Statement re Elektron Technology
microgen
www.microgen.com
20 May 2014
STATEMENT REGARDING ELEKTRON TECHNOLOGY PLC
Microgen plc ("Microgen") provides the following statement in respect of Elektron Technology plc ("Elektron") and the Elektron Strategic Alternatives Process ("SAP").
Elektron Overview
Elektron, the AIM listed group providing IMC (Instrumentation, Monitoring & Control) and Connectivity products, provided a year end trading update on 11 February 2014 in which it reported that financial performance for the year would be "disappointing". The announcement, also reported an increase in net debt to £8.2 million (restated as £8.0 million in May), a significant deterioration during the past year (31 January 2013 : £5.0 million; 31 July 2013 : £5.8 million) despite receiving in excess of £2 million from business/asset disposals.
The 11 February 2014 trading update also noted that "underlying trading performance has shown a welcome improvement", a statement that appears inconsistent with the announcement on 13 May 2014 that orders received in February were actually negatively affected by customer destocking which will impact revenue in May. The update on 13 May 2014 also noted that the net debt had reduced to £7.6 million at the end of April, from £8.0 million at 31 January 2014 (restated from the £8.2 million reported in February) although Elektron now has reduced headroom on its borrowing facilities. (No information was provided on other relevant balance sheet and working capital figures e.g. creditors).
In the prior year, the trading update (1 February 2013) reported that the optimism from the third quarter was not sustained and sales at the end of that year were "particularly disappointing". The results for the year ended 31 January 2012 also reported that the performance "did not meet the Group's original expectations" but offered an "encouraging basis for future growth", an optimism that has failed to materialise.
Microgen Engagement with Elektron SAP
Microgen is a fully listed technology company with a proven track record of delivering significant value to shareholders in challenging/recovery situations. Since October 2008, Microgen has returned 130% of its then market capitalisation to shareholders by way of dividends, including special dividends, tender offers and share buy-backs. Microgen has a strong institutional shareholder base and the Board of Microgen comprises a majority of independent non-executive directors with an average tenure of 4 years. At 31 March 2014 Microgen had cash resources of £40.6 million. In accordance with the Microgen strategy detailed in the announcement of 29 October 2013, Microgen has been monitoring the situation at Elektron for some time and the Board of Microgen believes that applying Microgen's managerial and cash resources to rebuild Elektron could enhance shareholder value for both Microgen and Elektron shareholders. More information on Microgen is available at www.microgen.com.
Prior to the Elektron announcement on the afternoon of 7 April 2014, Microgen had made contact with Elektron and its advisers to determine if Elektron would be receptive to opening discussions with Microgen. The Chairman of Elektron contacted Microgen on 7 April 2014 requesting clarification whilst also noting that he and a major shareholder in aggregate held around 26% of the company's share capital with the Employee Benefit Trust holding a further 13% and, whilst the Board of Elektron would consider any offer made for Elektron's share capital, they found it difficult to think of any other possibility for Microgen's involvement. Just a few hours later, on 7 April 2014 at 3-20pm, Elektron announced that it was initiating a Strategic Alternatives Process in which the Board of Elektron stated that it was considering a range of strategic alternatives including a fundraising; the possible sale of Elektron; and/or potential business disposals. With regard to the potential fund raising, the announcement noted that Elektron was in discussions with a number of parties regarding potential financing. In accordance with the SAP announcement, Microgen's adviser, Investec, registered interest with finnCap (Elektron adviser) and a letter outlining a number of potential scenarios, compatible with those defined in the SAP announcement, was submitted to Elektron on 11 April 2014.
In communications on 11 April 2014 between Microgen and Elektron advisers, and, separately the respective Chairmen, it was indicated to Microgen that the SAP may take some time. It was also explained that the Elektron Chairman and a major shareholder formed a Concert Party and that an announcement would be made shortly. However, the Elektron announcement less than one week later (17 April 2014) defined a more compressed SAP timetable than that previously implied, with just two weeks for proposals to be submitted. Furthermore the required non-disclosure ("NDA") terms for participating in the SAP required a standstill for both equity and debt instruments, together with an indemnity, terms which, in Microgen's opinion, were inappropriate to the circumstances and unacceptable. As a result, Investec wrote to finnCap on 18 April 2014 requesting clarification on, among other matters :
· The status of the Concert Party announcement. This was eventually made on 23 April 2014, twelve days after Microgen had been advised of this relationship by Elektron, at which point it transpired that the Chief Executive Officer is also a member of the Concert Party.
