TIDMAPI
RNS Number : 1776F
API Group PLC
18 February 2015
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART
IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A
VIOLATION OF THE RELEVANT LAWS OF THAT JURISDICTION
18 February 2015
API Group plc ("API" or the "Company")
Publication of a circular to shareholders in response to the
unsolicited cash offer for the Company by Cedar 2015 Limited
("Cedar")
The Independent Board of the Company (comprising Mr. Andrew
Turner and Mr. Andrew Walker (the "Independent Board")) confirms
that it has today posted a circular to shareholders (and, for
information only, to persons with information rights and
participants in the API Share Plans) setting out the Independent
Board's response to the offer document posted by Cedar on 4
February 2015 in relation to its unsolicited cash offer for the
Company (the "Circular"). The text of the letter from the Interim
Chairman of the Company (set out in full within the Circular) is
reproduced below.
Documents published on the website
Copies of the Circular will be available, subject to certain
restrictions relating to persons resident in restricted
jurisdictions, on the Company's website at http://www.apigroup.com/
by no later than 12 noon (London time) on 19 February 2015.
The Independent Board is also announcing that, in accordance
with Rule 26.3 of the Code, the Company's website has been updated
to include the written consent of Numis Securities Limited to the
inclusion in the Circular of its name in the form and context in
which it appears
Terms and expressions used in this announcement shall, unless
the context otherwise requires, have the same meanings as given to
them in the Circular.
Letter from Mr. Andrew Turner, Interim Chairman of API Group
plc
To API Shareholders and, for information only, to persons with
information rights and participants in the API
Share Plans
Dear API Group Shareholder,
Response to Unsolicited Offer
1. Introduction
On 22 January 2015, Cedar Bidco, an indirect subsidiary of
Steel, announced its firm intention (pursuant to Rule 2.7 of the
Code) to make a cash offer of 60 pence per API Share to acquire the
entire issued and to be issued ordinary share capital of API not
already owned by Steel and its subsidiary undertakings. Full terms
and conditions of the Offer were subsequently published by Cedar
Bidco on 5 February 2015.
The purpose of this letter is to set out the Independent Board's
view on the Offer and to explain the issues that the Independent
Board believes Shareholders should consider when deciding whether
or not to accept. Shareholders should read the Circular in its
entirety and not rely only on the matters set out in this paragraph
1 when making their assessment.
Prior to the announcement by Cedar Bidco on 22 January 2015,
there were no discussions relating to the Offer between Cedar Bidco
and the Board, nor between their respective advisers.
The Independent Board believes that the Offer, at its current
price, may not represent full value for the Company and the
potential returns for Shareholders which may be generated from the
Board's current plans for the business. On the other hand, the
Offer provides Shareholders with the opportunity for an immediate
and certain cash exit and, since Cedar Bidco has already secured
acceptances giving it 62 per cent. of the API Shares, the
alternative is to remain as minority Shareholders in a company
controlled by Cedar Bidco, which may subsequently be taken private
should Cedar Bidco acquire sufficient additional shares to carry a
special resolution cancelling API's admission to trading on
AIM.
Amongst the elements of value which the Offer may be failing to
recognise is the potential to rationalise the Group's foil
manufacturing operations in the US, reducing operating costs and
releasing land and property assets for disposal. The Independent
Board considers that an up-to-date valuation of the Rahway Property
may have a bearing on its overall view of the Offer price and could
influence the merits of the case for accepting or not accepting the
Offer. The Independent Board has, therefore, commissioned a
valuation report and is reserving its position on the merits of the
Offer until after that report has been received.
NO ACTION RECOMMENDED AT PRESENT:
In the circumstances, and having regard to the matters set out
in paragraph 5 of this letter, the Independent Board and Numis
cannot yet form a conclusive view as to whether or not the terms of
the Offer are fair and reasonable. Consequently, the Independent
Board does not believe that it is appropriate to provide
Shareholders with a definitive recommendation at this time and
therefore recommends that Shareholders take no action at
present.
The Independent Board intends to review its recommendation to
Shareholders in conjunction with the valuation report on the Rahway
Property, which it intends to publish as soon as possible.
In considering the Offer, Shareholders should have regard to
their personal circumstances and the matters set out in paragraph 5
of this letter. Shareholders should be aware that the Offer is
currently unconditional in all respects but remains open for
acceptance until further notice. As prescribed by the Code, under
Rule 31.2, Cedar Bidco must provide 14 days' notice before the
Offer is closed for acceptance and, pursuant to Rule 31.4 of the
Code, the earliest date when the Offer could be closed is 19 March
2015, provided such notice is given by Cedar Bidco on 5 March 2015
(being the First Closing Date).
