CIN.L Regulatory News (CIN)

THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED TO CONSTITUTE INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF THE MARKET ABUSE REGULATION (EU) NO. 596/2014. UPON THE PUBLICATION OF THIS ANNOUNCEMENT, THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.

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11 August 2017

CITY OF LONDON GROUP PLC

("COLG" or "the Company")

Proposed Reverse Takeover of Milton Homes, Subscriptions and Open Offer

The board of COLG (AIM:CIN), is pleased to announce today that it has conditionally agreed the acquisition of Milton Homes and a proposed £11 million equity fundraising.

Summary

· The Company proposes to acquire the entire issued share capital of Milton Homes, a provider of equity release products for residential property, for consideration of £20.2 million, approximately equal to net tangible assets, from DV4, a fund advised by specialist real estate investment advisory company Delancey. The consideration for the Acquisition will comprise £13.2 million in New Ordinary Shares in COLG and £7 million in cash.

· The Company proposes to raise £11 million through an equity fundraising comprising £7 million through non-pre-emptive Subscriptions and £4 million through a fully underwritten Open Offer both at a price of 90p per share (equivalent of 4.5p before the proposed 20 for 1 consolidation detailed below).

· MBIL has agreed to subscribe for £5.8 million in New Ordinary Shares and to underwrite the Open Offer in full, in respect of any entitlements not taken up.

· In addition, unconnected investors have agreed to subscribe for £1.2 million in New Ordinary Shares and Peel Hunt may also subscribe, in lieu of part of MBIL's subscription, to ensure that a free float of 10% is achieved following completion of the Acquisition.

· Following completion of the Acquisition, the Subscriptions and the Open Offer, DV4 and MBIL (and its concert parties) will hold 51% and up to 39% respectively of the enlarged issued ordinary share capital of COLG (assuming no take-up by other shareholders in the Open Offer).

· The Company proposes to change its status from an investing company (for the purposes of the AIM Rules) to a trading company.

· The Company proposes to amend its articles of association and to reorganise its share capital, to allow the Subscriptions and Open Offer to proceed and to consolidate its ordinary shares on a 20-for-1 basis.

The Acquisition will constitute a reverse takeover under Rule 14 of the AIM Rules. Accordingly the Acquisition is conditional, among other things, upon the approval of the Company's shareholders in a general meeting. In accordance with the AIM Rules, the ordinary shares in the Company will be suspended from trading with effect from 7.30am today by the London Stock Exchange until an admission document has been published in connection with the proposals referred to above.

The Acquisition, Subscriptions and Open Offer are also conditional on, inter alia, whitewash approvals being granted by the Panel pursuant to Rule 9 of the Takeover Code (with respect to the obligations to make mandatory general offers to the Company's shareholders, which might otherwise be triggered by the prospective controlling holdings of both DV4 and MBIL (with its concert parties)) and such whitewash approvals being formally approved by the Company's independent shareholders in general meeting, in compliance with the Takeover Code. At the time of this announcement, there can be no absolute certainty that such approvals will be forthcoming.

Commenting on the transaction, Paul Milner, Chairman of COLG, said:

"The Board believes that the acquisition of Milton Homes presents the Company and its shareholders with an attractive opportunity to acquire a business in the equity release sector. Building on the potential that exists within CAML, Milton Homes will enable the Group to develop a broad based financing business and moreover the additional balance sheet strength will give access to a wider range of funding lines. We have in place a strong and experienced Board and senior management team ideally placed to drive investor value".

Commenting on the transaction, Colin Wagman, deputy chairman of Delancey and Chairman of Milton Homes, said:

"This acquisition is very positive for all of the parties. Milton Homes now has the opportunity to advance its business prospects with access to a wider pool of capital and to provide it with more profile to enable it to expand its equity release products. Following the transaction, the existing shareholders will retain a substantial involvement in the future of the business. We are delighted that DV4 will continue as the majority shareholder."

Defined terms are set out at the end of this announcement.

Enquiries

This announcement does not constitute, or form part of, a prospectus relating to the Company, nor does it constitute or contain any invitation or offer to any person, or any public offer, to subscribe for, purchase or otherwise acquire any shares in the Company or advise persons to do so in any jurisdiction, nor shall it, or any part of it form the basis of or be relied on in connection with any contract or as an inducement to enter into any contract or commitment with the Company.

