GBP1.375m - GBP1.375m
------------ ---------------------------------------------------------------------- ------------
TOTALS GBP104.325m GBP0.675m GBP105.000m
------------ ---------------------------------------------------------------------- ------------
As more particularly described in paragraph 6 above, the
consideration due to John Wilson pursuant to the SPA will be part
cash and part loan notes, the intention as regards the latter being
that they ultimately be converted into equity of certain entities
in the Purchaser's group.
The LTIP liability to the Group immediately prior to the
issuance of the Circular was approximately GBP3m.
10.3 Limited tax gross-up
Payments to John Wilson and Andy Weatherstone in respect of the
2016 LTIP are generally expected to be subject to capital gains
tax. As it has not been possible to fully comply with the valuation
mechanism for the A Ordinary Shares prescribed by the ETUK
Articles, the Company has agreed to provide a gross up of any
additional tax obligations that may arise in respect of the
difference between the sum actually received by the A Ordinary
Shareholders and the sum they would otherwise have received if the
mechanism prescribed by the Articles of ETUK had been followed. The
rate used for grossing up will be 27% calculated by deducting the
Capital Gains tax rate from the sum of Income Tax and National
Insurance percentage rates due on payments.
11. The Transaction Scheme
11.1 Background
Following the receipt of an unsolicited approach during
financial year 2019 it was clear to the Board that there remained
significant value in the Group which was not reflected in its share
price. In addition the significant growth potential of Checkit was
being overshadowed by the larger Bulgin business. As a consequence
the Board considered that the Group's two main underlying
businesses, Bulgin and Checkit, should be separated and thus
engaged in a competitive bidding process for Bulgin.
From the Remuneration Committee's perspective, this created a
situation that needed to take account of the following:
-- the 2016 LTIP was due to mature in short order and retention
of the Executives remained central to the ongoing profitability of
Bulgin and the scale-up of Checkit;
-- a new LTIP could not be adopted as the structure of the
business in the medium term was unknown and the Group was in a
close period;
-- a successful divestiture within the Group would require an
enormous effort and stretch for the Executives;
-- some of the Executives would be required to depart with the
Bulgin Business being sold as well as underpinning the value of the
Proposed Transaction by committing their own funds as part of the
new management's equity package, giving operational warranties and
providing restrictive covenants to the buyer;
-- other Executives would need to remain with the Group in order
to oversee the necessary post transaction restructuring;
-- all Executives would need to be particularly driven by having
an appropriate scheme in place to deliver a successful result.
Any new scheme to be put in place would need to ensure that:
-- the Group is successful in delivering the Bulgin Business to the Purchaser;
-- the Group post Completion has the team in place to ensure
successful transition of the remaining Group without Bulgin;
-- all the stakeholders' interests are considered to ensure a
deliverable transaction could be put to Shareholders; and
-- potential conflicts of interest are carefully managed
particularly for management departing with the business.
Against this background, the Remuneration Committee, having
consulted with independent remuneration consultants H2 Glenfern,
structured the Transaction Scheme to take account of the
deliverability of the Proposed Transaction, the investment
requirement of John Wilson and the overall impact of the Proposed
Transaction on their future roles and remuneration. Further
considerations have been noted in paragraph 12 below.
The Remuneration Committee welcomes the fact that it remains
with the Shareholders to approve the Transaction Scheme and it is
for this reason that Shareholders are being asked to consider and,
if thought fit, approve the Resolutions.
11.2 Bonus payments to Directors
Pursuant to the Transaction Scheme, it is proposed that the
following payments are made to John Wilson, Andy Weatherstone and
Keith Daley:
(a) Incentive payment to John Wilson
As part of the Proposed Transaction, and given the importance of
John Wilson's role both in the Proposed Transaction and under the
existing and future ownership of Bulgin, it has been agreed between
the Company, Equistone and John Wilson that he will receive a
payment from the Company of GBP1.105 million gross (GBP586,000 net
of Income tax and National Insurance) on Completion in
consideration for agreeing to (i) leave the Group (at Equistone's
sole request) (ii) accepting GBP675,000 in loan notes (convertible
into equity of certain members of the Purchaser's group) as part of
the consideration his A Ordinary Shares (see paragraph 10.2 above);
and (iii) lead Bulgin as Chief Executive Officer under the new
ownership.
