Andrew Sykes Regulatory News (ASY)

28 Jul 2005 07:01

Andrews Sykes Group PLC28 July 2005 Andrews Sykes Group PLC ('The Company') 28 July 2005 Tender Offer The Company announces it has today issued a circular to shareholders setting outdetails of a proposed tender offer of up to approximately £25 million. Whatfollows is an unedited extract of Part I of this circular entitled 'Letter from the Senior Independent Non-Executive Director'. Definitions used in this announcement have the same meanings given in thecircular sent to Shareholders dated 28 July 2005 setting out the formal termsand conditions of the Tender Offer. Part I LETTER FROM THE SENIOR INDEPENDENT NON-EXECUTIVE DIRECTOR Andrews Sykes Group plc (Registered in England No 175912)Directors: Registered Office:Jacques Gaston Murray (Chairman) Premier HouseRobert John Stevens (Chief Executive Director) Darlington StreetAnthony Alexander Bourne (Finance Director) WolverhamptonFrancis Michael Benjamin Gailer (Senior Independent Non Executive Director) WV1 4JJJean-Christophe Francois Georges Pillois (Non-Executive Director)Richard John Pollard (Non-Executive Director)Emmanuel David Oliver Adrien Sebag (Non-Executive Director) Date: 28 July 2005 To Shareholders and, for information only, to the holders of options grantedunder the Share Option Scheme. Dear Shareholder Tender Offer for up to 14,015,360 Ordinary Shares at 177.5p per Ordinary Shareand Capital Reduction Introduction As referred to in the announcement of the sale of the accommodation hiresubsidiary on 9 May 2005, your Board has been examining ways of returning valueto Shareholders. Your Board is pleased to announce that it now proposes, subjectto the Company receiving the approval of the Capital Reduction by theShareholders and confirmation of the same by the High Court, to return toShareholders by way of a Tender Offer up to approximately £25 million. Subjectto the consent of Shareholders and the terms of the Tender Offer, your Boardintends that each Shareholder be given the opportunity to sell to BrewinDolphin, Ordinary Shares held by him/her on the Record Date at a price of 177.5pper Ordinary Share. These Ordinary Shares will then be sold by way of anon-market transaction by Brewin Dolphin to the Company, for cancellation at theTender Price. The Tender Offer requires the consent of Shareholders in the first instance. TheCompany does not have sufficient distributable reserves to effect the TenderOffer and therefore it is conditional on the Capital Reduction being implementedso that the Company's balance sheet is reconstructed to allow the Tender Offerto be completed. The Capital Reduction requires not only the approval ofShareholders but also confirmation of the High Court. The Board believes that a tender offer is an appropriate means of returningfunds to Shareholders as (subject to the provisions relating to certain OverseasShareholders set out in Part III of this document) it gives all Shareholders thechoice of whether or not to participate in the return of capital. Shareholdersmay opt to tender none or all of their Basic Entitlement and, to the extenttheir shareholding is in excess of 150 Ordinary Shares up to their MaximumEntitlement, in return for cash, or they may choose to retain their OrdinaryShares and thereby increase their percentage of the Company's issued sharecapital in the event that the Tender Offer is completed successfully. The purpose of this letter is to seek your approval to grant authority toimplement the Capital Reduction and the Tender Offer at the EGM convened to takeplace on 24 August 2005, notice of which is set out at the end of this document. Background to and reasons for the Tender Offer The results of the Company for the 53 weeks ended 31 December 2004, set out inthe Report and Accounts of the Company sent to shareholders on 5 May 2005, showthat, as at that date, the Group had cash of £9.3 million (2003: £11.3m) andtotal indebtedness of £12.2 million (2003: £16.0m). Interest cover(pre-exceptional items) for 2004 was 27 times and total debt servicing costs(interest plus repayments of principal) were covered 4.0 times by operating cashflow. Trading in the first half of 2005 has been difficult across the Group's UKoperations and both sales and profits are expected to be significantly down onthe comparable period of 2004. Further information on trading is set out in thesection headed ''Current Trading and Prospects'' below. Nevertheless, the Grouphas continued to generate cash and, as referred to above, has successfullydisposed of its accommodation hire subsidiary during the first half of 2005 forapproximately £10 million. As a result, at 2nd July 2005 the Group had cash of£12.3 million, after the payment of the 2004 final dividend of £8.1 million. Netcash after borrowings amounted to £1.3 