AAV Artemis Aim Vct

 

TIDMAAV TIDMAAM 
 
RNS Number : 6851N 
Artemis AiM VCT PLC 
20 February 2009 
 
JOINT ANNOUNCEMENT 
 
ARTEMIS AIM VCT PLC 
ARTEMIS AIM VCT 2 PLC 
 
20 February 2009 
 
 
RECOMMENDED PROPOSALS FOR A MERGER BETWEEN ARTEMIS AIM VCT PLC ("VCT1") AND 
ARTEMIS AIM VCT 2 PLC ("VCT2") TO BE COMPLETED BY PLACING VCT1 INTO MEMBERS' 
VOLUNTARY LIQUIDATION PURSUANT TO SECTION 110 OF THE INSOLVENCY ACT 1986 AND THE 
TRANSFER BY VCT1 OF ITS ASSETS AND LIABILITIES TO VCT2 IN CONSIDERATION FOR NEW 
ORDINARY SHARES OF 10 PENCE EACH IN VCT2 ("VCT2 SHARES") AND THE CANCELLATION OF 
THE LISTING OF THE VCT1 ORDINARY SHARES OF 10 PENCE EACH ("VCT1 SHARES") 
 
SUMMARY 
 
The boards of VCT1 and VCT2 announced on 28 January 2009 that agreement in 
principle had been reached for the merger of the two companies. Both boards are 
pleased to advise that discussions have concluded and both boards are today 
writing to their respective shareholders with proposals for consideration for 
the proposed merger ("the Scheme"). The Scheme will, if effected, result in VCT1 
being merged into VCT2 creating an enlarged company ("Enlarged Company") having 
net assets of over GBP40 million, which is expected to deliver cost savings and 
other strategic benefits. 
 The Scheme will be effected by VCT1 being placed into members' voluntary 
liquidation pursuant to a scheme of reconstruction under Section 110 of the 
Insolvency Act 1986. The assets and liabilities of VCT1 will be transferred to 
VCT2 in consideration for VCT2 Shares (which will be issued directly to the 
shareholders of VCT1). The merger will be completed on a relative net asset 
basis. 
The effective date for the transfer of the assets and liabilities of VCT1 and 
the issue of VCT2 Shares pursuant to the Scheme is expected to be 31 March 2009 
("the Effective Date"). Following the Effective Date the listing of the VCT1 
Shares will be cancelled and VCT1 will be wound up. 
The Scheme is conditional, inter alia, on the approval of resolutions to be 
proposed to shareholders of VCT1 and VCT2 at extraordinary general meetings to 
be held on 20 March 2009 (for both VCT1 ("VCT1 EGM 1") and VCT2 ("VCT2 EGM")) 
and 31 March 2009 (for VCT1 only ("VCT1 EGM 2")) and dissent not having been 
expressed by shareholders of VCT1 holding more than 10 per cent in nominal value 
of the issued VCT1 share capital. 
 
The board of VCT2 also consider it appropriate, subject to resolutions being 
passed at the VCT2 EGM and the Scheme becoming effective, to revise the 
management arrangements with Artemis Investment Management Limited ("Artemis"), 
change the name of VCT2, on completion of the Scheme, to Artemis VCT plc and 
extend the life of VCT2 to 2012. In addition, it is also proposed to renew share 
issue and share repurchase authorities for VCT2. 
 
BACKGROUND 
 
In September 2004, the Venture Capital Trusts (Winding-up and Mergers) (Tax) 
Regulations 2004 were introduced, allowing venture capital trusts ("VCTs") to be 
acquired by or merge with each other without prejudicing tax reliefs obtained by 
their shareholders. A number of VCTs have now taken advantage of these 
regulations to create larger VCTs where running costs can be spread over a 
substantially greater asset base. 
 
With the above in mind, the boards of VCT1 and VCT2 entered into discussions to 
consider a merger of the companies to create a single larger VCT and reduce the 
overall running costs. Following detailed consideration of the portfolio and 
financial position of each company (both of which are managed by Artemis and 
which broadly have the same investment objectives and policies, the same 
advisers and a number of common investments) the boards of VCT1 and VCT2 reached 
an agreement to merge the companies. 
 
Both boards consider that this merger will bring significant benefits to both 
groups of shareholders through: 
 
  *  
  *  
  *  
  *  
  *  a reduction in annual running costs for the Enlarged Company compared to the aggregate annual running costs of the separate companies;creation of a single VCT of a more economically efficient size with a greater capital base over which to spread administration and management costs;participation in a larger VCT with prospects for a more diversified portfolio thereby dispersing the portfolio risk across a broader range of investments and businesses;increased potential to maintain steady distributions and maintain a buy-back programme due to the increased size and the reduced need to retain funds to remain at an economically viable size; andincreased flexibility in meeting the various requirements for qualifying VCT status.
 
