UK Select Trust Limited
07 October 2005
7 October 2005
UK Select Trust Limited
Tender Offer Circular to Shareholders
Further to the announcement on 5 September 2005 the Board of UK Select Trust
Limited ('UK Select' or the 'Company') will today be posting a circular to
Shareholders setting out details of the proposal for a tender offer for 50 per
cent. of the Company's issued share capital (the 'Circular').
Words and expressions used in this announcement bear the same meaning as those
defined in the Circular
In the letter to Shareholders of 4 August 2005, the chairman of UK Select stated
that if the Elm Grove Offer lapsed or were to be withdrawn the Board would
propose a tender offer for up to 50 per cent. of the Company's Shares at 99 per
cent. of Tender FAV.
The Elm Grove Offer received acceptances representing 45 per cent. of the issued
share capital of the Company (which figure included the 31.4 per cent. owned by
Millennium Partners). On 31 August 2005 ODL Securities Limited announced on
behalf of Elm Grove that the Elm Grove Offer had lapsed.
Accordingly, on 5 September 2005 the Board announced its intention to implement
the Tender Offer.
The Circular contains the formal terms and conditions of the Tender Offer,
together with an explanation of the background to it and details of how
Shareholders (other than US Persons) can tender their Shares for purchase and
The Board considers that the passing of the two recent continuation resolutions
and the failure of the Elm Grove Offer indicate that the majority of
Shareholders wish to have a continued investment in the Company. The Board
therefore anticipates that the Tender Offer should enable Millennium Partners
and any other Shareholders (other than US Persons) who wish to exit from the
Company to do so. The Tender Offer should, as a result, enable the Company to
concentrate on maximising value for Shareholders without the costly distraction
of pressure from those who wish to realise their investment.
The Company's recent performance
Over the 12 months to 4 October 2005 the Company's NAV has increased (on a total
return basis) by some 31.9 per cent., which compares favourably to the Company's
benchmark, the FTSE All-Share Index (total return) which has increased by 22.4
per cent. over the same period. In its AITC peer group (UK Growth sector), as
at the same date, the Company is ranked (on a NAV total return basis) 2nd out of
17 over three months and 3rd out of 17 over six and twelve months.
Over the longer term, since the appointment of SWIP as investment manager on 25
April 2002, the Company has outperformed the FTSE All-Share Index (on a total
return basis) by approximately 5 per cent.
Over the 12 months to 4 October 2005 the Company's share price discount to NAV
has averaged 7.4 per cent. This discount compares favourably to the average for
the Company's AITC peer group (UK Growth Sector) which, over the same period,
averaged 8.8 per cent.
The net assets of the Company as at 4 October 2005 were approximately £45
million. Assuming that the Tender Offer is accepted in full, following the
Tender Offer the net assets of the Company would be approximately £22.8m. This
is similar to the size of the Company, approximately £24.5m, after the tender
offer in May 2002.
The Board does not envisage any change in the investment policies of the Company
following the Tender Offer.
Dividends, interim results and outlook
On 15 September 2005, the Company announced its financial results for the 6
months to 30 June 2005.
The Board also announced its intention to pay an interim dividend in respect of
the period to 30 June 2005 in the amount of 0.85 pence per Share. The Interim
Dividend will be payable to Shareholders who were entered on the Register on 23
September 2005, irrespective of whether such Shareholders have tendered their
Shares under the Tender Offer.
In accordance with the Company's existing scrip dividend programme, Shareholders
who were on the Register on 23 September 2005 will be entitled to receive some
or all of the Interim Dividend in the form of scrip Shares. Scrip Shares will
be issued after the Closing Date of the Tender Offer and therefore such Shares
may not be tendered pursuant to the Tender Offer.
In the period from 1 January 2005 to the date of the Circular, the strong rise
in stock markets is increasingly in contrast with the somewhat more mixed
outlook on the economic front. This suggests that an element of caution is
required; however the Board believes that the Manager's approach of careful
stockpicking should allow the Company to take advantage of the opportunities
that any period of uncertainty inevitably generates. Over the current financial
year the Board believes that this approach will provide a good prospect of the
Company continuing to outperform its benchmark.
The Tender Offer is designed to enable those Shareholders (other than US
Persons) who wish to realise their Shares in the Company to do so at a price
which is close to their fair realisable value. Shareholders are not obliged to
tender any Shares. The allocation of the Tender Costs to the Shares sold under
the Tender Offer will ensure that those costs do not dilute the NAV of the
Shares which are not tendered. Ongoing Shareholders will benefit from the 1 per
cent. discount to FAV at which the Tender Price is set.
