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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
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Brockhampton | LSE:BHD | London | Ordinary Share | GB0001440055 | ORD 10P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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0.00 | 0.00% | 0.00 | - |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
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0 | 0 | N/A | 0 |
RNS Number:0537M South Downs Limited 24 October 2001 South Downs Limited Offer for Brockhampton - pt2 NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION INTO THE UNITED STATES, CANADA, AUSTRALIA OR JAPAN FOR IMMEDIATE RELEASE 24 October 2001 BROCKHAMPTON HOLDINGS plc Part Two Recommended Cash Offers by South Downs Limited for Brockhampton Holdings plc 1. Introduction The Independent Directors of Brockhampton and the board of South Downs announce the terms of recommended cash offers, to be made by Rothschild on behalf of South Downs, to acquire the entire issued and to be issued share capital of Brockhampton. 2. The Offers The Offers, which will be on the terms and subject to the conditions set out below and in Appendix I to this announcement and the further terms and conditions to be set out in the Offer Document and the Forms of Acceptance, will be made on the basis set out below: The Ordinary Offer: for each Brockhampton Ordinary Share 319p in cash The "A" Share Offer: for each Brockhampton "A" Share 128p in cash The Offers, which will be wholly in cash, value the entire existing issued share capital of Brockhampton at approximately #70.8 million, and represent an enterprise value of #76.9 million based on net debt of #6.1 million at 31 March 2001. The Offers represent premia of approximately 25.1 per cent. to the Closing Price of 255.0 pence per Brockhampton Ordinary Share and 23.7 per cent. to the Closing Price of 103.5 pence per Brockhampton "A" Share on 23 October 2001, the day prior to this announcement. The Offers represent a premium of 9.9 per cent. to Brockhampton's Underlying Regulated Capital Value as at 31 March 2001, of #70 million. Brockhampton Shareholders, other than certain overseas shareholders, who validly accept the Offers may elect to receive Loan Notes to be issued by South Downs instead of some or all of the cash consideration to which they would otherwise be entitled under the Offers. Further information concerning the Loan Notes is set out in paragraph 12 of this announcement. 3. Recommendation from the Independent Directors In view of the involvement in South Downs Capital and South Downs of Mr Nicholas Roadnight (Managing Director of Brockhampton) and Mr Neville Smith (Finance Director of Brockhampton), the Independent Directors, being Mr Martin Copp, Mr Hugh Pringle and Mr John King (who do not and will not have any interest in South Downs Capital or South Downs and will resign from the boards of Brockhampton and Portsmouth Water upon the Offers becoming or being declared unconditional in all respects), have taken responsibility for considering the Offers on behalf of Brockhampton. Mr John Batty (Chairman of Brockhampton) is not included as an Independent Director owing to his role as a Trustee of the Brockhampton Pension Scheme, a significant Brockhampton Shareholder. The Independent Directors of Brockhampton, who have been so advised by Close Brothers, consider the terms of the Offers to be fair and reasonable and have unanimously agreed to recommend Brockhampton Shareholders to accept the Offers, as they have irrevocably undertaken to do in respect of their own beneficial shareholdings. In providing advice to the Independent Directors, Close Brothers has taken into account the commercial assessments of the Independent Directors. 4. Irrevocable undertakings South Downs has received irrevocable undertakings from the directors of Brockhampton to accept the Offers in respect of 5,346 Brockhampton Ordinary Shares and 116,729 Brockhampton "A" Shares, representing approximately 0.13 per cent. of the issued ordinary voting share capital and 0.26 per cent. of the issued "A" ordinary non-voting share capital of Brockhampton. South Downs has also received irrevocable undertakings from the Brockhampton Pension Scheme, the ESOT, The Special Utilities Investment Trust Plc and East Surrey Holdings Plc to accept the Offers in respect of, in aggregate, 3,663,630 Brockhampton Ordinary Shares and 22,957,645 Brockhampton "A" Shares, representing approximately 85.9 per cent. and 51.4 per cent. of the Brockhampton Ordinary Shares and the Brockhampton "A" Shares, respectively. In aggregate, therefore, South Downs has received irrevocable undertakings to accept the Offers in respect of 3,668,976 Brockhampton Ordinary Shares and 23,074,374 Brockhampton "A" Shares, representing approximately 86.0 per cent. and 51.6 per cent. of the Brockhampton Ordinary Shares and Brockhampton "A" Shares, respectively. All undertakings described in this paragraph 4 will remain binding notwithstanding any competing offer. 