 
The boards believe that the Scheme provides an efficient way of effecting a 
merger with an acceptable level of costs compared with other merger routes. 
Although either company could have acquired the assets and liabilities of the 
other under such a scheme, VCT2 was selected as the acquirer because of its 
marginally greater size (and, therefore, a lower stamp duty cost would be 
incurred on the transfer of assets and liabilities from VCT1). Shareholders 
should note that the merger will be outside the provisions of the City Code on 
Takeovers and Mergers. 
 
EXPECTED TIMETABLE 
 
VCT1 EGM 1 
                               10.00 a.m. on 20 March 2009 
VCT2 EGM 
                                11.30 a.m. on 20 March 2009 
 
Record date for VCT1 shareholders' 
entitlements under the merger 
                          5.00 p.m. on 30 March 2009 
 
Calculation date 
                                 after 5.00 p.m. on 30 March 2009 
Suspension of listing of the VCT1 Shares 
                     7.30 a.m. on 31 March 2009 
VCT1 EGM 2 
                               11.00 a.m. on 31 March 2009 
 
Effective Date for transfer of assets and 
liabilities of VCT1 to VCT2 and the 
issue of VCT2 Shares 
                             31 March 2009 
 
Announcement of results of the VCT1 EGM 2 
and completion of the Scheme (if applicable) 
                     31 March 2009 
 
Cancellation of listing of the VCT1 Shares 
                       8.00 a.m. on 1 April 2009 
Admission of and dealings in VCT2 Shares 
to commence 
                                                                           2 
April 2009 
 
Share certificates for the VCT2 Shares to be issued 
                  9 April 2009 
pursuant to the Scheme despatched 
 
BACKGROUND TO VCT1 AND VCT2 
 
VCT1 was launched in 2001 with the objective of achieving long-term capital and 
income growth and to generate tax-free capital and income distributions. VCT1 
has, over the years, raised GBP48.1 million (net of expenses) which has, in 
accordance with its investment policy, been invested predominately in companies 
traded on AIM and, to a lesser extent, in unquoted companies and companies 
traded on PLUS Markets. VCT1 has paid and declared dividends of 17.85p per VCT1 
Share since launch. As at 31 January 2009, VCT1 had investments in 51 companies 
with an aggregate value of GBP18.8 million and an unaudited net asset value of 
GBP20.7 million (50.67p per VCT1 Share). 
 
VCT2 was launched in 2004 with the same objectives and investment policies as 
those of VCT1. VCT2 has raised GBP37.9 million (net of expenses) which is also 
invested predominantly in companies listed on AIM and, to a lesser extent, in 
unquoted companies and companies traded on PLUS Markets. VCT2 has paid and 
recommended dividends of 6.2p per VCT2 Share since launch. As at 31 January 
2009, VCT2 had investments in 50 companies with an aggregate value of GBP19.7 
million and an unaudited net asset value of GBP22.4 million (62.46p per VCT2 
Share). 
 
VCT1 and VCT2, as at 31 January 2009, had 14 common investments which, had the 
merger taken place on that date, would have represented 22.3% of the combined 
portfolio of the Enlarged Company. 
 
The VCT2 board comprises four non-executive directors, Peter Arthur (chairman), 
Robin Field, Edward Murray and Fiona Wollocombe. Both boards have discussed the 
size and future composition of the VCT2 board and it has been concluded that 
Fiona Wollocombe will assume the role of chairman with Peter Arthur having 
stated his intention to step down as chairman and as a director of VCT2, 
following the Scheme becoming effective. In addition, following completion of 
the Scheme, it is intended that Calum Paterson, who is a director of VCT1, be 
appointed as a director of VCT2. 
 
The VCT2 board has recommended a final capital dividend for the year ended 30 
September 2008 of 2.2p per VCT2 Share, to be approved by VCT2 shareholders at 
the VCT2 annual general meeting to be held on 20 March 2009. This dividend, if 
approved, will be paid on 31 March 2009 to VCT2 shareholders on the register on 
6 March 2009. 
 
VCT1 has declared an interim dividend of 4.0p per VCT1 Share for the year ended 
31 January 2009 payable to VCT1 shareholders on 1 June 2009 to those VCT1 
shareholders on the VCT1 register on 6 March 2009. 
 
THE MERGER 
 
The merger of the two companies should result in significant cost savings and 
enhanced administrative efficiency. Due to a number of their common features, 
this is achievable without major additional costs in terms of rearranging the 
existing VCT2 board constitution or the investment and administrative 
arrangements of the two companies. 
 
Both boards believe that overall investment risk should be reduced as the 
portfolio will be spread across a larger number of investments, operating in a 
broader range of businesses. The Enlarged Company should also be better placed 
to release funds to support investment in new companies and further investment 
in existing investee companies when required. 
 
