Tender Offer
28 Septembre 2005 - 6:47PM
UK Regulatory
RNS Number:9053R
Edinburgh UK Small Co Track Tst PLC
28 September 2005
Edinburgh UK Smaller Companies Tracker Trust plc
28 September 2005
Proposals for a Tender Offer by Winterflood Securities to purchase up to 20 per
cent. of the Shares in issue, change of Benchmark Index, renewal of buy-back and
allotment authorities, and authority to sell shares out of treasury
Introduction
In accordance with the commitment made following the Annual General Meeting held
in 2004 the Board today announces details of a Tender Offer which, if approved,
would provide the opportunity to Shareholders to realise up to 20 per cent., and
possibly more, of their investment in the Company.
The Board is committed to maintaining a low level of discount to net asset value
at which the Share price trades and has introduced a package of measures to
improve this position including the annual tender offer and re-branding to use
the Edinburgh name together with re-packaged savings plans and the Manager's
expanded index and marketing teams. However, to further assist with the
maintenance of a low level of discount and to improve the marketability of the
Company's shares the Board is also proposing a change in the Benchmark Index,
renewal of the general authority to repurchase Shares in the market, renewal of
the general authority to issue a limited number of Shares for cash other than on
a pre-emptive basis and also the power to re-issue Shares out of treasury.
Notwithstanding the commitment to an annual tender offer, the Board is aware
that some Shareholders would benefit from the ability to exit a larger
proportion of their holding in the Shares than might be possible under the
Tender Offer. It is therefore the Board's intention to put proposals to
Shareholders in September 2006 which would allow them to exit all of their
holding in Shares for cash before the end of 2006.
Background to the Tender Offer
At the Company's annual general meeting held in July 2004, the annual
continuation vote was passed by Shareholders with the requisite majority.
However, in view of the votes cast against the resolution at that time, and
notwithstanding the narrowing of the discount, the Board made a commitment that
Shareholders be given, annually, the opportunity to realise up to 20 per cent.,
or possibly more under a mix and match facility, of their investment in the
Company by way of a Tender Offer. This Tender Offer represents the second such
offer made in accordance with that commitment.
To ensure that the Company remains of a significant and viable size for those
Shareholders who wish to remain invested, the Directors have again set a limit
of 20 per cent. on the total number of Shares which can be sold under the Tender
Offer. The limit should allow, subject to the level of tender elections, those
Shareholders who wish to realise a significant proportion of their holdings to
do so at the realisable value of the underlying assets, less the costs of the
Tender Offer.
Summary of the Tender Offer
The key points for Shareholders are as follows:
- the Tender Offer is for up to 10,825,843 Shares, representing 20 per
cent. of the Company's issued share capital;
- Shareholders will be able to decide whether to continue their
investment in the Company or to tender some or all of their Shares
within the overall limit of the Tender Offer;
- the price at which Shares will be acquired will be determined by the
amount of cash realised from the sale of the assets allocated to the
Tender Pool, less the costs of the Tender Offer, estimated to be
#225,000 and any stamp duty arising; and
- the Tender Offer is conditional, amongst other things, on Winterflood
Securities receiving valid tenders in respect of not less than 5 per
cent. of the Shares in issue on the Record Date.
Conditions of the Tender Offer
The Tender Offer will not go ahead unless it becomes unconditional. The
following are the principal conditions of the Tender Offer (the full conditions
of the Tender Offer are set out in paragraph 2 of Part 4 of the Circular):
- the passing of the Tender Resolution at the EGM; and
- valid tenders being received in respect of not less than 5 per cent.
of the Shares in issue on the Record Date.
The Tender Offer
The Tender Offer is being made for up to 20 per cent. of the Shares in issue to
Shareholders other than Excluded Overseas Shareholders. Shareholders will
therefore have a Basic Entitlement to have up to 20 per cent. of their holdings
purchased in the Tender Offer. Shareholders will be able to tender additional
Shares, but such tender requests will only be satisfied, on a pro rata basis, to
the extent that other Shareholders do not tender their Basic Entitlement.
Tenders in excess of the Basic Entitlement will be rounded down to the nearest
whole number of Shares.
