Merger and Offer for subscription

RNS Number : 2122N

Calculus VCT PLC

04 August 2017

 

JOINT ANNOUNCEMENT

4 August 2017

CALCULUS VCT PLC ("Calculus VCT")

NEPTUNE-CALCULUS INCOME AND GROWTH VCT PLC ("Neptune")

(Together the "Companies")

TIDM: CLCD and CLCN

RECOMMENDED PROPOSALS FOR:

-     MERGER WITH NEPTUNE; AND

-     OFFER FOR SUBSCRIPTION OF UP TO £5 MILLION (WITH AN OVER ALLOTMENT FACILITY OF A FURTHER £5 MILLION)

SUMMARY

On 19 June 2017 the board of the Companies (together the "Boards" and each a "Board") announced that they had agreed in principal to merge the Companies (the "Merger"). Each of the Companies is managed by Calculus Capital Limited ("Calculus Capital").

The Boards are now pleased to announce that they have reached agreement on recommended proposals for the Merger to create a single enlarged VCT. The Merger is conditional upon certain conditions (including the approval of each company's shareholders) being satisfied as further set out in the circulars being posted to the Companies' respective shareholders today ("Circulars") alongside a prospectus published by Calculus VCT in connection with, amongst other things, the Merger (the "Prospectus").

The Boards consider that the interests of shareholders in both Companies will be better served by an enlarged single company with reduced annual running costs per share. The Companies are each currently managed by Calculus Capital and so the continuity of the management will be preserved by the Merger.

The most cost-effective way to achieve Merger is to undertake a Scheme whereby Neptune is placed into members' voluntary liquidation and all of the assets and liabilities of Neptune are transferred to Calculus VCT in exchange for the issue of Consideration Shares to the Neptune Shareholders. The investment policies of Calculus VCT and Neptune are broadly similar and so continuity for shareholders of both Companies would be preserved.

The Consideration Shares are not being offered to the existing Shareholders of Calculus VCT or the public (though Calculus VCT proposes to launch a public share offer following the completion of the Merger). A total of approximately 2.38 million Consideration Shares are expected to be allotted pursuant to the Merger (assuming no dissenting shareholders).

In connection with the Merger, Calculus VCT has also published a circular (the "Calculus VCT Circular"), which is being dispatched to shareholders of Calculus VCT. The Calculus VCT Circular contains proposals relating to the Merger which will include the Enlarged Company entering into a revised management agreement with Calculus VCT''s Manager, Calculus Capital, which constitutes a related party transaction under the Listing Rules. Neptune has also published a similar circular (the "Neptune Circular").

MERGER

In recommending that Calculus VCT participates in Merger, which will result in an Enlarged Company with a net asset base of approximately £10 million, the Board of Calculus VCT expects to bring a number of benefits to Calculus VCT's existing Shareholders and to Neptune Shareholders whilst maintaining or enhancing existing aspects of Calculus VCT. The Board of Neptune VCT also expects the merger to bring these benefits to Neptune Shareholders

Benefits of the Merger

The Merger should result in the following benefits for Shareholders of Calculus VCT and Neptune:

·      a reduction in the expected annual running costs for Shareholders due to operational expenses being spread over a larger base;

·      a larger pool of potentially distributable reserves to support future dividend payments; and

·      the opportunity for future buy backs, particularly for Shareholders who have held their shares for more than 5 years; and

·      exposure to a more diversified portfolio.

Additional attractive features of the Merger include:

·      Calculus VCT's venture capital investment manager, Calculus Capital has agreed to contribute 33% of the costs of the Merger, meaning that the costs will be split evenly between Calculus Capital, Calculus VCT and Neptune; and

·      no impact on the tax position of Shareholders.

Transfer

The Merger of the Companies will be effected in the following way:

·      Neptune will be placed into members' voluntary liquidation pursuant to a scheme of reconstruction under section 110 IA 1986; and

·      all of Neptune's assets and liabilities will be transferred to Calculus VCT in consideration for the issue of the Consideration Shares to the Neptune Shareholders.

Following the transfer of the assets and liabilities of Neptune to Calculus VCT pursuant to the Merger, it is proposed that the listing the Neptune Shares will be cancelled and Neptune will be wound up.

