Biome Tech Regulatory News (BIOM)

5 Aug 2005 11:15

Stanelco PLC05 August 2005 5 August 2005 Stanelco plc (the "Company") Posting of circular to shareholders Re acquisition of Biotec Holding GmbH ("Biotec") The Company announces the posting later today of a circular relating to theacquisition of Biotec Holding GmbH. It was announced on 6 June 2005 that the Company had entered into a conditionalagreement to acquire the whole of the share capital of Biotec for a totalconsideration of US$25 million. Due to its size, under the Listing Rules, theAcquisition requires the prior approval of Shareholders. Further to theannouncement of 6 June 2005, the Company announced on 5 July 2005 that it hadentered into heads of agreement with SP Metal to dispose of 50 per cent. of itsinterest in Biotec for US$12.5 million, thereby creating the Joint Venture withSP Metal, subject to, amongst other things, the Acquisition being approved byShareholders at the EGM. The Disposal is not conditional on Shareholders'approval. The Circular contains a notice of an Extraordinary General Meeting to be held at10.00a.m on 30 August 2005, at which the resolution will be proposed to approveand implement the Acquisition. The EGM is to be held at the offices of KBC PeelHunt, 111 Old Broad Street, London, EC2N 1PA. The Directors are also now seeking authority to issue additional Ordinary Sharesfor cash other than on a pre-emptive basis and to increase the borrowing powerscontained in the Company's Articles of Association. The relevant resolutions arealso contained within the notice of Extraordinary General Meeting. Information on Biotec Biotec is one of the world's leading exponents of starch technology and has aconsiderable intellectual property portfolio, including many patents, extendingto uses in pharmaceutical and edible applications. It also has ranges of otherbiodegradable materials that are ready for commercialisation within the food andbeverage industries. Biotec has a unique portfolio of products, central to whichis a proprietary starch-based pharmaceutical grade thermoplastic ("TPS"), whichuses environmentally responsible material, such as natural starch, in place ofpetroleum based plastics, such as polypropylene. Natural starch is one of thelowest cost biodegradable, compostable, renewable resource materials. TPS isalso free from genetically modified starch. Biotec's materials are suited for a wide variety of applications, where itreplaces conventional polymers such as gelatine. Depending upon thespecification, Biotec's materials can be used to make materials which have acost base of between US$5 to US$8 per kilogramme, offering customers significantcost savings when compared to gelatine and other materials which it may replace.In addition, being a homogeneous material, as opposed to a combination ofmaterials (i.e. a laminate), waste generated during manufacture can often beimmediately re-used. Biotec's main customers include a range of pharmaceutical,industrial, agricultural and food packaging businesses. Biotec's starchproducts are also currently utilised by Stanelco in its Starpol starch blendfilms used in CradleWrap packaging, material used in the manufacture of foodtrays, starch film for air pillows, starch pellets for food trays and starchfilm for edible packaging. Biotec's managing director, Harald Schmidt, is one of the world's leadingexperts on starch polymers. He will work for the Biotec Group under a three yearservice contract with Biotec Biologische Naturverpackungen Forschungs- undEntwicklungs GmbH. In addition, he will also be employed by the Company under aseparate employment contract. Conditional on approval of the Acquisition, hewill also join the Company's Management Committee. The Directors believeHarald's experience and skill base will add significantly to Stanelco'sbusinesses. A summary of Biotec's financial performance for the three years ended 31December 2004 is set out below. Year ended 31 December 2004 2003 2002 £'000 £'000 £'000Turnover 967 1,043 1,463Gross profit 852 863 1,355Profit/(loss) before tax 102 (2,066) (977) As at 31 December 2004, Biotec had gross assets of approximately £2.8 million. Information on SP Metal SP Metal was founded in 1976 and is now a pan-European leader in institutionalcatering, agricultural and household packaging with 1,300 employees, 12factories across Europe in Italy, Denmark, France, Spain, UK, Netherlands and inthe Czech Republic and has annual turnover of approximately €254 million(source: Audited accounts for the financial year ended 31 December 2004). SPMetal produces 140,000 tonnes of plastic film per year, 100,000 tonnes forrefuse bags, 16,000 tonnes for shopping bags, 13,000 tonnes for freezer bags and11,000 tonnes for other industrial films and household products. SP Metal alsoproduces 15,000 tonnes of aluminium foil and containers per annum. The Directorsunderstand that SP Metal has been actively looking for innovative,environmentally responsible packaging material solutions and therefore believethat SP Metal's participation in the Joint Venture delivers a solution to thatsearch. As a bulk user of Biotec's products, SP Metal will continue tocontribute to the Joint Venture's overhead base, thereby enabling Biotec toconcentrate resources further on its research