million. For some time now the economy has been relatively stable in the UK with moderatelevels of interest rates which we expect to continue for the foreseeable future.One consequence of this, is that cash generative, profitable companies such asAndrews Sykes, are able to secure term bank funding at attractive rates in orderto return capital to shareholders and, thereby, enhance total shareholderreturn. The Tender Offer, if fully taken-up, will result in pro-forma total indebtednessat 2 July 2005 increasing to £30 million. New loan facilities have been agreedfor, in aggregate, £30 million with Royal Bank of Scotland, repayable over aperiod of 5 years. These new facilities replace the existing loan facilities of£11 million. Your Directors have prepared and reviewed cash flow projections forthe Group on the basis that the Tender Offer is fully taken up by shareholdersand concluded that the Group still retains adequate levels of interest and debtservicing cover given the above comments on the Group's consistent cashgeneration. If the Tender Offer is fully taken up, earnings per share for the period ended31 December 2004 would increase from 8.5p to 8.8p. However diluted earnings pershare adjusted to eliminate the amortisation of goodwill and exceptional itemswould increase from 14.2p to 16.2p. The Directors consider the adjusted dilutedearnings per share to be a more meaningful measure of earnings per share as itis more closely aligned to future cash generation of the Group. Your Directors have considered various ways of returning cash to Shareholdersand concluded that the Tender Offer provides the greatest flexibility in thatShareholders may choose to tender all, some, or none of his/her Ordinary Sharessubject to their Basic and Maximum Entitlements. Capital Reduction - Explanation and Background As explained, it is a condition of the Tender Offer that the Capital Reductionis effected. This requires not only the approval of Shareholders but alsoconfirmation by the High Court. The Capital Reduction is required to createsufficient distributable reserves so that the Company can purchase thoseOrdinary Shares which are tendered to Brewin Dolphin pursuant to the TenderOffer. In addition, the Capital Reduction is considered prudent to protect theability of the Company to pay dividends in the future. Under the Act, the Company can, with the approval of the Shareholders given byway of a special resolution and with the confirmation of the High Court, reduceor cancel its share premium account, capital redemption reserve and 95 per cent.of its issued share capital. Such a reduction or cancellation creates a reservewhich can, subject to the protection of creditors, be credited to the Company'sprofit and loss account. The share premium account of the Company, together with the capital redemptionreserve which amount to £10,677,577 and £7,309,003 respectively are to becancelled pursuant to the Capital Reduction. In addition, 19 pence of eachissued Ordinary Share of 20 pence is to be cancelled and the nominal valuereduced to 1p. In addition, the unissued share capital is to be sub-divided sothat each Ordinary Share of 20 pence nominal value is to be sub-divided into 20Ordinary Shares of 1p each. As soon as practicable after the EGM, and subject to the Resolution having beenapproved by Shareholders, the Company will petition the High Court for an orderto confirm the Capital Reduction. The High Court is likely to require that theCompany take appropriate steps for the protection of creditors of the Company.These steps are likely to include certain creditors consenting to the CapitalReduction and the balance being protected by the use of blocked bank accountsand/or bank guarantees. However, provided the creditors are protected, it islikely that the Company will be permitted to implement the Tender Offer. The Capital Reduction, as such, will not involve any distribution or repaymentof capital or share premium by the Company other than pursuant to the TenderOffer, and will not reduce the underlying net assets of the Company. Itsprincipal effect will be to increase distributable reserves so that the Companywill be able to fulfil any obligations to acquire shares pursuant to the TenderOffer. The Capital Reduction does not affect the Shareholders' voting ordividend rights or rights on any return of capital to Shareholders. You will find set out at the end of this document a notice of EGM including aresolution to approve the Capital Reduction and the Tender Offer. If the CapitalReduction is approved by the requisite majority, the Company shall apply to theHigh Court for confirmation of the Capital Reduction following the EGM. If theHigh Court makes the order sought, the Company will proceed as quickly asreasonably possible to implement the Capital Reduction by