Conditionality

The Scheme is dependent on:

·      the relevant resolutions approving the Scheme being passed at the General Meeting, the First Neptune Meeting and the Second Neptune Meeting;

·      notice of dissent not having been received from Neptune Shareholders who hold more than 10% in nominal value of Neptune's issued share capital;

·      each of Calculus VCT and Neptune confirming that it has received no notice of any claims, proceedings or actions of whatever nature threatened or commenced against the other which the relevant board of directors regard as material; and

·      Calculus VCT and Neptune maintaining their VCT status,

and would become effective immediately after the passing of the special resolution for the winding up of Neptune at the Second Neptune Meeting.

Costs of the Merger

The costs of the Merger are estimated to be approximately £150,000 and will be borne by in equal thirds by Calculus VCT, Neptune and the Manager, Calculus Capital.

Terms of the Scheme

On the Effective Date, the Liquidators shall receive all the cash, undertakings and other assets and liabilities of Neptune and shall deliver to Calculus VCT:

·      particulars of all of the assets and liabilities of Neptune;

·      a list certified by the registrars of the names and addresses of, and the number and class of Neptune Shares held by each of the Neptune Shareholders on the register at 5.30 p.m. on the Record Date;

·      an estimate of the winding-up costs of Neptune which will form part of the Merger Costs; and

·      the amount estimated to be required to purchase the holdings of any dissenting Neptune Shareholders.

On the Effective Date, Calculus VCT and the Liquidators (on behalf of Neptune) will enter into the Transfer Agreement (subject to such modifications as may be agreed between the parties thereto) pursuant to which the Liquidators will procure the transfer of all of the assets and liabilities of Neptune to Calculus VCT in exchange for the issue of Consideration Shares (fully paid) to the Neptune Shareholders on the basis set out below.

Calculus VCT will, pursuant to the Transfer Agreement, undertake to pay all liabilities incurred by the Liquidators including but not limited to the implementation of the Merger, the winding up of Neptune and the purchase for cash of any holdings of dissenting Neptune Shareholders.

Once the Merger is effected, the Enlarged Company should have net assets of approximately £10 million and over 11 million Shares in issue. An important advantage of the Merger will be to reduce the running costs per Share and this benefit will accrue to all Shareholders within the Enlarged Company. 

The Merger process is expected to complete in September 2017.

Investment Policy

The Enlarged Company will invest in line with the Calculus' investment policy.

A reduction in the expected annual running costs

Subject to the Merger taking place, Calculus Capital has agreed to increase its potential contribution to the running costs of Calculus VCT by reducing the cost cap (excluding irrecoverable VAT, annual trail commission and performance incentive fees) from the aggregate of 3.0% of the gross amount raised under the Old Ordinary and C Share offers and 3.4% of the gross amount raised under the D Share offers to 3.0% of the net assets of the Enlarged Company.

Assuming full subscription under the Offer (including the over-allotment facility), the estimated annual costs of the Enlarged Company would be 2.9% of NAV.

The expected overall cost savings to be gained by spreading administration, directors' fees, audit and management costs over a greater capital base together with the proposed reduced cost cap is estimated to be in excess of £125,000 per annum, compared to the aggregate of the costs which would be incurred if each VCT were to maintain an independent existence. It is projected that the running costs savings that will accrue to Calculus VCT over the 10 months following the Merger will exceed the costs of the Merger being borne by Calculus VCT and Neptune. Costs may be further reduced going forward by a reduction in the size of Calculus VCT's Board.

Related Party Transaction

The amendment of the investment management agreement to reduce the cost cap as set out in the Calculus VCT Circular will constitute a related party transaction under the Listing Rules, as Calculus Capital is an investment manager of Calculus VCT and accordingly the approval of Calculus VCT Shareholders to the amendment will be sought at the Calculus VCT General Meeting. John Glencross, as the chief executive of Calculus Capital and a non-independent Director, did not take part in the Calculus VCT Board's consideration of, nor vote on, the proposed amendment of the investment management agreement.

The Calculus VCT Board which has been so advised by Beaumont Cornish, Calculus VCT's Sponsor, considers the proposed amendment to be fair and reasonable insofar as Calculus VCT's shareholders are concerned.

