Merger Update


 
TIDMOPHX 
 
JOINT ANNOUNCEMENT 
 
OCTOPUS AIM VCT PLC ("AIM VCT") 
OCTOPUS PHOENIX VCT PLC ("PHOENIX VCT") 
 
9 JULY 2010 
 
RECOMMENDED PROPOSALS: 
 
      ·     TO RESTRUCTURE THE SHARE CAPITAL OF AIM VCT ("AIM VCT SHARE 
RESTRUCTURING"); 
 
      ·     TO MERGE AIM VCT AND PHOENIX VCT (TO BE COMPLETED PURSUANT TO SECTION 
110 OF THE INSOLVENCY ACT 1986 ("THE SCHEME"); 
 
      ·     FOR AN OFFER FOR SUBSCRIPTION TO RAISE UP TO  GBP10 MILLION IN AIM VCT 
("OFFER") 
 
 
 (THE AIM VCT SHARE RESTRUCTURING, THE SCHEME AND THE OFFER TOGETHER "THE 
PROPOSALS") 
 
SUMMARY 
 
The boards of AIM VCT and Phoenix VCT announced on 13 January 2010 that they 
were in preliminary discussions on terms for a merger of the two companies. 
Both boards are pleased to advise that discussions have concluded and they are 
today writing to set out the Proposals to their respective shareholders for 
consideration.  Both companies are managed by Octopus Investments Limited 
("Octopus"). 
 
The Proposals will, if approved, result in a restructuring of the share capital 
of AIM VCT, the merger of the companies and the fundraising by AIM VCT, creating 
an Enlarged Company with net assets of over  GBP40 million (assuming full 
subscription under the Offer). 
 
AIM VCT will complete the AIM VCT Share Restructuring to result in AIM VCT 
having a share capital of ordinary shares of 1p each ("New AIM VCT Shares"). 
The AIM VCT Restructuring is conditional on the approval of AIM VCT shareholders 
and will take place whether or not the merger is approved and becomes effective. 
 
The merger will then be effected by Phoenix VCT being placed into members' 
voluntary liquidation pursuant to a scheme of reconstruction under Section 110 
of the Insolvency Act 1986.  Shareholders should note that the merger by way of 
the Scheme will be outside the provisions of the City Code on Takeovers and 
Mergers.  The merger will be completed on a relative net asset basis (unaudited 
net assets as at close of business on the day immediately preceding the 
Effective Date (as defined below) and the benefits shared by both sets of 
shareholders, with the costs being split proportionately based on the merger 
NAVs.  The Scheme is conditional on the approval of the shareholders of both 
companies and is subject to the AIM VCT Share Restructuring having been 
completed. 
 
The merger also provides an opportunity to launch the Offer to raise up to  GBP10 
million to enable AIM VCT to participate in opportunities for investment at a 
time in the UK economic cycle which the AIM VCT board and Octopus believe to be 
advantageous and will open on 9 July 2010.  The Offer is conditional on the 
approval of the shareholders of AIM VCT and is subject to the AIM VCT Share 
Restructuring having been completed. 
 
The Scheme is not conditional on the Offer proceeding, or vice versa. 
 
The AIM VCT Share Restructuring, the Scheme and the Offer require the approval 
of resolutions to be proposed at the AIM VCT extraordinary general meeting to be 
held on 4 August 2010 ("AIM VCT Extraordinary General Meeting") and, in respect 
of the Scheme only, the approval of resolutions to be proposed at the Phoenix 
VCT general meeting to be held on 4 August 2010 ("Phoenix VCT First General 
Meeting") and the Phoenix VCT general meeting to be held on 12 August 2010 
("Phoenix VCT Second General Meeting"). 
 
The board of AIM VCT also considers it appropriate to adopt new articles of 
association, renew share issue and share repurchase authorities, approve the 
cancellation of the AIM VCT share premium account and capital redemption 
reserve, as well as amend the investment policy and extend the life of AIM VCT. 
 
BACKGROUND 
 
AIM VCT was launched in February 1998 and has raised  GBP48.4 million (net of 
expenses) since inception.  The current objective of AIM VCT is to invest in a 
broad range of AIM or PLUS quoted companies in order to generate income and 
long-term capital growth. Investments are made selectively across a range of 
sectors in companies that have the potential to grow and enhance their value. 
AIM VCT has returned  GBP19.7 million to its shareholders through dividends and 
share buy-backs.  As at 31 May 2010, AIM VCT had investments in 53 companies 
with an aggregate value of  GBP16.9 million and unaudited net assets of  GBP24.1 
million (83.1p per Share). As at today's date, AIM VCT has 52 investments. 
 
