TIDMHEP
RNS Number : 1062D
Hephaestus Holdings PLC
17 March 2011
Hephaestus Holdings PLC ("Hephaestus" or the "Company")
Proposed delisting from AIM
Suspension of Trading on AIM
Update on Financial Strategy and Investing Policy
Proposed Establishment of trading facility on Sharemark
The Board of Hephaestus has made Application to the London Stock
Exchange to delist trading in the Company's shares from AIM with
effect from 19 April 2011. This announcement sets out the reasons
for such a proposal. A circular will be sent to shareholders
shortly convening a General Meeting to approve delisting.
In addition, the board has entered into negotiations to make an
acquisition which, under the AIM Rules, would be categorised as a
Reverse takeover if completed. As a consequence, in accordance with
the AIM Rules for Companies, trading in the Company's shares has
been suspended. Shareholders are being informed of this potential
acquisition at an earlier stage than usual because, once the
delisting becomes effective, shareholders will lose the ability to
approve or vote against the potential acquisition in General
Meeting.
Background
Following the disposal of the Group's businesses last year,
Hephaestus has begun to implement the dual strategy set out by in
the circular to shareholders dated 21 October 2010 and approved by
shareholders at the General Meeting on 5 November 2010. This
strategy consists of (a) maximising the value of and realising
various legacy financial assets (the "Financial Strategy") and (b)
executing a focused investment strategy in the engineering and
industrial technology sectors (the "Investing Policy").
On 1 February 2011 Chris Heminway was appointed Chief Executive
of the Company to implement the strategy. Chris has extensive
experience of the engineering and industrial technology market
through a career encompassing equity research, corporate finance,
consulting and investment. He has worked with industrial businesses
and financial investors alike on strategic evaluations,
acquisitions, and disposals, and has run his own businesses since
2005. He joined the RTS Board in September 2009 and controls ITI
Industrial Investments (UK) Limited ("ITI UK") which owns 28.7 per
cent of the Company.
The Board of Hephaestus has today released its preliminary
audited results for the year ended 31 December 2010. These showed a
retained loss for the year after tax of approximately GBP1.1
million (2009: profit of GBP10,000) following disposal of its
trading businesses. The Group's results comprised a profit after
tax of GBP0.37 million from continuing operations and a loss on
discontinued operations of GBP1.48 million. Loss per share was
1.77p (2009: 0.02p EPS). As at 31 December 2010, the Group had
consolidated net assets of approximately GBP2.1 million, equivalent
to 3.42p per share and net cash of approximately GBP2.1
million.
Financial Strategy
The Company continues to unwind its inefficient structures,
realise assets and minimise or extinguish liabilities, whether
contingent or actual. This process of restructuring is however
expected to take further significant time, effort and cost. In
particular, the Company is taking steps to wind up a large number
of redundant subsidiary companies in the UK and overseas, requiring
related inter-company asset transfers, and seeking to simplify its
tax affairs, which are involving expenditure in time and in
professional fees.
After some good progress in the resolution of legacy affairs of
the Group in recent months, the Company has concluded realisation
of three financial assets.
On 7 January 2011, the Company announced the settlement of its
long running dispute with a major customer of its Flexible Systems
business and as a result received a payment of GBP300,000. Also in
January 2011, Flexible Systems received an R&D tax credit of
approximately GBP121,000 in cash relating to the 2007 and 2008
years. Following these events, RTS Flexible Systems will become
dormant and the company and its sole director are taking advice on
the implications for its outstanding creditors.
In February 2011, the Group received deferred consideration from
the acquirers of the RTS Life Science business equal to the tax
credit relating to the former Life Science subsidiary of around
GBP143,000 in cash. This receipt completes the outstanding R&D
tax credit claims for the Group. The various 2006 claims have been
definitively disallowed after an unsuccessful appeal to the
Adjudicator's Office.
Following these receipts, the principal financial assets
remaining within the Group are its net cash balances and its
investment in the Doerfer Loan Notes. The Company also has some
outstanding tax issues arising from its previous involvement in
Finland, which are outlined below.