Calculus Capital and its associates, who together hold 23,796 shares representing approximately 0.27% of the entire issued share capital of Calculus VCT, intend to vote in favour of all the Resolutions to be proposed at the Calculus VCT general meeting to be convened at 11.00 a.m. on 31 August 2017, further details of which are set out in the Notice of General Meeting contained in the Calculus VCT Circular, save for the resolution approving the amendments to the investment management agreement (Resolution 6) on which they are not permitted to vote. Calculus Capital has taken all reasonable steps to ensure that its associates will not vote on Resolution 6 at the General Meeting.

SCHEME

The Scheme Calculations

The number of Consideration Shares to be issued to the holders of Neptune Shares (save for any dissenting Neptune Shareholders) will be calculated as follows:

The Roll-Over Value of Neptune will be calculated as:

      A - (B + C)

           D

where:

A        =     the most recent available unaudited net asset value of Neptune prior the Calculation Date calculated in accordance with Neptune's normal accounting policies (including any adjustment that the Calculus VCT Board and the Neptune Board (acting jointly) consider appropriate to reflect any other actual or contingent benefit or liability of Neptune attributable to each Shareholder as at the Calculation Date, or to reflect any changes since the Calculation Date, including but not limited to adjustment for the proposed special dividend of 10.5p per share);

B        =     the Due Share of Merger Costs attributable to Neptune (to the extent not already paid by Neptune as reflected in "A" above)

C         =     the amount estimated to be required to purchase the holdings of Neptune Shares from dissenting Neptune Shareholders; and

D        =     the number of Neptune Shares in issue following close of business on the Record Date (save for any held by dissenting Neptune Shareholders).

Calculus VCT - Merger Value

The Merger Value per Ordinary Share will be calculated as follows:

 E - F

  G

where:

E         =     the most recent available unaudited net asset value of Calculus VCT prior to the Calculation Date, calculated in accordance with Calculus VCT's normal accounting policies (including any adjustment that the Calculus VCT Board and the Neptune Board (acting jointly) consider appropriate to reflect any other actual or contingent benefit or liability of Calculus VCT attributable to each Shareholder as at the Calculation Date, or to reflect any changes since the Calculation Date);

F         =     the Due Share of Merger Costs attributable to Calculus VCT (to the extent not already paid by Calculus VCT as reflected in "E" above); and

G        =     the number of the Shares in issue following close of business on the Calculation Date.

Number of Consideration Shares to be issued

The number of Consideration Shares to be issued to Neptune Shareholders (save for any dissenting shareholders) will be calculated as follows:

H	x       J
I

Where:

H        =     the Roll-Over Value;

I         =     the Merger Value; and

J         =     the number of Neptune Shares in issue as at close of business on the Record Date (save for any such shares held by dissenting Neptune Shareholders).

The number of Consideration Shares to be issued pursuant to the Scheme will not be greater than 5 million and will be issued directly to Neptune Shareholders pro rata to their existing holdings (disregarding Neptune Shares held by dissenting Neptune Shareholders) on the instruction of the Liquidators by applying the Merger Ratio to Neptune Shareholders' holdings of Neptune Shares.

The Merger Ratio will be rounded down to four decimal places and entitlements will be rounded down to the nearest whole number of Consideration Shares. Any fractional entitlements of Consideration Shares in respect of each holding of Neptune Shares (which, in each case, will not exceed £1) will be retained for the benefit of the Enlarged Company.

Scheme Illustration

As at 30 June 2017, the unaudited NAV of a Neptune Share (taken from the Neptune management accounts to that date) was 29.66p. The Roll-Over Value, had the Scheme been completed on that date and calculated as set out above) would have been 18.71p (assuming no dissenting Neptune Shareholders).

The number of Consideration Shares that would have been issued to Neptune Shareholders, had the Scheme been completed on 30 June 2017 and calculated as set out above, would have been 2,379,931 (0.2123 Consideration Shares for every Neptune Share held).

Conditionality

The Scheme is dependent on:

·     the relevant resolutions approving the Scheme being passed at the General Meeting, the First Neptune Meeting and the Second Neptune Meeting;

·     notice of dissent not being received from shareholders who hold more than 10% in nominal value of the issued share capital of Neptune;

·     each of Calculus VCT and Neptune confirming that it has received no notice of any claims, proceedings or actions of whatever nature threatened or commenced against the other which the relevant board of directors regard as material; and

·     Calculus VCT and Neptune maintaining their VCT status,

and so will proceed and become effective, subject to the above, immediately after the passing of the special resolution for the winding up of Neptune at the Second Neptune Meeting.

