TIDMMCHL
RNS Number : 0101J
Mouchel Group plc
01 August 2012
Mouchel Group plc - Announcement of Restructuring
The Board of Mouchel Group plc ("Mouchel" or the "Company"), the
infrastructure and business services group, announces that
following a period of negotiations with its Lenders, it has agreed
a restructuring of the Company, which will place the business on a
firm financial footing for the future. This will be achieved by
implementing a Debt for Equity Swap and amending the terms relating
to the Company's outstanding debt facilities.
As previously communicated to Shareholders, on 29 March 2012 and
11 June 2012, in light of the unsustainable levels of debt on the
Company's balance sheet, the restructuring options under
consideration would have resulted in limited value for
Shareholders. In reaching this agreement with its Lenders on the
terms of the Restructuring, the Board has sought to ensure that
Shareholders have the opportunity to recover some value from their
investment. Accordingly, Shareholders will be entitled to receive a
special dividend of 1 pence per Ordinary Share following, and
conditional upon, completion of the Restructuring. Following
payment of the special dividend, shares entitled to the special
dividend will be repurchased by the Company, for which Shareholders
will receive no further payment.
Over the past six months, the Board has explored extensively
various potential means of addressing the Company's current
financial position. The Board believes that the Restructuring is
the best available means of preserving the Group's business,
including safeguarding its existing customer contracts and job
security for more than 8,000 employees, and represents the only
viable and deliverable option for delivering value to Shareholders.
The Restructuring, achieved with the support of the Company's
Lenders - RBS, Lloyds Banking Group and Barclays - will enable
Mouchel to continue with business as usual.
Under the terms of the Restructuring, the Debt for Equity Swap
will comprise the Lenders together releasing GBP87 million of the
Group's existing debt liabilities for a majority interest in the
Company. This will leave the Company with GBP60 million of
outstanding debt, a level the Board believes appropriate for a
company of Mouchel's size and prospects. Mouchel is currently
dependent upon the support of its Lenders and a default is expected
under the terms of its existing borrowings on 30 August 2012 unless
it restructures its existing borrowings. The Board believes that
the Restructuring will provide a sustainable capital structure for
Mouchel to operate its business. Though the underlying business is
performing broadly in line with management expectations,
performance in the current year continues to be impacted by the
financial uncertainty surrounding the Group and associated costs
involved in the operational restructuring of the business.
The Board believes there are good opportunities across both
divisions, Mouchel Infrastructure Services and Mouchel Business
Services. Whilst the Board believes that Mouchel is stable and has
a strong underlying business, an appropriate and sustainable level
of debt financing will greatly improve its perception in the
marketplace and with its customers and suppliers. In addition, the
significantly reduced interest payments resulting from the
Restructuring should contribute positively to the Company's
earnings and cash flow and enable the business to move forward with
renewed vigour.
The Restructuring is subject to the approval of Shareholders at
the General Meeting to be held on 24 August 2012. Assuming that
Shareholders vote in favour of the Restructuring, the proposal will
result in the Delisting of Mouchel, which is expected to take
effect on 25 September 2012. Following the Delisting, the
Restructuring will complete.
Commenting on the restructuring, David Shearer, Mouchel's
Chairman said:
"As previously communicated to shareholders, our unsustainable
debt levels meant the restructuring options under consideration
would have resulted in limited value for shareholders. In reaching
this agreement with our lenders, we have sought to ensure that our
shareholders have the opportunity to recover some value from their
investment. The restructuring ensures we will have an appropriate
level of debt and the right capital structure to take the Company
forward."
Commenting on the restructuring, Grant Rumbles, Mouchel's Chief
Executive said:
"We are pleased to announce today the terms of our financial
restructuring, creating a stable platform for the long term future
of Mouchel.
Given the circumstances, we believe the restructuring represents
the best possible outcome for all of our stakeholders, safeguarding
our existing customer and supplier contracts and preserving job
security for Mouchel's employees.
Throughout this challenging period, we have continued to work
with our customers, suppliers, employees and other key stakeholders
to implement our strategic actions and we are encouraged by the
progress made. With the continued support of our lenders, we now
look to take Mouchel forward from here as a privately-owned
company."
This press release should be read in conjunction with the full
text of this announcement. A copy of the Circular containing the
Notice of General Meeting will be posted to Shareholders later
today and a copy will also be made available on the Company's
website: www.mouchel.com.
For further information please contact:
Mouchel Group plc
Grant Rumbles, Chief Executive
Rod Harris, Group Finance Director
01483 731731
Brunswick Group
Mike Smith / Aideen Lee / Azhar Khan
020 7404 5959
Introduction
The Company today announces that the Group has agreed with its
Lenders the terms of the proposed Restructuring. The Restructuring
will comprise the following steps, all of which are
interconditional and subject to the approval of Shareholders at the
General Meeting to be held on 24 August 2012:
-- the release by the Lenders of MFL's obligations in relation
to the Underperforming Debt and the Restructuring Fee in
consideration for the issue of MFL Shares;
-- the transfer by the Lenders of the MFL Shares to the Company,
together with the release and cancellation of the Existing
Warrants, in consideration for the issue to the Lenders of A
Shares;
-- the reclassification of the Ordinary Shares into Deferred C
Shares (with very limited economic rights and no voting
rights);
-- the cancellation by the Company of the admission to listing
on the Official List and to trading on the London Stock Exchange's
main market for listed securities of its shares;
-- the waiver by the Independent Shareholders of the mandatory
offer requirements of Rule 9 of the Takeover Code;
-- the implementation of a new management incentive programme,
involving the issue of MIP Shares; and
-- the adoption of the New Articles (containing, amongst other
things, the share rights attaching to the A Shares, the MIP Shares
and the Deferred Shares).
Following, and conditional upon, completion of the
Restructuring, it is proposed that the Company pay a special
dividend to Shareholders of 1 pence per Ordinary Share. As soon as
reasonably practicable following completion of the Restructuring,
the Company intends to repurchase the Deferred C Shares for a de
minimis consideration of, in aggregate, 1 pence.
As part of the Restructuring, the Company will also refinance
the facilities provided under the Existing Facilities
Agreement.
