Strategic Co-operation and Is
Optare plc
("Optare" or the "Company")
Strategic co-operation with Ashok Leyland
Issue of Equity
and
Notice of General Meeting
The Board of Optare is pleased to announce it has conditionally entered into a Strategic Co-Operation Agreement with Ashok Leyland Limited ("Ashok"), part of the Hinduja Group. Ashok will also aacquire a 26 per cent. holding in the Company. Approximately £5.0 million (before expenses) will be raised from Ashok by way of the issue of new Ordinary Shares at 5 pence per Ordinary Share. In addition to the subscription by Ashok, an additional £568,000 will be raised through the issue of Share Warrant Shares at 5 pence per Share Warrant Share and a further £100,000 will be raised through a conditional Placing of Placing Shares at 5 pence per Placing Share with an institutional investor.
A circular containing the details of these proposals is being posted to shareholders today and will be available on the Company's website: www.optare.com.
Highlights
· Strategic Co-operation Agreement with Ashok, the second largest commercial vehicle company in India in the medium and heavy commercial vehicle segment and a market leader in the Indian bus market providing the Company with exposure to Ashok's considerable strategic and operational experience in the bus and truck industry as well as Ashok's capital resources;
· The strategic alliance will enable the Company to access the engineering resources and design expertise within Ashok to improve the competitiveness of the Company's products, assisting the Company in achieving its aim of becoming a significant exporter of conventional diesel and low carbon buses and a leader in green bus technologies;
· Sharing of expertise and access to Ashok's well established low cost sourcing channels and contract manufacturing;
· The total monies to be received by the Company (before expenses) are approximately £5.6million made up of £5.0 million by the issue to Ashok of 99,357,828 new Ordinary Shares ("Ashok Shares), £568,000 through the issue of 11,360,000 Share Warrant Shares and £100,000 by the issue of 2,000,000 Placing Shares to an institutional investor;
· The funds raised from the Placing Shares and Share Warrant Shares will be used to provide the Company with its short term working capital needs and the funds raised from the Ashok Shares will be applied to pay down £2 million of the Group's existing term debt, to support the Company's growth plans through product development and new business opportunities and to further strengthen the working capital and cash flow position of the Company;
· The Company will apply for admission of the Ashok Shares, Placing Shares and Share Warrant Shares to trading on the AIM market of the London Stock Exchange. It is expected that dealings in the Placing Shares and Share Warrant Shares will commence at 8 a.m. on 30 July 2010 ("First Admission") and that dealings in the Ashok Shares will commence at 8 a.m on 17 August 2010 ("Second Admission"); and
· Following Second Admission Ashok will own 26 per cent. of the Company's Enlarged Ordinary Share Capital.
Action to be taken
A Form of Proxy for use at the General Meeting accompanies this document. The Form of Proxy should be completed and signed in accordance with the instructions thereon and returned to the Company's registrars, Capita Registrars, Proxy Department, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU as soon as possible, but in any event so as to be received by no later than 12 noon on 12 August 2010. The completion and return of a Form of Proxy will not preclude Shareholders from attending the General Meeting and voting in person should they so wish.
Recommendation
The Directors consider the Proposals to be in the best interests of the Company and its Shareholders as a whole and accordingly unanimously recommend Shareholders to vote in favour of the Resolutions to be proposed at the General Meeting as they intend to do so in respect of their own beneficial holdings amounting, in aggregate, to 5,132,035 Existing Ordinary Shares, representing approximately 1.9 per cent. of the existing issued share capital of the Company.
Commenting Jim Sumner, CEO of Optare said:
"We are delighted with today's announcement and firmly believe that in Ashok Leyland we have found the perfect strategic partner to help Optare realise its full potential by providing best cost sourcing, technology sharing, new distribution channels and joint product development activity."
