Placing and Open Offer

Mercury Group PLC
15 December 2006


Not for release, publication or distribution in or into or from Australia,
Canada, Japan, the Republic of South Africa  or the United States of America or
any other jurisdiction where to do so would constitute a violation of the
relevant  laws of such jurisdiction (each a 'Restricted Jurisdiction').

                                                                                

                                                                                

                                                                15 December 2006

                                                                                

                               Mercury Group plc                                
                          ('Mercury' or the 'Company')                          

                                                                                

                      Proposed Capital Reorganisation and                       
   Placing and Open Offer of 20,000,000 New Ordinary Shares at 7.5p per share   
                                      and                                       
                    Notice of Extraordinary General Meeting                     
                                                                                

Summary
     
•   Proposed Capital Reorganisation to significantly reduce the costs associated
    with servicing a large  shareholder base of over 4,000 shareholders. 
 
•   Placing and Open Offer to raise £1.5 million (before expenses) to alleviate 
    the current working capital  constraints and establish a base to rebuild 
    the business.
     
•   Pursuant to the Placing and Open Offer 20,000,000 New Ordinary Shares will 
    be issued at 7.5 pence per New Ordinary Share resulting from the Capital 
    Reorganisation (equivalent to 0.75p per Existing Ordinary Share).
 
•   Following the proposed Capital Reorganisation and Placing and Open Offer 
    the Company will have 31,297,520 New  Ordinary Shares in issue
 
This summary should be read in conjunction with, and is subject to, the
accompanying full text of this announcement.   The conditions and certain
further terms of the Offer are set out in this announcement.
 
It is expected that the circular to Shareholders and the Application Form will
be dispatched today, other than in  relation to a Restricted Jurisdiction.

 

Enquires:
Mercury Group plc                                                               
Simon Michaels, Finance Director                              Tel: [phone] 
                                                                           
Walter Goldsmith, Non-Executive                                                 
Chairman                                                                        
                                                                                
John East & Partners Limited                                                    
John East/Simon Clements                                      Tel: [phone] 
                                                                           
                                                                                
College Hill                                                                    
Matthew Smallwood                                             Tel: [phone]
                                                                            

 
If you are in any doubt about the action you should take, you are recommended to
seek your own personal financial  advice immediately from your stockbroker, bank
manager, solicitor, accountant or independent financial adviser  authorised
under the Financial Services and Market Act 2000 if you are resident in the
United Kingdom or, if not, from  another appropriately authorised independent
financial adviser.
 
This announcement does not constitute, or form any part of, an offer or
invitation to purchase any securities or a  solicitation or an offer to buy any
securities, pursuant to the Open Offer or otherwise.  The Open Offer will be
made  solely by the circular to be sent to Shareholders, an advertisement to be
published in the London Gazette and the  Application Form, which will contain
the full terms and conditions of the Open Offer, including details of how the
Open  Offer may be accepted.
  Pendana Limited accepts responsibility for the information in this
Announcement relating to Pendana Limited.  The  Independent Directors,
comprising Simon Michaels and Ronald Franks, accept responsibility for the
recommendation and  opinions of the Independent Directors relating to the
Placing and Open Offer contained in this Announcement. The  Directors accept
responsibility for all of the other information in this Announcement.  To the
best of the knowledge  and belief of Pendana, the Directors and the Independent
Directors (who have taken all reasonable care to ensure such  is the case) the
information contained in this Announcement for which they are respectively
responsible is in  accordance with the facts and does not omit anything likely
to affect the import of such information.
 
This announcement contains definitions of certain expressions used in this 
announcement.
 
