Lon.sec Regulatory News (LSC)

5 May 2005 07:02

London Security PLC05 May 2005 London Security PLC ('The Company') 5 May 2005 Tender Offer The Company announces it has today issued a circular to shareholders setting outdetails of a proposed tender offer of up to £30.1 million. What follows is anunedited extract of Part I of this circular entitled 'Letter from theSenior Independent Non-Executive Director'. PART I LETTER FROM THE SENIOR INDEPENDENT NON-EXECUTIVE DIRECTOR London Security plc (Registered in England No. 53417) Directors: Registered Office: Jacques Gaston Murray (Chairman) Wistons LaneJean-Jacques Murray (Executive Director) EllandJean-Christophe Francois Georges Pillois (Finance Director) West YorkshireEmmanuel David Oliver Adrien Sebag (Operations Director) HX5 9DSHenry Bonner Shouler (Senior Independent Non-Executive Director)Francis Michael Benjamin Gailer (Independent Non-Executive Director) 5 May 2005 Dear Shareholder Tender Offer for up to 2,183,393 Ordinary Shares at 1375p per Ordinary Share, Capital Reduction and announcement of Preliminary Results Introduction Your Board has been examining ways of returning value to Shareholders and it ispleased to announce that it now proposes, subject to the Company receiving theapproval of the Capital Reduction by the Shareholders and confirmation of thesame by the High Court, to return to Shareholders by way of a Tender Offer up to£30.1 million. Subject to the consent of Shareholders and the terms of theTender Offer, your Board intends that each Shareholder be given the opportunityto sell to Brewin Dolphin, Ordinary Shares held by him/her on the Record Date ata price of 1375p per Ordinary Share. These Ordinary Shares will then be sold byway of an on-market transaction by Brewin Dolphin to the Company, forcancellation at the Tender Price. The Tender Offer requires the consent of Shareholders in the first instance. TheCompany does not have sufficient distributable reserves to effect the TenderOffer and therefore it is conditional on the Capital Reduction being implementedso that the Company's balance sheet is reconstructed to allow the Tender Offerto be completed. The Capital Reduction requires not only the approval ofShareholders but also confirmation of the High Court. The Board believes that a tender offer is an appropriate means of returningfunds to Shareholders as (subject to the provisions relating to certain OverseasShareholders set out in Part III of this document) it gives all Shareholders thechoice of whether or not to participate in the return of capital. Shareholdersmay opt to tender none, some or all of their Basic Entitlement and, to theextent their shareholding is in excess of 10 Ordinary Shares their MaximumEntitlement, in return for cash, or they may choose to retain their OrdinaryShares and thereby increase their percentage of the Company's issued sharecapital in the event that the Tender Offer is completed successfully. The Company also announced today its preliminary results for the twelve monthsended 31 December 2004. The full text of the Preliminary Results is set out inPart IV of this document. The purpose of this letter is to seek your approval to grant authority toimplement the Capital Reduction and the Tender Offer at the EGM convened to takeplace on 31 May 2005, notice of which is set out at the end of this document. Background to and reasons for the Tender Offer The Preliminary Results show that, as at 31 December 2004, the Group had cash of£7.7 million (2003: £13.5m) and total indebtedness of £15.4 million (2003:£12.3m). The Group has continued to perform robustly with good levels ofprofitability and strong cash generation. Interest cover for 2004 was 18.75times and total debt servicing costs (interest plus repayments of principal)were covered 3.0 times by operating cash flow. For some time now the economy hasbeen relatively stable in the UK with moderate levels of interest rates which weexpect to continue for the foreseeable future. One consequence of this is thatcash generative, profitable companies, such as London Security, are able tosecure term bank funding at attractive rates in order to return capital toshareholders and, thereby, enhance total shareholder return. The Tender Offer, if fully taken-up, will result in pro-forma total indebtednessat 31 December 2004 increasing to £45.4 million. A new term loan facility hasbeen agreed for £30 million with, among others, Lloyds TSB Bank plc, repayableover a period of 5 years. On the basis of the 2004 