Appointment as External Investment Manager to LMS
27 July 2016
Gresham House plc ("Gresham House" or "the Company")
(AIM: GHE)
Proposed Appointment of Gresham House Asset Management Limited ("GHAM") as External Investment Manager to LMS Capital plc ("LMS"), Proposed Issue of Ordinary Shares to LMS, Proposed Issue of Warrants to LMS to Subscribe for up to 1,379,409 Ordinary Shares and Trading Update
Gresham House, the specialist asset manager, is pleased to announce that LMS (LSE: LMS) intends to appoint GHAM (a wholly owned subsidiary of the Company) to manage the LMS asset portfolio; LMS will also become a strategic investor in Gresham House. In addition, Gresham House provides a trading update covering the period since the announcement of the Company's final results on 19 April 2016.
The LMS portfolio, valued at just over £92 million, will form a key component of GHAM's Strategic Equity Division and leverage the private equity capability of the team. The award of this investment mandate is in-line with the Company's stated strategy to develop its alternative asset management platform, build AUM both organically and through acquisition and to grow earnings through asset management and performance fees.
LMS is a listed investment company with a portfolio that is currently undergoing a realisation programme and includes small to medium sized private and public companies in the consumer, energy and business services sectors.
The mandate will be managed by GHAM's Strategic Equity investment team, led by Graham Bird and Tony Dalwood. Both have long track records of delivering superior long-term investment returns through applying private equity techniques to investing in public markets. The investment process will include a newly formed investment committee of experienced private equity individuals. Over the longer term it is intended that LMS will provide an income yield to shareholders whilst also scaling the business by allowing new investors to access the strategy. Gresham House will market the strategy and facilitate additional deal by deal co-investment opportunities to its network of family offices, ultra-high net worth ("UHNW") individuals and institutional investors.
Tony Dalwood, CEO of Gresham House, comments:
"Gresham House is an established specialist asset manager and today's announcement represents a further significant step in delivering the growth strategy that we set out in December 2014. This mandate significantly grows our third party assets under management and increases our management fees and potential to earn performance fees, accelerating our path to profitability. We welcome our new strategic shareholder in Gresham House."
Highlights
· As at 31 March 2016, LMS's investment portfolio had an unaudited net asset value of approximately £92.1 million. Following the award of this new mandate third party assets under management by GHAM will increase to approximately £350 million;
· To align LMS and Gresham House, LMS intends to become a significant strategic shareholder in the Company through the purchase of existing ordinary shares and warrants and shall be entitled to subscribe for new warrants (the "LMS Warrants") to subscribe for up to 1,379,409 ordinary shares, provided that if the Resolutions in relation to the issue of the LMS Warrants are not approved at the General Meeting, the maximum number of LMS Warrants will not exceed 492,608;
· To further align LMS with Gresham House and in consideration for the LMS contract, the Company has agreed to issue 332,484 new Gresham House Ordinary Shares with a value of £1 million based on a price per Ordinary Share of 300.77 pence. Subject to the satisfaction of certain conditions, the Company has also agreed to issue further new Ordinary Shares to LMS on the second anniversary of completion of the Appointment with a value of up to £1.25 million;
· GHAM will be appointed as the external investment manager to LMS for an initial minimum term of three years;
· This will add a key private equity component to GHAM's Strategic Equity division and is in-line with the Company's stated strategy of building a specialist asset management platform focused on differentiated, alternative and illiquid strategies;
· In addition to providing an income for investors over the medium term, GHAM intends to scale LMS and facilitate co-investment opportunities to shareholders and investors;
· Following the Appointment, two directors of LMS (Nicholas Friedlos and Anthony Sweet) will resign as directors and employees of LMS and will join GHAM as full time employees;
· The appointment is conditional upon LMS shareholders approving a change of investment policy to one which focuses on private equity investment; and
· LMS has received irrevocable undertakings to vote (or procure the vote) in favour of the transaction and letters of support from 53.6 per cent. of its shareholders.
In addition, the Company also provides an update in respect of trading since the announcement of the Company's Final Results on 19 April 2016:
· The Company's operating subsidiaries GHAM and Gresham House Forestry (incorporating Aitchesse Ltd) continue to perform well and interim trading results are expected to be in line with market expectations;
· The Company expects to launch the Gresham House Forestry Fund during the second half of this year;
· It is still intended that the Gresham House Forestry Fund will initially acquire a portfolio of forests in the West of Scotland for £12.1 million. The contract entered into by Aitchesse (General Partner) Ltd ("AGP") with the vendor with targeted completion for 31 July 2016 has been terminated by AGP as certain conditions could not be fulfilled by the vendor within the agreed timelines and as a result no deposit has been paid by AGP. Gresham House Forestry continues to work with the vendor to progress this transaction and the Company is targeting completion in the second half of 2016. The team continues to appraise and develop a number of forestry investment opportunities; and
· The Gresham House Strategic Equity division has seen its listed Strategic Public Equity Investment Company, Gresham House Strategic plc (GHS), outperform the FTSE Small-Cap index by 10 per cent since GHAM's appointment in August 2015. GHAM is targeting the launch of a Limited Partnership vehicle adopting the same SPE strategy in H2 2016, catering for family office, pension fund, institutional and UHNW investors.
The Company has convened a General Meeting for 3.00 p.m. on 16 August 2016 that will take place at the offices of Travers Smith LLP, 10 Snow Hill, London EC1A 2AL for the purposes of considering the Resolutions in relation to the issue of up to 1,379,409 warrants to LMS. A Circular convening the General Meeting will be posted to Shareholders today and is also available on the Company's website, www.greshamhouse.com.