Phoenix VCT was launched in November 2002 and has raised  GBP17.7 million (net of 
expenses) since inception. Phoenix VCT's objective is to provide its 
shareholders with tax-free dividends and long-term capital growth by investing 
in a diverse portfolio of AIM-listed companies. Phoenix VCT has returned  GBP6.1 
million to its shareholders through dividends and buy-backs. As at 31 May 2010, 
Phoenix VCT had unaudited net assets of  GBP7.1 million (38.4p per Phoenix VCT 
Share) and, in aggregate, investments in 35 companies. 
 
VCTs are required to be listed on the Official List, which involves a 
significant level of listing costs as well as related fees to ensure the VCT 
complies with all relevant legislation. As a VCT becomes fully invested, its net 
assets may start to decrease, primarily due to dividends, buy-backs and annual 
expenses. As a result, the running costs can become a proportionally greater 
burden which may have an adverse effect on the returns generated for 
shareholders. A larger VCT should, therefore, be better placed to spread such 
running costs across a larger investment portfolio and, as a result, may be able 
to 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 have now taken advantage of these 
regulations. 
 
With the above in mind, the boards of AIM VCT and Phoenix VCT entered into 
discussions to consider a merger of the companies to create a single larger VCT 
thereby establishing a platform from which further funds could be raised. The 
aim of the boards is to achieve strategic benefits and reductions in the annual 
running costs for both sets of shareholders. 
 
THE RESTRUCTURING 
 
The AIM VCT board of directors proposes to restructure the share capital of AIM 
VCT to result in a share class having a nominal value of 1p. 
 
The AIM VCT Restructuring will be effected by each existing ordinary share of 
50p being subdivided into one ordinary share of 1p and one AIM VCT Deferred 
Share of 49p. The AIM VCT Deferred Shares will have no economic value and will 
be bought back by AIM VCT for an aggregate amount of 1p and cancelled as issued. 
 
The number of AIM VCT Shares in AIM VCT held by a Shareholder and the NAV per 
share will not change (the creation of Deferred Shares and the repurchase merely 
being a mechanism by which the AIM VCT Restructuring will be effected). 
 
The AIM VCT Restructuring will result in a simplification of the share capital 
of AIM VCT, whilst also creating capital redemption reserves from the repurchase 
of the AIM VCT Deferred Shares and an increased share premium on the issue of 
New AIM VCT Shares (pursuant both to the Scheme and to the Offer) which can 
subsequently be cancelled, subject to the sanction of the Court, creating 
distributable reserves to assist in the payment of dividends, the ability to 
make market purchases of shares and for other corporate purposes. 
 
THE MERGER PURSUANT TO THE SCHEME 
 
Both boards consider that this merger will bring significant benefits to both 
groups of shareholders through: 
 
  * a reduction in annual running costs for the Enlarged Company compared to the 
    total annual running costs of the separate companies; 
 
 
  * the creation of a single VCT of a more economically efficient size with a 
    greater capital base over which to spread administration, regulatory and 
    management costs; 
 
 
  * participation in a larger VCT with the longer term potential for a more 
    diversified portfolio thereby spreading the portfolio risk across a broader 
    range of investments and allowing for further investment in existing 
    portfolio companies; and 
 
 
  * providing the ability to maintain a buy-back programme and the potential 
    payment of further dividend distributions in the future due to the increased 
    size and reduced running costs of the Enlarged Company. 
 
 
The mechanism by which the merger will be completed is as follows: 
 
  * Phoenix VCT will be placed into members' voluntary liquidation pursuant to a 
    scheme of reconstruction under Section 110 IA 1986; and 
 
 
  * all of the assets and liabilities of Phoenix VCT will be transferred to AIM 
    VCT in consideration for the issue of New AIM VCT Shares (which will be 
    issued directly to shareholders of Phoenix VCT). 
 
 
Following the transfer, the listing of the Phoenix VCT Shares will be cancelled 
and Phoenix VCT will be wound up. 
 
The Scheme is conditional upon notice of dissent not having been received from 
Phoenix VCT shareholders holding more than 10 per cent. in nominal value of its 
issued share capital. 
 
