CIP.L Regulatory News (CIP)

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM ANY JURISDICTION (INCLUDING THE UNITED STATES) WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION.

THIS IS AN ANNOUNCEMENT UNDER RULE 2.4 OF THE CITY CODE ON TAKEOVERS AND MERGERS AND DOES NOT CONSTITUTE AN ANNOUNCEMENT OF A FIRM INTENTION TO MAKE AN OFFER UNDER RULE 2.7 OF THE CODE AND, ACCORDINGLY, THERE CAN BE NO CERTAINTY THAT ANY OFFER WILL BE MADE.

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014 ("MAR") as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018. With the publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain. 

For immediate release

15 February 2021

CIP MERCHANT CAPITAL LIMITED

("CIP Merchant Capital", "CIP" or the "Company")

Further Response to Possible Offer from CFE

Further to the announcement made on 26 January 2021 by Corporation Financière Européenne S.A. on behalf of funds or vehicles which are managed or advised by it ("CFE"), pursuant to Rule 2.4 of the City Code on Takeovers and Mergers (the "Code"), stating that, inter alia, it is considering a possible all-cash offer for the issued and to be issued share capital of CIP at a price of 50 pence per ordinary share (the "Possible Offer Price") of no par value ("Ordinary Shares") (the "Possible Offer"), and the Company's initial response of 27 January 2021, the board of directors of CIP (the "Board") is pleased to provide a further response, following due consideration of the Possible Offer with the Company's advisers.

Key Highlights:

· The Board unanimously regards CFE's Possible Offer as being opportunistic and considers that the Possible Offer Price significantly undervalues CIP's current investment portfolio and the Company as a whole and does not reflect an appropriate value for independent shareholders.

· The Board believes that the opportunistic nature of CFE's Possible Offer has been recognised by the market and clearly reflected in its reaction to the Possible Offer with the Company's middle market closing share price being at a significant premium to the Possible Offer Price of approximately 10 per cent. to 19 per cent. between 27 January 2021 and 12 February 2021 (being the last business day prior to the date of this announcement) inclusive.

· The Possible Offer Price represents:

i) a discount of approximately 11.5 per cent. to the middle market closing price of 56.50 pence per Ordinary Share on 25 January 2021 (being the last business day prior to the date of the Possible Offer announcement and commencement of the offer period in relation to CIP);

ii) a discount of approximately 11.7 per cent. to the VWAP per Ordinary Share of 56.60 pence over the one-month period ended on and including 25 January 2021;

iii) a discount of approximately 2.8 per cent. to the VWAP per Ordinary Share of 51.46 pence over the three-month period ended on and including 25 January 2021;

iv) a discount of approximately 36.3 per cent. to the Latest NAV of 78.50 pence per Ordinary Share; and

v) a discount of approximately 12.3 per cent. to the middle market closing price of 57.00 pence per Ordinary Share on 12 February 2021 (being the last business day prior to the date of this announcement).

· Adjusting the Possible Offer Price and the Latest NAV to exclude the significant cash and near cash equivalents held by CIP further illustrates that the Possible Offer Price fundamentally undervalues CIP, with the Cash Adjusted Possible Offer Price representing a significant discount of approximately 58.6 per cent. to the Cash Adjusted NAV (both terms as defined below).

· Accordingly, the Board reiterates its strong advice that shareholders should take no action at this time and notes there can be no certainty that any offer will be made.

Adrian Collins, Non-Executive Chairman of CIP, commented:

"The Possible Offer Price clearly significantly undervalues CIP and its underlying investment portfolio on all reasonable metrics and CFE's opportunistic proposal has been unequivocally rejected by the Board on a number of occasions for this very reason.

"We believe in the growth potential of our investee companies and the Investment Manager's ability to identify further attractive investment opportunities, particularly in the current uncertain market environment, with the aim of generating future long-term value for CIP's shareholders."

Analysis of Possible Offer

As noted in the Company's announcement of 27 January 2021, CFE made an initial approach to the Company in relation to the Possible Offer in a letter dated 28 September 2020, and a subsequent approach on 2 December 2020, and on both occasions the Board unequivocally rejected the Possible Offer. The Board continues to believe that the Possible Offer Price significantly undervalues CIP and its prospects.

The Board further believes that the opportunistic nature of the Possible Offer has been recognised by the market and clearly reflected in its reaction to the Possible Offer with the Company's middle market closing share price being at a significant premium to the Possible Offer Price of approximately 10 per cent. to 19 per cent. between 27 January 2021 (being the first trading day following CFE's announcement of 26 January 2021) and 12 February 2021 (being the last business day prior to the date of this announcement) inclusive.

The Board notes from CFE's announcement of 26 January 2021 that CFE is willing to consider market purchases of Ordinary Shares from existing shareholders in CIP at the Possible Offer Price, however the Company's share price has continued to trade at a significant premium to the Possible Offer Price since such announcement was made and the Board can confirm that no further notifications have been received by CIP from CFE in respect of its interest in the Company's share capital, pursuant to the requirements of Article 4 of the Company's Articles of Incorporation, since 26 January 2021 and notes that no further dealing disclosures have been publicly released by CFE pursuant to the Code since 27 January 2021.