financial results, had thenew debt been in place over the whole year, interest cover would have been 4.2times and total debt servicing costs would have been covered 1.9 times byoperating cash flow. Your Directors view this level of interest and debt servicing cover as adequategiven the above comments on the Group's stability and strong operating cashflows. If the Tender Offer is fully taken up, earnings per share for the year ended 31December 2004 would reduce from 37.3p to 35.2p. However earnings per shareadjusted to eliminate the amortisation of goodwill would increase from 56.5p to57.8p. The Directors consider the adjusted earnings per share to be a moremeaningful measure of earnings per share as it is more closely aligned to futurecash generation of the Group. Your Directors have considered various ways of returning cash to Shareholdersand concluded that the Tender Offer provides flexibility in that Shareholdersmay choose to tender all, some, or none of his/her Ordinary Shares subject totheir Basic and Maximum Entitlements. Capital Reduction - Explanation and Background As explained, it is a condition of the Tender Offer that the Capital Reductionis effected. This requires not only the approval of Shareholders but alsoconfirmation by the High Court. The Capital Reduction is required to createsufficient distributable reserves so that the Company can purchase thoseOrdinary Shares which are tendered to Brewin Dolphin pursuant to the TenderOffer. In addition, the Capital Reduction is considered prudent to protect theability of the Company to pay dividends in the future. Under the Act, the Company can, with the approval of the Shareholders given byway of a special resolution and with the confirmation of the High Court, reduceor cancel its share premium account, capital redemption reserve and 90% of itsissued nominal share capital. Such a reduction or cancellation creates a reservewhich can, subject to the protection of creditors, be credited to the Company'sprofit and loss account. The share premium account and the capital redemption reserve of the Company,which amount to £27,475,388 and £116,691 respectively are to be cancelledpursuant to the Capital Reduction. In addition, 9 pence of each issued OrdinaryShare of 10 pence is to be cancelled and the nominal value reduced to 1p. Inaddition, the unissued share capital is to be sub-divided so that each OrdinaryShare of 10 pence nominal value is to be sub-divided into 10 Ordinary Shares of1p each. As soon as practicable after the EGM, and subject to the Resolution having beenapproved by Shareholders, the Company will petition the High Court for an orderto confirm the Capital Reduction. The High Court is likely to require that theCompany take appropriate steps for the protection of creditors of the Company.These steps are likely to include certain creditors consenting to the CapitalReduction and the balance being protected by the use of blocked bank accountsand/or bank guarantees. However, provided the creditors are protected, it islikely that the Company will be permitted to implement the Tender Offer. The Capital Reduction, as such, will not involve any distribution or repaymentof capital or share premium by the Company other than pursuant to the TenderOffer, and will not reduce the underlying net assets of the Company. Itsprincipal effect will be to increase distributable reserves so that the Companywill be able to fulfil any obligations to acquire shares pursuant to the TenderOffer. The Capital Reduction does not affect the Shareholders' voting ordividend rights or rights on any return of capital to Shareholders. You will find set out at the end of this document a notice of EGM including aresolution to approve the Capital Reduction and the Tender Offer. If the CapitalReduction is approved by the requisite majority, the Company shall apply to theHigh Court for confirmation of the Capital Reduction following the EGM. If theHigh Court makes the order sought, the Company will proceed as quickly asreasonably possible to implement the Capital Reduction by registering the courtorder with the Registrar of Companies. It is expected that following the EGM theCapital Reduction, including receipt of confirmation from the High Court, willtake between four and six weeks to complete. As a consequence of the Capital Reduction it is necessary for the Company toamend its borrowing restrictions contained in the articles of association of theCompany. The current articles of association of the Company permit the