Conclusion of Strategic Alternatives Process

RNS Number : 1029K

Elektron Technology PLC

20 June 2014

 

Not for release, publication or distribution in whole or in part, in or into the United States, Canada, Australia, Japan, New zealand, russia, south africa or any other jurisdiction where to do so would be unlawful

Elektron Technology plc

("Elektron" or the "Company" or the "Group")

Conclusion of Strategic Alternatives Process

Termination of Formal Sale Process and End of Offer Period

Intention to Raise up to £3.5 million via a Placing and Open Offer

Elektron Technology plc (AIM: EKT), the global technology group, announces the conclusion of the Strategic Alternatives Process previously announced on 7 April 2014 and that it is in advanced negotiations to raise up to £3.5 million via a placing and open offer.

As part of the Strategic Alternatives Process, the Board received various approaches from third parties interested in making an offer or providing additional capital funding for the Company.

The most attractive approach was an indicative offer which valued the Company's equity on an indicative basis at 10 pence per share. This indicative offer was received on 8 May 2014 and was subject to a period of further due diligence and there was no certainty that a firm offer would actually be made nor as to its terms. This approach included a precondition that certain specified shareholders holding in aggregate over 55 per cent. of the Company's issued share capital provided hard irrevocable undertakings to accept an offer made by the potential offeror at the level of 10p a share. John Kinder and Keith Daley, being two of the Company's major shareholders, holding in aggregate approximately 25.95* per cent. of the Company's issued share capital, confirmed in writing to the Company that they were not prepared to accept an offer at 10 pence per share nor to give hard irrevocable undertakings to accept such an offer.

On 16 June 2014 the Company received a revision to the approach outlined above. This revised approach excluded any precondition in relation to the provision by John Kinder and Keith Daley of irrevocable undertakings to accept an offer at the level of 10 pence per share, but still required certain shareholders holding in aggregate over 32 per cent. of the Company's share capital to provide hard irrevocable undertakings to accept an offer at this price. In addition, as part of the preconditions of this revised approach the potential offeror would have needed to reach agreement with Messrs Kinder and Daley in respect of their own shareholdings.

As part of the Strategic Alternatives Process, other potential proposals considered by the Board have included an equity fundraising to be supported by shareholders and/or third parties. The Board received expressions of interest in participating in a fundraising from several major shareholders including Keith Daley and John Kinder. In view of this, and the fact that Keith Daley and John Kinder, together with John Wilson, are part of a Concert Party, it was inappropriate for Keith Daley (Executive Chairman) and John Wilson (Chief Executive Offer) to participate in the decision-making process as to which course of action should be pursued.  An Independent Committee of directors was, therefore, formed comprising Tony Harris and Ric Piper, both of whom are independent non-executive directors, and Andy Weatherstone, the Chief Financial Officer (the "Independent Committee").

The headroom on the Group's working capital facilities reduced significantly in the prior financial year and as at the Group's year end on 31 January 2014 the Group had headroom of £1.1 million. Whilst the Group has generated cash in the first quarter (to 30 April 2014) of the current financial year it has experienced some reduction in sales in May resulting in a fall in available headroom given the Group's principal source of working capital is an invoice discounting facility. The Group is currently operating on low levels of headroom.

As a consequence of the fall in headroom and the Group's performance in the past year, the Group's principal lender, HSBC, and Elektron have entered into amended bank facilities. These amendments reset future covenant tests. In support of Elektron's current fundraising strategy, a new test has been introduced that will require the Group to maintain a minimum headroom of at least £1 million with effect from 30 June 2014. Failure to meet any of the covenants would technically give HSBC rights to step in and protect its position, at which time the Board will potentially have to consider options which may be destructive of shareholder value.

Accordingly, the Independent Committee, mindful of the Group's financial position and the requirement of its banking arrangements and on the basis there could be no certainty that the conditions of the indicative approach referred to above could have been satisfied in the required timescale, if at all, has determined that an equity fundraising is the appropriate solution at this time.

The Independent Committee has given consideration as to the best way to structure the proposed equity fundraising, having regard to, inter alia, current market conditions, the Company's near-term funding requirements, the level of the Company's share price and the importance of pre-emption rights to shareholders. After considering these factors, the Independent Committee has concluded that the most suitable option available to the Company and its shareholders as a whole is to structure the equity fundraising as (i) a placing (expected to be effected by way of a cashbox placing) and (ii) an open offer to shareholders with an excess application facility allowing existing shareholders to apply for further shares.

