CR2 Core Vct Ii

 

TIDMCR3 TIDMCR. TIDMCR2 
 
RNS Number : 8534T 
Core VCT III PLC 
12 June 2009 
 

JOINT ANNOUNCEMENT 
 
 
CORE VCT I PLC 
CORE VCT II PLC 
CORE VCT III PLC 
 
 
12 June 2009 
 
 
 
 
RECOMMENDED PROPOSALS FOR A MERGER BETWEEN CORE VCT I PLC ("VCT I"), CORE VCT II 
PLC ("VCT II") AND CORE VCT III PLC ("VCT III") (VCT I, VCT II AND VCT III 
TOGETHER THE "CORE VCTS") TO BE COMPLETED BY PLACING VCT I AND VCT II INTO 
MEMBERS' VOLUNTARY LIQUIDATIONS PURSUANT TO SECTION 110 OF THE INSOLVENCY ACT 
1986 AND THE TRANSFER BY VCT I AND VCT II OF ITS ASSETS AND LIABILITIES TO VCT 
III IN CONSIDERATION FOR NEW SHARES IN VCT III ("NEW VCT III SHARES") AND THE 
CANCELLATION OF THE LISTING OF THE VCT I SHARES ("VCT I SHARES") AND VCT II 
SHARES ("VCT II SHARES") 
 
 
SUMMARY 
 
 
The boards of the Core VCTs ("the Boards") announced on 20 April 2009 that 
agreement in principle had been reached for the merger of the three companies 
and that the Boards expected to be in a position to present a detailed proposal 
for consideration by Shareholders shortly. 
 
 
The Boards are pleased to now be able to put the proposals to the Core VCT 
shareholders for consideration. The proposals will, if effected, result in VCT I 
and VCT II being merged into VCT III, creating an enlarged company ("Enlarged 
Company") having net assets of approximately GBP37 million. 
 
 
Each of the Core VCTs has completed its initial three year investment period, 
and they have each invested above 70 per cent. of its assets in VCT qualifying 
investments in compliance with VCT legislation. Accordingly, there is no need to 
retain three separate listed vehicles and a merger is being recommended to 
achieve costs savings. 
 
 
The merger will result in a reduction in the annual running costs compared to 
the aggregate annual running costs of the three separate companies and will 
enable the Enlarged Company to pass this benefit on to shareholders through the 
ability to pay larger distributions in the future. In addition, the creation of 
a single VCT with a greater capital base should result in greater investment 
flexibility. 
 
 
The Core VCTs each have an innovative incentive structure for the investment 
manager, Core Capital LLP ("Core Capital"), which provides for no annual 
management fee and a 30 per cent. share in distributions above 60p per ordinary 
share, as more fully explained below. This incentive operates in materially the 
same way for each of the Core VCTs and, following the merger, will continue to 
do so for the Enlarged Company. 
 
 
Further, the Boards are pleased to be able to declare, conditional on the merger 
being effected, the payment of special dividends ("Special Dividends") referred 
to below. 
 
 
Meetings of the shareholders of each Core VCT are being convened to approve 
resolutions to effect the merger. VCT III will also take this opportunity to 
renew share issue and share repurchase authorities, amend its articles of 
association and cancel its share premium account. In addition, it is proposed 
that VCT III change its name to Core VCT plc, subject to the merger becoming 
effective. 
 
 
BACKGROUND 
 
 
VCT I was launched in 2004 with VCT II and VCT III being subsequently launched 
in 2005. Their objective was achieving long-term capital and income growth and 
to distribute tax-free dividends comprising realised gains and investors' 
capital investment, the policy being to maximise distributions. 
 
 
The investment approach has been to invest capital into management buy-outs and 
development capital in established private companies alongside each of the Core 
VCTs. This syndication has allowed the Core VCTs to access larger transactions 
than would otherwise have been the case had it invested independently 
 
 
As at 30 April 2009 VCT I had an unlisted investment portfolio with an aggregate 
value of GBP8.5 miilion and an unaudited net asset value of GBP9.9 million 
(90.9p per ordinary share ("VCT I Ordinary Share") and 1p per VCT I B Share 
("VCT I B Shares")). 
 