Companyto borrow up to the greater of £25,000,000 and three times the capital andreserves of the Company. The Directors propose to raise the fixed borrowinglimit to £50,000,000. The required amendment is contained in the Notice of EGM. The Directors are also seeking the authorisation of Shareholders to allot up toa number of Shares representing approximately 5% of the Company's issued sharecapital without pre-emption rights applying and the required approvals requiredunder sections 80 and 95 of the Act are contained in the notice of EGM containedat the back of this document. Notwithstanding the similar resolutions to beproposed at the annual general meeting of the Company to be held on 9 June 2005this part of the Resolution is intended to reflect the adjusted share capitalpost-completion of the Capital Reduction and will supersede the resolutions tobe passed at such annual general meeting. Tender Offer The Tender Offer is conditional on the passing of the Resolution and, in view ofthe Capital Reduction, Court confirmation as well. The Tender Offer is onlyavailable to Qualifying Shareholders on the Register at the close of business on21 June 2005 and in respect of Ordinary Shares held by them on that date. TheTender Offer is conditional on the matters set out in paragraph 2 of Part II ofthis document and the Tender Offer may be terminated on or before the ClosingDate in the circumstances set out in paragraph 4 of Part II of this document. The terms of the Tender Offer are set out in the letter from Brewin Dolphincontained in Part II of this document and in the Tender Form and are summarisedas follows: • the Tender Offer will require in respect of the Capital Reductionexercise: (a) approval by Shareholders at the EGM; and (b) confirmation by the High Court; • all Qualifying Shareholders are being given the opportunity toparticipate in the Tender Offer; • Brewin Dolphin will purchase as principal up to 2,183,393 OrdinaryShares for a total aggregate consideration of up to £30,021,654; • Ordinary Shares will be purchased by way of an on-market transactionfrom Qualifying Shareholders by Brewin Dolphin at the Tender Price of 1375 penceper Ordinary Share following which an equal number of Ordinary Shares will besold by way of an on-market transaction by Brewin Dolphin to the Company, forcancellation, at the Tender Price; • Qualifying Shareholders who wish to participate in the Tender Offermust return a completed Tender Form to be received by the Receiving Agent by nolater than 5.00pm on 21 June 2005; • Qualifying Shareholders do not have to tender any Ordinary Shares ifthey do not wish to do so; • subject to the Tender Offer becoming unconditional, tenders fromQualifying Shareholders will be accepted to the extent a Qualifying Shareholdervalidly tenders his/her Basic Entitlement and, to the extent their shareholdingis in excess of 10 Shares, up to his/her Maximum Entitlement as at the RecordDate; • Brewin Dolphin will not charge Qualifying Shareholders commission ordealing charges on any Ordinary Shares purchased pursuant to the Tender Offer; • the Tender Offer opens on 5 May 2005 and closes at 5.00pm on 21 June2005 unless extended in accordance with paragraph 6 of Part II of this document; • Tender Forms will become irrevocable at the time of receipt by theReceiving Agent; and • all transactions will be carried out on the London Stock Exchange. It is proposed that Ordinary Shares will be purchased under the Tender Offer ata price of 1375 pence per Ordinary Share which was the price of an OrdinaryShare at the close of business on 4 May 2005, the latest practicable date priorto the publication of this document. Taxation A summary of the taxation consequences of the Tender Offer for UK residentQualifying Shareholders is set out in paragraph 7 of Part II of this document.The information is intended only as a general guide to the current law andpractice in the UK. UK tax resident Qualifying Shareholders are advised to consult their ownprofessional advisers regarding their own tax position without delay. AllOverseas Shareholders who are Qualifying Shareholders should consult their owntax advisers as to the possible tax consequences to them of participating in theTender Offer. Overseas Shareholders The attention of all Overseas Shareholders is drawn to the section entitled"Information for Overseas Shareholders" set out in paragraph Cof Part III of this document and the relevant provisions of the Tender Form. It is the responsibility of all Overseas