ARL.L Regulatory News (ARL)

9 Apr 2008 14:06

Arlington Group Ltd09 April 2008 Arlington Group Limited ("Arlington" or the "Company") Tender Offer by Evolution Securities to purchase Ordinary Shares at 55 pence per Ordinary Share Cancellation of admission of Ordinary Shares to trading on AIM Members' Voluntary Liquidation and Notices of Special General Meetings 1. Introduction The Company is pleased to announce that a circular is today being sent toShareholders setting out the following proposals by the Company: (a) the purchase of Ordinary Shares at 55 pence per Ordinary Share by way of a Tender Offer; (b) the cancellation of its admission of its Ordinary Shares to trading on AIM; and (c) the winding up of the Company by way of a Members' Voluntary Liquidation. The Company's financial statements for the nine months ended 31 December 2007are also being sent to Shareholders today. 2. Background to and reasons for the Proposals The share price of the Ordinary Shares has traded at a discount to the reportedNet Asset Value per Ordinary Share, as per the published historical financialstatements of the Company, for a number of years. This discount has historicallybeen in the approximate range of 25 to 45 per cent. to the underlying NAV perOrdinary Share. The NAV as reported in the Company's financial statements for the nine monthsended 31 December 2007 was approximately £32.07 million, equating to some 59.43pence per Ordinary Share on an undiluted basis and 57.63 pence per OrdinaryShare on a fully diluted basis, excluding any share options the exercise priceof which exceeds the Tender Offer Price, such financial statements having beenprepared using valuation criteria consistent with realisations being made on thebasis of an orderly liquidation of the Company's assets. The closing mid-market price of the Ordinary Shares, however, was at asubstantial discount to the NAV per Ordinary Share in the range of 36.5 pence to46.0 pence per Ordinary Share in the period from 31 December 2007 to 7 April2008, being the last practicable date prior to the date of this announcement. Inthe period commencing 6 April 2007 and ended 7 April 2008, the average closingmid-market price of an Ordinary Share was 36.36 pence. The Board recognises that the structure of the Company's share register has, insome part at least, contributed to both the level of discount and to theaccompanying illiquidity in the Ordinary Shares. The Company has also madeextensive efforts to narrow the discount while delivering profitable tradingresults in most reporting periods. Furthermore, during the last 24 months, anumber of significant transactions with strategic merger targets have beenactively pursued but, for various reasons, no deal has been concluded on termswhich the Board has been able to justify as being in the best interests of allShareholders. Therefore, after careful consideration of the above-referenced aspects, and inclose consultation with its professional advisers, the Board has concluded thatit is in the best interests of Shareholders as a whole for the Company to returnvalue to them by way of a return of capital via a liquidation of the Company.The Board is therefore proposing to cancel the admission to trading on AIM ofthe Ordinary Shares and then to liquidate the Company by way of a Members'Voluntary Liquidation. Further details of, and the steps involved in, theMembers' Voluntary Liquidation are set out below. As the Board recognises that some Shareholders may not wish to wait until thecompletion of the liquidation process to receive value in respect of theirOrdinary Shares, it considers that the Tender Offer would be an appropriatemeans of achieving an accelerated return of value to Shareholders. Accordingly,the Board instructed an independent firm of chartered accountants (F.W. Smith,Riches & Co) to carry out an independent valuation of the Company's investmentportfolio for the purpose of calculating the NAV per Ordinary Share in advanceof the liquidation of the Company and establishing the Tender Offer Price.Further details of the Short Form Smith Riches Valuation Report and the TenderOffer are set out below. Shareholders therefore have the option of either selling their Ordinary Sharesunder the Tender Offer or receiving a cash distribution in respect of suchOrdinary Shares on the Company's liquidation. Any Shareholders preferring to wait until settlement of their interests can beeffected by the liquidator under the Members' Voluntary Liquidation should notethat there is no guarantee that they will receive more or less value in respectof their Ordinary Shares by way of a distribution on the liquidation of theCompany than they will receive if they choose to sell their Ordinary Sharespursuant to the Tender Offer. 