Acquisition & Placing

RNS Number : 2361U

TEG Group (The) PLC

22 June 2009

 



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Neither this announcement nor any copy of it may be taken, transmitted or distributed, directly or indirectly, in or into the United States, Canada, Australia, the Republic of South Africa or Japan. Any failure to comply with this restriction may constitute a violation of United States, Canadian, Australian, the Republic of South Africa or Japanese securities laws.

22 June 2009

The TEG Group plc ('TEG' or the 'Company')

Acquisition of Banham Compost Limited

Placing of 4,750,000 New Ordinary Shares at a Placing Price of £0.40 per New Ordinary Share

The Company today is pleased to announce that it has entered into an agreement to acquire the entire issued share capital of Banham Compost Limited ('BCL'), the owner of a 28,000 tonnes per annum commercial composting facility based in Norfolk (the 'Acquisition'). The Company also announces a successful placing to institutional investors of 4,750,000 Placing Shares at a placing price of 40 pence per share ('Placing Price'), raising £1.9 million to part finance the Acquisition (the 'Placing'). The remainder of the £3.1 million total acquisition cost is to be satisfied through the assumption by TEG of a £1.3 million asset finance facility from BCL. 

Highlights

• Purchase of a fully operational composting business in Norfolk situated on a freehold site in prime arable farmland

• Existing TEG Silo Cage technology currently in situ - with capacity of 28,000 tonnes per annum

• The composting business is in receipt of necessary permits and has been in continuous operation since 2006

• Terms highly attractive by comparison to cost of new development

• Potential for further development subject to planning permission

• Placing of 4,750,000 New Ordinary Shares at a Placing Price of £0.40 per new ordinary share with proceeds to be used solely to fund the Acquisition.

Mick Fishwick, CEO of The TEG Group Plc, commented:

'We are absolutely delighted to conclude this acquisition of Banham Compost Limited, which we believe offers significant potential for further development and expansion and we are also very pleased with the support we have seen from both existing and new investors. On the back of recent and exciting progress by the Company, this acquisition represents yet another significant step in the continuing roll-out and endorsement of TEG's composting technology, as an attractive, efficient and cost effective alternative to Landfill and other forms of ABP disposal, across the country.'

Contacts:

The TEG Group plc

Mick Fishwick, Chief Executive     01772 314100 

Peckwater PR

Tarquin Edwards / Chris Steele      07879 458 364 / 07979 604 687

Canaccord Adams Limited

Robert Finlay                               020 7050 6500

Guy Blakeney        

Details of the transaction 

The Company today is pleased to announce that it has entered into an agreement with Banham Poultry Limited ('BPL') to acquire the entire issued share capital of its subsidiary Banham Compost Limited ('BCL'), the owner of a 28,000 tonnes per annum composting facility based in Norfolk (the 'Acquisition'). The total cost of the Acquisition, including debt to be assumed within the TEG Group is £3.1 million.

BCL was originally established as an organic waste processing company and included rendering and waste brokering in its activities. BPL has decided to withdraw from the organic waste sector and is to focus on its core activities. In 2005, TEG sold one of its cage silo systems to BCL and the system has continued to operate since its commissioning in 2006.

Rationale 

TEG believes that the Acquisition of BCL represents a significant step forward in its expansion of its waste management operations in the UK. Situated in Norfolk in a region with a limited number of competing facilities and in a prime arable farming region, the plant is a well established and fully permitted operation, running TEG's existing technology. Waste inputs are from the public and private sector with a modest but secure supply from BPL.  It is expected that the Company's subsidiary, NOFCO Limited, will be able to develop high value markets for sales of the plant's compost product. 

Together with the cost of the freehold, TEG believes that the cost of a similar development on a brownfield site would be £5.5-6.0 million and on this basis, the Acquisition therefore offers good value to shareholders.

The BCL facility is currently operating at approximately 55% utilisation. However, given the limited number of facilities in the region and as the UK organic waste sector continues to grow steadily, demand is expected to increase strongly. Legislative targets on Local Authorities together with the increasing Landfill Tax are encouraging Local Authorities to increase food and green waste recycling. In addition, the food manufacturing sector is strong in the region. Independent analysis for the Eastern Region Local Authorities published in 2008 concluded the need for significant additional organic waste recycling capacity to be installed in the region over the next 5 years.

The plant is capable of expansion, over and above the existing unused plant capacity, to meet additional demand expected, subject to receipt of necessary planning permissions. Upon acquisition, TEG will upgrade the air management system and complete repair works to the building and infrastructure.

Assuming a ramp up to 90% capacity by the middle of 2010, at market average gate fees the plant is expected to operate at a gross profit margin in line with other TEG-owned facilities.

Terms of the acquisition

TEG is acquiring the entire issued share capital of BCL which, following a restructuring undertaken by BPL in advance of the Acquisition, will own the freehold site, building and existing TEG plant and equipment. Operations relating to BCL's legacy rendering operations have been transferred back to BPL. 