Peel Hunt LLP ("Peel Hunt") is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Peel Hunt is acting solely as nominated adviser, under the AIM Rules, for the Company and no one else in connection with the contents of this announcement and will not regard any other person (whether or not a recipient of this announcement) as its client in relation to the contents of this announcement nor will it be responsible to anyone other than the Company for providing the protections afforded to its clients or for providing advice in relation to the contents of this announcement. Apart from the responsibilities and liabilities, if any, which may be imposed on Peel Hunt by the Financial Services and Markets Act 2000, or the regulatory regime established thereunder, Peel Hunt accepts no responsibility whatsoever, and makes no representation or warranty, express or implied, for the contents of this announcement including its accuracy, completeness or verification or for any other statement made or purported to be made by it, or on behalf of it, the Company or any other person, in connection with the Company and the contents of this announcement, whether as to the past or the future. Peel Hunt accordingly disclaims all and any liability whatsoever, whether arising in tort, contract or otherwise (save as referred to above), which it might otherwise have in respect of the contents of this announcement or any such statement.

In connection with the proposals referred to in this announcement, Peel Hunt and its respective affiliates, may act as investors for their own accounts, may subscribe for or purchase ordinary shares in the Company and in that capacity may retain, purchase, sell, offer to sell or otherwise deal for their own accounts in such ordinary shares and other securities of the Company or related investments in connection with such proposals or otherwise. Accordingly, references to the ordinary shares being offered, subscribed, acquired or otherwise dealt in should be read as including any offer to, or subscription, acquisition, or dealing by Peel Hunt and any of its respective affiliates acting as investors for their own accounts. In addition, Peel Hunt or its respective affiliates may enter into financing arrangements and swaps in connection with which it or its affiliates may from time to time acquire, hold or dispose of ordinary shares. Peel Hunt has no intention to disclose the extent of any such investment or transactions otherwise than in accordance with any legal or regulatory obligations to do so.

Notes to Editors:

City of London Group plc is admitted to trading on AIM (TIDM: CIN) and is currently an investing company focused on providing finance to the SME sector, including professional services firms. It does this through investments in companies providing lease finance and loan finance.

www.cityoflondongroup.com

Details of the transaction

COLG has entered into a conditional share purchase agreement with DV4, a fund advised by specialist real estate investment advisory company Delancey, to conditionally acquire the entire issued share capital of Milton Homes, an equity release provider. The total consideration of £20.2 million will be satisfied by a cash amount of £7 million and £13.2 million by the issue of c.14.7 million New Ordinary Shares (the "Consideration Shares").

A total of £11 million is proposed to be raised by COLG through an equity fundraising comprising Subscriptions for £7 million of New Ordinary Shares and an Open Offer for £4 million of New Ordinary Shares, both at a price of 90 pence per New Ordinary Share (the "issue price"). The proceeds of the Subscriptions will be used as part of the consideration for the Acquisition.

The Subscriptions are conditional, among other things, on the Acquisition proceeding, but the Open Offer is not. MBIL has agreed to subscribe for £5.8 million in the Subscriptions and to underwrite the £4 million Open Offer.

In addition, as part of the Subscriptions, unconnected investors have agreed to subscribe for £1.2 million in New Ordinary Shares and Peel Hunt may also subscribe, in lieu of part of MBIL's subscription, to ensure that a free float of 10% is achieved following completion of the Acquisition.

In order for the Subscriptions and Open Offer to proceed, the Company is proposing to amend its articles of association and to undertake a share capital reorganisation involving the sub-division, re-designation and consolidation of the Company's ordinary share capital such that, following the re-organisation, for every 20 Existing Ordinary Shares of the Company, a shareholder will hold 1 New Ordinary Share.

Following the transaction, both MBIL (and parties acting in concert with it) (the "MBIL Concert Party") and DV4 will separately own over 30% of the outstanding ordinary shares in COLG. Accordingly, subject to waivers in relation to Rule 9 of the Takeover Code being conditionally granted by the Panel, resolutions to approve such waivers (in respect of the proposed shareholdings of the MBIL Concert Party and DV4) will be proposed to the Company's independent shareholders in a general meeting in accordance with the requirements of the Takeover Code.

Background to the transaction

The Board has been actively pursuing opportunities to increase the Company's financial strength and provide a platform for future development for some time. In doing so, it began discussions with Milton Homes which have concluded with the agreement of the proposals set out in this announcement.

In 2015, COLG moved its listing from the Official List to AIM with a view to continuing to develop the businesses of its two platforms, Credit Asset Management Limited (CAML) and Trade Finance Partners Limited (TFPL). While the business of CAML continued satisfactorily, the Board did consider other strategic options for that business, including a sale. Following investigation of various options, the Board concluded that it would retain CAML within the Group but reduce its costs. As disclosed in the Company's 2017 annual report, CAML reported positive operating profit before shareholder capital charges for the financial year ending 31 March 2017.