The full capital value of the Doerfer Loan Notes at year end was
$3.5m, having been renegotiated downward during 2010 reflecting the
financial position of the borrower and its historic inability to
make repayments. The Loan Notes now have a repayment schedule
extending to 2014 at an interest rate of 10 per cent. The Loan
Notes are required to be carried at fair value and, having been
fully provided for since the end of 2008, had a carrying value of
GBP250,000 as at 31 December 2010. When considering the fair value
of the Doerfer Loan Note, the Directors have taken into account
their assessment of recoverability of the financial asset. The
Directors base their judgements of recoverability of assets on the
latest available information and past experience. Income from the
Loan Notes remains uncertain given the financial position of the
borrower, which remains dependent on the continued support of its
senior lender.
As previously disclosed, the Group has made two protective
claims to group relieve losses arising in Finland against UK
taxable profits under the principle in the Marks and Spencer EU
group relief case. The validity of these claims has now been
confirmed in principle by the Company's professional advisers, and
the Company is taking fresh advice on the potential quantum of
these claims for the Group.
It has also been previously noted that an assessment for tax has
been raised by the Finnish tax authorities. The authorities
continue to pursue the Company but the assessment was reduced to
slightly over EUR1m in 2010. In February 2011, the Company lost its
appeal against the assessment at the Finnish Tax Correction Board
and must now appeal to the Finnish Administrative Court. The
Directors remain of the view, having historically received
professional advice to support this, that the Company has a sound
case for defeating any claim in its entirety, which they
additionally believe to be unenforceable under the terms of the UK
Finland Double Tax Treaty, and accordingly no provision for a
potential liability has been made in the Company's financial
statements as at 31 December 2010.
Overheads
Following the disposal of the Group's businesses and the
restructuring of the remaining parts of the Group, the Company's
Head Office has been moved to London and the size of the Board and
support staff considerably reduced from previous years' levels. The
Company's annual overhead, including the full cost of the Board,
nevertheless remains high in relation to the Company's net cash
assets. A significant portion of this overhead is directly or
indirectly related to maintaining the Company's AIM listing. These
include costs of advisers, listing costs and the increased
compliance costs.
Investing Policy
The Board has stated that it will regularly assess its Financial
Strategy in order to allocate the Company's net cash between the
requirements of its Investing Policy and its availability for
distribution to Shareholders. The Board is investigating a number
of acquisition opportunities that it considers to be attractive and
has therefore determined that the Company should currently direct
all of its financial resources to its Investing Policy. While the
possibility exists to issue shares in Hephaestus in consideration
or part consideration for acquisitions, the Board does not
currently anticipate undertaking a transaction which will result in
a substantial issue of shares to shareholders of an acquiree
company, in part due to the uncertainties arising from unresolved
legacy issues outlined above.
The Company also does not possess sufficient distributable
reserves to pay a substantial dividend.
The Directors have been working diligently to carry out the
Investing Policy. The Company has recently entered exclusive
negotiations on an acquisition opportunity (the "Target") which the
Directors believe to be a suitable acquisition which conforms to
the Investing Policy. Should the acquisition be successfully
concluded, your Board believes that it can form the cornerstone of
a group specialising in Surface Technology and considers the
acquisition to be a platform for significant shareholder value
creation. The identity of the Target cannot be revealed at this
stage for reasons of commercial sensitivity and the fact that the
Company has entered into a confidentiality undertaking with the
vendor. However, once the delisting becomes effective, shareholders
will lose the ability to approve or vote against the potential
acquisition in General Meeting, As a consequence, the Directors
have determined that Shareholders, in considering whether to vote
in favour of the delisting, would find it helpful to understand the
activities of the Target and how its acquisition would affect the
Company and so further information on the Target is set out
below.
There is no certainty, however, that the acquisition will be
successfully concluded, Moreover, due to AIM documentation
requirements (as discussed further below), the acquisition cannot
proceed if Hephaestus remains quoted on AIM as the Company will be
unable to meet the vendor's required completion timetable.
