Dowgate has 13 staff including investment consultants providing
private client investment advice and stockbroking services from its
offices in Crawley. Its turnover for the year ended 31 December
2009 was GBP2.36 million and its loss before tax for that period
was GBP0.33 million. The consideration represents a small discount
to Dowgate's unaudited net assets as at 30 November 2010 which
amounted to approximately GBP941,000 after adjusting for a
pre-disposal dividend. The sale and purchase contract contains
certain warranties and indemnities which expire on various dates
between 31 December 2011 and 30 June 2012. Any claims under the
warranties and indemnities may only be made against the GBP225 000
deferred consideration referred to above, which will be held in an
escrow account.
The contract is conditional on an application being made and the
FSA granting consent for 3B Capital and Beavis Morgan LLP to
control Dowgate a Regulated Firm. Such consent has recently been
received and completion is expected to take place early next
week.
The effect of the disposal on Astaire was to increase its cash
balances and leave the Astaire Group with only one remaining
operating division - Rowan Dartington, The proceeds of the sale of
Dowgate will be retained to cover any potential liabilities in DCL
and any regulatory capital requirements which may arise at Rowan
Dartington pending its disposal.
5. Rowan Dartington
Rowan Dartington is a private client wealth management and
stockbroking business, headquartered in Bristol with 6 branch
offices. It provides a wide range of services including
discretionary portfolio management, execution-only share dealing,
spread betting and trading in specialised instruments such as CFDs
(contracts for differences). Rowan Dartington advises clients on
tax efficient investing. As well as dealing directly with private
clients, charities and pension funds, it has a dedicated team
providing investment management services to a network of
independent financial advisers for the benefit of their clients.
Settlement and nominee services are handled in-house.
As previously disclosed, Rowan Dartington suffered from
shortcomings in a back office system, which led to substantial
remediation costs and a GBP511,000 fine from the Financial Services
Authority announced on 7 June 2010 and a provision of GBP1.04
million in respect of potentially irrecoverable debtor balances.
Although no clients lost money as a result of this, remedial action
relating to internal record keeping as well as the system failures
have taken their toll on management and staff morale as well as
having a financial impact. Above all, Rowan Dartington is a
"relationship business" dependent on the rapport between front
office staff and clients and this led to the Astaire Group Board
favouring an offer with the strongest support from key revenue
generating personnel as being the most likely to be capable of
reaching a satisfactory conclusion and give long term value to
Shareholders, even though it does not result in any initial cash
consideration being received.
Rowan Dartington had discretionary managed portfolios with a
value of approximately GBP227 million as at 31 December 2010 and
holds further securities registered in its nominee accounts on
behalf of other clients. Its turnover, losses and assets as at the
dates shown were:-
Year ended Year ended Year ended
31 Dec 2008 31 Dec 2009 31 Dec 2010
(audited) (audited) (draft & unaudited)
GBP'000 GBP'000 GBP'000
--------------- ------------- ------------- ---------------------
Turnover 5,880 6,147 6,469
--------------- ------------- ------------- ---------------------
Pre tax loss 1,361 2,319 1,092
--------------- ------------- ------------- ---------------------
Net assets at
year end 3,971 1,664 1,617
--------------- ------------- ------------- ---------------------
Over the last 12 months, efforts have been made to reduce
operating costs such that apart from exceptional costs including
the recently notified additional FSCS levy of approximately
GBP250,000. Rowan Dartington is currently operating at or around
break-even level. The Astaire Group Board believes there is
significant scope for improvement in Rowan Dartington's performance
under its new direction and ownership following the sale. This is
expected to be achieved by the appointment of a Chief Executive who
is a significant shareholder in the new ownership structure of the
business, a reincentivised employee pool, additional capital and
the ability to recruit new account managers who bring new clients
to the company. The incentive arrangements for employees comprise
the investment of GBP200,000 for loan notes and up to 15% of the
issued share capital of the purchaser, Rowan Dartington Holdings
Limited ("RDH"). A further GBP600,000 of working capital is being
put in by a consortium of private investors led by Graham
Coxell.
