Acquisition and Rights Issue

RNS Number : 8070X

Yule Catto & Co PLC

13 December 2010

Yule Catto & Co. plc

13 December 2010

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN OR SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL

Yule Catto & Co. plc ("Yule Catto" or the "Company")

Proposed acquisition of PolymerLatex Deutschland Beteiligungsgesellschaft mbH ("PolymerLatex") and 4 for 3 rights issue to raise £225 million

Yule Catto today announces that it has entered into an agreement to acquire the entire issued share capital of PolymerLatex for a total transaction value of €443 million (£376 million). Yule Catto further announces a 4 for 3 rights issue to raise gross proceeds of approximately £225 million (the "Rights Issue").

Highlights

§ The PolymerLatex Group, headquartered in Germany, is an established player in the development, production and distribution of emulsion polymer products.

§ The Acquisition of PolymerLatex is a compelling, transformational opportunity for Yule Catto to acquire a leading emulsion polymers franchise, giving Yule Catto increased scale and market share, a broader product offering and an improved new product pipeline.

§ Specifically, the Directors believe that the Acquisition of PolymerLatex delivers a number of strategic benefits to Yule Catto, including:

- building Yule Catto's position in the xSBR latex market by adding European manufacturing assets, new end markets and applications development capabilities, enabling Yule Catto to compete more effectively in this market segment;

- providing Yule Catto with access to additional modern, purpose-built nitrile latex capacity in Malaysia, offering the opportunity to expand Yule Catto's product offering in the growing synthetic latex protective gloves market. The PolymerLatex Group's manufacturing facilities in Malaysia also offer growth opportunities for Yule Catto in xSBR in the Asian market; and

- providing Yule Catto with access to additional manufacturing process expertise, research and development and technical service capabilities.

§ In addition, the Directors believe that the Acquisition will help to accelerate Yule Catto's strategy of growing its Polymer Chemicals division in attractive emerging markets, where Yule Catto's technology, new product development and manufacturing capabilities give it a strong market position.

§ The Directors believe that the Enlarged Group will be able to achieve annual cost synergies of at least £20 million, the majority of which are expected to be achieved through efficiency improvements within the manufacturing operations and the selling, general and administrative functions of the Enlarged Group. The Board expects to benefit from around 30 per cent. of these synergies in 2011, with the full benefit of the synergies being realised in 2012 and beyond.

It is expected that the cost of realising these synergies will be approximately £20 million, of which the significant majority would be incurred in 2011, with the remainder being incurred in 2012. In addition the Board expects to make additional capital expenditure of approximately £23 million to realise these synergies with this additional initial cost being offset by expected capital expenditure savings during the first three years of ownership.

§ The total transaction value of €443 million (£376 million) is made up of €157 million (£133 million) to acquire the entire issued share capital of PolymerLatex and the assumption of the PolymerLatex Group's existing net indebtedness of €286 million (£243 million). In addition, the Enlarged Group will continue to fund the PolymerLatex Group's unfunded pension liability, estimated at €31 million (£26 million) as at 31 December 2009. For the six months to 30 June 2010, the PolymerLatex Group's underlying sales were €279.6 million and underlying EBITDA was €33.8 million. In the year ended 31 December 2009, the PolymerLatex Group achieved underlying sales of €386.7 million and underlying EBITDA of €54.6 million.

§ Yule Catto (through its wholly owned subsidiary Yule Catto Holdings GmbH) has agreed to acquire PolymerLatex from PolymerLatex Holdings B.V., a company owned by funds controlled by TowerBrook Capital Partners (UK) LLP.

§ Yule Catto proposes to fund the Acquisition and associated fees and expenses from a combination of:-

- a Rights Issue of New Ordinary Shares at a price of 116 pence per share on the basis of 4 New Ordinary Shares for every 3 Existing Ordinary Shares, raising gross proceeds of approximately £225 million; and

- New Credit Facilities comprising a euro denominated £150 million 3 year term loan facility and a £60 million 3-year multicurrency revolving credit facility (of which £15 million will be drawn down for the purposes of funding the Acquisition).

§ The Rights Issue has been fully underwritten by HSBC and Barclays Capital as Joint Global Coordinators and Joint Bookrunners, by Collins Stewart and RBS Hoare Govett as Joint Bookrunners and by Commerzbank as Co-Lead Manager, except for the New Ordinary Shares which KLK, a significant Shareholder of Yule Catto, have irrevocably undertaken to take up (and to procure the take up of by other members of the KLK Group). The KLK Group currently holds 18.82% of the issued share capital of Yule Catto and has agreed to take up its rights in full.

§ In view of its size relative to that of Yule Catto, the Acquisition constitutes a Class 1 transaction under the Listing Rules and accordingly is conditional on Shareholder approval. Resolutions to approve the Acquisition and to grant authorities required to implement the Rights Issue will be proposed at a General Meeting of the Company to be held on 30 December 2010 at 11.00 a.m.

Commenting on today's announcement, Adrian Whitfield, Chief Executive of Yule Catto, said:

"The acquisition of PolymerLatex represents a transformational opportunity for Yule Catto. It creates a group with increased scale, an enhanced product portfolio, stronger market positions and greater efficiencies, all of which provide a foundation from which to grow and compete more effectively in a consolidating emulsion polymers market. At the same time, it supports our long-term strategy by providing a stronger platform and the necessary cash generation to accelerate our growth in emerging markets. With meaningful potential synergies, it is a financially attractive deal which is expected to be accretive to earnings from the first year of ownership and significantly accretive thereafter."

