Albion Technology & General VCT PLC: Proposed M...

JOINT ANNOUNCEMENT

ALBION TECHNOLOGY & GENERAL VCT PLC ("AATG")
ALBION INCOME & GROWTH VCT PLC ("AAIG")

10 OCTOBER 2013

RECOMMENDED PROPOSALS TO MERGE AATG AND AAIG (TO BE COMPLETED PURSUANT TO A SCHEME OF RECONSTRUCTION UNDER SECTION 110 OF THE INSOLVENCY ACT 1986) AND RELATED MATTERS

SUMMARY

The boards of AATG and AAIG announced on 8 August 2013 that they had agreed in principle to merge the companies. Both boards are pleased to advise that discussions have now concluded and circulars are being despatched to convene shareholder meetings to approve the scheme.  Both companies are managed by Albion Ventures LLP ("Albion").

The merger is expected to deliver cost savings and benefits to both sets of shareholders and will, if effected, result in an enlarged company ("Enlarged Company") with net assets of over £60 million.

BACKGROUND

AATG (formerly Close Technology & General VCT PLC) was launched in December 2000 and raised funds through the issue of ordinary shares. AATG subsequently raised further funds through an issue of C shares in 2006. The C shares were merged with the ordinary shares in 2011, resulting in the AATG Shares now in issue.

As at 30 June 2013, AATG had unaudited net assets of £36.2 million (84.6 pence per AATG Share) and venture capital investments in 42 companies with a carrying value of £34.2 million. The unaudited net asset value total return per AATG Share to AATG shareholders as at 30 June 2013 for every £1 invested at launch was 158.1 pence (in respect of the AATG Shares) and 86.9 pence (in respect of the former C shares), excluding the dividend of 2.5 pence per AATG Share to be paid on 31 October 2013.

AAIG (formerly Close Income & Growth VCT PLC) was launched in August 2004. As at 30 June 2013, AAIG had unaudited net assets of £28.6 million (65.3 pence per AAIG Share) and venture capital investments in 38 companies with a carrying value of £26.3 million. The unaudited net asset value total return per AAIG Share to AAIG shareholders as at 30 June 2013 for every £1 invested at launch was 92.0 pence.

Both of the companies have essentially the same investment policy, with the overall aim of providing investors with a regular and predictable source of dividend income combined with the prospect of long term capital growth. As a result, the venture capital investments which are common across the companies' respective portfolios represented approximately 92.9 per cent. of the aggregate value of the venture capital investments of the combined portfolio as at 30 June 2013 (36 out of 44 in respect of the number of venture capital investments across the combined portfolio). The boards believe that the difference in performance of the companies is largely attributable to the point in the economic cycle when investments were made.

VCTs are required to be listed on a European Union/European Economic Area regulated market. The companies are, therefore, listed on the premium segment of the Official List, which involves a significant level of listing costs as well as related fees to ensure they comply with all relevant legislation. A larger VCT should be better placed to spread such running costs across a larger asset base and, as a result, may be able to maximise investment opportunities and pay a higher level of dividends to shareholders over its life.

In September 2004, regulations were introduced allowing VCTs to be acquired by, or merge with, each other without prejudicing the VCT tax reliefs obtained by their shareholders. A number of VCTs (including other VCTs managed by Albion) have taken advantage of these regulations to create larger VCTs for economic and administration efficiencies.

With the above in mind, the two boards and Albion entered into discussions to consider a merger of the companies to create a single, larger VCT. The aim of the boards is to create a more stable and resilient base for providing long-term returns to shareholders and to achieve benefits and reductions in the annual running costs for both sets of shareholders.

Following detailed consideration of the portfolios, the financial position of the companies and the principles on which any merger should be effected, the boards have reached agreement to put proposals to their respective shareholders to merge the companies.