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Enquiries: |
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Gresham House plc Tony Dalwood, Chief Executive Officer John-Paul Preston, Company Secretary
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+44 (0) 203 837 6278 +44 (0) 207 967 1667 |
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Liberum Neil Elliot/Jill Li
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+44 (0) 20 3100 2000
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Montfort Communications, PR Adviser Gay Collins Rory King greshamhouse@montfort.london
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+44 (0) 7798 626282 +44 (0) 203 770 7906 |
Note: This announcement contains inside information which is disclosed in accordance with the Market Abuse Regulations.
Website: www.greshamhouse.com
Disclaimers:
This announcement does not constitute an invitation to underwrite, subscribe for, or otherwise acquire or dispose of any Gresham House plc shares or other securities. This announcement contains certain forward looking statements with respect to the financial condition, results, operations and businesses of Gresham House plc. These statements and forecasts involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements and forecasts.
Past performance is no guide to future performance and persons needing advice should consult an independent financial adviser.
1. Introduction
The Board of Gresham House is pleased to announce that LMS Capital plc ("LMS"), an investment company listed on the London Stock Exchange, intends to appoint GHAM (a wholly owned subsidiary of the Company) to manage its assets. LMS will, subject to the approval of the LMS Shareholders, adopt a new investment policy which utilises GHAM's experience and expertise to invest in strategic equity opportunities with a predominant focus on private equity.
Upon LMS obtaining LMS Shareholder approval for the adoption of its new investment policy, GHAM will be appointed as the external investment manager to LMS for an initial minimum term of three years with any party being able to terminate by giving 12 months' notice after the second anniversary of the completion of the Appointment. Further details of LMS and the AIFM and Portfolio Management Agreement are set out in sections 2 and 3 below.
In connection with the Appointment and in recognition of the value which may be derived from the Appointment to GHAM and the Group, the Company has agreed to issue 332,484 new Ordinary Shares to LMS when the AIFM and Portfolio Management Agreement is entered into, representing a value of £1 million based on a price per Ordinary Share of 300.77 pence, being the average mid-market closing share price for the trading period between 10 June 2016 and 21 July 2016 (the "Tranche 1 Shares").
The Company has also agreed to issue further new Ordinary Shares to LMS on the second anniversary of the AIFM and Portfolio Management Agreement with a value of up to of £1.25 million, subject to the satisfaction of certain conditions, (the "Tranche 2 Shares", and, together with the Tranche 1 Shares, the "Appointment Shares"). Further details of these Tranche 2 conditions are set out in section 3 below.
In order to further align LMS and the Company, subject to Completion having occurred, the Company and LMS have agreed that:
(i) LMS intends to commit £1.5 million of cash resources to fund the acquisition of Ordinary Shares and/or Shareholder Warrants; and
(ii) to the extent that LMS has not acquired 1,379,409 Ordinary Shares and/or Shareholder Warrants between the date of this announcement and 5.00 p.m. on 13 October 2016, and subject to the AIFM and Portfolio Management Agreement being entered into, LMS shall be entitled to subscribe for such number of LMS Warrants on 14 October 2016 at a price of £0.28 per LMS Warrant that will, with the Ordinary Shares and Shareholder Warrants that it acquires, equal 1,379,409, provided that if the Resolutions are not passed, such number will not exceed 492,608.
The LMS Warrants will, if issued, allow LMS to subscribe for one Ordinary Share for every LMS Warrant which it holds at an exercise price of 323.27 pence per Ordinary Share (representing a premium to the closing mid-market price of 287.5 pence per Ordinary Share on 26 July 2016, being the latest practicable date prior to this announcement). The LMS Warrants will be exercisable from 14 October 2016 to 30 June 2018 (inclusive). The LMS Warrants are not freely transferable and, accordingly, will not be admitted to trading on AIM. Further details of the LMS Warrants are set out in section 3 below.
The Company has convened a General Meeting for 3.00 p.m. on 16 August 2016 that will take place at the offices of Travers Smith LLP, 10 Snow Hill, London EC1A 2AL for the purposes of considering the Resolutions that will be required to issue up to 1,379,409 LMS Warrants to LMS.
2. Background and reasons for the Appointment
Gresham House
Since the admission of its Ordinary Shares to trading on AIM on 1 December 2014, one of the strategies that the Company has been pursuing has been to develop the Company as a quoted platform principally for the investment management of and co-investment in, relatively differentiated, specialist or illiquid assets in order to generate superior risk-adjusted returns for Shareholders of the Company over the longer term.
In line with this strategy, the Company established its strategic equity investment team. The team is led by Graham Bird and Tony Dalwood, and has a mandate to target superior long-term investment returns through applying private equity techniques to investing in private and public markets. On 6 August 2015, the Company entered into its first asset management mandate with SPARK Ventures plc (subsequently renamed as Gresham House Strategic plc) to be led by the strategic equity investment team.
The appointment as external investment manager of LMS is in line with the strategy to focus on investment management of relatively differentiated, specialist or illiquid assets.
LMS
LMS is an investment company which historically has focused on investing in small to medium sized companies in its preferred sectors of consumer, energy and business services. LMS's ordinary shares are admitted to the Official List (premium segment) and to trading on the Main Market.
