Proposed Portfolio Disposal

RNS Number:5250T
Prelude Trust PLC
01 May 2008


Prelude Trust plc

1 May 2008

Proposed disposal of Prelude Trust plc's unquoted investments and the voluntary
winding-up of the Company

Introduction

The Board of Prelude Trust plc announces proposals to dispose of the Company's
existing portfolio of early stage technology based businesses and to wind up the
Company so as to allow Shareholders to receive the net proceeds of sale and the
other cash and near cash assets held by the Company net of the Company's
liabilities and the costs of liquidation. This followed the strategic review
announced by the Board on 15 January 2008 and discussions with potential
purchasers.

On Winding-up, the amount distributed to Shareholders will be dependent on the
net assets of the Company available for distribution after payment of the
Company's liabilities. For illustrative purposes only, based on the Portfolio
purchase price of #24.2 million and other cash and near cash assets held by the
Company net of the Company's liabilities (which include the costs of the
Proposals but exclude the Liquidators' retention) as at 30 April 2008 of #5.2
million, Shareholders would receive approximately 86p per Share under the
Proposals, of which it is expected that approximately 85.2p per Share would be
paid by 20 June 2008 with the balance being payable at a later date (expected to
be May 2009) subject to there being no claims under the Sale and Purchase
Agreement or otherwise in relation to the Company beyond the amount of its
existing liabilities as recorded in its financial records. By way of comparison,
the mid market price of a Share on 15 January 2008 was 80.5p. The mid market
price as at 29 April 2008 was 72p.

A Sale and Purchase Agreement has been entered into with the Purchaser for the
sale of the Portfolio. Due to the size of the transaction in relation to the
Company, the Disposal is conditional upon Shareholder approval. If the Disposal
is approved by Shareholders, the Board intends that the Company should be
wound-up voluntarily and its cash net assets distributed to Shareholders. The
Proposals being put to Shareholders therefore include a special resolution for
the voluntary winding-up of the Company as well as an ordinary resolution for
the approval of the Disposal.

Shareholders holding 48.2 per cent. of the Shares in issue have agreed to vote
in favour of the Resolutions.

Background to and reasons for the Proposals

Prelude Trust was launched in 1997 and raised #20.8 million for investment in
unquoted technology based businesses. An additional #29.1 million was raised in
2000.

The Company has made a number of successful investments and retains a portfolio
of companies that may have significant value. However, there have also been
disappointments and failures, a risk associated with early-stage technology
investments; some investments have taken longer than expected to mature and to
create value; exits have been difficult to achieve; and companies have in some
cases required more funding than was originally envisaged.

In recent years, the technology sector has underperformed the FTSE All Share
Index and generally been out of favour with investors and there has been limited
demand for the Shares. Since 2001, the Shares have traded at a discount to net
asset value, reaching a high of 70 per cent. in 2002. This has meant that the
Directors have not considered it possible to raise new funds for the Company.

On 15 January 2008 the Company announced a reduction in its net asset value as
at 31 December 2007 of #5.2 million, to #41.4 million, compared to the net asset
value as at 30 September 2007 of #46.6 million. Cash and other current assets
accounted for #6.4 million. The reduction in net asset value resulted
principally from provisions taken against portfolio companies, DeNovo
Pharmaceuticals Limited, m-Spatial Limited and Si-Connect Limited. The
provisions resulted from those investee companies having failed to make
sufficient progress in developing their businesses, or in finding new investors,
merger partners or acquirers.

Irrespective of whether the Board believes that the Company's portfolio has
growth potential over the long term, the Company's cash reserves have continued
to decline as portfolio companies have required further funding for their
development. The Manager has focussed on ensuring that those companies with the
greatest potential for growth could continue to be supported by the Company. The
Company's capacity to invest in new companies as well as supporting the existing
portfolio is governed by its ability to generate funds through realisations.
Such opportunities are not expected to be material in the near term. As
announced, the planned initial public offer on the Euronext market of portfolio
company Kiadis Pharma BV has been postponed because of current market
conditions. In the meantime, there are considerable costs associated with
managing the Company.

Against this background and following consultation with Shareholders holding
over 60 per cent. of the issued Shares, the Board asked the Manager and the
Company's corporate advisers to explore the Company's strategic options,
including the adoption of a run off strategy, a corporate transaction and the
sale of the Company's existing portfolio of early stage technology based
businesses. In evaluating the options, the Board was seeking to provide
Shareholders with a return in excess of the market price of the Shares at 15
January 2008, which was 80.5p.