A presentation to analysts and investors will be held today at the offices of Collins Stewart, 88 Wood Street, London EC2V 7QR at 9.30am.

Enquiries

Yule Catto & Co plc Tel: +44 (0)1279 442 791

Adrian Whitfield, Chief Executive Officer

David Blackwood, Group Finance Director

HSBC Tel: +44 (0)20 7991 8888

Sole financial adviser to Yule Catto

Charles Packshaw

Oliver Smith

Sponsor, joint global coordinator and joint bookrunner

Nick Donald

Stuart Dickson

Barclays Capital Tel: +44 (0)20 7623 2323

Joint global coordinator and joint bookrunner

Jon Bathard-Smith

Tom Johnson

Derek McNulty

Collins Stewart Tel: +44 (0)20 7523 8350

Joint broker and joint bookrunner

Mark Dickenson

Bruce Garrow

Matt Goode

RBS Hoare Govett Tel: +44 (0)20 7678 8000

Joint broker and joint bookrunner

Nick Adams

Lee Morton

MHP Communications Tel: +44 (0)20 3128 8100

Andrew Jaques

John Olsen

Ian Payne

Disclaimers

This Announcement is not for release, publication or distribution, directly or indirectly, in whole or in part, in or into the United States, Australia, Canada, Japan or South Africa or any other jurisdiction into which the same would be unlawful.

This Announcement does not contain or constitute or form part of an offer of, or the solicitation of an offer to buy or subscribe for, securities in Australia, Canada, Japan or South Africa, or the United States or in any jurisdiction to whom or in which such offer or solicitation is unlawful. Subject to certain exceptions, the securities referred to herein may not be offered or sold in Australia, Canada, Japan or South Africa or to, or for the account or benefit of, any national, resident or citizen of Australia, Canada, Japan or South Africa. The securities referred to herein have not been and will not be registered under the US Securities Act of 1933, as amended (the "US Securities Act") or under the applicable securities laws of Australia, Canada, Japan or South Africa and may not be offered or sold in the United States absent registration or an exemption from registration under the US Securities Act. There will be no public offer of the securities in the United States and the information contained herein does not constitute an offering of securities for sale in the United States, Canada, Australia, Japan or South Africa. The availability of the Rights Issue to persons not resident in the United Kingdom may be affected by the laws of the relevant jurisdictions. Such persons should inform themselves about and observe any application requirements.

The Nil Paid Rights, the Fully Paid Rights, the New Ordinary Shares and the Provisional Allotment Letters have not been and will not be registered under the US Securities Act or under the securities laws of any state or other jurisdiction of the United States or qualify for distribution under any of the relevant securities laws of the Excluded Territories. Subject to certain exceptions, none of the Nil Paid Rights, the Fully Paid Rights, the New Ordinary Shares nor the Provisional Allotment Letters may be offered, sold, resold, delivered or transferred or delivered, directly or indirectly, within the United States, or the Excluded Territories. There will be no public offer of the Nil Paid Rights, the Fully Paid Rights, the New Ordinary Shares or the Provisional Allotment Letters in the United States.

The distribution of this Announcement and/or the Prospectus and/or the Provisional Allotment Letter and/or the offering of the Nil Paid Rights, the Fully Paid Rights or the New Ordinary Shares in jurisdictions other than the United Kingdom may be restricted by law. No action has been taken by the Company or any of HSBC, Barclays Capital, RBS, Collins Stewart or Commerzbank AG that would permit an offering of such rights or shares or possession or distribution of this Announcement or any other offering or publicity material relating to such shares in any jurisdiction where action for that purpose is required. Persons into whose possession this Announcement comes are required by the Company and each of HSBC, Barclays Capital, RBS, Collins Stewart or Commerzbank AG to inform themselves about, and to observe, any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.

This Announcement is for information and background purposes only and does not purport to be full or complete. No reliance may or should be placed by any person for any purpose whatsoever on the information contained in this announcement or on its accuracy or completeness. The information in this announcement is subject to change.

This Announcement is an advertisement and not a prospectus and investors should not subscribe for or purchase any securities referred to in this Announcement except on the basis of information to be contained in the Prospectus expected to be published on or around 13 December 2010 by the Company in connection with the proposed Acquisition and Rights Issue. Copies of the Prospectus will be available from the Company's registered office at Temple Fields, Harlow, Essex CM20 2BH.

This Announcement has been prepared and issued by and is the sole responsibility of the Company. No representation or warranty, express or implied is, or will be made as to, or in relation to, and no responsibility or liability is, or will be, accepted by any of HSBC, Barclays Capital, RBS, Collins Stewart or Commerzbank AG or by any of their affiliates or agents as to, or in relation to, the accuracy or completeness or verification of this Announcement or any other written or oral information made available to or publicly available to any interested party or its advisers, and any liability therefore is expressly disclaimed.

HSBC, which is authorised and regulated by the FSA in the United Kingdom, is acting exclusively for the Company as Sponsor, Financial Adviser, Joint Global Coordinator and Joint Bookrunner in connection with the Acquisition and Rights Issue and will not regard any other person as its client in relation to the Acquisition and Rights Issue and will not be responsible to anyone other than the Company for providing the protections afforded to its clients or for providing advice in relation to the Acquisition and Rights Issue or any other matters referred to in this Announcement.