The transaction cost has 4 components totalling £3.1 million:

• £306k of gross equity consideration payable to BPL on completion following final adjustments. Total £450k consideration and transaction fees (including placing fees)

• £750k of assumed debt to be settled over the 6 month period following completion

• £600k provision for works to building and infrastructure

• Asset finance acquired totalling approximately £1.3 million  (£915k for TEG Silo Cages; £100k for mobile plant and an assumed £0.3 million residual value sum)

The asset finance loan ('Asset Finance Loan') in respect of the silo cages and certain other plant-related PPE, in an aggregate amount of £1.3m, will be assumed by TEG from BCL. This includes a residual value sum of approximately £0.3m. Under the terms of the Asset Finance Loan, TEG is obliged to seek approval from current BCL debt providers for transfer of the debt to TEG.   An application has been submitted for the transfer of the debt. 

TEG will also assume the £750,000 debt obligation of BCL which is due to be paid to the relevant creditor over the next 6 months in equal monthly instalments.  

Existing intercompany debt obligations owed by BCL to BPL are to be written off and the liabilities associated with BCL's pension scheme obligations are to be assumed by BPL.

Under the terms of the Acquisition Agreement, BPL has given certain customary warranties and indemnities in respect of business, taxation and other matters subject to agreed limitations on liability.  These warranties include indemnities in relation to ongoing enforcement action by the regulator in relation to historical compliance issues. TEG has made provision for the improvement of air management systems to resolve the compliance problems in the medium term.

The Acquisition Agreement is conditional, inter alia, upon a placing agreement dated 19 June 2009 entered into between the Company and Canaccord Adams Limited ('Canaccord') ('Placing Agreement') becoming unconditional (in each case save for any condition relating to admission to trading of the Placing Shares ('Admission') or Completion) and not being terminated prior to Admission and upon Admission itself. Assuming all other conditions are satisfied and that the Placing Agreement has not been terminated in accordance with its terms, the Acquisition will complete upon Admission which is expected to take place on Thursday 25^th June 2009.

Financing and Use of Proceeds

In addition to the assumption of the £1.3 million debt obligations of BCL, the remaining £1.9 million will be financed by the proceeds of the Placing. The proceeds of the Placing will be used solely in connection with the Acquisition and will be used to acquire the equity in BCL, to pay for necessary works to the site, to settle the £750,000 debt obligation referred to above, and to provide for adequate working capital in the first year of the plant's operation under TEG's ownership and to meet expenses relating to the Acquisition and Placing.

Details of the Placing

In connection with the Acquisition, the Company is pleased to announce that pursuant to the Placing Agreement and by means of the Placing by Canaccord, it has placed with institutional investors 4,750,000 new ordinary shares of 5 pence each ('Placing Shares') at a placing price of 40 pence per Placing Share ('Placing Price') raising in aggregate £1.9 million (before transaction expenses). The Placing is conditional inter alia upon Admission and the Acquisition Agreement becoming unconditional in all respects (save as regards Admission).

Pursuant to the Placing Agreement, Canaccord has agreed to procure placees for the Placing at the Placing Price on a reasonable endeavours basis. The Placing Shares will be issued credited as fully paid and will rank pari passu in all respects with the existing TEG ordinary shares of 5 pence each ('Ordinary Shares'), including as to the right to receive and retain all dividends and other distributions declared, made or paid after Admission. The Placing, which is not underwritten, will be conditional, inter alia, upon Admission to trading on the AIM market of the London Stock Exchange ('Admission') taking place.

Application has been made to the London Stock Exchange for Admission of the Placing Shares. It is expected that Admission will become effective and that dealings in the Placing Shares will commence at 8:00 a.m.(London time) on 25 June 2009 (or such later date as Canaccord and TEG may agree, not being later than 30 June 2009). If TEG has not allotted the Placing Shares by 24 June 2009, or such date as Canaccord and TEG shall agree (not being later than 30 June 2009), the Placing Agreement will terminate and placing proceeds shall be repaid to the placees.

The Annual General Meeting of TEG held on 4 June 2009 authorised the Board to resolve on an issue of up to 4.8 million new Ordinary Shares for cash on a non-preemptive basis (other than to existing shareholders on a pro rata basis). Based on this authorisation the Board has made the decision to issue the shares as referred to above and, accordingly, the Placing is not subject to further shareholder approval.  

Following the introduction of the Prospectus Rules on 1 July 2005 and the consequential increase in costs and the time required for AIM companies to raise new equity capital on a pre-emptive basis, the Directors believe that the Placing is the most cost effective and expeditious method of raising new equity capital and do not consider that it would be practicable to complete a pre-emptive share offering in the time available to be able to complete the Acquisition. Accordingly, the Placing Shares have not been and will not be offered generally to TEG shareholders, whether on a pre-emptive basis or otherwise. In addition, the Placing Shares are not being made available to the public and are not being offered in any jurisdiction where it would be unlawful to do so. 

The number of TEG Ordinary Shares in issue at the date of this announcement is 48,288,381 and the number of TEG Ordinary Shares in issue following allotment of the Placing Shares will be 53,038,381. 

