Last checked at 
14 Apr 2010 16:18
JOINT ANNOUNCEMENT
MATRIX INCOME & GROWTH VCT PLC
MATRIX INCOME & GROWTH 3 VCT PLC
14 APRIL 2010
RECOMMENDED PROPOSALS FOR A MERGER BETWEEN MATRIX INCOME & GROWTH VCT PLC ("VCT 1") AND MATRIX INCOME & GROWTH 3 VCT PLC ("VCT 3") TO BE COMPLETED BY PLACING VCT 3 INTO MEMBERS' VOLUNTARY LIQUIDATION PURSUANT TO SECTION 110 OF THE INSOLVENCY ACT 1986 AND THE TRANSFER BY VCT 3 OF ALL OF ITS ASSETS AND LIABILITIES TO VCT 1 IN CONSIDERATION FOR NEW ORDINARY SHARES OF 1 PENCE EACH IN THE CAPITAL OF VCT 1 ("VCT 1 NEW SHARES") AND THE CANCELLATION OF THE LISTING OF THE VCT 3 ORDINARY SHARES OF 1 PENCE EACH IN THE CAPITAL OF VCT 3 ("VCT 3 SHARES") ("THE SCHEME")
SUMMARY
VCT 1 and VCT 3, both of which are managed by Matrix Private Equity Partners LLP ("Matrix Private Equity"), announced on 9 February 2010 that agreement in principle had been reached for the merger of the two companies.
Discussions have now been concluded and proposals for consideration of the Scheme have today been sent to both companies' shareholders. The Scheme will, if effected, result in the merger of VCT 3 with VCT 1, creating an enlarged company ("Enlarged Company") with net assets of over £32 million (taking into account the dividends to be paid by the companies on 21 April 2010). The merger is expected to deliver cost savings and other strategic benefits to both sets of shareholders.
BACKGROUND
VCT 1 was launched in July 2004 and has raised £20.9 million (net of expenses) since inception. VCT 3 was launched in September 2005 and has raised £18.9 million (net of expenses) since inception. The objectives of both companies is to provide investors with a regular income stream by way of tax-free dividends, and to generate capital growth through portfolio realisations, which can be distributed by way of additional tax-free dividends.
As at 31 December 2009, VCT 1 had investments in 18 companies with an aggregate value of £11,779,583 and audited net assets of £16,979,370 (83.34p per VCT 1 Share). VCT 1 has paid dividends since launch totalling 16.3p per VCT 1 Share and has also declared an interim dividend for the year ended 31 December 2009 of 5.0p per VCT 1 Share. VCT 1 has bought back 1,803,832 VCT 1 Shares for an aggregate consideration of £1,453,310.
As at 31 December 2009, VCT 3 had audited net assets of £17,478,122 (90.04p per VCT 3 Share), and, in aggregate, investments in 18 companies. Since launch, dividends have been paid totalling 5.55p per VCT 3 Share (£1,109,018 in aggregate) and has also declared an interim dividend for the year ended 31 December 2009 of 4.0p per VCT 3 Share. VCT 3 has bought back 691,970 VCT 3 Shares for an aggregate consideration of £427,863.
The two companies have made investments alongside each other and other funds managed by Matrix Private Equity benefiting from accessing larger transactions than might otherwise have been the case. As a venture capital trust ("VCT") becomes invested and, in light of changes to VCT investment restrictions, the benefits of having two separate VCTs with similar investment portfolios no longer outweigh the costs of separate listed companies.
VCTs are required to be listed on the Official List of the UK Listing Authority, which involves a significant level of listing costs as well as related fees to ensure the VCT complies with all relevant legislation. As a VCT becomes fully invested, its net assets may start to decrease, primarily due to dividends, buy backs and annual expenses. The running costs can become a proportionately greater burden which may have an adverse effect on a VCT's return for its shareholders. A larger VCT should therefore be better placed to spread such running costs across a greater investment portfolio and, as a result, may be able to pay a higher level of dividends to shareholders over its life.
With the above in mind, VCT 1, VCT 3 and Matrix Private Equity entered into discussions to consider a merger of the companies to create a single larger VCT; the aim being to achieve strategic benefits and reductions in the annual running costs for both sets of shareholders whilst, in respect of the arrangements with Matrix Private Equity, ensuring a fair and proportionate amalgamation of the current arrangements across the two companies.