THE MERGER PURSUANT TO THE SCHEME

The mechanism by which the merger will be completed is as follows:

• AAIG will be placed into members' voluntary liquidation pursuant to a scheme of reconstruction under Section 110 of the Insolvency Act 1986; and

• all of the assets and liabilities of AAIG will be transferred to AATG in consideration for the issue of new AATG Shares (which will be issued directly to AAIG shareholders) ("the Scheme").

The merger will be completed on a relative net asset value basis, adjusted for merger costs. The merger is conditional upon the approval by the shareholders of both companies of resolutions to be proposed at their respective general meetings (as further detailed below) and certain other conditions being satisfied (as further set out in the circulars being posted to shareholders).

The merger will result in the creation of an enlarged company and should result in savings in running costs and simpler administration. As both companies have essentially the same investment policy, investment manager and other main advisers, this is achievable without major additional cost or disruption to the companies and their combined portfolio of investments.

The boards consider that this merger will bring a number of benefits to both groups of shareholders through:

• participation in a more substantial VCT with assets of over £60 million, resulting in a more stable and resilient base for providing long-term returns for shareholders;
• amalgamation of the companies' portfolios, which are substantially the same, for efficient management and administration and a reduction in annual running costs for the Enlarged Company compared to the total annual running costs of the separate companies;
• enhancing the potential for the Enlarged Company to raise new funds, as well as pay dividends and support buybacks in the future, whilst potentially increasing liquidity for shareholders; and
• consolidating the shareholdings for the substantial number of shareholders who have holdings in both companies.

In support of the proposals, Albion has agreed, subject to the merger becoming effective, to reduce AATG's annual running costs cap from an amount equal to 3.5 per cent. of the net assets of AATG to an amount equal to 3 per cent. of the net assets of the Enlarged Company. In addition, the changes to the VCT investment limits and size test, in particular the removal of the £1 million per annum investment limit per VCT in an investee company (effective for investments made on or after 6 April 2012), reduces the need for co-investment between sister VCTs to participate in larger investments.

Normal annual running costs for AATG and AAIG are approximately £1,116,000 and £928,000 respectively (£2,044,000 in aggregate). Normal running costs means the annual expenses incurred in the ordinary course of business including investment management and administration fees, directors' remuneration, listing fees and normal fees payable to service providers. It does not include exceptional items, for example merger costs or performance fees if earned. These annual costs represent approximately 3.1 per cent. of AATG's unaudited net assets and 3.2 per cent. of AAIG's unaudited net assets, in each case as at 30 June 2013.

The aggregate anticipated cost of undertaking the merger is approximately £325,000, including VAT, legal and professional fees, stamp duty and the costs of winding up AAIG. The costs of the merger will be split proportionately between the companies by reference to their respective merger net assets at the calculation date (ignoring merger costs).

On the assumption that the net assets of the Enlarged Company will remain the same immediately after the merger, annual cost savings for the Enlarged Company are estimated to be approximately £182,000 per annum (this represents a saving of £83,000 in respect of directors' fees, £62,000 for registrars, auditors and tax compliance fees, with the balance of the savings being made up of regulatory fees, insurance and printing costs and general day-to-day expenses). The expected annual cost saving of £182,000 would represent 0.3 per cent. of the expected net assets of the Enlarged Company. On this basis, and assuming that no new funds are raised or investments realised to meet annual costs, the boards believe that the costs of the merger would be recovered within 22 months.

The boards believe that the Scheme provides an efficient way of merging the companies with a lower level of costs compared with other merger routes. Although either of the companies could have acquired all of the assets and liabilities of the other, AATG was selected as the acquirer because of its larger size, which would result in a lower amount of stamp duty compared with AAIG being the acquiring VCT. The merger by way of the Scheme will be outside the provisions of the City Code on Takeovers and Mergers.

