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Strategic Equity Capital Plc (SEC)

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Monday 28 February, 2022

Strategic Equity Capital Plc

Publication of Circular and Notice of General Meeting

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN, INTO OR FROM THE UNITED STATES OR ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF THAT JURISDICTION.

28 February 2022

Strategic Equity Capital plc

Publication of Circular and Notice of General Meeting

Further to the announcement on 9 February 2022, the board of Strategic Equity Capital plc (“SEC” or the “Company”) announces that it has today published a circular (the "Circular") in respect of proposals for a Tender Offer to purchase up to 6,329,685 Shares, which represents 10 per cent. of the Shares in issue (excluding Shares held in treasury) as at 25 February 2022 (being the latest practicable date prior to the publication of the Circular), adoption of the New Buyback Policy and implementation of the Share Buyback Programme (the “Proposals”). The Circular contains a notice convening a general meeting to be held at the offices of Stephenson Harwood LLP, 1 Finsbury Circus, London EC2M 7SH at 11.00 a.m. on 23 March 2022.

The text of the Chairman's letter, extracted from the Circular, is set out below, and should be read in conjunction with the full text of the Circular.

A copy of the Circular will be submitted to the National Storage Mechanism and will shortly be available for inspection at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism and on the Company's website: https://greshamhouse.com/strategic-equity/public-equity/strategic-equity-capital-plc/.

Terms used and not defined in this announcement bear the meaning given to them in the Circular published today.

1.  Introduction

On 9 February 2022, the Board announced a series of proposals that it believes will enhance shareholder value creation and allow the continuation of the Company as a successful standalone vehicle, affording investors continued access to the investment team of Gresham House Asset Management Limited (the "InvestmentManager") and the Company's differentiated investment proposition.

The purpose of the Circular is to provide more information about the Tender Offer, the New Buyback Policy and the Share Buyback Programme, being the first three elements of this package of proposals, and to explain to Shareholders why the Board recommends you vote in favour of the Resolution to be proposed at the General Meeting in order to implement the Tender Offer and Share Buyback Programme. The Circular also contains the terms and conditions of the Tender Offer, together with details of how Shareholders can tender Shares for purchase, should they wish to do so. The Directors will not be tendering any of their Shares in the Tender Offer.

2.  Reasons for the Tender Offer, New Buyback Policy and the Share Buyback Programme

The decision to proceed with the Tender Offer and the implementation of the New Buyback Policy and Share Buyback Programme was taken following the receipt of a proposal from Odyssean Investment Trust plc ("Odyssean") concerning a proposed combination of Odyssean and the Company. Following due consideration of the proposal from Odyssean, alternative proposals developed in conjunction with the Investment Manager, and following the Company's discussions with its major Shareholders, a decision was taken to implement the proposals contained in this Circular. 

At the Company's annual general meeting in November 2021 a significant majority of Shareholders voted in favour of the continuation of the Company and the Board believes therefore that many Shareholders wish to continue their investment in the Company and to retain their access to the Investment Manager and the Company's differentiated investment proposition.

The Company has implemented a strategy to maximise engagement opportunities and is now focused on investments that have a market capitalisation in the region of £100 million to £300 million at the point of entry. The Board believes that this strategy provides the potential for outperformance over the long term, with investors continuing to have access to Ken Wotton’s investment track record as well as the substantial public and private equity resources at the Investment Manager.

Ken Wotton (Managing Director, Public Equity at Gresham House) has been Lead Manager of the Company since September 2020. Working closely with the wider Public Equity Team at the Investment Manager, Ken’s strong leadership has produced very encouraging results. The Board is pleased to note that NAV total return performance has been 39.1 per cent. since Ken became lead manager, whilst also recognising that the investment strategy involves taking a long-term approach. In addition the Board notes that Adam Khanbhai, an investment director at the Investment Manager, has resigned from Gresham House and will no longer be involved in the investment management of the Company. Ken Wotton is the Lead Manager of the Company and the wider Gresham investment team and investment committee resource supporting the management of the Company remains unchanged.

Despite the above measures, the Board remains mindful of Shareholders' frustrations that the discount to NAV remains wide and is seeking to address this through the implementation of the proposals described in the Circular. 