On 6 September 2011, LMS announced that it had been approached by certain of its members, which constituted the LMS Concert Party, with the request that LMS be broken up in the short term. In response, an independent committee was established by LMS which considered the LMS Concert Party's request and possible solutions, and concluded that it would be in the interests of LMS Shareholders as a whole for a new strategy (whereby LMS's assets would be realised in an orderly manner) to be implemented. Following a general meeting on 30 November 2011, LMS adopted a new investing policy, under which it may not make any new investments save that (a) investments may be made to honour commitments made at the time of the initial investment and/or to which it is contractually obligated; (b) further investment may be made into LMS's existing portfolio companies in order to protect or enhance the value of such investments or facilitate the orderly realisation of such investments; and (c) cash (including realised cash) may be invested in liquid cash-equivalent securities. LMS also resolved to realise its investment portfolio in an orderly manner and to distribute surplus cash periodically to its shareholders in a tax efficient manner with due regard to its shareholders' tax circumstances.
Since 30 November 2011, LMS has returned a total of £155 million to its shareholders by way of tender offers and associated repurchases. LMS's investment portfolio currently comprises publicly quoted and private company investments in the UK and the US, held directly and through funds. As at 31 March 2016, LMS's investment portfolio had an unaudited net asset value of approximately £92.1 million. As at 31 December 2015, LMS's top ten investments accounted for 83 per cent. of its investment portfolio, 67.6 per cent. of which were unquoted investments, 10.2 per cent. were quoted investments and 22.2 per cent. were investments through funds, further details of which (extracted from the LMS annual report for the year ended 31 December 2015) are set out below:
|
Name |
Geography |
Type |
Sector |
Date of initial investment |
Book value £'million as at 31 December 2015 |
|
Medhost Inc |
US |
Unquoted |
Technology |
2007 |
14.2 |
|
Brockton Capital |
UK |
Fund |
Property |
2006 |
12.3 |
|
Nationwide Energy Partners |
US |
Unquoted |
Energy |
2010 |
9.9 |
|
Weatherford International |
US |
Quoted |
Energy |
1984 |
8.1 |
|
ICU Eyewear* |
US |
Unquoted |
Consumer |
2010 |
7.2 |
|
Yes To, Inc* |
US |
Unquoted |
Consumer |
2008 |
7.1 |
|
Penguin Computing* |
US |
Unquoted |
Technology |
2004 |
6.8 |
|
Opus Capital Venture Partners |
US |
Fund |
Technology |
2006 |
5.4 |
|
Entuity |
UK |
Unquoted |
Technology |
2000 |
4.5 |
|
Elateral Group |
UK |
Unquoted |
Technology |
2000 |
4.3 |
* A portfolio company of San Francisco Equity Partners.
The Appointment
The Appointment will require a change to LMS's investment policy which will need to be approved by LMS Shareholders at the LMS General Meeting which is being convened for 16 August 2016. Following discussion between the directors of LMS and GHAM, LMS is proposing a new strategy to:
· change LMS's investment policy from its current realisation strategy to a new policy predominantly focused on private equity investment;
· appoint GHAM as the external alternative portfolio manager to carry out the new investment policy and to manage LMS's assets on a discretionary basis;
· appoint G10 Capital as the external alternative investment fund manager to provide alternative fund management services to LMS until GHAM obtains the status of a full-scope UK AIFM, at which point GHAM will act as external alternative investment fund manager and provide alternative investment fund management services to LMS in place of G10 Capital;
· return capital to LMS Shareholders by way of a tender offer and repurchase of up to £6 million at a 5 per cent. discount to the NAV of LMS at 30 June 2016 (the "Tender Offer");
· return further capital to LMS Shareholders by way of two further tender offers together representing 50 per cent. of the net proceeds of further disposals of assets comprised in LMS's existing portfolio. It is estimated that these will be a maximum of £11 million and it is intended that distributions of up to £6 million and up to £5 million are to be made. These further tender offers and repurchases will be carried out when sufficient disposals have been made by LMS to enable the required tender amount to be satisfied and will again be at a 5 per cent. discount to the NAV of LMS at the relevant time (the "Subsequent Tranches"); and
· make changes to the board of LMS Capital which will result in the Board becoming wholly non-executive, (together, the "Proposals").
In an announcement released by LMS earlier today (the "LMS Announcement"), the LMS Board stated that it believes that the Proposals will offer an attractive strategy. Further explanation of why the LMS Board believes this to be the case is set out in the LMS Announcement.
Following the Appointment, two directors of LMS (Nicholas Friedlos and Anthony (Tony) Sweet) will resign as directors and employees of LMS and will join GHAM as full time employees. Robert Rayne will be appointed to the investment committee of GHAM, which will be established to take on responsibility for the LMS portfolio.
Nick Friedlos
Nick is currently an executive director of LMS and has held various financial and operational leadership positions in financial services businesses holding real estate and other assets in both the public markets and in private equity. He was Chief Financial Officer of London Merchant Securities, the real estate and investment business out of which LMS was created. Nick has managed change in the businesses he has been involved with including corporate activity such as mergers, reconstructions and portfolio disposals. Most recently he was Chief Executive Officer of Mapeley and was previously a partner at PricewaterhouseCoopers.
Tony Sweet
Before joining LMS, Tony was Chief Financial Officer of Systems Union Group plc. Prior to that, he was at PricewaterhouseCoopers (the last 13 years as a partner) where he gained experience of a variety of sectors and geographies, working for large multinational companies, as well as smaller entrepreneurial businesses.
Robert (Robbie) Rayne
Robbie established LMS's investment activities in the early 1980s as Investment Director and later Managing Director and Chief Executive of London Merchant Securities. Robbie has expertise in a wide range of sectors, including real estate, media, consumer, technology and energy. He has worked both in the USA and the UK for some 30 years and maintains close relationships with other investment firms with whom LMS has often co-invested.