Annual running costs, excluding management fees, for AIM VCT and Phoenix VCT are 
approximately  GBP171,000 and  GBP197,000 respectively or  GBP368,000 in total. These 
costs represent 0.71 per cent. of the AIM VCT's unaudited net asset value and 
2.8 per cent. of Phoenix VCT's unaudited net asset value, in each case as at 31 
May 2010. Both boards consider that this level of continued administrative 
annual running costs can be materially reduced through the merger resulting in 
benefits to both groups of shareholders. 
 
The aggregate anticipated cost of undertaking the merger is approximately 
 GBP199,000, including VAT, legal and professional fees, stamp duty and the costs 
of winding up Phoenix VCT. The costs of the merger will be split proportionately 
between AIM VCT and Phoenix VCT by reference to their respective merger NAVs. 
 
On the assumption that the NAV of the Enlarged Company will remain the same 
immediately after the merger (and disregarding the payment of the amount 
equivalent to three months' notice to the directors of Phoenix VCT referred to 
below as these are one-off payments), annual cost savings for the Enlarged 
Company of at least  GBP185,000 per annum (representing 0.59 per cent. per annum of 
the expected net assets of the Enlarged Company) are anticipated to be achieved 
following completion of the merger. On this basis, and on the basis that no new 
funds are raised or investments realised to meet annual costs, both boards 
believe that the costs of the merger would, therefore, be recovered within 13 
months. 
 
Both 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, AIM VCT was selected as the acquirer because of its 
larger size (and, therefore, a lower stamp duty cost on the transfer of all of 
the assets and liabilities from Phoenix VCT). 
 
Phoenix VCT Shareholders who do not vote in favour of the resolution at the 
Phoenix VCT First General Meeting are entitled to dissent and have their 
shareholding purchased by the liquidators at the break value price of a Phoenix 
VCT Share. If the conditions of the Scheme are not satisfied, the companies will 
continue in their current form and each board will continue to review all 
options available to it regarding the future of their company. 
 
THE OFFER 
 
The AIM VCT board has decided to take the opportunity to also raise up to  GBP10 
million through an offer for subscription of a maximum of 11,500,000 New AIM VCT 
Shares. This will provide shareholders and other investors with the opportunity 
to invest in AIM VCT and benefit from the tax reliefs available to qualifying 
investors in VCTs. 
 
The AIM VCT board believe that: 
 
  * This is an advantageous time in the economic cycle with Octopus beginning to 
    see a strengthening pipeline of investment opportunities, at a time when 
    prices of assets are still low by historic standards. Funds raised under the 
    Offer will be invested, in part, to take advantage of any rally in 
    valuations and performance of smaller companies as the pace of economic 
    growth accelerates; 
 
 
  * The Offer should enable AIM VCT to maintain its portfolio diversification 
    and continue to maximise the use of funds raised before 6 April 2006 for 
    investment in VCT qualifying investments with gross assets of up to  GBP15 
    million prior to the investment. AIM VCT maintains a policy of distributing 
    realised profits to its shareholders as well as operating a share buy-back 
    scheme and there is a risk that over time the size of AIM VCT will shrink 
    leaving less funds available for new investments to generate future returns. 
    The Offer should, therefore, also provide funds for new investments as well 
    as maintaining liquidity for dividends and buy-backs; 
 
 
  * New offers by VCTs continue to offer attractive tax incentives for private 
    investors when compared to other types of tax efficient investment; and 
 
 
  * The fixed running costs of AIM VCT will be spread over a larger asset base, 
    thereby reducing costs as a percentage of AIM VCT's assets. 
 
 
New AIM VCT Shares issued under the Offer will be at an Offer price equal to the 
most recently published NAV of an AIM VCT Share, divided by 0.945 to take into 
account Offer costs of 5.5 per cent. and rounded up to the nearest 0.1p per 
share. The net proceeds of the Offer will be invested in accordance with the 
investment policy of AIM VCT. 
 
Octopus will act as promoter to the Offer and be paid a commission of 5.5 per 
cent of the gross proceeds 
raised from which all costs and expenses will be paid (including initial 
intermediary commission and trail 
commission). Any costs above this will be met by Octopus. 
 