In providing advice to the Independent Board, Numis has taken
into account the commercial assessment of the Independent
Board.
2. The Offer
Under the terms of the Offer, Shareholders are entitled to
receive:
for each API Share 60 pence in cash
valuing API's existing issued and to be issued ordinary share
capital at approximately GBP46 million.
Cedar Bidco announced on 9 February 2015 that the offer had
exceeded its acceptance condition of 62 per cent. and has been
declared unconditional in all respects. Cedar Bidco has stated that
the Offer will remain open for acceptance until further notice.
Pursuant to Rule 31.2 of the Code, Cedar Bidco must provide 14
days' notice before the Offer is closed for acceptance and pursuant
to Rule 31.4 of the Code, the earliest date when the Offer could be
closed is 1.00 pm (London time) on 19 March 2015, provided such
notice is given by Cedar Bidco on 5 March 2015 (being the First
Closing Date).
3. Information on API
API Group is a leading manufacturer and distributor of foils,
films and laminates used to enhance the visual appeal of products
and packaging and to help customers communicate brand values and
authenticity. API has a trading history going back over 90 years,
including more than 30 years as an independent, publicly traded
company.
API Group's global operations employ more than 500 people in
over 15 locations, dedicated to providing high quality, innovative
materials and solutions for use in a wide range of applications
including consumer packaging, printed media and secure
documents.
The Group has four operating divisions by which it reports its
financial and operating results: Laminates, Foils Europe, Foils
Americas and Holographics.
API foils, films and laminates are used to add metallic and
holographic finishes and effects to labels, cartons, containers and
closures for many of the world's leading consumer brands in premium
sectors such as alcoholic drinks, confectionary, tobacco,
perfumery, cosmetics and healthcare. Holographics provides a full
range of anti-counterfeit solutions for the protection of branded
goods as well vouchers & tickets, ID documents, licences, tax
stamps, financial cards and currency.
4. Current trading and outlook
API announced its interim results for the six months to 30
September 2014 on 3 December 2014, when it was reported that
operating profits before exceptional items were down by 19.8 per
cent. compared to the prior year's interim results to GBP2.8
million on revenues 0.9 per cent. lower at GBP56.4 million. Results
were impacted by a decline in demand for metallic pigment product
at Foils Americas, a market segment which had grown strongly over
the previous three years. This decline more than offset the
progress made in eliminating prior year losses at Holographics.
The Board's outlook statement released along with the interim
results stated that the Group was so far experiencing tough trading
conditions in the second half, with the outlook for profits for the
financial year as a whole down on previous expectations. Progress
at Foils Europe was being held back by sluggish markets on the
Continent and the benefit from a slow recovery in metallic pigment
orders at Foils Americas was expected to be partly offset by a
seasonally weaker second half for graphics foils. Third quarter
sales at Holographics were expected to drop below breakeven level,
although there was the prospect for the shortfall to be recovered
in the final quarter with the start-up of shipments on two new
supply contracts. It was reported that Laminates was continuing to
experience strong order levels on established supply agreements;
although the impact on profits was expected to be diluted by a less
favourable sales mix.
In the ensuing two months, the Group has continued to face tough
trading conditions, such that the outlook for the full year is now
at the lower end of the Independent Board's range of
expectations.
Beyond the current financial year, the recovery in US metallic
pigment volumes is expected to continue and both the US and
European foils businesses should benefit from recent new product
launches and investments in new, more efficient capacity and
additional technical capabilities. Based on new equipment, there is
also the opportunity for in-sourcing certain requirements currently
bought from third party suppliers. Holographics results are
expected to benefit from the full year impact of the
recently-acquired supply contracts and Laminates is aiming to at
least sustain its already strong trading performance, underpinned
by the re-pricing of a key product line which has adversely
impacted margins during the last twelve months. Considering the
opportunities for improvement, the Independent Board has a good
level of confidence in the Group's plan to deliver on its
expectations for the financial year ending 31 March 2016.
5. Arguments for and against accepting the Offer
The Independent Board sets out the following matters, which they
believe, having been so advised by Numis,
Shareholders might wish to consider when deciding whether or not
to accept the Offer. In providing advice to API, Numis has relied
upon the commercial assessment of the Independent Board.