Discussions with the Company's largest Shareholders indicated that the majority
favoured a secondary sale of the Portfolio, with the prompt return of net
proceeds in cash to Shareholders. Accordingly, the Manager conducted a
competitive process to find a purchaser for the Portfolio from those investors
who are known to be buyers of secondary venture capital portfolios. Two
potential purchasers emerged from this process. Due to the Manager's potential
conflict of interests (as explained under "Structure of the Transaction" below),
the Board asked the Company's broker, Winterflood Investment Trusts, to assist
in finalising the bidding process.

The successful bidder in the competitive process was CIP V, a fund advised by
Coller Capital, which is a leading global investor in private equity secondary
investments, and which advises funds with approximately $8 billion in committed
capital.

Following detailed negotiations with Coller Capital, on behalf of CIP V, and an
in-depth consideration of the possible options available to the Company, the
Board has concluded that the secondary sale of the Portfolio will be in the best
interests of Shareholders as a whole and recommends that Shareholders vote in
favour of the Proposals.

The consideration for the Disposal will be satisfied by the payment of #24.2
million in cash on completion by the Purchaser subject to adjustment for the
value of any realisations of, or any investment into, any security in any asset
in the Portfolio between 31 December 2007 and completion of the Disposal
(expected to be on or before 11 June 2008, following receipt of Shareholder
approval at the First General Meeting) save to the extent already taken into
account in calculating the consideration and any claims under the Sale and
Purchase Agreement in relation to the Company beyond the amount of its existing
liabilities as recorded in its financial records.

In reaching their decision, the Directors took the following factors into
consideration:

-    the ongoing funding requirements of the investee companies and the
     ability of the Company to finance these;

-    the length of time before significant funds generated by realisations are
     expected to be made from the Portfolio;

-    the cost of the Manager's fees in pursuing a run off strategy or the
     continuance of the Company's current strategy;

-    the current state of the private equity and public markets. There has
     been an increase in secondary selling in the private equity markets since
     September 2007, and the change in sentiment is evidenced by the discounts
     of listed private equity funds which have moved to a sector average
     discount of 25 per cent., from a 12 month average of 14 per cent.;

-    the feedback received from the Company's largest Shareholders on the
     future of the Company; and

-    the expected total cash proceeds to a Shareholder, assuming the Proposals
     are implemented, of 86p (having taken the expected costs of the
     transaction into account, and including the cash in the Company's
     portfolio but excluding the Liquidators' retention), which represents a
     premium of 6.9 per cent. to the mid price of a Share of 80.5p on 15
     January 2008 when the Board's intentions were first announced, or 19.5
     per cent. to the mid price of 72p on 29 April 2008.


Structure of the Transaction

The Company has entered into a conditional Sale and Purchase Agreement with the
Purchaser. As a consequence of the size of the transaction in relation to the
Company's gross assets, the sale of the investments will be classified as a
Class 1 transaction for the purposes of the Listing Rules and therefore the
Company will shortly be publishing a circular to Shareholders, giving details of
the Proposals and to obtain Shareholders' approval to the sale of the Portfolio
pursuant to the terms of the Sale and Purchase Agreement.

The Purchaser will appoint DFJ Esprit LLP to manage the Portfolio on an on-going
basis. Pursuant to the constitutional documents governing the Purchaser, the New
Manager will receive a management fee in respect of services provided to the
Purchaser. In addition, certain members of the New Manager will indirectly make
capital commitments equal to 1 per cent. of the total capital committed to the
Purchaser, and, in addition to their pro rata share of the proceeds received by
the Purchaser on realisation of the Portfolio, will receive a carried interest
calculated by reference to the Purchaser's total profit.

Proposed Winding-up of the Company

Following the Disposal, all of the Company's assets will be in cash or cash
equivalents. Accordingly, in light of Shareholder feedback and the likely costs
associated with offering a successor vehicle, the Board has determined that the
most appropriate course of action will be for the Company to be wound-up and the
assets distributed to Shareholders.

The Winding-up will become effective immediately upon the passing of the special
resolution put at the Second General Meeting.

After payment of all known liabilities, the Liquidators have indicated that an
amount estimated to be sufficient to meet all the unknown liabilities of the
Company will be required to be retained by the Company. Whilst the final amount
to be retained has not yet been determined, the retention is likely to be not
less than #300,000, equating to 0.9p per Share. A portion of the retention is
intended to cover the Company's maximum exposure under the Sale and Purchase
Agreement.

The timing of distribution of the majority of the cash net proceeds to
Shareholders is dependent upon the timing of completion of the Disposal of the
Portfolio to the Purchaser. The Board believes that completion of the transfer
of the investee companies in the Portfolio should occur on or before 11 June
2008 and, based on this timing, the Liquidators have indicated that they
anticipate being in a position to distribute the majority of net cash proceeds
to Shareholders no later than 20 June 2008, assuming that the Winding-up of the
Company is approved at the Second General Meeting.