Barclays Capital, which is authorised and regulated by the FSA in the United Kingdom, is acting exclusively for the Company as Joint Global Coordinator and Joint Bookrunner in connection with the Rights Issue and will not regard any other person as its client in relation to the Rights Issue and will not be responsible to anyone other than the Company for providing the protections afforded to its clients or for providing advice in relation to the Rights Issue or any other matters referred to in this Announcement.

RBS, which is authorised and regulated by the FSA in the United Kingdom, is acting exclusively for the Company as Joint Bookrunner and Joint Corporate Broker in connection with the Rights Issue and will not regard any other person as its client in relation to the Rights Issue and will not be responsible to anyone other than the Company for providing the protections afforded to its clients or for providing advice in relation to the Rights Issue or any other matters referred to in this Announcement.

Collins Stewart, which is authorised and regulated by the FSA in the United Kingdom, is acting exclusively for the Company as Joint Bookrunner and Joint Corporate Broker in connection with the Rights Issue and will not regard any other person as its client in relation to the Rights Issue and will not be responsible to anyone other than the Company for providing the protections afforded to its clients or for providing advice in relation to the Rights Issue or any other matters referred to in this Announcement.

Commerzbank AG, which is authorised by the BaFin and regulated by the FSA in the United Kingdom, is acting exclusively for the Company as Co-Lead Manager in connection with the Rights Issue and will not regard any other person as its client in relation to the Rights Issue and will not be responsible to anyone other than the Company for providing the protections afforded to its clients or for providing advice in relation to the Rights Issue or any other matters referred to in this Announcement.

This Announcement contains certain forward-looking statements which reflect the Group's or, as appropriate, the Directors' current views with respect to financial performance, business strategy, plans and objectives of management for future operations (including development plans relating to the Company's products and services). These statements include forward-looking statements both with respect to the Group and the sectors and industries in which the Group operates. Forward-looking statements can be indentified by the use of words such as "may", "will", "should", "predict", "assurance", "risk", "expect", "intend", "estimate", "anticipate", "believe", "plan", "seek", "continue", or other similar expressions that are predictive or indicative of future events.

All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause the Group's actual results to differ materially from those indicated in these statements. Any forward looking statements in this Announcement reflect the Group's current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to the Group's operations, results of operations, growth strategy and liquidity.

These forward-looking statements speak only as of the date of this Announcement. Except as required by the Listing Rules, the Disclosure and Transparency Rules, the Prospectus Rules and any law, the Company does not have any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, further events or otherwise. All subsequent written and oral forward-looking statements attributable to the Company or individuals acting for and on behalf of the Company are expressly qualified in their entirety by this paragraph. Prospective investors should specifically consider the factors identified in the Prospectus which could cause actual results to differ before making an investment decision.

Past performance is no guide to future performance and persons needing advice should consult an independent financial adviser. Any indication in this Announcement of the price at which the Ordinary Shares of the Company have been bought or sold in the past cannot be relied upon as a guide to future performance. No statement in this Announcement is intended to be a profit forecast.

13 December 2010

Yule Catto & Co. plc

Proposed acquisition of PolymerLatex Deutschland Beteiligungsgesellschaft mbH and
4 for 3 rights issue to raise £225 million

Yule Catto today announces that it has (through its wholly owned subsidiary Yule Catto Holdings GmbH) entered into a conditional agreement with PolymerLatex Holdings B.V., a company owned by funds controlled by TowerBrook Capital Partners (UK) LLP, to acquire the entire issued share capital of PolymerLatex for cash consideration of €157 million (£133 million) and to assume the PolymerLatex Group's existing net indebtedness of €286 million (£243 million) giving a total transaction value of €443 million (£376 million). In addition, the Enlarged Group will continue to fund the PolymerLatex Group's unfunded pension liability, which, as at 31 December 2009, was estimated at €31 million (£26 million).

The management of Yule Catto views the Acquisition as a compelling, transformational opportunity to acquire a leading emulsion polymers franchise. The proposed combination will offer a number of benefits including increased scale and market share, a broader product offering and an improved new product pipeline. In addition, the Directors believe that the combination will generate significant synergies from improved asset utilisation and operational efficiencies.

A circular and prospectus will be posted to Shareholders shortly including a letter from the Chairman of Yule Catto, the purpose of which is, amongst other things: (i) to explain the background to, and reasons for, the Acquisition, (ii) to explain why the Directors believe that the Acquisition will assist in promoting the success of the Company and is in the best interests of the Company and the Shareholders as a whole, and (iii) to recommend that Shareholders vote in favour of the Resolutions to be proposed at the General Meeting.

The Acquisition and associated fees and expenses will be funded from a combination of:

- New Credit Facilities comprising a euro denominated £150 million 3 year term loan facility and a £60 million 3 year multicurrency revolving credit facility (of which £15 million will be drawn down for the purposes of funding the Acquisition).

The New Ordinary Shares will represent approximately 57.1 per cent. of the enlarged share capital of the Company following the Rights Issue.

In view of its size relative to that of Yule Catto, the Acquisition constitutes a Class 1 transaction under the Listing Rules and accordingly is conditional on Shareholder approval. Resolutions to approve the Acquisition and to grant authorities required to implement the Rights Issue will be proposed at a General Meeting of the Company to be held on 30 December 2010 at 11.00 a.m.

