AAIG Albion. Vct

 
TIDMAAIG 
 
 
   JOINT ANNOUNCEMENT 
 
   ALBION TECHNOLOGY & GENERAL VCT PLC ("AATG") 
 
   ALBION INCOME & GROWTH VCT PLC ("AAIG") 
 
   10 OCTOBER 2013 
 
   RECOMMENDED PROPOSALS TO MERGE AATG AND AAIG (TO BE COMPLETED PURSUANT 
TO A SCHEME OF RECONSTRUCTION UNDER SECTION 110 OF THE INSOLVENCY ACT 
1986) AND RELATED MATTERS 
 
   SUMMARY 
 
   The boards of AATG and AAIG announced on 8 August 2013 that they had 
agreed in principle to merge the companies. Both boards are pleased to 
advise that discussions have now concluded and circulars are being 
despatched to convene shareholder meetings to approve the scheme.  Both 
companies are managed by Albion Ventures LLP ("Albion"). 
 
   The merger is expected to deliver cost savings and benefits to both sets 
of shareholders and will, if effected, result in an enlarged company 
("Enlarged Company") with net assets of over GBP60 million. 
 
   BACKGROUND 
 
   AATG (formerly Close Technology & General VCT PLC) was launched in 
December 2000 and raised funds through the issue of ordinary shares. 
AATG subsequently raised further funds through an issue of C shares in 
2006. The C shares were merged with the ordinary shares in 2011, 
resulting in the AATG Shares now in issue. 
 
   As at 30 June 2013, AATG had unaudited net assets of GBP36.2 million 
(84.6 pence per AATG Share) and venture capital investments in 42 
companies with a carrying value of GBP34.2 million. The unaudited net 
asset value total return per AATG Share to AATG shareholders as at 30 
June 2013 for every GBP1 invested at launch was 158.1 pence (in respect 
of the AATG Shares) and 86.9 pence (in respect of the former C shares), 
excluding the dividend of 2.5 pence per AATG Share to be paid on 31 
October 2013. 
 
   AAIG (formerly Close Income & Growth VCT PLC) was launched in August 
2004. As at 30 June 2013, AAIG had unaudited net assets of GBP28.6 
million (65.3 pence per AAIG Share) and venture capital investments in 
38 companies with a carrying value of GBP26.3 million. The unaudited net 
asset value total return per AAIG Share to AAIG shareholders as at 30 
June 2013 for every GBP1 invested at launch was 92.0 pence. 
 
   Both of the companies have essentially the same investment policy, with 
the overall aim of providing investors with a regular and predictable 
source of dividend income combined with the prospect of long term 
capital growth. As a result, the venture capital investments which are 
common across the companies' respective portfolios represented 
approximately 92.9 per cent. of the aggregate value of the venture 
capital investments of the combined portfolio as at 30 June 2013 (36 out 
of 44 in respect of the number of venture capital investments across the 
combined portfolio). The boards believe that the difference in 
performance of the companies is largely attributable to the point in the 
economic cycle when investments were made. 
 
   VCTs are required to be listed on a European Union/European Economic 
Area regulated market. The companies are, therefore, listed on the 
premium segment of the Official List, which involves a significant level 
of listing costs as well as related fees to ensure they comply with all 
relevant legislation. A larger VCT should be better placed to spread 
such running costs across a larger asset base and, as a result, may be 
able to maximise investment opportunities and pay a higher level of 
dividends to shareholders over its life. 
 
   In September 2004, regulations were introduced allowing VCTs to be 
acquired by, or merge with, each other without prejudicing the VCT tax 
reliefs obtained by their shareholders. A number of VCTs (including 
other VCTs managed by Albion) have taken advantage of these regulations 
to create larger VCTs for economic and administration efficiencies. 
 
   With the above in mind, the two boards and Albion entered into 
discussions to consider a merger of the companies to create a single, 
larger VCT. The aim of the boards is to create a more stable and 
resilient base for providing long-term returns to shareholders and to 
achieve benefits and reductions in the annual running costs for both 
sets of shareholders. 
 
   Following detailed consideration of the portfolios, the financial 
position of the companies and the principles on which any merger should 
be effected, the boards have reached agreement to put proposals to their 
respective shareholders to merge the companies. 
 