Shareholders to satisfy themselves asto the observance of any legal requirements in their jurisdiction, including,without limitation, any relevant requirements in relation to the ability of suchOverseas Shareholders to complete and return a Tender Form and Form of Proxy. Current Trading and Prospects The Preliminary Results included the following statement. ''The outlook for 2005 is cautiously optimistic. MK Fire and TVF have immediately contributed to the Group's profits. We arecontinuing to expand the alarm operations in the UK and Belgium. The Group is actively developing new improved ranges of extinguishers and plansto launch these products in 2005. As well as being better extinguishers, weexpect to achieve cost efficiencies from implementation of these new ranges.'' Dividend Policy In the light of the proposed Tender Offer described in this document theDirectors have concluded that no final dividend should be proposed in respect ofthe financial period ended 31 December 2004. Thereafter, the Board next intendsto review its dividend policy at the time of the interim results for the sixmonths ending 30 June 2005 at which point it will communicate its decision toShareholders. Any decision on payment of a dividend will be based on the ongoingoperating performance of the Group; its financing obligations following theproposed Tender Offer and any other investment opportunities available to theGroup from retained funds. City Code The Tender Offer gives rise to certain considerations under the City Code. Briefdetails of the Panel, the City Code and the protections they afford toShareholders are described in paragraph E of Part III. Extraordinary General Meeting The implementation of the Tender Offer, which, for this purpose, includes theCapital Reduction, is subject to the approval of Shareholders at theExtraordinary General Meeting. At the Extraordinary General Meeting the approval of Shareholders will be soughtto approve the Capital Reduction, to authorise the on-market purchase by theCompany from Brewin Dolphin of up to 2,183,393 Ordinary Shares representing15.1% of the Company's Ordinary Share capital in issue as at 4 May 2005 (thelatest practicable date prior to posting of this document) at the Tender Price,to approve a change to the fixed borrowing limit of the Company as contained inits articles of association and to grant the Directors power to allot Shareswithout pre-emption applying. As the resolutions relating to the Capital Reduction and the Tender Offer areinter-conditional, there will only be one resolution put to shareholders whichis a special resolution and requires the approval of 75% of the Shareholdersvoting at the EGM, or on a poll, 75% of the votes cast. Action to be taken (a) Extraordinary General Meeting You will find set out at the end of this document a notice convening an EGM tobe held at 10 Bruton Street, London, W1J 6PX convened for 11.30am on 31 May 2005at which the Resolution will be proposed to approve the Capital Reduction(including associated matters) and, subject to and conditional upon the CapitalReduction being approved by Shareholders and confirmed by the Court, to grantauthority to the Company in accordance with the provisions of the Act topurchase its own Ordinary Shares. A reply-paid Form of Proxy is enclosed. Whether or not you wish to tender any ofyour Ordinary Shares and regardless of whether or not you intend to be presentat the Extraordinary General Meeting you are requested to complete the Form ofProxy in accordance with the instructions printed on it and to return it to theCompany's registrars, Capita Registrars, The Registry, 34 Beckenham Road,Beckenham, Kent, BR3 4TU as soon as possible and, in any event, so that it isreceived no later than 11.30am on 29 May 2005. The completion and return of aForm of Proxy will not preclude you from attending the EGM and voting in personif you wish to do so. (b) To complete the Tender Form Qualifying Shareholders who wish to tender their Ordinary Shares in respect oftheir Basic Entitlement and, if applicable, up to their Maximum Entitlementshould complete the Tender Form in accordance with the instructions printed onit and in Part II of this document and return it by post in the accompanyingreply-paid envelope (for use in the UK only) as soon as possible but, in anyevent, so that it is received by the Company's Receiving Agent, CapitaRegistrars, Corporate Actions, PO Box 166, 34 Beckenham Road, Beckenham, Kent,BR3 4TH not later than 5.00pm on 21 June 2005. Qualifying