The Company is in advanced negotiations to raise up to approximately £2.3 million (before expenses) through a placing with existing investors of new ordinary shares of 5 pence each (the "Placing Shares") at a price of 5 pence per Placing Share (the "Placing Price") (together the "Placing").

The Company also intends to raise up to a further approximately £1.2 million (before expenses) by way of an open offer of new ordinary shares of 5 pence each (the "Open Offer Shares") to existing shareholders at the Placing Price (the "Open Offer"). Existing shareholders would have the opportunity to participate by acquiring Open Offer Shares pro rata to their current holdings with the option of applying to subscribe for further shares under the excess application facility. To the extent that additional Open Offer Shares are not subscribed by existing Shareholders, investors including John Kinder and Keith Daley (among others) are expected to commit to subscribe for a certain number of these shares.

If successful in its intention to raise the new funds, the Company intends to use the net proceeds of the Placing and Open Offer to reduce its borrowings with the bank, to fund working capital requirements and to invest in new product development and marketing.

All indicative offers for the Company have now been rejected. The Board has decided to terminate the Strategic Alternatives Process, which includes a formal sale process under the City Code on Takeovers and Mergers ("City Code"), with immediate effect. Elektron has received confirmation from the participants involved in the formal sale process that they are no longer considering an offer for the Company. Therefore, the Company is no longer in an offer period under the City Code and accordingly, the requirement to make disclosures under Rule 8 of the City Code has now ceased.

* Excludes Keith Daley's Joint Share Ownership Plan interest in shares held under the Elektron Technology 2012 Employee Benefit Trust. Including this further interest, John Kinder and Keith Daley are interested in aggregate in approximately 29.90 per cent. of the Company's issued share capital.

For further information, please contact:

Elektron Technology	www.elektron-technology.com
Keith Daley - Executive Chairman	[phone]
John Wilson - CEO
Andy Weatherstone - CFO
finnCap	[phone]
Ed Frisby/Ben Thompson (corporate finance) Malar Velaigam (corporate broking)
Instinctif Partners Adrian Duffield/Kay Larsen	[phone]

finnCap Limited which is regulated in the United Kingdom by The Financial Conduct Authority is acting for the Company in relation to the matters described in this announcement and is not advising any other person, and accordingly will not be responsible to anyone other than the Company for providing the protections afforded to customers of finnCap or for providing advice in relation to the matters described in this announcement.

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

This announcement is not intended to, and does not, constitute or form part of any offer, invitation or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of, any securities whether pursuant to this announcement or otherwise. The distribution of this announcement in jurisdictions outside the United Kingdom may be restricted by law and therefore persons into whose possession this announcement comes should inform themselves about, and observe, such restrictions. A failure to comply with the restrictions may constitute a violation of the securities laws of any jurisdiction.

This announcement does not constitute, or form part of, any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for any shares or other securities in the United States, Australia, Canada, Japan, New Zealand, Russia or South Africa or in any jurisdiction to whom or in which such offer or solicitation is unlawful. The Placing and Open Offer and the distribution of this announcement and other information in connection with the Placing and Open Offer in certain jurisdictions may be restricted by law and persons into whose possession this announcement, any document or other information referred to herein comes should inform themselves about and observe any such restriction. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. Neither this announcement nor any part of it nor the fact of its distribution shall form the basis of or be relied on in connection with or act as an inducement to enter into any contract or commitment whatsoever.

Neither this announcement nor any copy of it may be taken or transmitted, directly or indirectly, into the United States, Australia, Canada, Japan, New Zealand, Russia or South Africa or to any persons in any of those jurisdictions or any other jurisdiction where to do so would constitute a violation of the relevant securities laws of such jurisdiction. Any failure to comply with this restriction may constitute a violation of United States, Australian, Canadian, Japanese, New Zealand, Russian or South African securities laws.

The securities proposed to be offered by the Company have not been and will not be registered under the Securities Act of 1933 or under any securities laws of any state of the United States and may not be offered or sold in the United States. There will be no public offer of the securities referred to herein in the United States.

This announcement is an advertisement and not a prospectus.  No prospectus is required to be, or will be, published in connection with the Placing and Open Offer.

 

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