registering the courtorder with the Registrar of Companies. It is expected that following the EGM theCapital Reduction, including receipt of confirmation from the High Court, willtake between six and eight weeks to complete. As a consequence of the Capital Reduction it is necessary for the Company toamend its borrowing restrictions contained in the articles of association of theCompany. The current articles of association of the Company permit the Companyto borrow up to the lesser of £50,000,000 and three times the adjusted capitaland reserves of the Company. The Directors propose to amend the restriction sothat the limit is the greater of these two figures. The required amendment iscontained in the Notice of EGM. The Directors are also seeking the authorisation of Shareholders to allot Sharesgenerally and up to a number of Shares representing approximately 5 per cent. ofthe Company's issued share capital without pre-emption rights applying and therequired approvals required under sections 80 and 95 of the Act are contained inthe Notice of EGM. Notwithstanding the similar resolutions approved at theannual general meeting of the Company held on 8 June 2005 this part of theResolution is intended to reflect the adjusted share capital post-completion ofthe Capital Reduction and will supersede the resolutions passed at the annualgeneral meeting. Tender Offer The Tender Offer is conditional on the passing of the Resolution and, in view ofthe Capital Reduction, Court confirmation as well. The Tender Offer is onlyavailable to Qualifying Shareholders on the Register at the close of business on13 September 2005 and in respect of Ordinary Shares held by them on that date.The Tender Offer is conditional on the matters set out in paragraph 2 of Part IIof this document and the Tender Offer may be terminated on or before the ClosingDate in the circumstances set out in paragraph 4 of Part II of this document. The terms of the Tender Offer are set out in the letter from Brewin Dolphincontained in Part II of this document and in the Tender Form and are summarisedas follows: *the Tender Offer will require in respect of the Capital Reduction: (a) approval by Shareholders at the EGM; and (b) confirmation by the High Court; *all Qualifying Shareholders are being given the opportunity to participate inthe Tender Offer; *Brewin Dolphin will purchase as principal up to 14,015,360 Ordinary Shares fora total aggregate consideration of up to £25 million; *Ordinary Shares will be purchased by way of an on-market transaction fromQualifying Shareholders by Brewin Dolphin at the Tender Price of 177.5p perOrdinary Share following which an equal number of Ordinary Shares will be soldby way of an on-market transaction by Brewin Dolphin to the Company, forcancellation, at the Tender Price; *Qualifying Shareholders who wish to participate in the Tender Offer must returna completed Tender Form to be received by the Receiving Agent by no later than5.00 pm on 13 September 2005; *Qualifying Shareholders do not have to tender any Ordinary Shares if they donot wish to do so; *subject to the Tender Offer becoming unconditional, tenders from QualifyingShareholders will be accepted to the extent a Qualifying Shareholder validlytenders his/her Basic Entitlement and, to the extent their shareholding is inexcess of 150 Shares, up to his/her Maximum Entitlement as at the Record Date; *Brewin Dolphin will not charge Qualifying Shareholders commission or dealingcharges on any Ordinary Shares purchased pursuant to the Tender Offer; *the Tender Offer opens on 28 July 2005 and closes at 5.00 pm on 13 September2005 unless extended in accordance with paragraph 6 of Part II of this document; \* Tender Forms will become irrevocable at the time of receipt by the ReceivingAgent; and *all transactions will be carried out on the London Stock Exchange. It is proposed that Ordinary Shares will be purchased under the Tender Offer ata price of 177.5p per Ordinary Share which was the price of an Ordinary Share atthe close of business on 22 July 2005, the latest practicable date prior to thepublication of this document. Taxation A summary of the taxation consequences of the Tender Offer for UK residentQualifying Shareholders is set out in paragraph 7 of Part II of this document.The information is intended only as a general guide to the current law andpractice in the UK. UK tax resident Qualifying Shareholders are advised to consult their ownprofessional advisers regarding their own tax position without delay. AllOverseas Shareholders who are Qualifying Shareholders should consult their owntax advisers as to the possible tax consequences to them of participating in theTender Offer. Overseas Shareholders The attention of all Overseas Shareholders is drawn to the section entitled''Information for Overseas