Jpel Priv Eqty Regulatory News (JPEL)

9 Nov 2007 14:02

Bear Stearns Private Equity Limited09 November 2007 Bear Stearns Private Equity Ltd (the "Company") Notice of an Extraordinary General Meeting to Approve a Related PartyTransaction, an Increase in the Authorised Share Capital, Amendments to theArticles of Association and Authority to Purchase Shares in the future by way ofTender Offer Introduction The Company has today published a circular (the "Circular") regarding thepurchase of a portfolio of investments (the "Transfer Portfolio") from The BearStearns Companies Inc. (the "Acquisition"), an increase in the authorised sharecapital of the Company, amendments to the Articles of Association and authorityto purchase Shares in the future by way of tender offer (the "Proposals").Terms used in this announcement shall have the same meaning as set out in theCircular. The Managers, Bear Stearns Asset Management Inc., and Bear Stearns AssetManagement Limited, are subsidiaries of The Bear Stearns Companies Inc. Underthe rules of the UK Listing Authority (the "Listing Rules") they are deemed tobe related parties in relation to the Company and the Acquisition willconsequently constitute a related party transaction. As such, it will requirethe approval of Shareholders who are independent from the Managers and isconditional on that approval being received. The Managers and their associates(which, for the avoidance of doubt, do not include employees of the Managers)own, beneficially or otherwise,12,571,430 Equity Shares. The Managers will not vote on the resolution toapprove the Acquisition and have undertaken to take all reasonable steps toensure that their associates will not vote on that resolution. Mr. Duncan, whobecame a Director of the Company on 12 October 2007 as explained further below,is also an employee of BSAM Inc. Mr. Duncan did not take part in the Board'sconsideration of the Acquisition. As the Acquisition requires the approval of Shareholders in an ExtraordinaryGeneral Meeting, the Board have also decided to take the opportunity to requestShareholders approve the following items of business: 1. an increase in the authorised share capital of the Company by thecreation of 500 million further Unclassified Shares; 2. to amend the provisions of the Articles to restructure the semi-annualredemption facility as a tender offer facility under substantially similar termsand conditions in order to permit the Company to hold in treasury those Shares(both Equity Shares and ZDP Shares) that are tendered (subject to regulatorylimits) and subsequently reissue them (this is not currently permitted forShares that are redeemed); 3. an amendment to the Company's Articles to allow the Company to holdTreasury Shares; and 4. authority for the Company to make future purchases of its own Sharesby way of tender offer in accordance with the Listing Rules. Shareholder approval of the Acquisition, increase in the authorised sharecapital of the Company, amendments to the Articles of Association and authorityto make future purchases of its own Shares by way of tender offer is to besought at the Extraordinary General Meeting of the Company convened for 10.00a.m. (London time) on 28 November 2007. Background to and reasons for the Acquisition In their role as investment managers to the Company, the Managers are chargedwith sourcing and executing what they believe to be attractive investments forthe Company's portfolio. These opportunities may arise from a variety ofsources, including affiliates of the Managers. The Manager has sourced an opportunity on behalf of the Company to purchase theTransfer Portfolio from Bear Stearns. The Transfer Portfolio represents the seedinvestments for a private equity fund Bear Stearns intended to raise thattargeted investment with sponsors with a "value-oriented" approach to investing(for example, out-of-bankruptcy, restructuring, debt-to-equity conversions andturnaround opportunities). Bear Stearns has recently changed its strategy and has determined not to proceedwith raising the fund. Subsequently, the Manager approached Bear Stearns todiscuss its willingness to sell the Transfer Portfolio. The Manager views theAcquisition as an attractive secondary market opportunity, and has negotiated,on an exclusive basis, the right to purchase, on behalf of the Company, theassets comprised in the Transfer Portfolio. The acquisition of the TransferPortfolio will be in accordance with the Company's stated investment policy. Under a placing of new Shares which concluded on 2 May 2007 the Company raisedUS$308,857,699 (the "Issue"). Since the Issue, the Company has committedUS$234.1 million to fifteen private equity and mezzanine funds and twoco-investments. A portion of the remaining net proceeds of the Issue is intendedto be used to finance the Acquisition and to pay associated costs. Followingcompletion