and development activities. Background to and reasons for the Acquisition and Disposal The Directors believe that the Acquisition represents a significant step forwardin Stanelco's strategy to become one of the world's leading exponents of viable,alternative, environmentally responsible packaging methods. Moreover, theDirectors believe that the Disposal is an excellent demonstration of howStanelco plans to use joint ventures with other market-leaders in related fieldsto bring immediate value to both the Company and Shareholders alike. Theoperation of Biotec as a joint venture between the Company and SP Metal isexpected to enable each partner to leverage off Biotec's technology to exploittheir respective markets and facilitate cross-selling to each partners'customers. It has become apparent that with the rise in oil prices, the cost ofpetroleum-based packaging materials is inevitably increasing faster than thealternatives, making such alternatives increasingly attractive. In particularPolyethylene ("PE") and Amorphous Polyethylene Terephthalate ("APET") sheet formaking food trays is currently priced in the order of £1.70 per kilo, whilst thetarget price for Biotec's comparable materials will be priced in the region of£1.80 per kilo. There are also a large number of environmental benefits that aredriving the shift from petroleum-based plastics to sustainable alternatives,such as starch-based products. The Directors believe that the Acquisition positions the Group to take advantageof this rapidly expanding market place and specifically, that it will enable theGroup to sell its existing starchbased products at a price of up to 20 per cent.less than current levels. The Directors believe that the Acquisition alsocreates a further barrier to entry for potential competition in the GREENSEALproject, since it will enable the Enlarged Group to provide a turnkey,ecologically and environmentally responsible solution to Modified AtmospherePackaging ("MAP") food-packaging requirements, since the Group's Radio FrequencySealing and Welding technology can also be used to process starch polymers, suchas those produced by Biotec, without the degradation caused by other methodssuch as thermal processing which can render the material unsuitable for food andpharmaceutical applications. Biotec also offers potential synergies with the Group's water-soluble andbiodegradable technologies of Adept Polymers Limited, and the packaging designand development skills of Aquasol Limited, both wholly owned subsidiaries ofStanelco. Furthermore Biotec is expected to provide the Enlarged Group withaccess to a larger potential market place. In particular the Directors believethat Biotec could have packaging applications capable of being exploited inconjunction with leading supermarket chains supplying mass-markets. The Directors expect to use Biotec's film in relation to InGel TechnologiesLimited ("InGel"), the Company's joint venture with Cardinal Health 409, Inc.which was established to commercialise Stanelco's soft edible capsule makingtechnology. Interaction between Biotec and other parts of the Group has alreadyled to significant new patentable inventions and the pilot launch of a newthermoplastic material marketed under its current name, Starpol 2000. Starpol2000 has many potential uses including food packaging and can be processed onconventional packaging machinery and does not therefore require major capitalinvestment by packagers converting to its use. Sample product has beenmanufactured and discussions have commenced with major food retailers. Earlyindications in the food rigid tray area suggest that Starpol 2000 will be ableto significantly undercut the price of polyester (in particular APET, used inclear trays, and crystalline polyethylene terephthalate ("CPET") which is usedfor microwaveable trays) whilst also providing the necessary gas barrier forMAP. Starpol 2000 is certified biocompostable to the relevant standard onpackaging recovery through composting and biodegradation by DIN CERTCO GmbH, thecertification organisation of the German Institute for Standardisation. Terms of the acquisition agreement Under the terms of the Acquisition Agreement, the Vendor has agreed to sell andthe Company has agreed to purchase the whole of the issued share capital ofBiotec for an aggregate consideration of US$25 million, of which US$1.23 millionhas already been paid to EKI in cash as a non-refundable deposit. A furtherUS$11.27 million in cash is due to be paid on completion of the Acquisition. Afurther US$6.25 million in cash is due to be paid in 12 months and a finalpayment of US$6.25 million in cash is due 12 months thereafter. These deferredelements are not subject to performance criteria. The Acquisition Agreement further provides for the assignment to Stanelco ofdebts currently owed by Biotec to the Vendor amounting to approximately €16million ("Vendor Indebtedness"). In the period between 4 June 2005 andcompletion of the Acquisition Agreement, the Vendor has agreed to advance toBiotec Group such sums as are reasonably required to fund their operations, suchsum not to exceed €300,000 (the "Interim Seller Advance"). If Shareholders havefailed to grant approval of the Acquisition within 60 days but not later than 90days from 4 