Proposed Return of Capital and New Holding Company
Diploma PLC
2 March 2000
DIPLOMA PLC ('DIPLOMA')
PROPOSED RETURN OF CAPITAL AND CREATION OF NEW HOLDING COMPANY
Further to the publication of Diploma's 1999 results on 22
November 1999 announcing Diploma's intention to return capital to
shareholders, Diploma today announces proposals to return
approximately £50.3 million to shareholders, equivalent to £1 per
share. The return will be effected through a scheme of
arrangement which will involve a capital reorganisation and the
creation of a new holding company of the group, New Diploma PLC
('New Diploma').
Under the proposals, which are subject to shareholder and Court
approval, shareholders will receive:
For every 2 Diploma shares: £2 in cash and One New Diploma
share ('New Share')
and so in proportion for any other number of Diploma shares held.
If the resulting number of New Shares is not a whole number, the
number of New Shares receivable by a shareholder will be rounded
down to the nearest whole number. Fractional entitlements for New
Shares will be aggregated and sold in the market and the net
proceeds will be distributed pro rata to the shareholders entitled
thereto. Application has been made for the existing Diploma
shares to be delisted upon the scheme becoming effective and for
the New Shares to be admitted to the Official List of the London
Stock Exchange.
Background to and reasons for the return of capital
Within the last two years, Diploma has divested four of its more
mature and lower margin businesses, South Hills Datacomm, IG, the
SEI Macro Group and Robert Lee. These businesses, which generated
combined profits before interest and tax in 1998 of £7.4 million,
have been sold for cash consideration totalling in the region of
£75 million. Certain assets, principally properties with a net
book value of £4.4 million have been retained in the group. It is
the intention of the board to sell on these assets when the
opportunity arises. Over this two year period Diploma has
returned a total of £11.4 million to shareholders through share
buy-backs.
Through the divestment programme and new investments, a re-shaped
group is being created, reduced in scope and scale but more
tightly focused on the Specialised Distribution businesses. These
serve industries which the Directors believe have potential for
long term growth and which offer potential for the group to
generate superior margins through the quality of customer service,
depth of technical support and value-adding activities. It is
intended that future investment will be focused on the new core of
businesses with a view to funding organic growth and acquisitions.
The Board has concluded that, following the disposals, the group
has substantially more capital than it requires to fund its future
growth and, accordingly, has decided that approximately £50.3
million of surplus capital should be returned to shareholders.
In considering the appropriate level of capital return and the
method by which this should be achieved, the Board has sought to:
- maintain the financial strength of the group to allow future
investment in its reduced core of Specialised Distribution
businesses; and
- benefit both shareholders and the group by making the return
of capital in as tax-efficient a manner as possible.
In addition, the introduction of New Diploma as the parent of
Diploma will allow greater flexibility for possible future re-
structuring of the group's businesses.
Summary of the reorganisation
It is proposed that the capital reorganisation will be effected by
the introduction of New Diploma as the new holding company of
Diploma and its subsidiaries by way of a scheme of arrangement
under section 425 of the Companies Act 1985. The scheme of
arrangement is subject to Court and shareholder approval. Under
the scheme of arrangement, the Diploma shares will be cancelled
and shareholders will receive £2 and one New Share as
consideration for the cancellation of every two of their existing
Diploma shares as described above.
To become effective, the scheme requires, inter alia, the approval
of a majority in number of shareholders present and voting, in
person or by proxy at the Court meeting and representing at least
75 per cent. in value of the Diploma shares held by them at the
Court meeting. The scheme is also conditional on the passing of a
resolution at the extraordinary general meeting and admission to
the London Stock Exchange. The resolution to be proposed at the
extraordinary general meeting requires approval by a majority
representing three-fourths of the votes cast. The scheme will
become effective if it receives the sanction of the Court, with or
without modification, and the Court confirms the reduction of
capital (which forms part of the scheme) and an office copy of the
Order is delivered to, and in relation to the reduction of capital
is registered by, the Registrar of Companies.
Board, management and employees
The composition of the Board of New Diploma is the same as that of
the Board of Diploma. No changes are contemplated in the
operations of the group in terms of business management or staff
as a consequence of the proposals set out in the circular and
listing particulars which will be posted to shareholders today
(see below). The rights of management and employees of the group
and the total emoluments receivable by each of the Directors will
not be varied as a result of the scheme.
Change of name
Under the scheme, shareholders will receive New Shares in place of
their existing Diploma shares. In order to maintain continuity,
it is proposed that, conditional upon the scheme becoming
effective, New Diploma will immediately change its name to Diploma
PLC and the company now known as Diploma will immediately change
its name to Diploma Holdings PLC.
Dividends and future dividend policy
The Directors intend to adopt a dividend policy consistent with
the current dividend policy of Diploma. The divestment programme
has reduced the scale of the group's activities and the levels of
its profits and cash flow. The Directors do not therefore believe
that maintaining the dividend at historic levels is appropriate at
this stage of the group's development. For the financial year
ended 30 September 1999, the Directors proposed a reduced final
dividend, providing total dividends of 9.0 pence per share for the
year compared with 14.5 pence per share for the prior financial
year. The Directors intend, at the half year stage in 2000, to
review the balance between interim and final dividend payments.
A circular convening a Court meeting and extraordinary general
meeting together with full listing particulars relating to New
Diploma will be posted to shareholders today. The shareholder
meetings will be held on 27 March 2000. Conditional upon
shareholder and Court approval, dealings in the New Shares are
expected to commence on 18 April 2000 and capital repaid to
shareholders on 25 April 2000.
Enquiries:
Diploma PLC
Bruce Thompson, Chief Executive Officer 020 7638 0934
Andrew Parkinson, Finance Director
Deutsche Bank
Antony Macwhinnie, Director 020 7545 8000
Deutsche Bank AG London, which is regulated in the United Kingdom
by The Securities and Futures Authority Limited, is acting for
Diploma PLC and New Diploma PLC in connection with the proposals
described in this announcement and no-one else and will not be
responsible to any one other than Diploma PLC and New Diploma PLC
for providing the protections afforded to its customers or for
providing advice in relation to the proposals.