EXPECTED TIMETABLE
VCT 1 and VCT 3 dividend payment date 21 April 2010 Date from which it is advised that dealings in VCT 3 3 May 2010 Shares should only be for cash settlement and immediate delivery of documents of title
VCT 1 annual general meeting 11.00 am 12 May 2010 VCT 3 annual general meeting 11.15 am 12 May 2010
VCT 1 extraordinary general meeting 11.30 am 12 May 2010 VCT 3 first extraordinary general meeting 11.45 am 12 May 2010 Record date for VCT 3 shareholders' entitlements under 19 May 2010 the Scheme VCT 3 register of members closed 19 May 2010 Calculation date of the Scheme after 5.00 pm 19 May 2010 Suspension of listing of VCT 3 Shares 7.30 am 20 May 2010 VCT 3 second extraordinary general meeting 11.00 am 20 May 2010 Effective date for the transfer of assets and 20 May 2010 liabilities of VCT 3 to VCT 1 and issue of VCT 1 New Shares ("Effective Date") Announcement of the results of the Scheme 20 May 2010 Admission of and dealings in the VCT 1 New Shares to 21 May 2010 commence Cancellation of the VCT 3 Share listing 8.00 am 21 May 2010 CREST accounts credited with VCT 1 New Shares 24 May 2010 Certificates for the VCT 1 New Shares dispatched 26 May 2010
MERGER OF VCT 1 WITH VCT 3
Following detailed consideration of the portfolios and financial position of each company agreement has been reached to recommend a merger of the companies.
The merger will be completed by VCT 3 being placed into members' voluntary liquidation pursuant to a scheme of reconstruction under Section 110 of the Insolvency Act 1986. All of the assets and liabilities of VCT 3 will then be transferred to VCT 1 in consideration for VCT 1 New Shares (which will be issued directly to the shareholders of VCT 3). The merger will be completed on a relative net asset basis (unaudited net assets as at close of business on the day immediately preceding the Effective Date).
The merger will result in the creation of an Enlarged Company and should result in material costs savings and simpler administration. As both companies have the same directors, investment manager, investment policies and advisers, this is achievable without major additional cost or disruption to the portfolio of investments.
The merger will bring benefits to both groups of shareholders through:
* a reduction in annual running costs for the Enlarged Company compared to the aggregate annual running costs of the separate companies, in particular through the reduction in directors' and advisers' fees; * the creation of a single VCT of a more efficient size with a greater capital base over which to spread annual costs; * participation in a large VCT with the longer term potential for a more diversified portfolio thereby spreading risk across a broader range of investments and creating an increased ability to support follow-on investments; * an increased ability to maintain a buy-back programme and the potential to increase future dividends due to a reduced level of annual expenses, as well as a reduced need to retain funds to meet them; * increased flexibility in continuing to meet the various requirements for qualifying VCT status; and * the potential of greater liquidity in the secondary market.
Annual running costs for VCT 1 and VCT 3 are approximately £632,000 and £ 627,000 respectively or £1,259,000 in total. These costs represent 3.7 per cent. of VCT 1's audited net asset value and 3.6 per cent. of VCT 3's audited net asset value, in each case as at 31 December 2009. It is considered that this level of continued administrative annual running costs can be materially reduced through the merger resulting in benefits to both groups of shareholders
The aggregate anticipated cost of undertaking the merger is approximately £ 275,000 including VAT, legal and professional fees, stamp duty and the costs of winding up VCT 3. The costs of the merger will be split proportionately between the companies by reference to their respective roll-over value and merger value.
On the assumption of the net asset value ("NAV") of the Enlarged Company remaining the same as immediately after the merger, annual cost savings for the Enlarged Company of at least £140,000 per annum (representing 0.43 pr cent. per annum of the expected net assets of the Enlarged Company) are anticipated to be achieved following completion of the merger. Again, assuming that the NAV of the Enlarged Company remains constant for this purpose, and on the basis that no new funds are raised or investments realised to meet annual costs, it is believed that the costs of the merger would, therefore, be recovered within two years.
