Circular to S/holders Re EGM
Intl. Biotechnology Trust PLC
30 June 2000
International Biotechnology Trust plc ('The Company') Circular
to Shareholders Concerning Requisitioned Extraordinary General Meeting
Set out below is the text of a circular to shareholders in the company being
posted today.
'Dear Shareholder
Requisitioned Extraordinary General Meeting
On 23 May 2000, your Board received a requisition pursuant to section 368 of
the Companies Act 1985 from Millennium Partners LP ('Millennium'), a 10.06 per
cent shareholder in International Biotechnology Trust plc ('the Company').
Notice of an Extraordinary General Meeting, to be held on 7 July 2000, was
despatched to shareholders on 12 June 2000.
At the Extraordinary General Meeting, the requisitionist is seeking
shareholder support for a proposal requiring the Directors to put forward a
'reorganisation or reconstruction of the Company to enable the shareholders to
realise the whole of their investment at a price related to net asset value,
with such proposals to be put to shareholders within two months of the passing
of the resolution'. In addition, Millennium is seeking to remove from the
Board myself, Donald Cecil and Jeremy Curnock Cook. Your Board believes that
these proposals are misconceived and that shareholders' best interests are
served by continuing to hold an investment in the biotechnology sector through
International Biotechnology Trust on the basis set out below and headed by a
Board which has served you well since the formation of the Company in 1994.
The Board of the Company is unanimous in its view that you should reject
Millennium's proposals.
Shareholders will have received a letter dated 23 June 2000 from Millennium in
which a number of concerns have been expressed which have led Millennium to
requisition the Extraordinary General Meeting. It was clearly important for
your Board to consider carefully the issues raised by Millennium and that
process has led to the delay in writing to you. Shareholders should be aware
that your Board has been liaising with Millennium and with other shareholders
for some considerable period of time as to the management of your Company. The
proposals put forward by Millennium are designed to realise its investment in
your Company and defeat the purpose of shareholders who are looking to benefit
from a longer term investment view of the international biotechnology
industry. The Board believes that the future of the biotechnology sector is
even brighter than ever today as new breakthroughs are achieved in research
and the potential for commercialisation of unique products improves rapidly.
Shareholders should be aware that Millennium is a US-based private limited
partnership which has had a history of buying shares in closed-end funds
investing in a variety of sectors at substantial discounts to NAV and then,
through corporate activity including liquidation of such funds, attempted to
realise their short term gain. It is the Board's belief that in serving the
EGM requisition, Millennium has no interest either in the Company's investment
strategy or in the biotechnology sector generally. Millennium's sole aim
appears to be to get its entire investment out of the Company as soon as
possible.
The letter from Millennium has raised questions and concerns in relation to
Jeremy Curnock Cook, in particular with regard to options over shares in
investee companies granted to him and other non-executive directors of those
directors. The Board was reviewing this issue for some time before Millennium
raised it. Rothschild Asset Management ('RAM') has reviewed this issue at the
request of the Board and it has been agreed that, whilst options were granted
to Mr. Curnock Cook as a director of companies in common with other
non-executive directors under shareholder approved schemes, any financial
benefit arising from these options, both in the past and in the future, will
be transferred to the Company. Millennium was aware that the Board has had
this issue under review for some time.
Management of the Company
In April 1999, RAM, your Company's investment manager, indicated that, in the
context of a strategic review of their activities, they were minded to
withdraw from the business of bioscience fund management in the United
Kingdom. In light of these developments, the Board entered into negotiations
with Merlin Biosciences with the objective of appointing it as investment
manager to the Trust. Merlin Biosciences is a new company that was formed by
Merlin Ventures which was to have included certain individuals from the
Rothschild Bioscience Unit. However, these discussions have been terminated
and management of the investments has continued to be provided by RAM.
Throughout this period the Board has monitored the investment performance of
RAM very carefully which, despite the uncertainty referred to above, has been
very satisfactory.
After a review, following his appointment as Chief Executive of RAM, Paul
Manduca has now indicated to your Board that he wishes RAM to remain in the
bioscience fund management business. However, acting on medical advice, Jeremy
Curnock Cook has decided to stand down as the head of the Rothschild
Bioscience Unit and has resigned from the Board of the Company. The Board
expresses their gratitude to Jeremy for leading the management team
successfully since the Company's inception in 1994 and for the investment
management team's excellent performance. The Board has accepted Mr. Curnock
Cook's offer to make himself available to assist with the portfolio where
appropriate. In light of these developments, the Board has had detailed
discussions with RAM about the ongoing management of the Company and is
confident that RAM can fulfil its management obligations to the Company. Chris
Jenkins, who has had many years of fund management experience, will be leading
the Rothschild Bioscience Unit and will work closely with Edward Wawrzyncznak
who has been with the Rothschild Bioscience Unit for the last 8 years. It is
RAM's intention to add further sector expertise to the investment management
team in the near future.
Performance Fee
The Board notes Millennium's comments on the performance fee. This fee
structure, which was put in place at the time of the launch of your Company in
1994, has, since that time, been voted on and supported by shareholders. The
Board firmly believes that aligning the interests of shareholders and the
investment manager will help to maximise the returns to shareholders.
Shareholders should note that, unlike most other performance fee structures,
90% of the fee paid by your Company is invested in new Shares in your Company.
In addition, unlike some incentive schemes for other investment vehicles, this
incentive fee is subject to a cap which has been set at the level of 7.5
million shares.
