Announcement of Circular and Prospectus

RNS Number : 3062B

Melrose Industries PLC

06 October 2015

 

6 October 2015

For immediate release

MELROSE INDUSTRIES PLC

Proposed introduction of a new holding company

and £2.0 to 2.5 billion return of capital

Melrose today announces its intention to implement a corporate reorganisation in order to efficiently and promptly return the proceeds of the disposal of the Elster Group (the "Disposal") to Shareholders. This corporate reorganisation follows a similar process to the one implemented in 2012 and reflects the significantly larger quantum of the proposed return of capital which is to occur following completion of the sale of Elster, a world leader in measuring and improving the flow of natural gas, electricity and water, to Honeywell International Inc.

In accordance with the Melrose Group's "buy, improve, sell" business model, following the intended completion of the Disposal the Board intends to return between £2.0 to 2.5 billion of the sale proceeds to Shareholders.

Other highlights of the Disposal include:

·      a return of 2.3 times equity investment and 33 per cent. equity IRR within the three years since the Melrose Group acquired the Elster Group for £1.8 billion in August 2012; and

·     the transfer of pension liabilities, which include the Melrose Group's FKI UK and McKechnie defined benefit pension schemes, freeing up the Melrose Group balance sheet from approximately £900 million of gross long term liabilities.

Christopher Miller, Chairman of Melrose stated:

"Having more than doubled our original equity investment in Elster, I am delighted to be able to propose a £2.0 to £2.5 billion return of capital to our investors. This is an excellent outcome for shareholders and represents another significant validation of the Melrose Group's business model.

We look forward to completing the Elster disposal in Q1 2016 and delivering further shareholder value through our highly successful "buy, improve, sell" model. The Board is excited to begin the next successful chapter in Melrose's history and in due course looks forward to inviting shareholders to invest in the next project."

Summary of the proposals

It is envisaged that the corporate reorganisation will involve the implementation of three related actions:

(a)  The Scheme: a new holding company ("New Melrose") will be introduced for the Melrose Group by means of a Court-sanctioned scheme of arrangement;

(b)  The Initial Reduction of Capital: after the Scheme becomes effective, it is then intended that a Court-confirmed reduction of capital of New Melrose will be used to create distributable reserves, currently expected to be between £50 to 150 million; and

(c)  The Proposed Return of Capital: subject to the Scheme becoming effective and the completion of the Disposal, New Melrose intends to capitalise its merger reserves and undertake a Court-confirmed return of capital to Shareholders of between £2.0 to 2.5 billion.

The Proposals will not affect the trading operations of the Melrose Group.

Shareholders will own the same number of ordinary shares in the Melrose Group before and after implementation of the Scheme and the Initial Reduction of Capital. However, the Proposed Return of Capital is expected to involve a share capital consolidation which will reduce the number of ordinary shares in New Melrose so that, subject to normal market movements, the Melrose Group share price stays approximately the same immediately before and after the Proposed Return of Capital. The consolidation involved in the Proposed Return of Capital will affect the number of ordinary shares in New Melrose which shareholders own, but not the proportion (subject to allowance for fractional entitlements). The ratio used for the share capital consolidation will be determined by the Board prior to the date of the Proposed Return of Capital.

Inserting a holding company is a common method of creating reserves. All of the Directors of Old Melrose have been appointed as Directors of New Melrose.  The implementation of the Scheme will have no impact on the reported historical financial statements of the Melrose Group or the way in which the Melrose Group will report its financial results on an ongoing basis. The Proposals are being put forward to Shareholders at this stage due to the lengthy process required to undertake such a corporate reorganisation and to approve the Proposed Return of Capital. Proceeding with the Proposals now reduces the time required for the implementation of the Proposed Return of Capital following completion of the Disposal. The Board considers the combination of the Proposals in this manner will also be beneficial in the ability to move quickly to secure any new acquisition opportunity that may arise prior to the Proposed Return of Capital.

The Scheme

The reorganisation will be carried out by a formal procedure, known as a scheme of arrangement, under the Companies Act 2006. The key features of the Scheme are as follows:

Share capital

Under the Scheme all of the issued ordinary share capital of Old Melrose will be cancelled by way of a Court-confirmed reduction of capital. As a result of such cancellation, the reserve arising will be applied in paying up and issuing to New Melrose such number of ordinary shares in the capital of Old Melrose that have an aggregate nominal value equal to the aggregate nominal value of the Old Melrose Ordinary Shares cancelled, so that New Melrose will own all of the issued share capital of Old Melrose and accordingly Old Melrose will become a subsidiary of New Melrose. Shareholders will receive 1 New Melrose Ordinary Share for every 1 Old Melrose Ordinary Share held at the Scheme Record Time.