Having explored extensively various potential means of
addressing the Company's current financial situation, including
raising third party equity investment, the Board has concluded
that, given the Company's current financial position and with the
volatile and uncertain conditions currently affecting the global
equity markets, raising sufficient equity investment is not
possible. Therefore, the Board believes that the Restructuring is
the best available means of preserving the Group's business,
including safeguarding its existing customer contracts and job
security for more than 8,000 employees, and represents the only
viable and deliverable option for delivering any value to
Shareholders. The Board has received confirmation from the Lenders
that, if Shareholders do not approve the Restructuring, the
continuing support of the Lenders (including in relation to certain
existing waivers under the Existing Facilities Agreement) would be
limited to supporting the Directors' decision to appoint an
insolvency practitioner with a view to effecting a sale of the
Group through an insolvency process, as the most effective way of
mitigating any further loss to the Company's creditors. In these
circumstances, the Board expects that the Group would be sold
either to a third party or parties or to a Lender-owned vehicle for
nominal cash consideration and/or for certain debt relief granted
by the Lenders to the Company. The Board believes that such a
transaction would result in Shareholders receiving no value for
their current shareholding. Consequently, the Board believes that
the Restructuring and the payment of the Special Dividend
represents the only realistic opportunity for Shareholders to
recover any value in return for their investment in the Company.
Whether the Restructuring is delivered via Shareholders approving
the Resolutions or via an insolvency process, the Directors believe
that the employment of the Group's employees and the position of
the Group's commercial counterparties will remain materially
unchanged with the intention that the business continues on a
business-as-usual basis.
This announcement should be read in conjunction with the
Circular, which outlines in full the background to and reasons for
the Restructuring and the Special Dividend and to explain why the
Board is seeking the requisite approvals from the Shareholders for
the Resolutions at the General Meeting.
Background to and Details of the Proposed Restructuring
Historic performance
Following the merger of Mouchel and Parkman in 2002, the Group
became a leading infrastructure services group. Since then, the
Group has successfully grown into a leading highways consultancy
business, a leading provider of local authority business process
outsourcing services and has a strong position supporting utility
providers. Between 2004 and 2009, the Group increased adjusted
earnings per share on average by 16 per cent. annually as the Group
benefitted from a strategy of focussing on UK public sector
outsourcing, together with expansion into support services in a
buoyant Middle East market. The Group also made two significant
acquisitions during that time:
-- in August 2007, the Group acquired HBS, a business process
outsourcing business, for GBP47.3 million net; and
-- in March 2008, Hedra, the management consultancy, was bought for GBP51 million.
Both of these acquisitions positioned the Group for the growing
number of opportunities available to the Group at the time, as the
public sector continued to accelerate outsourcing. Following the
cash outlays on these acquisitions, the Group was left with a
geared balance sheet, which was still prudent for the market
conditions at the time, particularly given the Group's extensive
order book. However, the subsequent integration of Hedra was more
complex than originally anticipated and coincided with a downturn
in the market for management consulting services in the public
sector, a trend which was exacerbated by the economic downturn and
the austerity measures that were implemented in the United Kingdom
following the publication of the CSR in October 2010.
Recent financial performance
The Group experienced a difficult year in FY2011, with Group
revenue falling by 14.7 per cent. (excluding exceptional items) and
underlying operating profit falling by 61.9 per cent. In H1 2012,
trading conditions remained challenging, with revenue essentially
flat and an underlying operating loss of GBP1.0 million.
To address these issues, the Directors have taken a number of
actions since the beginning of FY2011, including:
-- refinancing the Group's principal banking facilities in
January 2011, amending and restating them in November 2011 and
further amending them in March 2012;
-- disposing of the Group's rail and pipeline design businesses
to focus on the Group's core competencies;
-- installing a new chairman, Chief Executive and Group Finance Director;
-- implementing cost reduction programmes;
-- controlling capital expenditure;
-- right-sizing the Group's position in the Middle East and Management Consulting;
-- implementing a weekly cash forecast and review process; and
-- reorganising the Group's operating structure.
Despite these actions, trading conditions remain difficult and
the Group has undertaken a strategic review, under which further
steps are being implemented (such as simplifying the Group's
organisational and corporate structure and reducing overall costs).
The Group's currently over-leveraged balance sheet is restricting
the Company from competing effectively for, and winning, new
business. The Restructuring is fundamental to the implementation of
Mouchel's strategic review as it will result in a sustainable level
of debt from which the Group can deliver its operational plans for
the long-term viability of the business.
Current trading and performance
The Directors believe that the market in which the Group
operates in the United Kingdom is likely to remain flat in the
short term and do not envisage significant growth in the United
Kingdom market in the next 12 to 18 months.
Performance in the current year continues to be impacted by the
financial uncertainty surrounding the Group and associated costs
involved in the operational restructuring of the business. Apart
from the Middle East and management consulting operations, the
underlying business is performing broadly in line with management
expectations. However, a combination of the costs involved in the
Restructuring and one-off items relating to legacy issues
identified as part of the Restructuring will impact in the current
year.
The Directors further believe that the Group's underlying
business continues to be resilient despite the uncertainty around
its balance sheet. The Group's underlying divisions are generating
contribution margin in line with expectations and continue to make
progress toward the Group's divisional contribution target of above
10 per cent in the medium term. The Group has made improvements to
its working capital management and expects to be cash generative in
H2 2012 at an underlying business level before costs associated
with the Restructuring. In addition, in connection with the
Restructuring, management will make provisions for impairment on
goodwill and intangible assets to bring the carrying values of
those items into line with the new operational structure and
recognising the changes in the scale of the business.
The Directors believe there are good opportunities across each
division of Mouchel Infrastructure Services and Mouchel Business
Services.
Serious loss of capital
It has recently been brought to the attention of the Board that
the value of Mouchel's net assets are now less than half of its
called up share capital. It is a requirement of the Companies Act
that where the net assets of a public company are half or less of
its called up share capital, the directors must call a general
meeting of the company to consider whether any, and if so what,
steps should be taken to deal with the situation. Accordingly the
business to be conducted at the General Meeting will include
consideration of what, if any, such steps should be taken. If the
Restructuring is implemented, the Directors do not consider that
any additional action needs to be taken to address the serious loss
of capital.
