Placing and Proposed Open Offer

RNS Number : 2140K

Elektron Technology PLC

23 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")

Placing to raise £2.34 million

and

Proposed Open Offer to raise up to £1.16 million

Further to the announcement at 7am on 20 June 2014, Elektron Technology plc (AIM: EKT), the global technology group, is pleased to announce that it has raised £2.34 million (before expenses) through a placing with existing investors of 46.8 million 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 £1.16 million (before expenses) by way of an open offer of up to 23.2 million new ordinary shares of 5 pence each (the "Open Offer Shares") to existing shareholders on the register on 20 June 2014 (ex-date 23 June 2014) at the Placing Price (the "Open Offer" and, together with the Placing, the "Capital Raising").

The Company intends to use the net proceeds of the Capital Raising to reduce its borrowings with the bank, to fund working capital requirements and to invest in new product development and marketing.

A circular to shareholders containing full details of how shareholders can participate in the Open Offer, together with an application form, will be posted to shareholders in due course. The circular will also be posted on the Company's website.

Commenting on the Placing, John Wilson, Chief Executive, commented:

"We are delighted to have raised funds which will enable management to continue to focus on the transformation of the business. The proceeds are expected to give the Company additional flexibility to improve the performance of our current brands as well as help fund the roll out of new products. The Board remains confident that our strong brand portfolio and our continued investment in new product programmes will place the Group in a good position for growth."

Background

As part of the previous 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 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 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 (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 has raised £2.34 million (before expenses) through a placing with existing investors of 46.8 million new ordinary shares of 5 pence each (the "Placing Shares") at a price of 5 pence per Placing Share.

The Company also intends to raise up to a further £1.16 million (before expenses) by way of an open offer of up to 23.2 million new ordinary shares of 5 pence each to existing shareholders at the Placing Price. Existing shareholders will 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, D&A Income Limited, John Kinder and Keith Daley have committed to subscribe for up to 10,000,000, up to 5,000,000 and up to 1,900,000 Open Offer Shares respectively. In the event that there is significant undersubscription in the Open Offer, both John Kinder's and Keith Daley's commitment may need to be scaled back such that the concert party, of which both John Kinder and Keith Daley are members, will hold less than 30.0 per cent. of the Company's total voting rights after the Open Offer

All indicative offers for the Company have now been rejected. The Board decided to terminate the Strategic Alternatives Process, which included a formal sale process under the City Code on Takeovers and Mergers ("City Code"), and this was announced at 7am on 20 June 2014.

Director/Significant Shareholder Participation

The Placing is classified as a related party transaction under the AIM Rules, as Keith Daley, who has participated in the Placing, subscribing for 3,800,000 ordinary shares (£190,000), and has committed to subscribe for up to 1,900,000 new Ordinary Shares arising from lapsed Open Offer Entitlements (£95,000), is a director of the Company and a substantial shareholder (as defined by the AIM Rules) in the Company and  as John Kinder, who has also participated in the Placing, subscribing for 6,000,000 ordinary shares (£300,000), and has committed to subscribe for up to 5,000,000 new Ordinary Shares arising from lapsed Open Offer Entitlements (£250,000), is a substantial shareholder in the Company. The Independent Directors (being Tony Harris, Ric Piper and Andy Weatherstone) consider, having consulted with finnCap, the Company's nominated adviser, that the terms of the transaction are fair and reasonable insofar as Shareholders are concerned. 

	Before Capital Raising		Interest in the Enlarged Share Capital
Name	Existing Ordinary Shares	Percentage	Ordinary Shares After Placing Admission	Percentage	After Admission of the Open Offer Shares(1)	Percentage
Keith Daley (2)	16,812,016	14.07%	20,612,016	12.39%	22,512,016	11.88%
John Kinder	18,927,711	15.84%	24,927,711	14.99%	29,927,711	15.79%

(1)  Assuming full utilisation of Keith Daley and John Kinder's commitments to subscribe for Open Offer Shares

(2)  Inclusive of his Joint Share Ownership Plan interest held under the Elektron Technology 2012 Employee Benefit Trust

Application has been made to the London Stock Exchange for the Placing Shares to be admitted to trading on AIM. It is expected that such admission will occur at 8.00 a.m. on 24 June 2014 ("Admission").

