Downing Plan 2011 Downing Planned Exit Vct 2011 Plc : Proposed Merger
June 15 2015 - 12:23PM
UK Regulatory
TIDMD1GO
JOINT ANNOUNCEMENT
15 JUNE 2015
DOWNING STRUCTURED OPPORTUNITIES VCT 1 PLC ("DSO")
DOWNING PLANNED EXIT VCT 2011 PLC ("DP011")
DOWNING PLANNED EXIT VCT 6 PLC ("DP6")
DOWNING PLANNED EXIT VCT 7 PLC ("DP7")
(TOGETHER, THE "COMPANIES" AND DP2011, DP6 AND DP7 TOGETHER THE "TARGET
VCTS" AND EACH A "TARGET VCT")
RECOMMENDED PROPOSALS TO MERGE THE COMPANIES PURSUANT TO SCHEMES OF
RECONSTRUCTION UNDER SECTION 110 OF THE INSOLVENCY ACT 1986
The boards of the Companies (the "Boards") are pleased to announce that
they have agreed terms to merge the four Companies and that they are
today writing to set out the merger proposals to their respective
shareholders for consideration. Each of the Companies is managed by
Downing LLP ("Downing").
The merger ("Merger") will be effected by the Target VCTs each being
placed into members' voluntary liquidation pursuant to schemes of
reconstruction under section 110 of the Insolvency Act 1986 ("Schemes"
and each a "Scheme"). Shareholders should note that the Merger by way of
the Schemes will be outside the provisions of the City Code on Takeovers
and Mergers. It is proposed that the name of DSO be changed to "Downing
FOUR VCT plc" immediately following the Merger.
The planned exit strategy of each of DSO's share classes, as well as
those of the Target VCTs, will not be affected by the Merger as new
share classes will be created in line with the current, pre-merger share
classes in the Target VCTs as illustrated in the table below.
Pre-Merger Share Classes of Target Post-Merger Share Classes of the
VCTs Enlarged Company
DP2011 General Ord Shares New DP2011 General Ord Shares
DP2011 A Shares New DP2011 General A Shares
DP2011 Structured Ord Shares New DP2011 Structured Ord Shares
DP2011 Structured A Shares New DP2011 Structured A Shares
DP2011 Low Carbon Ord Shares New DP2011 Low Carbon Ord Shares
DP6 Shares New DP67 Ord Shares
DP7 Shares New DP67 Ord Shares
Each Scheme requires the approval of resolutions by the DSO shareholders
and the relevant Target VCT's shareholders. The DP6 and DP7 Schemes are
conditional on the DP2011 Scheme going ahead.
The Merger will, if effected, result in an enlarged DSO ("Enlarged
Company") with net assets of over GBP60 million.
Estimated costs of the Merger are GBP400,000, but Downing LLP has agreed
to contribute 50% of the costs, so net costs for shareholders will be
GBP200,000. These net costs will be borne by DSO and the Target VCTs on
a basis which is pro rata to their current net asset values and the
expected remaining life of each share class. As a result, the running
cost savings for each share class over their expected remaining life is
expected to exceed the net costs of the Merger borne by that share
class.
For the 12 months following the Merger, Downing has also agreed to
reduce its investment management fee in respect of DSO Assets from 1.5%
to 1.3% and, in respect of the DP2011 Assets, from 1.8% to 1.6%. The
applicable investment management fee in respect of DP6 Assets and DP7
Assets will remain at 1.35%.
As part of the proposals, DSO will seek approval to broaden its
Investment Policy to allow each share class after the Merger to continue
to be managed in the same way as previously, to renew allotment and
share purchase authorities, to approve amendments to its articles of
association and to approve the cancellation of its share premium
account.
Further details of the proposals are set out below. The approval of
resolutions in connection with these proposals will be proposed at
general meetings of the Companies ("Meetings") being convened as set out
in the expected timetable below.
BACKGROUND
VCTs are required to be listed on the premium segment of the Official
List, which involves a significant level of costs associated with the
listing as well as related fees to ensure they comply with all relevant
legislation and regulations. A larger VCT is able to spread the fixed
elements of such running costs across a larger asset base and, as a
result, reduce running costs as a percentage of net assets. In September
2004, the Merger Regulations were introduced allowing VCTs to be
acquired by, or merge with, each other without prejudicing the VCT tax
reliefs obtained by their shareholders. A number of VCTs have taken
advantage of these regulations to create larger VCTs for economic and
administrative efficiencies.