For further information please contact:
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Jim Sumner, CEO, Optare plc Mike Dunn, Finance Director, Optare plc |
+44 (0) 845 838 9901 |
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Camilla Hume, Cenkos Securities plc Stephen Keys, Cenkos Securities plc |
+44 (0) 20 7397 8900 |
Definitions
The same apply throughout this announcement as are applied in the Circular. The Circular will be sent to shareholders today and is available on the Company's website: www.optare.com
Introduction
The Board is pleased to announce that the Company proposes to raise £4.97 million, before expenses, by way of the issue of 99,357,828 new Ordinary Shares to Ashok Leyland and has raised an additional £100,000 from the conditional placing of 2,000,000 new Ordinary Shares with an institutional investor. In addition, the Company proposes to raise £568,000 through the issue of the Share Warrant Shares to certain institutional and other investors.
Following its subscription for 99,357,828 new Ordinary Shares, Ashok will hold 26 per cent. of the Company's Enlarged Ordinary Share Capital. The key features of the fundraising are the investment by Ashok and its endorsement of the Company's strategy.
In order for the Proposals to be effected, the Directors, require, inter alia, the authority of Shareholders to allot the Ashok Shares and the Ashok Share Warrants free from statutory pre-emption rights. Accordingly, the Company is convening the General Meeting, at which it will seek authority, inter alia, for the Directors to allot the Ashok Shares, issue the Ashok Share Warrants and disapply statutory pre-emption rights in respect of the Ashok Shares and the Ashok Share Warrants. The previous authorities taken at the Annual General Meeting on 30 June 2010 will be discontinued and will not be replaced at the General Meeting.
Background to and reasons for the Proposals
As noted in the Company's results for the year ended 31 December 2009 the Company has made significant progress in relation to the business turnaround actions, including the reduction of the Company's break-even point. This has been achieved through the rationalisation of operations and by improving efficiencies, including reducing head count by 48 per cent. In the year ended 31 December 2009, as well as consolidating from three operating sites to two, the Board has been concentrating on reducing costs.
At the same time, the Board has also continued actively to reduce net debt, from £10.3 million in June 2009 to £7.7 million by December 2009. Further capital repayments have continued in 2010 and the Board remains focused on debt reduction. An offer has now been accepted for the sale of the Rotherham site, the proceeds of which are expected to be applied to further reduce net debt.
Although the Board was pleased to report in its year end results that the order book was at a 12 month high, this has placed pressure on the working capital of the Group and at times will place the Company up against creditor limits. The Board is continually mindful of the pressures on working capital at certain points in the Company's cycle and is continually looking for ways to alleviate this pressure.
The Company's order book is again at a 12 month high, standing at £27.5 million as at 8 July 2010. Accordingly, at this time the Board considers that it is necessary to raise further working capital in order to finance the Company's ongoing operations. In view of the current credit climate, the Board believes that the best means of securing additional funds is by way of an equity fundraising and through certain Shareholders subscribing for the Share Warrant Shares in lieu of their entitlement to share warrants. The Directors believe that this represents a cost effective way to provide the Company with its short term working capital needs.
On 17 December 2009 the Board announced that it was in discussions with a potential strategic partner and believes that entering into such a partnership will enable the Group to achieve its aim of becoming a leader in green bus technologies and a significant exporter of conventional diesel and low carbon buses.
The Board believes that a strategic alliance with Ashok will not only enable the Group to achieve these aims but is also attractive for the following reasons, as it will:
· provide ready access to a low cost supply chain - the Directors expect to benefit from being able to leverage on Ashok's well-established global sourcing channels;
· enable the Company to increase export sales - the Directors believe that with Ashok's assistance in improving the competitiveness of the Company's products, the Company will be able to increase export sales progressively in the 22 countries in which it is entitled to operate;
· improve competitiveness of products - the Company will be able to access the engineering resources, design, development, testing and evaluation expertise of Ashok to enable the Group to help optimise Optare's current and future vehicle range and increase the competiveness of these vehicles in UK and export markets; and
· strengthen the Company's working capital and cash flow position - the Directors believe that support from Ashok and the larger Hinduja Group will allow more competitive options in accessing funding needs as required.