Reasons for the Restructuring
In recent months, it became clear that a full refinancing of the
Group's Existing Lending Facilities would not be achievable and, in
light of the market developments described above, the Board
considered that it would be necessary to pursue the Restructuring
to give the Group a less-leveraged capital structure from which to
operate its business.
The Board has received confirmation from the Lenders that, for
so long as proposals regarding the Restructuring are being
considered by Shareholders, support from the Lenders is likely to
continue. However, the Group is currently dependent upon the
ongoing support of the Lenders to continue as a going concern and,
unless the Restructuring is approved by Shareholders, an event of
default under the Existing Facilities Agreement is expected to
arise on 30 August 2012. The Board has also received confirmation
from the Lenders that as the enterprise value of the Group is only
likely to deteriorate further given the impact that the current
over-leveraged balance sheet is having on the ability of the Group
to secure new contracts, if Shareholders do not approve the
Restructuring, the continuing support of the Lenders would be
limited to supporting the Directors' decision to appoint an
insolvency practitioner with a view to effecting a sale of the
Group through an insolvency process, as the most effective way of
mitigating any further loss to the Company's creditors.
It is therefore likely that, if Shareholders do not support the
Restructuring, full repayment of the Group's Existing Lending
Facilities will be required by the Lenders following the occurrence
of the event of default which is expected to arise on 30 August
2012. It is expected that an insolvency practitioner would be
appointed within a short period following the failure by
Shareholders to approve the Resolutions, subject to the Board
receiving appropriate advice to this effect and the finalisation of
the relevant transaction documents necessary to effect an
insolvency process. In these circumstances, the Board expects that
the Group would be sold either to a third party or parties or to a
Lender-owned vehicle for nominal cash consideration and/or for
certain debt relief granted by the Lenders to the Company. The
Board believes that such a transaction would result in Shareholders
receiving no value for their current shareholding. Whether the
Restructuring is delivered via Shareholders approving the
Resolutions or via an insolvency process, the Directors believe
that the employment of the Group's employees and the position of
the Group's commercial counterparties will remain materially
unchanged with the intention that the business continues on a
business-as-usual basis.
The Board has explored extensively various potential means of
addressing the Company's current financial situation, including
raising third party equity investment, and concluded that, given
the Company's current financial position and with the volatile and
uncertain conditions currently affecting the global equity markets,
raising sufficient equity investment is not possible. Therefore, in
light of the alternative outcome of an insolvency process described
above, the Board believes that the Restructuring is the best
available means of preserving the Group's business, including
safeguarding its existing customer contracts and job security for
more than 8,000 employees, and that the Restructuring and the
payment of the Special Dividend represent the only realistic
opportunity for Shareholders to recover any value in return for
their investment in the Company.
Change of Accounting Date
Conditional upon completion of the Restructuring, the Company
intends to change its financial reporting year end from 31 July to
30 September. This will enable Mouchel's next set of financial
statements, which will be for the 14 months to 30 September 2012,
to reflect the full impact of the Restructuring.
Terms of the Restructuring
Debt for Equity Swap and Amended Facilities Agreement
As the Company has previously reported, it has been engaged in
discussions with the Lenders concerning a restructuring of its
Existing Lending Facilities, currently comprising a term loan
facility in an aggregate amount equal to GBP128,920,500, a
multicurrency revolving credit facility and bonding facility in an
aggregate amount equal to GBP35,000,000, and a revolving credit
facility in an aggregate amount equal to GBP16,000,000. The Group
owed GBP169,998,693.54 (including the Restructuring Fee) under its
Existing Facilities Agreement as at 26 July 2012.
Following several months of negotiation with the Lenders, the
Directors have determined that the prevailing level of debt is
incompatible with the Company operating on a going concern basis
going forward.
The Company has reached agreement with the Lenders to
restructure the Existing Lending Facilities including, among other
things, by reducing the overall amount of the Group's indebtedness.
This will be done by effecting the Debt for Equity Swap and
amending the terms relating to the Company's remaining indebtedness
under the Existing Facilities Agreement. The Board believes this
will provide a more sustainable capital structure going
forward.
The Debt for Equity Swap will comprise (i) the release by the
Lenders of MFL's obligations in relation to the Underperforming
Debt in consideration for an issue of MFL Shares to the Lenders;
(ii) the waiver by the Lenders of MFL's obligations in relation to
the Restructuring Fee in consideration for an issue of MFL Shares
to the Lenders; (iii) the transfer to the Company by the Lenders of
the MFL Shares issued under (i) and (ii) above in consideration for
the issue of 7,999,998 A Shares to the Lenders; and (iv) the
release and cancellation of the Existing Warrants by Barclays and
RBS in consideration for the issue of 1 A Share to each of Barclays
and RBS, in each case as set out in the Transfer and Subscription
Agreement.
The Amended Lending Facilities will comprise a term loan
facility in an aggregate amount equal to GBP60,000,000 and a
multicurrency revolving credit facility and bonding facility in an
aggregate amount equal to GBP40,000,000.
Provided the Resolutions are passed, the Restructuring is
expected to become effective immediately following the Delisting
which is anticipated to occur at 8.00 a.m. on 25 September 2012. If
the Restructuring is not approved by Shareholders, the Group will
continue to be subject to the financial covenants and other
obligations contained in the Existing Facilities Agreement, which
are expected to be breached on 30 August 2012.
Special Dividend and Deferral
Acknowledging that Shareholders may have little incentive to
vote on the Resolutions while, at the same time, firmly believing
that the Restructuring is the best available means of preserving
the Group's business, including safeguarding its existing customer
contracts and job security for more than 8,000 employees, the Board
has agreed with the Lenders that a Special Dividend will be paid to
Shareholders in conjunction with the Restructuring. The Special
Dividend is conditional on all the Resolutions being passed and
will be paid to Shareholders as soon as possible, and in any event,
by no later than seven days, after completion of the Restructuring.
The Board has established that, on completion of the Restructuring,
the Company will have sufficient distributable reserves to pay a
special dividend of 1 pence per Ordinary Share, representing a cash
return to Shareholders of, in aggregate, approximately
GBP1,142,270.