The aggregate anticipated cost of undertaking the Scheme is approximately 
GBP336,000, including VAT, legal and professional fees, stamp duty and the costs 
of winding up VCT1. The costs of the Scheme will be split proportionally between 
VCT1 and VCT2 by reference to their respective unaudited net asset values as at 
close of business on 30 March 2009. Following completion of the Scheme, annual 
cost savings for the Enlarged Company of at least GBP324,000 per annum, 
representing 0.75% per annum of the projected net assets of the Enlarged 
Company, are expected to be achieved. On this basis, both boards believe that 
the costs of the Scheme will be recovered in just over a year. 
 
The VCT2 board intends to pursue a policy of buying-back VCT2 Shares in the 
market at a discount to net asset value of approximately 10%, as has previously 
been the case. 
 
ARTEMIS AND THE REVISED MANAGEMENT ARRANGEMENTS 
 
Artemis is a dedicated investment management house which has managed both VCT1 
and VCT2 since their respective launches. Artemis currently manages over GBP10.3 
billion of assets with a team of 17 fund managers. Clients' investments are 
spread across a range of unit trusts, an investment trust, hedge fund projects, 
VCTs, a SICAV - an international open-ended collective investment vehicle and 
segregated institutional portfolios. 
Andy Gray and Lindsay Whitelaw are co-managers of VCT1 and VCT2 with Andy Gray 
becoming the lead manager on 31 March 2009. Lindsey Whitelaw will continue to 
work with Andy Gray on the Company's investments, whilst working on a number of 
other Artemis projects. Supporting Andy Gray and Lindsay Whitelaw in helping to 
identify possible investments will be other members of the Artemis UK investment 
team, which includes John Dodd (a previous co-manager for the Company) who have 
a wide range of investment experience. 
 
Andy Gray 
Andy Gray is co-manager for the Company and VCT1 and is co-manager of Artemis 
New Enterprises Fund. After graduating from Loughborough University with a BSc 
in Banking and Finance, Andy qualified as a chartered accountant with Deloitte 
and Touche. His focus moved to fund management in 1998 when he joined Murray 
Johnstone as assistant fund manager, in its UK Small Cap team. Three years 
followed at Legg Mason as a fund manager of UK Small Caps. Andy joined Artemis 
in July 2006 from Scottish Widows Investment Partnership where he was investment 
director responsible for a number of Large Cap Funds and institutional mandates. 
 
Lindsay Whitelaw 
Lindsay Whitelaw has been manager of the Artemis New Enterprises Fund since its 
launch in 2000 and is co-manager for the Company and VCT1. Lindsay qualified as 
a chartered accountant, moving into a corporate finance role with Johnston Press 
in 1985, leaving in 1989 to join the venture capital group 3i plc, where he was 
responsible for identifying, negotiating and monitoring a range of unquoted 
investments. Prior to Artemis, Lindsay spent five years at Ivory & Sime, 
latterly as a director of the venture capital team. Lindsay Whitelaw is a 
founding member of Artemis and has managed the Company's investments since its 
launch. 
 
In view of the fact that Artemis will continue to manage the Enlarged Company's 
funds after the Scheme is implemented, by virtue of Artemis continuing to be the 
ongoing investment manager of VCT2, Artemis has agreed to the termination by 
VCT1 of the existing investment management agreement between them, without 
notice or penalty, with effect from the Effective Date. 
 
From the Effective Date, and subject to approval of resolutions to be put to 
VCT2 shareholders at the VCT2 EGM and the Scheme becoming effective, the VCT2 
board believes it appropriate to revise the management fee arrangements for 
VCT2. The new fee structure will result in a lower minimum annual fee payable to 
Artemis, but with an opportunity to generate greater fees based on performance 
of the net assets of the Company. The VCT2 board believes the new fee structure 
will provide a continuing incentive to Artemis to generate positive returns for 
shareholders. 
 
The revised management arrangements will amend the existing investment 
management agreement between VCT2 and Artemis to provide for revised management 
fees to apply with effect from the Effective Date and subject to the Scheme 
becoming effective. 
 
VCT2 will pay to Artemis a performance related fee, subject to a maximum and 
minimum amount being payable. The fee shall be calculated as 25% of the increase 
in the net asset value of VCT2 over each performance period, taking into account 
the effects of any sums returned, whether by distributions or purchases of 
VCT2's own shares and any VCT2 share capital raised. This fee is subject to a 
maximum amount payable of GBP2 million in any year to 30 September and a minimum 
of 1.4% per annum of the average monthly net asset value of VCT2. If a 
performance fee is paid in relation to any performance period, the net asset 
value will be re-set following that performance period to the net asset value 
prevailing on the last day of that performance period and become the net asset 
value against which future performance is measured. In the event that there are 
two consecutive performance periods in which no performance fee is paid, the net 
asset value will be re-set to the net asset value prevailing on the last day of 
the second performance period and will become the net asset value against which 
future performance is measured. 
 