Part of the net proceeds of the Ashok Share Issue will be applied to pay down £2 million of the Group's existing term debt to further reduce gearing and the Company's dependency on the bank. The remainder of the proceeds will be used to support growth plans through product development and new business opportunities and to further strengthen the working capital and cash flow position of the Company.
The Board considers that the Ashok Share Issue is in the best interests of the Company and Shareholders as a whole and will allow the Company to benefit not only from Ashok's capital resources but also from its considerable strategic and operational experience in the bus and truck industry.
Following the announcement of the proposed strategic alliance, Ashok has confirmed that it is no longer considering an offer for the Company and accordingly, the Company has ceased to be in an "offer period" for the purposes of the City Code on Takeovers and Mergers.
Information on Ashok
Ashok is an Indian commercial vehicle manufacturing company based in Chennai selling approximately 64,000 vehicles and about 19,000 engines annually and is the second largest commercial vehicle company in India in the medium and heavy commercial vehicle segment, with a market share of 23.3 per cent. in 2009-10 and is a market leader in the Indian bus market. Ashok reports that it now carries 60 million bus passengers a day, more than the entire Indian rail network, and already has a joint venture with Nissan Motor Company, developing a light commercial vehicle product platform.
The sales turnover of Ashok in 2009-10 was US $1.6 billion and PAT was US $94 million.
Ashok has seven plants in India, one in the Czech Republic and one in the Middle East with a current global capacity of over 150,000 buses and trucks.
In 2006 Ashok became the first automobile company in India to achieve the internationally renowned TS16949 certification.
The directors of Optare believe that Ashok's two strategic business units in India and Detroit, USA, underpin its substantial global reach in technology-enabled end-to-end bus design, engineering, prototyping, manufacturing and testing and validation.
Ashok, listed on the Bombay Stock Exchange, is 51 per cent. owned by the Hinduja Group and has a current market capitalisation of approximately £1.3 billion.
Current Trading and Prospects of Optare
Although market conditions remain uncertain, as noted above, Optare's sales order levels are now at a 12 month high at £27.5 million as at 8 July 2010. The Board also anticipates stronger UK demand, particularly for single-decker buses, in 2011 and 2012 due to the anticipated pre-buy of existing Euro 5 emission buses to avoid the additional cost burdens of Euro 6 legislation compliance due in 2013, along with compliance with the disability discrimination legislation, which is required for all single-decker buses by 2014. In addition, it is anticipated that there will be a recovery of the replacement cycle for buses as the UK economy climbs out of recession.
The Company is also confident that its investment in green bus technology is well-timed as the trend towards low carbon technology gathers momentum.
The Board believes that significant progress has been achieved in the turnaround of the business with the complementary strategies of reducing the business break-even point and debt along with investing in green bus technology and that this will be better assisted by entering into the strategic alliance with Ashok.
The Placing, Share Warrant Share Issue and Ashok Share Issue
The Company is proposing to raise approximately £4.97 million by way of the conditional issue to Ashok of the New Shares, £100,000 by way of the conditional placing with an institutional investor of the Placing Shares and £568,000 by way of the issue of the Share Warrant Shares to certain investors.
The aggregate amount which will be received by the Company, net of expenses, is approximately £5.2 million.
The Company agreed in January 2010 to issue share warrants to each of those Shareholders who subscribed for Ordinary Shares in the January Placing and the Company now proposes to issue the Share Warrants to honour this commitment.
One of those Shareholders has agreed to subscribe for Share Warrant Shares in full satisfaction of its entitlement to receive share warrants. As such it will not be issued with any further share warrants.
Two other Shareholders have agreed to subscribe for Share Warrant Shares in part satisfaction of their share warrant entitlement and shall receive the balance of their entitlement by way of Share Warrants.
The Directors will seek authority to allot and disapply statutory pre-emption rights in respect of the Ashok Shares and the Ashok Share Warrants at the General Meeting. The Placing Shares and Share Warrant Shares will be allotted prior to the General Meeting on the basis of the authorisation granted by Shareholders at the recent Annual General Meeting and First Admission is expected to take place on 30 July 2010.