The availability of the Open Offer to Shareholders who are not resident in the
United Kingdom may be affected by the  laws of the relevant jurisdictions in
which they are located.  Shareholders who are not resident in the United Kingdom
should inform themselves about and observe any applicable legal or regulatory
requirements in their jurisdictions.  The  Open Offer is not being made, and
will not be made, directly or indirectly, in or into, or by use of mail, or by
any  means or instrumentality (including, without limitation, by means of
telephone, facsimile, telex, internet or other  forms of electronic
communication) of interstate or foreign commerce, or by any facilities of a
national securities  exchange of, Australia, Canada, Japan, the Republic of
South Africa or the United States of America or any other  Restricted
Jurisdiction and the Open Offer will not be capable of acceptance by any such
use, means, instrumentality or  facility or from within those jurisdictions. 
Accordingly, copies of this announcement, the circular to Shareholders,  the
Application Form and any related offering documents are not being, and must not
be, mailed, transmitted or  otherwise forwarded, distributed or sent, in whole
or in part, in, into or from Australia, Canada, Japan, the Republic  of South
Africa or the United States of America or any other Restricted Jurisdiction. 
Custodians, nominees and  trustees should observe these restrictions and should
not send or distribute copies of this announcement, the circular  to
Shareholders, the Application Form and any related offering documents in, into
or from Australia, Canada, Japan, the  Republic of South Africa or the United
States of America.
 
John East & Partners, which is authorised and regulated in the United Kingdom by
the Financial Services Authority, is  acting exclusively for the Company and for
no-one else in connection with the proposed Placing and Open Offer and other 
matters and will not be responsible to anyone other than the Company for
providing the protections afforded to  customers of John East & Partners nor for
giving advice in relation to the Placing and Open Offer or any other matter 
referred to in this announcement.
 

 

                      Proposed Capital Reorganisation and                       
   Placing and Open Offer of 20,000,000 New Ordinary Shares at 7.5p per share   
                                      and                                       
                    Notice of Extraordinary General Meeting                     


Introduction

In the Company's interim statement, issued on 29 June 2006, the Chairman made
reference to the slippage in the timing of some key contracts throughout the
business, which were expected to affect results adversely for the year to 30
September 2006. In addition, the Chairman stated that the results for the year
would include non-recurring costs totalling £450,000, relating to an aborted
acquisition and a restructuring programme.

On 4 September 2006, the Company announced that, since issuing the interim
statement, all three of the Company's operating subsidiaries had experienced
difficult trading conditions and the cash balance reported as at 31 March 2006
of £805,000 had been substantially reduced, that the resulting working capital
constraints had been further compounded by a number of large unpaid debts, which
were proving difficult to recover and that the Company was rigorously pursuing
the recovery of these debts, including taking appropriate legal action where
necessary.

The Company intends to raise £1.5 million (before expenses) by means of a
Placing and Open Offer. Pendana has conditionally agreed to subscribe for up to
£1.5 million in a Placing, which is subject to clawback by Shareholders under
the Open Offer. Pendana, which currently holds 26,666,667 Existing Ordinary
Shares, equivalent to 23.60 per cent of the existing ordinary share capital of
the Company, is an investment company which is ultimately owned by the Tchenguiz
Family Trust.

Pendana has conditionally agreed to subscribe for the Placing Shares, subject to
the rights of Qualifying Shareholders to apply for Offer Shares under the Open
Offer. If Qualifying Shareholders do not apply for any of their entitlements
under the Open Offer, Pendana will subscribe for them itself and this will
result in Pendana acquiring up to 20,000,000 Placing Shares, which would
increase its shareholding to a maximum of 72.42 per cent. of the enlarged issued
ordinary share capital. Since this exceeds 30 per cent. of the enlarged issued
ordinary share capital, Pendana would, in the absence of a waiver from the
provisions of Rule 9 of the Code being granted by the Panel, be obliged to make
a general offer for the Company. The Panel has agreed, subject to a resolution
being passed on a poll by the Independent Shareholders at the EGM, to waive this
obligation.

Shareholders should be aware that the Company is reliant on its bankers
continuing to provide the existing bank facility, which has recently been
reduced, at the bank's request, to £300,000 from £750,000. In the event that the
Proposals are not completed there can be no certainty that such support will
continue. In this eventuality the Company would be unable to pay its debts as
and when they fall due and would have to cease trading.