3. Short Form Smith Riches Valuation Report and Audited Accounts ofthe Company As noted above, Smith Riches have been instructed by the Company to carry out anindependent valuation of the Company's investment portfolio for the purpose ofcalculating the realisable Net Asset Value per Ordinary Share to be used as thebasis of a Tender Offer to Shareholders in advance of the liquidation of theCompany. While the Tender Offer valuation has been computed by Smith Richesbased on 31 March 2008 management numbers, the same equitable principles wereapplied by the Company to the 31 December 2007 valuation. Accordingly,Shareholders can be assured that: (a) the basis of the valuations have been independently established; and (b) the bases of asset valuation (being essentially the orderly liquidation ofthe Company's assets and not under forced sale conditions) have beenconsistently applied both to the establishment of the Tender Offer Price and theNet Asset Value per Ordinary Share as shown in the accompanying audited accountsof the Company for the financial period ended 31 December 2007. The Short Form Smith Riches Valuation Report concludes that the value of theCompany's investment portfolio is approximately £32.2 million. The resultingfully diluted Net Asset Value per Ordinary Share is 55 pence. In addition, as noted above, a copy of the Accounts will today be sent toShareholders. Please note that, given the proposed Members' VoluntaryLiquidation, the Accounts have been prepared on a break-up basis which is consistent with the Short Form Smith Riches Valuation Report ratherthan on an ongoing basis as per the audited accounts of the Company for thefinancial period ended 31 March 2007. 4. Tender Offer The Board is proposing to return capital of up to approximately £5.67 million toShareholders through the Tender Offer. The Tender Offer is to be effected byEvolution Securities purchasing, as principal, in aggregate up to 10,304,041Ordinary Shares at 55 pence per Ordinary Share from Tender Offer Shareholders.This represents ALL of the Enlarged Issued Share Capital, save for 44,640,387 ofthe Ordinary Shares which are beneficially owned or controlled by NicholasBarham as at the date of this announcement. The Tender Offer Price of 55 pence per Ordinary Share is a 51 per cent. premiumto the average closing mid-market price of all Ordinary Shares traded in theperiod commencing 6 April 2007 and ended 7 April 2008, while representing adiscount of 4.6 per cent. to the Net Asset Value per Ordinary Share on a fullydiluted basis, excluding any share options the exercise price of which exceedsthe Tender Offer Price as per the Accounts. Ordinary Shares purchased by Evolution Securities pursuant to the Tender Offerwill be acquired with full title guarantee, free of all liens, charges,restrictions, claims, equitable interests and encumbrances and together with allrights attaching to them. Evolution Securities will then sell the OrdinaryShares which it acquires from Shareholders under the Tender Offer on the LondonStock Exchange to the Company for cancellation pursuant to the RepurchaseAgreement. The Tender Offer is conditional, inter alia, upon the RepurchaseAgreement becoming unconditional in all respects (save in respect of anycondition relating to the Tender Offer becoming unconditional). The Tender Offer will be open to all Shareholders (other than certain OverseasShareholders) on the Company's share register on the Tender Offer Record Date.Shareholders may participate in the Tender Offer by tendering all, but not partonly, of their registered holdings of Ordinary Shares. Each Shareholder will beentitled to sell under the Tender Offer all of the Ordinary Shares registered inhis name on the Tender Offer Record Date. The Ordinary Shares purchased underthe Tender Offer will then be cancelled once purchased by the Company pursuantto the terms of the Repurchase Agreement. Nicholas Barham, a director of the Company, has irrevocably undertaken to theCompany and Evolution Securities that he will not accept, or procure theacceptance of, the Tender Offer in respect of 44,640,387 of the Ordinary Sharesbeneficially