This is an announcement falling under Rule 2.4 of the City Code on Takeovers and Mergers (the “Code”). It does not constitute an announcement of a firm intention to make an offer under Rule 2.5 of the Code. Accordingly, there can be no certainty that any offer will be made even if the pre-conditions are satisfied.
The Board of RAB Capital plc (the “Company” or “RAB”) announces outline terms for a potential reorganisation of the Company (the “Proposals”), under which:
- RAB would delist from AIM; and
- RAB shareholders would be offered the opportunity to receive 10.0 pence in cash per ordinary share in RAB (“RAB Shares”), or to elect to receive shares in a, to be incorporated, UK private company (“NewCo”) which will become the ultimate owner of RAB (the “Buyout”).
Background
As stated in a trading update released on 11 May 2011, the Board of RAB has undertaken a review of options for the business following an extended period of poor trading. The review included, but was not limited to, the viability of the ongoing business and the appropriateness of maintaining an AIM listing.
The Board has concluded that in light of poor results, significant redemptions in the period to 11 May 2011 and further anticipated redemptions, third party assets under management will fall to a level that will make RAB’s business model difficult to sustain as a publicly quoted company. The Board is therefore proposing that the Company should delist from AIM and become a private company, which will reduce administrative and regulatory overheads, as well as the burden of continuing disclosure requirements at a time when the business requires significant restructuring.
Alongside the proposal to delist from AIM, the Board wishes to give RAB shareholders who wish to do so an opportunity to sell their shares for cash. The Board is therefore considering terms for a possible scheme of arrangement (the “Scheme”), under Part 26 of the Companies Act 2006, whereby RAB shareholders would be offered the opportunity to receive 10.0 pence in cash per RAB Share or to elect to receive shares in NewCo which will become the ultimate owner of RAB and will seek to maximise value from RAB’s remaining business.
For the purposes of the Buyout, Michael Alen-Buckley, Charles Kirwan-Taylor, Philip Richards and Christopher de Mattos (the “Continuing Directors”), are deemed to be non-independent and are leading the possible Buyout.
The remaining directors of RAB, Philip Moore, Adam Grant, The Rt Hon Lord Lamont of Lerwick and Derek Riches (the “Independent Directors”), have formed a committee to evaluate the possible Buyout on behalf of shareholders. The Independent Directors are being advised by Macquarie Capital (Europe) Limited.
In assessing the merits of the Proposals, including the 10.0 pence in cash per RAB Share, the Independent Directors are, inter alia, taking into account a liquidation analysis of the Company. This includes, but is not limited to, assessing the full costs associated with winding the Company down in an orderly manner, closing all the funds that the Company manages, disposing of the Company’s assets and running a net present value calculation on the resulting proceeds.
In making this announcement, the Independent Directors are not making a recommendation.
RAB
RAB is a specialist asset manager founded over ten years ago. For the year ended 31 December 2010 RAB reported a loss after taxation of GBP19.4 million (2009: loss GBP3.1 million) on revenue of GBP11.9 million (2009: GBP13.9 million). Net current assets and investments for the year ended 31 December 2010 were GBP82.0 million (2009: GBP98.7 million) representing 17.4p per RAB Share (2009: 20.9p).
As stated in a trading announcement to the market on 11 May 2011, management expectations for growth in assets under management significantly reduced following redemption notices received by the Company as well as the departure of the co-manager of the RAB Energy Fund and RAB Octane Fund in May this year for personal reasons.
In April, the Company received redemption notices in respect of the RAB Special Situations (Master) Fund, amounting to 79% of that fund, as well as redemption notices in respect of the RAB Cross Europe Fund and other assets managed by that team. Currently, in the absence of a significant inflow of funds, the Company expects to manage less than $200 million in third party assets by 1 October 2011, based on the current value of the funds.
Following the trading announcement of 11 May 2011, in addition to reviewing options for the Company, RAB commenced a process to review costs and resource requirements across the business. RAB is presently in a process of consultation with its employees regarding these resource requirements, and whilst this process is not yet concluded it is likely that there will be a significant reduction in the number of employees within the business.
The Proposals
Whether or not the Buyout takes place, the Board has resolved that application should be made to the London Stock Exchange for cancellation of trading in RAB shares on AIM, provided that RAB shareholders pass the requisite special resolution at a general meeting.