No further amounts are payable to John other than his salary and
other contractual monthly payments and benefits (including payments
under the CSOP) which are due up until the date of Completion
whether in respect of annual performance bonuses or severance or
otherwise. The market value options granted in 2016 will be
terminated.
This payment is to be put to Shareholders pursuant to Resolution
1 as part of the overall Proposed Transaction.
(b) Incentive payment to Andy Weatherstone
Andy Weatherstone will remain with the Group post Completion. As
part of the Proposed Transaction, it is proposed that Andy will
receive a completion bonus of GBP250,000 (with no further annual
bonus payable in 2019/20 financial year) and it has been agreed
between the Company, Equistone and Andy that he will be required to
amend his current employment contract such that he will perform his
current role within the Group whilst still providing support to
Bulgin pursuant to the TSA, which may require up to 50% of his time
for a period of up to 12 months following Completion. In
consideration for providing such support as required, the Company
will make a payment of GBP215,000 to Andy Weatherstone (the "TSA
Benefit"). The above sums will be payable upon Completion. The TSA
Benefit may be clawed back by the Company in certain circumstances,
including where the service has not be provided by Andy
Weatherstone under the terms of the agreement.
These payments are to be put to Shareholders pursuant to
Resolution 1 as part of the overall Proposed Transaction.
(c) Incentive payments to Keith Daley
Keith Daley has been responsible for negotiating and structuring
the Proposed Transaction. It has been noted that Keith does not
participate in the LTIP. As part of the Transaction Scheme, the
Remuneration Committee proposes the following bonus payments:
i. A completion bonus and price enhancement bonus (determined on
a sliding scale depending on the level of disposal above a minimum
amount of proceeds received). At an offer value of GBP105 million,
this amounts to a maximum of GBP725,000 (the "Total Bonus").
Keith Daley's continued involvement in the Group remains pivotal
over the next 12 months to integrate Next, adjust the corporate
structure, organise human resources and set overall group strategy.
The following ensures the retention of Keith during this period of
immense change particularly as no long term incentive has been put
in place yet:
ii. A retention bonus of GBP200,000 payable in 12 monthly
tranches each of GBP16,667, starting the first full month post
Completion; and
iii. A reorganisation bonus of GBP200,000 payable on successful
completion of to be agreed specific operational and system targets
and the disposal of Elektron Eye Technology.
These payments are to be put to Shareholders pursuant to
Resolution 2.
12. Further considerations
The Remuneration Committee recognises that whilst the actual and
potential value of these awards are significant, such value needs
to be considered in the context of the exceptional return achieved
by Shareholders since the adoption of the 2016 LTIP. The total
value return is above GBP80m as at close of business on the day
prior to the publication of the Circular (being a cumulative annual
growth rate ("CAGR") of 113%). The total award to the Executive
equates to 6.8% of total proceeds. The settlement and
extinguishment of the 2016 LTIP and the award of the bonuses
pursuant to the Transaction Scheme has permitted the Remuneration
Committee to present the Proposed Transaction as a deliverable
opportunity to Shareholders where each of the underlying
stakeholders' interests were duly considered.
13. Related Party Transaction
The Transaction Scheme proposed for John Wilson, Andy
Weatherstone (in respect of Resolution 1) and Keith Daley (in
respect of Resolution 2) as Executive Directors together constitute
a related party transaction pursuant to Rule 13 of the AIM Rules.
The Company's Senior Independent Director (Ric Piper) and the Chair
of the Remuneration Committee (Giovanni Ciuccio), having consulted
with N+1 Singer the Company's Nominated Adviser, consider that the
terms of the Transaction Scheme are fair and reasonable insofar as
its Shareholders are concerned.
14. Costs of the Proposed Transaction and estimated net
proceeds
14.1 Total amount payable to the Executive Directors pursuant to
the Transaction Scheme and other payments
The total amounts payable by the Company to the Executive
Directors pursuant to the proposed Transaction Scheme (but before
any payments due under the CSOP (see paragraph 14.2 below)),
together with other related payments is set out below.