As at 5 February 2021, being the date of the latest weekly estimated unaudited net asset value ("NAV") of the Company (as announced on 9 February 2021), the Company's NAV was approximately £43.18m, or 78.50 pence per Ordinary Share (the "Latest NAV"), which included cash and near cash equivalents of approximately £16.44m (comprising cash of approximately £4.23m and approximately £12.21m in the form of certain short term UK Treasury bills).

In considering the value of the Possible Offer, the Board therefore notes, in particular, that the Possible Offer Price represents:

· a discount of approximately 11.5 per cent. to the middle market closing price of 56.50 pence per Ordinary Share on 25 January 2021 (being the last business day prior to the date of the Possible Offer announcement and commencement of the offer period in relation to CIP);

· a discount of approximately 11.7 per cent. to the volume weighted average price ("VWAP") per Ordinary Share of 56.60 pence over the one-month period ended on and including 25 January 2021;

· a discount of approximately 2.8 per cent. to the VWAP per Ordinary Share of 51.46 pence over the three-month period ended on and including 25 January 2021;

· a discount of approximately 36.3 per cent. to the Latest NAV of 78.50 pence per Ordinary Share; and

· a discount of approximately 12.3 per cent. to the middle market closing price of 57.00 pence per Ordinary Share on 12 February 2021 (being the last business day prior to the date of this announcement).

As noted above, cash and near cash equivalents of approximately £16.44m (approximately 29.89 pence per Ordinary Share) represent a significant component (approximately 38.07 per cent.) of the Latest NAV. Accordingly, for illustrative purposes only, the Board has also considered the Possible Offer in the context of an adjusted NAV calculation to remove such component. The Company's Latest NAV adjusted to exclude such cash and near cash equivalents is approximately £26.74m or 48.61 pence per Ordinary Share (the "Cash Adjusted NAV"). To enable a like for like comparison, adjusting the Possible Offer Price on a similar penny for penny per share basis derives a price per Ordinary Share of 20.11 pence (the "Cash Adjusted Possible Offer Price"). The Cash Adjusted Possible Offer Price represents a significant discount of approximately 58.6 per cent. to the Cash Adjusted NAV.

The Board further notes that the Company's investment portfolio (summary details of which are set out in the Appendix to this announcement) is predominantly comprised of quoted equity investments, which account for approximately 81.26 per cent. of its total investments (excluding UK Treasury bills).

In light of the above key value comparators, noting in particular the significant discount that the Possible Offer Price represents relative to the Latest NAV, the Board unanimously believes that the Possible Offer represents an opportunistic proposal from CFE which significantly undervalues CIP's current investment portfolio and the Company as a whole and does not reflect an appropriate value for independent shareholders. Accordingly, shareholders are strongly advised to take no action in relation to the Possible Offer.

The Company and Merchant Capital Manager Limited (the "Investment Manager"), continue to seek to generate risk-adjusted returns for shareholders through capital appreciation, investing primarily in equity and equity-related products and instruments and taking a private equity approach over a medium to long term investment horizon. Whilst deployment of the capital raised on the Company's admission to trading on AIM in December 2017 is taking longer than originally anticipated, the Board believes in the growth potential of CIP's existing investee companies and the returns achievable from its stated investment strategy, as demonstrated by the monetised return derived from the Company's first exited investment in Circassia Group plc (corresponding to a 1.4 times cash on cash return and internal rate of return of 72 per cent., as announced on 1 September 2020). The Investment Manager continuously monitors and analyses key markets and target sectors to identify attractive opportunities where there is a strong fundamental business case for investment, particularly in the current uncertain market environment, with the aim of generating future long-term value for CIP's shareholders.

In accordance with Rule 2.6(a) of the Code, CFE is required, by not later than 5.00 p.m. (London time) on 23 February 2021, being 28 days after the date of CFE's announcement of its Possible Offer, to either announce a firm intention to make an offer for the Ordinary Shares of CIP in accordance with Rule 2.7 of the Code or announce that it does not intend to make an offer, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies. This deadline can be extended with the consent of the Takeover Panel in accordance with Rule 2.6(c) of the Code.

This announcement has been made by CIP without the prior agreement or approval of CFE.

Further announcements will be made in due course, as appropriate. There can be no certainty that any offer will be made.

Enquiries:

Important notices

Strand Hanson Limited ("Strand Hanson"), which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting exclusively as financial adviser, nominated adviser and broker to CIP and no-one else in relation to the Possible Offer and other matters described in this announcement and will not be responsible to anyone other than CIP for providing the protections afforded to clients of Strand Hanson nor for providing advice in relation to the Possible Offer, the contents of this announcement or any other matter referred to herein. Neither Strand Hanson nor any of its subsidiaries, branches or affiliates owes or accepts any duty, liability or responsibility whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) to any person who is not a client of Strand Hanson in connection with this announcement, any statement contained herein or otherwise.

