Publication of second circular to shareholders
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF THAT JURISDICTION
5 March 2015
API Group plc ("API" or the "Company")
Publication of a second circular to shareholders in response to the unsolicited cash offer for the Company by Cedar 2015 Limited ("Cedar")
Following the Company's announcement of 18 February 2015 and the publication of the Initial Response Circular on the same day, the Independent Board of the Company (comprising Mr. Andrew Turner and Mr. Andrew Walker (the "Independent Board")) confirms that it has today posted a circular to Shareholders (and, for information only, to persons with information rights and participants in the API Share Plans) setting out the Independent Board's further response to the offer document posted by Cedar on 4 February 2015 in relation to its unsolicited cash offer for the Company (the "Circular"). The text of the letter from the Interim Chairman of the Company (set out in full within the Circular) is reproduced below.
Documents published on the website
Copies of the Circular will be available, subject to certain restrictions relating to persons resident in restricted jurisdictions, on the Company's website at http://www.apigroup.com/ by no later than 8am (London time) on 5 March 2015.
The Independent Board is also announcing that, in accordance with Rule 26.3 of the Code, the Company's website has been updated to include: (i) the written consent of Numis Securities Limited to the inclusion in the Circular of its name in the form and context in which it appears; (ii) the written consent of Cushman & Wakefield of New Jersey, Inc to the inclusion in the Circular of its name in the form and context in which it appears; and (iii) the Valuation Report.
Terms and expressions used in this announcement shall, unless the context otherwise requires, have the same meanings as given to them in the Circular.
LETTER FROM THE INTERIM CHAIRMAN
To API Shareholders and, for information only, to persons with information rights and participants in the API Share Plans.
Dear API Group Shareholder,
Further Response to Unsolicited Offer
1. Introduction
On 18 February 2015 the Company published the Initial Response Circular setting out the initial response of the Independent Board to the Offer by Cedar Bidco, an indirect subsidiary of Steel, of 60 pence in cash per API Share to acquire the entire issued and to be issued ordinary share capital of the Company not already owned by Steel and its subsidiary undertakings.
In the Initial Response Circular the Independent Board set out certain reasons for and against accepting the Offer but did not provide a definitive recommendation to Shareholders, pending receipt of an up-to-date valuation relating to the Rahway Property (the "Valuation Report"). The Valuation Report has now been received and a summary is included in this circular at Appendix IV, with the full report posted on the Company's website at www.apigroup.com/investor-relations/company-reports.
THE INDEPENDENT BOARD RECOMMENDS THAT SHAREHOLDERS ACCEPT THE OFFER Following careful consideration of the Valuation Report and the factors set out in the Initial Response
Circular, the Independent Board, which has been so advised by Numis, recommends that Shareholders accept the Offer (as each member of the Independent Board intends to do in respect of his entire beneficial holding of shares in the Company). In providing advice, Numis has taken into account the commercial assessment of the Independent Board.
2. The Rahway Property Valuation Report
The recently-commissioned Valuation Report places a market value on the Rahway Property of US$8.7 million (approximately £5.65 million) compared with its book value of US$2.967m (approximately £1.929 million). The valuation was carried out in accordance with the Uniform Standards of Professional Appraisal Practice (USPAP), a copy of which can be found at www.uspap.org.
From time to time, the Board has been made aware of the potential to redevelop the Rahway Property for a higher (non industrial) use and a long term environmental clean-up (funded by a previous owner) has recently been completed, to bring the land up to a standard suitable for residential development. However, the property is currently zoned solely for industrial purposes under local planning regulations and the Independent Board understands that there is no reliable means of establishing the probability of securing a re-zoning at this point in time. In this regard, the Independent Board notes that the valuation set out within the Valuation Report has been carried out on the basis of "highest and best use" within the existing zoning restrictions, which in the circumstances is considered by the valuers to be its current use, as an industrial property.
After taking into account the transaction costs associated with selling the Rahway Property (estimated at 6 per cent. of the sale price) and taxation payable upon such sale (estimated at zero), the Independent Board believes that the net proceeds would cover a substantial proportion of the cash costs of consolidating the Group's US manufacturing activities at the Group's other facility in Lawrence, Kansas. The Independent Board would expect such a project to yield substantial cost savings and make a material contribution to the Group's profit improvement objectives.
