AVS.L Regulatory News (AVS)

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF THAT JURISDICTION

23 December 2013

AVESCO GROUP PLC

("AVESCO" OR THE "COMPANY")

PROPOSED RETURN OF CASH TO AVESCO SHAREHOLDERS OF 110 PENCE PER ORDINARY SHARE BY MEANS OF A B/C SHARE SCHEME

and

APPROVAL OF A BUY-BACK OF CERTAIN ORDINARY SHARES

Summary

Further to the Company's announcement today of its preliminary results for the year ended 30 September 2013 (the "Preliminary Results"), the Company is pleased to announce further details of its proposed return of 110 pence per share (approximately £30.6 million) in cash to its shareholders and LTIP award-holders (the "Return of Cash").

The Company also announces today that it has entered into a share purchase agreement (the "Buy-back Agreement") with Taya Communications Ltd. ("Taya") to acquire, conditional upon approval by Avesco shareholders, 7,584,724 Ordinary Shares in the capital of the Company by way of an off-market share purchase (the "Share Buy-back").

A circular to Avesco shareholders in relation to the Return of Cash and the Share Buyback (the "Circular"), which includes a notice convening a general meeting of the Company to approve the Return of Cash and the Share Buyback, will be posted to Avesco shareholders on or around Friday, 27 December 2013.

Return of Cash

As Avesco shareholders may by now be aware, from previous announcements made by the Company, in December 2006 the Avesco Group sold its interest (the "Disposal") in Complete Communications Corporation Limited ("Complete"). Under the terms of the sale and purchase agreement relating to the Disposal, the Group retained the right to receive certain further deferred consideration arising from the outcome of litigation in the US brought by Celador International Ltd. ("Celador") against the Walt Disney Company and others over the US profits from the TV show 'Who Wants To Be A Millionaire?'.

This litigation has been protracted and has extended over many years since the Disposal. On 7 March 2013, the Ninth Circuit Court of Appeals issued its order returning the case to the trial court, an act which had the legal effect of making the judgment (which had previously been decided in Celador's favour) collectible by Celador. Celador was awarded US$319 million in damages and pre-judgment interest. Under the terms of the agreement relating to the Disposal, the Group's entitlement to deferred consideration calculated by reference to this award amounted to £45.7 million (net of estimated tax liabilities and indemnities) (the "Disney Funds").

The Disney Funds represent a significant capital profit from the Disposal and, in light of the expected cash requirements of the Avesco Group and other funds available to the Avesco Group, the Directors consider that very little of these further proceeds from the Disposal need to be retained in the business.

Under the arrangements being proposed, the Directors are seeking approval to return approximately £30.6 million of the Disney Funds to Avesco shareholders and LTIP award-holders pursuant to the Return of Cash.

As announced on 9 September 2013, the Board of Directors of Avesco (the "Board") intends to complete the Return of Cash to Avesco shareholders through a B/C Share Scheme (the "B/C Share Scheme"). While the Company is returning further capital proceeds to Avesco shareholders, it is assumed that certain Avesco shareholders may wish to receive their entitlement under the Return of Cash as an income dividend rather than a capital receipt. Furthermore, the amount of the Return of Cash exceeds the amount of the Company's total share premium reserve. Accordingly, the B/C Share Scheme enables Avesco shareholders, subject to applicable overseas restrictions, to elect to receive their cash proceeds under the Return of Cash as either income or capital or any combination of the two.

Under the B/C Share Scheme, for every one ordinary share of 10 pence each in the capital of the Company (an "Ordinary Share") held at 5.00 p.m. on 23 January 2014 (the "Record Date"), 110 pence will be returned to Avesco shareholders through the bonus issue to them of either one B Share (which will be redeemed by the Company for 110 pence in cash) (the "Capital Option") or one C Share (on which a dividend of 110 pence will be payable) (the "Income Option").

The key elements of the proposed Return of Cash and the B/C Share Scheme are as follows:

· As referred to above, Avesco shareholders (other than overseas Avesco shareholders resident, or with registered addresses, in certain restricted territories) can elect to receive their cash proceeds under the Return of Cash as either income or capital or any combination of the two.

· Due to the limit on the amount of share premium that is available for capitalisation on the Company's balance sheet, Avesco shareholders who do not make valid elections and overseas Avesco shareholders resident, or with registered addresses, in certain restricted territories will be deemed to have elected for the Income Option in respect of ALL of their entitlements under the B/C Share Scheme.

· Avesco shareholders who elect for the Capital Option will receive one B Share for each Ordinary Share held at the Record Date. It is expected that each B Share will be redeemed by the Company for 110 pence. B Shares will be cancelled upon redemption. The cash received under the Capital Option should be taxed almost exclusively as capital for UK individual Avesco shareholders.

· The Return of Cash is conditional upon Shareholder approval, which will be sought at a general meeting of the Company to be held at 11.00 a.m. on 22 January 2014. The resolution to approve the Return of Cash (the "Return of Cash Resolution") is a special resolution and will be passed if at least 75 per cent. of the votes cast by Avesco Shareholders are in favour.