The remainder of the cash proceeds, including the balance of the Liquidators'
retention of #300,000, equating to 0.9p per Share, will be distributed after
paying the costs of the Company's liquidation and settling all other liabilities
of the Company. The precise timing of this second and any further distributions
will depend on the Liquidators establishing that the Company has no outstanding
liabilities. It is expected that the remainder of the cash proceeds will be
distributed in May 2009.

Financial implications of the Proposals

On Winding-up, the amount distributed to Shareholders will be dependent on the
net assets of the Company available for distribution after payment of the
Company's liabilities.

For illustrative purposes only, based on the Portfolio purchase price of #24.2
million and other cash and near cash assets held by the Company net of the
Company's liabilities (which include the costs of the Proposals but exclude the
Liquidators' retention) as at 30 April 2008 Shareholders would receive
approximately 86p per Share under the Proposals. By way of comparison, the mid
market price of a Share on 15 January 2008 was 80.5p. The mid market price as at
29 April 2008 was 72p.

The legal, advisory and other costs and expenses in connection with the Proposal
and the estimated costs of liquidation are expected to amount to approximately
#250,000 (including VAT), which is equivalent to 0.8 per cent. of the proceeds
of the Disposal and cash held by the Company as at 30 April 2008.

The Liquidators will retain #250,000 being an amount equal to the maximum
liability of the Company under the Sale and Purchase Agreement for certain
warranties given to the Purchaser, and a further #50,000 contingent upon wholly
unknown liabilities.

Termination arrangements with the Manager

On 31 January 2008 the Company served notice to terminate the appointment of the
then current Manager of the Portfolio, Esprit Capital Management Limited. On 30
April 2008 the Company appointed DFJ Esprit LLP as a Joint Manager. Under a
Management and Administration Agreement entered into with the Company, the Joint
Managers are entitled to 12 months' notice of termination of their appointment.
However, the Board have received a written waiver from the Joint Managers of
their entitlement to notice or otherwise in connection with the termination of
the appointment, beyond 30 June 2008. The Joint Managers will receive their
usual fees up to this time.





Enquiries:

Michael Brooke                       020 7920 3150
Chairman, Prelude Trust plc

John West                            020 7920 3150
Tavistock Communications

Katie Standley                       020 3100 0297
Winterflood Investment Trusts



                               EXPECTED TIMETABLE

                                                                          2008
First General Meeting                                     12.00 p.m. on 20 May

Completion of the Disposal                                on or before 11 June

Dealings in Shares suspended                              7.30 a.m. on 12 June

Second General Meeting                                   10.00 a.m. on 12 June

Winding-up commences                                                   12 June

Estimated date for the initial distribution*                        by 20 June

Estimated date for the final distribution*                         29 May 2009

Cancellation of listing of Shares      no later than 8.00 a.m. on 12 June 2009

*actual date to be determined by the Liquidators

                                 DEFINITIONS

In this announcement, the following expressions have the following meanings,
unless the context requires otherwise:


"Board" or "Directors"   the directors of the Company

"CIP V"                  Coller International Partners V-A, L.P., a fund whose
                         ultimate general partner is advised by Coller
                         Capital, and which has committed 99 per cent. of the
                         total capital commitments made to the Purchaser

"Coller Capital"         Coller Capital Limited

"Company" or "Prelude    Prelude Trust plc
Trust"

"Disposal"               the proposed disposal of the Portfolio to the
                         Purchaser on the terms set out in the Sale and Purchase 
                         Agreement

"Joint Managers"         Esprit Capital Management Limited and DFJ Esprit LLP,
                         the ongoing managers of the Portfolio

"Liquidation Date"       the date on which the Company commences liquidation,
                         expected to be 12 June 2008

"Manager"                Esprit Capital Management Limited, the
                         manager of the Portfolio

"New Manager"            DFJ Esprit LLP, the new joint manager of the
                         Portfolio

"Portfolio"              the portfolio of unquoted investments proposed to be
                         sold by the Company to the Purchaser pursuant to the
                         terms of the Sale and Purchase Agreement

"Proposals"              collectively the Disposal and the Winding-up

"Purchaser"              DFJ Esprit II LP, a newly established Cayman Islands
                         exempted limited partnership managed by DFJ Esprit
                         LLP and whose committed capital is provided as to 99
                         per cent. by CIP V and as to 1 per cent. indirectly
                         by the partners of DFJ Esprit LLP

"Sale and Purchase       the conditional sale and purchase agreement dated 30
Agreement"               April 2008 between the Company and the Purchaser

"Shareholders"           a registered holder of Shares in the capital of the
                         Company

"Shares"                 ordinary shares of 5p each in the Company

"Winding-up"             the proposed winding-up of the Company and
                         appointment of
                         the Liquidators







                      This information is provided by RNS
            The company news service from the London Stock Exchange

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