5. Background to and reasons for the Offers Portsmouth Water, the regulated water supply subsidiary of Brockhampton, is acknowledged by Ofwat to be one of the most efficient companies in the sector. Customers enjoy the lowest average water supply bill in England and Wales and the Company's quality of service is ranked above the average of Ofwat performance standards in almost all categories of inspection. The last periodic review by Ofwat in November 1999 imposed upon Portsmouth Water an average price reduction of 1.4% per annum compounded annually in real terms for the period to 31 March 2005. In setting this price determination, Ofwat assumed further cost reductions and efficiencies in relation to operating expenditure, capital maintenance expenditure and capital enhancement expenditure, notwithstanding the outperformance achieved by the Company against previous Ofwat targets. These operating assumptions, together with Ofwat's assumptions in relation to cost of capital when setting the price determination, restrict the scope for increasing shareholder value in the Brockhampton Group's regulated business. Accordingly, Brockhampton has in recent years sought to develop non-regulated income to provide growth in earnings and enhance shareholder value. While these activities have contributed to turnover they have, in the main, yet to achieve profitable operation and are unlikely to contribute significantly to profits for some time. Brockhampton has also explored options for a financial restructuring to provide a sustainable low cost of capital and a simplified shareholder structure. However, the Board considered that improving the efficiency of the capital structure by increasing indebtedness could well further diminish investor appetite for what is already a small quoted company with limited trading liquidity in its shares. In summary, although Brockhampton is rated as a highly efficient operator which has been prudently and successfully managed for many years, these limitations on the ability of the Company to create value for shareholders have resulted in Brockhampton being valued by the stock market at a discount to Regulated Capital Value. The Independent Directors do not anticipate this changing for the foreseeable future while, in contrast, the Offers value the Company at a premium to its Underlying Regulated Capital Value. In view of this the Independent Directors consider that the Offers are fair and reasonable and should be recommended to shareholders. 6. Information on the Brockhampton Group Brockhampton's principal activity is the supply of water to some 287,000 domestic and commercial customers. This is carried out by its subsidiary Portsmouth Water within an area of 868 square kilometres in Hampshire and West Sussex. Brockhampton has four other smaller businesses: Seven Springs Limited, which supplies and services water coolers in the South of England (it currently has some 1,500 units in operation); R.H. Lillywhite Limited, a plumbing and heating company acquired in June 2000; Brockhampton Property Investments Limited, which manages the Brockhampton Group's land resources; and Blakedew 236 Limited, which was established to acquire rights to certain leakage detection equipment for the water sector. For the year to March 2001, the Brockhampton Group reported a turnover of #29.0 million (2000: #28.8 million) and profit before taxation of #8.1 million (2000: #9.0 million). As at 31 March 2001, the group had net assets of #51.6 million (2000: #47.4 million) and net debt of #6.1 million (2000: #8.4 million). The Regulated Capital Value of Portsmouth Water at 31 March 2001, as determined by Ofwat, was #82.2 million. Management's estimate of the Underlying Regulated Capital Value as at 31 March 2001 is #70 million. The adjustments to the Regulated Capital Value to arrive at the Underlying Regulated Capital Value comprise Management's estimates of #8.1 million for the net effect of capital efficiencies to 31 March 2000 identified by Ofwat which will be deducted from Regulated Capital Value by 31 March 2005, and #4.1 million of capital expenditure allowed in the last determination by Ofwat for the year to 31 March 2001 which has been deferred to later years within the current review period. 7. Information on South Downs Capital, South Downs and arrangements with Management South Downs is a newly-formed company established for the purpose of making the Offers. South Downs has not traded or entered into any material obligation other than in connection with the Offers and their financing. The entire issued share capital of South Downs is owned by South Downs Capital. Following the Offers becoming or being declared unconditional in all respects, the ordinary share capital of South Downs Capital will be owned as to 15 per cent. by Management, 40 per cent. by The South Downs Employee Benefit Trust (a trust formed for the benefit of employees) and 45 per cent. by Drummond Capital, through RBIL, both wholly-owned indirect subsidiaries of RBSG. It is intended that, subject to certain performance criteria being achieved, Drummond Capital's interest, which will attract a dividend, will be redeemed over a period of years, and that the equity interests in South Downs Capital held by Management and The South Downs Employee Benefit Trust will be increased as a result. The shares held by Management and The South Downs Employee Benefit Trust will not attract any dividends until Drummond Capital's interest has been redeemed in full and in any event not until 2008, but