The Ashok Shares will represent 26 per cent. of the Enlarged Ordinary Share Capital. As Share Warrants, Cenkos Share Warrants and Share Options are exercised in the future, Ashok will, pursuant to the Ashok Share Warrants, have the right to subscribe for further new Ordinary Shares by exercising the Ashok Share Warrants so that it is able to maintain its percentage of the Revised Enlarged Ordinary Share Capital at 26 per cent.
The Placing Agreement, the Subscription Agreement and Ashok Share Warrants, the Strategic Co-operation Agreement and the Relationship Agreement
The Placing Agreement
Cenkos Securities has entered into the Placing Agreement with the Company whereby it has agreed to use its reasonable endeavours, as agent for the Company, to procure a placee for 2,000,000 Placing Shares.
The placing of the Placing Shares is conditional upon, inter alia, First Admission on or before 8.00am on 30 July 2010 (or such later time and/or date as the Company and Cenkos Securities may agree, but in any event by no later than 8.00am on 13 August 2010).
The Placing Agreement contains warranties from the Company in favour of Cenkos Securities in relation to, inter alia, the accuracy of the information in this document and other matters relating to the Company and its business. In addition, the Company has agreed to indemnify Cenkos Securities in relation to certain liabilities it may incur in respect of the Placing. Cenkos Securities has the right to terminate the Placing Agreement in certain circumstances prior to First Admission, in particular, in the event of a material breach of the warranties.
The Subscription Agreement and Ashok Share Warrants
Ashok has entered into the Subscription Agreement with the Company, whereby Ashok agrees to subscribe for the New Shares at the Issue Price. Ashok's obligation to subscribe for the New Shares is conditional upon the Resolutions being duly passed, Second Admission and the Strategic Co-operation Agreement and the Relationship Agreement having been entered into.
Under the terms of the Subscription Agreement the Company will issue to Ashok the Ashok Share Warrants immediately following Second Admission, which will entitle Ashok to subscribe for such number of new Ordinary Shares as will entitle Ashok to maintain its shareholding at 26 per cent. of the Revised Enlarged Ordinary Share Capital so that its shareholding in the Company is not diluted as the Share Warrants, the Cenkos Share Warrants and the Share Options are exercised in the future. If the Ashok Share Warrants are exercised in consequence of the exercise of the Share Warrants or the Cenkos Share Warrants, Ashok will subscribe for the relevant number of new Ordinary Shares at the Issue Price. If the Ashok Share Warrants are exercised in consequence of the exercise of the Share Options, Ashok will subscribe for the relevant number of new Ordinary Shares at the exercise price applicable to the exercise of the Share Options.
The Ashok Share Warrants will cease to be exercisable 40 Business Days after the date on which the Share Warrants, the Cenkos Share Warrants and the Share Options cease to be exercisable, being, in the case of the Share Warrants and Cenkos Share Warrants, twenty four months after issue and in the case of the Share Options 3 July 2019. The Ashok Share Warrants are transferable within the Ashok group of companies.
The terms of the Ashok Share Warrants provide that new Ordinary Shares will be allotted no later than seven days after exercise and that application will be made for admission of such new Ordinary Shares to AIM no later than five business days after the issue of such new Ordinary Shares.
The issue of the Ashok Share Warrants is conditional on the Resolutions being duly passed and on Second Admission.
The Subscription Agreement contains warranties from the Company in favour of Ashok relating, inter alia, to the accuracy of information disclosed to Ashok.
The Strategic Co-operation Agreement
Ashok has entered into a Strategic Co-operation Agreement with the Company whereby Ashok and the Company will collaborate to develop, modify and exploit the Company's bus designs in their respective markets.
Under the Strategic Co-operation Agreement the Company retains the exclusive right to manufacture and sell its bus designs in 22 (mainly European) countries ("the Company's Markets"). Ashok agrees to assist the Company to improve the competitiveness of its products in these markets by giving the Company access to low cost sourcing information and by carrying out contract manufacturing (if required). Ashok and the Company will also undertake a joint assessment of the Company's bus designs to establish what modifications are required to improve their marketability and competitiveness in the Company's Markets and Ashok has agreed to provide technical assistance in making any modifications required, at cost. All intellectual property in any such modifications made for the Company's Markets shall belong to the Company.
