21 Aug 2008 16:11
RNS Number : 8369B
Advent Capital (Holdings) PLC
21 August 2008
21 August 2008
THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO THE UNITED STATES, CANADA, AUSTRALIA OR JAPAN OR ANY OTHER JURISDICTION WHERE IT IS UNLAWFUL TO DO SO.
ADVENT CAPITAL (HOLDINGS) PLC
("ADVENT" OR THE "COMPANY")
POSTING OF THE RESPONSE DOCUMENT TO THE OFFER BY FAIRFAX FINANCIAL HOLDINGS LIMITED ("FAIRFAX")
The following is the text of a letter sent to shareholders today:
“To Shareholders and, for information only, to participants in the Advent Share Option Schemes
Dear Shareholder,
YOUR BOARD RECOMMENDS THAT YOU DO NOT ACCEPT THE FAIRFAX OFFER
On 29 July 2008, Fairfax announced its firm intention to make a cash offer to acquire all of the Advent Shares not already owned by it at a price per Advent Share of 165 pence.
I wrote to you on 4 August 2008 to set out the view of your Board that the Fairfax Offer materially undervalues Advent. I am now writing to you, as required by the City Code, to set out our formal advice on the Fairfax Offer contained in the Offer Document dated 7 August 2008.
Your Board, which has been so advised by Kinmont, is recommending you DO NOT accept the Offer and urge you NOT to complete the form of acceptance accompanying Fairfax’s Offer Document. Your Board is not accepting the Offer in respect of all of their own beneficial holdings in respect of 1,843,241 Advent Shares (representing c.5 per cent. of the issued share capital of the Company).
In view of the fact that Trevor Ambridge is an employee and officer of Fairfax, he is not considered independent for the purposes of the Fairfax Offer and accordingly he has taken no part in the Board’s deliberations relating to the Fairfax Offer nor the recommendation from your Board in relation to the Fairfax Offer.
The Fairfax Offer will remain open for acceptance until at least 28 August 2008. Fairfax may then extend the Offer for a further period or, if the Offer has not then become unconditional, Fairfax may allow the Offer to lapse.
The key points underpinning the views of your Board are set out below.
Fairfax’s Offer MATERIALly undervalues YOUR Company
INTRODUCTION
Fairfax has offered 165 pence per Advent Share for the entire issued and to be issued share capital of the Company not already owned by it.
The Fairfax Offer at 165 pence per Advent Share materially undervalues the Company on a number of measures:
·; there is no bid premium which would normally be expected in an offer for a public company;
·; it is being made at a significant discount to recent trading levels in the Advent Share price and at a significant discount to Advent’s net tangible assets per share;
·; it has been made at a significant discount to the price to net tangible asset value multiples placed by bidders on recent takeovers in the Lloyd’s insurance sector; and
·; it contains no premium for the value of Advent as a long established business with a Lloyd’s franchise.
NO BID PREMIUM
The Fairfax Offer at a discount to market valuecompares most unfavourably with other recent UK cash takeovers and comparable recent takeovers in the Lloyd’s insurance sector.
In takeovers announced since 1 January 2005, the average bid premium paid over the mid market closing share price on the last business day prior to announcement was:
·; 33.1 per cent. for all UK listed companies; and
·; 28.8 per cent. on comparable Lloyd’s insurance sector listed companies.
The Fairfax Offer represents:
·; a discount to the 6 month average* mid market closing share price of 230.6 pence per Advent Share of 28.4 per cent.;
·; a discount to the 1 year average* mid market closing share price of 234.4 pence per Advent Share of 29.6 per cent.; and
·; a discount to the share price on the Latest Practicable Date of 200.0 pence per Advent Share of 17.5 per cent..
* calculated from 28 July 2008, being the last business day prior to the date of the announcement of the Offer.
LOW OFFER VALUE AND DISCOUNT TO NET TANGIBLE ASSETS
The Fairfax Offer represents a discount to Advent’s 240 pence net tangible assets per Advent Share of 31 per cent..
Your Board notes that the Fairfax Offer not only represents no premium to the closing mid-market price of the Company’s shares of 165 pence per Advent Share as at 28 July 2008, being the last business day prior to the date of the announcement of the Offer, but also represents a significant discount to the Company’s net tangible assets of 240 pence per Advent Share as at 30 June 2008 (as announced in the interim results on 28 July 2008).
The Fairfax Offer values the whole of Advent’s issued share capital at approximately £67 million (£68.9 million on a fully diluted basis), whereas the net tangible assets of Advent, as at 30 June 2008, were approximately £97.6 million and were held almost entirely in cash or cash equivalents. The Offer therefore represents a mere 0.69x net tangible asset value. No value is therefore being placed on the Company’s Lloyd’s franchise.
Shareholders are entitled to expect that anyone wishing to acquire control of Advent should pay a control premium rather than the discount being offered by Fairfax. It is a matter of public record that a premium over net tangible asset value, not a discount to net asset value represents fair value in such takeovers.
In the last two years, transactions involving takeovers of Lloyd’s businesses have taken place at between 1.4x to 2.6x net tangible asset value.