Shareholders'' set out in paragraph C of Part III ofthis document and the relevant provisions of the Tender Form. It is the responsibility of all Overseas Shareholders to satisfy themselves asto the observance of any legal requirements in their jurisdiction, including,without limitation, any relevant requirements in relation to the ability of suchOverseas Shareholders to complete and return a Tender Form and Form of Proxy. Current Trading and Prospects As referred to above, trading from continuing activities has been difficultacross the UK operations of the Group during the first half of 2005, due to acompetitive market and low demand caused by the unfavourable weather conditionsof a mild, dry winter. The interim results in full are due to be announced at the end of September andwill show a decline in sales of around 12 per cent. to approximately £24.4million and a decline in recurring EBIT of approximately £2.0 million from £5.6million to £3.6 million over the same period in 2004 (after adjusting for £0.5million non recurring items in the prior year). This period of comparatively poor trading appears to have ended in May. Theoperating results for June 2005 are slightly ahead of 2004 (after adjusting fornon recurring items in the prior year) and trading in the month of July, to thedate of this document, shows a substantial improvement over the same period inthe prior year. Overall, these early signs of recovery lead the Directors tobelieve that the prospects for the second half are much improved over the firsthalf results if the warm weather continues. Dividend Policy The Board intends to review its dividend policy next at the time of theannouncement of the preliminary results for the financial period ending 31December 2005 at which point it will communicate its decision to Shareholders.Any decision on dividend will be based on: the ongoing operating performance ofthe Group; its financing obligations following the Tender Offer; and any otherinvestment opportunities available to the Group from retained funds. City Code The Tender Offer gives rise to certain considerations under the City Code. Briefdetails of the Panel, the City Code and the protections they afford toShareholders are described in paragraph E of Part III. Extraordinary General Meeting The implementation of the Tender Offer, which, for this purpose, includes theCapital Reduction, is subject to the approval of Shareholders at theExtraordinary General Meeting. At the EGM the approval of Shareholders will be sought to approve the CapitalReduction, authorise the on-market purchase by the Company from Brewin Dolphinof up to 14,015,360 Ordinary Shares representing 24.2 per cent. of the Company'sOrdinary Share capital in issue as at 27 July 2005 (the latest practicable dateprior to the posting of this document) at the Tender Price, to approve a changeto the fixed borrowing limit of the Company as contained in its articles ofassociation and to grant the Directors power to allot Shares without pre-emptionapplying. As the resolutions relating to the Capital Reduction and the Tender Offer areinter-conditional, there will only be one resolution put to Shareholders whichis a special resolution and requires the approval of 75 per cent. of theShareholders voting at the EGM, or on a poll, 75 per cent. of the votes cast. Action to be taken (a) Extraordinary General Meeting You will find set out at the end of this document a notice convening the EGM tobe held at 10 Bruton Street, London W1J 6PX convened for 10.30 am on 24 August2005 at which the Resolution will be proposed to approve the Capital Reduction(including associated matters) and, subject to and conditional upon the CapitalReduction being approved by Shareholders and confirmed by the Court, to grantauthority to the Company in accordance with the provisions of the Act topurchase its own Ordinary Shares. A reply-paid Form of Proxy is enclosed. Whether or not you wish to tender any ofyour Ordinary Shares and regardless of whether or not you intend to be presentat the Extraordinary General Meeting you are requested to complete the Form ofProxy in accordance with the instructions printed on it and to return it to theCompany's registrars, Lloyds TSB Registrars, The Causeway, Worthing, WestSussex, BN99 6DA as soon as possible and, in any event, so that it is receivedno later than 10.30 am on 22 August 2005. The completion and return of a Form ofProxy will not preclude you from attending the EGM and voting in person if youwish to do so. (b) To complete the Tender Form Qualifying Shareholders who wish to tender their Ordinary Shares in respect oftheir Basic Entitlement and, if applicable, up to their Maximum Entitlementshould complete the Tender Form in accordance with the instructions printed onit and in Part II of this document and