Shareholders (other than Excluded Overseas Shareholders) therefore have the
following options in the Tender Offer:
- to take no action and continue their investment in respect of all of
their Shares and thereby maintain their exposure to the investment
expertise of the Manager, which has provided good long term investment
performance for the Company, and to the small cap sector; or
- to tender up to their Basic Entitlement in the Tender Offer for
purchase by Winterflood Securities and to receive cash in
consideration of such purchase; or
- to tender in excess of their Basic Entitlement in the Tender Offer
for purchase by Winterflood Securities, such tender to be satisfied,
in addition to the Basic Entitlement, on a pro rata basis to the
extent that other Shareholders do not tender their Basic Entitlement,
and to receive cash in consideration of such purchase.
Shareholders are not obliged to tender any Shares and those who do not wish to
sell their Shares in the Tender Offer should not return their Tender Forms.
Mechanics of the Tender Offer
In order to implement the Tender Offer Winterflood Securities as principal will
purchase, at the Tender Price, the Shares tendered and, following the completion
of those purchases, sell the relevant Shares on to the Company at the same price
by way of an on-market transaction. The Shares which the Company acquires from
Winterflood Securities will be cancelled and the number of shares in issue
reduced accordingly. The Tender Price will be determined once the Company's
assets have been allocated between the Continuing Pool and the Tender Pool (on
the basis of elections received) and the assets in the Tender Pool have been
realised. The valuation of the Company's assets to be allocated to the Tender
Pool will take place on the Calculation Date.
The Tender Pool alone will bear all costs and expenses relating to the Tender
Offer, including the Tender Offer Costs, the variable costs of realising the
assets in the Tender Pool and the amount of stamp duty payable on the repurchase
by the Company of the Shares acquired from Winterflood Securities. Accordingly,
the Tender Price will also depend upon the number of Shares tendered in the
Tender Offer. The greater the number of Shares tendered, the lower the fixed
costs of the Tender Offer will be as a proportion of the value received by
Exiting Shareholders. In order to ensure Exiting Shareholders do not incur an
excessively high proportion of costs due to low take-up of the Tender Offer, the
Board has set a minimum level at which the Tender Offer will proceed. This
minimum is 5 per cent. of Shares in issue being tendered.
Settlement of Tender Offer consideration
Although the Tender Forms must be received by 18 October 2005, it is expected
that the purchase of Shares tendered may not be effected until December 2005,
and therefore the proceeds may not be despatched until 19 December 2005. The
amount and precise timing of settlement will depend upon the ability of the
Manager to realise the assets comprised in the Tender Pool.
Funding of the Tender Offer
The purchase by the Company of Shares may only take place under the provisions
of the Act if the Company has sufficient distributable reserves available. As at
23 September 2005, the Company had #83,546,000 standing to the credit of its
special reserve which was created upon the cancellation of the Company's share
premium account in July 2003 and which is available for this purpose. As
referred to above, the Tender Offer will be funded by the realisation of the
assets allocated to the Tender Pool.
Costs of the Tender Offer
It is estimated that the costs relating to the Tender Offer, being the Tender
Offer Costs, will amount to approximately #225,000 which, together with the
variable costs in realising assets in the Tender Pool and the amount of stamp
duty payable on the repurchase by the Company of Shares tendered, will be borne
by the Tender Pool and hence by Exiting Shareholders
Benefits of the Tender Offer
The Directors believe that the Tender Offer will provide:
- an opportunity for all Shareholders (other than Excluded Overseas
Shareholders) to realise a proportion of their investment for cash;
- an ability for Continuing Shareholders to maintain their exposure to
the Benchmark Index; and
- a maximum discount to Net Asset Value at which the Share price should
trade.
Risks associated with the Tender Offer
If the Tender Offer does not proceed for any reason (including failure to reach
the minimum level referred to above), the Company would bear the full costs of
the Tender Offer, which would be charged to revenue in the year ending 31 March
2006 and would adversely affect the final dividend payable by the Company in
respect of that year.
Shareholders wishing to tender their Shares under the Tender Offer should note
that the Tender Offer Costs will be proportionally higher, the lower the number
of valid tenders received.
In addition to the Tender Offer Costs, the Tender Price will be further
dependent on the price at which the assets comprising the Tender Pool are
realised.
Following commencement of the realisation of the Tender Pool assets, the Tender
Pool will become less exposed to market movements, which may be upwards or
downwards.