The difference between the aggregate nominal value of the New Melrose Ordinary Shares (to be set by the Board on or prior to the Effective Date of the Scheme and which will reflect the market capitalisation of Old Melrose on such date) and the market capitalisation of Old Melrose at the Scheme Record Time will be credited to a merger reserve of New Melrose.

Court Meeting and General Meeting

The Scheme requires the approval of Shareholders at the Court Meeting and the Old Melrose General Meeting. If the Scheme and the Proposals are approved by the requisite majority at the Court Meeting and the Old Melrose General Meeting, as applicable, an application will be made to the Court to sanction the Scheme at the Court Hearing.

The Court Meeting and the Old Melrose General Meeting will be held at the offices of Investec at 2 Gresham Street, London, EC2V 7QP on 29 October 2015. The Court Meeting will start at 10:00 a.m. and the Old Melrose General Meeting will start at 10:15 a.m. (or as soon thereafter as the Court Meeting concludes or is adjourned).

Admission

Application will be made to the UKLA for the New Melrose Ordinary Shares to be admitted to the premium segment of the Official List and to the London Stock Exchange for such shares to be admitted to trading on the London Stock Exchange's main market for listed securities.

Name Change

Shortly after Admission, pursuant to resolutions of the Boards of New Melrose and Old Melrose, respectively, New Melrose will be renamed Melrose Industries PLC and Old Melrose will be renamed and will be re-registered as a private limited company.

Expected timetable of events relating to the Scheme and the Initial Reduction of Capital

Posting of the Circular to Shareholders	6 October 2015
Court Meeting Old Melrose General Meeting	10:00 a.m. on 29 October 2015 10:15 a.m. on 29 October 2015
Court sanction of the Scheme	18 November 2015
Effective date of the Scheme	19 November 2015
Delisting of Old Melrose and Admission of New Melrose to trading	19 November 2015
Initial Reduction of Capital becomes effective	23 November 2015

The Proposed Return of Capital

Following the completion of the Disposal, which is expected to occur in the first quarter of 2016, steps will be taken to effect the Proposed Return of Capital, unless the Board considers that it is no longer in the best interests of Shareholders. Whilst the precise timing of the Proposed Return of Capital will depend, among other things, on the availability of Court dates, New Melrose would seek to return capital to Shareholders within 5 to 7 weeks following the completion of the Disposal. The Proposed Return of Capital will require two court hearings, but no further general meeting of the Shareholders of New Melrose.

The Circular setting out full details of the Proposals will be published and posted to Shareholders today (subject to approval by the FCA). The Circular and the Prospectus will be made available on Melrose's website, www.melroseplc.net, and will be submitted to the National Storage Mechanism where they will be available for inspection at www.morningstar.co.uk/uk/nsm.do. Copies of the Circular and the Prospectus will also be available for inspection during normal business hours on any Business Day at the offices of Simpson Thacher & Bartlett LLP, Citypoint, One Ropemaker St, London, EC2Y 9HU, from the date of the Prospectus up to and including the date of admission.

Terms used in this announcement shall have the same meanings as set out in the Circular.

Enquiries:

Montfort Communications
Financial PR
Charlotte McMullen	[phone]
Rothschild
Sponsor and Financial Adviser
Ravi Gupta/Yuri Shakhmin/Nathalie Ferretti	[phone]

Investec
Broker
Keith Anderson/Carlton Nelson	[phone]

Disclaimers

Rothschild, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the United Kingdom, is acting solely for New Melrose and no one else in relation to Admission and solely for New Melrose and Old Melrose and no one else in relation to the Proposals and, save for any responsibility which may arise under FSMA or the regulatory regime established thereunder, will not be responsible to anyone other than New Melrose and Old Melrose for providing the protections afforded to the respective clients of Rothschild or for providing advice in connection with the Admission and the Proposals, as applicable, the contents of this announcement or any transaction, arrangement or other matter referred to in this announcement.

Investec, which is authorised by the Prudential Regulation Authority and regulated by the FCA and the Prudential Regulation Authority in the United Kingdom, is acting solely for New Melrose and no one else in relation to Admission and solely for New Melrose and Old Melrose

and no one else in relation to the Proposals and, save for any responsibility which may arise under FSMA or the regulatory regime established thereunder, accordingly will not be responsible to any person other than New Melrose and Old Melrose for providing the protections afforded to the respective clients of Investec or for providing advice in connection with the Admission and the Proposals, as applicable, the contents of this announcement or any transaction, arrangement or other matter referred to in this announcement.

 

END

 

 

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