owned or controlled by him as at the date of this announcement,representing 81.2 per cent. of the Enlarged Issued Share Capital. Mr Barham hasgiven this undertaking in order to enable Shareholders to sell their entireholdings of Tender Offer Shares. Please note that (in contrast to the position for companies registered inEngland and Wales), under Bermudian law, shareholder approval is not requiredfor a company to buy back its own shares. A Bermudian company is able to buyback its own shares provided its directors are so authorised in its memorandumof association or its bye-laws and provided the directors reasonably form theview that following the purchase the company will be able to pay its liabilitiesas they become due. The Directors do have the requisite authority under theBye-Laws and have formed the view as aforesaid. The Tender Offer will befinanced solely from the Company's existing cash resources. No indebtedness willbe incurred by the Company to finance the Tender Offer. 5. De-Listing The Board is proposing to cancel the admission of the Ordinary Shares to tradingon AIM before the Company is then placed into Members' Voluntary Liquidation. Under the AIM Rules for Companies, the De-Listing can only be effected by theCompany after securing a resolution passed by not less than 75 per cent. of thevotes cast by the Shareholders in general meeting, and the expiration of aperiod of at least twenty Business Days from the date on which notice of theDe-Listing is given. In addition, a period of at least five Business Daysfollowing the Shareholder approval of the De-Listing is required before theDe-Listing may be put into effect. Subject to the passing of the appropriate Resolution at the First SpecialGeneral Meeting application will be made for the De-Listing of the Company. TheDe-Listing is expected to take place on or around 14 May 2008. The Directors have concluded that it is in the best interests of Shareholders asa whole that the De-Listing is approved. The Directors therefore intend to votein favour of the De-Listing at the First SGM in respect of the 45,651,429Ordinary Shares currently beneficially owned or controlled by them in aggregatewhich represent 84.6 per cent. of the Existing Issued Share Capital. 6. Members' Voluntary Liquidation As noted above, a period of at least five Business Days following theShareholder approval of the De- Listing is required before the De-Listing maybecome effective. Arlington Shares can continue to be traded in that interimperiod until the De-Listing becomes effective. Given that, under Bermudian law, no Ordinary Shares can be transferred withoutthe liquidator's consent following his appointment, the Directors have beenadvised that the Resolutions concerning the appointment of the liquidator andthe approval of the Members' Voluntary Liquidation will need to be passed at aseparate second general meeting of Shareholders once the De-Listing has becomeeffective. Those Resolutions will therefore be proposed at the Second SpecialGeneral Meeting. To the extent that Shareholders do not choose to sell theirOrdinary Shares in the Tender Offer, they will receive value in respect of theirOrdinary Shares by way of a distribution on liquidation. As Shareholders will beaware, a liquidator's role involves realising the assets of the company inquestion and then making a cash distribution to that company's shareholders on apari passu basis. Given the illiquid nature of the Company's investment portfolio, however, itwill not be practical for the Company's liquidator to realise all of theCompany's assets for cash within a reasonable timescale and trying to sell suchassets into an illiquid market will further erode Shareholder value.Accordingly, it will be very difficult for the Company's liquidator to effect apro rata distribution in cash on liquidation to Shareholders in respect of theirOrdinary Shares. For this reason, Nicholas Barham, a director of the Company,has indicated to the Company's prospective liquidator that he is willing toreceive an in specie distribution on liquidation in respect of his OrdinaryShares in order to facilitate a distribution in cash to the minorityshareholders of the Company. Given that the existing Bye-Laws provide that all of the Shareholders shouldreceive the same form of distribution on liquidation, it is proposed that theBye-Laws are amended to provide the liquidator with the necessary power to makea cash distribution to minority shareholders of the Company and to make an inspecie distribution where practical, which would enable the making of an inspecie distribution to Nicholas Barham as envisaged above. Accordingly, aResolution will be proposed at the First Special General Meeting that Bye-Law137 of the existing Bye-Laws (Winding Up) be amended accordingly. Please note that there is no guarantee that Shareholders will receive more orless value in respect of Ordinary Shares by way of a distribution on theliquidation of the Company than will be received if Shareholders choose to sellOrdinary Shares pursuant to the Tender Offer. 