MANAGEMENT, ADMINISTRATION AND PERFORMANCE INCENTIVE ARRANGEMENTS 
 
Octopus is the investment manager of AIM VCT and of Phoenix VCT and also 
provides administration and secretarial services to both companies. An annual 
management and administration fee is payable to Octopus by AIM VCT of an amount 
equivalent to 2 per cent. of the net assets of AIM VCT (exclusive of VAT, if 
any). In respect of Phoenix VCT, separate annual management and administration 
fees are payable to Octopus of an amount equivalent to 2 per cent. of the net 
assets of Phoenix VCT (exclusive of VAT, if any) for the former and  GBP25,000 
(exclusive of VAT, if any and as increased by RPI increases) for the latter. 
 
Octopus will continue to provide investment management and administration 
services to the Enlarged Company following the merger on the same annual fee 
basis as above for AIM VCT (ie an amount equivalent to 2 per cent. of the net 
assets of AIM VCT (exclusive of VAT, if any) and without any further separate 
charge for administration services. 
 
In support of the merger, and so that all gains may remain with shareholders, 
Octopus has already agreed to forego all future performance incentive fee 
payments by both AIM VCT and Phoenix VCT and the existing entitlements have, 
therefore, been terminated. 
 
THE AIM VCT BOARD 
 
Both boards of directors have considered what the size and future composition of 
the AIM VCT's board should be following the merger and it has been agreed that 
the existing AIM VCT board will continue in its current form (Stephen 
Hazell-Smith being regarded as the Phoenix VCT representative retained on the 
AIM VCT board for these purposes). 
 
The aggregate annual remuneration for the AIM VCT board following the merger 
will remain at  GBP61,180 (plus applicable employers National Insurance 
Contributions). This is an annual cost saving of  GBP53,000 across the two 
companies (disregarding the payment of an amount equal to three months' notice 
to each of the directors of Phoenix VCT as final directors' fees whilst Phoenix 
VCT is in liquidation - the Phoenix VCT directors have agreed to waive all 
further directors' fees in respect of Phoenix VCT if the Scheme becomes 
effective). 
 
AMENDMENT TO THE AIM VCT ARTICLES 
 
The AIM VCT board proposes to adopt new articles of association to reflect the 
AIM VCT Share Restructuring, as well as take the opportunity to update the AIM 
VCT's articles of association to reflect the new provisions introduced by the 
Companies Act 2006 and shareholder regulations which have come into force over 
the last two years and market practice. 
 
AMENDMENT TO THE AIM VCT INVESTMENT POLICY 
 
The AIM VCT board believe that there may be opportunities to invest in companies 
that seek pre-IPO funds, participation in which would be in the interest of its 
shareholders.  The AIM VCT board have, therefore, proposed a resolution at the 
AIM VCT Extraordinary General Meeting to sanction this by amending the 
investment policy of AIM VCT. 
 
EXTENSION TO THE LIFE OF AIM VCT 
 
In light of the Offer and to ensure that AIM VCT can look forward to a 
successful long-term future, it is proposed to extend AIM VCT's life beyond the 
minimum five year holding period that applies to investors who wish to obtain 
upfront income tax relief. A resolution has, therefore, been proposed at the AIM 
VCT Extraordinary General Meeting to extend the life of AIM VCT to 2016. 
 
AIM VCT SHARE ISSUE AND REPURCHASE AUTHORITIES AND CANCELLATION OF THE AIM VCT 
SHARE PREMIUM ACCOUNT AND CAPITAL REDEMPTION RESERVE 
 
In order to implement the merger, the AIM VCT board will need to be authorised 
to issue New AIM VCT Shares pursuant to the Scheme.  It is also proposed to 
renew and increase shareholder authorities at the AIM VCT Extraordinary General 
Meeting to issue shares (having disapplied pre-emption rights) for the purposes 
of the Offer and other general purposes and make market purchases of shares. 
 
The AIM VCT Restructuring will create additional capital redemption reserves and 
the issue of New AIM VCT Shares pursuant to the Scheme and the Offer will result 
in the creation of further share premium. The AIM VCT board considers it 
appropriate to obtain approval of shareholders at the AIM VCT Extraordinary 
General Meeting to cancel the share premium account and the capital redemption 
reserve to create (subject to court sanction) further distributable reserves to 
fund distributions to Shareholders and buy-backs, to set off or write off losses 
and for other corporate purposes. 
 