The Company has agreed to grant to Ashok the perpetual and exclusive right to manufacture, modify and sell the Company's bus designs in markets other than the Company's Markets ("Ashok Markets"). The Company will provide Ashok with ongoing knowhow, technical information and technical assistance to enable Ashok to exploit those rights in Ashok's Markets. The Co-operation Agreement contains certain warranties in favour Ashok regarding, inter alia, the technical information the Company will provide and requires the Company to indemnify Ashok in respect of product liability claims arising from defects in the technical information and designs it supplies.
Under the Strategic Co-operation Agreement, Ashok and the Company agree that each of them may use any modifications and improvements to the bus designs which are developed by the other, in their respective markets. As a consequence, the Company will have the right to use any modifications and improvements Ashok makes to the bus designs in the Company's Markets and vice versa.
The Strategic Co-operation Agreement may be terminated on the breach or insolvency of either party or by the Company in the event that Ashok's shareholding in the Company falls below 20 per cent. of the Company's issued share capital for a continuous period of one year or more due to the actions or omissions of Ashok. However, the perpetual rights already granted to Ashok under the Strategic Co-operation Agreement would not be affected.
The Strategic Co-operation Agreement is conditional on Second Admission.
The Relationship Agreement
Ashok has entered into the Relationship Agreement with the Company, whereby Ashok is entitled to appoint two non-executive directors out of a total Board of six. The Company is required to consult Ashok on all key management appointments and Ashok can nominate candidates for certain senior positions provided that all appointments remain a matter for the Board.
The Relationship Agreement provides for a steering committee to be established comprising nominees from both Ashok and Optare to co-ordinate and oversee future development of the Company's products and markets.
The Company is required to consult with Ashok in relation to various specified matters, including the issue of new Ordinary Shares, new share warrants or new share options, the appointment or removal of auditors and the Company secretary, material borrowing, the issuance of any material guarantee or indemnity, any material disposal of assets, any material transaction between the Company and its shareholders, business strategies and annual budgets, provided that any final decision on any of these matters remains with the Board. The Relationship Agreement may be terminated if Ashok's shareholding falls below 20 per cent. for a continuous period of one year due to the actions or omissions of Ashok and will automatically terminate if Ashok's shareholding falls to 0 per cent.
Ashok is subject to obligations of confidentiality and the agreement provides that nothing in it shall require the Company to breach the AIM Rules.
The Relationship Agreement is conditional on Second Admission.
The Share Warrants and Cenkos Share Warrants
The Share Warrants and Cenkos Share Warrants represent the majority of the share warrants referred to in the Company's announcement on 22 January 2010, none of which have to date been issued. Three Shareholders have chosen to subscribe for Share Warrant Shares either in full satisfaction or in part satisfaction of share warrants referred to in that announcement which they were due to receive. The Share Warrants and Cenkos Share Warrants have been repriced at the Issue Price to reflect the arrangements agreed with Ashok in respect of the Ashok Share Issue.
The Share Warrants and Cenkos Share Warrants will be exercisable for a period of twenty four months.
The Share Warrants will be issued by 12 August 2010 under the general share allotment authorisations granted to the Directors at the Annual General Meeting on 30 June 2010. The Cenkos Share Warrants will be issued after the General Meeting to be held on 16 August 2010 on the basis of the share allotment authorisations granted at that meeting
The Company will raise approximately £1.4 million if the Share Warrants and the Cenkos Share Warrants are exercised in full.
The terms of the Share Warrants and Cenkos Share Warrants provide that new Ordinary Shares will be allotted no later than seven days after exercise and that application will be made for admission of such Ordinary Shares to AIM no later than five business days after the issue of such new Ordinary Shares.
This information is provided by RNS
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