   THE MERGER PURSUANT TO THE SCHEME 
 
   The mechanism by which the merger will be completed is as follows: 
 
 
   -- AAIG will be placed into members' voluntary liquidation pursuant to a 
      scheme of reconstruction under Section 110 of the Insolvency Act 1986; 
      and 
 
 
   -- all of the assets and liabilities of AAIG will be transferred to AATG in 
      consideration for the issue of new AATG Shares (which will be issued 
      directly to AAIG shareholders) ("the Scheme"). 
 
 
   The merger will be completed on a relative net asset value basis, 
adjusted for merger costs. The merger is conditional upon the approval 
by the shareholders of both companies of resolutions to be proposed at 
their respective general meetings (as further detailed below) and 
certain other conditions being satisfied (as further set out in the 
circulars being posted to shareholders). 
 
   The merger will result in the creation of an enlarged company and should 
result in savings in running costs and simpler administration. As both 
companies have essentially the same investment policy, investment 
manager and other main advisers, this is achievable without major 
additional cost or disruption to the companies and their combined 
portfolio of investments. 
 
   The boards consider that this merger will bring a number of benefits to 
both groups of shareholders through: 
 
 
   -- participation in a more substantial VCT with assets of over GBP60 million, 
      resulting in a more stable and resilient base for providing long-term 
      returns for shareholders; 
 
   -- amalgamation of the companies' portfolios, which are substantially the 
      same, for efficient management and administration and a reduction in 
      annual running costs for the Enlarged Company compared to the total 
      annual running costs of the separate companies; 
 
   -- enhancing the potential for the Enlarged Company to raise new funds, as 
      well as pay dividends and support buybacks in the future, whilst 
      potentially increasing liquidity for shareholders; and 
 
   -- consolidating the shareholdings for the substantial number of 
      shareholders who have holdings in both companies. 
 
 
   In support of the proposals, Albion has agreed, subject to the merger 
becoming effective, to reduce AATG's annual running costs cap from an 
amount equal to 3.5 per cent. of the net assets of AATG to an amount 
equal to 3 per cent. of the net assets of the Enlarged Company. In 
addition, the changes to the VCT investment limits and size test, in 
particular the removal of the GBP1 million per annum investment limit 
per VCT in an investee company (effective for investments made on or 
after 6 April 2012), reduces the need for co-investment between sister 
VCTs to participate in larger investments. 
 
   Normal annual running costs for AATG and AAIG are approximately 
GBP1,116,000 and GBP928,000 respectively (GBP2,044,000 in aggregate). 
Normal running costs means the annual expenses incurred in the ordinary 
course of business including investment management and administration 
fees, directors' remuneration, listing fees and normal fees payable to 
service providers. It does not include exceptional items, for example 
merger costs or performance fees if earned. These annual costs represent 
approximately 3.1 per cent. of AATG's unaudited net assets and 3.2 per 
cent. of AAIG's unaudited net assets, in each case as at 30 June 2013. 
 
   The aggregate anticipated cost of undertaking the merger is 
approximately GBP325,000, including VAT, legal and professional fees, 
stamp duty and the costs of winding up AAIG. The costs of the merger 
will be split proportionately between the companies by reference to 
their respective merger net assets at the calculation date (ignoring 
merger costs). 
 
   On the assumption that the net assets of the Enlarged Company will 
remain the same immediately after the merger, annual cost savings for 
the Enlarged Company are estimated to be approximately GBP182,000 per 
annum (this represents a saving of GBP83,000 in respect of directors' 
fees, GBP62,000 for registrars, auditors and tax compliance fees, with 
the balance of the savings being made up of regulatory fees, insurance 
and printing costs and general day-to-day expenses). The expected annual 
cost saving of GBP182,000 would represent 0.3 per cent. of the expected 
net assets of the Enlarged Company. On this basis, and assuming that no 
new funds are raised or investments realised to meet annual costs, the 
boards believe that the costs of the merger would be recovered within 22 
months. 
 
   The boards believe that the Scheme provides an efficient way of merging 
the companies with a lower level of costs compared with other merger 
routes. Although either of the companies could have acquired all of the 
assets and liabilities of the other, AATG was selected as the acquirer 
because of its larger size, which would result in a lower amount of 
stamp duty compared with AAIG being the acquiring VCT. The merger by way 
of the Scheme will be outside the provisions of the City Code on 
Takeovers and Mergers. 
 