ILLUSTRATIVE TERMS

As an illustration, had the merger been completed on 30 June 2013, every AAIG Share in issue would effectively have been exchanged for 0.7947 new AATG Shares (taking into account share buybacks in the companies between 30 June 2013 and 9 October 2013 and the dividend of 2.5 pence per AATG Share to be paid by AATG on 31 October 2013). The actual merger ratio will be calculated based on the relative net asset values of the companies (adjusted for merger costs) immediately prior to the effective date of the merger (expected to be 15 November 2013) on the calculation date (this being 14 November 2013).

THE AATG BOARD

The AATG board has four non-executive directors: Dr Neil Cross (Chairman), Lt Gen Sir Edmund Burton, Modwenna Rees-Mogg and Patrick Reeve. The AAIG board also has four non-executive directors: Friedrich Ternofsky (Chairman), Robin Archibald, Mary Anne Cordeiro and Patrick Reeve.

The boards have considered what the size and future composition of the Enlarged Company's board should be following the merger and it has been agreed that to facilitate the merger Lt Gen Sir Edmund Burton will step down as a director of AATG and that Robin Archibald and Mary Anne Cordeiro (directors of AAIG) will be appointed as directors of AATG. Albion has agreed, subject to the merger becoming effective, that no fees will be charged going forward for the services of Patrick Reeve as a director of AATG. This will result in reducing the aggregate number of directors from seven across both companies to five for the Enlarged Company, of which only four will be paid, with an aggregate annual cost saving of approximately £83,000 (inclusive of National Insurance and VAT).

On the assumption that the merger is approved, each board would like to take the opportunity to thank Lt Gen Sir Edmund Burton and Friedrich Ternofsky for their considerable commitment and guidance to their respective VCT over the years.

ANNUAL INVESTMENT MANAGEMENT AND ADMINISTRATION ARRANGEMENTS

Albion is the investment manager of AATG and of AAIG and also provides administration services to both companies.

Albion will continue to provide annual investment management and administration services to the Enlarged Company following the merger on the same basis as is currently in place with AATG, save that Albion has agreed, subject to the merger becoming effective, to reduce the annual running costs cap to an amount equal to 3 per cent. of the net assets of the Enlarged Company.

REVISED PERFORMANCE INCENTIVE ARRANGEMENT

The boards have reviewed AATG's management performance incentive arrangements in light of the proposed merger, VCT market practice and performance to date, and proposes, subject to the approval of AATG Shareholders, to introduce a revised arrangement, which both reduces the hurdle and reduces the proportion of the excess performance that is payable to Albion. In their review, the boards took account of Albion's agreement to reduce the annual running costs cap to an amount equal to 3 per cent. of the net assets of the Enlarged Company, from the current cap of 3.5 per cent. of net assets.

It is proposed that (i) the amount of the performance incentive fees be reduced, from 20 per cent. currently, to 15 per cent. of the amount by which the net asset value and aggregate dividends exceed 100 pence per share as increased by the hurdle and (ii) the hurdle be amended to RPI plus 2 per cent. per annum (uncompounded) from the date of first admission to the Official List of the relevant class of share. Any such amount would be reduced by previous performance incentive fees paid.

The aim of the proposed revised performance incentive arrangement is to adjust the hurdle to a more realistic level and one which is more consistent with VCT market practice, whilst still retaining the principle that Albion should only be rewarded if shareholders have experienced satisfactory returns since launch. Importantly, investment performance would still have to improve by some considerable margin before any fees would be paid. This reflects the confidence of the boards and Albion in the longer term prospects for the portfolio of AATG or, as the case may be, the Enlarged Company.

If the merger is effected but AATG shareholders do not approve the revised arrangements, AATG will continue with the existing performance incentive arrangement. If the merger is not effected but AATG shareholders approve the revised arrangements, the revised arrangements will apply to the existing capital of AATG.

The Company's investment manager is Albion and it is, therefore, considered to be a related party to the Company pursuant to the Listing Rules. Albion is one of the largest independent venture capital investors in the UK, managing approximately £230 million across seven VCTs.