There is no certainty that the Company will be able to make an
acquisition or acquisitions which constitute a reverse takeover
under Rule 14 of the AIM Rules to implement its Investing Policy by
5 November 2011, the date by which the Company would be delisted
from AIM. Hence, even if shareholders do not vote in favour of an
earlier delisting, there is a risk that the trading in the
Company's Ordinary Shares may before the end of the year be
suspended or cancelled by the London Stock Exchange.
Limitations of current AIM Listing
Under the AIM Rules, any acquisition undertaken by the Company
would be classified as a "Reverse Take-over" requiring a detailed
re-admission document supported by an extensive and expensive due
diligence exercise. Such an acquisition would require approval in
general meeting by shareholders. The cost of undertaking such an
exercise is estimated by the Board to be over GBP100,000 of
additional professional costs. Furthermore it is highly likely that
a highly acquisitive investment policy would result in further
Reverse Takeovers (under the AIM Rules), necessitating further
re-admission documents.
As noted above, the Company is in exclusive negotiations to
acquire the Target for cash. This opportunity is only available if
the Company is prepared to complete an acquisition within a
relatively short time scale.
The Board of Hephaestus has also been looking at the benefits to
shareholders of an AIM trading facility, especially given the
Company's small market capitalisation. Given that normal market
size is now 10,000 shares, equivalent to GBP287.5 at the mid market
share price on 16 March 2011, and that dealing fees are around
GBP10 to GBP15 per transaction, it is increasingly difficult for
shareholders to deal on AIM. Analysis of trading levels recently
shows that the average trading volume per business day over the
past four months has been around 27,000 shares, equivalent to c.
GBP775 with the largest trade being 250,000 shares (GBP8,125) and
the highest daily volume being 685,501 shares. The bid-offer spread
is wide in relation to the share price, typically at 0.5p (and
currently 0.75p).
As noted, following the disposal of the Group's businesses and
the ongoing element of restructuring of the remaining parts of the
Group, overhead has been further reduced from previous years'
levels: The overhead nevertheless remains high in relation to the
Company's net cash assets. A significant portion of this overhead
is directly or indirectly related to maintaining the Company's AIM
listing, such that overhead could be reduced by in excess of
GBP100,000 per annum without an AIM listing.
Proposed move to Sharemark
Taking into account the high documentation costs that would
necessarily be incurred by the Company in respect of further
acquisitions/reverse takeovers that it may undertake, along with
the costs of maintaining its listing, the small market
capitalisation of the Company and the lack of liquidity in its
shares, the Board has decided that the current period of
reconstruction of the Company is best undertaken off AIM and is
proposing to apply for a dealing facility on Sharemark.
Sharemark is a periodic auction-based dealing facility operated
by the Share Centre Limited, a member firm of the London Stock
Exchange which is authorised and regulated by the Financial
Services Authority. Sharemark is not a recognised investment
exchange, recognised clearing house or regulated market within the
meaning of the Markets in Financial Instruments Directive. The
Sharemark dealing facilities constitute a Multilateral Trading
Facility which is designed primarily for emerging or smaller
companies to which a higher investment risk tends to be attached
than to larger or more established companies. Because it operates
by way of periodic electronic auctions matching buyers and sellers
without the intervention of a market maker, dealing via Sharemark
can provide greater visibility to private investors. Several
private client brokers are approved to undertake transactions via
Sharemark. The Company will be subject to continuing obligations on
Sharemark, including the requirement to publish annual and
half-yearly accounts and to comply with the Model Code on Directors
Dealings and the City Code on Takeovers and Mergers.
In the event that the Delisting Resolution is approved and the
delisting proceeds, the Sharemark facility for dealing in the
Ordinary Shares is such that no public quotation will exist nor
will any market-maker make a continuous price in the Company's
Ordinary Shares as from the proposed date of delisting . As such,
interests in Ordinary Shares are unlikely to be readily capable of
sale and it may be more difficult to obtain a fair value on any
such sale.
If Delisting and admission to Sharemark proceeds, Shareholders
will be sent further information on Sharemark and how to deal on it
prior to the first auction period.