of the Acquisition, and subject to future tender requests byinvestors, it is anticipated that the Company will have approximately US$135million available for investment in further assets in accordance with theCompany's investment policy. If the resolution approving the Acquisition is notapproved by Shareholders at the Extraordinary General Meeting, the remaining netproceeds of the Issue will be invested over time in accordance with theCompany's investment policy. Benefits of the Acquisition The Transfer Portfolio is comprised of US$62.8 million of commitments across 14funds and 13 underlying fund managers. Approximately US$38 million of the totalcommitments have been funded as at 30 September 2007, representing approximately61 per cent. of total commitments. A detailed description of the considerationof the Acquisition and valuation process is set out under the heading "PrincipleTerms and Conditions of the Acquisition" below. As many of the underlying investment vehicles comprised in the TransferPortfolio are currently in their investment periods, their investors are stillsubject to capital calls to meet future funding needs. As at 30 September 2007and assuming completion of the Acquisition, it is estimated that the Companywill be responsible for approximately US$24.5 million in such unfundedcommitments, in aggregate. The Managers believe that the acquisition of the Transfer Portfolio provides theCompany with a unique ability to participate in the distressed, turnaround andrestructuring sector within the private equity market. The Managers believe theTransfer Portfolio benefits the Company in the following ways: . Exclusive Secondary Opportunity with Portfolio Transparency.The Managers have insight into the underlying companies in the TransferPortfolio and believe that they represent an attractive value proposition forthe Company's portfolio. . Top-Tier Funds. The Managers believe that the underlyingmanagers of the investment vehicles comprised in the Transfer Portfolio are ofthe highest quality, including such stable, institutional-quality sponsors asThe Blackstone Group, WL Ross & Co. LLC, Cerberus Capital Management, L.P., J.C.Flowers & Co., LLC, Alchemy Partners LLP and Oaktree Capital Management, LLC, aswell as dynamic, emerging managers such as CarVal Investors, LLC, MonomoyCapital Management, LLC, Levine Leichtman Capital Partners, Inc., StrategicValue Partners, LLC, Omega Fund Management Limited, Avista Capital Holdings,L.P. and Clearwater Capital Partners, LLC. . Seasoned Portfolio. The underlying companies in the TransferPortfolio have matured to the point where the Managers believe the majority ofthe assets have gone through the private equity J-curve and are attractivelypositioned for increases in value. . Distressed and Special Situations Exposure. The Managersbelieve that the distressed and special situations segments of the privateequity market are poised for outperformance in the current global economicenvironment, and the Transfer Portfolio represents a unique opportunity toaccess these segments through the secondary market. Financial Effects of the Acquisition The value of the Transfer Portfolio was US$40.7 million as at 30 September 2007based on recent valuations made by the general partners of the underlyinginvestment vehicles with further adjustments as set out below. The Acquisitionwill increase the value of the Company's private equity assets to approximatelyUS$364.1 million. By way of illustration, the Company Portfolio will berepresented immediately following completion of the Acquisition by approximately70 per cent. private equity investments (taking into consideration funded assetsonly), up from an estimated 62 per cent. previously. Principal Terms and Conditions of the Acquisition Under the terms of the Acquisition Agreement, The Bear Stearns Companies Incproposes to sell the Transfer Portfolio to the Company for an initialconsideration of US$40.7 million (to be further adjusted as discussed below). IfShareholder approval is obtained, the completion date of the Acquisition isexpected to take place on or about 30 November 2007. The initial consideration for the Transfer Portfolio was derived from thecapital account balances of 11 of the underlying 14 funds as at 30 June 2007 and3 of the underlying funds as at 30 September 2007 and adjusted for: (i) theindependent third party valuation, the procedures of which are described below;(ii) any additional investment made or distribution received by The Bear StearnsCompanies Inc. in, or from, the funds comprised in the Transfer Portfolio fromthe date of the capital account balances through to 30 September 2007; and (iii)all public equity securities within the Transfer Portfolio being price adjustedas at 30 September 2007 to their quote on the relevant stock exchange. The scope of the independent valuation agent review is