· The possibility of a management buy-out and/or a corporate restructuring process, and if so, whether or not an independent committee of the Board had been established to manage the SAP and evaluate proposals. Elektron responded via finnCap that an independent committee had not been established but would not comment on the two scenarios. (Despite the subsequent confirmation of the Concert Party, including both the Executive Chairman and the Chief Executive Officer, the Board of Elektron has still not announced the appointment of an independent committee. An independent committee would generally be appointed if the Concert Party, or any one of its constituents, has any interest in any aspect of the Strategic Alternatives Process).
· The anticipated date for release of Elektron's results (which were released on 11/12 April in the prior two years) and whether such results would require a going concern qualification from Elektron's auditors. The response received with regard to these matters was to note that the AIM Rules allow Elektron to defer publication of results until the end of July.
The Board of Elektron continued to refuse to provide due diligence information to Microgen unless the onerous NDA terms were accepted by Microgen, a situation that Microgen considered unacceptable. Nevertheless, in accordance with the SAP, Microgen submitted its proposal to the Board of Elektron on 2 May 2014. The Microgen proposal indicated, subject to due diligence information being provided and other terms typical of a transaction of this nature, that Microgen could make a potential equity based investment of between £12 million and £18 million and that Elektron would remain listed on AIM. Whilst the Microgen proposal would use financial instruments typical for such a high risk investment, it was anticipated that these would convert to ordinary shares in due course, a structure that aligns Microgen interests with existing Elektron shareholders. (Other terms of the Microgen proposal remain commercially confidential.) Whilst, in the current circumstances, it is probable that any material, equity-based refinancing of Elektron will be significantly dilutive to Elektron shareholders, the Microgen proposal offered Elektron shareholders the opportunity to share in the Elektron recovery from a stable financial platform.
In view of the cash resources absorbed by Elektron in recent years, the continuing deterioration of Elektron's financial position and the proven inability of Elektron to forecast future business prospects, should Elektron receive only a limited cash injection, this may only provide short-term relief and may not provide the confidence required with non-equity stakeholders (customers, suppliers, banks, employees) to enable Elektron to rebuild. The loss of non-equity stakeholder support would probably destroy any remaining value in shareholder equity. For that reason, Microgen proposed the substantial refinancing which would be used to reduce the bank debt; provide financial stability to rebuild confidence with employees, customers and suppliers; fund working capital; and provide resources for add-on acquisitions. After delivering several years of disappointing performance and with a continually deteriorating financial position despite a number of cash generating asset disposals, Elektron needs to rapidly establish a firm foundation from which to rebuild the business and Microgen's proposal offered Elektron and its shareholders that opportunity.
The Board of Elektron rejected Microgen's proposal on 7 May 2014 and advised that, contrary to the SAP announcement, only offers for the entire issued share capital of Elektron would be considered. Furthermore Microgen was given until 3-00pm on 8 May 2014 (that is one business day and with no due diligence information provided) to submit such an offer. Microgen responded on 8 May 2014 reiterating the benefits of the Microgen refinancing proposal but also reiterating Microgen's willingness to explore alternative scenarios, including a possible offer for Elektron equity, subject to receiving due diligence information.
On 9 May 2014, more than four weeks after Microgen requested information and the original SAP announcement, Elektron via finnCap, informed Microgen that information would be provided without the onerous NDA terms, but only on the basis that Elektron would not provide Microgen with the dispensations permitted under the Code and referenced in the 7 April 2014 SAP announcement regarding public identification. Subsequently, Elektron also announced on 13 May 2014 a clarification/amendment to the Elektron SAP, such that the considerations of any potential offer(s) for the entire issued share capital are "in parallel" to other proposals, a significant change from the position implied in the original SAP announcement (7 April 2014).