THE SCHEME
The mechanism by which the merger will be effected is as follows:
* VCT 3 will be placed into members' voluntary liquidation pursuant to a scheme of reconstruction under Section 110 Insolvency Act 1986; and * all of the assets and liabilities of VCT 3 will be transferred to VCT 1 in exchange for VCT 1 New Shares (which will be issued directly to holders of VCT 3 Shares).
This will result in the VCT 3 Shares effectively being merged into the VCT 1 Shares by reference to the respective net asset value of each company. Following the transfer, the listing of VCT 3's Shares will be cancelled and VCT 3 will be wound up. Shareholders should note that the merger by way of the Scheme will be outside the provisions of the City Code on Takeovers and Mergers.
The merger by way of the Scheme is conditional upon the approval by the shareholders of VCT 1 and VCT 3 of resolutions to be proposed at the VCT 1 extraordinary general meeting, the VCT 3 first extraordinary general meeting, VCT 3 second extraordinary general meeting and certain other conditions as further set out in the documentation sent to shareholders today.
Example:
As at 31 December 2009, the audited NAV per VCT 1 Share (taken from the audited accounts of VCT 1 to 31 December 2009) was 83.34p. The merger value ("Merger Value") per VCT 1 Share (this being the audited NAV of VCT 1 as at 31 December 2009 after adjustments in relation to the Scheme, anticipated merger costs and recent interim dividends declared and then divided by the number of VCT 1 Shares in issue) would have been 77.68p had the Scheme been implemented on that date.
As at 31 December 2009, the audited NAV per VCT 3 Share (taken from the audited accounts of VCT 3 to 31 December 2009) was 90.04p. The roll-over value ("Roll-Over Value") of a VCT 3 Share (this being the audited NAV of VCT 3 as at 31 December 2009 after adjustments in relation to the Scheme, anticipated merger costs and recent interim dividends declared and then divided by the number of VCT 3 Shares in issue) would have been 85.27p (assuming no dissenting VCT 3 shareholders) had the Scheme been implemented on that date.
The number of New VCT 1 Shares to be issued to VCT 3 shareholders would then have been calculated by multiplying the number of VCT 1 Shares in issue by the merger ratio, this being the Roll-Over Value per VCT 3 Shares divided by the Merger Value of a VCT 1 Share. The VCT 1 New Shares would then have been issued to VCT 3 shareholders pro-rata to holdings in VCT 3 (disregarding for these purposes dissenting VCT 3 shareholders and the amounts required to purchase such VCT 3 shares held). This would effectively have given 1.0977 New VCT 1 Shares for every VCT 3 Share held (assuming no dissenting VCT 3 shareholders), 21,306,522 New Shares in aggregate, had the merger been completed on 31 December 2009.
MANAGEMENT, ADMINISTRATION AND PERFORMANCE INCENTIVE ARRANGEMENTS
Matrix Private Equity is the investment manager of VCT 1 and VCT 3 and, following a reorganisation of the Matrix group of companies, now also provides administration services to both companies in place of Matrix-Securities Limited.
The current management and administration fees payable to Matrix Private Equity by the two companies is an annual management fee of 2 per cent. of the net assets of the relevant VCT (exclusive of VAT, if any) and an annual administration fee of 0.3 per cent. of the aggregate amount raised by that VCT (plus VAT).
Matrix Private Equity is currently entitled to performance incentive fees in respect of VCT 1 of an amount equivalent to 20 per cent. of subsequent cash distributions made to shareholders in VCT 1 (whether by dividend or otherwise) over and above the Target Return in any accounting period. The Target Return for these purposes is dividends of 6p per VCT 1 Share per annum (index linked from the third accounting period) (subject to a pro rata reduction or increase for an accounting period which is less than or greater than 12 months), subject to maintenance of a High Watermark of NAV per VCT 1 Share of 100p (i.e. the original issue price of all VCT 1 Shares). Any cumulative shortfalls against the annual Target Return ("Shortfall") have to be made up in later years before any entitlement arises. An equivalent performance incentive fee entitlement exists in VCT 3 (save that the entitlement is shared between Matrix Private Equity and Matrix Group Limited in the ratio of 75:25 unless agreed otherwise between them).