return it either by post in theaccompanying reply-paid envelope (for use in the UK only) or by hand (duringnormal business hours only) to Lloyds TSB Registrars, 3rd Floor, Princess House,1 Suffolk Lane, London EC4R 0AX as soon as possible, but in any event so as toarrive no later than 5.00 pm on 13 September 2005. Qualifying Shareholders who hold their Ordinary Shares in certificated formshould also return with the Tender Form their share certificate(s) in respect ofthe Ordinary Shares tendered. Qualifying Shareholders who hold their Ordinary Shares in uncertificated formshould also transfer the relevant Ordinary Shares to an escrow balance asdescribed in Part II of this document and in the Tender Form. Qualifying Shareholders who do not wish to sell any Ordinary Shares under theTender Offer need take no action in relation to the Tender Form. However, it isimportant that Shareholders, whether or not they intend to participate in theTender Offer, return the completed Form of Proxy. COMPLETED TENDER FORMS MUST BE RECEIVED BY NO LATER THAN 5.00 PM ON 13 SEPTEMBER2005. Further details as to the procedures for tendering and settlement are set out inParts II and III of this document and on the Tender Form. Directors' Intentions Mr J. G. Murray, Chairman, has irrevocably undertaken to procure that theshareholders in the Company, over which he exercises control, vote in favour ofthe Resolution and tender for their Maximum Entitlement in respect of inaggregate 47,992,980 Ordinary Shares under the Tender Offer. All other Directorswho are interested in Ordinary Shares have irrevocably undertaken to vote infavour of the Resolution and tender for their Maximum Entitlement in respect ofin aggregate 616,666 Ordinary Shares under the Tender Offer. Certain members ofMr J. G. Murray's family have given irrevocable undertakings to vote in favourof the Resolution and tender for their Maximum Entitlement in respect of inaggregate 2,152,797 Ordinary Shares under the Tender Offer. Further Information Your attention is also drawn to the additional information set out in Parts II,III and IV of this document and the Tender Form. Recommendation As described in the section headed ''Tender Offer'' above, the Directors believethat the Tender Offer and the immediate purchase by the Company from BrewinDolphin of the tendered Ordinary Shares for cancellation, offers Shareholders anexcellent opportunity to realise all or part of their investment in the Company(depending on the size of their holdings). The Directors believe that the proposed Tender Offer and purchase by the Companyof its Ordinary Shares from Brewin Dolphin is in the best interests of theCompany and Shareholders as a whole. Accordingly the Board unanimouslyrecommends Shareholders to vote in favour of the Resolution, as the Directorshave undertaken to do so in respect of their own beneficial and non-beneficialOrdinary Shares totalling in aggregate 50,224,858 Ordinary Shares (representingapproximately 86.6 per cent. of the issued share capital of the Company). The Board is making no recommendation to Qualifying Shareholders in relation toparticipation in the Tender Offer itself. Whether or not Qualifying Shareholdersdecide to tender their Ordinary Shares will depend, amongst other things, ontheir view of the Company's prospects and their own individual circumstances,including their tax position. Qualifying Shareholders are recommended to consulta duly authorised independent financial adviser and make their own decision. Yours faithfully Francis Michael Benjamin GailerSenior Independent Non-Executive Director EXPECTED TIMETABLE OF PRINCIPAL EVENTS 2005Opening of Tender Offer 28 JulyLatest time and date for receipt of Forms of Proxy for the Extraordinary General Meeting 10.30 am on 22 AugustExtraordinary General Meeting 10.30 am on 24 AugustLatest time and date for receipt of Tender Forms 5 pm on 13 SeptemberRecord Date for Tender Offer 13 SeptemberExpected date for the court hearing of the petition to confirm the Capital Reduction 14 SeptemberExpected date on which Capital Reduction becomes effective 15 SeptemberExpected date of announcement of take-up level under the Tender Offer and related details 15 SeptemberExpected date of payment of Tender Offer consideration in respect of sold certificated Ordinary Shares 26 Septemberand payments made through CREST for Tender Offer consideration in respect of sold uncertificatedOrdinary SharesExpected date of despatch of balance share certificates in respect of any unsold certificated Ordinary 26 SeptemberShares and CREST accounts to be credited in respect of any unsold uncertificated Ordinary Shares Enquiries: Brewin Dolphin SecuritiesAndrew Kitchingman 0113 2410130 ENDS This information is provided by RNS The company news service from the London Stock Exchange