Shareholders who hold their Ordinary Shares in certificated formshould also return with the Tender Form their share certificate(s) in respect ofthe Ordinary Shares tendered. Qualifying Shareholders who hold their Ordinary Shares in uncertificated formshould also transfer the relevant Ordinary Shares to an escrow balance asdescribed in Part II of this document and in the Tender Form. Qualifying Shareholders who do not wish to sell any Ordinary Shares under theTender Offer need take no action in relation to the Tender Form. However, it isimportant that Shareholders, whether or not they intend to participate in theTender Offer, return the completed Form of Proxy. COMPLETED TENDER FORMS MUST BE RECEIVED BY NO LATER THAN 5.00PM ON 21 JUNE 2005. Further details as to the procedures for tendering and settlement are set out inParts II and III of this document and on the Tender Form. Directors' Intentions Mr J.G Murray, Chairman, the only Director interested in Ordinary Shares, hasirrevocably undertaken to procure that the shareholders in the Company, overwhich he exercises control, vote in favour of the Resolution and tender fortheir Maximum Entitlement in respect of in aggregate 14,222,083 Ordinary Sharesunder the Tender Offer. Further Information Your attention is also drawn to the additional information set out in Parts II,III, IV and V of this document and the Tender Form. Recommendation As described in the section headed ''Tender Offer'' above, the Directors believethat the Tender Offer and the immediate purchase by the Company from BrewinDolphin of the tendered Ordinary Shares for cancellation, offers Shareholders anexcellent opportunity to realise all or part of their investment in the Company(depending on the size of their holdings). The Directors believe that the proposed Tender Offer and purchase by the Companyof its Ordinary Shares from Brewin Dolphin is in the best interests of theCompany and Shareholders as a whole. Accordingly the Board unanimouslyrecommends Shareholders to vote in favour of the Resolution, as Jacques GastonMurray has undertaken to do so in respect of his beneficial and non-beneficialOrdinary Shares totalling 14,222,083 Ordinary Shares (representing approximately98.2% of the issued share capital of the Company). The Board is making no recommendation to Qualifying Shareholders in relation toparticipation in the Tender Offer itself. Whether or not Qualifying Shareholdersdecide to tender their Ordinary Shares will depend, amongst other things, ontheir view of the Company's prospects and their own individual circumstances,including their tax position. Qualifying Shareholders are recommended to consulta duly authorised independent financial adviser and make their own decision. Yours faithfully Henry Bonner ShoulerSenior Independent Non-Executive Director EXPECTED TIMETABLE OF PRINCIPAL EVENTS 2005 Opening of Tender Offer 5 MayLatest time and date for receipt of Forms of Proxy for the Extraordinary 11.30 am on 29 MayGeneral MeetingExtraordinary General Meeting 11.30 am on 31 MayLatest time and date for receipt of Tender Forms 5.00 pm on 21 JuneRecord Date for Tender Offer 21 JuneExpected date for the court hearing of the petition to confirm the Capital 22 JuneReductionExpected date on which Capital Reduction becomes effective 23 JuneAnnouncement of take-up level under the Tender Offer and related details 23 JunePayment of Tender Offer consideration in respect of sold certificated 4 JulyOrdinary Shares and payments made through CREST for Tender Offerconsideration in respect of sold uncertificated Ordinary SharesBalance share certificates despatched in respect of any unsold 4 Julycertificated Ordinary Shares and CREST accounts credited in respect of anyunsold uncertificated Ordinary Shares DEFINITIONS In this document the following expressions have the following meanings unlessthe context otherwise requires: "Act" Companies Act 1985, as amended. "AIM" the alternative investment market operated by the London Stock Exchange. "Basic Entitlement" up to 10 Ordinary Shares held by a Qualifying Shareholder on the Record Date "Brewin Dolphin" Brewin Dolphin Securities Limited which is regulated by The Financial Services Authority Limited and is a member of the London Stock Exchange. "Board" or the directors of London Security, whose names appear on page 3 of this"Directors" document. "Business Day" any day other than a Saturday, Sunday or a UK Bank Holiday. "Capita Registrars" a trading division of Capita IRG Plc. "Capital Reduction" the