The Rights Issue is fully underwritten, (except for the New Ordinary Shares which are the subject of the KLK Irrevocable Undertaking), by HSBC and Barclays Capital as Joint Global Coordinators and Joint Bookrunners, by Collins Stewart and RBS Hoare Govett as Joint Bookrunners and by Commerzbank as Co-Lead Manager.

KLK has irrevocably undertaken to the Company and the Underwriters that they will vote (and will procure votes held by other members of the KLK Group) in favour of the Resolutions and to take up (and procure the take up of) the full entitlement of the KLK Group to New Ordinary Shares. This will result in the KLK Group acquiring 36,552,552 New Ordinary Shares, representing approximately 18.82 per cent. of the New Ordinary Shares to be issued under the Rights Issue.

Background to and reasons for the Acquisition

Over the past four years, Yule Catto has undergone a significant internal restructuring focused on gross margin improvement, cost reductions, improved cash generation and portfolio realignment. Yule Catto divested several non-core assets to focus primarily on its Polymer Chemicals division, particularly its emulsion polymers product lines. As a result, the core business of Yule Catto is now the Polymer Chemicals division, which accounted for over 80 per cent. of revenues and almost 90 per cent. of divisional operating profits in 2009.

Over the same period, the emulsion polymers sector in which Yule Catto and PolymerLatex operate has undergone a period of consolidation, which has resulted in production capacity rationalisation and allowed the sector to enjoy relatively stable and resilient financial performance despite a challenging global economic environment.

In the context of the Company's strategic focus on the polymers sector, Yule Catto identified PolymerLatex as a potential strategic acquisition some time ago. PolymerLatex is a leading global player in latex products operating through a network of well invested facilities in Europe and Asia. The Directors believe that the Acquisition at this time presents a compelling opportunity with a strong strategic, operational and financial rationale.

The PolymerLatex Group's portfolio of well-located operational plants complements Yule Catto's existing operations and the Directors believe that the Enlarged Group will benefit from the experience and contribution of the employees of the PolymerLatex Group who will join the Enlarged Group. The Directors believe that the addition of new products and technology will facilitate growth in traditional Yule Catto and PolymerLatex products as well as enabling diversification into new products and end-markets through the combined product and application development capability of the Enlarged Group. Overall, the Acquisition adds further scale and diversity to the Company's current specialty offering.

Specifically, the Directors believe that the Acquisition delivers a number of strategic benefits to Yule Catto, including:

· building Yule Catto's position in the xSBR latex market by adding European manufacturing assets, new end-markets and applications development capabilities, enabling Yule Catto to compete more effectively in this market segment;

· providing Yule Catto with access to additional modern, purpose-built nitrile latex capacity in Malaysia. This offers the opportunity to expand Yule Catto's product offering in the growing synthetic latex protective gloves market. The PolymerLatex Group's manufacturing facilities in Malaysia also offer growth opportunities for Yule Catto in xSBR in the Asian market; and

· providing Yule Catto with access to additional manufacturing process expertise, research and development and technical service capabilities.

The Directors believe that the Acquisition will help to accelerate the Company's strategy of growing its Polymer Chemicals division in attractive emerging markets, where PolymerLatex's technology, new product development and manufacturing capabilities will strengthen its market position. The Directors intend that the expected improved cash flow profile of the Enlarged Group will be used to fund organic growth opportunities in emerging markets. The Directors believe that the Acquisition will allow Yule Catto to achieve its previously stated emerging market objectives more quickly, while also increasing the scale and efficiency of its core European operations.

Overall, the Directors believe that the Acquisition is a transformational opportunity that will result in a business with increased scale, established market positions, improved cash generation capability and a product portfolio that will provide a foundation from which the Enlarged Group can grow and compete more effectively in a consolidating emulsion polymers market, while investing in new products and capacity in emerging markets.

The Board believes that the Enlarged Group will be able to achieve annual cost synergies of at least £20 million. The Board expects to benefit from around 30 per cent. of these synergies in 2011, with the full benefit of the synergies being realised in 2012 and beyond. It is expected that the cost of realising synergies will be approximately £20 million, of which the significant majority would be incurred in 2011, with the remainder being incurred in 2012. In addition the Board expects to make additional capital expenditure of approximately £23 million to realise these synergies with this additional initial cost expected to be offset by expected capital expenditure savings during the first three years of ownership.

These statements of estimated cost savings relate to future actions and circumstances which by their nature involve risks, uncertainties, contingencies and other factors. As a result, the cost savings referred to may not be achieved, or those achieved may be materially different from those estimated.

Strategy of the Enlarged Group

The Directors' strategic priorities following the Acquisition and integration of the PolymerLatex business will continue to be focused on geographical expansion around the existing platform of the Enlarged Group, with a particular focus on further enhancing the Group's presence in Asia. The Directors intend that the Enlarged Group can use the anticipated additional free cash flow generated from the Acquisition to fund organic growth opportunities in emerging markets. With an improving demand environment, the Directors expect to invest in further manufacturing capacity in nitrile and xSBR in Asia in order to meet this rising demand.

In Europe, strategic priorities following the Acquisition will be focused on delivering the targeted synergies. Furthermore, the Directors plan to focus efforts on implementing a comprehensive integration plan which will combine best practices from both Yule Catto and PolymerLatex to lower production cost, enhance customer service and further strengthen the Enlarged Group's new product pipeline.