Matrix Private Equity will continue to provide investment management and administration services to the Enlarged Company following the merger.
It is intended that the existing management and administration arrangements between VCT 1, Matrix Private Equity and Matrix-Securities Limited will be replaced with a new investment management agreement between the Enlarged Company and Matrix Private Equity covering both management and administration services. The new investment management agreement will provide for an annual fee in respect of the 2 per cent. of the net asset element only of an amount equivalent to 2 per cent. of the net assets of VCT 1 (exclusive of VAT, if any) plus £120,000 (inclusive of VAT, if any), the £120,000 being subject to increases in the Retail Prices Index. The terms of this new agreement will otherwise be substantially the same as those currently applicable for VCT 1 and VCT 3..
The existing performance incentive arrangements described above will remain broadly unchanged save that the High Watermark, the Target Return and the cumulative Shortfall will be adjusted to amounts representing the weighted average performance of VCT 1 and VCT 3 as follows:
* The High Watermark of 100p per VCT 1 Share will be replaced with an amount equal to the average issue price per VCT 1 Share in issue following the merger (calculated as the weighted average of the respective issue prices of the shares in issue in VCT 1 and VCT 3). * The Target Return of annual dividends of 6p per VCT 1 Share (index linked from the third accounting period) will be adjusted to an average dividend hurdle per VCT 1 Share in issue following the merger (calculated as the weighted average of the respective target returns for VCT 1 and VCT 3). * The cumulative Shortfall to the date of the merger will be deemed to be an amount per VCT 1 Share equivalent to the average shortfall per VCT 1 Share in issue following the merger (calculated as the weighted average of the respective cumulative shortfall for VCT 1 and VCT 3).
The aim of the adjustments is to equalise the existing VCT 1 and VCT 3 performance incentive entitlements within the Enlarged Company. The arrangements following the merger will be solely with Matrix Private Equity as Matrix Group Limited has agreed to waive any entitlement by agreeing to the termination of the VCT 3 performance incentive agreement. Both Boards believe that these revised performance incentive arrangements going forward reflect a fair and proportionate amalgamation of the arrangements which currently apply to the two companies.
The revised performance incentive arrangements ("Revised Performance Incentive Arrangements"), which are being entered into with Matrix Private Equity, a `related party' of VCT 1 under the Listing Rules, constitute a related party transaction requiring the approval of VCT 1 shareholders pursuant to the Listing Rules.
The Revised Performance Incentive Arrangements will, therefore, only be entered into if the merger becomes effective and subject to VCT 1 shareholder approval.
MATRIX PRIVATE EQUITY
Matrix Private Equity, created by a merger between GLE Development Capital Limited and Matrix Private Equity Limited, is the private equity arm of Matrix Group Limited and manages funds primarily through a range of VCTs raised from private investors. Total funds under management are circa £120 million across six funds with the portfolio of equity investments in companies currently numbering forty.
Matrix Private Equity specialises in backing management buy outs and takes a partnership approach to investing, working alongside ambitious, entrepreneurial management teams wishing to buy businesses. Equity investments, typically up to £7 million, are made in UK privately owned companies across a broad range of industries and sectors, helping entrepreneurial management teams to achieve substantial gains for all shareholders. Matrix Private Equity often works with a highly experienced operating partner who has direct management experience and a wide range of contacts. Matrix Private Equity is recognised as one of the most experienced teams and active investors in this segment of the private equity market.
DIVIDENDS
Both VCT 1 and VCT 3 have declared interim dividends for the year ended 31 December 2009 of 5.0p per VCT 1 Share and 4.0p per VCT 3 Share. These dividends have been declared as interim dividends in respect of the relevant company for the year ended 31 December 2009, rather than final year end dividends, so that they can be paid prior to the merger being completed.
VCT 1 BOARD CHANGES
Christopher Moore is currently a director of Matrix Income & Growth 4 VCT plc, another VCT managed by Matrix Private Equity. It is intended that Christopher Moore will take over as chairman of Matrix Income & Growth 4 VCT plc and for these purposes he will need to be an independent director (common directors across VCTs managed by the same investment manager will no longer be regarded as independent under the Listing Rules) and was proposing to resign as a director of VCT 1 in September 2010. In addition, the size and future composition of the Enlarged Company's Board has been considered. It has been concluded that a board of three directors would be more cost effective going forward. in light of the merger, and subject to it becoming effective, Christopher Moore has agreed to bring his resignation as a director of VCT 1 forward and resign following the merger becoming effective.