In addition to the proposals, the Board is focused on the delivery of a comprehensive marketing plan, with the objective of delivering new buying interest in the Shares. It is proposed that the new marketing plan will be led by the Investment Manager in conjunction with Liberum and will replace the previous marketing and distribution arrangements with Aberdeen Standard Investments. While the implementation of the new marketing plan is still at an early stage, the Board believes it will be significantly enhanced by the adoption of the proposals set out in the Circular.

Tender Offer

The Tender Offer will replace the contingent tender offer announced by the Company on 28 May 2021 that was due to take place in November 2022 and will provide those Shareholders who wish to participate with an opportunity to realise up to 10 per cent. of their shareholding in the Company. Shareholders tendering in excess of 10 per cent. of their shareholding may be able to realise those Shares through the Tender Offer to the extent that other Shareholders do not tender any of their Shares or tender less than their Basic Entitlement. The Tender Price per Share will be equal to the prevailing unaudited Net Asset Value per Share on the Calculation Date and with the costs and expenses of the Tender Offer borne by the tendering Shareholders.

The Tender Offer is conditional on the Resolution being passed at the General Meeting.

Share Buyback Programme for calendar year 2022

Pursuant to the Share Buyback Programme the Company will commit up to a further 9 per cent. of current NAV (the exact amount subject to the expected realisations of investments in portfolio companies) to buy back Shares up to a target discount level of not less than 5 per cent. to NAV per Share over the rest of the 2022 calendar year. The Board may, subject to normal market conditions, seek to limit the discount to NAV at which the Shares trade through the prudent use of this authority to repurchase Shares in the market. Any buy back of Shares pursuant to the Share Buyback Programme will be at the absolute discretion of the Board.

At the Company's annual general meeting held on 10 November 2021 the Company obtained Shareholder authority to make market purchases of up to 9,488,197 Shares (being 14.99 per cent. of the Company's issued ordinary share capital as at 28 September 2021) (the "Share Buyback Authority"). The Share Buyback Authority shall continue in force until the earlier of (i) the date on which the maximum number of Shares authorised to be purchased have been purchased by the Company; (ii) the date of the Company's next annual general meeting; and (iii) 10 February 2023, provided that if the Company has agreed, before the Share Buyback Authority expires, to purchase Shares where the purchase will or may be executed after the Share Buyback Authority expires (whether wholly or in part), the Company may complete such purchase as if the Share Buyback Authority has not expired. 

As at 25 February 2022, being the latest practicable date prior to the publication of this Circular, the Company has not utilised any of the Share Buyback Authority, meaning that the Share Buyback Authority remains exercisable in full. Accordingly, the Company is proposing to buy back Shares under the Share Buyback Programme pursuant to the Share Buyback Authority until the date of the Company's next annual general meeting at which the Company will seek to renew its buyback authority in order to continue the Share Buyback Programme.

On this basis, no additional Shareholder authority is being sought at the General Meeting in order to implement the Share Buyback Programme.

New Buyback Policy

Following completion of the Tender Offer, the Board proposes to alter its approach to discount control by making available 50 per cent. of the capital proceeds from realised profitable transactions in each financial year to fund buybacks of Shares, up to a discount of 5 per cent. to NAV per Share (the "New Buyback Policy"). If the proceeds of realisation cannot be used to purchase Shares at a discount to NAV per Share of greater than 5 per cent. over an appropriate time period it is intended that any remaining proceeds will be redeployed by the Investment Manager into investments that are in line with the Company's investment policy to reduce the potential impact of uninvested cash on investment performance.

The adoption of the New Buyback Policy does not require any resolution to be put to, and approved by, Shareholders, rather it will be implemented through the adoption of a Board resolution. The Company will, however, require sufficient buyback authority to implement that policy and buyback authorities sought by the Company going forward will cater for this.