Dissenting Shareholders

Provided that a Neptune Shareholder does not vote in favour of the first resolution to be proposed at the First Neptune Meeting, such Neptune Shareholder may, within seven days following the First Neptune Meeting, express his/her dissent to the Liquidators in writing at the registered office of Calculus VCT and require the Liquidators to purchase that Neptune Shareholder's holding.

The Liquidators will offer to purchase the holdings of dissenting Neptune Shareholders at the break value price of a Neptune Share, this being an estimate of the amount a Neptune Shareholder would receive per Neptune Share in an ordinary winding-up of Neptune if all of the assets of Neptune had to be realised. The break value of a Neptune Share is expected to be significantly below the unaudited NAV per Neptune Share due to the nature of the underlying assets. Neptune Shareholders should also be aware that a purchase by the Liquidators will be regarded as a disposal for HMRC purposes, thereby triggering the repayment of up-front income tax relief received on the original subscription if the Neptune Shares have not been held for the requisite holding period to maintain such relief.

The Calculus VCT Board 

Subject to approval of the Merger, Diane Seymour-Williams will step down from the Neptune Board and be appointed as a director to the Enlarged Company Board. The Enlarged Company Board will then comprise:

•   Michael O'Higgins;

•   Arthur John Glencross;

•   Kate Cornish-Bowden

•   Steven Meeks; and

•   Diane Seymour-Williams.

If the Merger is not approved, the Board will remain as it is currently constituted.

OFFER FOR SUBSCRIPTION

The Board of Calculus VCT decided to take this opportunity to raise further funds through the Offer. The case for investing in Venture Capital Investments remains as strong as it was at the launch of Calculus VCT. Calculus VCT, with its focus on investing in these small and growing businesses, is ideally positioned and set up to benefit from the investment opportunities available. Accordingly, Calculus VCT is launching the Offer to source additional funds to invest in venture capital opportunities for the benefit of existing and new shareholders.

Terms of the Offer

The Offer opens on 4 August 2017 and will close at 5.00pm on 31 July 2018, unless extended. The Offer is conditional on the relevant resolutions being passed by Shareholders at the General Meeting. Applications will be accepted (in whole or part) at the discretion of the Board, but the Calculus VCT Board intends to meet applications on a 'first come, first served' basis.

The Offer Shares will be issued at a price determined for each investor by reference to a pricing formula which takes into account the level of Promoter's Fee, Adviser Charge/commission and early application/loyalty discount which is applicable to that Investor.

Investors whose applications are received by 2 February 2018 will benefit from a 0.5% early application discount. Existing Shareholders who apply will receive an additional 0.5% loyalty discount.

The minimum investment by an investor under the Offer is £5,000 (subject to the Calculus VCT Directors' discretion to accept any lower amount).

Fractions of Offer Shares will not be issued. Subscription monies of £5 or more not used to acquire Offer Shares will be refunded.

The independent Calculus VCT Directors, each of whom is an investor in Calculus VCT, have appointed Calculus Capital to manage Calculus VCT's Venture Capital Investments because of its excellent track record and experience of tax efficient investing.

Pricing Formula

The number of Offer Shares to be issued to an investor shall be calculated based on the following Pricing

Formula (rounded down to the nearest whole Share):

Number of Offer Shares	=	Amount subscribed less: (i)            Promoter's Fee (ii)           Initial Adviser Charge/Commission plus (iii)         Applicable early application and/or loyalty discount	x	Dividend Entitlement Factor	÷	Latest NAV per Share
Where "Dividend Entitlement Factor" = 1.047.

Full details of the Offer are set out in part 3 of the Prospectus.

Documents and approvals

Calculus VCT shareholders will receive the Calculus VCT Circular convening the Calculus VCT Meeting to be held on 31 August 2017, at which Calculus VCT shareholders will be invited to approve various resolutions in connection with the Merger, Related Party Transaction and the Offer.

Neptune Shareholders will receive the Neptune Circular convening the Neptune Meetings on 31 August 2017 and 12 September 2017 at which Neptune Shareholders will be invited to approve the various resolutions in connection with the Merger.