Whilst the Independent Board considers that the Offer does not reflect any upside from a potential, largely self- funding consolidation of the Group's US manufacturing operations, the associated execution risks and uncertainties, together with the lack of reliance which may be placed on any additional financial surplus from the Rahway Property sale over and above what is required to fund the project, lead the Independent Board to conclude that its overall view on the Offer ought not be swayed one way or the other by the results of the Valuation Report.
Further to its consideration of the Valuation Report, the Independent Board became aware on 3 March 2015 of an expression of interest from a third party in relation to an offer to purchase the Rahway Property at a price significantly in excess of its value on a continuing use basis. At this stage, the Independent Board has not received any offer or specific proposals, in writing or otherwise, in respect of such proposed acquisition. Given the uncertainty surrounding any offer for the Rahway Property and the timetable in respect of the Offer generally, the Independent Board has decided to disregard the expression of interest in formulating its recommendation within this circular.
3. Background to, and Reasons for, Recommending Acceptance of the Offer
As detailed in the Initial Response Circular, the Offer is at a premium of 27.7 per cent. to the closing share price of 47 pence on 21 January 2015, the day prior to the announcement of the Offer. Whilst acknowledging that the pre-Offer share price was affected by a deterioration in trading results during the current financial year, the Independent Board expects an improvement in the Group's performance in the year ahead, together with additional medium term financial benefits associated with the Group's recent capital investments and the proposed manufacturing consolidation in the US. Overall, the Independent Board is of the view that the Offer price does not fully recognise the Shareholder value which may be generated if current plans and expectations come to fruition.
Nevertheless, the Offer does provide the certainty of a cash exit and an opportunity for Shareholders to realise their investment in the Company. As explained in the Initial Response Circular, the Board ran a formal sale process between 26 September 2012 and 13 February 2013 which was terminated when the Directors concluded that there was little prospect of securing a sufficiently attractive price for Shareholders. Of particular relevance is the Independent Board's belief that the price required to secure a sale on that occasion would likely have been below the value of the current Offer. Since the cessation of the formal sale process, with the exception of the Offer, there has been no substantive approach on behalf of any other potential party wishing to instigate discussions with a view to making an offer for the Group.
The Offer has already met its acceptance condition and was declared unconditional in all respects on 9 February
2015. Therefore, in due course, Cedar Bidco will own at least 62 per cent. of the Shares. Without recourse to other Shareholders, Cedar Bidco will then be able to propose and pass any ordinary resolution at a general meeting of the Company, allowing it to determine the membership of the board of directors and, through board appointments, potentially the strategy and operation of the Group, as well as the Company's policy on future dividend payments (subject always to the directors' obligations to act in accordance with the Companies Act). It is possible that Cedar Bidco's strategy and policies may differ from the Board's current intentions and its priorities may be at variance with other Shareholders who, even acting collectively, will have limited scope for influencing the affairs of the Company by the exercise of their voting rights.
Furthermore, the Independent Board considers it reasonably likely that Cedar Bidco will gain control over more than 75 per cent. of the voting rights of the Company. Even if it did not do so as a direct consequence of the Offer, Cedar Bidco may pass that threshold at some point in the future as a result of further API Share acquisitions which, having already secured majority control, would not then trigger an obligation to make a general offer for the remaining Shares. A stake of 75 per cent. would enable Cedar Bidco to propose and pass special resolutions, including a resolution to achieve its stated objective of cancelling the admission of API Shares to trading on AIM and taking the Company private.
Therefore, following the Offer, any Shareholders who have not accepted the Offer are faced with the prospect of holding Shares in a Cedar Bidco-controlled company, possibly constituted as a private company with shares no longer traded on a public market. The Independent Board believes that, in these circumstances, demand for, and liquidity in, API Shares is likely to be adversely impacted and there is no guarantee that Shareholders will have another opportunity to sell at or above the current Offer price in the near future, or at all. For this reason, in particular, the Independent Board recommends that Shareholders accept the Offer.
4. The Independent Board's Views on the Effect of the Implementation of the Offer on API's Interests, Employees and Locations
The Code requires the Independent Board to give its views on the effect of the Offer on API's interests, including, specifically, employment, and its views on Cedar Bidco's strategic plans for API and their likely repercussions on employment and the locations of the Group's places of business. In fulfilling its obligations under the Code, the Independent Board can only comment on the details provided in the Offer Document.
As set out in the Initial Response Circular, due to the lack of detail provided by Cedar Bidco, the Independent
Board is unable to comment on the effect of Cedar Bidco's plans on API's interests.