GBPm
Extinguishment of 2016 LTIP Obligations (see paragraph 10.1) 4.125
------
John Wilson and Andrew Weatherstone Transaction Scheme payments (see paragraph 11.2) 1.570
------
Keith Daley Transaction Scheme payments (see paragraph 11.2) 1.125
------
ESTIMATED TOTAL AMOUNT PAYABLE TO EXECUTIVE DIRECTORS 6.820
------
Group National Insurance Cost 0.372
------
TOTAL COST TO GROUP 7.192
------
The total estimated amount payable represents around 6.8% of the
gross proceeds of the Proposed Transaction. The Independent Board,
Remuneration Committee and Board regard this as an appropriate
reward in aggregate given the excellent performance of the Group
over the past few years that has culminated in the Proposed
Transaction.
Since the inception of the LTIP on 28 July 2016 until the close
of business on the day prior to the issuance of the Circular, the
share price has increased by 833 % representing an increase of
shareholder value of GBP80m.
It should be noted that the value of the LTIP liability to the
Group immediately prior to the issuance of the Circular was
approximately GBP3m.
14.2 Other transaction costs
Adviser and other fees to third parties are estimated to amount
to approximately GBP2.1 million and retention bonuses payable on
Completion to certain senior managers of Bulgin amount to GBP0.4
million (GBP0.45m inclusive of employer's national insurance)
14.3 Initial restructuring costs following disposal
These are estimated to amount to GBP0.75 million and include the
cost of relocation of Checkit and Elektron Eye Technology's
manufacturing operation's from Bulgin's site in West Molesey,
installation of new IT systems, infrastructure and other related
separation costs
14.4 CSOP options and stock appreciation rights
The Company currently has outstanding a number of CSOP options
and stock appreciation rights. A summary of these as they relate to
John Wilson, Andy Weatherstone and Bulgin employees is set out
below.
Number of shares Exercise price (p)
CSOP
----------------- -------------------
John Wilson 175,000 16.87
----------------- -------------------
Andy Weatherstone 571,425 5.25
----------------- -------------------
Bulgin employees 1,113,000 8.00-16.87
----------------- -------------------
CSOP total 1,859,425 5.25-16.87
----------------- -------------------
Stock appreciation rights 230,000 8.00
----------------- -------------------
Total 2,089,425 5.25-16.87
----------------- -------------------
The exercise of CSOP options and stock appreciation rights are
determined by the rules of the relevant schemes.
John Wilson and Bulgin employees, as good leavers of the Group,
will be able to exercise CSOP options within six months of leaving
the Group. The stock appreciation rights will be payable on
Completion and amount to GBP131,100.
Given that Andy Weatherstone will remain with the Group, he will
be able to exercise his CSOP options under the existing terms of
the scheme, which will become exercisable from 30th July 2019.
14.5 Estimated net proceeds
The estimated net proceeds of the Proposed Transaction
receivable by the Company amount to c. GBP94 million, after taking
into account the following expenses relating to the Proposed
Transaction:
GBPm
Gross proceeds 105.00
-------
Estimated adjustment in respect of working capital and other such items (0.52)
-------
Deal costs (2.11)
-------
Payments to Executive Directors (7.19)
-------
Retention bonuses to Bulgin senior management (including stock appreciation rights) (0.59)
-------
Sub total 94.59
-------
Separation and restructuring costs (0.75)
-------
Net Proceeds 93.84
-------
15. General Meeting
Set out in Part III of the Circular is a notice convening the
General Meeting to be held at 11.00 a.m. on 3 September 2019 at the
offices of Fieldfisher LLP, 9th Floor, Riverbank House, 2 Swan
Lane, London EC4R 3TT at which the Resolutions will be proposed for
the purposes of approving the matters set out below. The
Resolutions will each be proposed as ordinary resolutions and will
require a simple majority of the votes cast for them to be
passed.
Resolution 1: To approve the Proposed Transaction, comprising a
fundamental change of business pursuant to AIM Rule 15 and the
bonus payments to each of John Wilson and Andrew Weatherstone
described therein.
Only the Independent Shareholders plus Keith Daley shall be
entitled to vote in respect of this resolution.
Resolution 2: Conditional upon the passing of Resolution 1, to
approve the bonus payments to Keith Daley as set out therein.
Only the Independent Shareholders shall be entitled to vote in
respect of this resolution.