Overview of the PolymerLatex Group

The PolymerLatex Group is an established player in the development, production and distribution of emulsion polymer products. It is headquartered in Germany and operates with manufacturing facilities in Marl (Germany), Worms (Germany), Filago (Italy) and Johor Bahru (Malaysia), a tolling arrangement in Dubai and a joint venture manufacturing facility in Oulu (Finland). PolymerLatex is currently owned by funds advised by TowerBrook.

The PolymerLatex Group has a diverse product portfolio and operates through six industry teams which are aligned with their respective market segments: Paper, Carpet, Foam, Construction & Paints, Protective Gloves and Functional Polymers (Textiles and Adhesives).

The PolymerLatex Group gross assets as at 31 December 2009 (the most recent date for which audited financial statements for the PolymerLatex Group have been prepared), were €393.8 million and the underlying loss before tax attributable to those assets, for the year ended 31 December 2009, was €20.4 million. In the year ended 31 December 2009, the PolymerLatex Group achieved underlying sales of €386.7 million and underlying EBITDA of €54.6 million. For the six months to 30 June 2010, underlying sales were €279.6 million and underlying EBITDA was €33.8 million, which represented a strong performance. These figures have been prepared in accordance with Yule Catto's accounting policies. An accountants' report on the PolymerLatex Group covering the three years ended 31 December 2009 restated into IFRS will be available in the Prospectus.

Financing the Acquisition

The Acquisition and associated fees and expenses will be funded from a combination of:

· a Rights Issue of New Ordinary Shares at a price of 116 pence per share on the basis of 4 New Ordinary Shares for every 3 Existing Ordinary Shares. Up to 194,217,582 New Ordinary Shares will be issued, raising gross proceeds of approximately £225 million; and

· New Credit Facilities comprising a euro denominated £150 million 3 year term loan facility and a £60 million 3 year multicurrency revolving credit facility (of which £15 million will be drawn down for the purposes of funding the Acquisition).

Further details of the New Credit Facilities will be set out in the Prospectus to be published in due course.

Financial Impact of the Acquisition and the Rights Issue

The Directors expect the Acquisition to be accretive to earnings per share in 2011 and significantly accretive thereafter with a return on investment exceeding the Enlarged Group's weighted average cost of capital for the year ended 31 December 2011. The Board's expectation is based upon an assumed acquisition completion date of 1 January 2011 and does not take into account any exceptional restructuring costs. Shareholders should note that completion of the Acquisition is subject to certain conditions, including competition clearances, and is expected to occur within four months from the date of this Announcement.

The Directors believe that the Enlarged Group's balance sheet will remain robust, with an estimated
£45 million of liquidity in the form of cash and facilities remaining available to draw down at Completion, and believe that it will provide the flexibility to execute both Yule Catto's existing planned investment programme and that of the Enlarged Group.

The Rights Issue will result in dilution of 57.1 per cent. if existing Shareholders do not take up their rights under the Rights Issue.

The Rights Issue is conditional, amongst other things, upon the passing of the Resolutions, Admission, and the Underwriting Agreement having become unconditional in all respects (other than conditions referring to Admission) and not having been terminated in accordance with its terms prior to Admission.

The Rights Issue is not conditional on Completion. However if, before Admission, the Acquisition Agreement has been terminated or the conditions to the Acquisition cease to be capable of satisfaction, the Rights Issue will not proceed.

Principal terms of the Acquisition

The Acquisition values the PolymerLatex Group at €443 million (£376 million), such amount to be satisfied by the repayment on Completion of all third party indebtedness of the PolymerLatex Group, estimated to be €286 million (£243 million) (the "Net Debt Settlement Amount"), and the balance, estimated to be €157 million (£133 million), (the "Equity Value Amount") being the cash consideration payable for the issued share capital of PolymerLatex. The Equity Value Amount is subject to adjustment in the event that there is a shortfall or excess in the working capital of the PolymerLatex Group at Completion or in the event that there is an increase or decrease in the Net Debt Settlement Amount. The Enlarged Group will continue to fund the PolymerLatex Group's unfunded pension liability, which, as at 31 December 2009, was estimated at €31 million (£26 million).

Completion under the Acquisition Agreement is conditional upon:

· resolutions being passed by Shareholders approving, inter alia, the Acquisition and the Rights Issue;

· Admission becoming effective;

· relevant competition clearances in connection with the Acquisition being obtained;

· there not having occurred a material adverse change in the PolymerLatex Group's business prior to Completion.

In the event that such conditions are not satisfied within six months of the date of the Acquisition Agreement, the Acquisition Agreement will terminate with immediate effect. The Prospectus will contain a more detailed summary of the principal terms of the Acquisition.

Costs for the transaction total approximately £14 million, comprising £6.2 million underwriting commission and commission payable to KLK, bank loan arrangement fees of £3.2 million and other fees (advisory, accounting, legal and consulting) of £4.6 million.

Summary of the Rights Issue

Under the terms of the Rights Issue, the New Ordinary Shares will be offered, by way of rights, to Qualifying Shareholders (other than, subject to certain exemptions, Shareholders in the US and the Excluded Territories) at 116 pence per New Ordinary Share, payable in full on acceptance by not later than 11.00 a.m. on 17 January 2011. Up to 194,217,582 New Ordinary Shares will be issued, raising approximately £225 million gross. The Issue Price of 116 pence per New Ordinary Share represents a discount of approximately 55.4 per cent. to the Closing Price and a discount of approximately 34.7 per cent. to the theoretical ex rights price (calculated by reference to the Closing Price).

