Christie Regulatory News (CTG)

29 Mar 2006 12:43

Capcon Holdings PLC29 March 2006 Capcon Holdings PLC29 March 2006 Capcon Holdings plc ("Capcon" or the "Company" or the "Group") Extraordinary General Meeting statement At the Extraordinary General Meeting of the Company, which took place earliertoday, Resolutions 1 was blocked and therefore Resolutions 2 to 4 were notproposed and Resolution 5 was also not proposed as previously announced. As aresult, Kenneth Paul Dulieu, Paul Francis Jackson and Robin George Boyle,Directors of the Company and a shareholder of the Company have agreed tosubscribe for a total of the total £675,000 (nominal) 10% Redeemable GuaranteedSecured Loan Stock 2006 (the "Loan Stock"). Of this amount, £375,000 will besubscribed for immediately in the following amounts: Kenneth Paul Dulieu £150,000 Paul Francis Jackson £150,000 Robin George Boyle £25,000 Donald Ian Jefferson £50,000 and the balance, of £300,000, is to be subscribed for as to £150,000 each byKenneth Paul Dulieu and Paul Francis Jackson upon demand being made by theCompany at any time on or before 31 May 2008 save that if there exists an eventof default at that time then such subscriptions will not be made. Each holding of the Loan Stock is to be redeemed in cash at par (together withall unpaid accruals of interest) on 30 June 2008. The Loan Stock will entitlethe Stockholders to receive interest at a rate of 10.00 per cent. per annum,such interest accruing on a day to day basis. Interest accruing from the date ofissue of any Loan Stock will ordinarily be payable three monthly in arrearswithin 14 days of the end of each 3 month period. Cliff Cavender considers, having consulted with the Company's Nominated Adviser,that the terms of the transaction are fair and reasonable insofar as itsshareholders are concerned. At the meeting the Chairman made the following opening statement: "The purpose of putting the various resolutions to be considered at this meetingwas to ensure the financial viability of our business going forward.Resolutions 1-4 relate to the loan stock which was recommended by your Board.Resolution 5 was only ever meant as a fall back and was proposed to ensurefunding in the event that the loan stock proposal was not approved by thismeeting. You might have noticed that on 24 March 2006 we announced that, in view of thecomments and actions of the Christie Group, we would not propose resolution 5. The board is resolute in its determination to keep the Group together, as a selloff of the largest proportion of their business could result in the remainingoperations of the group not being viable. All resolutions were drafted with aview that our two core businesses of Audit & Stocktaking and Investigatory wouldcontinue to work in tandem and harmony. This would mean that operationalmanagement would remain fully intact and would continue to work across bothdivisions to ensure client retention, confidentiality and maximize cross-sellingopportunities. Cross referral has been an important part of our businessstrategy for over twenty years and is key to certain contracts being retained.By keeping our business intact as opposed to selling off the largest partachieves a reasonable economy of scale in respect of H.Q and plc costs as wellas providing a platform for future growth. I should point out that both our core divisions of Audit & Stocktaking andInvestigatory are historically and currently profitable at operational level aswell as cash generative. You will be aware that Christie Group plc has made an offer for the Audit &Stocktaking division of Capcon Holdings plc at a price that is £300,000 morethan the management proposal under resolution 5 on terms which they consideredare equivalent to the management's proposal. As previously stated, the Boarddoes not intend to recommend resolution 5. However, the Board wishes to make itclear that the Christie offer cannot be considered as being comparable, as it isCapcon Holdings main competitor and if such a sale were to go ahead it wouldseriously put at risk the remainder of our Group. Not only would certaincontracts be compromised or lost but any sell off would substantially reduce ourability for cross referrals and profit enhancement. In addition, we could notallow a competitor's management to operate across the remainder of our plcwithout compromising the continuance of confidential trading relationships.Therefore we question as to how Christies can acquire Audit & Stocktaking andCommercial Investigations business without a major conflict of interest, fallout of clients, competition authority investigation and possible interferenceand risk to the employment of many of our personnel. In Christie's proposal they state that due to their areas of operation withinthe hospitality sector there will be numerous opportunities for cross referrals. To the best of my knowledge over the last twenty years Christies have notreferred one case to Capcon Holdings plc or its fore runner, namely CapitolGroup plc. Therefore, the Board is sceptical as to how any significant volumeof business can or will be generated in this fashion to replace the currentactual and proven steady income stream. Since Christies interest became common knowledge we have afforded them theopportunity to meet with the Board at a mutually convenient time. They havetaken the rather unusual and hostile step of approaching our bankers directrequesting that they acquire from our bank the Company debt. Our bankimmediately informed the Company of this highly unusual approach and the factthat the offer was rejected. This has been followed by direct approaches to ourinstitutional shareholders. Christies have subsequently acquired nearly 15% ofyour company. In view of the unusual and confrontational style adopted by Christies, our maincompetitor in Audit & Stocktaking, we cannot see how their management style andexpertise is complimentary to Capcon Holdings plc going forward. In summary, your Board and their advisors are of the view that the Christiesoffer cannot ever be seen as comparable in the manner proposed as it is not inthe interests of shareholders in Capcon Holdings plc, not in the interests ofour management and employees and not in the interests of our clients. For thesereasons we cannot, as it stands, recommend their offer. We remain available to meet with Christies or other third parties whereby wework to build the Group and maximise shareholder value............................. .............................. The consequence of the blocking of the directors'proposals for re-financing the company at this time is that the Company remainsin the position outlined in the circular letter of 3 March in that, withoutfunds being made available to the Company immediately, it is unlikely that theGroup will be able to meet its financial obligations as and when they fall due.This is not a position that the directors consider tenable. In thesecircumstances, immediately following this meeting the directors propose tocomplete arrangements for making funds available to the Company by way of loan.The loan terms will be substantially similar to those proposed for theconvertible redeemable guaranteed secured loan stock that was proposed to beconstituted by resolutions 1 to 4 except that the loan will not be convertibleinto shares in the Company. It is essential that this funding is made availableto the Company at this time and your board is determined to ensure the future ofthe Company and the implementation of its strategy from this time. Our main strategy now is to build our two core divisions, both organically andthrough bolt-on acquisitions, that complement the services we offer. Our aim is to continue to eat into Venners (Christie's) market share in theniche stocktaking area of the hospitality sector with a view to taking over theNo1 position from our current No2 position. We will continue to strengthen ourinvestigatory resources to capitalize on the higher margin but lumpy business.We are pleased that the Christie development has highlighted the underlyingstrength of our business which we believe is still substantially undervalued. Aswe continue to build our business we will strive to attract a broaderinstitutional client base and to assist us in the process you will have noticedthat we have recently appointed Robin Boyle to the Board as a non-executivedirector. We believe that his expertise in dealing with small cap companies willassist us in generating more interest in our stock. It is the Boards' intention to maintain Capcon Holdings' admission to AIM and tosupport the financial restructure whereby it can move forward from a position ofstrength to capitalize on the skill base across the Group." Capcon Holdings plc Ken Dulieu Tel: 0870 067 5050 Insinger de Beaufort Louis Castro Tel: 020 7190 7000 Graham Herring Threadneedle Communications 020 7936 9600 This information is provided by RNS The company news service from the London Stock Exchange