Resolution 3: Conditional upon the passing of Resolution 1, to
change the name of the Company to Checkit plc.
16. Irrevocable commitments
The Company has received irrevocable commitments to vote in
favour of Resolutions from Shareholders who hold Ordinary Shares
carrying voting rights representing, in aggregate, approximately
52.96 per cent. of the total number of Ordinary Shares in issue as
at the date of the Circular. The irrevocable commitments received
reflect the voting preferences of the Shareholders giving such
commitments and the fact that only certain Shareholders may vote on
certain of the Resolutions (see paragraph 15 above and the Notice
of General Meeting). Accordingly, the irrevocable commitments
received are as follows:
Resolution number Aggregate percentage of total
voting rights of the Company in
issue for which irrevocable commitments
have been received
1 51.54%
-----------------------------------------
2 29.07%
-----------------------------------------
3 52.96%
-----------------------------------------
17. Recommendations and irrevocable undertakings
The Independent Board considers that the Proposed Transaction
and the Transaction Scheme are in the best interests of the Group
and its Shareholders as a whole and that the terms are fair and
reasonable. Accordingly, those members of the Independent Board who
are entitled in each case to vote and count in the quorum
unanimously recommend that you vote in favour of the Resolutions as
they have irrevocably undertaken to do in respect of their own
legal and beneficial shareholdings representing, as at the date of
this document, 13.1 per cent of the total number of Ordinary Shares
in issue as at the date of this document.
As only certain Directors who are also Shareholders can vote on
certain of the Resolutions (see paragraph 15 above and the Notice
of General Meeting), the irrevocable commitments received from
Directors in respect of each Resolution are as follows:
Resolution number Aggregate percentage of total
voting rights of the Company in
issue for which irrevocable commitments
from Directors have been received
1 11.68%
-----------------------------------------
2 0.01%
-----------------------------------------
3 13.1%
-----------------------------------------
18. Expected timetable of principal events
Posting of the Circular and Proxy Form 31 July 2019
to Shareholders
Latest time and date for receipt of Proxy 11.00 a.m. on 30 August
Forms (or CREST instructions) in respect 2019
of the General Meeting
Time and Date of General Meeting 11 a.m. on 3 September
2019
Anticipated date of Completion 24 September 2019
Cautionary note regarding forward-looking statements
This announcement contains forward looking statements relating
to the Group's future prospects, plans, developments and
strategies, which have been made after due and careful enquiry and
are based on the Directors 'current expectations and assumptions
and involve known and unknown risks and uncertainties that could
cause actual results, performance or events to differ materially
from those expressed or implied in such statements. Forward-looking
statements are identified by their use of terms and phrases such as
"project", "expect", "potential", "believe", "could", "envisage",
"estimate", "intend", "may", "plan", "will" or the negative of
those, variations or comparable expressions, including references
to assumptions. By their nature, forward-looking statements involve
risk and uncertainty because they relate to future events and
circumstances, including, but not limited to, economic and business
conditions, the effects of continued volatility in credit markets,
market-related risks such as changes in interest rates and foreign
exchanges rates, the policies and actions of governmental and
regulatory authorities, changes in legislation, the further
development of standards and interpretations under IFRS applicable
to past, current and future periods, evolving practices with regard
to the interpretation and application of standards under IFRS, the
outcome of pending and future litigation or regulatory
investigations, changes or developments in technology or its
application, project delivery risks, the success of future
acquisitions and other strategic transactions and the impact of
competition. A number of these factors are beyond the Group's
control. As a result, the Group's actual future results may differ
materially from the plans, goals, and expectations set out in the
Group's forward-looking statements. Any forward-looking statements
made in this announcement by or on behalf of the Group speak only
as of the date they are made. These forward-looking statements
reflect the Group's judgement at the date of this announcement and
are not intended to give any assurance as to future results. Except
as required by the Financial Conduct Authority, the London Stock
Exchange, the AIM Rules for Companies or applicable law, the Group
expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statements
contained in this announcement to reflect any changes in the
Group's expectations about them or any changes in events,
conditions or circumstances on which any such statement is
based.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
MSCDMGFNKMFGLZG
(END) Dow Jones Newswires
July 31, 2019 02:03 ET (06:03 GMT)
Elektron Technology (LSE:EKT)
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