5.1 Arguments for accepting the Offer
The Offer represents a premium of 27.7 per cent. to the closing
price of 47 pence per API Share on 21 January 2015 (the day prior
to the announcement of Cedar Bidco's offer) and a premium of 22.6
per cent. to the average Closing Price over the three month period
ended 21 January 2015. The Offer, therefore, presents Shareholders
with a near term opportunity for a cash exit at a premium to the
prevailing share price and a release from the risks and
uncertainties that have affected, and may continue to affect, the
value and marketability of API Shares.
As described in paragraph 4 above, trading has been weak in the
current financial year and interim results to
30 September 2014 were significantly below those achieved in the
previous two six month periods. Whilst the
Independent Board expects an improvement in trading conditions
in the year ahead, there is no guarantee that this will be
achieved. By the nature of the business in which the Group is
engaged, visibility of future revenues is limited and the
performance of Laminates, Holographics and Foils Americas depend to
a large extent on the decisions and fortunes of a limited number of
key customers over which the Group has limited influence. Foils
Europe will continue to face challenges associated with the
economic stagnation in the Eurozone and any operational or
strategic improvements initiated by management carry a degree of
execution risk. Longer term, Laminates may come under pressure from
regulatory developments affecting its most important market sector,
tobacco. Whilst the recent decision of the UK government to
introduce standardised packaging of cigarettes has limited direct
impact, the adoption of standardised packaging in additional
jurisdictions would reduce Laminates' future addressable market and
could materially damage the profitability of that division.
API was subject to a formal sale process, between 26 September
2012 and 13 February 2013 following the publication of open letters
from Steel and Wynnefield, proposing that an auction be initiated
with the aim of securing a general offer for the Group. In due
course, the Directors received a number of indicative proposals and
potential acquirers were provided with access to management and
detailed due diligence information. However, the process was
terminated when the Directors concluded that there was little
prospect of securing a price which would be sufficiently attractive
to Shareholders. Of particular relevance is the Independent Board's
belief that the price required to secure a sale would likely have
been below the value of the current Offer. The Independent Board
believes that a significant factor which prevented the formal sale
process from delivering best value for Shareholders was the Group's
UK defined benefit pension liability. At current valuation levels,
pension obligations impose practical limitations on certain types
of corporate transaction and consequently reduce the range of
potential buyers which might find the acquisition of API
attractive. Since the cessation of the formal sale process, with
the exception of the Offer, there has been no substantive approach
on behalf of any other potential party wishing to instigate
discussions with a view to making an offer for API.
The Offer has met the acceptance condition stated by Cedar Bidco
in the Offer Document and has become unconditional in all respects.
Shareholders retaining their stake will find themselves to be
investors in a company controlled by a single shareholder with a
stake of at least 62 per cent. Without recourse to other
Shareholders, Cedar Bidco will be able to propose and pass any
ordinary resolution at a legally constituted general meeting of the
Company, allowing it to determine the membership of the board of
directors, and through board appointments (and subject always to
the directors' obligations to act in accordance with the Companies
Act), potentially the strategy and operation of the Group, as well
as the Company's policy on dividend payments. It is possible that
Cedar Bidco's strategy and policies may differ from the Board's
current intentions and its priorities may be at variance with other
Shareholders who, even acting collectively, will have limited scope
for influencing the affairs of API by the exercise of their voting
rights.
Furthermore, Cedar Bidco may gain control over more than 75 per
cent. of voting rights of the Company as a result of the Offer, or
may do so at some point in the future as a result of further API
Share acquisitions which, having already secured majority control,
would not then trigger an obligation to make a general offer for
the remaining Shares. A stake of 75 per cent. would enable Cedar
Bidco to propose and pass special resolutions, including a
resolution to cancel the admission of API Shares to trading on AIM.
In its Offer Document, Cedar Bidco has indicated its intention to
take API private should it be successful in acquiring the requisite
share of voting rights.
The Independent Board believes that any further concentration of
the Shareholder base is likely to reduce the liquidity and
marketability of API Shares. Once the Offer is concluded, even if
the Company's Shares continue to be traded on AIM, the market price
may return to its pre-Offer level or below and there is no
guarantee that Shareholders will have another opportunity to sell
at or above the current Offer price in the near future or at all.
In addition, if API's admission to trading on AIM were cancelled,
notwithstanding that certain Shareholders may then be compelled to
sell their API Shares, there would almost certainly be a further
reduction in liquidity and minority shareholders would also lose
the benefit of the regulatory protection afforded to them under the
AIM Rules.