as follows: • save for any private equity or debt investment representingless than 0.5 per cent. of the total GP generated net asset value (of US$37.3million), all private equity and debt investments within the funds greater thanone year old as of approximately the latest completed calendar quarter (i.e.purchased before 30 September 2006) were, subject to available information,independently valued; • all private equity and debt investments within the fundspurchased after 30 September 2006 were valued according to the net asset valueprovided by the respective general partners ("GP") as at 30 June 2007 quarterlyreports or, where relevant, at 30 September 2007 reports; and • all investments were adjusted for any known material eventsfrom 30 June 2007 through to 30 September 2007, including recapitalisations andexits. The above methodology represented adjustments to the initial GP capital accountbalances of US$37.3 million as follows: (i) an increase of US$2.1 million inrespect of the third party valuation; (ii) a net increase of US$1.8 million inrespect of capital calls or distributions up to 30 September 2007; and (iii) areduction of US$0.5 million in respect of public equity securities. Thisresulted in an initial consideration of US$40.7 million. In addition, subsequent to the initial consideration determined as at 30September 2007, further cash adjustments will be made on completion of theAcquisition (shortly following Shareholder approval, if the relevant resolutionis passed, at the EGM) to take account of any additional investment made ordistribution received, by The Bear Stearns Companies Inc. in, or from, the fundscomprised in the Transfer Portfolio during the period from the date on which theTransfer Portfolio was valued to the actual date of completion of theAcquisition. Similarly, the value of public equity securities will be adjustedfor available public equity price fluctuations up to completion. Furthermore,any known material events for private investments during the period from thedate on which the Transfer Portfolio was valued to the actual date of completionof the Acquisition will adjust the consideration. The Acquisition is conditional on Shareholder approval. If the resolutionrelating to the Acquisition is not approved at the EGM by Shareholders who areindependent of the Managers, the Acquisition will not proceed in which event theremaining net proceeds of the Issue will be used to finance other acquisitionsmade in accordance with the Company's investment policy. Increase in the Authorised Share Capital The Company's current authorised share capital includes 14,701,644 UnclassifiedShares of 0.01p each which may be issued as further Equity Shares and/or ZeroDivided Preference Shares and/or one or more new class of share(s). As a resultof several successful follow-on fund raisings and the limited number ofUnclassified Shares that remain available for issue, the Board considers itprudent for the authorised share capital to be increased to allow for furtherfundraisings in the future. It is therefore proposed that the number ofauthorised but unissued Unclassified Shares be increased by 500,000,000Unclassified Shares (equivalent to a 3,401 per cent. increase in the number ofunissued Unclassified Shares in the share capital of the Company). Shareholdersshould note that the Board currently has no intention of conducting a furtherissue of Shares although it may in the future depending on a variety of factors,including prevailing market conditions and investor appetite. Any further issueof Shares will be in accordance with the relevant provisions of the Articles andwill be at a price which represents a premium to Net Asset Value. Amendments to the Articles of Association The Company has in place mechanics to assist in reducing the discount to NetAsset Value to which the Shares trade in the market, mainly through sharebuybacks and a semi-annual share redemption facility. Under the existingArticles any Shares bought back or redeemed are cancelled. Regulatory changes in Guernsey mean that the Company is able to hold Shares intreasury when they are repurchased provided that the Company's Articles permitit to hold Shares in treasury and the Board resolves to hold the Shares sopurchased in treasury. In order to be held in treasury, Shares will need to bepurchased by the Company as those redeemed under the existing share redemptionfacility are not eligible. Treasury Shares can then be reissued by the Companyto investors at a later date, for example to address an imbalance between demandand supply for Shares. Under the Ordinance, the Company is able to hold up to 10per cent. of its issued share capital in treasury. It is the Company's currentintention that Shares held in treasury will only be issued at NAV or at apremium to NAV. Shares held in treasury which are not reissued by the Companywithin 12 