Shareholders should therefore be aware that the Tender Price finally realised
may be at a greater discount to Net Asset Value than that at which the Shares
currently trade, and also may be below the level at which they trade at the date
of settlement of the Tender Price.
Revised Investment Policy
With effect from 1 January 1999 the Company adopted the then new FTSE All-Small
Index (excluding Investment Companies) as its Benchmark Index. The FTSE
All-Small Index (excluding Investment Companies) comprises constituents of both
the FTSE Small Cap and FTSE Fledgling Indices. The adoption of this index was
based on several expected advantages including a lower cost of rebalancing,
improved liquidity, transparency of information and relevance to investors.
While many of these advantages have been borne out, the FTSE All-Small Index has
not been as widely adopted as the leading UK smaller capitalisation index as had
been expected back in 1998.
The Board is therefore proposing that the Benchmark Index of the Company be
changed from the FTSE All-Small Index (excluding Investment Companies) to the
FTSE Small Cap Index (excluding Investment Companies) and an ordinary resolution
seeking the approval of shareholders will be put at the EGM. Subject to the
approval of this resolution the investment objective of the Company will be to
broadly match its portfolio's performance against changes in the capital value
of the FTSE Small Cap Index (excluding Investment Companies) and the dividend
yield of that index. The most significant impact of this change is that the
Company would no longer invest in FTSE Fledgling stocks, being those listed
companies that qualify for inclusion in an index but are too small to be
included in the FTSE All-Share and which are also not subject to a liquidity
test.
The FTSE All-Share consists of all constituents in the FTSE 100, FTSE 250 and
FTSE Small Cap. Its exact size is determined by the FTSE Equity Indices
Committee annually at its meeting in December and it aims to represent at least
98 per cent. of the full capital value of all qualifying UK listed companies.
The FTSE Small Cap consists of those UK companies within the FTSE All Share
which themselves sit outside of the 350 largest UK listed companies and have a
gross market capitalisation of up to approximately #300 million. As at 23
September 2005 (the last practicable date prior to the publication of this
document), the FTSE Small Cap Index (excluding Investment Companies) itself had
254 constituent companies and a gross market capitalisation of #43.6 billion.
The Board believes that the new Benchmark Index is more widely accepted than the
existing index and should therefore improve the marketability of the Company's
Shares. If the change in Benchmark Index is approved, the Board expects that the
required portfolio realignment of the Continuing Pool (being the disposal of
approximately 11 per cent. of the Continuing Pool representing FTSE Fledgling
stocks and the reinvestment of the proceeds of that disposal into FTSE Small Cap
stocks), will be effected as soon as practicable after the completion of the
Tender Offer. The regulatory announcement of Net Asset Value will be amended
during this period to provide an indication of the quantum of the Company's
portfolio invested in the stocks of each relevant index on a weekly basis. The
Board does not expect the cost of this realignment, which will be borne by the
Continuing Pool, to exceed 1 per cent. of Net Asset Value.
General Authority to repurchase Shares
Since the share buyback programme commenced in February 2000, a total of
16,792,537 Ordinary Shares have been bought back, representing 19.9 per cent. of
the original share capital. This includes 1,520,000 shares purchased in the
market during the financial year ended 31 March 2005 under the Company's general
authority but excludes the 13,532,258 which were purchased last year by way of
tender offer. The shares purchased during the financial year ended 31 March 2005
were bought in at an average discount of 11.1 per cent. These buybacks enhanced
the net asset value by approximately 0.24 per cent. helping to offset the costs
incurred in portfolio rebalancing during the year. The Board believe it is
appropriate to continue its commitment to a sensible ongoing Share buy back
policy and wish to renew its general authority to make on-market Share
repurchases in order to return further capital to Shareholders and to attempt to
limit discount volatility following implementation of the Tender Offer. Such
general authority is normally renewed at the Annual General Meeting. However at
the AGM held in July 2005 the relevant resolution was not passed and the
Directors will therefore once again be proposing a special resolution to seek
authority to make purchases in the market of up to 14.99 per cent. of the
reduced issued share capital of the Company, assuming that the Tender Offer is
taken up in full.