Robbie has been on the boards of a number of public companies both in the USA and the UK, including First Leisure Corporation and Crown Sports plc and is currently Non-Executive Chairman of Derwent London plc, a central London specialist property company. He is also a Director of Weatherford International Ltd, as well as a number of unlisted companies.
Investment committee
GHAM proposes to constitute an investment committee responsible for the management the LMS investment portfolio which will be constituted of individuals with significant public and private equity experience. The investment committee will oversee the investment appraisal process in relation to investments made in respect of the LMS portfolio. Membership of this committee will include Tony Dalwood, Robert Rayne and Graham Bird. It is intended that an independent chairman with significant private equity experience will be appointed in the near term.
Robert Rayne will be entitled to a fee of £25,000 per annum in his capacity as a member of GHAM's investment committee responsible for the LMS portfolio and a fee of £35,000 per annum in relation to additional consultancy services to be provided in relation to the LMS portfolio; both fees are to be paid by GHAM.
3. Summary of the principal terms of the Appointment
3.1 The AIFM and Portfolio Management Agreement
Following LMS obtaining LMS Shareholder approval for the adoption of its new investment policy, GHAM, G10 Capital and LMS will enter into the AIFM and Portfolio Management Agreement pursuant to which LMS will appoint GHAM as its external portfolio manager once it has obtained the status of a full-scope UK AIFM. Until such status is obtained by GHAM, LMS will appoint G10 Capital (an independent FCA regulated investment firm) as its external alternative investment fund manager, who shall delegate the portfolio management of LMS's assets to GHAM.
The AIFM and Portfolio Management Agreement will be for an initial minimum term of three years, with LMS, G10 Capital or GHAM being able to terminate by giving 12 months' notice after the Second Anniversary, and thereafter on a rolling 12 months' notice basis. There will be no compensation on termination on giving the requisite 12 months' notice. Otherwise, LMS and the AIFM of the Company may terminate the AIFM and Portfolio Management Agreement in certain limited circumstances.
G10 Capital will delegate portfolio management functions to GHAM under the AIFM and Portfolio Management Agreement.
Under the AIFM and Portfolio Management Agreement, GHAM (on behalf of itself and G10 while G10 is the AIFM and on behalf of itself thereafter) will receive the following annual management fee:
(i) 1.50 per cent. of the average audited NAV of LMS, to the extent that LMS's net assets under management are £100 million or less;
(ii) 1.25 per cent. of the average audited NAV of LMS to the extent that the NAV exceeds £100 million, but is less than £150 million; and
(iii) 1.00 per cent. of the average audited NAV of LMS to the extent that the NAV exceeds £150 million.
No annual management fee will be charged on cash raised from a new share issue or other capital raising by LMS for a period of six months or, if sooner, until the cash has been invested or otherwise utilised.
For the purpose of the calculation of the annual management fee, the NAV used will be an average based on the audited NAV in the financial year before the calculation and the audited NAV in the year of calculation, in the latter case before accounting for accrued fees under the AIFM and Portfolio Management Agreement in respect of the relevant year.
In addition, GHAM (on behalf of itself and G10 while G10 is the AIFM and on behalf of itself thereafter) will be entitled to a performance fee (the "Performance Fee"). The Performance Fee is designed to align the interests of GHAM and the Company. GHAM will be eligible, if certain hurdle return requirements are satisfied, to earn a Performance Fee of 15 per cent. of the gain in net asset value of New Investments subject to a number of conditions, as set out below:
· No Performance Fee will be payable in respect of assets held prior to the adoption of the new investment policy ("Legacy Assets"). Follow-on investments of more than £350,000 in Legacy Assets may, according to individual circumstances in relation to the asset, be treated as New Investments;
· The net asset value relating to New Investments will be calculated annually after an allocation of operating costs (including the annual management fee) based on the relative value of the New Investments and Legacy Assets;
· The amount of the Performance Fee, if any, will be determined for each "Performance Fee Period". The first Performance Fee Period will start on the date on which the AIFM and Portfolio Management Agreement is entered into and will on end on 31 December 2017; each subsequent Performance Fee Period will begin on the first day after the end of the previous Performance Fee Period and end on the anniversary of the end of the last Performance Fee Period (the "Performance Fee Period");
· In respect of any particular Performance Fee Period, no Performance Fee will be due unless the cumulative compound growth in the net asset value of the New Investments at the time of measurement represents at least 8 per cent. per annum (the "Hurdle NAV");
· The Performance Fee will be calculated based on the increase in net asset value of New Investments compared to the highest previous net asset value of New Investments on which a Performance Fee became due net of such Performance Fee (or the cost of New Investments, net of allocated costs, if there has been no previous Performance Fee), as adjusted for New Investments;
· The amount of Performance Fee due in any year will be reduced to the extent that it would otherwise reduce the net asset value of the New Investments to below the Hurdle NAV; and
· In any year, payment of the Performance Fee in relation to any particular Performance Fee Period, including in respect of deferrals, may not exceed 15 per cent. of the net realised gains in that year from the disposal of New Investments held on or prior to the date of the relevant Performance Fee Period, with any balance being carried over to future Performance Fee Periods and being paid before Performance Fees due in respect of subsequent Performance Fee Periods.
All payments will be made directly to GHAM. Incentive arrangements have been put in place within GHAM such that the investment team's rewards will be directly linked to Performance Fees paid by LMS. However, no payments will be made directly to individuals.