Microgen remains interested in exploring various options with the Board of Elektron and its advisers, including the possibility of making an offer for the entire issued share capital of Elektron or providing a funding solution to Elektron or evaluating the acquisition of the IMC business. The Board of Microgen has therefore decided to pre-emptively publicly declare its interest in the Elektron SAP and to provide the background to this activity. As such, Microgen has, for the fifth time, and five weeks after the initial request, again requested information under Rule 20.2 and Microgen believes that the independent directors of Elektron should undertake an open, rigorous and broad Strategic Alternatives Process to realise the future potential of Elektron Technology plc.
This announcement is not to be construed as an announcement of a possible offer falling under Rule 2.4 of the Code. Nor does it represent a firm intention to make an offer under Rule 2.7 of the Code. There can be no certainty that any proposal set out in this announcement will be pursued or made by Microgen and there may be other pre-conditions or requirements to be satisfied before any proposal could be advanced.
Contacts
Martyn Ratcliffe, Chairman 020-7496-8100
Philip Wood, Group Finance Director
Lucy Delaney, FTI Consulting 020-3727-1131
Rowena Murray, Investec Bank plc 020-7597-4000
Investec Bank plc ("Investec"), which is authorised by the Prudential Regulation Authority and regulated in the United Kingdom by the Prudential Regulation Authority and the Financial Conduct Authority, is acting exclusively for Microgen and no one else in relation to this announcement, and will not regard any other person as a client in relation to this announcement and will not be responsible to anyone other than Microgen for providing the protections afforded to its clients, not for providing advice in relation to this announcement or any matter or arrangement referred to herein.
Forward-Looking Statements
This announcement contains certain forward-looking statements with respect to the financial condition, results of operations and business of Microgen and the possible combined businesses of Elektron and Microgen and certain plans and objectives of Microgen with respect thereto, including the expected benefits of a potential combination as well as whether a potential combination will be pursued. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use future dates or words such as "anticipate", "target", "expect", "estimate", "intend", "plan", "goal", "believe", "hope", "aim", "continue", "will", "may", "would", "could" or "should" or other words of similar meaning or the negative thereof. There are several factors which could cause actual plans and results to differ materially from those expressed or implied in forward-looking statements. Such factors include, but are not limited to, the possibility that a possible transaction will not be pursued or will be pursued on different terms and conditions. The factors described in the context of such forward-looking statements in this announcement could cause Microgen's proposed plans with respect to Elektron, actual results, performance or achievements, industry results and developments to differ materially from those expressed in or implied by such forward-looking statements. Although it is believed that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct and persons reading this announcement are therefore cautioned not to place undue reliance on these forward-looking statements which speak only as at the date of this announcement. Microgen assumes no obligation to update or revise the information contained in this announcement (whether as a result of new information, future events or otherwise), except as required by applicable law.
This announcement does not constitute an offer to sell or an invitation to purchase or subscribe for any securities in either Microgen or Elektron or any solicitation or an offer to buy or subscribe for any such securities.
Disclosure requirements of the Takeover Code (the "Code")
Under Rule 8.3(a) of the Code, any person who is interested in 1% or more of any class of relevant securities of an offeree company or of any securities exchange offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any securities exchange offeror is first identified. An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 pm (London time) on the 10th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 pm (London time) on the 10th business day following the announcement in which any securities exchange offeror is first identified. Relevant persons who deal in the relevant securities of the offeree company or of a securities exchange offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.
Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1% or more of any class of relevant securities of the offeree company or of any securities exchange offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any securities exchange offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror, save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 pm (London time) on the business day following the date of the relevant dealing.
If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a securities exchange offeror, they will be deemed to be a single person for the purpose of Rule 8.3.
Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4).
Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel's website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. You should contact the Panel's Market Surveillance Unit on +44 (0)20 7638 0129 if you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure.
This information is provided by RNS
Latest directors dealings
- 1 hour ago Frasers Group
- 1 hour ago Cavendish Financial
- 1 hour ago Diaceutics
- 1 hour ago AB Dynamics
- 14 hours ago Johnson Matthey