· The latest time and date for receipt of Avesco shareholders' forms of proxy and CREST proxy instructions is 11.00 a.m. on 20 January 2014.

· The Record Date for the entitlement to B Shares and/or C Shares is 5.00 p.m. on 23 January 2014.

· The latest time and date for receipt of Avesco shareholders' elections under the B/C Share Scheme is 1.00 p.m. on 23 January 2014.

· Cheques are expected to be despatched to Avesco shareholders and CREST accounts are expected to be credited on or around 31 January 2014.

An expected timetable of principal events is set out in full at the end of this announcement.

The Board believes that the B/C Share Scheme represents a flexible and efficient way to effect the Return of Cash and that it treats all Avesco shareholders equally, relative to the size of their existing shareholdings in the Company. It is the Directors' intention that the Return of Cash will be separate from, and will not impact on, the Company's normal income dividend payment pattern.

Share Buy-back

Avesco shareholders may also be aware that Taya is the beneficial owner of 7,784,878 Ordinary Shares (representing 29.9 per cent. of the Company's issued share capital, excluding shares held in treasury) and has two representatives on the Board, Mr Amiram Giniger and Ms Carmit Hoomash.

The Company and Taya have entered into the Buy-back Agreement pursuant to which, subject to the approval of the Independent Shareholders (being all Avesco shareholders, with the exception of Taya), the Company will purchase 7,584,724 Ordinary Shares (the "Buy-back Shares") from Taya at a price of 124.185 pence per Buy-back Share.

The price payable per Buy-back Share represents a five per cent. premium over the average closing mid-market price per Ordinary Share for the forty-five business day period ending on 17 December 2013 (the last practicable date before the date of the Buy-back Agreement), less the amount of 110 pence (being the cash entitlement payable per Buy-back Share under the Return of Cash).

Immediately after completion of the Share Buy-back, Taya will hold 200,154 Ordinary Shares (representing 1.09 per cent. of the Company's issued share capital as reduced by the Share Buy-back).

As Taya currently holds more than ten per cent of the Company's issued share capital, Taya is considered to be a "substantial shareholder" of the Company for the purposes of the AIM Rules. This means that the Share Buyback is to be treated as a "related party transaction" under the AIM Rules.

The Independent Directors (being Richard Murray, John Christmas, Graham Andrews and David Crump) believe that the Share Buy-back is in the interests of the Independent Shareholders as:

· The completion of the Share Buy-Back is expected to be earnings-enhancing, post on-going funding costs. After the completion of the Share Buy-Back, the value of the net assets per Ordinary Share will increase proportionately.

· The total voting rights of Independent Shareholders (excluding the interests of the Directors) will increase to 66 per cent. from 47 per cent. and, in this context, the Independent Directors believe that the removal of a significant shareholder will remove a possible disincentive to other institutional investors considering an investment in the Company.

· In recent years the Company has been reporting its financial results on a quarterly basis to enable Taya to comply with Taya's own reporting obligations on the Tel Aviv Stock Exchange. After completion of the Share Buy-Back, the Company will be able to revert to producing its financial results on a biannual basis which will remove a management and administrative burden.

· It is estimated that the Company will save approximately £0.2 million per year in quarterly audit review fees, director's fees and related expenses.

· The reduction in the issued share capital will result in a 29.2 per cent. reduction in the amount of cash being paid out in dividends by the Company and will, therefore, provide further support to the Company's intention to maintain its progressive dividend policy.

Following completion of the Share Buy-Back, the Company will be able to continue to pursue its strategy of developing the Group's core businesses to provide cash generation and dividend growth for Avesco shareholders. Future gearing levels are expected to be in line with or better than gearing before the Disney Funds were received. The Independent Directors believe such gearing will not present any constraints on the operation or development of the business and will ultimately represent a more efficient capital structure of the Group in the future.

Conditional on (and with effect from) completion of the Share Buy-back, Mr Giniger and Ms Hoomash will each resign from the Board and, in addition, Taya has undertaken, for a period of 30 months from the date of completion of the Buy-back Agreement, it shall not directly or indirectly acquire any additional interest in the Company's securities nor make or cause to be made any offer for the Company's securities (the "Standstill Agreement"). The undertakings in the Standstill Agreement are subject to certain limited exceptions, including in the event that a third party acquires 30 per cent. of the total voting rights of the Company or makes a firm offer to acquire over 50 per cent. of the total voting rights of the Company, Richard Murray ceases to be a "substantial shareholder" of the Company for the purposes of the AIM Rules or the Company provides its consent.

On completion of the Share Buy-Back and following the resignation of Mr Giniger and Ms Hoomash as directors of the Company, it is the Board's intention to recruit a new non-executive director as soon as practicable.

The Buy-back Agreement (and therefore the Share Buy-back) is conditional on Independent Shareholder approval. The resolution to approve the Share Buy-back (the "Buy-back Resolution") is an ordinary resolution of the Independent Shareholders and will be passed if at least 50 per cent. of the votes cast by the Independent Shareholders are in favour.