As previously announced, TFPL was put into administration in March 2017 and the investment in that business has been written down to zero. The Board was therefore keen to identify new opportunities for the Company, so that it remained viable for it to retain its AIM quotation and to provide benefits for COLG's shareholders.

The Board was therefore enthused by the opportunity to acquire Milton Homes, which gives the Group greater diversity and attractive long term prospects. The Board believes that the Acquisition presents the Company and its shareholders with an attractive opportunity to benefit from a business with significant potential to develop in the growing equity release sector.

Milton Homes

Milton Homes Limited is an equity release provider which has a current UK residential property portfolio of 586 properties with a market value of £77 million as at 30 June 2017.

The Milton Homes business was founded in 2004 and acquired its first portfolio of UK residential properties in the same year. In 2007, Milton Homes acquired Retirement Plus, another home reversion plan provider and administrator, which consolidated Milton Homes' position in the equity release market. The Retirement Plus business is based on a form of home reversion plan which has a different structure from standard home reversion products, enabling it to be competitive in the market. In 2009 Milton ceased to acquire homes putting the business into run off.

The existing property portfolio is well-diversified across different regions of the UK and property type. As at 30 June 2017, 83 per cent. of the portfolio was held in freehold interests. It had a market value of £77 million, with a vacant possession value of £106 million as at 30 June 2017.

The Board plans to start acquiring additional homes for equity release. The restart plan is expected to take 12-18 months and will require updating of business systems and the rebuilding of Milton Homes' marketing and distribution network. The plan envisages investment of approximately £15 million in the first year with a total of £100 million over a five year period.

Change of status to trading company

The completion of the Acquisition will result in a change of status of COLG from an investing company to a trading company under the AIM Rules.

Incoming directors

The Board announces the appointment of Lorraine Young as an independent non-executive director with immediate effect.

Lorraine set up her own company secretarial and corporate governance advisory practice following a career in the City. She is now a partner at Shakespeare Martineau LLP and a non-executive director of PHSC plc, an AIM quoted company which provides health, safety and security management services across a range of sectors. She is a past President and a Fellow of ICSA, The Governance Institute. In her previous roles at Brambles Industries plc and Standard Chartered PLC, she was involved in acquisitions and disposals, bid defence, directors' induction and continuing professional development and promoting clear communication to shareholders and employees. Lorraine graduated from Leeds University with a BSc (Hons) degree in Chemical Sciences.

A full list of Lorraine Young's current directorships and past directorships held within the last five years are listed at the end of this announcement.

On completion of the Acquisition it is intended that the following individuals will be appointed to the Board:

Colin Wagman (Non-executive Chairman)

Colin was admitted as a member of the Institute of Chartered Accountants in England and Wales in 1970. He practiced as a specialist in business structuring and tax planning and became a senior partner of his central London practice in the 1980s. Since 1998 he has been Deputy Chairman and Chief Financial Officer of Delancey which is the principal adviser to the Delancey property funds which own several billion pounds of property investments and development in the UK.

Michael Goldstein (Chief Executive Officer)

Michael was admitted as a member of the Institute of Chartered Accountants in England and Wales in 1984. He practised as an audit partner with particular emphasis on the Real Estate sector. He was a Senior Audit partner in BDO LLP where he was responsible for the management of the national audit business. Since leaving BDO in 2015, he has led the restructuring of a large family property business where he is now Chief Executive.

Christopher Rumsey (Director)

Chris qualified as a chartered surveyor in 1984 having gained experience in commercial and residential property with Milton Keynes Development Corporation and afterwards as development director of Burton Property Trust. In 1995 he joined the Dusco Group, a regulated property investment business known for its innovations, becoming its chief executive. In 2000 he led the management-buy-out of Dusco, allowing him to concentrate on his research into the potential for retirement-age individuals to gain more from their property ownership. In turn this led to the creation of Retirement Plus which he co-founded in 2004 and which became part of Milton Homes in 2007.

Conditionality and timing

The proposed transaction constitutes a reverse takeover under rule 14 of the AIM Rules. Accordingly the Acquisition is conditional upon approval of the Company's shareholders in a general meeting.

In addition, the Acquisition is conditional, inter alia, on receiving regulatory approval from the Financial Conduct Authority to the change in control of the Company and Milton Homes ("change in control approvals").