The Lenders have agreed to the Special Dividend on the condition
that, in connection with the payment of the Special Dividend, the
Ordinary Shares are reclassified into Deferred C Shares. Following
the Deferral, Shareholders will no longer hold any ordinary shares
in the Company. The Deferred C Shares will have no voting rights
and very limited economic rights meaning that, in practice, they
have no economic value. Accordingly, Shareholders will cease to
have any meaningful interest in the Company following the Deferral.
On completion of the Restructuring, share certificates in respect
of the Ordinary Shares will cease to be valid and entitlements to
Ordinary Shares held within CREST will be cancelled. There will be
no share certificates issued or entitlements created within CREST
in respect of the Deferred C Shares. As soon as reasonably
practicable following completion of the Restructuring, the Company
intends to exercise its right (set out in the New Articles) to
repurchase all of the Deferred C Shares for a de minimis
consideration of, in aggregate, 1 pence. The Deferred C Shares will
then be cancelled.
The Board has concluded that the Special Dividend represents the
only realistic opportunity for Shareholders to recover some value
in return for their investment in the Company.
Goldman Sachs is satisfied that, upon completion of the
Restructuring, the Company will have sufficient resources available
to satisfy the payment of the Special Dividend.
Delisting
If the Restructuring is effected, the Company will no longer
comply with Listing Rule 9.2.15R, which requires an ongoing 25 per
cent. of the Company's shares to be in public hands in order for
the Company to maintain its listing on the Official List. However,
the Board believes that the improvement in the balance sheet
position of the Group as a result of the reduced debt levels
following the Restructuring is critical to the Company's ability to
continue as a going concern. The Delisting will also provide the
following benefits to the Company:
-- it will remove the ongoing compliance costs associated with
maintaining a listing on the Official List; and
-- it will remove the need for the Company to publicly announce
material events or transactions which the Board believes has in the
past had a negative impact on the trading environment for the
Group.
The Board considers that the Delisting is necessary in the
context of the Restructuring as a whole. As such, the approval of
Shareholders is sought to Delist the Company.
Under the Listing Rules, the Delisting can be effected by the
Company only after securing the approval of the holders of not less
than 75 per cent. of the Ordinary Shares who attend and vote at the
general meeting or by proxy, and the expiration of a period of not
less than 20 Business Days from the date of such Shareholder
approval. Subject to the approval of Shareholders, the Company will
apply to the UK Listing Authority and to the London Stock Exchange
for cancellation of admission of all Ordinary Shares to the
Official List and to trading on the London Stock Exchange's main
market for listed securities. The Delisting is then anticipated to
take effect from 8.00 a.m. on 25 September 2012, being not less
than 20 Business Days following the passing of Resolution 1 as
required by the Listing Rules.
Waiver of Rule 9 of the Takeover Code in relation to the
Restructuring
The Takeover Code is issued and administered by the Panel on
Takeovers and Mergers. The Takeover Code applies to all takeover
and merger transactions, however effected, where the offeree
company is, inter alia, a listed or unlisted company with its place
of central management in the United Kingdom. The Company is such a
company and shareholders are entitled to the protections afforded
by the Takeover Code.
The Restructuring gives rise to certain considerations under the
Takeover Code as a result of which the Company is required to seek
the approval of the Independent Shareholders to waive the mandatory
offer requirements of Rule 9 of the Takeover Code. The Lenders are
deemed by the Panel to be acting in concert for the purpose of the
Takeover Code.
Under Rule 9, any person who acquires an interest (as such term
is defined in the Takeover Code) in shares which, taken together
with the shares in which any person and persons acting in concert
(as such term is defined in the Takeover Code) with such person are
interested, carry 30 per cent. or more of the voting rights in a
company that is subject to the Takeover Code is normally required
to make a general offer to all of the remaining shareholders to
acquire their shares. Similarly, when any person, together with any
persons acting in concert with such person, is interested in shares
which in aggregate carry not less than 30 per cent. but does not
hold shares carrying more than 50 per cent. of the voting rights of
such a company, a general offer will normally be required if any
further interests in shares are acquired by such a person.
Immediately following implementation of the Restructuring, the
voting rights in the Company held by the Lenders will be divided
between the Lenders as follows: (i) RBS, 30.471 per cent., (ii)
Lloyds Banking Group, 26.87 per cent. and (iii) Barclays, 22.659
per cent. Following the Restructuring, RBS will therefore hold more
than 30 per cent. of the voting rights in the Company, and upon
operation of the 2012 MIP (further details of which are set out
below), Lloyds Banking Group could also hold more than 30 per cent.
of the voting rights in the Company. This would result in RBS being
obliged to make an offer for the Company pursuant to Rule 9 as a
result of the Restructuring, and Lloyds Banking Group potentially
being obliged to make an offer for the Company pursuant to Rule 9
as a result of the operation of the 2012 MIP. In addition, upon
completion of the Restructuring, the Lenders together will hold
more than 30 per cent. of the voting rights in the Company. The
Panel, has agreed, subject to the approval of Independent
Shareholders on a poll, to waive any obligations under Rule 9 on
the Lenders (or any of them) to make a mandatory offer for the
Ordinary Shares not already owned by them that would otherwise
arise as a result of the Restructuring (and, in future, in
connection with the operation of the 2012 MIP). This is known as
the "whitewash procedure".
If the Restructuring is implemented, the Lenders will together
hold more than 50 per cent. of the voting rights in the Company and
(for so long as they continue to be deemed by the Panel to be
acting in concert for the Purpose of the Takeover Code) may
accordingly increase their aggregate interests in shares in the
Company without incurring any obligation under Rule 9 to make a
general offer.
Similarly, if the Restructuring is implemented, RBS will and
Lloyds Banking Group could (depending on the operation of the 2012
MIP) each hold more than 30 per cent. but would not hold more than
50 per cent. of the voting rights in the Company and, in such
circumstances, any further increase (save in connection with the
operation of the 2012 MIP) in either RBS or Lloyds Banking Group's
interests in shares in the Company would be subject to the
provisions of Rule 9 and would require prior Panel consent.