months of the date of their purchase will be cancelled and, thus, willnot be available for re-issue. As Shares redeemed under the redemption facility cannot be held in treasury, butShares purchased pursuant to a tender offer can, the Board considers that theArticles should be amended so that the share redemption facility is replaced byan on market share tender facility. It is the intention of the Board that thetiming and pricing mechanism of the tender facility (which are set out in fullin the Notice of the Extraordinary General Meeting and summarised under theheading "Tender Offer" below) will be substantially the same as under theredemption facility, thus maintaining, insofar as it is possible, the sameeconomic and timing effect for Shareholders. The taxation effect forShareholders who are resident for UK taxation purposes should remain the same asthe Company intends to effect the tender by way of market purchases. Thetaxation implications are set out in more detail below. The Board believes thatShareholders will not be prejudiced by this amendment to the Articles. Tender Offer If the special resolution amending the Articles as described above is passed atthe Extraordinary General Meeting, the redemption facility will be immediatelyreplaced by the share tender facility. Shareholders who have already returnedrequests for Shares to be redeemed on 31 December 2007 will have that requesttreated as a valid application for their Shares to be purchased pursuant to theshare tender facility. As with the redemption facility, it is within theDirectors' absolute discretion to offer the share tender facility on any or allof the Tender Dates and to accept any tender offer applications. If the specialresolution amending the Articles is passed, Shareholders who have previouslyreturned redemption requests for 31 December 2007 but do not want their Sharespurchased under the share tender facility may withdraw their request by writingto the Company at its registered office by the close of business on 21 December2007. The terms of any future Tender Offer are set out in the circular. In summary,provided the Board exercises its discretion to allow Shareholders to tendertheir Shares for purchase on any Tender Date, Shareholders will be entitled tohave their Shareholding, up to the maximum amount specified by the Board,purchased by the Company at a price equal to the Net Asset Value per Equity orZDP Share calculated as at the relevant Tender Date. This represents aShareholder's Basic Entitlement. Shareholders may tender any percentage of theirShareholding for purchase under the Tender Offer, but tenders in excess of theBasic Entitlement will only be satisfied to the extent that other Shareholderstender less than their Basic Entitlement. Tenders will be rounded down to thenearest whole number of Shares. Purchases of Shares successfully tendered will be carried out on the LondonStock Exchange and the Company shall be entitled to determine whether any Sharesso purchased will be cancelled immediately or otherwise held in treasury. The Company is currently authorised to purchase in the market up to 14.99 percent. of each of the Equity Shares and the Zero Dividend Preference Shares as aclass pursuant to a Shareholder general authority. It is not intended that anyof this general authority will be used to purchase Shares by way of tender. Aspecial resolution will be proposed at the Extraordinary General Meetinggranting authority to the Company to purchase up to 15 per cent. of the EquityShares and the Zero Divided Preference Shares as a class pursuant to theproposed Tender Offer, such authority to expire 18 months after the date of thepassing of the resolution. Change of Directors On 12 October 2007, Paul Sanabria resigned from the Board and the remainingDirectors voted to approve the appointment of Mr Duncan as a Director of theCompany. As required by the Articles of Association, Mr. Duncan will have hisappointment voted on by Shareholders at the Company's annual general meetinglater this year. Like Mr Sanabria, Mr Duncan is a director of BSAM Inc. and isone of the key managers of the Company Portfolio. The Board considers that hisappointment as a Director will be beneficial to the Company due to his in-depthunderstanding of the Company and the private equity market. Taxation Implications The Proposals should not have any UK tax consequences for Shareholders.Specifically, the proposed replacement of the share redemption facility by ashare tender facility with substantially the same terms and pricing mechanismshould not have an adverse UK tax effect for Shareholders. The Directors have been advised that the UK offshore fund rules in Chapter V ofPart XVII of the Income and Corporation Taxes Act 1988 (the "Taxes Act") orSchedule 10 to the Finance Act 1996, as appropriate, should not apply.Accordingly, any gain realised by a