The Company will seek approval from shareholders at a general meeting for, or in connection with, inter alia, the following matters, and the Acquisition, which is also conditional upon the passing of these resolutions:

- the acquisition of Milton Homes, as constituting a reverse takeover under Rule 14 of the AIM Rules

- the allotment and issue of New Ordinary Shares in connection with the Open Offer and the Subscriptions and of the Consideration Shares in part consideration for the Acquisition

- the proposed share capital reorganisation and amendments to the articles of association of the Company

- the Company's proposed change of status from an investing company (for the purposes of the AIM Rules) to a trading company

- the waivers to be obtained from the Panel in relation to Rule 9 of the Takeover Code for the MBIL Concert Party and DV4, such approval to be given by independent shareholders only.

In accordance with the AIM Rules, the ordinary shares in the Company will be suspended from trading with effect from 7.30am today by the London Stock Exchange until an admission document has been published.

If shareholders grant the above approvals at a general meeting, the proposed share capital reorganisation, amendments to the articles of association and Open Offer will complete, or be effected, shortly following the general meeting.

The Acquisition and Subscriptions are expected to complete shortly following the change in control approvals being granted by the Financial Conduct Authority, such completion to occur at the same time as, and to be conditional on, the re-admission of the enlarged issued ordinary share capital of the Company (i.e. the Company's existing issued ordinary share capital together with the share capital to be issued pursuant to the proposals above) to trading on AIM ("Re-Admission").

The Acquisition and the Subscriptions will terminate (and Re-Admission will not occur) if the Acquisition has not completed on or before 31 December 2017.

Open Offer underwriting

MBIL has agreed to subscribe for up to £4 million of New Ordinary Shares at 90 pence per share pursuant to the Open Offer, if not all of the shares on offer are taken up by existing shareholders. The funds payable upon subscription for the New Ordinary Shares are guaranteed by Harvey Bard. Immediately following the completion of the Open Offer (and before the issue of any shares pursuant to the Subscriptions or the Acquisition), the MBIL Concert Party will hold up to 77 per cent. of the issued ordinary share capital of the Company (assuming no take-up by other shareholders in the Open Offer).

MBIL is not being paid an underwriting fee for its underwriting commitment.

The underwriting agreement entered into by MBIL described above is subject to a long stop date of 14 November 2017, at which time the obligations of MBIL and Harvey Bard will terminate if the Open Offer has not completed.

Irrevocable undertakings

Harvey Bard has given an irrevocable undertaking to the Company and DV4 to vote in favour of the resolutions to be put to shareholders at the general meeting (excluding the Rule 9 Waiver Resolutions) and to procure that certain shareholders with whom he is deemed to be acting in concert vote (or will procure that their nominees vote) in favour of those resolutions in respect of their entire beneficial holding in the Existing Ordinary Shares, totaling 8,268,704 Existing Ordinary Shares, representing approximately 22 per cent. of the Existing Ordinary Shares. This undertaking expires on the earlier of the conclusion of the general meeting and 31 October 2017 and does not provide for any other termination rights.

Certain other shareholders have also given irrevocable undertakings to the Company, on substantially the same terms as Harvey Bard, in respect of 9,605,221 Existing Ordinary Shares, representing 26 per cent. of the existing ordinary share capital.

In addition, Paul Milner in his capacity as beneficial owner of 95,188 Existing Ordinary Shares, has undertaken to procure that his shares are voted in favour of the resolutions (excluding the Rule 9 Waiver Resolutions) to be put to shareholders at the general meeting.

Relationship agreements

MBIL and Harvey Bard (in respect of themselves and certain other members of the MBIL Concert Party) have entered into a relationship agreement which is conditional upon completion of the Acquisition and admission to trading on AIM of the New Ordinary Shares issued pursuant to the Subscriptions. Under the terms of this agreement, MBIL and Harvey Bard have undertaken to the Company, subject to certain exceptions, that, for so long as they (and certain other members of the MBIL Concert Party) are entitled to (a) exercise 25 per cent. or more of the total voting rights in the Company's shares capable of being voted at general meetings of the Company or (b) control the appointment of a majority of directors to the board of the Company, they shall conduct all business with the Company on arm's length terms and on a normal commercial basis and shall not take any action which precludes or inhibits the Company from carrying on its business independently from them. Under this relationship agreement, for so long as MBIL, Harvey Bard and certain other members of the MBIL Concert Party are interested in 25 per cent. or more of the voting rights exercisable at general meetings of the Company, MBIL, subject to certain exceptions, will be entitled to nominate a suitable director to the Company's Board.