Background to TEG

TEG was incorporated in 1995 and its Ordinary Shares were admitted to trading on AIM in July 2004. The Company's principal activity is the design and production of specialised plant and equipment for the composting of organic wastes for sale to third party customers and in-house projects. The TEG Silo Cage composting system is the result of over ten years of design and testing and TEG has now commissioned seven plants in the UK with a further plant under construction. 

The Company earns revenues from both gate fees for waste treatment and from the sale of composting plants as well as the sale of specialised plant and equipment to third parties.

TEG is the exclusive supplier of In-vessel Composting ('IVC') technology to the consortium in the Greater Manchester region waste PFI. Contracts worth a total of £38m were completed on 9 April 2009 with TEG's immediate customer, Costain. Four new facilities are to be built and sold over a 3 year period with a total capacity of 175,000 tonnes per annum. Construction of the first of the Manchester plants, Rochdale, has been underway since 2007 and is proceeding to programme. The remaining three facilities will be completed over the period to 2011.

TEG also has single site joint venture with Glendale Managed Services Limited ('Glendale'), Verdia Horticulture Limited ('Verdia') based in Exeter. TEG and Glendale are currently considering the future direction of this joint venture. The two companies believe Verdia is likely to have limited success as a joint venture in the immediate future and the parties believe it would be better served as a fully owned operation without the overhead costs associated with a JV company. The parties expect to make further announcements in due course.

On 10 March 2009, the Company announced that it had entered into a collaboration agreement with UTS, a German Anaerobic Digestion ('AD') technology provider. AD has the potential to fit well alongside TEG's core technology and UTS is a market leader in Europe. TEG has a track record delivering projects to Local Authorities in the UK and offers commercial, engineering and project expertise.

The Directors believe that the success of the Company has been driven by the TEG System offering an attractive, efficient and cost-effective alternative to landfill. It is also an attractive alternative to other forms of ABP disposal, namely rendering and incineration. The addition of AD capability through the Company's joint venture with UTS will enhance TEG's ability to offer a variety of technologies to Local Authorities when they are considering how to reduce their exposure to landfill and the associated landfill tax regime which is becoming increasingly costly.

Key strategic sectors for the Company are Local Authorities and major waste management companies. The private sector provides additional opportunities.

Contacts:

The TEG Group plc

Mick Fishwick, Chief Executive     01772 314100 

Peckwater PR

Tarquin Edwards / Chris Steele      07879 458 364 / 07979 604 687

Canaccord Adams Limited

Robert Finlay                               020 7050 6500

Guy Blakeney

Legal notice

Canaccord Adams Limited (which is authorised and regulated in the United Kingdom by the Financial Services Authority) is acting solely for The TEG Group plc in connection with the Placing and is not acting for any person other than The TEG Group plc and will not be responsible for any person other than The TEG Group plc for providing the protections afforded to customers of Canaccord Adams Limited or for providing advice to any person in connection with the matters described in this announcement.

This announcement does not constitute, or form any part of, an offer or solicitation of an offer to subscribe for the New Ordinary Shares.

The release, publication or distribution of this announcement in certain jurisdictions may be restricted by law and therefore persons in such jurisdictions into which this announcement is released, published or distributed should inform themselves about and observe such restrictions. 

No offer, invitation or inducement to acquire shares or other securities in TEG is being made by this announcement. 

Certain statements contained in this announcement may constitute forward-looking statements. Any such forward-looking statements involve risks, uncertainties and other factors that may cause the actual results, performance or achievements of TEG, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements speak only as of the date of this announcement and there can be no assurance that the results and events contemplated by such forward-looking statements will, in fact, occur. 

TEG expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein, save as required to comply with any applicable legal or regulatory obligations (including the AIM Rules), whether as a result of new information, future events or otherwise. 

This announcement is not an invitation nor is it intended to be an inducement to engage in investment activity for the purpose of section 21 of FSMA. The Placing Shares are in any event being placed only with (i) persons who have professional experience in matters relating to investments and who are investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 of the United Kingdom (the 'Financial Promotion Order') or (ii) persons who fall within Article 49(2)(a) to (d) ('high net worth companies, unincorporated associations etc.') of the Financial Promotion Order (all such persons together being referred to as 'relevant persons'). Any investment or investment activity to which this announcement relates is available only to relevant persons and will be engaged in only with relevant persons. Anyone other than a relevant person must not rely on this announcement. 

The Placing Shares have not been, and nor will they be, registered under the United States Securities Act of 1933 as amended (the 'Securities Act') or qualified for sale under the laws of any state of the United States or under the applicable laws of any of Canada, Australia, the Republic of South Africa, the Republic of Ireland or Japan and, subject to certain exceptions, may not be offered or sold in the United States or to, or for the account or benefit of, US persons (as such term is defined in Regulation S under the Securities Act) or to any national or resident of Canada, Australia, the Republic of South Africa, the Republic of Ireland or Japan. 

 

END

 

 

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