6. Terms of the proposed Sale
RDH is a new company formed to buy Rowan Dartington, will,
subject to certain conditions, acquire 100 per cent. of the issued
share capital of Rowan Dartington. Key terms of the proposed sale
documentation are set out below:
-- The consideration will comprise GBP1,000,000 in loan notes
issued by RDH and shares in RDH representing 30% of its equity
share capital. No cash consideration will be payable on
completion;
-- The remaining 70% of RDH will be owned by a consortium of
private investors led by Graham Coxell and existing staff of RD who
will collectively invest GBP800,000 in RDH loan notes to provide
the business with working capital going forward;
-- The RDH loan notes are zero coupon and are repayable on the
fifth anniversary of completion or, if earlier, a sale of RDH or
Rowan Dartington;
-- Rowan Dartington's regulatory capital level will be tested at
completion and Astaire will make a payment to RDH if it is below an
agreed target level of GBP1,300,000;
-- Additional consideration of up to GBP1,000,000 in cash is
payable to Astaire should Rowan Dartington locate any of the
irrecoverable debtor balances prior to 30 June 2011;
-- On completion, Astaire will pay approximately GBP650,000 in
cash into an escrow account. This will be used to fund the purchase
of certain Isambard investments. The investments purchased will be
transferred into the name of Astaire;
-- In the event that a specified contingent liability
crystalises within RD and Astaire elects to fund the cash costs of
this, Astaire has the right to subscribe GBP100,000 in cash for a
further GBP200,000 in loan notes
-- The completion of the Sale is subject to (i) the approval of
Astaire Group Shareholders at the General Meeting (ii) the passing
of a resolution approving the Sale at a general meeting convened by
Evolve and (iii) the granting of controller consent by the FSA to
RDH and its controlling shareholders;
-- Astaire has given certain warranties and indemnities,
including a tax indemnity, effective for a period of between three
and five years to RDH. Liability under these is capped at
GBP1,000,000 and Astaire can elect to satisfy any claim by giving
up RDH loan notes on the basis of GBP2 in loan notes for each GBP1
of claim and, should the RDH loan note be fully cancelled or
transferred, by giving up its equity stake in RDH on the basis of
0.3% of RD Newco for each GBP5,000 of claim. Thus, should it
choose, Astaire can satisfy its maximum liability under the
warranties and indemnities without making further cash
payments;
-- Astaire has also given a non-compete and non-solicitation of
staff undertaking for three years following completion;
-- Astaire and the other RDH shareholders will enter into a
shareholders' agreement. Under this agreement and RDH's articles of
association;
-- Astaire will have the right to appoint a director to the
board of RDH and to receive certain financial information to
monitor its investment in RDH;
-- Astaire will have certain minority protection rights;
-- Astaire will have certain pre-emption rights on the issue of
new shares or other securities by RDH;
-- Astaire agrees not to hold any interest in any competing
business or solicit employees of Rowan Dartington while it remains
a shareholder in RDH .
7. Effect of the sale on Astaire Group and Investing Policy
On completion of the Sale (and subject to completion of the
Dowgate disposal), Astaire Group will no longer consolidate any
trading companies. Astaire Group's assets following the Sale are
estimated to comprise approximately GBP930,000 in cash (including
approximately GBP400,000 held within DCS, which would leave the
Group on completion of that sale), its investment in CS Holdings,
which (as explained above) holds a further GBP3 million in cash
pending payment of legal fees and resolution of the litigation plus
a further GBP362,000 (net) due under the Astaire Securities sale
escrow arrangements and options / warrants in a number of quoted
companies, the preference shares and loan stock referred to in
paragraph 6 above and some other investments (including the
Isambard investments referred to above) that may not be readily
realisable. Astaire Group's assets would also be increased by the
successful completion of the sale of DCS by GBP675,000 (before
expenses) and the further GBP225,000 held in escrow. The Astaire
Group Board considers it inappropriate to invest the cash held by
CS Holdings in anything other than low risk bank deposits and
liquid money market instruments pending the outcome of the
litigation.
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