Accordingly, the Board is recommending a proposal to de-list the
Company from AIM. To this end, the Company has requested the London
Stock Exchange (subject to shareholder approval) to cancel
admission to trading on AIM of its ordinary shares on 19 April
2011, subject to approval by shareholders in General Meeting at
least five business days prior to that date. In order to become
effective, not less than 75 per cent. of the votes cast at the
General Meeting must be cast in favour of the Delisting Resolution.
ITI UK, which holds a 28.7 per cent. shareholding in the Company,
has indicated that it intends to vote in favour of the Delisting
Resolution.
Implications of voting for a delisting
The Directors draw to the attention of Shareholders the
following factors which should be taken into account in assessing
whether to vote in favour of the delisting:
Companies listed on AIM are required to comply with the AIM
Rules and are required to appoint a nominated adviser which is
responsible for advising and guiding an AIM company on its
responsibilities under these rules. Following delisting, the
Company will no longer be required to adhere to the AIM Rules and
will no longer have a nominated adviser. While membership of
Sharemark imposes levels of transparency and corporate governance
upon the Company, these are less stringent than for a listed
company under the AIM Rules.
Shareholders will only be able to rely on the protections
afforded to minority shareholders under English law, the principal
such protections being the following:-
-- shareholders holding (solely or jointly) 5 per cent. or more
of the total issued and outstanding share capital of the Company
have the right to requisition a general meeting of shareholders of
the Company.;
-- shareholders holding (solely or jointly) 25 per cent. or more
of the total issued and outstanding share capital of the Company
have the right to block special resolutions at General
Meetings;
The Company intends to put forward proposals for a placing with
clawback, underwritten by ITI UK, to fund a tender offer for shares
in the Company. Further information is provided below. There is
currently no certainty as to whether this will be possible, or if
such a tender offer is made, and on what terms. Depending on the
actions taken by Shareholders, these transactions may be dilutive
to the interests of current Shareholders.
As indicated above, with the Sharemark facility there will no
public quotation nor will any market-maker make a continuous price
in the Company's Ordinary Shares as from the proposed date of
delisting. As such, interests in Ordinary Shares are unlikely to be
readily capable of sale and it may be more difficult to obtain a
fair value on any such sale.
Following delisting, Shareholders will have less ability to vote
against acquisitions which the Board determines are in line with
the Investment Policy of the Company and are affording additional
discretion to the Board in terms of their ability to complete
acquisitions for cash and/or shares which might otherwise have
required shareholder approval in General Meeting pursuant to the
AIM rules. Shareholders' attention is drawn to the paragraph
entitled Investing Policy above, which includes details of the
Company's strategy going forward.
The above considerations are non-exhaustive and Shareholders and
should seek their own independent advice when assessing the likely
impact of the De-Listing on them.
Information on Proposed Acquisition
The Target is a UK based industrial manufacturing company which
the directors of Hephaestus believe to have strong intellectual
property rights, long-standing relationships with a desirable
blue-chip customer base and a high proportion of export sales. In
its last financial year, the Target had audited turnover of
approximately GBP9.0 million and profit before tax of GBP235,000.
The Management of the Target is anticipating that its profits for
the twelve months ending 31 March 2011 will be breakeven after
adjustment for shareholder expenses on significantly reduced
turnover. Consideration for the purchase would be met from the
Company's existing cash resources on the basis of a purchase
consideration which would not exceed GBP1m. The Target had
unaudited net assets of GBP1.4m as at 31 December 2010. The Target
will require additional financial resources in order to meet its
potential and to grow, to which the Company is prepared to
commit.
The Company has preliminarily informed AIM of the possible
acquisition of the Target. The proposed acquisition would
constitute a reverse take-over under AIM Rule 14 and the Company's
shares are therefore required to be suspended under the AIM
Rules.
To the extent that the proposed delisting from AIM is achieved
prior to the acquisition of the Target, Shareholders should note
that Shareholder consent will no longer be required for the
purposes of approving the acquisition and Shareholders will
therefore not have an opportunity to vote on the proposal.
If the proposal to delist the Company from AIM is not approved
by shareholders, the acquisition of Target will not be completed,
as a result of which the Company will incur a break fee from the
Vendor, together with other irrecoverable fees and costs related to
the acquisition process.