   ILLUSTRATIVE TERMS 
 
   As an illustration, had the merger been completed on 30 June 2013, every 
AAIG Share in issue would effectively have been exchanged for 0.7947 new 
AATG Shares (taking into account share buybacks in the companies between 
30 June 2013 and 9 October 2013 and the dividend of 2.5 pence per AATG 
Share to be paid by AATG on 31 October 2013). The actual merger ratio 
will be calculated based on the relative net asset values of the 
companies (adjusted for merger costs) immediately prior to the effective 
date of the merger (expected to be 15 November 2013) on the calculation 
date (this being 14 November 2013). 
 
   THE AATG BOARD 
 
   The AATG board has four non-executive directors: Dr Neil Cross 
(Chairman), Lt Gen Sir Edmund Burton, Modwenna Rees-Mogg and Patrick 
Reeve. The AAIG board also has four non-executive directors: Friedrich 
Ternofsky (Chairman), Robin Archibald, Mary Anne Cordeiro and Patrick 
Reeve. 
 
   The boards have considered what the size and future composition of the 
Enlarged Company's board should be following the merger and it has been 
agreed that to facilitate the merger Lt Gen Sir Edmund Burton will step 
down as a director of AATG and that Robin Archibald and Mary Anne 
Cordeiro (directors of AAIG) will be appointed as directors of AATG. 
Albion has agreed, subject to the merger becoming effective, that no 
fees will be charged going forward for the services of Patrick Reeve as 
a director of AATG. This will result in reducing the aggregate number of 
directors from seven across both companies to five for the Enlarged 
Company, of which only four will be paid, with an aggregate annual cost 
saving of approximately GBP83,000 (inclusive of National Insurance and 
VAT). 
 
   On the assumption that the merger is approved, each board would like to 
take the opportunity to thank Lt Gen Sir Edmund Burton and Friedrich 
Ternofsky for their considerable commitment and guidance to their 
respective VCT over the years. 
 
   ANNUAL INVESTMENT MANAGEMENT AND ADMINISTRATION ARRANGEMENTS 
 
   Albion is the investment manager of AATG and of AAIG and also provides 
administration services to both companies. 
 
   Albion will continue to provide annual investment management and 
administration services to the Enlarged Company following the merger on 
the same basis as is currently in place with AATG, save that Albion has 
agreed, subject to the merger becoming effective, to reduce the annual 
running costs cap to an amount equal to 3 per cent. of the net assets of 
the Enlarged Company. 
 
   REVISED PERFORMANCE INCENTIVE ARRANGEMENT 
 
   The boards have reviewed AATG's management performance incentive 
arrangements in light of the proposed merger, VCT market practice and 
performance to date, and proposes, subject to the approval of AATG 
Shareholders, to introduce a revised arrangement, which both reduces the 
hurdle and reduces the proportion of the excess performance that is 
payable to Albion. In their review, the boards took account of Albion's 
agreement to reduce the annual running costs cap to an amount equal to 3 
per cent. of the net assets of the Enlarged Company, from the current 
cap of 3.5 per cent. of net assets. 
 
   It is proposed that (i) the amount of the performance incentive fees be 
reduced, from 20 per cent. currently, to 15 per cent. of the amount by 
which the net asset value and aggregate dividends exceed 100 pence per 
share as increased by the hurdle and (ii) the hurdle be amended to RPI 
plus 2 per cent. per annum (uncompounded) from the date of first 
admission to the Official List of the relevant class of share. Any such 
amount would be reduced by previous performance incentive fees paid. 
 
   The aim of the proposed revised performance incentive arrangement is to 
adjust the hurdle to a more realistic level and one which is more 
consistent with VCT market practice, whilst still retaining the 
principle that Albion should only be rewarded if shareholders have 
experienced satisfactory returns since launch. Importantly, investment 
performance would still have to improve by some considerable margin 
before any fees would be paid. This reflects the confidence of the 
boards and Albion in the longer term prospects for the portfolio of AATG 
or, as the case may be, the Enlarged Company. 
 
   If the merger is effected but AATG shareholders do not approve the 
revised arrangements, AATG will continue with the existing performance 
incentive arrangement. If the merger is not effected but AATG 
shareholders approve the revised arrangements, the revised arrangements 
will apply to the existing capital of AATG. 
 
   The Company's investment manager is Albion and it is, therefore, 
considered to be a related party to the Company pursuant to the Listing 
Rules. Albion is one of the largest independent venture capital 
investors in the UK, managing approximately GBP230 million across seven 
VCTs. 
 