EXPECTED TIMETABLE

AATG general meeting	10.00 a.m. 4 November 2013
AAIG general meeting	11.30 a.m. 4 November 2013
AAIG register of members closed	14 November 2013
Calculation date for the Scheme	5.00 p.m. 14 November 2013
Suspension of listing of AAIG shares	7.30 a.m. 15 November 2013
AAIG second general meeting	10.00 a.m. 15 November 2013
Effective date for the transfer of assets and liabilities of AAIG to AATG and issue of new AATG Shares	15 November 2013
Announcement of results of the meetings and completion of the Scheme (if applicable)	15 November 2013
Admission of and dealings in the new AATG Shares issued pursuant to the Scheme to commence	18 November 2013
CREST accounts credited with new AATG Shares	18 November 2013
Certificates for new AATG Shares dispatched	22 November 2013
Cancellation of the AAIG share listing	8.00 a.m. 13 December 2013

DOCUMENTS AND APPROVALS

AATG shareholders will receive a copy of a circular convening the AATG general meeting to be held on 4 November 2013 (together with a personalised proxy card in respect of the AATG general meeting and, save in respect of AATG Shareholders with a registered address in an overseas jurisdiction, the AATG prospectus) at which AATG shareholders will be invited to approve resolutions in connection with the Scheme, amending the cap on directors' remuneration in the articles of association, approval of the related party transaction with Albion, the renewal and increase of the authority to issue and repurchase shares and cancelling reserves.

AAIG shareholders will receive a circular convening the AAIG first general meeting on 4 November 2013 and the AAIG second general meeting on 15 November 2013 (together with personalised proxy cards in respect of both AAIG general meetings and, save in respect of AAIG Shareholders with a registered address in an overseas jurisdiction, the AATG prospectus) at which AAIG shareholders will be invited to approve resolutions in connection with the Scheme.

Copies of the AATG prospectus and the circulars for AATG and AAIG have been submitted to the UK Listing Authority and will be shortly available for download both from Albion's website (www.albion-ventures.co.uk) and the national storage mechanism (www.morningstar.co.uk/uk/NSM).

Investment Manager, Administrator and Company Secretary for AATG and AAIG
Albion Ventures LLP
Patrick Reeve/Henry Stanford
Telephone: [phone]

Solicitors to AATG and AAIG
SGH Martineau LLP
Kavita Patel/Robert Newman
Telephone: [phone]

Sponsor to AATG
Howard Kennedy Corporate Services LLP
Keith Lassman
Telephone: [phone]

The directors and proposed directors of AATG accept responsibility for the information relating to AATG and its directors and proposed directors contained in this announcement. To the best of the knowledge and belief of such directors and proposed directors (who have taken all reasonable care to ensure that such is the case), the information relating to AATG and its directors and proposed directors contained in this announcement, for which they are solely responsible, is in accordance with the facts and does not omit anything likely to affect the import of such information.

The directors of AAIG accept responsibility for the information relating to AAIG and its directors contained in this announcement. To the best of the knowledge and belief of such directors (who have taken all reasonable care to ensure that such is the case), the information relating to AAIG and its directors contained in this document, for which they are solely responsible, is in accordance with the facts and does not omit anything likely to affect the import of such information.

SGH Martineau LLP is acting as legal adviser for AATG and AAIG and for no one else in connection with the matters described herein and will not be responsible to anyone other than AATG and AAIG for providing the protections afforded to clients of SGH Martineau LLP or for providing advice in relation to the matters described herein.

Howard Kennedy Corporate Services LLP, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting as sponsor for AATG and no one else and will not be responsible to any other person for providing the protections afforded to customers of Howard Kennedy Corporate Services LLP or for providing advice in relation to any matters referred to herein.

---

This announcement is distributed by Thomson Reuters on behalf of Thomson Reuters clients.

The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of the
information contained therein.

Source: Albion Technology & General VCT PLC - Ordinary Shares via Thomson Reuters ONE

HUG#1734749