Further details on Target will be included in the circular to
shareholders convening a general meeting to seek approval of the
proposal to delist from AIM. However it may not be possible to
provide full details to shareholders, including the identity of the
Target, until delisting has become effective and the acquisition
has been completed.
Future Intentions concerning reintroduction to AIM
The present intention of the Board is to consider a re-
introduction to AIM (or if more appropriate another market of
equivalent or greater stature) when it has completed its
reconstruction. However there can be no certainty that such a
reintroduction would take place within the medium term, if at all,
as a decision to re-list on AIM would be determined by the
Company's size and suitability for listing, its ability to attract
institutional investment, and the financial and commercial benefits
of an AIM quotation at that time. No assurance can be given as to
when and if any such re-listing may occur and Shareholders should
not rely on this possibility as an exit route.
Potential Capital Raising and Share Buyback
The Board of Hephaestus recognises that some shareholders may
have investment objectives and liquidity requirements which mean
that they cannot, or do not wish to continue to, hold shares in the
Company following delisting from AIM. The Company is therefore in
discussions, with ITI UK and other larger shareholders with a view
to underwriting an open offer to shareholders, primarily to finance
an exit opportunity for shareholders to realise their holding in
the Company, although this may also provide, if shareholders do not
wish to take avail themselves of the opportunity to tender their
shares, increased investment capital for the Company.
The combination of a capital raising and share buy-back would
constitute a source of real liquidity for those shareholders
seeking an exit compared to recent trading volumes on AIM as well
as an opportunity for other shareholders to add to their
shareholdings, in each case without incurring dealing costs.
Shareholders would also have the ability to remain as shareholders
in the Company without participating either in the open offer or
the share buy-back, in which case they would suffer dilution of
their existing share interests.
No terms for such a proposal have yet been agreed, nor is there
any certainty that terms will be agreed, but it is expected that
shareholders would be offered the ability either to subscribe for
additional shares in, or to tender their existing shares for
purchase by the Company, at the same price per share, which is
likely to be at a discount to the closing mid-market price of
2.875p per share as at close of business on 16 March 2011.
Proposed Timetable
For timing reasons, the delisting circular and the General
Meeting related thereto will be separate to any possible capital
raising or share buy-back.
In the event that any capital raising would result in ITI UK
owning more than 29.9 per cent of the Company following completion
of the Placing and Share Buy-Back, approval would be sought from
the Panel on Takeovers and Mergers ("Panel") to waive the
obligations to make a general offer for the Company under Rule 9 of
the City Code on Takeovers and Mergers ("Code"). As a condition of
granting such a waiver, the Panel will require, amongst other
things, approval of the proposals by an independent vote, on a
poll, of shareholders in General Meeting excluding ITI UK and any
other non-independent party at such meeting. It is not possible to
be definitive as to the timing of the despatch of such a circular
to shareholders.
The Company will update shareholders on the progress of its
negotiations with ITI UK as soon as practicable and when it is able
to provide a definitive timetable of events.
The following timetable is expected to apply to the
delisting:
Friday 25 March 2011 Publication of circular convening a General
Meeting of shareholders to approve delisting.
Monday 11 April 2011 General Meeting to approve delisting;
Tuesday 19 April 2011 Cancellation of listing on AIM
Following cancellation of listing, the Company will continue to
publish financial information, news and updates primarily via its
website and in accordance with the requirements of Sharemark. The
first auction date on Sharemark is currently expected to be no
later than Friday 6 May 2011, but the first auction may be delayed
if the capital Raising and share buyback has not been concluded by
that date.
If Shareholders are in any doubt about the contents of this
announcement, or the action they should take (including any tax
implications that may arise for them), they should consult an
independent financial adviser authorised and regulated under the
Financial Services and Markets Act 2000, or (if they are outside
the United Kingdom) a suitably qualified adviser recognised under
the applicable legislation.
For further information, please contact:
Hephaestus Holdings plc
Chris Heminway
07802 305579
Shore Capital and Corporate Limited (Nominated Adviser)
Andrew Raca/Toby Gibbs
020 7408 4090
This information is provided by RNS
The company news service from the London Stock Exchange
END
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