Information on RBS
The Royal Bank of Scotland Group plc is the holding company of a
large global banking and financial services group (the "RBS
Group"). Headquartered in Edinburgh, the RBS Group operates in the
United Kingdom, the United States and internationally through its
two principal subsidiaries, The Royal Bank of Scotland plc ("RBS
plc") and National Westminster Bank Plc ("NatWest"). Both RBS plc
and NatWest are major UK clearing banks whose origins go back over
275 years. Globally, the RBS Group has a diversified customer base
and provides a wide range of products and services to personal,
commercial and large corporate and institutional customers.
Further information on the RBS Group's business activities is
available on the group's website at www.rbs.com.
Information on Lloyds Banking Group
Lloyds Banking Group plc, together with its subsidiaries, is a
leading UK-based financial services group providing a wide range of
banking and financial services, primarily in the UK, to personal
and corporate customers. Lloyds Banking Group's main business
activities are retail, commercial and corporate banking, general
insurance, and life, pensions and investment provision. Lloyds
Banking Group operates the UK's largest retail bank and has a large
and diversified customer base. Services are offered through a
number of well recognised brands including Lloyds TSB, Halifax,
Bank of Scotland, Scottish Widows, Clerical Medical and Cheltenham
& Gloucester, and a range of distribution channels including
the largest branch network in the UK.
Further information on Lloyds Banking Group's business
activities is available on the group's website at
www.lloydsbankinggroup.com.
Information on Barclays
Barclays PLC is the holding company of a major global banking
and financial services group of which Barclays Bank PLC is a
principal operating company. Barclays PLC, together with its
subsidiaries, is a major global financial services provider engaged
in personal banking, credit cards, corporate and investment banking
and wealth and investment management with an extensive
international presence in Europe, the Americas, Africa and
Asia.
Further information on Barclays' business activities is
available on the group's website at www.barclays.com.
Intentions of the Lenders
The relationship between the Lenders is only that they are,
individually, lenders to the Group providing debt facilities under
the terms of the Existing Facilities Agreement. Although each
Lender is a party to the Existing Facilities Agreement and the
Amendment and Restatement Agreement, each Lender operates as its
own independent entity in pursuit of its own interests. For the
purposes of complying with the Takeover Code, the Lenders have,
separately confirmed that they are not presently proposing any
changes with regard to the continued employment of the employees of
the Company or to the deployment of the fixed assets of the Group
and that their current intention, following completion of the
Restructuring, is that the business of the Company should continue
to be run in substantially the same manner as at present and in
line with the strategic review undertaken by the Company. For the
reasons stated above, it is not the intention to maintain the
existing trading facilities of the Ordinary Shares.
The Lenders have no current intentions to transfer the A Shares
following issue.
2012 MIP, Shareholders' Agreement and New Articles
The Company proposes to put in place a new management incentive
scheme, the 2012 MIP, in connection with the Restructuring, in
order to aid the retention and incentivisation of the MIP
Participants following completion of the Restructuring. The MIP
Participants will initially comprise David Shearer, Grant Rumbles
and Rodney Harris (being the Chairman, CEO and CFO of the Company,
respectively) and Craig Apsey, Phil Atkinson, Keith Jackson and
Michael Gates (being members of the Group's senior management team)
and the 2012 EBT. The 2012 MIP will align the MIP Participants'
interests with those of the Lenders, to enhance the equity value of
the share capital of the Company. The 2012 MIP terms have been
incorporated into the Shareholders' Agreement and the MIP
Subscription Agreement (which have been entered into as part of
(and conditional upon) the Restructuring) and into the New
Articles. The Independent Directors have approved the terms of the
2012 MIP, subject to the approval of Shareholders.
Pursuant to the terms of the 2012 MIP, the Company will issue in
aggregate 2,000,000 MIP Shares, to or on behalf of the MIP
Participants for cash consideration. The individual allocations
have been approved by the Independent Directors. MIP Shares issued
to the 2012 EBT will be available for future MIP Participants. Any
MIP Shares held by the 2012 EBT which have not been allocated
immediately prior to an Exit will be allocated by the 2012 EBT to
those existing MIP Participants who are employees of the Group in
accordance with a recommendation from the Company to the 2012 EBT
in such proportions and on such terms as may be determined by the
Remuneration Committee in its absolute discretion.
The MIP Shares will constitute a separate class of ordinary
shares and, under the terms of the New Articles, will be subject to
transfer restrictions, leaver provisions and drag-along and
tag-along provisions. The New Articles provide that any holder of
MIP Shares who leaves the Group must transfer some or all of his
MIP Shares and any MIP Shares held by his family members and other
permitted transferees to such person or persons as the Remuneration
Committee nominates. The price the relevant individual receives for
the MIP Shares, and the number of MIP Shares he is required to
transfer, will vary depending on the date and circumstances of his
departure.
The MIP Shares will be subject to a ratchet (the "Ratchet")
which will deliver the agreed participation of the MIP Shares in
the Company's equity value at an Exit. To deliver the requisite
value, a proportion of the MIP Shares will be converted into
Deferred B Shares, depending on the equity value achieved.
If at Exit the equity value of the Company is:
-- less than GBP86.2 million (representing c. GBP10 million
above the Underperforming Debt), the MIP Shares will, after
operation of the Ratchet, represent 5 per cent. of such equity
value;
-- equal to or more than GBP86.2 million but less than or equal
to GBP177.2 million (representing c. GBP24 million above two times
the Underperforming Debt), the MIP Shares will, after operation of
the Ratchet, receive 5 per cent. of the equity value up to GBP86.2
million and 10 per cent. of the equity value above GBP86.2 million;
and
-- more than GBP177.2 million, the MIP Shares will, after
operation of the Ratchet, receive 5 per cent. of the equity value
up to GBP86.2 million, 10 per cent. of the equity value up to
GBP177.2 million and 20 per cent. of the equity value above
GBP177.2 million.
In addition, the Company has reached agreement with the Lenders
to grant to the Investor Majority certain rights in relation to the
composition of the boards of directors of the Company and its
subsidiaries, and any committees of such boards, including a
standard list of reserved matters for the Investor Majority in
relation to certain business affairs of the Group. These rights are
set out in the Shareholders' Agreement and the New Articles.
The benefits available to MIP Participants under the 2012 MIP
will not be pensionable.