cancellation of the share premium account and capital redemption reserve of the Company and reduction in nominal value of the Ordinary Shares. "City Code" the City Code on Takeovers and Mergers. "Closing Date" has the meaning given to it in paragraph 6 of Part II of this document. "Court" or the High Court of Justice in England and Wales."High Court" "Court Hearing" the hearing of the petition to confirm the Capital Reduction expected to be on 22 June 2005. "CREST member" a person who has been admitted by CRESTCo as a system member (as defined in the CREST Regulations). "CREST participant" a person who is, in relation to CREST, a system participant (as defined in the CREST Regulations). "CREST Regulations" the Uncertificated Securities Regulations 2001 (SI 2001 No. 3755). "CREST sponsor" a CREST participant admitted to CREST as a CREST sponsor being a sponsoring system participant (as defined in the CREST Regulations). "CREST sponsored a CREST member admitted to CREST as a sponsored member.member" "CREST" the relevant system (as defined in the CREST Regulations) in respect of which CRESTCo is the Operator (as defined in the CREST Regulations). "CRESTCo" CRESTCo Limited. "Extraordinary General the extraordinary general meeting of the Company to be held on 31 MayMeeting" or 2005, or any adjournment or postponement thereof, notice of which is set"EGM" out at the end of this document. "Form of Proxy" the form of proxy for use by Shareholders in connection with the EGM. "Group" the Company and its subsidiary undertakings. "London Security" London Security plc.or "Company" "London Stock Exchange" London Stock Exchange plc. "Maximum Entitlement" 15% of the Ordinary Shares held by a Qualifying Shareholder on the Record Date, after deduction of their Basic Entitlement of 10 Shares rounded up to the nearest whole number of Shares. "Member Account ID" the identification code or number attached to any member account in CREST. "Notice of EGM" the notice of EGM set out at the end of this document. "Ordinary Shares" ordinary shares in the capital of the Company.or "Shares" "Overseas Shareholders" Shareholders who are citizens or nationals of, or who are resident in, jurisdictions outside the United Kingdom. "Panel" The Panel on Takeovers and Mergers. "participant ID" the identification code or membership number used in CREST to identify a particular CREST member or other CREST participant. "Preliminary Results" the preliminary results for the Company for the year ended 31 December 2004 as shown in Part IV of this document. "Qualifying holders of Ordinary Shares on the Register at the Record Date, excludingShareholders" certain Overseas Shareholders, subject to the sole discretion of the Company and Brewin Dolphin in relation to Overseas Shareholders. "Receiving Agent" Capita Registrars, Corporate Actions, PO Box 166, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU. "Record Date" close of business on 21 June 2005. "Register" the register of members of the Company. "Resolution" the resolution in respect of the Capital Reduction, the Tender Offer, the amendment to the Company's articles of association and authority to allot Shares set out in the Notice of EGM to be proposed as a special resolution at the Extraordinary General Meeting. "Share Option Scheme" London Security plc Unapproved Executive Share Option Scheme."Shareholders" holders of issued Ordinary Shares. "Tender Form" the tender form issued for use by Qualifying Shareholders in connection with the Tender Offer. "Tender Offer" the invitation by Brewin Dolphin Securities Limited to Qualifying Shareholders to tender up to 2,183,393 Ordinary Shares on the terms and subject to the conditions set out in Part II of this document and the Tender Form. "Tender Price" 1375p per Ordinary Share. "TFE instruction" a transfer from escrow instruction (as defined by the CREST manual issued by CRESTCo). "TTE instruction" a transfer to escrow instruction (as defined by the CREST manual issued by CRESTCo). "United Kingdom" the United Kingdom of Great Britain and Northern Ireland.or "UK" "United States" the United States of America, its territories and possessions, the District of Columbia, and all other areas subject to its jurisdiction and all political subdivisions thereof. Enquiries: London Security plcRichard Pollard, Company Secretary 01422 372852 Brewin Dolphin SecuritiesAndrew Kitchingman 0113 2410130 ENDS This information is provided by RNS The company news service from the London Stock Exchange