No Performance Fee will be due before 31 December 2017.
Under the terms of the AIFM and Portfolio Management Agreement, GHAM has agreed to provide LMS with certain administration services (the "Administration Services") including, amongst others, accounting, company secretarial, tax, regulatory reporting and general management services which are necessary for LMS to comply with the requirements of the Act and any other obligations which LMS is required to comply with from time to time. The Administration Services will be provided by GHAM from the date on which the AIFM and Portfolio Management Agreement is entered into until an external administrator is appointed by LMS to provide the relevant service or services to LMS. LMS will pay GHAM a fee of £250,000 per annum for the provision of the Administration Services.
3.2 The Share Issue and Warrant Subscription Agreement
Appointment Shares
In order to secure the Appointment and in recognition of the value which may be derived from the Appointment to GHAM and the Group, the Company, GHAM and LMS have today entered into the Share Issue and Warrant Subscription Agreement pursuant to which the Company has agreed to issue to LMS:
· 332,484 new Ordinary Shares with a value of £1 million following completion of the Appointment, based on a price per Ordinary Share of 300.77 pence, being the average mid-market closing price (per Ordinary Share) for the trading period between 10 June 2016 and 21 July 2016; and
· further new Ordinary Shares with a value of up to £1.25 million on the Second Anniversary, subject to the satisfaction of certain conditions (as set out below). The number of Tranche 2 Shares to be issued will be calculated by dividing the value of the Tranche 2 Shares (the determination of which is set out below) by the volume-weighted average price of the Company's Ordinary Shares for the 20 consecutive Business Days prior to the Second Anniversary, rounded down to the nearest whole number.
The issue of the Tranche 2 Shares is conditional on, inter alia, the following conditions being satisfied or waived on or before the Business Day before the Second Anniversary:
(a) the extension by LMS of the term of the AIFM and Portfolio Management Agreement for two years following the Second Anniversary, such extended term to be subject to a 12 month notice period, such notice not to be served within the first year of the extended term;
(b) there having been no material changes to the terms of the AIFM and Portfolio Management Agreement since Completion; and
(c) LMS undertaking not to return capital to the LMS Shareholders during the two year period following the Second Anniversary (save for the Tender Offer and Subsequent Tranches) in the event that LMS's most recently published NAV (prior to a decision to carry out a return of capital) is below the Second Anniversary NAV (as described below), or, as a result of such a return of capital LMS's NAV would fall below the Second Anniversary NAV.
The value of the Tranche 2 Shares will be calculated by reference to the NAV of LMS's current portfolio of assets on the Second Anniversary, taking into account certain adjustments (including cash proceeds of any disposal of assets but reduced by any amounts returned to LMS Shareholders) (the "Second Anniversary NAV").
· If the Second Anniversary NAV of the portfolio is below £67.5 million, no Tranche 2 Shares will be issued.
· If the Second Anniversary NAV of the portfolio is between £67.5 million and £70 million, the value of the Tranche 2 Shares will be between £200,000 and £500,000 calculated on a straight line basis.
· If the Second Anniversary NAV of the portfolio is between £70 million and £85 million, the value of the Tranche 2 Shares will be between £500,000 and £1.25 million calculated on a straight line basis.
· The value of the Tranche 2 Shares will not exceed £1.25 million.
The Appointment Shares will be subject to a "Lock-in Period", whereby LMS has agreed that, subject to certain exceptions, they will not dispose of any Appointment Shares that they receive, for a period of two years from Completion in respect of the Tranche 1 Shares and one year from the Second Anniversary in respect of the Tranche 2 Shares. LMS will be able to transfer the Appointment Shares to its wholly owned subsidiaries, provided that (a) such subsidiaries agree to be bound by the Lock-in Period, and (b) if such a subsidiary ceases to be a wholly owned subsidiary then it shall transfer the relevant Appointment Shares back to LMS or another wholly owned subsidiary of LMS.
During the relevant Lock-in Periods, any disposals of the Appointment Shares conducted (a) with the consent of the Company, or (b) in the event of the termination of the AIFM and Portfolio Management Agreement must be conducted through the Company's broker, save that the consent requirement will not apply to 50 per cent. of the Tranche 1 Shares in the second year of the Lock-in Period.
LMS Warrants
So as to create additional alignment between the Company and LMS, subject to Completion having occurred, the Company and LMS have agreed that:
(i) LMS intends to commit £1.5 million of cash resources to fund the acquisition of Ordinary Shares and/or Shareholder Warrants; and
(ii) to the extent that LMS has not acquired 1,379,409 Ordinary Shares and/or Shareholder Warrants between the date of this announcement and 5.00 p.m. on 13 October 2016, LMS shall be entitled to subscribe for such number of LMS Warrants on 14 October 2016 at a price of £0.28 per LMS Warrant that will, with the Ordinary Shares and Shareholder Warrants that it acquires, equal 1,379,409, provided that if the Resolutions are not passed, such number will not exceed 492,608.
The LMS Warrants will, if issued, allow LMS to subscribe for one Ordinary Share for every LMS Warrant which it holds at an exercise price of 323.27 pence per Ordinary Share (representing a premium to the closing mid-market price of 287.5 pence per Ordinary Share on 26 July 2016, being the last practicable date prior to this announcement). The LMS Warrants will be exercisable from 14 October 2016 to 30 June 2018 (inclusive).
The LMS Warrants are not freely transferable and, accordingly, will not be admitted to trading on AIM.