Awards under the Current Share Incentive Plans
As at 26 July 2012, awards are outstanding over, in aggregate,
approximately 5.6 million Ordinary Shares of the Company under the
Current Share Incentive Plans. This represents approximately 5 per
cent. of the Company's total issued ordinary share capital as at 26
July 2012.
The Restructuring will not have any effect on outstanding
awards, which will continue to subsist until they are exercised,
vest or lapse pursuant to the relevant plan rules.
All awards will vest or be exercised only if certain performance
conditions are satisfied and/or on payment by the employee of a
pre-determined exercise price. Given the recent financial
performance of the Company, it is unlikely that any applicable
performance conditions will be met with the result that awards
subject to such conditions will lapse (in most cases, during the
course of 2012). Similarly, given the recent fall in price of the
Ordinary Shares, the exercise price of any awards that are not
subject to a performance condition is likely to be significantly
above the market value of the Ordinary Shares and such awards are,
therefore, unlikely to be exercised. To ensure equal treatment for
participants in the Current Share Incentive Plans with the
treatment of Shareholders under the Restructuring, if a participant
does acquire Ordinary Shares in the Company on the vesting or
exercise of an award following completion of the Restructuring, the
New Articles provide that (i) they will be entitled to receive a
payment by or on behalf of the Company equal to 1 pence per
Ordinary Share and (ii) on issue, the Ordinary Shares will
automatically be reclassified into Deferred C Shares.
Following payment, it is intended that (subject to the Companies
Act) the Deferred C Shares will be immediately repurchased by or on
behalf of the Company for de minimis consideration and
cancelled.
Pensions
In connection with the negotiation of the Amended Lending
Facilities, the Company has reached agreement with the trustees of
its UK Defined Benefit Schemes under the Pensions Framework
Agreement, in order to provide greater certainty over future cash
flows, and in particular those costs which may arise from any
future increases in the funding deficit.
The Company received clearance from the Pensions Regulator on 30
July 2012 in relation to the agreement reached with the trustees of
the UK Defined Benefit Schemes. By granting clearance the Pensions
Regulator has confirmed that it will not exercise its
anti-avoidance powers in relation to the agreement reached with the
trustees and issue a contribution notice or a financial support
direction on the Company or the Directors, provided that the
circumstances described in the clearance application do not
materially differ from the actual circumstances.
General Meeting
The Circular containing the Notice of General Meeting, setting
out the Resolutions and convening the General Meeting to be held at
the offices of Freshfields Bruckhaus Deringer LLP, 65 Fleet Street,
London EC4Y 1HS at 10.00 a.m. on 24 August 2012 will be posted to
Shareholders later today.
If the Resolutions are passed by the Shareholders at the General
Meeting, the Restructuring is expected to become effective
immediately following the Delisting. It is anticipated that the
Delisting will occur at 8.00 a.m. on 25 September 2012.
Importance of the Resolutions
In the event that the Restructuring is not approved by
Shareholders, the Directors believe that the Group will remain in
compliance with the financial covenants contained in the Existing
Facilities Agreement only until 30 August 2012. On that date, the
Directors believe that the Group will be unable to demonstrate
compliance with the minimum EBITDA financial covenants under the
Existing Facilities Agreement, which will be tested by reference to
the period of 12 months ending on 31 July 2012. This would
constitute an event of default under the Existing Facilities
Agreement and would give the Lenders the right, but not the
obligation, to demand immediate repayment of all amounts due to
them, subject only to 66.6 per cent. of the Lenders (by value)
approving such action.
If such a right is exercised, the Company would need to find
alternative financing sufficient to fund the full repayment of the
Existing Lending Facilities. Having explored extensively other
financing and equity-based options, the Board believes that there
is no realistic prospect of such funds being available.
The Board has received confirmation from the Lenders that, for
so long as proposals regarding the Restructuring are being
considered by Shareholders, support from the Lenders is likely to
continue. The Board has also received confirmation from the Lenders
that, as the enterprise value of the Group is only likely to
deteriorate further given the impact the current over-leveraged
balance sheet is having on the ability of the Company to secure new
contracts, if Shareholders do not approve the Restructuring, the
continuing support of the Lenders (including in relation to certain
existing waivers under the Existing Facilities Agreement) would be
limited to supporting the Directors' decision to appoint an
insolvency practitioner with a view to effecting a sale of the
Group through an insolvency process, as the most effective way of
mitigating any further loss to the Company's creditors.
It is therefore likely that, if Shareholders do not approve the
Restructuring, full repayment of the Group's Existing Lending
Facilities will be required by the Lenders following the occurrence
of the event of default which is expected to arise on 30 August
2012. It is expected that an insolvency practitioner would be
appointed within a short period following the failure by
Shareholders to approve the Resolutions, subject to the Board
receiving appropriate advice to this effect and the finalisation of
the relevant transaction documents necessary to effect an
insolvency process. In these circumstances, the Board expects that
the Group would be sold either to a third party or parties or to a
Lender-owned vehicle for nominal cash consideration and/or for
certain debt relief granted by the Lenders to the Company. The
Board believes that such a transaction would result in Shareholders
receiving no value for their current shareholding.
The Directors consider the Delisting to be a necessary part of
the Restructuring, as the Restructuring will result in the Company
no longer being able to satisfy the requirements of Listing Rule
9.2.15R regarding the maintenance of a sufficient proportion of
shares in public hands.
In deciding whether or not to vote in favour of the Resolutions,
Shareholders should take into consideration, among other things,
(i) that the Company (and its subsidiaries) is currently dependent
upon the ongoing support of the Lenders to continue as a going
concern; (ii) the Lenders' confirmation of their support for the
Directors' decision to appoint an insolvency practitioner, should
Shareholders fail to approve the Resolutions; and (iii) that unless
the Restructuring is approved by Shareholders at the General
Meeting, an event of default under the Existing Facilities
Agreement is expected to arise on 30 August 2012. The Board has
explored extensively various potential means of addressing the
Company's current financial situation, including raising third
party equity investment, and concluded that, given the Company's
current financial position, and with the volatile and uncertain
conditions currently affecting the global equity markets, raising
sufficient equity investment is not possible. The Board believes
that the Restructuring is the best available means of preserving
the Group's business, including safeguarding its existing customer
contracts and job security for more than 8,000 employees and that
the Restructuring and the payment of the Special Dividend represent
the only realistic opportunity for Shareholders to recover any
value in return for their investment in the Company. Whether the
Restructuring is delivered via Shareholders approving the
Resolutions or via an insolvency process, the Directors further
believe that the employment of the Group's employees and the
position of the Group's commercial counterparties will remain
materially unchanged with the intention that the business continues
on a business-as-usual basis.