   EXPECTED TIMETABLE 
 
 
 
 
AATG general meeting                                              10.00 a.m. 4 
                                                                 November 2013 
AAIG general meeting                                              11.30 a.m. 4 
                                                                 November 2013 
AAIG register of members closed                               14 November 2013 
Calculation date for the Scheme                                   5.00 p.m. 14 
                                                                 November 2013 
Suspension of listing of AAIG shares                              7.30 a.m. 15 
                                                                 November 2013 
AAIG second general meeting                                      10.00 a.m. 15 
                                                                 November 2013 
Effective date for the transfer of assets and liabilities     15 November 2013 
 of AAIG to AATG and issue of new AATG Shares 
Announcement of results of the meetings and completion        15 November 2013 
 of the Scheme (if applicable) 
Admission of and dealings in the new AATG Shares issued       18 November 2013 
 pursuant to the Scheme to commence 
CREST accounts credited with new AATG Shares                  18 November 2013 
Certificates for new AATG Shares dispatched                   22 November 2013 
Cancellation of the AAIG share listing                            8.00 a.m. 13 
                                                                 December 2013 
 
 
   DOCUMENTS AND APPROVALS 
 
   AATG shareholders will receive a copy of a circular convening the AATG 
general meeting to be held on 4 November 2013 (together with a 
personalised proxy card in respect of the AATG general meeting and, save 
in respect of AATG Shareholders with a registered address in an overseas 
jurisdiction, the AATG prospectus) at which AATG shareholders will be 
invited to approve resolutions in connection with the Scheme, amending 
the cap on directors' remuneration in the articles of association, 
approval of the related party transaction with Albion, the renewal and 
increase of the authority to issue and repurchase shares and cancelling 
reserves. 
 
   AAIG shareholders will receive a circular convening the AAIG first 
general meeting on 4 November 2013 and the AAIG second general meeting 
on 15 November 2013 (together with personalised proxy cards in respect 
of both AAIG general meetings and, save in respect of AAIG Shareholders 
with a registered address in an overseas jurisdiction, the AATG 
prospectus) at which AAIG shareholders will be invited to approve 
resolutions in connection with the Scheme. 
 
   Copies of the AATG prospectus and the circulars for AATG and AAIG have 
been submitted to the UK Listing Authority and will be shortly available 
for download both from Albion's website (www.albion-ventures.co.uk) and 
the national storage mechanism (www.morningstar.co.uk/uk/NSM). 
 
   Investment Manager, Administrator and Company Secretary for AATG and 
AAIG 
 
   Albion Ventures LLP 
 
   Patrick Reeve/Henry Stanford 
 
   Telephone: 0207 601 1850 
 
   Solicitors to AATG and AAIG 
 
   SGH Martineau LLP 
 
   Kavita Patel/Robert Newman 
 
   Telephone: 0800 763 2000 
 
   Sponsor to AATG 
 
   Howard Kennedy Corporate Services LLP 
 
   Keith Lassman 
 
   Telephone: 020 3350 3350 
 
   The directors and proposed directors of AATG accept responsibility for 
the information relating to AATG and its directors and proposed 
directors contained in this announcement. To the best of the knowledge 
and belief of such directors and proposed directors (who have taken all 
reasonable care to ensure that such is the case), the information 
relating to AATG and its directors and proposed 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 AAIG accept responsibility for the information relating 
to AAIG 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 AAIG and its directors contained in this document, 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. 
 
   SGH Martineau LLP is acting as legal adviser for AATG and AAIG and for 
no one else in connection with the matters described herein and will not 
be responsible to anyone other than AATG and AAIG for providing the 
protections afforded to clients of SGH Martineau LLP or for providing 
advice in relation to the matters described herein. 
 
   Howard Kennedy Corporate Services LLP, which is authorised and regulated 
in the United Kingdom by the Financial Conduct Authority, is acting as 
sponsor for AATG and no one else and will not be responsible to any 
other person for providing the protections afforded to customers of 
Howard Kennedy Corporate Services LLP or for providing advice in 
relation to any matters referred to herein. 
 
   This announcement is distributed by Thomson Reuters on behalf of Thomson 
Reuters clients. 
 
   The owner of this announcement warrants that: 
 
   (i) the releases contained herein are protected by copyright and other 
applicable laws; and 
 
   (ii) they are solely responsible for the content, accuracy and 
originality of the 
 
   information contained therein. 
 
   Source: Albion Income & Growth VCT PLC via Thomson Reuters ONE 
 
   HUG#1734748 
 
 
  http://www.closeventures.co.uk/ 
 

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