 
As at 30 April 2009, VCT II had an unlisted investment portfolio with an 
aggregate value of GBP13.2 million and an unaudited net asset value of GBP16.7 
million (101.5p per VCT II ordinary share ("VCT II Ordinary Share") and 0.01p 
per VCT II B share ("VCT II B Share")). 
 
 
As at 30 April 2009, VCT III had an unlisted investment portfolio with an 
aggregate value of GBP13.2 million and an unaudited net asset value of GBP16.6 
million (100.8p per VCT III ordinary share ("VCT III Ordinary Share") and 0.01p 
per VCT III B share ("VCT III B Share")). 
 
 
In order to comply with VCT regulations, a VCT is required to be listed on the 
Official List, which involves a significant level of cost in listing and related 
fees and in ensuring that the VCT complies with all relevant legislation. As a 
VCT becomes fully invested and starts to return capital through dividends, the 
running costs become a proportionally greater burden and may have an adverse 
effect on a VCT's return for its shareholders. A larger VCT is therefore better 
placed to absorb such running costs, and therefore able to pay a higher level of 
dividends to shareholders over its life. 
 
 
In September 2004, the Merger Regulations were introduced, allowing VCTs to be 
acquired by, or merge with, each other without prejudicing tax reliefs obtained 
by their shareholders. A number of VCTs have now taken advantage of these 
regulations to create larger VCTs where running costs can be spread over a 
substantially greater asset base. 
 
 
Following detailed consideration of the portfolio and financial position of each 
of the Core VCTs, the Boards have reached an agreement to merge the companies 
(subject to the conditions set out in the circulars to be sent to shareholders). 
The basis of the merger has been simplified significantly as all three Core VCTs 
are managed by Core Capital, have the same investment objectives and policies, 
have the same board and advisers and hold common investments. 
 
 
The Boards consider that this merger will bring significant benefits to all 
three groups of shareholders through: 
 
 
  *  a reduction in annual running costs for the Enlarged Company compared to the 
  aggregate annual running costs of the three separate companies; 
  *  creation of a single VCT of a more economically efficient size with a greater 
  capital base over which to spread administration and management costs; 
  *  each of the Core VCTs being able to pay the Special Dividends as a result of the 
  larger size and lower anticipated proportionate running costs of the Enlarged 
  Company; 
  *  the ability to pay larger distributions in the future due to the increased size 
  and the reduced proportionate running costs; and 
  *  the creation of a single VCT with a greater capital base resulting in an 
  increased flexibility in meeting the various requirements for qualifying VCT 
  status and providing greater investment flexibility. 
 
 
 
MERGER OF THE CORE VCTS 
 
 
The merger will result in the assets and liabilities of the VCT I and VCT II 
being transferred to VCT III in consideration for the issue of New VCT III 
Shares to the shareholders of VCT I and VCT II. The merger will be completed on 
a relative net asset value basis and will be subject to both the schemes of 
reconstruction becoming unconditional. 
 
 
The VCT I Ordinary Shares and VCT II Ordinary Shares will effectively be merged 
into the VCT III Ordinary Shares on a relative net asset basis. The number of 
new VCT III Ordinary Shares to be issued to the shareholders of VCT I and VCT II 
will be calculated by reference to the relative net asset values of the ordinary 
class of share in each company, such new VCT III Ordinary Shares allocable to 
each of VCT I and VCT II to be issued pro rata to the respective shareholdings 
in each of VCT I and VCT II. 
 
 
The VCT I B Shares and VCT II B Shares will effectively be merged into the VCT 
III B Shares by issuing new VCT III B Shares which will represent, together with 
the existing VCT III B Shares in issue, 40 per cent. of the Share capital of the 
Enlarged Company immediately following the issue of New VCT III Shares pursuant 
to the Schemes. The new VCT III B Shares will be issued between VCT I and VCT II 
proportionally by reference to the new VCT III Ordinary Shares allocable to 
their respective shareholders and then, in respect of VCT I, pro rata to 
holdings of VCT I B Shares and, in respect of VCT II, 75 per cent. to the 
Nominees and the balance pro rata to the other holdings of VCT II B Shares. 
 
 
Following the transfer, the listing of the VCT I Shares and VCT II Shares will 
be cancelled and VCT I and VCT II will be wound up. 
 