Furthermore, the Directors have been advised by John East & Partners that in the
event that the Proposals are not completed, John East & Partners would not be in
a position to confirm to the London Stock Exchange that the Company remained
suitable for trading on AIM. Consequently, the trading in the Company's existing
ordinary shares would be suspended.
 

Capital Reorganisation

The Company presently has in excess of 4,000 Shareholders. This adds a
considerable cost to the overheads of the Company caused by the need to produce
interim and annual accounts and registrars costs. Over 60 per cent. of
Shareholders have holdings with a value (at the Placing Price) of £3 or less.
Accordingly, it is proposed to consolidate the shareholdings in the Company on
the terms set out below. The Placing Price is below the present nominal value of
the Ordinary Shares. Company law prohibits a company from issuing fully paid
shares at a discount to the nominal, or par, value of its shares. Therefore, in
order to carry out the Placing and Open Offer, it is necessary to reduce the
nominal value of the Company's authorised and issued Ordinary Shares.
Accordingly, the Directors have decided that a share reorganisation will be
effected on the following basis:
 

(a) every 400 Existing Ordinary Shares will be consolidated into one new
    ordinary share of £4 each in the capital of the Company;

(b) each new ordinary share of £4 each will be subdivided into 40 new ordinary
    shares of 10p each in the capital of the Company;

(c) each of the issued ordinary shares of 10p each resulting from the
    consolidation will be subdivided and redesignated into one New Ordinary 
    Share and one Deferred Share; and


(d) each of the authorised and unissued Ordinary Shares will be redesignated
    into one New Ordinary Share.

Any fractions arising from the Capital Reorganisation will be aggregated, issued
and sold for the benefit of the Company.

The rights attaching to the New Ordinary Shares will, apart for the change in
nominal value and the entitlement of Shareholders in respect of a return of
capital or other distributions arising from them, be identical in all respects
to those of the Existing Ordinary Shares.

The Deferred Shares will have no voting rights and will not carry any
entitlement to attend general meetings of the Company. They will carry only the
right to participate in any return of capital to the extent of 1p per Deferred
Share but only after each New Ordinary Share has received in aggregate capital
repayments totalling £1 million per New Ordinary Share.

Accordingly, the Deferred Shares will, for all practical purposes, be valueless
and it is the Board's intention, at an appropriate time, to make an application
to the Companies Court for the Deferred Shares to be cancelled.

Existing share certificates will cease to be valid following the Capital
Reorganisation and new share certificates are expected to be issued on 19
January 2007; no certificates will be issued in respect of Deferred Shares.


The Placing and Open Offer

The Company is proposing to raise approximately £1.5 million (before expenses)
by the issue of the Placing Shares and Offer Shares pursuant to the Placing and
Open Offer. Accordingly, 20,000,000 Placing Shares have been conditionally
placed by the Company with Pendana, subject to the right of Qualifying
Shareholders to apply for their allocation of Offer Shares under the Open Offer
at a price of 7.5p per Offer Share, payable in full on application and free of
all expenses, pro rata to their existing shareholdings on the basis of:


             71 Offer Shares for every 400 Existing Ordinary Shares             


held at the close of business on the Open Offer Record Date and so on in
proportion for any greater number of Existing Ordinary Shares then held.
Entitlements to Offer Shares will be rounded down to the nearest whole number of
Offer Shares. Fractional entitlements will not be allotted to Shareholders but
will be issued pursuant to the Placing for the benefit of the Company.

The Open Offer is subject to the satisfaction, amongst other matters, of the
following conditions on or before 12 January 2007, (or such later date being not
later than 31 January 2007, as the Company may decide):


(i)   the passing without amendment of the Resolutions;

(ii)  the subscription monies for the Placing Shares being received in full by
      the Company;

(iii) the Placing Letter becoming unconditional in all respects and not having
      been rescinded in accordance with its terms; and

(iv)  Admission becoming effective by 8.00 am on 12 January 2007, (or such later
      time or date not being later than 8.00 am on 31 January 2007 as the 
      Company may decide).