5.2 Arguments against accepting the Offer
Whilst the Offer represents a premium to the closing price
immediately prior to the announcement on 21 January 2015, the Offer
price is at a discount of 10.3 per cent. to the average price over
the prior 18 months. API's shares have had a closing price above
the Offer price on 382 of the 505 trading days between the
cessation of its formal sale process on 13 February 2013 and 21
January 2015. API's share price has been impacted by three
downgrades to API's trading outlook since 7 April 2014 and as a
consequence, immediately prior to the announcement of the Offer,
API's shares were trading at close to their lowest level in three
years.
As described in paragraph 4, the Independent Board expects an
improvement in the Group's trading performance in the year ahead,
including a partial recovery in sales to metallic pigment customers
in the US and the roll-through of new supply contracts at
Holographics. Longer term prospects should benefit from the
management focus and investment which has been applied towards
building competitiveness and resilience in the respective
businesses' market positions. Specific to Foils Europe, prospects
may be enhanced by a leading competitor's recent announcement of
the proposed closure of its sole European foils manufacturing
plant. This is likely to accentuate API Group's service advantage
from its integrated European supply chain.
Whilst the performance of Laminates has been consistent over
recent years, trading at the other three divisions has been subject
to considerable variability. With the successful execution of its
current strategies, the Independent Board would expect to see
greater consistency across the portfolio of businesses. If all four
divisions were to concurrently replicate their best performances
from the last three years, the Group's overall operating results
would be materially improved.
By the end of the current financial year, the Group expects to
have invested in excess of GBP15 million in fixed assets over a
three year period, more than double depreciation of approximately
GBP7 million. Significant capital projects include upgrading
Holographics' manufacturing facility and strengthening that
division's proposition in the security and authentication market,
the roll out of a new enterprise resource planning IT system and
major new equipment to increase production capacity in both the US
and UK Foils businesses. The Independent Board expects the benefits
from these investments to be realised in future years, driving
growth in sales and profitability.
In addition to potential improvements in the Group's operating
performance described above, there may be further value that is not
reflected in the Offer Price. Specifically, Foils Americas operates
from a 210,000 square foot manufacturing facility in Rahway, New
Jersey, located on 26.4 acres of freehold real estate, of which
approximately 16.4 acres is understood to be useable for
development purposes. The Directors have recently considered a plan
to consolidate US foil production at Foils Americas' other
manufacturing site in Lawrence, Kansas, which would enable the
Rahway Property to be vacated and sold. The Independent Board
believes that the net proceeds from the property sale may be
sufficient to fund the cash costs of relocating production,
including investment in new equipment and facilities in Lawrence.
Notwithstanding the complexity and execution risk involved, the
project should yield substantial savings in operating costs and
materially contribute to the Group's profit improvement objectives.
There may also be a cash surplus arising from the property sale,
especially if the land could be sold for residential development
purposes. The Independent Board does not believe that the Offer
reflects any substantial value upside from the potential US
manufacturing consolidation. In order to provide greater certainty
on this point, the Independent Board is seeking an up-to-date
valuation, the results of which it intends to publish as soon as it
is available.
6. The Independent Board's Views on the Effect of the
Implementation of the Offer on API's Interests,
Employees and Locations
The Code requires the Independent Board to give its views on the
effect of the Offer on API's interests, including, specifically,
employment, and its views on Cedar Bidco's strategic plans for API
and their likely repercussions on employment and the locations of
the Group's places of business. In fulfilling its obligations under
the Code, the Independent Board can only comment on the details
provided in the Offer Document.
The Independent Board notes that Cedar Bidco has declined to
outline any detailed or considered strategic plans
for API following completion of the Offer, save for its
intention to conduct an assessment of the medium and long term
prospects of each of API Group's four divisions together with
consideration of a site restructuring in the US which may involve
the consolidation of operations and the disposal of excess property
assets. It is stated that this review may take between three and
six months to complete and may impact on employment and the
location of API Group's places of business.
Given the lack of detail provided by Cedar Bidco, the
Independent Board is unable to comment on the effect of Cedar
Bidco's plans on API's interests.
7. Conclusion
The Independent Board believes that there are important
arguments for and against accepting the Offer, as set out above,
which Shareholders should consider carefully before making any
decision. In order to ensure that Shareholders are provided with
relevant and full information and the best possible advice from the
Independent Board, a valuation report has been commissioned in
respect of the Rahway Property. The results of this valuation will
be published as soon as possible, at which time the Independent
Board will reconsider whether a definitive recommendation should be
made to Shareholders.