7. Special General Meetings A circular is today being sent to Shareholders convening the Special GeneralMeetings which shall both be held at Le Meridien Hotel, 22 Avenue PrincesseGrace, Monte Carlo 98000, Monaco. The First Special General Meeting will be heldon Wednesday, 7 May 2008 at 11.30 a.m. (Monaco time) at which the Resolutionswill be proposed to approve: (a) the De-Listing; and (b) the amendment of the Bye-Laws. The Second Special General Meeting will then be held on Thursday, 15 May 2008 at11.30 a.m. (Monaco time) at which the Resolutions will be proposed to approve: (a) the appointment of the liquidator; (b) the Members' Voluntary Liquidation; (c) the authority of the liquidator to distribute surplus assets in specie; and (d) the remuneration of the liquidator. The Directors intend to vote in favour of the Resolutions in respect of the45,651,429 Ordinary Shares currently beneficially owned or controlled by them inaggregate which represent 84.6 per cent. of the Existing Issued Share Capital. Arlington is incorporated in Bermuda as an exempted company with limitedliability. The Company is therefore subject principally to Bermudian law. Inorder to maintain the offshore status of the Company, the Board has been advisedthat the Meetings must be held in an offshore jurisdiction. The Meetings willtherefore be held at Le Meridien Hotel, 22 Avenue Princesse Grace, Monte Carlo98000, Monaco. 8. Directors' Arrangements As part of the Members' Voluntary Liquidation, the liquidator will also settlethe outstanding liabilities of the Company. These liabilities will includemonies owed by the Company at that time in respect of its arrangements with itsemployees and consultants. The Company has three directors, being Nicholas Barham, Colin Hill and PaulSmith. Summaries of the arrangements relating to those individuals are set outdirectly below. Shareholders should note that the liabilities of the Company inrespect of such arrangements will be settled, and the rights and entitlements ofthe Directors safeguarded and honoured, in full (save as stated below in respectof Nicholas Barham) as part of the Members' Voluntary Liquidation. Nicholas Barham By an agreement dated 24 January 2005, Nicholas Barham is engaged as theExecutive Chairman and Chief Executive Officer of the Company. Nicholas Barhamsservices are made available to the Company by Eaton Investments (Hong Kong)Limited ("Eaton HK"). This agreement, which is between the Company and Eaton HK,provides that Nicholas Barham's services are to be made available to the Companyfor such time as may be necessary for the proper provision of services of anExecutive Chairman and Chief Executive Officer of an investment trading company.The Company pays Eaton HK an annual fee of 1.5 per cent. of the Company's netassets as determined by the Board or a minimum quarterly fee of £90,000,whichever is the greater. Although Nicholas Barham is entitled to three years'notice under the terms of the agreement between the Company and Eaton HK, he hasagreed with the Company that the compensation to which he is entitled on theCompany's liquidation will be limited to one year's notice. Accordingly,Nicholas Barham has agreed with the Company that, on the liquidation of theCompany, he will be paid the sum of £481,000 plus any outstanding expenses infull and final settlement of any claims which he may have under thesearrangements with the Company, and will forgive the payment of the balance ofapproximately £962,000 to which he would otherwise be entitled. Colin Hill Colin Hill is engaged by the Company as a non-executive director for which he ispaid a monthly salary of £1,000. Mr Hill is also entitled to be paiddiscretionary performance fees for additional services and, in the 12 monthspreceding the date of this announcement, he was paid fees totalling £33,000 