The Resolutions being considered by Shareholders at the General Meeting are an allotment authority and a disapplication of pre-emption rights in respect of the issue of the LMS Warrants. The Directors believe that it is in the best interests of the Shareholders to have the ability to issue up to 1,379,409 LMS Warrants to LMS, and are therefore recommending that the Shareholders vote in favour of the Resolutions at the General Meeting. The Appointment is not conditional on the passing of the Resolutions. If the Resolutions are not passed, the Company intends (subject to Completion and at the request of LMS) to issue up to the maximum possible number of LMS Warrants that it is able to issue using its existing authorities obtained at the annual general meeting on 15 June 2016 (being 492,608 LMS Warrants).
The proceeds which may arise from the issue of the LMS Warrants (from the subscription and, if the LMS Warrants are exercised, the exercise) will be used to provide working capital to the Company to allow it to pursue its strategic objectives.
LMS's holding in the enlarged share capital of Gresham House will depend on the mix of Ordinary Shares, existing outstanding Shareholder Warrants and LMS Warrants acquired and exercised. Assuming the issue of all of the Tranche 1 and Tranche 2 Shares, LMS would hold 7.1 per cent. of the enlarged share capital of Gresham House.
The intended investment by LMS (either by acquiring Ordinary Share and/or Shareholder Warrants or by the subscription for and subsequent exercise of the LMS Warrants) described above in this section 3.2 could result in LMS holding potentially up to 17.8 per cent. of the enlarged share capital of Gresham House.
The percentages set out above are made on the assumption that the Company's existing issued share capital is 9,853,003 and that no other Ordinary Shares are issued aside from the Tranche 1 and Tranche 2 Shares and Ordinary Shares on the exercise of the LMS Warrants, and that the number of Tranche 2 Shares to be issued is calculated based on a price of 300.77 pence per Ordinary Share.
Termination and warranties
If at any time prior to Completion the directors of the Company or LMS modify or withdraw their respective recommendations in relation to the Investment Policy Resolution (in the case of LMS) or the Resolutions (in the case of the Company), the other party (or parties in the case of Gresham House and GHAM) are entitled to terminate the Share Issue and Warrant Subscription Agreement.
If the Company has modified or withdrawn its recommendation, it agrees to indemnify LMS, capped at a total amount of £100,000 (after tax) in respect of all fees, costs, charges and expenses of or incidental to the Transaction. LMS has provided a reciprocal indemnity to Gresham House.
The Company and LMS have given certain limited warranties to each other in relation to, amongst other things, the accuracy of their most recent audited accounts and that there has been no material change in their financial or trading position since the publication of their accounts.
The LMS Warrants will not be issued unless Completion takes place. If the Resolutions are not passed, the Company intends (subject to Completion and at the request of LMS) to issue up to the maximum possible number of LMS Warrants that it is able to issue under its existing authorities obtained at the annual general meeting on 15 June 2016 (being 492,608 LMS Warrants).
4. Trading Update
Since the announcement of the Company's results for the year ended 31 December 2015 on 19 April 2016, the Company has continued its development.
The Company's Forestry division (incorporating Aitchesse) is continuing to perform well with assets under management increasing 16 per cent. to £223.5 million as at 30 June 2016 (£192.7 million as at 30 June 2015). The Company is working towards launching the Gresham House Forestry Fund during the second half of this financial year. It is still intended that the fund will initially acquire a portfolio of forests in the West of Scotland for £12.1 million including all costs and taxes.
However, owing to a delay by the vendor to meet certain conditions within the agreed timelines, having targeted completion by 31 July 2016, the existing contract with Aitchesse (General Partner) Limited ("AGP") has been terminated by AGP with no deposit being paid. Gresham House Forestry is working with the vendor to progress the transaction and the Company is targeting completion in the second half of 2016. The team continues to appraise a number of forestry investment opportunities.
The launch of the first Gresham House Forestry Fund is expected to take place in the second half of this year and, together with other client initiatives, Gresham House Forestry will continue to evolve the forestry asset management business.
Gresham House Strategic plc ("GHS") has performed well against a volatile backdrop. GHS's NAV increased 3.1 per cent. since GHAM's appointment in August 2015 through to 1 July 2016, outperforming the FTSE small-cap index (excluding Investment Trusts) by approximately 10 per cent. GHS aims to continue to further reduce the discount to net asset value primarily through delivering investment performance and also its marketing efforts.
The Appointment demonstrates the Company's ability to successfully execute its strategy to focus on the investment management of relatively differentiated, specialist or illiquid assets. In line with this strategy, the Company also intends to establish a new Strategic Public Equity fund during the second half of the financial year. This will complement the existing listed Investment Company GHS, with the same investment strategy and managed by the same team, but within a Limited Partnership structure and catering for a different investor audience such as family offices, pension funds and private equity investors.
The Company's net trading performance is expected to be in line with expectations. As at 30 June 2016, the Company had cash and liquid assets (including the £5.5 million holding in GHS) of £10 million and loans of £7.0 million secured against property assets and persimmon cash receipts of £6.3 million (£3.52 million as at 31 December 2015).
The Company expects to announce its interim results for the six month period to 30 June 2016 on 28 September 2016.
5. General Meeting
Entitlement to attend and vote at the General Meeting and the number of votes which may be cast at the General Meeting will be determined by reference to holdings in Ordinary Shares at the Voting Record Time.
The General Meeting has been convened for 3.00 p.m. on 16 August 2016 at the offices of Travers Smith LLP, 10 Snow Hill, London EC1A 2AL to enable Shareholders to consider and, if thought fit, pass the Resolutions set out in the Notice of General Meeting.