Your Board reviews the investment management arrangements including the
incentive fee agreement at regular intervals, having regard to changes in
market practice and other relevant factors, and it is proposed that these
arrangements will be reviewed with RAM in the near future.
Investment Performance and Return of Capital
Since 31 March 1999, the net asset value of your Company has increased from
£55 million to £285 million on 27 June 2000 reflecting both a revaluation by
the market of biotechnology companies and superior investment management. The
net asset value per share has outperformed the NASDAQ Biotechnology Index (in
UK£) by over 90% over this period. In recognition of the high valuation by the
market of biotechnology companies early in the year (the NASDAQ Biotechnology
Index peaked in early March), the investment manager took profits from a
number of the Company's investments which had met the investment manager's
targets, holding such proceeds in cash to reinvest in the market when good
opportunities were more reasonably valued.
The Board continues to believe that the Company provides an excellent vehicle
for investors seeking a medium to long term investment in the biotechnology
sector that will reward shareholders through capital appreciation. However,
the Company's investment policy of investing in companies that are seeking a
public quote or which have only recently been floated means that your
Company's portfolio contains a significant number of investments in companies
which are at a relatively early stage of development, a number of which
investments have only recently been made. These investments were made with a
view to maximising their return in line with the Company's proposed
continuation vote in 2003. The Board believes that these factors would lead to
a significant loss of potential value to shareholders if the Company were
liquidated at this time as indicated by Millennium's first resolution.
Although the Company's Articles of Association provide for a resolution to be
put to shareholders at the Annual General Meeting in 2003 to allow
shareholders to vote on the continuation of the Company, the Company's current
cash position provides the opportunity to return some of the gains to
shareholders at a time which does not compromise the Company's portfolio or
investment strategy. It is therefore the Board's intention to put forward
proposals to return at least £45 million to shareholders in September 2000.
Such return of capital will be at a small discount to net asset value and
shareholders will be provided with the option of leaving their capital in the
Company.
In addition, in line with growing current practice and in order to provide the
Company with additional flexibility to address the potential volatility of the
discount to net asset value at which shares in the Company may trade, the
Board will request shareholders to provide the Company with powers to
repurchase shares in the Company on terms which would enhance net asset value.
The Board, which is being advised by Merrill Lynch International, its
financial adviser, will be writing to shareholders in September setting out in
detail the proposals for returning capital to shareholders, the taking of
powers to repurchase shares and seeking shareholder approval for these
proposals.
Action to be taken
Shareholders will find enclosed with this letter a green replied-paid form of
proxy for use in connection with the EGM. IF YOU HAVE ALREADY COMPLETED AND
RETURNED A FORM OF PROXY FOR THE EGM PLEASE NOTE THAT COMPLETION AND RETURN OF
THE ENCLOSED FORM OF PROXY WILL SUPERSEDE ANY FORM OF PROXY PREVIOUSLY
SUBMITTED BY YOU AND YOUR BOARD URGES YOU TO COMPLETE IT VOTING AGAINST THE
RESOLUTIONS PROPOSED BY MILLENNIUM AND TO RETURN IT TO COMPUTERSHARE SERVICES
PLC, REGISTRAR'S DEPARTMENT, PO BOX 451, OWEN HOUSE, 8 BANKHEAD CROSSWAY
NORTH, EDINBURGH EH11 DXG AS SOON AS POSSIBLE AND, IN ANY EVENT, BY 4:30 PM ON
WEDNESDAY 5 JULY 2000. The completion of the form of proxy will not preclude
you from attending the EGM and voting in person should you wish to do so.
Recommendation
Your Directors strongly believe in light of the observations made in this
letter that the resolutions (save resolution 4 which, with the resignation of
Jeremy Curnock Cook from the Board, is no longer applicable) are not in the
best interests of the Company and Shareholders as a whole. The Directors
unanimously recommend that you vote AGAINST the resolutions 1,2 and 3 to be
proposed at the Extraordinary General Meeting (save that in the case of
resolutions 2 and 3 seeking the removal of Directors, the relevant Director
has abstained from the recommendation.)
Your Directors intend to vote their own beneficial holdings amounting in
aggregate to 201,437 shares, representing 0.23% of the issued share capital,
against the resolutions and intend to elect to maintain their investment in
the Company in full when the return of capital proposals are put to
shareholders in due course.
Yours sincerely
John Green-Armytage
Chairman
Merrill Lynch International has given and not withdrawn its written consent to
the issue of this document with the inclusion herein of the references to it
in the form and context in which such references are included.
Merrill Lynch International which is regulated in the United Kingdom by The
Securities and Futures Authority Limited, is acting for International
Biotechnology Trust plc in relation to the matters described in this document
and no one else, and will not be responsible to anyone other than
International Biotechnology Trust plc for providing the protections afforded
to customers of Merrill Lynch International nor for providing advice in
relation to any matter referred to herein.
The circular dated 23 June 2000 from Millennium Partners LP will be on display
at the EGM.'
Enquiries:
John Green-Armytage - Chairman, International Biotechnology Trust plc
020 7491 3633
Paul Manduca - Chief Executive, Rothschild Asset Management
020 7623 1000
David Yates - Financial Dynamics 020 7831 3113
Peter Moorhouse - Merrill Lynch 020 7772 1000
Melville Trimble - Merrill Lynch 020 7772 1000
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