ADV.L Regulatory News (ADV)

13 Nov 2009 07:00



13 November 2009

Clean Energy Brazil PLC

("CEB" or the "Company")

Response to the Mandatory Cash Offer by Global Investors Acquisition LLC

The Board refers to the announcement made on 30 October 2009 by Global Investors Acquisition LLC ("GIA") that an Offer Document detailing its cash offer for the entire issued and to be issued share capital in CEB at a price of 12.68 pence per share (the "Offer") was posted to shareholders on 30 October 2009.

Further to an announcement made by the Company on 2 November 2009, RNS number 7330B, the Board of CEB has today posted a response by way of Circular to all shareholders. The Circular an extract of which is copied below is also available on the Company website: www.cleanenergybrazil.com

Further enquiries:

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 1 per cent. or more of any class of 'relevant securities' of Clean Energy Brazil PLC all 'dealings' in any 'relevant securities' of that company (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 p.m. (London time) on the London business day following the date of the relevant transaction. This requirement will continue until the date on which the Offer becomes, or is declared, unconditional as to acceptances, lapses or is otherwise withdrawn or on which the 'offer period' otherwise ends.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 Clean Energy Brazil PLC, they will be deemed to be a single person for the purpose of Rule 8.3. 

Under the provisions of Rule 8.1 of the Code, all 'dealings' in 'relevant securities' of Clean Energy Brazil PLC by GIA or by any of Clean Energy Brazil's or GIA's 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, you should consult the Panel. 

The directors of Clean Energy Brazil PLC accept responsibility for the information contained in this announcement and, to the best of their knowledge and belief (having 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. 

Numis Securities Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting exclusively for the Company and no one else in connection with the Offer and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Numis Securities Limited or for providing advice in relation to the Offer or for the contents of this announcement. 

Smith & Williamson Corporate Finance Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting exclusively for the Company and no one else in connection with the Offer and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Smith & Williamson Corporate Finance Limited or for providing advice in relation to the Offer or for the contents of this announcement. 

Mandatory cash only offer by Global Investors Acquisition LLC to acquire the entire issued ordinary share capital of Clean Energy Brazil Plc

1 Introduction

By a letter dated 30 October 2009 Global Investors Acquisition LLC made a mandatory cash only offer to acquire the entire issued ordinary share capital of Clean Energy Brazil Plc not already owned by GIA or parties acting in concert with them. The key terms of the Offer are set out in Appendix 1 to this document.

Since the announcement on 2 October 2009 of the Offer, neither the Directors nor its advisers have been approached by any person on behalf of any other potential offeror wishing to instigate discussions with a view to making a competing offer for the Company.

The Directors do not consider that the Offer represents full value for the Company and believe that, in time, the Board might deliver greater value to Shareholders than that represented by the Offer.

The Directors do believe, however, that the Offer is worthy of consideration by Shareholders as the Offer provides an opportunity for Shareholders to realise their investments in the Company for a certain cash amount in the near term. The Directors further believe that there are risks and uncertainties attached to remaining as a shareholder of the Company as the Board pursues its strategy of managing its assets with the aim of maximising underlying values and returning capital when appropriate. Such risks include, in particular, the fact that CEB has a minority interest in its key asset (Unialco MS); that Unialco S/A (the majority owner of Unialco MS) is currently engaged in discussions with its bankers regarding a refinancing of its funding structure; there is debt payable by Unialco MS to its banks that is outstanding beyond the relevant maturity dates; and there exist certain cross guarantees provided by Unialco MS in favour of Unialco S/A. In addition, GIA has stated that it intends to seek the cancellation of the Company's trading on AIM in the event that the Offer becomes unconditional.

Under these circumstances, and having regard to all of the matters set out in paragraph 2 of this letter, the Directors, having been so advised by Numis, do not believe that it is appropriate to provide Shareholders with a definitive recommendation at this time, although they consider that Shareholders should have regard to their personal circumstances and the matters set out in paragraph 2 of this letter below when considering whether to accept or not accept the Offer. In providing advice to the Directors Numis has relied upon the commercial assessment of the Directors.

The purpose of this letter is to explain the issues that the Directors believe Shareholders should consider when assessing whether to accept or not accept the Offer. Shareholders should read this document in its entirety and not rely on the matters set out in this Paragraph 1 of this letter when making their assessment of whether to accept or not accept the Offer.

2 Arguments for and against accepting the Offer

The Directors believe, having been so advised by Numis, that Shareholders might wish to consider the matters set out below when considering whether to accept the Offer. In providing advice to the Directors, Numis has relied upon the commercial assessment of the Directors.