The Buy-back Resolution authorises the Company to effect the Share Buy-back in accordance with the terms of the Buy-back Agreement. The authority conferred by the Buy-back Resolution will expire on 31 March 2014.

Financial impact of the Return of Cash and the Share Buy-back

As reported in the Preliminary Results, the Avesco Group had a net cash balance of £22.3 million as at 30 September 2013.

Subject to the approval of Avesco shareholders, the payments to Avesco shareholders under the B/C Share Scheme and the payments to LTIP award-holders will together amount to £30.6 million (including any deferred elements referred to below) whilst payment in respect of the Share Buy-back will amount to £9.4 million. After allowing for costs of the transactions amounting to £0.4 million, the Group will be left with net debt of £18.1 million on a pro forma basis which would represent a net debt to historic EBITDA ratio of 0.97, compared to a banking covenant requirement going forward that it not exceed 1.50 on a rolling twelve-month basis.

In order to spread the impact of these payments, which would otherwise all fall to be paid within a short period of time, Richard Murray has , subject to completion of the Buy-back Agreement, agreed to defer the majority of his entitlement under the Return of Cash, being approximately £3.4 million until no later than 30 June 2014 with the balance (£2 million) to be paid on or before 30 September 2014.

The Independent Directors believe that, after making the payments under the Return of Cash and the Share Buy-back, the Group's resulting net debt of £18.1 million on a pro forma basis is at a prudent level in terms of preserving the Avesco Group's operational flexibility going forward, particularly when compared to total debt facilities of £46.5 million as at 30 September 2013, and leaves gearing at levels similar to those maintained by the Group prior to receipt of the Disney Funds. It will also enable the Avesco Group to meet the costs of the on-going restructuring activities at CT Germany and Presteigne Charter, whilst preserving the Avesco Group's progressive dividend policy.

Looking towards 2014, the Avesco Group anticipates an increase in demand for its services with a number of major "even year" sporting events to look forward to, including the Winter Olympics in Russia, the Commonwealth Games in Scotland and the FIFA World Cup in Brazil.

Recommendation

The Board unanimously recommends that Avesco shareholders vote in favour of the Return of Cash Resolution at the General Meeting, as all the Directors intend to do in respect of their own direct and indirect beneficial holdings (and, in the case of Mr Amiram Giniger, those ordinary Shares held by Taya (a company which is controlled by Mr Giniger)) which amount in aggregate, to 13,646,996 Ordinary Shares, representing approximately 52.6 per cent. of the total voting rights of the Company.

The Independent Directors consider, having consulted with finnCap Ltd (the Company's nominated adviser), that the terms of the Share Buy-back are fair and reasonable insofar as Avesco shareholders are concerned.

The Independent Directors unanimously recommend that the Independent Shareholders vote in favour of the Buy-back Resolution at the General Meeting, as all the Independent Directors intend to do in respect of their own direct and indirect beneficial holdings which amount in aggregate, to 5,862,118 Ordinary Shares, representing approximately 22.6 per cent. of the total voting rights of the Company.

Mr Giniger and Ms Carmit Hoomash are not counted amongst the Independent Directors due to their respective connections to Taya. Mr Giniger and Ms Hoomash have, therefore, not participated in the Independent Directors' deliberations concerning the Share Buy-back nor can they make any recommendation to the Independent Shareholders in respect of voting on the Buy-back Resolution.

Circular

As explained above, a Circular setting out full details of:

· the Return of Cash and the B/C Share Scheme;

· the action to be taken by Avesco shareholders in connection with the Return of Cash and the B/C Share Scheme;

· the Share Buy-back; and

· why the Directors consider the Return of Cash and the B/C Share Scheme and the Share Buy-back to be in the best interests of Avesco shareholders as a whole,

will be despatched to Avesco shareholders on or around 27 December 2013. The Circular will also be available at the Company's website at http://www.avesco.com/.

For further information please contact:

Important information

Unless otherwise stated, references to time contained in this announcement are to London time.

This announcement is for informational purposes only and does not constitute an invitation to participate in the B/C Share Scheme in or from any jurisdiction in or from which, or to or from whom, it is unlawful to make such offer under applicable securities laws or otherwise.

No application has been, or will be, made to any investment exchange or trading platform for listing or admission to trading of the B Shares, C Shares or Deferred Shares to be issued under the B/C Share Scheme.

None of the B Shares, C Shares or Deferred Shares have been or will be registered under the United States Securities Act of 1933 (as amended) (the "US Securities Act") or the state securities laws of the United States and none of them may be offered or sold in the United States unless pursuant to a transaction that has been registered under the US Securities Act and the relevant state securities laws or a transaction that is not subject to the registration requirements of the US Securities Act and the state securities laws, either due to an exemption therefrom or otherwise. There will be no public offering of securities in the United States.

Expected timetable of principal events

Notes:

(1) The above dates are indicative only. If any of the above times and/or dates change, the Company will notify the revised times and/or dates to Shareholders by an announcement through a Regulatory Information Service.

(2) All references are to London time unless otherwise stated

(3) Events in the above timetable which follow the General Meeting are conditional on one or other of the Resolutions being passed at the General Meeting