TIDMTQC
RNS Number : 2966A
Third Quad Capital PLC
28 January 2011
Third Quad Capital plc
("TQC" or the "Company")
Proposed disposal of the Technology Division, change of name to
VSA Capital Group plc, disapplication of statutory pre-emption
rights and Notice of General Meeting
Highlights
-- TQC has conditionally agreed the disposal of its Technology
Division for GBP1.3 million in cash; GBP200,000 will be payable on
Completion followed by eleven monthly payments of GBP100,000.
-- A General Meeting has been convened for 14 February 2011 to
seek shareholders' approval as the Disposal would result in a
fundamental change of business by the Group according to Rule 15 of
the AIM Rules.
-- The Group's remaining business will be VSA Capital, which is
continuing to recruit fee earners and now has eight full time
employees and four consultants (split across institutional sales,
corporate finance and research). TQC intends that VSA Capital
should continue to develop as an institutional broking and
investment banking business through organic growth and via
acquisition.
-- On Completion it is proposed that the Company's name be
changed to VSA Capital Group plc.
-- The Company has today published a circular to Shareholders
setting out the reasons for, and principal terms of the Disposal
along with resolutions to effect the change of name and to renew
the Directors' authority to issue Ordinary Shares for cash without
applying statutory pre-emption rights. The circular is available
for viewing and downloading on the Company's website at
www.thirdquad.co.uk
Board change
John McCartney, who is currently the director responsible for
TQC's Technology Division, will leave the Group on Completion.
Further information concerning arrangements with John McCartney are
set out below.
Unless otherwise defined, terms used in this announcement have
the defined meaning given to them in the circular.
The Chief Executive Andrew Monk commented:
"The Group's intention was to grow a Technology Division
alongside a Financial Services Division but since the acquisition
of Softline it has become clear that the Company's growth and
future lay with VSA Capital where we have the management skills and
reputation to attract the best people to help us grow a substantial
business. With difficult trading across the entire Technology
Division in the last few months, as previously reported to
shareholders, the Board was pleased when Rivington Street Ventures
approached it to acquire the entire Technology Division and we
believe we have secured an attractive price under the
circumstances. This disposal will enable the resultant group to
focus on developing VSA Capital into an institutional broking and
investment banking business. The Disposal will enhance the Group's
financial position and we look forward to the future with
considerable enthusiasm and optimism".
For further information please contact:
Third Quad Capital plc
Andrew Monk, CEO
0203 005 5000
Shore Capital and Corporate Limited
Andrew Raca or Edward Mansfield
020 7408 4090
Rivington Street Corporate Finance Jon Levinson 020 7562
3357
Proposed disposal of the Technology Division, change of name to
VSA Capital Group plc, disapplication of statutory pre-emption
rights and Notice of General Meeting
1. Introduction
The Company announces that the Board had reached an agreement
for the sale of the Group's Technology Division to Rivington Street
Ventures Limited, a subsidiary of Rivington Street Holdings plc for
a consideration of GBP1.3 million in cash. The Disposal represents
a "fundamental change of business" for the Company pursuant to Rule
15 of the AIM Rules, due to the size of the transaction relative to
the size of the Group. As a result, the Disposal is conditional
(among other conditions) on the approval of Shareholders at the
General Meeting.
In addition to owning the Purchaser of the Technology Division,
Rivington Street Holdings plc is the holding company of Rivington
Street Corporate Finance Limited (which is the joint broker to the
Company) and T1ps Investment Management Limited which manages funds
which currently hold 8.6 per cent. of the Company's issued share
capital.
A General Meeting has been convened on 14 February 2011 at 10
a.m. at 14 Austin Friars, London, EC2N 2HE at which a resolution
will be proposed to approve the Disposal.
In addition, further resolutions will be proposed at the General
Meeting to change the name of the Company to VSA Capital Group plc,
and to renew the Directors' authority to issue Ordinary Shares for
cash without applying statutory pre-emption rights.