The maximum number of Shares that may be purchased will be 6,491,176 (assuming
the maximum number of Shares are tendered under the Tender Offer), or if higher
14.99 per cent. of the issued share capital immediately following the completion
of the Tender Offer. The minimum price which may be paid for a Share is 25p and
the maximum price that may be paid is 105 per cent. of the average of the middle
market quotations for a Share calculated by reference to the London Stock
Exchange Daily Official List for the five business days immediately preceding
the day on which the Share is contracted to be purchased.
As part of its policy of reducing the discount to net asset value at which the
Shares trade, the Board intends, subject to the change in Benchmark Index, to
adopt a more structured approach to the use of its share repurchase powers, if
renewed. In such event, the Board will commit to carry out share repurchases on
an ongoing basis with the aim of establishing a long-term level of discount
below 6 per cent. During periods of extreme market volatility the Board may use
its discretion in the application of this policy.
Any shares purchased in this way will either be cancelled, and the number of
shares in issue reduced accordingly, or may be held in treasury (provided such
number does not represent more than ten per cent. of the then issued share
capital of the Company).
General Allotment Authority
It is proposed that the Directors be granted a general authority until the
conclusion of the next Annual General Meeting to make limited allotments of
Shares including treasury shares (up to an aggregate nominal amount of 10 per
cent. of the issued share capital of the Company immediately following the
completion of the Tender Offer) for cash other than on a statutory pre-emptive
basis which would require such shares to be offered first to existing
Shareholders on a pro rata basis. Such general authority is normally renewed at
the Annual General Meeting. However at the AGM held in July 2005 the relevant
resolutions were not passed. The Directors will therefore once again be
proposing a special resolution at the EGM for this purpose.
Re-issue of Treasury Shares
The Board is proposing that if shares bought back by the Company are retained in
treasury then those Shares may be re-issued and sold by the Company at a
discount to the prevailing Net Asset Value per share provided that the discount
at which they are sold is less than the discount at which they were bought back
by the Company. The Board believes that the use of the treasury share facility
is in the best interest of Shareholders on the basis that the liquidity of the
Shares is enhanced and any reselling of Shares from treasury would reduce the
Company's total expense ratio. Any proposed re-issue of treasury shares at a
discount to Net Asset Value requires the approval of Shareholders by way of a
special resolution and will be subject to the allotment power granted to the
Company by special resolution referred to below. These resolutions will be put
to Shareholders at the EGM.
Interim Dividend
In order that all Shareholders (i.e. including tendering Shareholders)
participate in the revenue generated by the portfolio in the financial year to
date, the Board has today declared an interim dividend in respect of the year
ending 31 March 2006 of 1.75 pence per Share (2005: 1.75p). The dividend is
payable on 21 October 2005 to those Shareholders who are on the Register at the
close of business on 7 October 2005. Both the Continuing Shares and any Shares
tendered under the Tender Offer will retain the right to receive the interim
dividend. The Company expects to pay a final dividend in accordance with its
usual timetable.
Strategy and prospects for the Company
The Company's objective is to broadly match the portfolio performance against
changes in the capital value and dividend yield of the Benchmark Index. The
portfolio is positioned to match the constituent companies contained within the
Benchmark Index by market capitalisation, sector and sub-sector and holds most
of the companies contained within the Benchmark Index. Software is used to align
risk characteristics of individual holdings and decide whether to include or
exclude particular stocks from the portfolio. The Net Asset Value of the Shares
has slightly out performed the existing Benchmark Index over the past year
mainly due to the buyback policy over the period and the Manager's dealing
efficiency.
The Board is confident that the Company can continue to meet its investment
objectives and considers that the Company should continue with its strategy,
believing that the Company offers investors a low cost, diversified vehicle with
a simple capital structure through which Shareholders can gain exposure to
smaller companies in the UK. The Board believes that the smaller companies
sector remains an attractive mid to long term investment opportunity.
Future repurchases of Shares
Notwithstanding the commitment to put proposals to Shareholders each year to
return up to a further 20 per cent. of the Company's share capital existing at
that time by way of a tender offer, and, if passed, the ongoing Share buyback
facility, the Board is aware that some Shareholders would benefit from the
ability to exit a larger proportion of their holding in the Shares than might
otherwise be available under the Tender Offer. It is therefore the Board's
intention, subject to the passing of the Company's annual continuation vote, to
put proposals to Shareholders which would allow them to exit all of their
holding in the Shares for cash. The exact method by which such exit will be
offered will be determined in due course but will in any event be made in
accordance with the Act and the listing rules of the FSA. It is expected that
details of such proposals will be posted to Shareholders in September 2006 in
order to provide the ability to exit before the end of 2006.