OPERATIONAL OVERVIEW AND UPDATE
·; Advent has operated in the Lloyd’s market for over 30 years. As a Lloyd’s platform, Advent has access to the licensing, rating, underwriting opportunities, broker distribution networks and underwriting talent of Lloyd’s.
·; Advent’s Lloyd’s and Bermuda operations are 100 per cent. owned by the Advent Group, with 100 per cent. of the capacity of Syndicate 780 being owned by Advent from the 2008 Year of Account.
·; Syndicate 780 operating with underwriting capacity of £135m for the 2008 Year of Account.
·; Syndicate 780 premiums written for 2008 at 30 June 2008 are ahead of business plan.
·; The 2006 and 2007 underwriting Years of Account of Syndicate 780 are forecast at 30 June 2008 to show profits (2006: 17.5 to 22.5 per cent. of capacity; 2007: 10 to 15 per cent. of capacity).
·; Syndicate 780 specialises in short tail property reinsurance and insurance and also underwrites specialist lines including energy and marine excess of loss.
·; Advent Re (Bermuda) is fully capitalised by Advent and operational since 2007, initially writing retrocessional reinsurance.
·; In the last three years, 50 per cent. of the total client base has renewed with Advent year on year, and for its core treaty book business over 64 per cent. has renewed.
·; Changes to the business model made by management since 2006 have lead to a significant reduction in peak exposures to major US catastrophes within Syndicate 780.
·; Strong management team with many years’ experience in the Lloyd’s market.
·; A dedicated and highly experienced underwriting team with a proven track record who have been working in the Lloyd’s market for an average of 14 years, highlighted by the combined ratio of 83 per cent. for 2006, and 78 per cent. for 2007.
·; Recent appointments of Duncan Lummis (Chief Underwriting Officer) and Darren Stockman (Active Underwriter), both with Advent for 20 years.
·; Return on equity of 21.6 per cent. in 2007 and 25.1 per cent. in 2006.
·; 2007 profit before tax of £25.2m.
Your Board believes that the Company is progressing extremely well, as evidenced by the above, and believes that the Company’s two 100 per cent. owned underwriting platforms provide the Company with a strong operating basis from which to grow.
EMPLOYEES
The Offer Document states that the existing employment rights and terms and conditions of employment of all management and employees of Advent will be safeguarded and pension obligations complied with. It also notes that Fairfax does not intend to integrate the operations of Advent into the operations of its existing subsidiaries and that Advent will continue to operate from its present place of business in accordance with its existing business plan and publicly stated objectives. However, your Board has not discussed these matters with Fairfax.
POSITION WITH AMBER AND PHOENIX
The Offer Document states that Fairfax has received non-binding letters of intent to accept the Offer from Amber (in respect of 2,421,590 Advent Shares representing 6.0 per cent, of the Company’s issued share capital) and Phoenix (in respect of 5,698,346 Advent Shares representing 14.0 per cent. of the Company’s issued share capital).
On 20 and 21 August 2008 Amber sold, for 170 pence per Advent Share, 1,315,130 and 1,106,460 (respectively) Advent Shares to Mackenzie Cundill Investment Management, which now holds 5,168,090 Advent Shares, representing 12.7 per cent. of the Company’s issued share capital. With regard to their letter of intent, Amber will not therefore be in a position to accept the Fairfax Offer in respect of any Advent Shares, and Mackenzie Cundill Investment Management has confirmed its non-binding intention to the Company’s advisers not to accept the Fairfax Offer in relation to its 5,168,090 Advent Shares (representing 12.7 per cent. of the Company’s issued share capital).
As a consequence, Amber no longer holds any Advent Shares and can no longer sell any Advent Shares to Fairfax.
The Offer will remain open for a minimum of a further 7 days until 28 August 2008 at which time Fairfax may either extend the Offer for a minimum of a further 14 days or Fairfax may let the Offer lapse.
CONCLUSIONS
Your Board believes that Advent has a good future ahead of it. We are well positioned in our specialist areas through our dual underwriting platforms in London and Bermuda. Insurance market conditions may be softening at present, but experience tells us that cycles turn and your Board believes that we have the people, brand and customer loyalty to take advantage of any market correction.
Stock market conditions are not robust at present but your Board does not believe that is a reason to sell at a price which cannot be considered reasonable, and thereby yield to an approach at a mere 69 per cent. of net tangible assets per share. If our future is as a listed entity, then your Board believes that the longer term prospects for the business and the value of Advent’s franchise should, over time, be reflected in our share price.
·; Fairfax’s Offer materially undervalues Advent
·; THE BOARD RECOMMENDS THAT YOU DO NOT ACCEPT THE FAIRFAX OFFER
·; THE BOARD THEREFORE RECOMMENDS THAT YOU Do not complete the form of acceptance accompanying Fairfax’s Offer Document aND TAKE NO ACTION
ADVICE TO SHAREHOLDERS
Your Board, which has been so advised by Kinmont, believes that the Fairfax Offer materially undervalues your investment in Advent. In providing advice to the Board, Kinmont has taken into account the commercial assessments of the Board. Your Board firmly believes that it has a strategy in place that can deliver real long term shareholder value and, therefore, 165 pence in cash is an offer which is inadequate and is one which this Board will not recommend to Shareholders as representing the fair value of the Company.