2. Background to and reasons for the Disposal
The acquisitions of VSA and Softline made in August 2010 were
undertaken to bolster the Group, providing critical mass for the
Group's software businesses and diversification into financial
services. At the time of acquisition VSA Capital was in a poor
financial position and it was not certain how long it would take to
turn this business around. Since its acquisition, market conditions
have been favourable and its recovery has been more rapid than
anticipated.
Integration of the pre-existing and new software businesses has
not progressed as well as the Directors had expected it would.
Budgets prepared by divisional management at the time of
acquisition have not been met. Cash generation, which was needed to
meet the Group's working capital requirements, including the cash
consideration payments due to the seller of Softline, has not been
forthcoming and Softline has required short term cash support from
the Company.
The combination of these circumstances, together with the
opportunity that presented itself to dispose of the Technology
Division and focus fully on the Financial Services Division, has
led the Directors to believe that the Disposal is in the best
interests of the Company and Shareholders.
The Company announced on 19 January 2011 that the Company "is
currently in discussions with a potential acquirer of its software
businesses in order that it can fully focus on its Financial
Services Division...it is the intention of TQC to focus on VSA
Capital Limited, its Financial Services Division, where it has the
management skills to run and successfully grow a valuable business
for shareholders. Whilst this division is currently performing
above expectations, VSA Capital Limited is investing for expansion
which does risk constraining short term profitability as it seeks
longer term value."
3. Information on the Technology Division
TQC's Technology Division comprises Softline Ltd ("SL"),
Softline Distribution Limited ("SDL") and Softline UK Limited
("SLUK") (collectively "Softline") and Formjet Innovations Limited
("FJI"), Ability Software International Limited ("ASI") and South
Coast Distributions Limited ("SCD") (collectively "Formjet").
FJI and ASI were founded in 2001 and 2004 respectively and are
UK based companies that acquired territorial rights to alternative
software products, and market, sell, distribute and support these
products in place of the vendor in worldwide markets. ASI and FJI
market their software to information technology distributors,
retailers and hardware manufacturers.
Softline UK Limited was founded in 1989 and is an approved
supplier to Apple Computer International. Recently, SLUK has
expanded its business to include a number of Microsoft Windows
products as well as hardware items for both Macintosh and personal
computer ("PC") including accessories such as iPhone cases and
laptop sleeves. As a distributor SLUK does not supply directly to
the public. SLUK's products are made available via a network of
resellers, online stores, mail order houses and high street
retailers.
SL and SDL are non-trading intermediate holding companies, and
SCD is a dormant company.
TQC acquired Softline on 20 August 2010 for consideration of
GBP1.3 million, payable in cash and shares over a period of two
years. Of the consideration payable, the seller, John McCartney,
lent TQC GBP550,000 for a period of five years, secured on a
property owned by the Company; Innovation House, Windsor Place,
Crawley (the "Vendor Loan").
For the year to 31 December 2010, Formjet achieved an unaudited
turnover of GBP635,011 and a loss of GBP107,119. In the six months
ended 31 December 2010, Softline achieved an unaudited turnover of
GBP1,702,522 and a profit of GBP46,937, of which GBP1,295,763 and
GBP29,570 respectively related to the period since it was acquired
by TQC (20 August 2010). To date the turnover of the Technology
Division has represented substantially all of the turnover of the
Group.
Whilst SLUK has been a profitable business since acquisition it
has failed to meet the turnover forecasts provided to the Company
and its profitability has been correspondingly below the Company's
expectations. In part this can be attributed to December's poor
weather conditions which impacted retail sales for the important
pre-Christmas market but SLUK has also felt the impact of a tougher
retail environment generally and the introduction of alternative
methods of distributing its products to the retail market.
Formjet continues to offer the promise of profit by way of
gaining market share in the office software market, which remains
dominated by Microsoft. Although Formjet continues to enjoy regular
income from a contractual relationship in which Formjet provides
its Ability product on a 'white label' basis, underlying sales of
the Ability products have continued to disappoint and, as a result,
Formjet has struggled to generate sustainable profits.