3.  Commitments from the Investment Manager and Gresham House plc

On 9 February 2022, the Company entered into a commitment agreement (the "CommitmentAgreement") with Gresham House plc ("GreshamHouse") and the Investment Manager, pursuant to which the following terms were agreed:

Balance Sheet Commitment

Gresham House will, by no later than 30 June 2023 (or such later time as the Board may agree), invest £5 million (inclusive of taxes, fees and commission) from its own cash resources into the purchase of Shares (the "BalanceSheetCommitment"). Liberum (or any other broker appointed to the Company from time to time) shall be irrevocably authorised and instructed by Gresham House to buy Shares for its account using the Balance Sheet Commitment, which will be satisfied through the investment by Gresham House in each quarter commencing on 1 April 2022 of an amount equal to (as nearly as practicable) £1 million, unless otherwise agreed between the Board and Gresham House. The price at which Liberum (or any broker appointed to the Company from time to time) shall be authorised to buy Shares pursuant to the Balance Sheet Commitment shall not be greater than the price which is equal to a 5 per cent. discount to the latest published Net Asset Value per Share. The authority and instruction for each quarter shall only be exercised once the Reinvestment Commitment (described below) has been satisfied in full in the relevant quarter.

In the event that the Balance Sheet Commitment investment for any quarter is not invested it shall be added to the amount which Liberum (or any other broker to the Company from time to time) is authorised to purchase so that Gresham House shall only be discharged from the Balance Sheet Commitment on the earlier of (i) the date on which it has completed its investment of £5 million in the Shares and (ii) 1 November 2025.

Reinvestment Commitment

The Investment Manager will invest in each Qualifying Quarter (defined below) an amount (including any relevant fees and commission) equal to 50 per cent. of the management fee paid to it (excluding any value added tax) in respect of the quarter preceding the relevant Qualifying Quarter into the purchase of Shares (the "ReinvestmentCommitment").

For the purposes of the Reinvestment Commitment, a "Qualifying Quarter" shall be the quarter period commencing after a quarter period during which the Shares have traded at an average discount to the published Net Asset Value per Share (on a cum income basis) of greater than 5 per cent. over that quarter period. For these purposes the quarter periods shall commence on 1 April 2022. Liberum (or any other broker appointed to the Company from time to time) shall be irrevocably authorised and instructed to buy Shares for the Investment Manager's account pursuant to the Reinvestment Commitment, provided always that the price at which Liberum (or any other broker appointed to the Company from time to time) may buy Shares pursuant to this authority shall not be greater than the price which is equal to a 5 per cent. discount to the latest published Net Asset Value per Share.

The Balance Sheet Commitment and the Reinvestment Commitment are conditional on the approval of the Resolution, which will give effect to the Tender Offer, and shall terminate in the event that the Investment Management Agreement is terminated.

4.  The Tender Offer

The key characteristics of the Tender Offer are as follows:

  • the Tender Offer will be restricted to 10 per cent. of the Shares in issue (excluding any Shares held in treasury) on the Record Date;
  • each Shareholder (other than Restricted Shareholders) will be able to tender up to 10 per cent. of its holding (rounded down to the nearest whole number of Shares) with such tenders being satisfied in full;
  • each Shareholder (other than Restricted Shareholders) will also be able to tender Shares in excess of its basic 10 per cent. entitlement, but such excess tenders will only be satisfied on a pro rata basis to the extent that other Shareholders tender less than (or none of) their basic 10 per cent. entitlement;
  • the Tender Price per Share will be equal to the prevailing unaudited Net Asset Value per Share on the Calculation Date and with the costs and expenses of the Tender Offer borne by the tendering Shareholders. 

Further details as to the calculation of the Tender Price are set out in paragraph 4 of Part 3 (Terms and Conditions of the Tender Offer) of the Circular.

The Tender Offer will be implemented by means of on-market purchases by Liberum, which will, as principal, purchase the Shares tendered (subject to the overall limit of the Tender Offer) at the Tender Price and, following completion of those purchases and in accordance with the Repurchase Agreement, sell them on to the Company at the Tender Price by way of an on-market transaction (all of these transactions will be carried out on the London Stock Exchange's Main Market). The Shares that the Company purchases from Liberum will be cancelled and the number of Shares in issue carrying voting rights reduced accordingly. The Company will fund that purchase from its existing cash resources.

The Tender Offer is conditional on the Resolution being passed at the General Meeting. It is also subject to certain conditions, which are set out in paragraph 3.1 of Part 3 (Terms and Conditions of the Tender Offer) of the Circular. In addition, the Tender Offer may be terminated in certain circumstances as set out in paragraph 3.2 of Part 3 (Terms and Conditions of the Tender Offer) of the Circular.