The Directors believe that it is in the best interests of the Shareholders to have the ability to issue up to 1,379,409 LMS Warrants to LMS, and are therefore recommending that the Shareholders vote in favour of the Resolutions at the General Meeting. The Appointment is not conditional on the passing of the Resolutions. If the Resolutions are not passed, the Company intends (subject to Completion and at the request of LMS) to issue up to the maximum possible number of LMS Warrants that it is able to issue using its existing authorities obtained at the annual general meeting on 15 June 2016 (being 492,608 LMS Warrants).
Resolution 1 - Authority to grant the LMS Warrants
The Resolution will authorise the Directors of the Company to grant the LMS Warrants under section 551 of the Act to subscribe for, in aggregate, up to 1,379,409 Ordinary Shares up to a maximum aggregate nominal value of £344,852.25, being 1,379,409 shares and representing approximately 14 per cent. of the nominal value of the issued ordinary share capital of the Company as at 26 July 2016 (being the last practicable date prior to the publication of this announcement). The Directors intend to exercise such authority to issue the LMS Warrants to LMS as described in more detail in section 3 of this announcement and such LMS Warrants shall have the rights described in Part II of the Circular.
Resolution 1 will be proposed as an ordinary resolution and the majority required for the passing of Resolution 1 at the General Meeting is 50 per cent. or more of the votes cast to be in favour.
Resolution 2 - Disapplication of pre-emption rights
If the Directors of the Company wish to allot new shares or rights to subscribe to new shares (including, warrants) for cash, the Act requires that such shares or rights are offered first to existing Shareholders in proportion to their existing holdings.
Resolution 2 will be proposed as a special resolution and asks the Shareholders to authorise the Directors of the Company to allot the LMS Warrants for cash without offering them first to existing Shareholders in proportion to their existing holding.
The authority granted pursuant to Resolution 2 will expire on 31 December 2016.
Resolution 2 will be proposed as a Special Resolution and the majority required for the passing of Resolution 2 at the General Meeting is 75 per cent. or more of the votes cast to be in favour.
6. Irrevocable Undertakings and Letters of Support
To become effective, the Transaction requires approval of the Investment Policy Resolution at the LMS General Meeting convened for 3.00 p.m. on 16 August 2016.
So as to give the Directors the ability to issue up to 1,379,409 LMS Warrants to LMS, approval of the Resolutions is required at the General Meeting which is also convened for 3.00 p.m. on 16 August 2016. If the Resolutions are not passed, the Company intends (subject to Completion and at the request of LMS) to issue up to the maximum possible number of LMS Warrants that it is able to issue under its existing authorities obtained at the annual general meeting on 15 June 2016 (being 492,608 LMS Warrants).
Gresham House Letters of Support and Directors' Intentions
The Company has received letters of support to vote (or procure the vote) in favour of the Resolutions from certain Shareholders in respect of a total 2,553,235 Ordinary Shares, representing approximately 25.91 per cent. of the Company's issued ordinary share capital.
The Company's Directors intend to vote their own shareholdings, totalling 365,981 Ordinary Shares, representing approximately 3.6 per cent. of the Company's existing issued ordinary share capital, in favour of the Resolutions.
LMS Irrevocable Undertakings and Letters of Support
LMS has received irrevocable undertakings to vote (or procure the vote) in favour of the Investment Policy Resolution from the Rayne family, representing approximately 34.04 per cent. of LMS's issued ordinary share capital.
LMS has also received non-binding letters of support from certain shareholders to vote (or procure the vote) in favour of the LMS Resolutions in respect of 22,282,257 ordinary shares, representing approximately 19.58 per cent. of the ordinary share capital of LMS on 25 July 2016.
Appendix I
DEFINITIONS
The following definitions apply throughout this announcement unless the context requires otherwise:
|
"Act" |
the Companies Act 2006 (as amended) from time to time |
|
"AIFM" |
an alternative investment fund manager for the purposes of the Alternative Investment Fund Managers Directive (Directive 2011/61/EU) |
|
"AIFM and Portfolio Management Agreement" |
the AIFM and portfolio management agreement to be entered into by GHAM, G10 Capital and LMS in relation to the Appointment, further details of which are set out at section 3 of this announcement |
|
"AIM" |
AIM, a market operated by the London Stock Exchange |
|
"AIM Rules" |
the AIM Rules for Companies published by the London Stock Exchange from time to time |
|
"Appointment" |
the proposed appointment of GHAM as external portfolio manager to LMS |
|
"Appointment Shares" |
the new Ordinary Shares to be issued to LMS by the Company pursuant to the Share Issue and Warrant Subscription Agreement |
|
"Board" or "Directors" |
the current directors of the Company |
|
"Circular" |
the circular to be sent to Shareholders on 27 July 2016 in relation to the Transaction |
|
"Company" or "Gresham House" |
Gresham House plc, a company registered in England with registered number 871 |
|
"Completion" |
the execution of the AIFM and Portfolio Management Agreement |
|
"Financial Conduct Authority" or "FCA" |
the Financial Conduct Authority of the UK |
|
"Form of Proxy" |
the form of proxy for use by Shareholders in connection with the General Meeting, which will accompany the Circular |
|
"FSMA" |