 
The Boards believe that the Schemes provide an efficient way of effecting a 
merger with an acceptable level of costs compared with other merger routes. 
Although any of the three companies could have acquired the assets and 
liabilities of the other, VCT III was selected as the acquirer because of its 
marginally greater size in relation to VCT I, (and, therefore, a lower stamp 
duty cost on the transfer of assets and liabilities from VCT I and VCT II). 
Shareholders should note that the merger will be outside the provisions of the 
City Code on Takeovers and Mergers. 
 
 
The merger of the three companies should result in cost savings and enhanced 
administrative efficiency. Due to their common features, this is achievable at a 
lower level of costs in terms of amalgamating the constitution of the boards and 
the investment and administrative arrangements of the three companies for the 
Enlarged Company. 
 
 
The aggregate anticipated cost of undertaking the merger by way of the Schemes 
is approximately GBP453,000, including VAT, legal and professional fees, stamp 
duty and the costs of winding up VCT I and VCT II. The costs of the merger by 
way of the Schemes will be split proportionally between the VCT I, VCT II and 
VCT III by reference to their respective unaudited adjusted NAVs in 30 April 
2009. Following completion of the merger by way of the Schemes, annual cost 
savings for the Enlarged Company of at least GBP187,000 per annum, representing 
0.5 per cent. per annum of the projected net assets of the Enlarged Company, are 
expected to be achieved. On this basis, the Board believes that the costs of the 
merger by way of the Schemes will be recovered within three years. 
 
 
CORE CAPITAL AND THE REVISED MANAGEMENT ARRANGEMENTS 
 
 
The Enlarged Company will continue to be managed by Core Capital. 
 
 
At the time of the launch of the Core VCTs, Core Capital was issued with such 
number of B shares so that it would receive 30 per cent. of distributions but 
only after the holders of ordinary shares have received their effective initial 
cost ("Effective Initial Cost") (60p when taking into account the initial 40 per 
cent. income tax relief received on the 100p paid per ordinary share) and 
subject to an amount equal to 5 per cent. per annum (compounded annually and 
calculated on a daily basis from the date of issue of the ordinary shares) on 
such part of the Effective Initial Cost that remains to be paid to the holders 
of Ordinary Shares being achieved. 
 
 
This was provided for in VCT II and VCT III by the B Shares representing 60 per 
cent. of the issued Share capital, 50 per cent. of which was issued to Core 
Capital (now held by the nominees). This mechanism was achieved in VCT I through 
the VCT I B Shares representing 40 per cent. of the issued share capital but 
with Core having been issued with 75 per cent. of the VCT I B Shares (now held 
by the nominees). 
 
 
This carried interest right in the Core VCTs will be combined for the Enlarged 
Company using the VCT I structure (ie the VCT III B Shares will, following the 
merger, represent 40 per cent. of the aggregate issued share capital, 75 per 
cent. of which will be attributable to Core Capital (through the holdings in the 
nominees)). 
 
 
As a result of the merger and to amalgamate the B share mechanisms from the 
three Core VCTs, adjustments will need to be made to the B share mechanism in 
VCT III. This will be achieved by adjusting the existing number of B shares in 
issue in VCT III so that it will represent VCT III's relevant proportion of B 
shares in the Enlarged Company following the merger and to achieve Core Capital 
(through its holding in the Nominees) holding 75 per cent. of this number of B 
shares. Whilst these adjustments may have the affect of marginally accelerating 
the potential date of receipt of the Investment Manager's incentive during the 
period of the equalisation payment, it will not affect the amount of the total 
payment once the hurdle rate has been fully achieved. 
 
 
SPECIAL DIVIDENDS 
 
 
The Boards are pleased to be able to declare, conditional on the merger being 
effected, the payment of Special Dividends of capital, as follows: 
 
 
+----------------+-------------------+ 
|                | Special Dividends | 
|                |                   | 
+----------------+-------------------+ 
|                |                   | 
+----------------+-------------------+ 
| VCT I          | 10p               | 
+----------------+-------------------+ 
| VCT II         | 12p               | 
+----------------+-------------------+ 
| VCT III        | 12p               | 
+----------------+-------------------+ 
 
 
such Special Dividends to be paid on 28 July 2009, to shareholders in the 
relevant company on the register on 15 July 2009. 
 