2.1 Arguments for accepting the Offer

The Company has been pursuing a strategy of managing its assets with the aim of maximising underlying values and returning capital when appropriate. On 21 August 2009 the Board announced a proposed dividend distribution of US$12.5 million which is subject to the approval by High Court of Justice of the Isle of Man of a re-classification of the Company's reserves. On 2 September 2009, the Directors announced the disposal of Usaciga for US$8.7 million (a substantial discount to the previous book value) and an intention that the net cash proceeds would be returned to Shareholders. The Company has also announced that it has initiated a number of restructuring and cost reduction measures. There can be no certainty that the Company's remaining assets can be realised at or in excess of current book values and there is also no certainty on the timescale of any such realisations. This creates material uncertainty in both the quantum and timing of future returns of cash to Shareholders.

Whilst the Offer represents a discount of approximately 48 per cent. to the Company's net asset value of US$0.39 (approximately 24.4 pence assuming a US$/GBP exchange rate of 1.6:1) per share as shown in the Report and Accounts of the Company for the year ended 30 April 2009 (which were approved by the Board and published on 21 October 2009), the Offer represents a certain cash exit for the Company's shareholders in the near term, providing a tangible value for Shareholders' holdings in the Company and eliminating the risks and uncertainties associated with the Company's strategy. The ability to realise the Company's assets and the value at which they could be realised is uncertain and dependent upon, inter alia, the marketability of such assets, the availability and pricing of similar assets in the market, the economic environment in Brazil (and more generally) and the sugar price.

The fact that CEB is a minority shareholder in Unialco MS (33 per cent.), its most significant asset, and has no tag along rights in the event of a sale of the majority holder's interest, may materially restrict the attraction of this asset to a potential purchaser.

The Directors are aware that Unialco S/A (the majority shareholder in Unialco MS) is currently in discussion with, inter alia, its bankers regarding a refinancing of Unialco S/A's funding structure (such refinancing, as it involves Unialco MS, requires the consent of CEB as a minority shareholder). In addition there is debt payable by Unialco MS to its banks that is outstanding beyond the relevant maturity dates and there exist certain cross guarantees provided by Unialco MS in favour of Unialco S/A. In the event that Unialco S/A was unable to complete the required refinancing and /or action was taken to recover the overdue debt and / or the cross guarantees were enforced, the value and saleability of Unialco MS and the Company's assets might be materially reduced. The Directors consider (based upon their commercial assessment and the information currently available to them) that it is unlikely that Unialco S/A will not secure the required refinancing and/or that its banks would take action to recover the overdue debt and/or that the cross guarantees would be enforced against either Unialco MS and/or the Company but there can be no certainty that this will be the case.

The Company recently received an initial approach to acquire its interest in Unialco MS. The terms of this approach were rejected by the Company as the Directors do not believe that such terms represented fair value for the Company's interest in Unialco MS. The Directors believe that the approach underpins their view that the Offer does not represent fair value for the Company. However, the Directors understand that the offering party requires funding and is in discussion with its bankers which creates risk and uncertainty over the deliverability of this, or any subsequent revised offer for Unialco MS from that party. Notwithstanding the fact that such party is currently seeking financing, and the Directors believe that such financing will be successful, which might materially improve its financial position, there can be no certainty of such refinancing being successful.

If the Offer becomes unconditional, Shareholders retaining their stake might find themselves to be shareholders in a controlled company, in relation to which trading liquidity is restricted by the presence of a majority shareholder and the Company's operational decisions are capable of being controlled by such shareholder. If the Offer becomes unconditional it is possible that GIA might propose and vote in favour of resolutions including a change in the Company's future distribution policy (including in relation to the proposed distributions announced on 21 August 2009 and 2 September 2009) or a change in the composition of the Company's board of directors. If, as a result of the Offer, GIA gains control over more than 75 per cent. of the voting rights of the Company, GIA would have significant power including the ability to propose and vote in favour of resolutions to cancel the admission of the Ordinary Shares to trading on AIM. In the Offer Document GIA indicated that it is its intention to seek the cancellation of the admission of the Ordinary Shares to trading on AIM. The Directors believe that should such cancellation occur, the liquidity, marketability and value of the Ordinary Shares might be reduced to the detriment of minority Shareholders.

The Offer is at a premium of 8 per cent. to the closing price of the Ordinary Shares on 1 October 2009, the day prior to the announcement by GIA of the Offer however the premium is nil to the average price over the period since 27 October 2008. The Directors believe that, if Shareholders do not accept the Offer, the Company's share price may not remain at its current level, especially given the uncertainty they believe exists concerning the value and timing of the realisation of the Company's assets.

The Ordinary Shares have been illiquid and if Shareholders do not accept the Offer it is possible that Shareholders might be unable to sell their Ordinary Shares at a price equivalent to that available under the Offer for some time, if ever.

GIA currently holds a significant stake in the Company and should the Company remain quoted on AIM and GIA seek to sell its shares in the Company, this may have a significant negative effect on the Company's share price. As a significant Shareholder in the event that the Offer does not become unconditional and GIA retains its shareholding it will be in a position to exert significant influence over the Company.