EXPECTED TIMETABLE 
 
The Scheme 
 
AIM VCT Extraordinary General Meeting               2.00 pm 4 August 2010 
 
Phoenix VCT First General Meeting                   2.30 pm 4 August 2010 
 
Effective date of the AIM VCT Share Restructuring   4 August 
 
Amendment to the listing of the AIM VCT shares      5 August 2010 
arising out of the AIM VCT Share Restructuring 
 
Phoenix VCT register of members closed              11 August 2010 
 
Calculation date for the Scheme                     after 5.00 pm 11 August 2010 
 
Suspension of listing of Phoenix VCT Shares         after 7.30 am 12 August 2010 
 
Phoenix VCT Second General Meeting                  11.00 am 12 August 2010 
 
Effective Date for the transfer of assets and       12 August 2010 
liabilities of Phoenix VCT to AIM VCT and issue of 
New AIM VCT Shares 
 
Announcement of results of the meetings and         12 August 2010 
completion of the Scheme (if applicable) 
 
Cancellation of the Phoenix VCT share listing       after 8.00 am 13 March 2010 
 
Admission of and dealings in the New AIM VCT Shares 13 August 2010 
issued pursuant to the Scheme to commence 
 
Certificates for New AIM VCT Shares (arising from   25 August 2010 
the AIM VCT Share Restructuring or issued pursuant 
to the Scheme) dispatched 
 
The Offer 
 
Offer opens                                 9 July 2010 
 
Allotment of New AIM VCT Shares             Monthly 
 
Admission of and dealings in New AIM VCT    3 business days following allotment 
Shares issued pursuant to the Offer to 
commence 
 
Certificates for New AIM VCT Shares         within 14 business days of allotment 
pursuant to the Offer dispatched 
 
Offer closes*                               30 April 2011 
 
*The Offer will close earlier than the date stated above if it is fully 
subscribed. The AIM VCT directors reserve the right to close the Offer earlier 
or to extend the Offer and to accept applications and issue New AIM VCT Shares 
at any time prior to or after the closing date. 
 
DOCUMENTS AND APPROVALS 
 
AIM VCT shareholders will receive a copy of a circular convening the AIM VCT 
Extraordinary General Meeting to be held on 4 August 2010 (together with the AIM 
VCT prospectus) at which AIM VCT shareholders will be invited to approve 
resolutions in connection with the Proposals. 
 
Phoenix VCT shareholders will receive a circular convening the Phoenix VCT First 
General Meeting on 4 August 2010 and the Phoenix VCT Second General Meeting on 
12 August 2010 (together with the AIM VCT prospectus) at which Phoenix VCT 
shareholders will be invited to approve resolutions in connection with the 
Scheme. 
 
Copies of the AIM VCT prospectus and the circular for AIM VCT and Phoenix VCT 
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: 0207 066 1000 
 
 
Investment Manager and Administrator for AIM VCT and Phoenix VCT 
Octopus Investments Limited 
Andrew Buchanan or Kate Tidbury 
Telephone: 0800 316 2349 
 
Company Secretary for AIM VCT and Phoenix VCT 
Celia Whitten 
Telephone: 020 7710 2849 
 
Solicitors to AIM VCT and Phoenix VCT 
Martineau 
Kavita Patel 
Telephone: 0870 763 2000 
 
Sponsor to AIM VCT 
Charles Stanley Securities 
Luke Webster/Russell Cook 
Telephone: 020 7149 6000 
 
The directors of AIM VCT accept responsibility for the information relating to 
AIM VCT 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 AIM VCT 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 Phoenix VCT accept responsibility for the information relating 
to Phoenix VCT 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 Phoenix VCT 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. 
 
Martineau are acting as legal advisers for AIM VCT and Phoenix VCT and for no 
one else in connection with the matters described herein and will not be 
responsible to anyone other than AIM VCT and Phoenix VCT for providing the 
protections afforded to clients of Martineau or for providing advice in relation 
to the matters described herein. 
 
Charles Stanley Securities, a division of Charles Stanley & Co Limited, which is 
authorised and regulated in the United Kingdom by the Financial Services 
Authority, is acting as sponsor for AIM VCT and no one else and will not be 
responsible to any other person for providing the protections afforded to 
customers of Charles Stanley Securities or for providing advice in relation to 
any matters referred to herein. 
 
 
 
[HUG#1430714] 
 
 
 
 
 
 
 
 
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. 
All reproduction for further distribution is prohibited. 
 
Source: Octopus Phoenix VCT plc via Thomson Reuters ONE
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