Copies of the Calculus VCT Circular, the Neptune Circular and the Prospectus have been approved by the UK Listing Authority.  The Calculus VCT Circular and the Prospectus shall shortly be available for download from Calculus VCT's website: www.calculuscapital.com/calculus-vct-plc/ and the national storage mechanism: www.morningstar.co.uk/uk/NSM The Neptune Circular and the Prospectus shall shortly be available for download from Neptune's website: www.calculuscapital.com/neptune-income-growth-vct/ and the national storage mechanism: www.morningstar.co.uk/uk/NSM

Capitalised terms in this announcement are as defined in the prospectus published on 4 August 2017 unless the context otherwise requires.

Enquiries Calculus Capital Limited                                                                  0207 493 4940

EXPECTED MERGER TIMETABLE

EXPECTED TIMETABLE FOR CALCULUS VCT	2017
Latest time for the receipt of forms of proxy for the General Meeting	11.00 a.m. on 29 August
General Meeting	11.00 a.m. on 31 August
Calculation Date	11 September
Effective Date for the transfer of the assets and liabilities of Neptune to Calculus VCT and the issue of Consideration Shares	12 September
Completion of the Scheme	12 September
Admission and dealings in the Consideration Shares to commence	13 September
CREST accounts credited with the Consideration Shares issued pursuant to the Schemes	13 September
Certificates for Consideration Shares dispatched by	27 September
EXPECTED TIMETABLE FOR NEPTUNE	2017
Date from which it is advised that dealings in Neptune Shares should only be for cash settlement and immediate delivery of documents of title	23 August
Ex dividend date for special dividend	5.00 p.m. on 24 August
Record date for payment of special dividend	5.00 p.m. on 25 August
Latest time for receipt of forms of proxy for the First Neptune Meeting	11.30 a.m. on 29 August
First Neptune Meeting	11.30 a.m. on 31 August
Record Date for Shareholders' entitlements	close of business on 4 September
Register of members closed	close of business on 4 September
Latest time for receipt of forms of proxy for the Second Neptune Meeting	3.00 p.m. on 8 September
Calculation Date	11 September
Dealings in Neptune Shares suspended	7.30 a.m. on 12 September
Second Neptune Meeting	3.00 p.m. on 12 September
Effective Date for the transfer of Neptune's assets and liabilities to Calculus VCT and the issue of Consideration Shares pursuant to the Scheme	12 September
Payment of special dividend	18 September
Cancellation of the listing of the Neptune Shares	8.00 a.m. on 20 September

EXPECTED OFFER TIMETABLE, STATISTICS AND COSTS

Indicative Offer Timetable
Offer opens		4 August 2017
Closing date (for 2017/18 tax year)		3 April 2018
Closing date (for 2018/19 tax year)		31 July 2018
First allotment		no later than 5 April 2018
Effective date for the listing of Offer Shares and commencement of dealings		three Business Days following allotment
Share certificates and tax certificates to be dispatched		ten Business Days following allotment
* The Calculus VCT Directors reserve the right to extend the closing date at their discretion. The Offer will close earlier than the date stated above if fully subscribed or otherwise at the Calculus VCT  Directors' discretion.
Offer Statistics
Maximum amount to be raised by Calculus VCT*			£5 million
Unaudited NAV per Share as at 30 June 2017**			91.2p
Maximum number of Offer Shares to be issued***			5.45 million
Estimated net proceeds of the Offer***			£4.75 million
Discount for applications received by 2 February 2018****			0.5%
Discount for applications received from existing investors in Calculus VCT****			0.5%
* The Directors reserve the right to increase the size of the Offer by up to an additional £5 million. ** NAV is a blended figure between Ordinary Shares (designated D Shares as at 30 June 2017) entitled to dividend for the year ending 28 February 2017 (93.3p) and those not entitled to that dividend (89.1p).
*** Approximate figure, assuming full subscription, no use of the over-allotment facility and total Offer costs of 5% of funds raised.
**** Discounts for early applications and for existing investors in Calculus VCT will be applied through an increase in the number of Offer Shares allocated via the Pricing Formula.
Offer Costs and Commissions
Advised Investors
Promoter's Fee	3.0% of funds invested
Adviser charge	as agreed between Investor and Intermediary
Non-Advised Investors (through Intermediaries)
Promoter's Fee	3.0% of funds invested
Commission	2.0% up front 0.5% trail per annum (maximum of 3.0%)
Direct investors (those without an Intermediary)
Promoter's Fee	5.0% of funds invested

 

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