The Offer Shares and the Placing Shares will, when issued and fully paid, rank
pari passu in all respects with the New Ordinary Shares, including the right to
receive all dividends and other distributions declared, made or paid after the
date of Admission.

The Open Offer has been structured so as to allow Qualifying Shareholders to
subscribe for New Ordinary Shares at the Placing Price pro rata to their
existing holdings. Qualifying Shareholders may make excess applications under
the Open Offer up to a maximum additional amount equal to their pro rata
entitlement. Excess applications will be met to the extent that corresponding
applications by other Qualifying Shareholders are not made or are made for less
than their pro rata entitlements. If there is an over-subscription resulting
from excess applications, allocations in respect of such excess applications (to
the extent of any competition) be scaled back in such manner, as the Company
shall, in its absolute discretion, determine. To the extent that Offer Shares
are not subscribed by existing Shareholders, Open Offer entitlements will lapse
and the related Offer Shares will be issued pursuant to the Placing.

Following completion of the Proposals, a Shareholder with a shareholding of less
than 400 Existing Ordinary Shares at the Capital Reorganisation Record Date will
receive no New Ordinary Shares and will not qualify to apply for Offer Shares
under the Open Offer. Following the completion of the Proposals, all
Shareholders with a shareholding of greater than 400 Existing Ordinary Shares at
the Capital Reorganisation Record Date will receive 40 New Ordinary Shares for
every 400 Existing Ordinary Shares held ignoring fractional entitlements and
will qualify to subscribe for Offer Shares in the Open Offer.

Therefore, if a Shareholder holds 4,240 Existing Ordinary Shares at the Capital
Reorganisation Record Date, the Shareholder will hold 400 New Ordinary Shares
following the Capital Reorganisation and will have the right to subscribe for
752 Offer Shares in the Open Offer plus an additional 752 Offer Shares by way of
excess applications but may be scaled back on a pro rata basis if he applies for
more than his pro rata entitlement. Therefore, if at present you have less than
400 Existing Ordinary Shares you will not receive any New Ordinary Shares and
will not qualify to apply for any Offer Shares.

Ronald Franks, being the only Independent Director owning shares in the Company,
beneficially holds 284,480 Existing Ordinary Shares, equivalent to 0.25 per
cent. of the Existing Ordinary Shares, has an aggregate entitlement under the
Open Offer to 50,495 Offer Shares. Ronald Franks intends to take up his full
entitlement under the Open Offer and his full entitlement under the excess
applications.

 
Use of proceeds

The Placing proceeds will be applied in reducing bank debt, improving the
Group's working capital position and investing in the infra-structure and growth
of SMPA.

 
Current trading and future prospects

The Group has experienced difficult trading conditions in the Company's
operating subsidiaries since issuing the interim statement. Accordingly, the
Board anticipates that the results for the year ended 30 September 2006 will
show material losses. These losses, coupled with the loss and goodwill
impairment of £2.5 million arising from the sale of Navitas Hemway and further
goodwill impairment will result in a very substantial erosion of the Company's
net assets.

Following completion of the Proposals, the Company will concentrate on growing
and developing SMPA, its core commercial property agency. Whilst the Group is
currently performing below expectations, the Board believes that the cost
cutting measures already achieved and further planned, combined with the planned
investment in SMPA and the additional levels of business anticipated from
parties associated with Pendana, will improve the Group's future trading
prospects.


Directors

Walter Goldsmith (Non-Executive Chairman), is a chartered accountant, with
substantial board level experience in a number of public and private companies.
A considerable part of his career was spent at The Black & Decker Corporation,
where he was latterly Corporate Vice President. Mr Goldsmith was subsequently
group planning and marketing director at Forte plc and, for five years, was the
Director General of the Institute of Directors. He is currently Deputy Chairman
of Asite plc (formerly Premisys plc). Mr Goldsmith is a consultant to the
Consensus Business Group, which is associated with Pendana.