VCT 1 SHARE ISSUE AND BUY-BACK AUTHORITIES AND CANCELLATION OF THE SHARE PREMIUM ACCOUNT
In order to implement the merger, VCT 1 will need shareholder authority to issue New VCT 1 Shares pursuant to the Scheme the Company also proposes to renew its authorities to issue New Shares (having disapplied pre-emption rights) following the merger and make market purchases of its own shares. In addition, as the merger will create new share premium from the issue of New Shares Shareholder authority to cancel additional share premium to create (subject to court sanction) further distributable reserves is also being requested. The special reserve to be created following court sanction may be used to fund distributions to Shareholders and buy-backs, to set off or write off losses to and for other corporate purposes of the Company.
DOCUMENTS AND APPROVALS
VCT 1 shareholders will receive a copy of a circular convening the VCT 1 extraordinary general meeting to be held on 12 March 2010 (together with the VCT 1 prospectus and annual report and accounts for VCT 1 for the year ended 31 December 2009) at which VCT 1 shareholders will be invited to approve resolutions in connection with the Scheme, the Revised Performance Incentive Arrangement, renew share issue and share repurchase authorities and approve the cancellation of VCT 1's share premium account.
VCT 3 shareholders will receive a circular convening the VCT 3 first extraordinary general meeting on 12 May 2010 and the VCT 3 second extraordinary general meeting on 20 May 2010 (together with the VCT 1 prospectus and annual report and accounts for VCT 3 for the year ended 31 December 2009) at which VCT 3 shareholders will be invited to approve resolutions in connection with the Scheme.
Copies of the VCT 1 annual reports and accounts for the year ended 31 December 2009, the VCT 3 annual reports and accounts for the year ended 31 December 2009, the prospectus and the circular for VCT 1 and the circular for VCT 3 have all been submitted to the UK Listing Authority and will be shortly available for inspection at the UK Listing Authority's Document Viewing Facility which is situated at:
Financial Services Authority25 The North ColonnadeCanary WharfLondon E14 5HSTelephone: 0207 066 1000
Investment Manager for VCT 1 and VCT 3
Matrix Private Equity Partners LLP
Mark Wignall
Telephone: 020 3206 7000
Administrator for VCT 1 and VCT 3
Matrix Private Equity/Matrix-Securities Limited
Robert Brittain / Sarah Penfold
Telephone: 020 3206 7000
Solicitors to VCT 1 and VCT 3
MartineauKavita PatelTelephone: 0870 763 2000Sponsor to VCT 1
Charles Stanley Securities
Ben Johnston / Jen Boorer
Telephone: 020 7953 2000
The directors of VCT 1 accept responsibility for the information relating to VCT 1 and its directors and proposed directors contained in this announcement. To the best of the knowledge and belief of such directors (who have taken all reasonable care to ensure that such is the case), the information relating to VCT 1 and its directors contained in this announcement, for which they are solely responsible, is in accordance with the facts and does not omit anything likely to affect the import of such information.
The directors of VCT 3 accept responsibility for the information relating to VCT 3 and its directors contained in this announcement. To the best of the knowledge and belief of such directors (who have taken all reasonable care to ensure that such is the case), the information relating to VCT 3 and its directors contained in this document, for which they are solely responsible, is in accordance with the facts and does not omit anything likely to affect the import of such information.
Martineau are acting as legal advisers for VCT 1 and VCT 3 and for no one else in connection with the matters described herein and will not be responsible to anyone other than VCT 1 and VCT 3 for providing the protections afforded to clients of Martineau or for providing advice in relation to the matters described herein.
Charles Stanley, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting as sponsor for VCT 1 and no one else and will not be responsible to any other person for providing the protections afforded to customers of Charles Stanley or for providing advice in relation to any matters referred to herein.
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MATRIX INCOME & GROWTH 3 VCT PLC