United Kingdom resident or ordinarilyresident Shareholder or a Shareholder who carries on a trade in the UnitedKingdom through a branch, agency or permanent establishment with which theirinvestment in the Company is connected on a sale or other disposal (includingfrom liquidation or dissolution of the Company, or as a result of such Sharesbeing purchased pursuant to the proposed share tender facility) of their Sharesmay, depending on their circumstances and subject as mentioned below, be subjectto United Kingdom capital gains tax or corporation tax on chargeable gains. Under current law, on a disposal of Shares (which includes a redemption andwould include Shares purchased by way of a Tender Offer) by an individualinvestor who is resident or ordinarily resident in the United Kingdom for taxpurposes, the Shares may attract taper relief which reduces the amount ofchargeable gain according to how long, measured in years, the Shares have beenheld. Legislation proposed to have effect from 6 April 2008 would, if enacted,abolish taper relief for individual investors. Instead, a single rate of capitalgains tax at 18 per cent. would apply to disposals made after 5 April 2008. Aninvestor which is a body corporate resident in the United Kingdom for taxpurposes may benefit from indexation allowance which, in general terms,increases the capital gains tax base cost of an asset in accordance with therise in the retail prices index. Although the Directors have been advised that the Company should not be subjectto the offshore fund rules for the purposes of United Kingdom taxation, shouldthe Company become subject to these rules as a result of changes in current UKtax law and/or practice, this may, compared to current UK tax law and practice,have adverse tax consequences for certain UK Shareholders as gains on anydisposal (which would include any gain as a result of Shares being purchasedpursuant to a tender offer) may be subject to income tax under the provisions ofChapter V of Part XVII of the Taxes Act or to corporation tax under theprovisions of Schedule 10 to the Finance Act 1996, rather than capital gainstax. If you are in any doubt about your tax position in relation to holding Shares,or if you may be subject to tax in a jurisdiction other than the United Kingdom,you should consult your professional adviser. Costs of the Proposals The costs of the Proposals are estimated to be approximately £0.23 million(exclusive of applicable VAT), equivalent to approximately 0.1 per cent. of theNet Asset Value of the Equity Shares (on the basis of the Equity Shares having aNet Asset Value of approximately £230 million in aggregate as at 19 October2007). The costs will be borne by the Company. Extraordinary General Meeting At the Extraordinary General Meeting, two ordinary resolutions and two specialresolutions will be proposed. The first resolution will, if passed, approve the Acquisition and allow theCompany to complete the purchase of the Transfer Portfolio. The second resolution will, if passed, increase the authorised share capital ofthe Company by the creation of 500,000,000 Unclassified Shares of 0.01p each. The third resolution will, if passed, (i) delete the provisions relating to theredemption facility from the Articles of Association and replace them with theterms and conditions of the share tender facility described above; and (ii)allow the Company to hold Shares in treasury. The fourth resolution will, if passed, authorise the Company to make marketpurchases of its own Shares by way of a tender offer. Resolutions one and two are ordinary resolutions and thus, to be passed, requirethe approval of not less than 50 per cent. of those Shareholders entitled toattend and vote at the Extraordinary General Meeting in respect of each ordinaryresolution. Resolutions three and four are special resolutions and thus, to bepassed, require the approval of at least 75 per cent. of those Shareholdersentitled to attend and vote at the Extraordinary General Meeting in respect ofeach special resolution. EXPECTED TIMETABLE OF EVENTS Latest time and date for receipt of Forms of Proxy for the 10.00 a.m. (London time) on Extraordinary General Meeting 26 November 2007 Extraordinary General Meeting 10.00 a.m. (London time) on 28 November 2007 Expected date of completion of the Acquisition On or around 30 November 2007 Any US Dollar to Sterling or US Dollar to Euro comparisons used in thisannouncement are based on an exchange rate of £1 : US$2.0477 and €1 : US$1.4272,respectively, as at the close of business in London on 30 September 2007. Enquiries: Bear Stearns Asset Management Greg Getschow / Troy Duncan - 001 212 272 7732 JPMorgan Cazenove Angus Gordon Lennox - 020 7588 2828 Peregrine Communications Anthony Payne / Max Hilton - 020 7978 6052 This information is provided by RNS The company news service from the London Stock Exchange