Ronald Franks (Chief Executive Officer), was appointed to the Board following
the acquisition of SMPA in March 2005. Mr Franks has worked for SMPA since 1969
and has been managing director of SMPA since 2001 and is currently joint
managing director.

Simon Michaels (Finance Director and Company Secretary), was appointed Finance
Director on 1 January 2006. A Chartered Accountant, Mr Michaels was previously
finance director of Harvey Nash Group Plc's UK and US operations. Previously, Mr
Michaels worked for RP Corporate Strategy, the privately owned Strategy
Consultancy. At RP Corporate Strategy, he provided business strategy advice on
property-related ventures. Between 1990 and 1998, he held financial positions
with Coopers & Lybrand, London and Gibson Appleby Chartered Accountants,
Brighton.

James Lugg (Non-Executive Director), joined the Board as an executive director
on 16 August 2006. He has over twenty years' experience in the property services
sector. He is also a director of Energy Technique Plc, an AIM quoted company. Mr
Lugg is a consultant to the Consensus Business Group, which is associated with
Pendana.

The Board has appointed, conditional on Admission, George Kynoch as an
independent Non-Executive Director with effect from Admission.

George Kynoch (proposed Non-Executive Director) has over 30 years' experience in
industry and was chief executive of G & G Kynoch plc, the predecessor of Kynoch
Group plc, now called Bioquell PLC, a design and manufacture company listed on
the Official List, until 1990. He continued as an executive director until 1992
and a non-executive director until 1995. Mr Kynoch was the Scottish Office
Industry and Local Government Minister from 1995 to 1997, while serving as a
Member of Parliament for Kincardine and Deeside between 1992 and 1997. He is
non-executive chairman of ToLuna Plc, OCZ Technology Group, Inc. and TEP
Exchange Group plc, all of which are companies which are listed on AIM and of
Mountwest 146 Limited and Madwaves (UK) Limited. He is a non-executive director
of Talent Group plc, which is also quoted on AIM.


Independent Directors Recommendation

Walter Goldsmith and James Lugg are associated with Pendana and have,
accordingly, taken no part in the deliberations of the Board with regard to the
matters set out in the circular to Shareholders and are precluded from making
any recommendation to Shareholders with regard to the Proposals.

The Independent Directors, who have been so advised by John East & Partners,
believe that the Proposals, including the waiver of the obligation on Pendana to
make a general offer to Shareholders under Rule 9 of the Code, are fair and
reasonable and are in the best interests of the Company and its Shareholders and
recommend you to vote in favour of the Resolutions as they have undertaken to do
in respect of their aggregate shareholdings of 284,480 Existing Ordinary Shares,
equivalent to 0.25 per cent of the Existing Ordinary Shares. In providing advice
to the Independent Directors, John East & Partners has taken into account the
commercial assessment of the Independent Directors.

 
                         Expected timetable of events                           

Record Date for the Open Offer                                  12 December 2006  
                                                                                
Latest time and date for receipt of 
Application Forms and payment in full                  3.00 pm on 9 January 2007         
                                                                                
Latest time and date for receipt of Proxy Forms       10.00 am on 9 January 2007  
                                                                                
EGM                                                  10.00 am on 11 January 2007  
                                                                                
Admission effective and dealings commence on AIM                 12 January 2007
                                                                                

 

 
                                                                                
                                                                                
Definitions    
                                                                 
The following definitions apply throughout this announcement unless the context 
requires otherwise: 
                                                            