Subject to the Tender Offer becoming unconditional, Shareholders (other than US
Persons) will be entitled to have up to 50 per cent. of their Shares purchased
by the Company, which represents Shareholders' Basic Entitlement. Shareholders
will, however, be entitled to tender any percentage of their Shares for purchase
under the Tender Offer, but tenders in excess of the Basic Entitlement will only
be satisfied, on a pro rata basis, to the extent that other Shareholders tender
less than their Basic Entitlement. Tenders will be rounded down to the nearest
whole number of Shares.
Those Shares which the Company acquires will be cancelled on acquisition. All
transactions will be carried out in accordance with the Companies (purchase of
Own Shares) Ordinance 1998.
Implementation of the Tender Offer will require the passing of the Tender Offer
Resolution, the Market Purchase Resolution and the Waiver Resolution at the
Extraordinary General Meeting to be held at 11 a.m. on 31 October 2005, and a
minimum of 30 per cent. of the Shares being validly tendered. Shareholders
should note that the Company has received an irrevocable undertaking from
Millennium Partners to accept the Tender Offer in respect of 31.35 per cent. of
the issued share capital of the Company and to tender its entire holding of
Shares under the Tender Offer.
The Manager will realise as much of the Company's portfolio as is necessary to
meet the cash requirements of the Tender Offer. The Manager will be free to
choose which stocks to realise for this purpose and, as such, the realisation
will not take place on a strict pro rata basis. As the Company's portfolio is
liquid, it is the Manager's intention to execute a significant proportion of
this realisation on the Calculation Date and to finalise this process shortly
thereafter. This will limit exposure for ongoing Shareholders to market
movements during the realisation process. SWIP anticipates that it will have
some internal demand from its clients for stocks in the Company's portfolio
which the Company wishes to realise and as such will, where possible, transfer
stocks internally at mid-market price. In particular this should assist the
realisation process, particularly for any less liquid stocks.
The Tender Price will be calculated as at the Calculation Date. The Tender
Price of 99 per cent. of Tender FAV will be close to the realisable value of the
underlying assets of the Company. Tender FAV will take account of current year
revenue less the Interim Dividend, and will bear the full amount of the Tender
Costs (being approximately £270,000). Tender FAV will be valued by calculating
the value of the Company's investments on a bid price basis, as was the case
with FAV under the Elm Grove Offer, which as at 4 October 2005 was approximately
0.1p less per Share than valuing such investments on a mid market price basis.
Further details of the calculation of the Tender Price are set out in the
The NAV (including current year revenue of the Company on 4 October 2005 (being
the latest practicable date before publication of this document) less the
Interim Dividend and calculated on a bid basis) was 118.2p per Share. On the
same date, this NAV would have been approximately 0.1p per Share higher had the
Company's investments been valued on a mid market price basis. For illustrative
purposes only, had the Tender FAV been calculated on that date, the Tender Price
would have been 115.6 if 50 per cent. of the Shares had been tendered and 114.6
if 30 per cent. of the Shares had been tendered.
As indicated previously, it is the Manager's intention not to undertake any
significant realisation of the Company's portfolio prior to the Calculation
Date. Nevertheless, should, prior to the Calculation Date, the Company's NAV be
represented in part by net cash or near cash holdings, such amounts will be
disclosed as part of the Company's normal publication of daily NAV.
The Shares to be purchased under the Tender Offer will be purchased out of the
Company's distributable profits, being its realised capital reserve and revenue
Variation of authority to make market purchases
It is the policy of the Company to buy back for cancellation by way of market
purchases at least as many Shares as are issued by way of scrip dividend should
suitable opportunities arise. The Board considers that such market purchases
increase liquidity in the Shares, reduce the volatility at which the Share price
trades to NAV, minimise the Share price discount to NAV and provide an uplift to
The level of share repurchases authorised by the resolution passed at the Annual
General Meeting of the Company on 27 April 2005 will be inappropriate following
the reduction in the Company's issued share capital resulting from the Tender
Offer. Accordingly, the Market Purchase Resolution will be proposed in order to
vary this authority to restrict it to 14.99 per cent. of the issued share
capital following the completion of the Tender Offer.
The purchases will be made in accordance with the Companies (Purchase of Own
Shares) Ordinance 1998.
Information on SWIP
Since April 2002, the Company's investments have been managed on a discretionary
basis by SWIP.
SWIP has a history that dates back to 1815. It currently manages a total of
£87.5 billion worth of funds, which are invested in all major asset classes
including domestic and overseas equities, property, bonds and cash. It
currently manages around 1.6 per cent. of the main UK equity market and is one
of the UK's leading bond and property investors.
SWIP is an independent asset manager that runs a number of life assurance,
pension and investment funds for Scottish Widows and its ultimate parent
company, Lloyds TSB. It also manages a diverse range of specialist funds for
other UK and international clients, including large pension schemes, charities
and local governments. Under its own name and in partnership with local
organisations, SWIP has a presence that stretches from the United States to the
Far East and includes continental Europe.