Artemis will (subject to the maximum annual fee limit) be entitled to an interim 
payment on account for the first three months in each performance period. This 
shall be calculated as 1.4% per annum of the average monthly net asset value. 
Any interim payment made to Artemis will be deducted from the total fee due at 
the end of each performance period. 
 
For the above purposes, 'performance period' will be the six month periods to 31 
March and 30 September in each year. 
 
VCT2 and Artemis have agreed that they shall enter into negotiations in good 
faith with a view to concluding a review of the management fee arrangements in 
respect of VCT2 before the continuation vote of VCT2 in 2012. This review will 
again take into account relevant market conditions and market benchmarking. 
 
The investment management agreement with Artemis will be further amended to 
provide that the Company or Artemis can terminate the investment management 
agreement on six months' notice. 
 
DOCUMENTS AND APPROVALS 
 
VCT2 shareholders will receive a copy of a circular convening the VCT2 EGM to be 
held on 20 March 2009 (together with the VCT2 prospectus) at which VCT2 
shareholders will be invited to approve resolutions in connection with the 
Scheme, to revise the management arrangements with Artemis, change the name of 
VCT2 to Artemis VCT plc and extend the life of VCT2 (subject to the Scheme 
becoming effective) and also renew share issue and share repurchase authority. 
 
VCT1 shareholders will also receive a circular convening VCT1 EGM 1 on 20 March 
2009 and VCT1 EGM 2 on 31 March 2009 (together with the VCT2 prospectus) at 
which VCT1 shareholders will be invited to approve resolutions in connection 
with the Scheme. 
 
Copies of the prospectus and the circulars for VCT1 and VCT2 have been submitted 
to the UK Listing Authority and will be shortly available for inspection at the 
UK Listing Authority's Document Viewing Facility which is situated at: 
 
Financial Services Authority 
25 The North Colonnade 
Canary Wharf 
London E14 5HS 
Telephone: 0207 066 1000 
 
Investment Manager for VCT1 and VCT2 
Artemis Investment Management Limited 
Billy Aitken 
Telephone: 0131 225 7300 
 
Solicitors to VCT1 and VCT2 
Martineau 
Kavita Patel 
Telephone: 0870 763 2000 
 
Corporate Finance Adviser and Sponsor to VCT2 
Blomfield Corporate Finance Limited 
Alan MacKenzie 
Emily Morgan 
Peter Trevelyan-Clark 
Telephone: 020 7489 4500 
 
Corporate Finance Adviser to VCT1 
BDO Stoy Hayward LLP 
John Stephan 
Susan Brice 
Telephone: 0121 352 6200 
 
The directors and the proposed director of VCT2 accept responsibility for the 
information relating to VCT2 and its directors and proposed director contained 
in this announcement. To the best of the knowledge and belief of such directors 
and proposed director (who have taken all reasonable care to ensure that such is 
the case), the information relating to VCT2 and its directors and proposed 
director contained in this announcement, for which they are solely responsible, 
is in accordance with the facts and does not omit anything likely to affect the 
import of such information. 
 
The directors of VCT1 accept responsibility for the information relating to VCT1 
and its directors contained in this announcement. To the best of the knowledge 
and belief of such directors (who have taken all reasonable care to ensure that 
such is the case), the information relating to VCT1 and its directors contained 
in this document, for which they are solely responsible, is in accordance with 
the facts and does not omit anything likely to affect the import of such 
information. 
 
Blomfield Corporate Finance Limited, which is authorised and regulated in the 
United Kingdom by the Financial Services Authority, is acting exclusively for 
VCT2 and for no one else in connection with the matters described herein, and 
will not be responsible to anyone other than VCT2 for providing the protections 
afforded to customers of Blomfield Corporate Finance Limited or for providing 
advice in relation to any matters referred to herein. 
 
BDO Stoy Hayward LLP, which is authorised and regulated in the United Kingdom by 
the Financial Services Authority, is acting exclusively for VCT1 and for no one 
else in connection with the matters described herein, and will not be 
responsible to anyone other than VCT1 for providing the protections afforded to 
customers of BDO Stoy Hayward LLP or for providing advice in relation to any 
matters referred to herein. 
 
Martineau are acting exclusively for VCT1 and VCT2 and for no one else in 
connection with the matters described herein and will not be responsible to 
anyone other than VCT1 and VCT2 for providing the protections afforded to 
clients of Martineau or for providing advice in relation to the matters 
described herein. 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
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