The Buyout would be structured as a recommended offer by NewCo to acquire the entire issued and to be issued share capital of RAB at a price of 10.0 pence in cash per share. This represents a premium of approximately 22.70 per cent. over the closing middle market price of 8.15 pence per RAB Share on 23 June 2011, being the last trading day before the date of this announcement.
Prior to the Buyout, NewCo will be formed at the direction of the Continuing Directors.
NewCo will also offer RAB shareholders (other than shareholders resident in certain overseas jurisdictions) an option to elect to receive consideration for their RAB Shares in the form of unlisted shares in NewCo on the basis of one NewCo share for each RAB Share.
It will not be possible under the terms of the proposed Buyout for a shareholder to elect to receive the consideration for their RAB Shares partly in cash and partly in the form of NewCo shares where the RAB Shares are held in one account. However, a RAB shareholder who holds RAB Shares in more than one account will be able to make different elections for each separate shareholding. Details of how RAB shareholders may split their shareholdings, should they wish to do so, will be set out in the circular containing, inter alia, further details of the Buyout and the Scheme which will be dispatched to RAB shareholders following an announcement by NewCo of a firm intention to make an offer under Rule 2.5 of the Code.
It is intended that the Buyout would be implemented by means of the Scheme, which would require the approval of RAB shareholders at a meeting convened at the direction of the Court (“Court Meeting”) and a separate general meeting, as well as the sanction of the Court.
The resolution to approve the Scheme to be proposed at the Court Meeting would require the approval of a majority in number, representing 75 per cent. or more in value, of the shareholders present and voting, either in person or by proxy at the Court Meeting.
Pre-conditions to the possible Buyout
The making of an announcement of a firm intention to proceed with the Buyout remains subject to a number of pre-conditions including the approvals of the Continuing Directors and the Independent Directors, as well as the recommendation of the Independent Directors; finalisation of the structure of, and documents required to effect, the Buyout, the Scheme and financing; and agreement of the Court timetable.
If any of the pre-conditions is not satisfied, NewCo will have no obligation to announce a firm intention to make an offer under Rule 2.5 of the Code. The Independent Directors are not obligated to recommend the possible Buyout on the terms outlined in this announcement, and it is therefore possible that the Independent Directors could decide against making such a recommendation. Accordingly, for the purposes of the Code, there can be no certainty that any offer will be made even if the other pre-conditions are satisfied. The pre-conditions are not waivable by NewCo.
Shareholdings in RAB
As at close of business on 23 June 2011, being the last business day prior to the date of this announcement, the Continuing Directors were interested in a total of 248,626,150 RAB Shares, representing 52.97 per cent. of the existing issued share capital of RAB, and in a total of 19,150,000 RAB Shares by virtue of their holdings of options over RAB Shares pursuant to the RAB share option schemes.
Similarly, as at close of business on 23 June 2011, the Independent Directors were interested in a total of 771,074 RAB Shares, representing 0.16 per cent. of the existing issued share capital of RAB, and in a total of 8,000,000 RAB Shares by virtue of their holdings of options over RAB Shares pursuant to the RAB share option schemes.
The exercise prices of the 19,150,000 and the 8,000,000 RAB share options referred to above are all higher than 10 pence.
Statements of Intent
Each of the directors of RAB has indicated that he intends to vote in favour of the Proposals in respect of his beneficial holdings of RAB Shares.
The Continuing Directors have indicated that they intend to elect to receive shares in NewCo, under the terms of the proposed Buyout, in respect of a total of 200,210,000 RAB Shares (representing 42.66 per cent. of the existing issued share capital of RAB) and comprising 80.55 per cent. of their aggregate beneficial holdings of 248,566,250 RAB Shares (representing 52.96 per cent. of the existing issued share capital of RAB). They will receive cash in respect of their remaining shareholdings.
RAB has received a non-binding letter of intent to vote in favour of the Proposals and expressing an intention to accept cash under the terms of the proposed Buyout from Santino Global Assets Limited in respect of its beneficial holding of 51,672,036 RAB Shares representing 11.01 per cent. of the existing issued share capital of RAB.
RAB has also received a non-binding letter of intent to vote in favour of the Proposals from Sofina S.A. in respect of its beneficial holding of 50,000,000 RAB Shares representing 10.65 per cent. of the existing issued share capital of RAB.