Information on Lloyds TSB
Lloyds TSB is one of the UK's leading financial services providers whose
businesses provide a comprehensive range of financial services in the UK and
overseas, and employs around 70,000 staff (as at 31 December 2004). Its
activities are organised into three divisions: UK retail banking, insurance and
investments, and wholesale and international banking.
Lloyds TSB Group plc, which is regarded by the directors of SWIP as SWIP's
ultimate parent company, reported profit before tax of £3,493 million in 2004
and £4,348 million in 2003, and shareholders' funds of £9,977 million in 2004
and £9,624 million in 2003.
The recent financial results of Lloyds TSB Group plc, including the annual
report and accounts for the years ended 31 December 2004 and 31 December 2003 in
which SWIP is consolidated, can be obtained from the 'Investor Relations'
section of the Lloyds TSB Group website at www.investorrelations.lloydstsb.com.
The annual report and accounts of Lloyds TSB Group plc for the years ended 31
December 2004 and 31 December 2003 will also be available for inspection in
accordance with paragraph 22 of Part V of this document.
SWIP's Shareholding and the City Code
Rule 9 of the City Code requires any shareholder in a company to which the City
Code applies who acquires, whether by way of a series of transactions over a
period of time or not, shares (taken with the holding of any person acting in
concert with such shareholder, as defined in the City Code) carrying 30 per
cent. or more of the voting rights of that company to make a Mandatory Offer.
Similarly, when any person or persons acting in concert already hold 30 per
cent. or more but not more than 50 per cent. of the voting rights of such a
company, a Mandatory Offer would normally be required if any further shares
increasing their percentage of the voting rights are acquired by such person or
Under Rule 37.1 of the City Code, when a company purchases its voting shares, a
resulting increase in the percentage of the voting rights carried by the
shareholding of any person or group of persons acting in concert will be treated
as an acquisition for the purposes of Rule 9. A shareholder who is neither a
director nor acting in concert with a director will not normally incur an
obligation to make an offer under Rule 9 in consequence of the purchase of a
company's own shares. However, for the purpose of Rule 37.2 investment managers
of investment trusts will be treated as a director and therefore Rule 9 will
apply to SWIP and any parties considered for the purposes of the City Code to be
acting in concert with it. Under the City Code, funds under the discretionary
management of SWIP are presumed to be acting in concert with SWIP, as are the
directors of SWIP (together the 'concert party').
A Mandatory Offer must be in cash and at the highest price paid by the
shareholder or a member of its concert party in the previous twelve months.
The Tender Offer will reduce the Company's issued share capital and will
accordingly increase the percentage shareholdings of those Shareholders who do
not participate (either at all or to the full extent) in the Tender Offer. This
could result in the relevant Shareholder or Shareholders being required to make
a Mandatory Offer.
SWIP has indicated in an irrevocable undertaking addressed to the Company that,
if the Tender Offer proceeds, SWIP does not intend to tender 6,300,000 Shares,
representing approximately 16.5 per cent. of the issued share capital of the
Company. SWIP indicated that, for tax reasons, the holding of one of its
existing clients, amounting to 1,947,000 Shares, representing approximately 5.1
per cent. of the issued share capital of the Company, is to be sold and
therefore SWIP is likely to accept the Tender Offer in respect of those Shares.
However, it is possible that this holding may be realised in the market ahead of
the Closing Date for the Tender Offer.
SWIP and its concert party currently holds 8,247,000 Shares, representing 21.6
per cent. of the issued share capital of the Company. Shareholders should note
that should Shares representing 50 per cent. or more of the Company's issued
share capital be tendered under the Tender Offer, the Company will repurchase a
maximum of 50 per cent. of its issued share capital and, after scaling back,
SWIP and its concert party's shareholding in the Company could amount to a
maximum of 7,020,350 Shares, (representing approximately 36.8 per cent. of the
then existing issued share capital of the Company). Under Rule 9 of the City
Code, SWIP and its concert party would in such circumstances normally be
required to make a general offer to Shareholders since its percentage holding of
the voting rights of the Company would have increased from under 30 per cent. to
over 30 per cent.
After the purchase of 50 per cent. of the Company's issued share capital and,
after scaling back, and assuming that following the completion of the Tender
Offer the Company makes market purchases amounting to 14.99 per cent. of its
issued share capital (being the maximum amount permitted under the Company's
power to make market purchases, as varied by the Market Purchase Resolution),
then SWIP and its concert party's shareholding in the Company could amount to a
maximum of 43.3 per cent. of the issued share capital of the Company. SWIP and
its concert party would again in such circumstances normally come under the
obligation to make a general offer.