inaggregate. The Board and Colin Hill have agreed that, on the liquidation of theCompany, Colin Hill will be paid the sum of £45,000 plus any outstandingexpenses in full and final settlement of any claims which he may have under hisarrangements with the Company. Paul Smith Paul Smith is engaged by the Company as a non-executive director for a fixedterm of 12 months from 14 December 2007, in respect of which he is paidaggregate fees of US$20,000. The outstanding liability of the Company in respectof this agreement, including any compensation due for loss of office, will belimited to the level of such fees outstanding at the time of the Members'Voluntary Liquidation, plus any outstanding expenses. 9. Share Options As at the date of this announcement, the Existing Issued Share Capital isapproximately £269,778, divided into 53,955,639 Ordinary Shares. In addition, there are options outstanding over 5,443,946 Ordinary Shares.Nicholas Barham holds options over 3,955,157 Ordinary Shares and Colin Hillholds options over 988,789 Ordinary Shares. A former employee of the Companyalso holds options over 500,000 Ordinary Shares. The exercise price of theseoptions, however, is 60 pence which is greater than both the Tender Offer Priceand the maximum level of distribution per Ordinary Share that Shareholders willreceive on the liquidation of the Company. Accordingly, the options held by theformer employee will not be exercised. Furthermore, such options will lapse on31 July 2008 in accordance with their terms. Colin Hill has irrevocably undertaken to the Company and Evolution Securities toexercise his options over 988,789 Ordinary Shares in full, in accordance withthe rules governing such options, on or prior to the Tender Offer Record Date. Nicholas Barham has irrevocably undertaken to exercise his options over3,955,157 Ordinary Shares in full, following the Tender Offer Record Date butprior to the appointment of the liquidator. The issued share capital of theCompany following the exercise of such options, without taking account of anyOrdinary Shares which shall be cancelled pursuant to the Tender Offer, will be58,899,585 Ordinary Shares. 10. Recommendation The Directors consider that the Proposals are in the best interests of theCompany and the Shareholders as a whole. Accordingly, the Directors areunanimously recommending that Shareholders vote in favour of the Resolutions asthey intend to do in respect of the 45,651,429 Ordinary Shares currentlybeneficially owned or controlled by them in aggregate which represent 84.6 percent. of the Existing Issued Share Capital. Expected Timetable of Events Tender Offer commences 10 April 2008Latest time and date for receipt of BLUE Form of Instruction for the First 11.30 a.m. on 2 May 2008Special General Meeting Latest time and date for receipt of Tender Forms and share certificates for 1.00 p.m. on 2 May 2008certificated Tender Offer Shares Transfer to escrow account of tendered Depositary Interests settled 1.00 p.m. on 2 May 2008Tender Offer closes 1.00 p.m. on 2 May 2008Tender Offer Record Date close of business on 2 May 2008Latest time and date for receipt of BLUE Form of Proxy for the First Special 11.30 a.m. on 5 May 2008General MeetingAnnouncement of take-up level under the Tender Offer by 8.00 a.m. on 6 May 2008First Special General Meeting (Monaco time) 11.30 a.m. on 7 May 2008Purchase of Tender Offer Shares under the Tender Offer 9 May 2008CREST accounts credited with Tender Offer proceeds 9 May 2008Despatch of cheques for Tender Offer proceeds by 9 May 2008Latest time and date for receipt of PINK Form of Instruction for the Second 11.30 a.m. on 12 May 2008Special General Meeting Latest time and date for receipt of PINK Form of Proxy for the Second Special 11.30 a.m. on 13 May 2008General Meeting Cancellation of admission of Ordinary Shares to trading on AIM by 14 May 2008Second Special General Meeting (Monaco time) 11.30 a.m. on 15 May 2008 If any of the above times and/or dates change, the revised times and/or dateswill be notified to Shareholders by announcement through a RegulatoryInformation Service. Terms used in this announcement have the same meaning as those defined in thecircular being posted to Shareholders today. 9 April 2008 ENQUIRIES: Evolution SecuritiesBobbie HilliamTel +44 (0) 20 7071 4300 Arlington GroupColin HillTel: +44 (0) 20 7389 5010 This information is provided by RNS The company news service from the London Stock Exchange