In total, therefore, non-binding statements of intent to vote in favour of the Proposals have been received in respect of, in aggregate, 350,970,686 RAB Shares, representing approximately 74.78 per cent. of the existing issued share capital of RAB and holders of 200,210,000 RAB Shares in aggregate (representing 42.66 per cent. of the existing issued share capital) have expressed an intention to elect to receive shares in NewCo under the terms of the proposed Buyout.
Financing of the Buyout
RAB holds substantial capital resources in excess of that required to operate its business.
It is expected that the maximum cash sum to be paid to RAB shareholders under the possible Buyout would be GBP27.0 million, given the statements of intent from Continuing Directors to elect to receive shares in NewCo as described above. It is expected that the cash consideration will be funded out of surplus cash within RAB.
Future of RAB
The Board believes that the best chance of stabilising RAB is to delist from AIM. This will eliminate the administrative and regulatory overhead of the listing which will reduce costs and continuing disclosure requirements, and it will also allow the Company to pursue a more flexible strategy regarding the investment of surplus capital. Significant restructuring will be required, which will reduce the operational base of the Company substantially.
RAB is presently engaged in discussions with a third party for the possible sale of the investment management agreements for the RAB Energy Fund and the RAB Octane Fund. RAB has signed a letter of intent in respect of a possible transaction and is working towards signing a binding agreement before the end of June.
The Board does not anticipate that this transaction will raise material proceeds for the Company; however, assuming it goes ahead, RAB’s business will then comprise the management of the following funds:
- RAB Special Situations Fund
- The RAB Global Mining and Resources strategy (which is offered to investors both as a Cayman Company and in UCITS form)
- The RAB Europe strategy (including the Polaris Prime Europe Fund and the RAB Prime Europe UCITS Fund)
- RAB European Credit Opportunities Fund
After 1 October 2011 the value of third party assets in these funds is expected to be less than USD200 million, based on the current value of the funds.
The business will continue to hold significant investments in some of these funds and may hold other direct investments, which will continue to be subject to movements in the market, therefore exposing the Company to potentially significant capital gains and losses.
Following completion of the buyout, the Continuing Directors’ objective will be to stabilise the business over the near term and to manage the remaining strategies with the intention of safeguarding the position of the remaining investors in RAB funds. Whilst this may not lead to immediate financial benefits for NewCo shareholders, the Continuing Directors believe that this should leave RAB in a position to benefit from opportunities which may arise in the future to maximise the value of the remaining business. The success of this strategy is impossible to predict and it may, or may not, ultimately produce a return for NewCo shareholders. The Continuing Directors believe that, whilst this is an appropriate strategy for a private company controlled by shareholders who participate in the business, it may not be appropriate for others as shareholder returns and dividends are impossible to forecast.
This reduced scale and scope of business will require a significantly reduced operational base. Notwithstanding the anticipated reduction in overheads, the Continuing Directors consider that it is unlikely that RAB’s prospects will improve in the near term without a material improvement in investment returns within the funds in which RAB is invested, or a significant inflow of funds from one or more new partners and/or investors.
As stated above, whether or not the Scheme becomes effective, the Board has resolved that application should be made to the London Stock Exchange for cancellation of trading in RAB Shares on AIM, provided that RAB shareholders pass the requisite special resolution at a general meeting to be convened, inter alia, to approve the Scheme and the delisting.
Expected timetable
The Continuing Directors and the Independent Directors hope to be in a position to announce formal terms of the Proposals within a matter of weeks, following which a circular containing further details of the proposed delisting, Buyout and Scheme will be despatched to RAB shareholders (“Scheme Circular”). The Scheme Circular will include notices of the Court Meeting and a general meeting, together with the anticipated timetable, and will specify the necessary actions to be taken by RAB shareholders.
General
The Proposals will be governed by the laws of England and Wales and will be subject to the applicable requirements of the Code, the Takeover Panel and the London Stock Exchange.
This announcement is being made with the consent of the Continuing Directors.
Rule 2.10 disclosure
In accordance with Rule 2.10 of the Code, RAB confirms that it has 469,368,135 issued ordinary shares of GBP0.001 each of the Company admitted to trading on AIM with an International Securities Identification Number (ISIN) of GB0034367325.
This is an announcement falling under Rule 2.4 of the City Code on Takeovers and Mergers (the “Code”). It does not constitute an announcement of a firm intention to make an offer under Rule 2.5 of the Code. Accordingly, there can be no certainty that any offer will be made even if the pre-conditions are satisfied.