2.2 Arguments for not accepting the Offer and retaining Ordinary Shares

Whilst the Offer represents a premium of 8 per cent. to the closing price of the Ordinary Shares on 1 October 2009, the day prior to the announcement by GIA of the Offer the premium is nil to the average price over the period since 27 October 2008 and the Offer represents a significant discount of approximately 48 per cent. to the Company's net asset value of US$0.39 (approximately 24.4 pence) per Ordinary Share as at 30 April 2009.

The Company has been pursuing a strategy of managing its assets with the aim of maximising underlying values and returning capital when appropriate. On 21 August 2009 the Board announced a proposed dividend distribution of US$12.5 million (5.3p per Ordinary Share at an exchange rate of US$1.6:£1) which is subject to the approval by High Court of Justice of the Isle of Man of a re­classification of the Company's reserves. On 2 September 2009, the Directors announced the disposal of Usaciga for US$8.7 million (a substantial discount to the previous book value) and an intention that the net cash proceeds would be retuned to Shareholders. The Company has also announced that it has initiated a number of restructuring and cost reduction measures. The Directors estimate that there is approximately US$20.6 million available for return to Shareholders in the near term, representing approximately 8.7p per Ordinary Share net of costs.

There may be further value in the Company that is not reflected in the Offer Price. The net asset value of the Company as shown in the Report and Accounts of the Company for the year ended 30 April 2009 was US$0.39 per Ordinary Share (approximately 24.4 pence per share, based upon a US$:GBP exchange rate of 1.6:1).

The Company recently received an initial approach to acquire its interest inUnialco MS. The terms of this approach were rejected by the Company as the Directors do not believe that such terms represented fair value for the Company's interest in Unialco MS. The Directors believe that the approach underpins their view that the Offer does not represent fair value for the Company.

However, the Directors understand that the offering party requires funding and is in discussion with its bankers which creates risk and uncertainty over the deliverability of this, or any subsequent revised offer for Unialco MS from that party. Notwithstanding the fact that such party is currently seeking financing, and the Directors believe that such financing will be successful, which might materially improve its financial position, there can be no certainty of such refinancing being successful.

If Shareholders accept the Offer, they will be prevented from benefiting from any future cash realisations of the Company's assets and any consequent capital returns to Shareholders, which may be higher than the value of the Offer. They will also be prevented from benefitting from any future recovery of the Company's share price which may occur if the discount to net asset value at which the Ordinary Shares trade is reduced. The Directors believe that the market in which the Group's investments operate is recovering but, due to financing issues, this has not yet been reflected in the Company's valuation.

If the Offer becomes unconditional, Shareholders retaining their stake might find themselves to be shareholders in a controlled company, in relation to which trading liquidity is restricted by the presence of a majority shareholder and/or which has cancelled the admission of the Ordinary Shares to trading on AIM. The Directors believe GIA's parent company, Weiss Asset Management LLC is experienced in realising value from its investments and it is possible that the value achievable under GIA control may exceed that represented by the Offer Price. In this case an ongoing minority shareholder may stand to realise more value than is available through accepting the Offer, despite the risk inherent in a minority shareholding in a controlled company.

3 Position of the Directors

The Directors are beneficially interested in aggregate in 4,081,964 Ordinary Shares which are subject to the Offer at the same price as the Ordinary Shares of all other Shareholders as detailed in paragraph 3 to Appendix 2 to this letter.

Each of Antonio de Castro and Richard Jewson has indicated to the Company that they intend to accept the Offer and each of Timothy Walker and Michael St Aldwyn has indicated to the Company that they intend not to accept the Offer. Marcelo Junqueira, at the date of this document, has not decided as to whether he will accept the Offer or not . Marcelo Junqueira has indicated that he will accept the Offer if he believes GIA will gain control of sufficient voting rights in the Company to procure the cancellation of the admission of the Ordinary Shares to trading on AIM.

4 Effects of implementation of the Offer on the Company's interests including employment

On giving its opinion on the Offer, the City Code requires the Board to give its views on certain matters including the effect of the Offer on the Company's interests, including specifically employment, and its views on GIA's strategic plans for the Company and their likely repercussions on employment and the locations of the Company's places of business.

In fulfilling its obligations under the City Code, the Board can only comment on the details provided in the Offer Document.

The Board notes that GIA states that it does not intend to make new investments in the ethanol or sugar industry and intends to move or encourage the Board to realise opportunistically assets at appropriate prices. The Board does not believe that this is materially different from the Company's current strategy of managing its assets with the aim of maximising underlying values and returning capital when appropriate. What is unclear is what GIA's intention is once the realisations have been achieved as against the Company's stated intention of seeking to return cash to Shareholders.

The Board also notes that GIA states that after taking control of the Company, it intends to evaluate the management and employees of the Company with a view to determining whether they are the right people to manage the Company's business in the future given GIA's future intentions. Antonio de Castro and Richard Jewson have indicated that they intend to resign from the Board whether or not the Offer becomes unconditional. Their intention is to resign at the end of the Offer Period. The remaining Directors and John Koutras, the Chief Financial Officer, intend to await the outcome of the Offer and to review their positions in conjunction with GIA if the Offer is successful.