Recommendation
The three members of the Board who are MIP Participants (namely
David Shearer, Grant Rumbles and Rodney Harris) did not take part
in the Board's consideration of the opinions and the recommendation
set out below. For these purposes therefore, the opinions and
recommendation of the Board set out below are those of the
Independent Directors only.
The Board, who has been so advised by Goldman Sachs, considers
the proposals set out in the Resolutions to be fair and reasonable
and in the best interests of Shareholders as a whole.
In particular, the Board, who has been so advised by Goldman
Sachs, considers the terms of the 2012 MIP to be fair and
reasonable and in the best interests of Shareholders as a
whole.
The Board has received financial advice in respect of the
proposals set out in the Resolutions (including the 2012 MIP) from
Goldman Sachs who, in providing such advice, has performed its
customary financial analysis and has taken into account the
commercial assessments of, and the other advice received by, the
Board, including their conclusion that the Restructuring and the
Special Dividend represent the only realistic opportunity for
Shareholders to recover some value in return for their investment
in the Company.
Accordingly, the Board recommends that you vote in favour of the
Resolutions as they intend to do in respect of their own beneficial
holdings of, in aggregate, 65,760 Ordinary Shares, representing
approximately 0.0576 per cent of the Existing Issued Share
Capital.
Definitions
The following definitions apply throughout this announcement,
unless the context requires otherwise:
"2012 EBT" means the Mouchel Group Employee Benefit
Trust 2012;
"2012 MIP" means the new management incentive scheme
as described in this announcement;
"Amended Facilities means the Existing Facilities Agreement
Agreement" as amended and restated pursuant to the
Amendment and Restatement Agreement;
"Amended Lending means the facilities made available pursuant
Facilities" to the Amended Facilities Agreement;
"Amendment and means the amendment and restatement agreement
Restatement Agreement" pursuant to which the Existing Facilities
Agreement shall be amended and restated,
in order to, among other things amend
the terms relating to the Group's remaining
indebtedness;
"A Shares" means class A ordinary shares of 0.0001
pence each in the capital of the Company
having the rights set out in the New Articles;
"Barclays" means Barclays Bank PLC, with registered
address 1 Churchill Place, London E14
5HP, or the relevant member of its group;
"Business Days" means a day (other than a Saturday or
Sunday) on which banks are open for general
business in London;
"Chairman" means David Shearer;
"Circular" meaning the Company's circular setting
out details of the Restructuring dated
31 July 2012;
"Companies Act" means the Companies Act 2006;
"Company" means Mouchel Group plc, a public limited
company incorporated under the laws of
England and Wales;
"CREST" means the relevant system (as defined
in the CREST Regulations) for the paperless
settlement of trades in listed securities
in the United Kingdom, of which Euroclear
Limited is the operator (as defined in
the CREST Regulations);
"CSR" means the United Kingdom Government's
comprehensive spending review;
"Current Share means the Mouchel Group plc Performance
Incentive Plans" Share Plan; the Mouchel Group plc Sharesave
Plan; the Mouchel Group plc Restricted
Share Plan; the Mouchel Group plc Approved
Executive Share Option Plan; the Parkman
Approved Executive Share Option Plan;
and the Parkman Unapproved Share Option
Plan;
"Debt for Equity means (i) the release by the Lenders of
Swap" MFL's obligations in relation to the Underperforming
Debt in consideration for the issue of
MFL Shares to the Lenders; (ii) the waiver
by the Lenders of MFL's obligations in
relation to the Restructuring Fee in consideration
for the issue of MFL Shares to the Lenders;
(iii) the transfer to the Company by the
Lenders of the MFL Shares issued under
(i) and (ii) above in consideration for
the issue of 7,999,998 A Shares to the
Lenders; and (iv) the release and cancellation
of the Existing Warrants by Barclays and
RBS in consideration for the issue of
1 A Share to each of Barclays and RBS,
in each case as set out in the Transfer
and Subscription Agreement;
"Deferral" means the reclassification of Ordinary
Shares into Deferred C Shares upon completion
of the Restructuring;
"Deferred B Shares" means the class B deferred shares of 0.0001
pence each in the capital of the Company
having the rights set out in the New Articles;
"Deferred C Shares" means the class C deferred shares of 0.25
pence each in the capital of the Company
having the rights set out in the New Articles;
"Deferred Shares" means the Deferred B Shares and the Deferred
C Shares;
"Delisting" means the proposed cancellation of the
admission of the Ordinary Shares to the
Official List and to trading on the London
Stock Exchange's main market for listed
securities, and "Delist" shall be construed
accordingly
"Directors" or means the Chairman, the Executive Directors
"Board" and the Non-Executive Directors;
"Executive Directors" means Grant Rumbles and Rodney Harris;
"Existing Articles" means the articles of association of the
Company as at the date of this document;
"Existing Facilities means the GBP179,920,500 existing facilities
Agreement" agreement dated 26 January 2011, as amended
and restated on 29 November 2011 and as
further amended on 28 March 2012 and 31
July 2012 between, among others, the Company
and the Lenders;
"Existing Issued means the 114,226,989 ordinary shares
Share Capital" of 0.25 pence each in the capital of the
Company and in issue on 26 July 2012 being
the latest practicable date prior to the
publication of the Circular;
"Existing Lending means the facilities made available under
Facilities" the Existing Facilities Agreement;
"Existing Warrants" means the 3,708,201 Warrants outstanding
on 26 July 2012 being the latest practicable
date prior to the publication of this
document, 1,573,176 of which are held
by Barclays and 2,135,025 of which are
held by RBS
"Exit" means:
(a) a sale of the entire issued share
capital of the Company (other than to
another member of the Group);
(b) a disposal of all or substantially
all of the business and assets of the
Group (other than to another member of
the Group);
(c) the admission to listing on any recognised
investment exchange of any of the equity