5. Conclusion
The Independent Board has considered carefully the recently-commissioned Valuation Report pertaining to the Rahway Property in addition to the various other factors previously set out in the Initial Response Circular. Whilst the Independent Board believes that the Offer price falls short of a full recognition of the value which could be generated for Shareholders from an expected recovery in trading, the benefit of recent capital investment and other growth and profit improvement initiatives implemented by the Group, the Offer does present Shareholders with a cash exit at a premium to the prevailing share price prior to the announcement of the Offer and a release from the risks and uncertainties that have affected, and may continue to affect, the value and marketability of API Shares.
Most significantly, since Cedar Bidco has already secured acceptances giving it 62 per cent. of the Shares and the
Independent Board considers that there is a reasonable likelihood that control will be secured over more than
75 per cent. of the voting rights of the Company (either pursuant to the Offer or subsequently), Shareholders who do not accept the Offer are faced with the prospect of holding Shares in a Cedar Bidco-controlled company, with reduced share liquidity and marketability, as well as the potential loss of the regulatory protection afforded to Shareholders under the AIM Rules (should the Company be taken private).
THE INDEPENDENT BOARD RECOMMENDS THAT SHAREHOLDERS ACCEPT THE OFFER
The Independent Board, which has been so advised by Numis, recommends that all Shareholders accept the Offer (as each member of the Independent Board intends to do in respect of his entire beneficial holding of Shares in the Company). In providing advice to the Independent Board, Numis has taken into account the commercial assessment of the Independent Board.
Yours faithfully
Andrew Turner
Interim Chairman of the Board of API Group plc
For further information:
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API Group plc |
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Andrew Turner, Group Chief Executive |
Tel: +44 (0) 1625 650 334 |
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Numis Securities (Financial Adviser and Broker) |
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James Serjeant Nick Westlake Jamie Lillywhite |
Tel: +44 (0) 20 7260 1000 |
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Cairn Financial Advisers (Nominated Adviser) |
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Tony Rawlinson / Avi Robinson |
Tel: +44 (0) 20 7148 7900 |
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Media enquiries:
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Abchurch |
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Henry Harrison-Topham / Quincy Allan |
Tel: +44 (0) 20 7398 7710 |
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Important information
Numis Securities Limited, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting exclusively for API and no one else in connection with the Offer and this Announcement and will not be responsible to anyone other than API for providing the protections afforded to clients of Numis Securities Limited nor for providing advice in connection with the Offer or any matter referred to herein.
Cairn Financial Advisers, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting exclusively for API and no one else in connection with the Offer and this Announcement and will not be responsible to anyone other than API for providing the protections afforded to clients of Cairn Financial Advisers nor for providing advice in connection with the Offer or any matter referred to herein.
This Announcement has been prepared for the purpose of complying with English law and the City Code on Takeovers and Mergers and the information disclosed may not be the same as that which would have been disclosed if this Announcement had been prepared in accordance with the laws of jurisdictions outside the United Kingdom.
Notice to overseas shareholders
The ability of API shareholders who are not resident in and citizens of the United Kingdom to accept the Offer (if made) may be affected by the laws of the relevant jurisdictions in which they are located or of which they are citizens. Persons who are not resident in the United Kingdom should inform themselves of, and observe, any applicable legal or regulatory requirements of their jurisdictions.
The release, publication or distribution of this announcement in jurisdictions other than in the United Kingdom may be restricted by law and therefore any persons who are subject to the laws of any jurisdiction other than the United Kingdom should inform themselves about, and observe, any applicable requirements.
Copies of this announcement will not be, and must not be, mailed or otherwise forwarded, distributed or sent in, into or from any jurisdiction where the publication or distribution of such documentation is restricted. Persons receiving this announcement (including, without limitation, custodians, nominees and trustees) must not distribute, mail or send it in or into any jurisdiction where the publication or distribution of such documentation is restricted.
Publication on website & hard copies
A copy of this Announcement will be made available, free of charge subject to certain restrictions relating to persons resident in Restricted Jurisdictions, at http://www.apigroup.com by no later than 8am (London time) on 5 March 2015.
Neither the content of the website referred to in this Announcement nor the content of any websites accessible from hyperlinks on the Company's websites (or any other websites) is incorporated into, or forms part of, this Announcement.
You may request a hard copy of this announcement by contacting Company Secretary, Claire Chadwick, on +44 (0) 1625 650 570. You may also request that all future documents, announcements and information in relation to the Offer be sent to you in hard copy form by contacting Company Secretary, Claire Chadwick, on +44 (0) 1625 650 570.
This information is provided by RNS
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