Your attention is drawn to the letter from Liberum in Part 2 (Letter from Liberum Capital Limited) of the Circular and to Part 3 (Terms and Conditions of the Tender Offer) of the Circular, which constitute the terms and conditions of the Tender Offer.

The fixed costs relating to the Tender Offer are expected to be approximately £244,000 including VAT. The foregoing figure does not include portfolio realisation costs or stamp duty. The costs of the Tender Offer will be borne by the tendering Shareholders and will be reflected in the Tender Price.

5.  2025 Realisation Opportunity

Shareholders will have noted from the Company's announcement on 9 February 2022 that in the context of these proposals the Board is proposing to defer the continuation resolutions that would otherwise be proposed at the Company's annual general meetings in 2022, 2023 and 2024 in favour of the implementation of a 100 per cent. realisation opportunity for Shareholders in 2025.

Further details regarding this realisation opportunity will be published by the Company closer to the time of implementation and the required Shareholder authorities sought in due course.

6.  Overseas Shareholders and Restricted Shareholders

The making of the Tender Offer to persons outside the United Kingdom may be prohibited or affected by the laws of the relevant overseas jurisdiction. Shareholders with registered or mailing addresses outside the United Kingdom or who are citizens or nationals of, or resident in, a jurisdiction other than the United Kingdom should read paragraph 8 of Part 3 (Terms and Conditions of the Tender Offer) of the Circular.

The Tender Offer is not being made to Shareholders who are resident in, or citizens of, Restricted Jurisdictions. Restricted Shareholders are being excluded from the Tender Offer in order to avoid offending applicable local laws relating to the implementation of the Tender Offer. Accordingly, copies of the Tender Form are not being and must not be mailed or otherwise distributed in or into Restricted Jurisdictions.

It is the responsibility of all Overseas Shareholders to satisfy themselves as to the observance of any legal requirements in their jurisdiction, including, without limitation, any relevant requirements in relation to the ability of such persons to complete and return a Tender Form.

7.  Taxation

The attention of Shareholders is drawn to Part 4 (UK Taxation) of the Circular, which sets out a general guide to certain aspects of current UK law and HM Revenue & Customs published practice. Shareholders who are in any doubt as to their tax position or who are subject to tax in a jurisdiction other than the United Kingdom should consult an appropriate independent professional adviser.

8.  General Meeting

A General Meeting of the Company has been convened for 11.00 a.m. on 23 March 2022.

A special resolution will be put to Shareholders at the General Meeting that the Company be authorised to make market purchases of up to 6,329,685 Shares pursuant to the Tender Offer (the "Resolution").

A special resolution requires a majority of at least 75 per cent. of members entitled to vote and present in person or by proxy to vote in favour in order for it to be passed.

All Shareholders are entitled to attend and vote at the General Meeting. In accordance with the Company's articles of association ("Articles"), all Shareholders entitled to vote and be present in person or by proxy at the General Meeting shall upon a poll have one vote in respect of each Share held. In order to ensure that a quorum is present at the General Meeting, it is necessary for two or more Shareholders to be present in person or by proxy (or, if a corporation, by representative).

The formal notice convening the General Meeting is set out on pages 31 to 33 of the Circular.

9.  Action to be taken

General Meeting

Shareholders will find enclosed with the Circular a personalised Form of Proxy for use at the General Meeting.

Whether or not you wish to tender your Shares under the Tender Offer and regardless of whether you intend to be present at the General Meeting, Shareholders are asked to complete and return the Form of Proxy in accordance with the instructions printed thereon to the Company's Registrar, Computershare Investor Services PLC at The Pavilions, Bridgwater Road, Bristol BS99 6ZY so as to be received as soon as possible and in any event by no later than 11.00 a.m. on 21 March 2022. The return of a Form of Proxy will not prevent Shareholders from attending the General Meeting and voting in person should they so wish.

Tender Offer

Only Shareholders whose names appear on the Register as at 6.00 p.m. on 18 March 2022 are able to participate in the Tender Offer in respect of the Shares held as at that date.

Shareholders should refer to paragraph 5 of part 3 (Terms and Conditions of the Tender Offer) of the Circular for further information on the options available. Shareholders who hold their Shares in certificated form should note that they should return their share certificate(s) and/or other document(s) of title in respect of the Shares tendered with their Tender Form. A Tender Form submitted without the related share certificate representing the amount of shares to be tendered will be treated as invalid.