shares in the Company or in any holding
company inserted for the purposes of such
an admission; or
(d) a winding up of the Company,
in each case either pursuant to one transaction
or a series of related transactions;
"Financial Services means the Financial Services Authority
Authority" acting in its capacity as the competent
authority for the purposes of Part VI
of FSMA;
"FSMA" means the Financial Services and Markets
Act 2000, as amended;
"FY2011" means the Company's financial year ended
31 July 2011;
"FY2012" means the Company's financial year ending
31 July 2012;
"General Meeting" means the general meeting of the Company
to be held at 10.00 a.m. on 24 August
2012, notice of which is set out at the
end of the Circular;
"Group" means the Company and its subsidiary undertakings
and, where the context requires, its associated
undertakings;
"H1 2012" means the first six months of FY2012,
beginning on 1 August 2011;
"H2 2012" means the second six months of FY2012,
beginning on 1 February 2012;
"Independent Directors" means Sir Michael Lyons, Seamus Keating
and Richard Rae;
"Independent Shareholders" means Shareholders, other than the Lenders
and the MIP Participants (to the extent
that they are Shareholders);
"Investor Majority" means the holders of 60 per cent. or more
of the A Shares in issue from time to
time;
"Lenders" means RBS, Barclays and Lloyds Banking
Group;
"Listed" means admitted to the Official List;
"Listing Rules" means the listing rules of the Financial
Services Authority;
"Lloyds Banking means Lloyds Banking Group plc, with registered
Group" address The Mound, Edinburgh EH1 1YZ,
or the relevant member of its group;
"London Stock Exchange" means the London Stock Exchange plc, a
public limited company incorporated under
the laws of England and Wales;
"MFL" means Mouchel Finance Limited, a private
limited company incorporated under the
laws of England and Wales and an indirect,
wholly-owned subsidiary of Mouchel;
"MFL Shares" means ordinary shares in the capital of
MFL;
"MIP Participants" means David Shearer, Grant Rumbles, Rodney
Harris, Craig Apsey, Phil Atkinson, Keith
Jackson, Michael Gates (being either directors
or members of the Group's senior management
team) and the 2012 EBT, and any other
persons to whom MIP Shares are issued
or transferred from time to time pursuant
to the 2012 MIP;
"MIP Shares" means class B ordinary shares of 0.0001
pence each in the capital of the Company
having the rights set out in the New Articles;
"MIP Subscription means the subscription agreement dated
Agreement" on or around the date of this document
between the Company, David Shearer, Grant
Rumbles, Rodney Harris, Craig Apsey, Phil
Atkinson, Keith Jackson, Michael Gates
and the 2012 EBT;
"Mouchel" means Mouchel Group plc, a public limited
company incorporated under the laws of
England and Wales;
"New Articles" means the proposed new articles of association
of the Company to be adopted upon completion
of the Restructuring;
"Non-Executive means Sir Michael Lyons, Seamus Keating
Directors" and Richard Rae;
"Notice of General means the notice of General Meeting set
Meeting" out at the end of the Circular;
"Official List" means the Official List of the Financial
Services Authority;
"Ordinary Shares" means ordinary shares of 0.25 pence each
in the capital of the Company having the
rights set out in the articles of association
of the Company as amended from time to
time (and which, for the avoidance of
doubt, does not include the A Shares or
the MIP Shares);
"Panel" means the Panel on Takeovers and Mergers;
"Pensions Framework means the pensions framework agreement
Agreement" dated on or around the date of this document
between the Pensions Trustee, the Company,
Mouchel Limited and Mouchel Business Services
Limited;
"Pensions Regulator" means the United Kingdom regulator of
work-based pension schemes;
"Pensions Trustee" means the trustee of the UK Defined Benefit
Scheme;
"Ratchet" has the meaning given to it in this announcement;
"RBS" means The Royal Bank of Scotland Group
plc, with registered address 36 St Andrew
Square, Edinburgh EH2 2YB, or the relevant
member of its group;
"Remuneration Committee" means the remuneration committee of the
Company from time to time;
"Resolutions" means the resolutions to be proposed at
the General Meeting which are set out
in the Circular;
"Restructuring" means the arrangements as described in
this document, other than the Special
Dividend, including, in particular the
Debt for Equity Swap and the coming into
effect of the Amendment and Restatement
Agreement;
"Restructuring the fee of GBP10,250,000 payable to the
Fee" Lenders by MFL on the earlier of completion
of the Restructuring and 31 July 2013;
"Rule 9" means Rule 9 of the Takeover Code;
"Shareholder" means a holder of Ordinary Shares from
time to time;
"Shareholders' means the shareholders' deed dated on
Agreement" or about the date of this document between
the Company, the Lenders, David Shearer,
Grant Rumbles, Rodney Harris, Craig Apsey,
Phil Atkinson, Keith Jackson, Michael
Gates and the 2012 EBT;
"Special Dividend" means the proposed special dividend of
1 pence per Ordinary Share as described
in this document;
"Sponsor" or "Goldman means Goldman Sachs International;
Sachs"
"Takeover Code" means the City Code on Takeovers and Mergers;
"Transfer and Subscription means the transfer and subscription agreement
Agreement" dated on or around the date of this document
between, among others, the Company, MFL,
the Lenders and The Royal Bank of Scotland
plc in its capacity as Facility Agent
under the Amended Facilities Agreement;
"UK Defined Benefit means the Mouchel Superannuation Fund,
Schemes" the Mouchel Staff Pension Scheme and the
Mouchel Business Services Limited Pension
Scheme (Final Salary Section);
"UK Listing Authority" means the Financial Services Authority
acting in its capacity as the competent
authority for the purpose of Part VI of
FSMA;
"Underperforming means a proportion of the outstanding
Debt" debt under the Existing Facilities Agreement,
equal to GBP76,620,500 on 26 July 2012;
"Warrant Instrument" means the warrant instrument dated 29
November 2011 and executed by the Company;
and
"Warrants" means the warrants issued by the Company
on 29 November 2011 pursuant to the terms
of the Warrant Instrument.
END
This information is provided by RNS
The company news service from the London Stock Exchange
END
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