Extraordinary General Meeting
To enable the Tender Offer, the change of Benchmark Index and the other
proposals to be put into effect, an Extraordinary General Meeting is being
convened for 10.00 a.m. on 27 October 2005 at which the Resolutions will be
proposed for the following purposes:
- to authorise the Company to change its Benchmark Index to the FTSE
Small Cap Index (excluding Investment Companies);
- to authorise the Company to make market purchases of up to 10,825,843
Shares pursuant to the Tender Offer;
- to authorise the Company to disapply statutory pre-emption rights
pursuant to the general authority approved by the Company on
7 July 2005;
- to authorise the Company to make market purchases of up to 14.99 per
cent. of its issued ordinary shares immediately following completion
of the Tender Offer; and
- to authorise the Company to issue Shares up to an aggregate value of
#1,082,584 out of treasury at a price below the net asset value per
share (provided that the discount to which they are sold is less than
the discount at which such shares were bought back).
The resolution to approve the change of Benchmark Index is an ordinary
resolution and will require the approval of at least 50 per cent. of the votes
cast at the meeting. The remaining resolutions will be proposed as special
resolutions and will require the approval of at least 75 per cent. of the votes
cast at the meeting.
The quorum at the EGM is two persons entitled to attend and to vote on the
business to be transacted, each being a member or a proxy for a member or a duly
authorised representative of a corporation which is a member.
Irrevocable Undertakings
The Company has received irrevocable undertakings from certain Shareholders in
respect of holdings representing approximately 19 per cent. of the Company's
issued share capital to vote in favour of the Resolutions and to tender 20 per
cent. or more of their Shares under the Tender Offer.
Overseas Shareholders
The making of the Tender Offer to Overseas Shareholders may be prohibited or
affected by the laws of the relevant Overseas jurisdiction. Shareholders with
registered or mailing addresses Overseas or who are citizens of or nationals of,
or resident in an Overseas jurisdiction should read paragraph 10 of Part 4 of
the Circular. It is the responsibility of all Overseas Shareholders to satisfy
themselves as to the observance of any legal requirements in their jurisdiction,
including, without limitation, any relevant requirements in relation to the
ability of such holders to complete and return a Tender Form.
Expected Timetable
2005
Tender Offer commences 8.00 a.m. on 29 September
Record Date for Interim Dividend 7 October
Latest time and date for receipt of
Tender Forms 3.00 p.m. on 18 October
Record Date for Tender Offer Close of business on 18 October
Interim Dividend payment 21 October
Latest time and date for receipt of Form of Proxy for
Extraordinary General Meeting 10.00 a.m. on 25 October
Extraordinary General Meeting 10.00 a.m. on 27 October
Announcement of take-up level under the Tender Offer 27 October
Calculation Date for determining allocation of
assets to the Tender Pool Close of business on 27 October
Announcement of Tender Price and tender Offer
implemented By 12 December*
Settlement of Tender Offer consideration By 19 December*
Balancing Share Certificates dispatched and
accounts settled in respect of
Tender Offer CREST By the week commencing 27 December*
If any of the above times and/or dates change, the revised time(s) and/or date
(s) will be notified to Shareholders by announcement through a Regulatory
Information Service.
* Assuming that all assets comprised in the Tender Pool are realised and
settlement is completed by 11 December 2005. If realisation and settlement are
not completed by this date then this date and all subsequent dates will move
accordingly.
Copies of the above document have been submitted to the FSA and will shortly be
available for inspection at the FSA's Document Viewing Facility, which is
situated at:
Financial Services Authority
25 North Colonnade
Canary Wharf
London
E14 5HS
Tel no: 020 7066 1000
Enquiries:
Gary Jones Aberdeen Asset Managers Limited
020 7463 6000
Charles Mearns Aberdeen Asset Management PLC
020 7463 6000
David Benda Winterflood Securities
020 7621 5562
This information is provided by RNS
The company news service from the London Stock Exchange
END
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