If less than 45.4 per cent. of the Company's issued share capital is tendered,
SWIP and its concert's holding would be less than 30 per cent. following the
completion of the Tender Offer but that holding could still increase above 30
per cent. depending on the extent to which the Company makes market purchases
following the Tender Offer. SWIP and its concert party would again in such
circumstances normally come under the obligation to make a general offer.
Your Board would not be prepared to proceed with the Tender Offer, or to
authorise the Company to make market purchases, in circumstances where SWIP and
its concert party would be required to make a general offer for the Shares not
held by it. Such an offer would be inconsistent with the wish of the majority
of the Shareholders for investment in the Company as an ongoing entity, as
demonstrated by the recent continuation votes and the lapsing of the Elm Grove
In this case, the Panel has agreed to waive the obligation for SWIP and the
members of its concert party to make a general offer to Shareholders, subject to
the Waiver Resolution being approved by a vote on a poll of independent
Shareholders in general meeting and SWIP and any member of its concert party and
any other persons whom the Panel treats as non-independent who already hold
Shares in the Company refraining from voting on such poll.
The City Code requires certain financial information to be provided to
Shareholders in this context. Accordingly, copies of the Company's annual
report and accounts for the year ended 31 December 2004 and the Company's
interim report for the 6 months to 30 June 2005 are enclosed with this document.
It should be noted that for as long as future tender offers and share
repurchases could result in SWIP and its concert party's holding in the issued
share capital of the Company equalling or exceeding 30 per cent. of the issued
share capital of the Company, and for as long as SWIP and its concert party's
holding is greater than 30 per cent. but less than 50 per cent., any future
tender offers and share repurchases which are made by UK Select after the expiry
of the Market Purchase Resolution would require the approval of the independent
Shareholders of the Company at the time of such tender offer and, in respect of
market purchases, on an annual basis at the Company's annual general meeting.
The making of the Tender Offer to persons outside the United Kingdom, the
Channel Islands or the Isle of Man may be prohibited or affected by the relevant
laws of the relevant overseas jurisdictions.
The Tender Offer is not being made into the United States or to US Persons.
Extraordinary General Meeting
The Tender Offer is subject to Shareholders' approval, at the EGM, which has
been convened for 11.00 a.m., on 31 October 2005 to be held at Dorey Court,
Admiral Park, St. Peter Port, Guernsey, GY1 3BG.
Three resolutions will be proposed at the EGM. Resolution (A) (which is the
Tender Offer Resolution) is for the purpose of authorising the Company to
acquire Shares pursuant to the Tender Offer, and will be proposed as a special
resolution which will require the support of 75 per cent. of the votes cast at
the meeting. Resolution (B) (which is the Market Purchase Resolution) is to
vary the Company's authority to make market purchases after completion of the
Tender Offer. Resolution (C) (which is the Waiver Resolution) is required under
the terms of the City Code in order to dispense with the requirement on SWIP and
any member of its concert party to make a Mandatory Offer. Resolutions (B) and
(C) will require the support of over half of the votes cast at the meeting. The
vote on resolution (C) will be taken on a poll, and SWIP and any member of its
concert party will not be able to vote on this resolution.
The full text of the circular is available for inspection at the UKLA Document
Viewing Facility, 25 The North Colonnade, Canary Wharf, London E14 5HS.
Latest time and date for receipt of pink Tender Forms from 11.00 a.m. on 21 October
Shareholders in respect of the Tender Offer
Latest time and date for settlement of CREST transfer of 11.00 a.m. on 21 October
uncertificated Shares to escrow
Closing Date for the Tender Offer 11.00 a.m. on 21 October
Record Date for the Tender Offer close of business on 21 October
Latest time and date for receipt of Forms of Proxy from 11.00 a.m. on 27 October
Shareholders in respect of the EGM
Extraordinary General Meeting 11.00 a.m. on 31 October
Result of the Extraordinary General Meeting announced 31 October
Result of the Tender Offer announced 31 October
Calculation Date for Tender Price 1 November
Tender Price announced and Tender Offer completed 4 November
Cheques despatched and CREST payments made in respect of the 7 November, or as soon as practicable
Tender Offer thereafter
Balancing share certificates despatched and CREST accounts 7 November, or as soon as practicable
settled in respect of the Tender Offer thereafter
Jim Le Pelley 01481 719516
Corporate Services 01481 721234
Andrew Zychowski/Joe Winkley 020 7623 8000
Dresdner Kleinwort Wasserstein
Dresdner Kleinwort Wasserstein Securities Limited, which is regulated by the
Authority, is acting for the Company and for no-one else in connection with the
contents of this announcement and will not be responsible to anyone other than
the Company for providing the protections afforded to customers of Dresdner
Kleinwort Wasserstein Securities Limited, or for affording advice in relation to
the contents of this announcement or any matters referred to herein.
This information is provided by RNS
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