'Act'                         the Companies Act 1985 (as amended)               
'Admission'                   the admission of the Enlarged Issued Ordinary     
                              Share Capital to trading on AIM becoming effective
                              in accordance with the AIM Rules                  
'AIM'                         the AIM Market of the London Stock Exchange       
'AIM Rules'                   the rules published by the London Stock Exchange  
                              relating to AIM, as amended from time to time     
'Application Form'            the application form accompanying the circular to 
                              Shareholders to be used by Qualifying Shareholders
                              in connection with the Open Offer                 
'Capital Reorganisation'      the proposed consolidation and sub-division of    
                              each Existing Ordinary Share into one New Ordinary
                              Share and one Deferred Share                      
'Capital Reorganisation       the close of business on 11 January 2007          
Record Date'                                                                    
'Code'                        the Takeover Code                                 
'Company' or 'Mercury'        Mercury Group plc                                 
'CREST'                       the system for paperless settlement of trades and 
                              the holding of uncertificated shares administered 
                              through CRESTCo. Limited                          
'Deferred Shares'             the deferred shares of 9p each arising from the   
                              Capital Reorganisation                            
'Directors' or 'the Board'    the directors of the Company as set out in this   
                              announcement                                      
'EGM' or 'Extraordinary       the extraordinary general meeting of the Company  
General Meeting'              convened for 10.00 a.m. on 9 January 2007, notice 
                              of which is set out in the circular to            
                              Shareholders                                      
'Enlarged Issued Ordinary     the 31,297,560 New Ordinary Shares in issue       
Share Capital'                following completion of the Proposals             
'Existing Ordinary Shares'    the 112,975,684 Ordinary Shares in issue at the   
                              date of this announcement                         
'Form of Proxy'               the form of proxy accompanying the circular to    
                              Shareholders for use in connection with the EGM   
'Group'                       the Company and its subsidiary undertakings       
'Independent Directors'       Simon Michaels and Ronald Franks                  
'Independent Shareholders'    holders of Existing Ordinary Shares, excluding    
                              Pendana and its associated parties                
'John East & Partners'        John East & Partners Limited                      
'London Stock Exchange'       London Stock Exchange plc                         
'Navitas Hemway'              Navitas Hemway Limited                            
'New Ordinary Shares'         the new ordinary shares of 1p each in the capital 
                              of the Company arising from the Capital           
                              Reorganisation                                    
'Offer Shares'                the New Ordinary Shares to be issued by the       
                              Company for subscription under the Open Offer     
'Open Offer'                  the conditional offer to Qualifying Shareholders  
                              to subscribe for the Offer Shares at the Placing  
                              Price, as described in the circular to            
                              Shareholders                                      
'Open Offer Record Date'      the close of business on 12 December 2006         
'Ordinary Shares'             ordinary shares of 1p each in the capital of the  
                              Company                                           
'Panel'                       the Panel on Takeovers and Mergers                
'Pendana'                     Pendana Limited                                   
'Placing'                     the conditional placing of the Placing Shares at  
                              the Placing Price pursuant to the Placing Letter  
'Placing Letter'              the conditional letter dated 15 December 2006     
                              between the Company and Pendana                   
'Placing Price'               7.5p per Placing Share                            
'Placing Shares'              the 20,000,000 New Ordinary Shares placed         
                              conditionally with Pendana, all of which are      
                              subject to recall by Qualifying Shareholders under
                              the Open Offer                                    
'Proposals'                   the proposals set out in the circular to          
                              Shareholders                                      
'Qualifying Shareholders'     holders of 400 or more Existing Ordinary Shares at
                              the Open Offer Record Date                        
'Resolutions'                 the resolutions set out in the notice of the      
                              Extraordinary General Meeting in the circular to  
                              Shareholders                                      
'Rule 9 Waiver'               the agreement by the Panel to waive the obligation
                              on Pendana to make a general offer to all         
                              Shareholders pursuant to Rule 9 of the Code       
                              subject to approval, by way of a poll vote, of the
                              Shareholders                                      
'Shareholders'                holders of Existing Ordinary Shares               
'SMPA'                        Smith Melzack Pepper Angliss Limited              
'Telco Solutions'             Telco Solutions Limited                           

 



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