the Financial Services and Markets Act 2000 (as amended, modified, consolidated, re-enacted or replaced from time to time) |
|
"G10 Capital" |
G10 Capital Limited, a company incorporated in England and Wales with company number 9224491 and whose registered office is at 136 Buckingham Palace Road, London, SW1W 9SA |
|
"General Meeting" |
the general meeting of the Company convened for 3.00 p.m. on 16 August 2016 at the offices of Travers Smith LLP, 10 Snow Hill, London EC1A 2AL |
|
"GHAM" |
Gresham House Asset Management Limited, a company registered in England and Wales with registered number 9447087 |
|
"Group" |
the Company and its subsidiary undertakings |
|
"Hurdle NAV" |
has the meaning given in section 3.1 of this announcement |
|
"Investment Policy Resolution" |
means the resolution to be proposed at the LMS General Meeting to approve the adoption of LMS's new investment policy |
|
"Legacy Assets" |
has the meaning given to it in section 3.1 of this announcement |
|
"Liberum" |
Liberum Capital Limited, the Company's financial adviser, nominated adviser and broker |
|
"LMS" |
LMS Capital plc, a company registered in England and Wales with registered number 05746555 |
|
"LMS Board" |
the directors of LMS |
|
"LMS Concert Party" |
Withers Trust Corporation, Robert Rayne and certain members of his family and related trusts, and certain other shareholders, who together held in aggregate, 37 per cent. of the LMS Shares |
|
"LMS General Meeting" |
the general meeting of LMS convened for 3.00 p.m. on or around 16 August 2016 |
|
"LMS Shares" |
the ordinary shares of 10 pence each in the capital of LMS |
|
"LMS Shareholders" |
the holders of the LMS Shares |
|
"LMS Warrantholders" |
holders of the LMS Warrants |
|
"LMS Warrant Instrument" |
the warrant instrument to be dated on or 14 October 2016 in relation to the LMS Warrants |
|
"LMS Warrants" |
warrants to subscribe for Ordinary Shares on the terms set out in the LMS Warrant Instrument |
|
"London Stock Exchange" |
London Stock Exchange plc |
|
"Main Market" |
the London Stock Exchange's main market for listed securities |
|
"Majedie" |
Majedie Asset Management Limited |
|
"NAV" |
net asset value |
|
"Neville Registrars" |
Neville Registrars Limited, the Company's registrars |
|
"New Investments" |
any investments of LMS that are not Legacy Assets |
|
"Notice" or "Notice of General Meeting" |
the notice of General Meeting set out at the end of the Circular |
|
"Official List" |
the official list of the Financial Conduct Authority |
|
"Ordinary Shares" |
ordinary shares of 25 pence each in the share capital of the Company |
|
"Performance Fee" |
the performance fee payable pursuant to the AIFM and Portfolio Management Agreement, further details of which are set out in section 3.1 of this announcement |
|
"Performance Fee Period" |
the period in respect of which the Performance Fee is calculated, further details of which are set out in section 3.1 of this announcement |
|
"Proposals" |
the proposed new strategy for the investment policy of LMS which is set out in more detail in section 2 of this announcement |
|
"Resolutions" |
the resolutions to be proposed at the General Meeting, as set out in the Notice of General Meeting |
|
"Schroders" |
Schroders Asset Management Limited |
|
"Second Anniversary" |
the second anniversary of the date of the AIFM and Portfolio Management Agreement |
|
"Second Anniversary NAV" |
the NAV of LMS's current portfolio of assets on the Second Anniversary, taking into account certain adjustments (including cash proceeds of any disposal of assets but excluding any amounts returned to LMS Shareholders) |
|
"Securities Act" |
United States Securities Act of 1933 (as amended) |
|
"Shareholders" |
holders of Ordinary Shares |
|
"Shareholder Warrantholders" |
holders of Shareholder Warrants |
|
"Shareholder Warrants" |
the warrants to subscribe for Ordinary Shares pursuant to a warrant instrument dated 7 October 2014 (as modified on 4 November 2015) |
|
"Share Issue and Warrant Subscription Agreement" |
the share issue and warrant subscription agreement between the Company, GHAM and LMS dated 27 July 2016, further details of which are set out at section 3 of this announcement |
|
"Subsequent Tranches" |
after the Tender Offer, the two further returns of capital to LMS Shareholders by way of tender offer by J.P. Morgan Cazenove and repurchase by the Company in the amounts of up to £6 million and up to £5 million |
|
"subsidiary" |
as defined in section 1159 and Schedule 6 of the Act |
|
"Tender Offer" |
the return of capital to LMS Shareholders by way of a tender offer by J.P. Morgan Cazenove and repurchase by the Company of up to £6 million at a 5 per cent. discount to the NAV of LMS at 30 June 2016 as set out in the circular sent to LMS Shareholders on or around the date of this announcement |
|
"Tranche 1 Shares" |
the new Ordinary Shares to be issued to LMS following Completion pursuant to the Share Issue and Warrant Subscription Agreement |
|
"Tranche 2 Shares" |
the new Ordinary Shares to be issued to LMS on the Second Anniversary pursuant to the Share Issue and Warrant Subscription Agreement |
|
"Transaction" |
(i) the appointment of GHAM by LMS as its external investment fund manager, (ii) the issue of the Appointment Shares, and (iii) the issue of the LMS Warrants |
|
"uncertificated" or "in uncertificated form" |
recorded on the register of members of the Company as being held in uncertificated form in CREST and title to which, by virtue of the CREST Regulations, may be transferred by means of the CREST system |
|
"United Kingdom" or "UK" |
the United Kingdom of Great Britain and Northern Ireland |
|
"United States" or "US" |
the United States of America |
|
"Voting Record Time" |
6.00 p.m. on 12 August 2016 |
This information is provided by RNS
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