Having regard to the matters set out in paragraph 5 of this
letter, the Independent Board and Numis cannot yet form a
conclusive view as to whether or not the terms of the Offer are
fair and reasonable. Consequently, the Independent Board does not
believe that it is appropriate to provide Shareholders with a
definitive recommendation at this time and therefore the
Independent Board recommends that Shareholders take no action at
present.
The Independent Board intends to review its recommendation to
Shareholders in conjunction with the publication of its valuation
report on the Rahway Property, which it intends to publish as soon
as possible.
In considering the Offer, Shareholders should have regard to
their personal circumstances and the matters set out in paragraph 5
of this letter. Shareholders should be aware that the Offer is
currently unconditional in all respects but remains open for
acceptance until further notice. As prescribed by the Code, under
Rule 31.2, Cedar Bidco must provide 14 days' notice before the
Offer is closed for acceptance and, pursuant to Rule 31.4 of the
Code, the earliest date when the Offer could be closed is 19 March
2015, provided such notice is given by Cedar Bidco on 5 March 2015
(being the First Closing Date).
In providing advice to the Independent Board, Numis has taken
into account the commercial assessment of the Independent
Board.
Yours sincerely
Andrew Turner
Interim Chairman of the Board of API Group Plc
For further information:
API Group plc
Andrew Turner, Group Chief Executive Tel: +44 (0)
1625 650 334
www.apigroup.com
Numis Securities (Financial
Adviser and Broker)
James Serjeant Tel: +44 (0)
Nick Westlake 20 7260 1000
Jamie Lillywhite www.numis.com
Cairn Financial Advisers (Nominated
Adviser)
Tony Rawlinson / Avi Robinson Tel: +44 (0)
20 7148 7900
www.cairnfin.com
Media enquiries:
Abchurch
Henry Harrison-Topham / Quincy Tel: +44 (0)
Allan 20 7398 7710
quincy.allan@abchurch-group.com www.abchurch-group.com
Important information
Numis Securities Limited, which is authorised and regulated in
the United Kingdom by the Financial Conduct Authority, is acting
exclusively for API and no one else in connection with the Offer
and this Announcement and will not be responsible to anyone other
than API for providing the protections afforded to clients of Numis
Securities Limited nor for providing advice in connection with the
Offer or any matter referred to herein.
Cairn Financial Advisers, which is authorised and regulated in
the United Kingdom by the Financial Conduct Authority, is acting
exclusively for API and no one else in connection with the Offer
and this Announcement and will not be responsible to anyone other
than API for providing the protections afforded to clients of Cairn
Financial Advisers nor for providing advice in connection with the
Offer or any matter referred to herein.
This Announcement has been prepared for the purpose of complying
with English law and the City Code on Takeovers and Mergers and the
information disclosed may not be the same as that which would have
been disclosed if this Announcement had been prepared in accordance
with the laws of jurisdictions outside the United Kingdom.
Notice to overseas shareholders
The ability of API shareholders who are not resident in and
citizens of the United Kingdom to accept the Offer (if made) may be
affected by the laws of the relevant jurisdictions in which they
are located or of which they are citizens. Persons who are not
resident in the United Kingdom should inform themselves of, and
observe, any applicable legal or regulatory requirements of their
jurisdictions.
The release, publication or distribution of this announcement in
jurisdictions other than in the United Kingdom may be restricted by
law and therefore any persons who are subject to the laws of any
jurisdiction other than the United Kingdom should inform themselves
about, and observe, any applicable requirements.
Copies of this announcement will not be, and must not be, mailed
or otherwise forwarded, distributed or sent in, into or from any
jurisdiction where the publication or distribution of such
documentation is restricted. Persons receiving this announcement
(including, without limitation, custodians, nominees and trustees)
must not distribute, mail or send it in or into any jurisdiction
where the publication or distribution of such documentation is
restricted.
Publication on website & hard copies
A copy of this Announcement will be made available, free of
charge subject to certain restrictions relating to persons resident
in Restricted Jurisdictions, at http://www.apigroup.com by no later
than 12 noon (London time) on the Business Day following the date
of this Announcement.
Neither the content of the website referred to in this
Announcement nor the content of any websites accessible from
hyperlinks on the Company's websites (or any other websites) is
incorporated into, or forms part of, this Announcement.
You may request a hard copy of this announcement by contacting
Company Secretary, Claire Chadwick, on +44 (0) 1625 650 570. You
may also request that all future documents, announcements and
information in relation to the Offer be sent to you in hard copy
form by contacting Company Secretary, Claire Chadwick, on +44 (0)
1625 650 570.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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