June 2005, the cap on the Interim Seller Advance shall be increasedto €400,000. These amounts shall be repaid to the Vendor by the Company atcompletion. Under the Acquisition Agreement the Vendor has given warranties and indemnitiesin respect of certain business, taxation and other matters subject to agreedlimits of liability. Terms of the disposal agreement Under the terms of the Disposal Agreement to be entered into in accordance withthe Heads of Terms, SP Metal will agree to acquire a 50 per cent. interest inBiotec, including a 50 per cent. interest in the Vendor Indebtedness fromStanelco for an initial consideration of US$6.25 million in cash and a furtherUS$6.25 million to be paid in cash in two equal instalments 12 and 24 monthsafter the Disposal Agreement is entered into. This is expected to be shortlyafter the EGM. Such deferred payments are not to be subject to the satisfactionof performance criteria. The consideration receivable by Stanelco under the terms of the DisposalAgreement will be used to fund 50 per cent. of the cost of the Acquisition. Inthe event that the Disposal is not completed the Company will fund the cost ofthe Acquisition from its existing cash resources. The Heads of Terms state thatDisposal is subject to a number of pre-conditions, amongst others, the Companyand SP Metal entering into a final form Joint Venture agreement in relation toBiotec, the final approval of the Vendor and certain license agreements withinBiotec being amended and restated to the satisfaction of both parties. The Disposal Agreement and the Joint Venture Agreement are not to be subject toShareholder approval. The entering into of the Disposal Agreement and the JointVenture agreement is not a condition to the completion of the Acquisition. TheJoint Venture between Stanelco and SP Metal arising from the Acquisition andDisposal is intended to be run on a 50:50 basis, with each of the partnersretaining half of the equity in Biotec, though Stanelco will have a casting votein the advisory council until 31 December 2009, enabling Stanelco to break anydeadlock arising in material matters relating to the Joint Venture in certaincircumstances. Current trading and prospects of the Enlarged Group On 29 June 2005 the Group released its interim results for the six months ending30 April 2005. The interim results showed a loss before tax of £0.9 million(2004: losses of £0.5 million) on turnover of £0.6 million (2004: £0.3 million).Over the same period the Group has made investments in research and developmentof £0.7 million and increased its levels of stock by £0.8 million from £0.6million to £1.4 million, which primarily related to equipment involved in thetrials of GREENSEAL. The Group raised £4.8m (net of expenses) by way of anequity placing in February 2005, which has mainly been utilised as workingcapital. Shareholders funds increased from £6.1 million to £10.4 million in theperiod. The Group continues to invest in research and development and isincreasing its cost base in a controlled manner to facilitate the roll out phaseof revenue generating products and technologies which has now commenced. On 8June 2005 the Company raised a further £9 million (net of expenses) which willbe used in part to fund the cost of the Acquisition, and the balance will beused to provide funding to Biotec's business and working capital for theEnlarged Group. The Group's GREENSEAL trials and commercialisation continue to proceed well witha number of recent announcements underlining continued progress with ASDA'ssupplier base. The Directors also expect that the introduction of Starpol 2000will permit the replacement of polyester in food packaging applications. Additional Authorities The Directors are also now seeking approval for two further resolutions. The first such resolution seeks Shareholder approval for the issue of furthernew Ordinary Shares for cash, other than on a pre-emptive basis to existingShareholders, under the terms of section 95 of the Act. The Directors obtainedan equivalent authority at the Company's last Annual General Meeting, thoughsuch authority has now been exhausted by the placing undertaken by the Companyon 8 June 2005. Whilst the Directors have no current intention to use thisauthority in the event that it is granted, they believe it would be useful inproviding the Company with the flexibility to raise further equity capital inthe future on a quick and cost effective basis, should market conditions sopermit and should there be a bona fide strategic reason to do so. The authoritynow being sought would enable the issue of 46,432,910 new Ordinary Shares,representing 5 per cent. of the Company's current issued share capital of928,658,222 Ordinary Shares. The authority will lapse at the conclusion of theCompany's next annual general meeting. The second such resolution is required to increase the borrowing powers of theCompany set out in Article 94B of the Company's Articles of Association, whichare currently limited to £10 million. Having regard to the level of deferredconsideration payable under the Acquisition Agreement and the level of tradecreditors with which the Group operates, the Directors believe that the currentborrowing limit will be insufficient, and are accordingly proposing that it beincreased to £25 million. Recommendation and voting intentions The Board, which has been advised by KBC Peel Hunt, considers the Resolutions tobe in the best interests of the Shareholders and the Company as a whole. Inproviding advice to the Board, KBC Peel Hunt has placed reliance on theDirectors' commercial assessments. Accordingly, the Directors unanimously recommend that Shareholders vote infavour of the Resolutions to be proposed at the Extraordinary General Meeting,as they intend to do in respect of their holdings of 6,217,083 Ordinary Shares,representing approximately 0.7 per cent. of the Company's existing issuedordinary share capital. The Directors have also received irrevocableundertakings to vote in favour of the Resolutions from the Age of ReasonFoundation and Richards and Appleby Limited in respect of a further 23.38 percent. and 8.04 per cent. respectively, of the Company's issued ordinary sharecapital. Availability of Circular The Circular to Shareholders, including a notice of extraordinary GeneralMeeting, is being posted to Shareholders today. Copies of the circular will beavailable from KBC Peel Hunt Ltd, 111 Old Broad Street, London, EC2N 1PH until30 August and will be submitted to the UK Listing Authority, and will beavailable for inspection at the UK Listing Authority's Document ViewingFacility, which is situated at: Financial Services Authority 25 The North Colonnade Canary Wharf London E14 5HS DEFINITIONS The following definitions apply throughout this announcement, unless the contextotherwise requires: "Act" the Companies Act 1985, as amended"Acquisition" the proposed acquisition of the entire share capital of Biotec by the Company"Acquisition Agreement" the conditional agreement dated 4 June 2005 between the Vendor and the Company"Articles" the articles of association of the Company"Biotec" Biotec Holding GmbH"Biotec Group" Biotec and its subsidiary undertakings"Board" or "Directors" the directors of the Company"Circular" the circular to Shareholders dated 5 August 2005"Disposal" the conditional disposal of a 50 per cent. interest in Biotec"Disposal Agreement" the agreement to be entered into between SP Metal and the Company"Enlarged Group" the Group as enlarged by the Acquisition"Extraordinary General Meeting" the extraordinary general meeting of the Company to be held on 30 August 2005"Group" the Company and its subsidiary undertakings"Heads of Terms" the heads of terms relating to the Disposal"Joint Venture" the joint venture between Stanelco and SP Metal to be formed in accordance with the Heads of Terms"KBC Peel Hunt" KBC Peel Hunt Ltd"Listing Rules" the Listing Rules of the UK Listing Authority"Management Committee" the Group's management committee"Ordinary Shares" ordinary shares of 0.1p each in the capital of the Company"Resolutions" the resolutions to be proposed at the Extraordinary General Meeting"Shareholders" holders of Ordinary Shares"SP Metal SP Metal S.A."UK Listing Authority" the Financial Services Authority acting in its capacity as the competent authority for the purposes of Part VI of the Financial Services and Markets Act 2000"Vendor" or "EKI" E Khashoggi Industries LLC, a limited liability company formed in Delaware Ends For further information please contact: Ian Balchin, Chief ExecutiveStanelco PLCTel: +44 (0)2380 867 100 Jonathon Brill/Billy CleggFinancial DynamicsTel: +44 (0)20 7831 3113 About Stanelco plc The Stanelco Group of companies (the Group) has brought together expertise inradio frequency (RF) technology, RF applications and biodegradable materialsciences to create a revolutionary range of packaging technologies. Stanelco's philosophy is that new products and processes must offer solutionsand applications which: • give higher added value, • are greener, more environmentally sustainable than those they replace • and have protectable intellectual property rights. Stanelco will develop the products and processes to a demonstration stage andthen work with partners in order to reach the markets; and under thesecircumstances Stanelco will usually seek to license its technology. Stanelcoinvests considerable time and resources in ensuring its technologies areprotected via layers of patents wherever possible. In this way Stanelco believes it can minimise commercial risk and preserve thehighest value for shareholders. The products offering the prospect of near term revenue generation are beinggiven priority over the Group's resources. Stanelco was founded in 1953 and is a world leader in the development of radiofrequency technologies for processing polymers for edible and packagingapplications and the design and manufacture of optical fibre technology,induction heating and dielectric welding equipment. Stanelco's Currentdevelopments include GREENSEAL Food tray lidding technology, STARPOL (starch /pva blended material), FrogPack high impact low cost packaging format,CradleWrap range of biodegradable air cushion packaging, Soluble tape, 100%water-soluble films and adhesives, Biodegradable Airbag (void fill) packaging,water-soluble detergent capsules, edible sachets and waste packing. GREENSEAL, STARPOL, Frog Pack and CradleWrap are all trademarks of the Stanelcoplc group. This information is provided by RNS The company news service from the London Stock Exchange