The Rights Issue will be made on the following basis:

4 New Ordinary Shares for every 3 Existing Ordinary Shares

held by Qualifying Shareholders on the Record Date and so in proportion to any other number of Existing Ordinary Shares then held, and otherwise on the terms and conditions as set out in the Prospectus and, in the case of Qualifying non-CREST Shareholders (other than, subject to certain exemptions, Shareholders with registered addresses in, or who are resident in the US and the Excluded Territories) only, the Provisional Allotment Letter. New Ordinary Shares representing fractional entitlements will not be allotted to Qualifying Shareholders and entitlements to New Ordinary Shares will be rounded down to the nearest whole number and any fractional entitlements will be disregarded. Holdings of Ordinary Shares in certificated and uncertificated form will be treated as separate holdings for the purpose of calculating entitlements under the Rights Issue.

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

The Rights Issue is conditional upon:

(a) the Resolutions being passed, without amendment, at the General Meeting;

(b) Admission becoming effective by not later than 8 a.m. on 31 December 2010 (or such later time and/or date as Yule Catto and the Underwriters may agree);

(c) the Acquisition Agreement not having been terminated and the Acquisition not ceasing to be capable of Completion in accordance with the terms of the Acquisition Agreement prior to Admission; and

(d) the Underwriting Agreement having become unconditional in all respects (save for conditions relating to Admission) and not having been terminated in accordance with its terms prior to Admission.

KLK, a significant Shareholder, has irrevocably undertaken to take up (and procure the take up of) the full entitlement of the KLK Group under the Rights Issue and to vote (and procure votes) in favour of the Resolutions. This will result in the KLK Group acquiring, in aggregate, 36,552,552 New Ordinary Shares, representing approximately 18.82 per cent. of the New Ordinary Shares to be issued under the Rights Issue. The KLK Group is being paid a commission of 1.75 per cent. of the aggregate value, at the Issue Price, of the New Ordinary Shares that KLK has agreed to take up (and procure the take up of) under the Rights Issue, and the Company is not paying any underwriting commission in respect of these New Ordinary Shares.

The Underwriters have agreed, subject to the terms and conditions of the Underwriting Agreement, to underwrite the Underwritten Shares (being all of the New Ordinary Shares other than the New Ordinary Shares which are the subject of the KLK Irrevocable Undertaking).

Application has been made to the UK Listing Authority for the New Ordinary Shares to be admitted to the Official List and to the London Stock Exchange for the New Ordinary Shares to be admitted to trading on its main market for listed securities. It is expected that Admission will become effective and that dealings in the New Ordinary Shares will commence on the London Stock Exchange, nil paid, at 8 a.m. on 31 December 2010.

The latest time and date for acceptance and payment in full of the New Ordinary Shares will be 11 a.m. on 17 January 2011.

Based on the Closing Price of 260 pence per share and the proposed Issue Price of 116 pence for each New Ordinary Share, the theoretical ex-rights price of an Ordinary Share is 178 pence.

Further details of the Rights Issue will be set out in the Prospectus to be published in due course.

Use of proceeds of the Rights Issue

The proceeds of the Rights Issue, which are fully underwritten (save for subscription proceeds from the take up of New Ordinary Shares pursuant to the KLK Irrevocable Undertaking), will be used to fund part of the consideration for the Acquisition and repayment of part of the existing debt of the PolymerLatex Group.

In the event that the Rights Issue proceeds but Completion does not take place, the Directors intend to return substantially all of the net proceeds of the Rights Issue to Shareholders within a reasonable period of time. The Company would seek to return these proceeds in as tax efficient a manner as possible for all Shareholders but certain Shareholders, including some Overseas Shareholders and individuals, may suffer a tax charge on any repayment and, accordingly, their financial position may be adversely affected.

Final Dividend and Future Dividend Policy

The New Ordinary Shares will carry the entitlement to all future dividend payments made by the Company, including any final dividend for the 2010 financial year.

The Board has previously committed that the 2010 full year dividend would be no less than 5.0 pence per Ordinary Share. The Company paid an interim dividend of 2.0 pence per Ordinary Share on 11 November 2010. The Board intends that the total aggregate cash amount paid in dividends for 2010 will be in line with its previous commitment. However, due to the enlarged number of shares that will be in issue as a result of the Rights Issue at the time it is paid, the 2010 final dividend per Ordinary Share will be diluted accordingly.

Following completion of the Acquisition and Rights Issue, the Board intends to pursue a progressive dividend policy. This will reflect the effect of the anticipated synergies and the longer term growth profile of the Group, while also taking into account the organic growth opportunities in which the Group expects to invest, in particular in emerging markets.

All future dividend payments will be subject to the Company having sufficient distributable reserves and profits available for the purpose and will take into account the Group's cash flows, debt repayments and the need to maintain an appropriate level of dividend cover.

Current trading and prospects of Yule Catto and PolymerLatex

Yule Catto

In the six months to 30 June 2010, underlying total sales, as compared to the same period in the prior financial year, increased by 24 per cent. Underlying operating profit before tax for the same six month period increased by 19 per cent.

The increase in total sales was mainly driven by strong performance in the Polymer Chemicals division, which represented 86 per cent. of divisional operating profit. Trading since June 2010 has been in line with management expectations.