With the above in mind, the Boards and Downing entered into discussions
to consider a merger of the four Companies to create a single, larger
VCT. The aim of the Merger is to achieve strategic benefits and
reductions in the annual running costs for each set of shareholders,
while maintaining a platform from which the planned exit strategy of
each of the share pools can continue to be executed as it is now.
THE SCHEMES
The Merger will be effected in the following way.
First, each Target VCT will be placed into members' voluntary
liquidation pursuant to a scheme of consolidation under section 110 of
the Insolvency Act 1986, subject to shareholders' approval.
Secondly, all of the assets and liabilities of each Target VCT will be
transferred to DSO in consideration for the issue of Consideration
Shares by DSO directly to the shareholders of the relevant Target VCT.
Each Scheme requires the prior approval of the shareholders of the
relevant Target VCT and the Shareholders of DSO. If a shareholder of a
Target VCT does not vote in favour of the Merger and expresses his
dissent in writing then he may require the Liquidators to purchase his
shares at their break-value price, this being an estimate of the amount
he would receive in an ordinary winding up of the relevant Target VCT if
all of the assets had to be realised. The break-value is expected to be
significantly below the net asset value of the relevant Target VCT.
For these purposes, whilst there will only be one general meeting of DSO
at which shareholders will be invited to consider and vote in favour of
the Mergers, there will be two general meetings for each of the Target
VCTs. At the Target VCTs' First General Meetings, Target VCT
shareholders will be invited to approve the Merger. At the Second Target
VCT Meetings, Target VCT Shareholders will be invited to pass a special
resolution for the winding up of the relevant Target VCT.
In addition to the approval of Shareholders being sought at the General
Meeting, each Scheme is dependent on:
* the relevant Scheme being approved by the shareholders of DSO and
the relevant Target VCT;
* notice of dissent not being received from shareholders (of the
relevant Target VCT) who hold more than 10% in nominal value of the
issued share capital; and
* DSO confirming that it has received no notice of any claims,
proceedings or actions of whatever nature threatened or commenced
against any of the Target VCTs which the board of DSO regard as material,
* the DP2011 scheme becoming effective,
and so will proceed and become effective immediately after the passing
of the special resolution for the winding up of the relevant Target VCT.
The number of Consideration Shares to be issued will be on a "one for
one" basis with Consideration Shares being issued in a new corresponding
share class created in DSO. There is one exception being the DP2011 LC
Shares where 935 Consideration Shares will be issued for every 1,000
existing DP2011 LC Shares held. (This is because the DP2011 LC shares
were originally issued at a price of 93.5p per share instead of the more
common VCT issue price of 100p per share. This adjustment rebases the
shares to an equivalent original issue price of 100p.)
Each Scheme is conditional upon certain conditions being satisfied as
further set out in the circulars being posted to shareholders today,
including resolutions to be proposed to shareholders of each of the
Companies. Each Target VCT will apply to the UKLA for cancellation of
the listing of its shares, upon the successful completion of its Scheme,
such cancellation is anticipated to take place on 24 August 2015 (the
cancellation requiring the approval of the relevant Target VCT's
shareholders).
The Merger will result in the creation of an enlarged company and should
result in savings in running costs and simpler administration. As all of
the Companies have similar investment policies, a number of common
investments and are managed by Downing, this is achievable without
material disruption to the Companies and their combined portfolio of
investments.
The boards of the Companies consider that the Merger will bring a number
of benefits to all of the Companies' groups of shareholders through:
* A reduction in the expected annual running costs for most
shareholders;
* Annual running costs capped by Downing at 3% of net assets;
* a reduction in Downing's investment management fees for the 12
months following the Merger by 0.2% of the NAV per annum in respect of
each DSO Share;
* increased flexibility for exit and wind up strategies for different
groups of shareholders; and
* enhanced prospects for the possibility of creating an Target share
class which could be offered to those Shareholders who may wish to
remain invested and continue to receive tax free dividends at the end of
the initial planned exit period.
Additional attractive features of the Merger include:
* Downing has agreed to contribute 50% of the costs of the Merger
meaning that DSO and the Target VCTs will only bear GBP200,000 of the
GBP400,000 estimated costs;
* Downing has agreed to cover 100% of any costs of the Merger in
excess of GBP420,000; and
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