DV4 has entered into a relationship agreement with the Company on substantially the same terms as MBIL and Harvey Bard, save that, for so long as DV4 (and its concert parties) are interested in more than 45 per cent. of the voting rights exercisable at general meetings of the Company, the Company shall, at the request of the director nominated by DV4, convene a general meeting at which certain reserved matters shall be proposed for consideration and, if thought fit, approved by shareholders.

Subscription agreements

MBIL and Harvey Bard have entered into a subscription agreement with the Company, which is conditional on, inter alia, the completion of the Acquisition and Re-Admission pursuant to which, MBIL has committed to subscribe for c.6.4 million New Ordinary Shares in the Company for £5.8 million. The funds payable are guaranteed by Harvey Bard. Immediately following Re-Admission and, therefore, the admission to trading on AIM of the New Ordinary Shares issued pursuant to the subscription agreements, MBIL will hold up to 39 per cent. of the enlarged issued ordinary share capital of the Company (assuming no take-up by other shareholders in the Open Offer).

Certain other investors have entered into subscription agreements with the Company on substantially the same terms as MBIL and Harvey Bard, save for the inclusion of a guarantee. In aggregate, these new investors have agreed to subscribe for c.1.3 million New Ordinary Shares for £1.2 million.

Lock-in agreements

MBIL and Harvey Bard have, pursuant to a lock-in agreement, undertaken to the Company that they will not (or, in the case of Harvey Bard, procure that certain other members of the MBIL Concert Party do not) dispose of any ordinary shares in the Company in which the MBIL Concert Party are currently interested or in which they come to be interested as a result of the Open Offer and the Subscriptions in the Company for a period of 12 months following completion of the Acquisition and Re-Admission, subject to certain typical exceptions, and that, for a further period of 6 months thereafter, they shall only dispose of such shares on an orderly market basis through the Company's then broker, unless the Company's broker is unable to arrange for such disposal within 10 business days of the relevant shareholder's request. This agreement will terminate if Re-Admission does not occur on or before 31 December 2017.

DV4 has also entered into a lock-in agreement with the Company on substantially the same terms as MBIL and Harvey Bard in respect of the Consideration Shares to be allotted and issued to it in connection with the Acquisition together with any ordinary shares in the Company in which DV4 comes to be interested as a result of such issue.

Paul Milner has entered into a lock-in agreement with the Company in substantially the same terms as MBIL and Harvey Bard in respect of his beneficial interest in 95,188 Existing Ordinary Shares together with any ordinary shares in the Company in which he comes to be interested as a result of his interest.

Related party transactions

The Company has entered into the following related party transactions pursuant to Rule 13 of the AIM Rules (each in connection with the proposals described above):

- an underwriting agreement with MBIL and Harvey Bard;

- irrevocable undertakings from Harvey Bard and Paul Milner;

- a relationship agreement with MBIL and Harvey Bard;

- a subscription agreement with MBIL and Harvey Bard; and

- lock-in agreements with MBIL, Harvey Bard and Paul Milner.

Andrew Crossley and Lorraine Young, independent directors of COLG, are of the opinion, having been so advised by Peel Hunt, that the related party transactions set out in this announcement are fair and reasonable insofar as the Company's shareholders are concerned.

Disclosures required in accordance with AIM Rule 17 and Schedule Two paragraph (g) of the AIM Rules for Companies

A full list of Lorraine Young's current directorships and partnerships and past directorships and partnerships held within the last five years are listed below.

Current:

PHSC plc

Lorraine Young Company Secretaries Limited

Lorraine Young Limited

Shakespeare Martineau LLP

Held within the last five years:

Lorraine Young Directors Limited

Again Productions Limited

Lorraine Young does not currently hold any shares in the capital of the Company.

Full name: Lorraine Elizabeth Young

Previous names: Sams (maiden name)

Age: 54

Save as disclosed above, there are no further disclosures required to be made in respect of the appointment under Schedule 2(g) or Rule 17 of the AIM Rules for Companies.

Forward-Looking Statements

Statements contained herein may constitute "forward-looking statements". Forward-looking statements are generally identifiable by the use of the words "may", "will", "should", "plan", "expect", "anticipate", "estimate", "believe", "intend", "project", "goal" or "target" or the negative of these words or other variations on these words or comparable terminology.

Forward-looking statements involve a number of known and unknown risks, uncertainties and other factors that could cause COLG's or its industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. COLG does not undertake publicly to update or revise any forward-looking statement that may be made herein, whether as a result of new information, future events or otherwise.