PolymerLatex

The PolymerLatex Group saw strong trading throughout the first six months of 2010, with underlying total sales of €279.6 million and underlying EBITDA of €33.8 million. This was driven by volume increases and higher unit cash margins. Management believes that, since 30 June 2010, the PolymerLatex Group's trading performance has continued in line with these trends.

General Meeting

A notice convening the General Meeting of the Company will be published in due course with the Prospectus. The purpose of the General Meeting will be to seek Shareholders' approval of the Resolutions in connection with the Acquisition and the Rights Issue. The full text of the Resolutions will be set out in the notice convening the General Meeting.

Further information and risk factors

Further details in relation to the Acquisition and Rights Issue will be set out in the Prospectus which is expected to be published and sent to Shareholders shortly. Shareholders' attention is drawn, in particular, to the risk factors to be included in the Prospectus.

Financial advice

The Board has received financial advice from HSBC in relation to the Acquisition. In providing its financial advice to the Board, HSBC has taken into account the Board's assessment of the commercial merits of the Acquisition.

Recommendation and voting intentions

The Board considers that the Rights Issue and Acquisition, and each of the Resolutions are in the best interests of the Company and its Shareholders as a whole.

Accordingly, the Board recommends Shareholders to vote in favour of each of the Resolutions as the Shareholder Directors intend to do (or procure) in respect of their beneficial shareholdings amounting to 1,421,189 Ordinary Shares in aggregate as at the date of this Announcement (representing approximately 0.97 per cent. of Yule Catto's existing issued share capital).

Directors' and the KLK Group's intentions in relation to the Rights Issue

Each of the Shareholder Directors and KLK have irrevocably undertaken to take up in full their rights to acquire New Ordinary Shares (and, in the case of KLK, to procure the take up in full of the rights of the KLK Group) under the Rights Issue in respect of their own beneficial shareholdings held at the time of the General Meeting, other than The Hon. Alexander Catto, who, in respect of his beneficial interest, will be selling sufficient rights to allow him to purchase the balance of his allotment.

Enquiries

Yule Catto & Co. plc Tel: +44 (0)12 7944 2791

Adrian Whitfield , Chief Executive Officer

David Blackwood, Group Finance Director

HSBC Tel: +44 (0)20 7991 8888

Sole financial adviser to Yule Catto

Charles Packshaw

Oliver Smith

Sponsor, joint global coordinator and joint bookrunner

Nick Donald

Stuart Dickson

Barclays Capital Tel: +44 (0)20 7623 2323

Joint global coordinator and joint bookrunner

Jon Bathard-Smith

Tom Johnson

Derek McNulty

Collins Stewart Tel: +44 (0)20 7523 8350

Joint broker and joint bookrunner

Mark Dickenson

Bruce Garrow

Matt Goode

RBS Hoare Govett Tel: +44 (0)20 7678 8000

Joint broker and joint bookrunner

Nick Adams

Lee Morton

MHP Communications Tel: +44 (0)20 3128 8100

Andrew Jaques

John Olsen

Ian Payne

Disclaimers

Appendix A

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

Each of the times and dates in the table below is indicative only and may be subject to change.

Event

Time/date

Publication of Circular and Prospectus

13 December 2010

Record Date

close of business on 22 December 2010

Latest time and date for receipt of Forms of Proxy

11.00a.m. on 24 December 2010

General Meeting

11.00 a.m. on 30 December 2010

Despatch of Provisional Allotment Letters (to Qualifying non-CREST Shareholders only)

30 December 2010

Dealings commence in New Ordinary Shares, nil paid, on the London Stock Exchange and Existing Ordinary Shares marked "ex" rights

8.00 a.m. on 31 December 2010

Latest time and date for splitting Provisional Allotment Letters, nil paid and fully paid

3.00 p.m. on 13 January 2011

Latest time and date for acceptance and payment in full and registration of renounced Provisional Allotment Letters

11.00am. on 17 January 2011

Commencement of dealings in New Ordinary Shares, fully paid, on the London Stock Exchange

8.00 a.m. on 18 January 2011

Expected date of Completion of the Acquisition

within four months from the date of this Announcement

Appendix B

Definitions

"Acquisition"

the acquisition of the entire issued share capital of PolymerLatex by the Company

"Acquisition Agreement"

the conditional share acquisition agreement dated 12 December 2010 between the Company, Yule Catto Holdings GmbH and PolymerLatex Holdings B.V. relating to the Acquisition

"Admission"

admission of the New Ordinary Shares to (i) the Official List and (ii) trading, nil paid, on the London Stock Exchange's main market for listed securities becoming effective in accordance with, respectively, with LR3.2.7G of the Listing Rules and paragraph 2.1 of the Admission and Disclosure Standards

"Admission and Disclosure Standards"

the requirements contained in the publication "Admission and Disclosure Standards" containing, amongst other things, the admission requirements to be observed by companies seeking admission to trading on the London Stock Exchange's main market for listed securities

"Announcement"

this announcement of the Acquisition and the Rights Issue made by the Company on 13

December 2010

"Barclays Capital"

the investment banking division of Barclays Bank PLC

"Closing Price"

the closing, middle market quotation of an Ordinary Share on 10 December 2010 (being the latest practicable date prior to the Announcement), as published in the Daily Official List

"Completion"

the completion of the Acquisition

"Collins Stewart"