If you are in any doubt about the contents of this document or the action you should take, you should seek your own independent financial advice immediately.
Yours sincerely,
Brian F Caudle
Executive Chairman”
DEFINITIONS
| Advent or the Company | Advent Capital (Holdings) PLC, a company incorporated in England and Wales with Company Number 03033609; |
| Advent Shares | ordinary shares of 5 pence each in the share capital of Advent; |
| Advent Share Option Schemes | the approved and unapproved Advent Share Option Plans 2005 and the unapproved Advent Share Option Plan 2006; |
| Amber | Amber Master Fund (Cayman) SPC; |
| Board or your Board | the Independent Advent Directors; |
| City Code | the City Code on Takeovers and Mergers; |
| Directors | the directors of Advent; |
| Fairfax | Fairfax Financial Holdings Limited; |
| Group | Advent and its subsidiary undertakings, as at the date of this document; |
| Independent Advent Directors | the Directors of Advent, other than Trevor Ambridge; |
| Kinmont | Kinmont Limited; |
| Latest Practicable Date | the latest practicable date prior to the publication of the response document, being 20 August 2008; |
| Offer or the Fairfax Offer | the offer by Fairfax, on the terms and subject to the conditions set out in the Offer Document and the related form of acceptance (in respect of certificated Advent Shares); |
| Offer Document | the document relating to the Offer posted by Fairfax to Shareholders on 7 August 2008; |
| Phoenix | Phoenix Asset Management Partners Limited; |
| Shareholders or Advent Shareholders | the holders of Advent Shares, as at the date of this document; and |
| United States | the United States of America, its territories and possessions, any state of the United States of America and the District of Columbia and all other areas subject to its jurisdiction. |
ENDS
Contact
| | | | | |||
| | Advent Capital Holdings Keith Thompson Chief Operating Officer Neil Ewing Investor Relations | | +44 (0) 20 7743 8200 | |||
| | Kinmont Gavin Kelly John O’Malley | | +44 (0) 20 7087 9100 | |||
| | Fox-Pitt, Kelton Simon Law Jonny Franklin-Adams | | +44 (0) 20 7663 6000 | |||
| | Pelham PR Polly Fergusson Damian Beeley | | + 44 (0) 20 7743 6362 | |||
The Directors of the Company (other than Trevor Ambridge) accept responsibility for the information contained in this announcement. To the best of the knowledge and belief of the Directors of the Company (other than Trevor Ambridge), who have taken all reasonable care to ensure that such is the case, the information contained in this announcement is in accordance with the facts and does not omit anything likely to affect the import of such information.
Kinmont Limited, which is regulated in the United Kingdom by the Financial Services Authority, is acting as financial adviser to the Company in relation to the matters referred to in this announcement and no one else and will not be responsible to any other person for providing the protections afforded to clients of Kinmont Limited or for providing advice in relation to the matters referred to in this announcement.
Fox-Pitt, Kelton Limited, which is regulated in the United Kingdom by the Financial Services Authority, is acting as financial adviser to the Company in relation to the matters referred to in this announcement and no one else and will not be responsible to any other person for providing the protections afforded to clients of Fox-Pitt, Kelton Limited or for providing advice in relation to the matters referred to in this announcement.
Dealing Disclosure Requirements
Under the provisions of Rule 8.3 of the City Code on Takeovers and Mergers (the “Code”), if any person is, or becomes, 'interested' (directly or indirectly) in one per cent. or more of any class of 'relevant securities' of Advent, all 'dealings' in any 'relevant securities' of Advent (including by means of an option in respect of, or a derivative referenced to, any such 'relevant securities') must be publicly disclosed by no later than 3.30 pm (London time) on the London business day following the date of the relevant transaction. This requirement will continue until the date on which any offer becomes, or is declared, unconditional as to acceptances, lapses or is otherwise withdrawn or on which the 'offer period' otherwise ends. If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire an 'interest' in 'relevant securities' of Advent, they will be deemed to be a single person for the purpose of Rule 8.3 of the Code.
Under the provisions of Rule 8.1 of the Code, all 'dealings' in 'relevant securities' of Advent by Fairfax or Advent, or by any of their respective 'associates', must be disclosed by no later than 12.00 noon (London time) on the London business day following the date of the relevant transaction.
A disclosure table, giving details of the companies in whose 'relevant securities' 'dealings' should be disclosed, and the number of such securities in issue, can be found on the Takeover Panel's website at www.thetakeoverpanel.org.uk.
'Interests in securities' arise, in summary, when a person has long economic exposure, whether conditional or absolute, to changes in the price of securities. In particular, a person will be treated as having an 'interest' by virtue of the ownership or control of securities, or by virtue of any option in respect of, or derivative referenced to, securities.
Terms in quotation marks are defined in the Code, which can also be found on the Panel's website. If you are in any doubt as to whether or not you are required to disclose a 'dealing' under Rule 8 of the Code, you should consult the Panel (whose telephone number in the UK is 020 7638 0129).
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