Following Admission, the Placing Shares will rank pari passu in all respects with the existing ordinary shares in issue including the right to receive all dividends and other distributions declared. Following the Placing, the Company's total issued and voting share capital will comprise 166,325,265 ordinary shares. This figure may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, securities of the Company under the FCA's Disclosure and Transparency Rules.

Principal terms of the Open Offer

Pursuant to the Placing and Open Offer Agreement, the Open Offer is for up to 23,200,000 Open Offer Shares at the Issue Price to raise up to £1.16 million (before expenses). Only Qualifying Shareholders on the Company's register of members as at the Record Date may participate in the Open Offer.

Subject to the fulfilment of the terms and conditions referred to in the Circular and, where relevant, set out in the Application Form, Qualifying Shareholders are being given the opportunity to apply for Open Offer Shares at a price of 5 pence per share, payable in full and in cash on application, on the basis of:

1 Open Offer Shares for every 6 existing Ordinary Shares

registered in the name of each Qualifying Shareholder at the Record Date and so on in proportion for any other number of Ordinary Shares then held. Each of D&A Income Limited, Keith Daley and John Kinder (each of whom will be subscribing for Placing Shares pursuant to the Placing) and John Wilson has undertaken not to subscribe for their respective Open Offer Entitlements, thereby enabling other Qualifying Shareholders greater opportunity to participate in the Open Offer, should they wish to do so, by means of the Excess Application Facility described below.

Qualifying Shareholders may apply for more or fewer Open Offer Shares than they are entitled to under the Open Offer and applications in excess of their Open Offer Entitlements will be dealt with under the Excess Application Facility. If applications under the Excess Application Facility are received for more than the total number of Open Offer Shares available following take-up of Open Offer Entitlements, such applications will be scaled back pro rata to the number of Excess Shares applied for by Qualifying Shareholders under the Excess Application Facility.

Each of Ric Piper and Tony Harris has confirmed that he intends to apply for his full entitlement of New Ordinary Shares in the Open Offer and may apply to subscribe for excess Open Offer Shares under the Excess Application Facility.  Each of John Wilson and Andy Weatherstone has confirmed that he does not intend to apply for any New Ordinary Shares in the Capital Raising.

To the extent that additional Open Offer Shares are not subscribed by existing Shareholders, Open Offer Entitlements will lapse and any Open Offer Shares to which such Open Offer Entitlements relate may be sold or placed in the market for the benefit of the Company. In this regard, subject to existing Shareholders not having taken up their Open Offer Entitlements in full and to all valid applications under the Excess Application Facility having been honoured, D&A Income Limited has irrevocably committed to subscribe up to 10,000,000 new Ordinary Shares attributable to lapsed Open Offer Entitlements.  To the extent that sufficient Ordinary Shares attributable to lapsed Open Offer Entitlements remain available for subscription after D&A Income Limited has subscribed for Ordinary Shares in accordance with its commitment, John Kinder has irrevocably committed to subscribe for up to 5,000,000 new Ordinary Shares attributable to lapsed Open Offer Entitlements and Keith Daley has irrevocably committed to subscribe for up to 1,900,000 new Ordinary Shares attributable to lapsed Open Offer Entitlement. Both John Kinder's and Keith Daley's irrevocable commitments will be scaled back such that the concert party, to which John Kinder and Keith Daley are members, will hold less than 30.0 per cent. of the Company's total voting rights after the Open Offer.

Further details of the Open Offer and the Excess Application Facility are given in the shareholder circular which will be posted to shareholders and made available on the Company's website. 

The Open Offer is conditional, amongst other things, upon Open Offer Admission becoming effective by not later than 8:00 a.m. on 18 July 2014 (or such later time and/or date as the Company may agree, being not later than 8:00 a.m. on 31 July 2014). Accordingly, if such conditions are not satisfied, or, if applicable, waived, the Open Offer will not proceed and any Open Offer Entitlements admitted to CREST will thereafter be disabled.

Application will be made to the London Stock Exchange for the Open Offer Shares to be admitted to trading on AIM. The Open Offer Shares are expected to be admitted to AIM and commence trading at 8:00 a.m. on 18 July 2014.

* 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 (Nominated Adviser and Broker)	[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 Capital Raising and the distribution of this announcement and other information in connection with the Capital Raising 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 Capital Raising.

 

END

 

 

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