Collins Stewart Europe Limited

"Daily Official List"

the daily record setting out the prices of all trades in shares and other securities conducted on the London Stock Exchange

"Directors" or "Board"

the current directors of the Group

"Disclosure and Transparency Rules"

the disclosure and transparency rules of the UK Listing Authority made in accordance with section 73(A) of FSMA, as amended from time to time

"EBITDA"

earnings before interest, taxes, depreciation, and amortization

"Enlarged Group"

the Company together with its subsidiaries and subsidiary undertakings, as enlarged by the Acquisition

"Excluded Territories"

Australia, Canada, Japan, South Africa and any other jurisdiction where the extension or availability of the Rights Issue (and any other transaction completed thereby) would breach any applicable law and any one of them being an "Excluded Territory"

"Existing Ordinary Shares"

the 145,663,187 Ordinary Shares in issue at the date of this Announcement

"Fully Paid Rights"

rights to acquire New Ordinary Shares, fully paid

"FSA"

the Financial Services Authority of the United Kingdom

"FSMA"

the Financial Services and Markets Act 2000 (as amended)

"General Meeting"

the general meeting of the Company to be held at 11.00 a.m. on 30 December 2010 notice of which will be set out in the Prospectus and including any adjournment thereof

"Group" or the "Yule Catto Group"

the Company together with its subsidiaries and subsidiary undertakings from time to time

"HSBC"

HSBC Bank plc

"IFRS"

International Financial Reporting Standards

"Issue Price"

116 pence per New Ordinary Share

"KLK"

"KLK Group"

"KLK Irrevocable Undertaking"

Kuala Lumpur Kepong Bhd

KLK together with its subsidiary undertakings

the irrevocable undertaking entered into by KLK dated 12 December 2010 pursuant to which KLK has irrevocably undertaken to take up and to procure the take up of the full entitlement to New Ordinary Shares of the KLK Group under the Rights Issue and to vote (and procure votes) in favour of the Resolutions

"Listing Rules"

the listing rules and regulations made by the FSA under Part VI of FSMA, as amended from time to time

"London Stock Exchange"

London Stock Exchange plc or its successors

"New Credit Agreement"

the agreement relating to the New Credit Facilities

"New Credit Facilities"

the £210 million credit facilities to be made available pursuant to the New Credit Agreement

"New Ordinary Shares"

the new Ordinary Shares to be issued by the Group pursuant to the Rights Issue

"Nil Paid Rights"

rights to acquire the New Ordinary Shares, nil paid

"Official List"

the Official List of the FSA pursuant to Part VI of FSMA

"Ordinary Shares"

ordinary shares of 10 pence each in the capital of the Company (including, if the context requires, the Existing Ordinary Shares and New Ordinary Shares)

"Overseas Shareholders"

Qualifying Shareholders with registered addresses outside the United Kingdom or who are citizens of, incorporated in, registered in or otherwise resident in, countries outside the United Kingdom

"PolymerLatex"

PolymerLatex Deutschland Beteiligungsgesellschaft mbH

"PolymerLatex Group"

PolymerLatex together with its subsidiaries from time to time

"Prospectus"

the circular and prospectus to be published by the Company relating to the Acquisition and the Rights Issue

"Prospectus Rules"

the prospectus rules of the UK Listing Authority made in accordance with section 73A of FSMA, as amended from time to time

"Provisional Allotment Letter"

the renounceable provisional allotment letter to be sent to Qualifying non-CREST Shareholders in respect of the New Ordinary Shares to be provisionally allotted to them pursuant to the Rights Issue

"Qualifying non-CREST Shareholders"

Qualifying Shareholders holding Ordinary Shares in certificated form

"Qualifying Shareholders"

Shareholders on the register of members of the Company at the Record Date

"Record Date"

close of business on 22 December 2010

"Resolutions"

the resolutions to be proposed at the General Meeting and set out in the notice of General Meeting contained in the Prospectus

"Rights Issue"

the offer by way of rights to Qualifying Shareholders to subscribe for New Ordinary Shares, on the terms and conditions set out in the Prospectus and, in the case of Qualifying non-CREST Shareholders only, the Provisional Allotment Letter

"Securities Act"

the United States Securities Act of 1993

"Shareholders"

the holder(s) of Ordinary Shares

"UK Listing Authority"

the Financial Services Authority acting in its capacity as the competent authority for the purposes of FSMA

"Underwriters"

HSBC, Barclays Capital, RBS, Collins Stewart and Commerzbank AG

"Underwriting Agreement"

the conditional underwriting agreement dated 12 December 2010 entered into by the Company and the Underwriters in connection with the Rights Issue

"Underwritten Shares"

the 157,665,030 New Ordinary Shares to be issued in the Rights Issue and underwritten by the Underwriters, which excludes the New Ordinary Shares to be taken up pursuant to the KLK Irrevocable Undertaking

"Yule Catto" or the "Company"

Yule Catto & Co. plc

In this Announcement, unless otherwise stated or the context otherwise requires, all figures in Sterling have been translated into Euros at an exchange rate of €1.18 per £1. Statements in this Announcement regarding the financial impact of the transaction on expected future earnings are based upon an assumed acquisition completion date of 1 January 2011 and do not take into account any exceptional restructuring costs. Investors should note that completion of the Acquisition is subject to certain conditions, including competition clearances, and is expected to occur within four months from the date of this Announcement.

This information is provided by RNS

The company news service from the London Stock Exchange

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