FJI, ASI and SCD are held in TQC's consolidated balance sheet at
their net asset value.
Group financial information, including annual Report &
Accounts in pdf format and RNS announcements relating to the
Interim Results for the Group for six months to 30 June 2010,
together with previous financial years, can be found on the Group's
website at www.thirdquadcapital.com
4. Terms of the Disposal
The Company will receive consideration of GBP1.3 million in
cash; GBP200 000 will be payable on Completion followed by eleven
monthly payments of GBP100,000. Payment of the instalments will be
guaranteed by Rivington Street Holdings plc.
Under the terms of the Sale Agreement, Completion will take
place on the basis that the net liabilities of FJI, ASI and SCD,
taken together, will not exceed the value of their combined net
assets, and that SLUK will be transferred with net current assets
of at least GBP75,000 including cash of at least GBP125,000. To the
extent that the net asset undertakings noted above are not met, an
adjustment will be made to the cash consideration for the amount of
any shortfall on a GBP1:GBP1 basis.
The Company's leasehold warehouse premises, used by the
Technology Division, at 24 The Bell Centre, Newton Road, Crawley
will be sublet to the Purchaser until the expiry of the Company's
lease on 30 April 2012.
5. Board change
As a consequence of terms of the Softline acquisition which was
completed in August 2010, TQC has certain obligations to pay
consideration outstanding to the seller, John McCartney.
John McCartney, who is currently the director responsible for
TQC's Technology Division, will leave the Group on Completion. He
will receive the following sums on Completion:
-- payment of twelve months' notice due to him under the terms
of his Director's Service Contract: GBP25,000 plus GBP2,022 in
respect of health insurance for a corresponding period;
-- settlement of the outstanding cash consideration due to him
under the terms of the Softline purchase: GBP300,000;
-- payment of the additional contingent consideration of
GBP200,000 provided under the acquisition terms to be satisfied by
(a) the issue of 20,000,000 ordinary shares in TQC at a price of
0.5p; (b) the issue of 5 million ordinary shares in TQC with a
value of GBP50,000 based on the closing mid-market price of 1p on
the 27 January 2011; and (c) a payment of GBP50,000 in cash, which
Mr McCartney has agreed to add to the Vendor Loan to the
Company.
Mr McCartney's total loan to the Company will then amount to
GBP600,000 and is secured against the Group's former headquarters
in Crawley and will become repayable in 60 monthly instalments,
commencing on Completion, or on earlier completion of a sale of the
property.
6. Summary of the effects of the Disposal
TQC's consolidated balance sheet will be materially reduced in
size. The Technology Division consists of Softline, a profitable
sub-group, and Formjet, a loss making sub-group.
Following the Disposal, the Group's remaining business will be
its Financial Services Division, which comprises the business of
VSA Capital. Since acquiring VSA Capital, TQC has resolved that
business's immediate cashflow issues and undertaken a recruitment
drive to bring it back to 'critical mass' in terms of its ability
to conduct broking business. VSA Capital is continuing to recruit
fee earners and now has eight full time employees and four
consultants (split across institutional sales, corporate finance
and research). TQC intends that VSA Capital should continue to
develop as an institutional broking and investment banking business
through organic growth and, should suitable opportunities present
themselves, via acquisition. This business operates from premises
at 14 Austin Friars, London EC2N 2HE.
The Company will still own the freehold of Innovation House,
Crawley RH10 9TF, which is in the balance sheet of the Group at a
value of GBP646,848. As noted above, this property is held as
security for the Vendor Loan due to John McCartney, an amount which
will increase to GBP600,000 following the Disposal.
The Company has received confirmation from HM Revenue &
Customs that the current activities of VSA Capital are considered a
qualifying trade for EIS purposes. Accordingly the Directors
believe that the proposed Disposal will not jeopardise the current
or past EIS status of the Company, its shareholders or shareholders
to be. However, the Directors are aware that their plans to develop
VSA Capital into a less narrowly focussed financial services
business may compromise the Company's EIS status as those plans
unfold.