 
APPROVALS 
 
 
VCT III shareholders will receive a copy of a circular convening an 
extraordinary general meeting ("EGM") of VCT III, a VCT III Ordinary Share 
meeting and a VCT I B Share meeting, all to be held on 7 July 2009 (together 
with the VCT III prospectus) at which VCT III shareholders will be invited to 
approve resolutions in connection with the Schemes, to amend the articles of 
association, renew the authority to issue and repurchase shares, cancel the VCT 
III share premium account and change the name of VCT III to Core VCT plc. 
 
 
VCT I shareholders will also receive a circular convening the VCT I EGM 1 and 
the VCT I B Share meeting on 7 July 2009 and the VCT I EGM 2 on 16 July 2009 
(together with the VCT III prospectus) at which VCT I shareholders will be 
invited to approve resolutions in connection with the Schemes. 
 
 
VCT II shareholders will also receive a circular convening the VCT II EGM 1 and 
the VCT II B Share meeting on 7 July 2009 and the VCT II EGM 2 on 16 July 2009 
(together with the VCT III prospectus) at which VCT II shareholders will be 
invited to approve resolutions in connection with the Schemes. 
 
 
EXPECTED TIMETABLE 
 
 
VCT I EGM 1 
                3.30 p.m. on 7 July 2009 
VCT I B share class meeting 
          3.40 p.m. on 7 July 2009 
 
 
VCT II EGM 1 
                3.50 p.m. on 7 July 2009 
 
 
VCT II B share class meeting 
          4.00 p.m. on 7 July 2009 
 
 
VCT III EGM 1 
                4.10 p.m. on 7 July 2009 
 
 
VCT II ordinary share class meeting 
        4.20 p.m. on 7 July 2009 
 
 
VCT II B share class meeting 
          4.25 p.m. on 7 July 2009 
 
 
Record date for VCT I and VCT II shareholders' 
entitlements under the merger 
          15 July 2009 
 
 
Calculation date 
                 after 5.00 p.m. on 15 July 2009 
Suspension of listing of the VCT I and VCT II shares 
 7.30 a.m. on 16 July 2009 
VCT I EGM 2 
                9.00 a.m. on 16 July 2009 
 
 
VCT II EGM 2 
                9.10 a.m. on 16 July 2009 
 
 
Effective Date for transfer of assets and 
liabilities of VCT I and VCT II to VCT III and 
the issue of New VCT III Shares 
         16 July 2009 
 
 
Announcement of results of the Schemes 
  16 July 2009 
 
 
Cancellation of listing of the VCT I and VCT II shares 
  17 July 2009 
Admission of and dealings in New VCT III Shares 
to commence 
               17 July 2009 
 
 
Share certificates for the New VCT III Shares to be 
issued pursuant to the Schemes despatched 
28 July 2009 
 
 
Special Dividend payment date 
        28 July 2009 
 
 
DOCUMENTS 
 
 
Copies of the prospectus and the circulars for VCT I, VCT II and VCT III have 
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 Authority 
25 The North Colonnade 
Canary Wharf 
London E14 5HS 
Telephone: 020 7066 1000 
 
 
CONTACTS AND RESPONSIBILITY 
 
 
Investment Manager to the Core VCTs 
Core Capital LLP 
Stephen Edwards 
Telephone: 020 7317 0155 
 
 
Solicitors to the Core VCTs 
Martineau 
Kavita Patel 
Telephone: 0870 763 2000 
 
 
Sponsor to VCT III 
Howard Kennedy 
Keith Lassman 
Telephone: 020 7636 1616 
 
 
The directors of VCT I accept responsibility for the information relating to VCT 
I 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 I 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 II accept responsibility for the information relating to 
VCT II 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 II 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 III accept responsibility for the information relating to 
VCT III 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 III 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. 
 
 
Howard Kennedy, which is authorised and regulated in the United Kingdom by the 
Financial Services Authority, is acting exclusively for VCT III and for no one 
else in connection with the matters described herein, and will not be 
responsible to anyone other than VCT III for providing the protections afforded 
to customers of Howard Kennedy or for providing advice in relation to any 
matters referred to herein. 
 
 
Martineau are acting exclusively for VCT I, VCT II and VCT III and for no one 
else in connection with the matters described herein and will not be responsible 
to anyone other than VCT I, VCT II and VCT III for providing the protections 
afforded to clients of Martineau or for providing advice in relation to the 
matters described herein. 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
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