If you do not wish to sell any of your Shares in the Tender Offer, do not complete and return the Tender Form or submit a TTE Instruction (as applicable).

The extent to which Shareholders participate in the Tender Offer is a matter for each Shareholder to decide, and will be influenced by their own individual financial and tax circumstances and investment objectives. Shareholders should seek advice from an appropriately qualified independent financial adviser, authorised under FSMA if you are in the United Kingdom, or from another appropriately authorised independent financial adviser if you are in a territory outside of the United Kingdom. All Shareholders are strongly advised to consult their professional advisers regarding their own tax position.

10.  Irrevocable undertaking

Pursuant to the terms of the Commitment Agreement referred to in the announcement released by the Company on 9 February 2022, the Investment Manager and Gresham House have each irrevocably undertaken to vote the 1,073,248 Shares held by them in favour of the Resolution (being a resolution required in order to give effect to the Tender Offer which forms part of the series of proposals developed in conjunction with the Investment Manager) in respect of the Shares held by them.

As at 25 February 2022, being the latest practicable date prior to the publication of the Circular, Gresham House and the Investment Manager held and/or had discretionary management in respect of (such that they were able to procure the exercise of voting rights attaching to), and/or were otherwise able to control the exercise of all rights (including voting rights) attaching to, 3,400,748 Shares in aggregate (representing approximately 5.37 per cent, of the issued share capital (excluding Shares held in treasury) of the Company as at the date of the Circular).

11.  Recommendation 

The Board considers that the terms of the Tender Offer and Share Buyback Programme as set out in the Circular and the Resolution to be proposed at the General Meeting are in the best interests of the Company and its Shareholders as a whole. Accordingly, the Board unanimously recommends that Shareholders vote in favour of the Resolution to be proposed at the General Meeting.

Those Directors who hold Shares (being Richard Hills, Richard Locke, William Barlow and Josephine Dixon, intend to vote in favour, or procure the vote in favour, of the Resolution at the General Meeting in respect of their own beneficial holdings of Shares, which in aggregate amount to 135,000 Shares (representing approximately 0.21 per cent, of the issued share capital (excluding Shares held in treasury) of the Company as at the date of the Circular).

The Directors make no recommendation to Shareholders as to whether or not they should tender all or any of their Shares in the Tender Offer. Whether or not Shareholders decide to tender their Shares will depend, amongst other factors, on their view of the Company's prospects and their own individual circumstances, including their own tax position.

The Directors will not be tendering any of their Shares in the Tender Offer.

Expected Timetable

  2022

Publication of the Circular and Tender Offer opens 28 February
Latest time and date for receipt of Tender Forms and submission of TTE Instructions from Shareholders 1.00 p.m. on 18 March
Record Date 6.00 p.m. on 18 March
Announcement of result of Tender Offer 21 March
Latest time and date for receipt of Forms of Proxy from Shareholders 11.00 a.m. on 21 March
Calculation Date 22 March
General Meeting 11.00 a.m. on 23 March
Results of General Meeting announced 23 March
Tender Price announced By close of business on 23 March
CREST Settlement Date: payments through CREST made and CREST accounts settled 24 March
Balancing share certificates and cheques despatched to certificated Shareholders  Week commencing 4 April

Notes:

  1. Each of the times and dates referred to in the expected timetable above and elsewhere in the Circular may be extended or brought forward at the discretion of the Company. If any of the above times and/or dates change, the revised time(s) and/or date(s) will be notified to Shareholders by an announcement through a Regulatory Information Service.
  2. All times referred to in the Circular are, unless otherwise stated, references to London time.

LEI: 2138003R5GB8QZU2G577

Enquiries:

Strategic Equity Capital plc

Richard Hills (Chairman)

(via Juniper Partners below)

Juniper Partners (Company secretary) +44 (0)131 378 0500

Steven Davidson

Liberum Capital Limited

Chris Clarke      +44 (0) 20 3100 2000 

Darren Vickers

Owen Matthews

KL Communications (Media enquiries) +44 (0)20 3995 6673

[email protected]
Charles Gorman 
Will Sanderson


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