The Directors intend to focus their attention on the organic
growth of VSA Capital but remain mindful that opportunities for
growth and development of this business by acquisition may present
themselves over time.
As outlined above, TQC will retain certain outstanding financial
obligations to John McCartney.
7. Application of Proceeds
The net proceeds of the Disposal will be used towards the
discharge of the immediate cash payment due to John McCartney.
The balance of the disposal proceeds, which will be received
over the following 12 months, will be used for general working
capital purposes by the Group as it seeks to grow the business of
VSA Capital. As noted above, the Company will retain a liability to
repay the Vendor Loan over the next five years.
8. Proposed change of name of the Company
The Board intends to develop an institutional broking and
investment banking business based upon the Group's existing FSA
regulated subsidiary, VSA Capital. As a consequence, the Board
believes that it would be appropriate to change the name of the
Company. Accordingly, a resolution will be proposed at the General
Meeting to change the name of the Company to VSA Capital Group
Plc.
9. Authority to issue shares
At the Annual General Meeting of the Company held on 4 March
2010, Shareholders gave the Directors authority to issue up to
350,000,000 Ordinary Shares for cash without applying statutory
pre-emption rights. Under this authority, the Board has since
issued 216,000,000 Ordinary Shares for cash, to raise additional
working capital for the Company. As the Company's 2011 Annual
General Meeting will not be held until later this year, the
Directors believe it is prudent for them to ask Shareholders to
renew the authority given at the 2010 Annual General Meeting.
Whilst the Directors have no current intention to exercise the
power to raise additional equity which would be given to them if
this resolution is passed, the Board believes that it is in the
interests of the Company and all its Shareholders that the
Directors have power to raise additional equity finance in a
cost-effective manner, if and whenever this proves necessary or
desirable, for acquisition costs or otherwise to meet the Group's
working capital requirements.
10. Current trading and prospects
Following Completion, the Company will generate its income
solely from the Financial Services Division. As at 4 January 2011
the Company made the following statement in relation to the
performance of VSA Capital Limited:
"VSA Capital Limited ("VSA"), our financial services business,
has performed better than expected. Despite the situation VSA was
in when it was acquired, we have succeeded in recruiting some
excellent people and we are seeing good quality deal flow, which is
very encouraging for the long term growth of this business. Our
intention is to continue to invest in VSA as, with the proven track
record of the management team, we believe we can build a very
valuable business. Whilst investment in people and growth does risk
constraining short term profitability we remain convinced that it
will provide substantial longer term value."
The net proceeds of the Disposal will be used to invest in the
expansion of VSA Capital Limited. This may risk constraining short
term profitability as the Board seeks longer term value.
Apart from the proposed Disposal, there has been no change to
the expectations of the Board in relation to the operations of the
Group since the trading update announced on 4 January 2011. The
Company will publish second interim results for the six months to
31 December 2010 in late March 2011.
11. General Meeting
Completion of the Disposal and the change of name of the Company
are conditional upon Shareholders' approval of the Resolutions
being obtained at the General Meeting to be held at 14 Austin
Friars, London EC2N 2HE on 14 February 2011 at 10 a.m.
At the General Meeting three resolutions will be proposed to
Shareholders:
(1) to approve the disposal of the Technology Division pursuant
to the terms and subject to the conditions of the Sale
Agreement;
(2) to approve the change of the Company's name to VSA Capital
Group plc; and
(3) to authorise the Directors to issue up to 600,000,000
Ordinary Shares for cash without applying statutory pre-emption
rights for Shareholders.
Resolution (1) will be proposed as an ordinary resolution and
resolutions (2) and (3) will be proposed as special
resolutions.
12. Directors intentions
The Directors consider the Disposal to be in the best interests
of the Company and intend to vote in favour of the resolutions in
respect of their own beneficial holdings amounting to, in
aggregate, 148,000,000 Ordinary Shares representing approximately
24.02 per cent. of the issued ordinary share capital of the
Company.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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