Publication on a website

In accordance with Rule 26.1 of the Code, a copy of this announcement will be made available on CIP's website at: www.cipmerchantcapital.com (subject to certain restrictions relating to persons resident in restricted jurisdictions) by no later than 12 noon (London time) on 16 February 2021. For the avoidance of doubt, the content of the website referred to in this announcement is not incorporated into and does not form part of this announcement.

No profit forecasts or estimates

No statement in this announcement is intended, or is to be construed, as a profit forecast or estimate for any period. No statement in this announcement should be interpreted to mean that earnings per Ordinary Share for the current or future financial years would necessarily match or exceed the historical published earnings per Ordinary Share.

Disclosure requirements of the Code

Under Rule 8.3(a) of the Code, any person who is interested in 1 per cent. or more of any class of relevant securities of an offeree company or of any securities exchange offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any securities exchange offeror is first identified. An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 p.m. (London time) on the 10th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 p.m. (London time) on the 10th business day following the announcement in which any securities exchange offeror is first identified. Relevant persons who deal in the relevant securities of the offeree company or of a securities exchange offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.

Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1 per cent. or more of any class of relevant securities of the offeree company or of any securities exchange offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any securities exchange offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s), save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 p.m. (London time) on the business day following the date of the relevant dealing.

If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a securities exchange offeror, they will be deemed to be a single person for the purpose of Rule 8.3.

Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4). Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel's website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. You should contact the Panel's Market Surveillance Unit on +44 (0)20 7638 0129 if you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure.

APPENDIX

Sources of Information and Bases of Calculation

In this announcement, unless otherwise stated or the context otherwise requires, the following bases and sources have been used:

1. As at 12 February 2021, being the latest practicable date prior to this announcement, and as at 5 February 2021, being the date of the Company's Latest NAV calculation, CIP had 55,000,000 Ordinary Shares in issue.

2. Unless otherwise stated, all prices for the Ordinary Shares are middle market closing prices as derived from the AIM Appendix to the Daily Official List published by London Stock Exchange plc for the particular date(s) concerned.

3. The volume weighted average prices for the Ordinary Shares are, in all cases, derived from Bloomberg's daily volume weighted average price data and have been rounded to the nearest two decimal places.

4. The unaudited NAV of CIP as at 5 February 2021 has been derived from the latest weekly calculation of unaudited NAV per Ordinary Share by the Company's administrator, Maitland Administration (Guernsey) Limited ("Maitland"), as notified by the Company on 9 February 2021. As set out in the Company's AIM Admission Document dated 15 December 2017, such weekly unaudited NAVs are calculated on the same basis as the calculation of the NAV per share for the purposes of the Company's published financial statements and, accordingly, are calculated in accordance with International Financial Reporting Standards ("IFRS") on the basis of market value using bid prices for listed and actively traded investments, with unlisted investments priced using the last quarterly valuation by the Investment Manager in accordance with The International Private Equity and Venture Capital Valuation (IPVEC) Guidelines. Accordingly, bid prices and foreign exchange rates used by Maitland to calculate the Company's Latest NAV were derived from Bloomberg and the Investment Manager's last quarterly valuation of the unlisted investments was conducted as at 31 December 2020.

An unaudited summary of CIP's underlying investments and their carrying values, cash and cash equivalents and other net current liabilities as at 5 February 2021, pursuant to the Latest NAV calculation, is set out in the table below, which together with the number of Ordinary Shares in issue as at 5 February 2021 (as stated in section 1 above), forms the basis of the Latest NAV and derivation of the Cash Adjusted NAV and Cash Adjusted Possible Offer Price referred to in this announcement. The figures in the table below have been rounded to the nearest whole number, such that there are marginal differences between the sum of the carrying values and the subtotals and totals thereof.

Notes:

* - Eurobond, comprising the principal value of the bond plus accrued coupon, fair valued based on a discounted cash flow at a 15 per cent. discount rate as it is not actively traded, as set out in the Company's interim results announced on 24 September 2020.

** - held at book cost pursuant to a dividend in specie made by EKF Diagnostics Holdings Plc with a record date of 17 December 2020.

*** - holding company for Alkemy SpA investment.

5. The Cash Adjusted NAV has been calculated as Total NAV (per section 4 above) minus the total of cash and near cash equivalents (per section 4 above). The Cash Adjusted NAV per share has been calculated as the Cash Adjusted NAV divided by the number of Ordinary Shares in issue (per section 1 above).

6. The Cash Adjusted Possible Offer Price has been calculated as the Possible Offer Price minus the total of cash and near cash equivalents (per section 4 above) divided by the number of Ordinary Shares in issue (per section 1 above).

7. Quoted equity investments as a percentage of total investments (excluding UK Treasury bills) have been derived using the relevant totals (per section 4 above).