will benefit from any inherent gains as Drummond Capital's interest is redeemed. Mr Rory Cullinan, Chairman of Drummond Capital, is Non- Executive Chairman of South Downs Capital and South Downs. Mr Nicholas Roadnight and Mr Neville Smith, currently Managing Director and Finance Director respectively of Brockhampton, will hold the same positions in South Downs Capital and South Downs. Subsequent to the Offers becoming or being declared unconditional in all respects, South Downs intends to optimise the capital structure of Brockhampton, which is likely to involve raising finance from debt capital markets. Through direct and indirect participation in the equity share capital of South Downs Capital, Management and employees will be incentivised to continue to deliver a high quality, low cost service to customers and to continue to achieve operational and capital efficiencies consistent with Portsmouth Water's regulatory targets. Further details of the arrangements with Management will be described in the Offer Document. 8. Information on Drummond Capital, RBIL and RBSG Drummond Capital is a recently incorporated, wholly- owned, indirect subsidiary of RBSG with its registered office at Waterhouse Square, 138-142 Holborn, London, EC1 N2TH. Since its incorporation in October 2001, it has not traded or entered into any material obligation other than in connection with the Offers and their financing. It will operate as the manager of the RBS Group's investment in South Downs Capital. RBIL, through which the RBS Group will invest in South Downs Capital, is a wholly-owned, indirect subsidiary of RBSG and has its registered office at 42 St Andrew Square, Edinburgh, EH2 2YE. RBSG is the parent company of the RBS Group, which is a diversified financial services group engaged in a wide range of banking, financial and finance-related activities in the UK and internationally. The RBS Group's operations are principally centred in the UK. For the 15 months ended 31 December 2000, the RBS Group reported total income of #12.1 billion (year ended 30 September 1999: #4.1 billion) and profit before taxation and after exceptional items of #3.4 billion (year ended 30 September 1999: #1.2 billion). As at 31 December 2000, the total assets and net assets of the RBS Group were #320.0 billion and #23.1 billion respectively. For the six months ended 30 June 2001, the RBS Group reported total income of #6.8 billion (six months ended 30 June 2000: #4.7 billion) and profit before taxation and after exceptional items of #2.1 billion (six months ended 30 June 2000: #1.2 billion). As at 30 June 2001, the total assets and net assets of the RBS Group were #340.9 billion and #24.7 billion respectively. 9. Brockhampton management and employees South Downs has confirmed that the existing employment rights, including accrued pension entitlements, of the management and employees of Brockhampton will be fully safeguarded. The Independent Directors have agreed to resign from the boards of Brockhampton and Portsmouth Water upon the Offers becoming or being declared unconditional in all respects. Mr John Batty has agreed to resign as a director of Brockhampton upon the Offers becoming or being declared unconditional in all respects. He will remain as a non- executive director of Portsmouth Water. It is the intention of South Downs to appoint further non-executive directors to the board of Portsmouth Water in due course. 10. Brockhampton Share Option Scheme The Offers will extend to any Brockhampton Ordinary Shares and Brockhampton "A" Shares which are unconditionally allotted or issued while the Offers remain open for acceptance (or such earlier period as South Downs may, subject to the Code, decide), including any Brockhampton Ordinary Shares and Brockhampton "A" Shares which are allotted or issued as a result of the exercise of options granted under the Brockhampton Share Option Scheme. In the event that the Offers become or are declared unconditional in all respects, South Downs will write to participants in the Brockhampton Share Option Scheme to inform them of the effect of the Offers on their rights under the Brockhampton Share Option Scheme and to make appropriate proposals to them. 11. Compulsory acquisition, de-listing and cancellation of trading If South Downs receives acceptances under the Offers in respect of, or otherwise acquires, 90 per cent. or more of the Brockhampton Ordinary Shares and/or the Brockhampton "A" Shares to which the Offers relate, South Downs intends to exercise its rights pursuant to the provisions of sections 428 to 430F of the Act compulsorily to acquire the remaining Brockhampton Ordinary Shares and/or (as the case may be) Brockhampton "A" Shares. Furthermore, once the Offers become or are declared unconditional in all respects, South Downs intends to procure that Brockhampton makes an application to the UKLA for the cancellation of the listing of Brockhampton Shares on the Official List and to the London Stock Exchange for the cancellation of trading in Brockhampton Shares. It is expected that such cancellations will take effect no earlier than 20 business days after the date on which the Offers become or are declared unconditional in all respects. 12. Loan Note Alternative The Loan Note Alternative will be made available on the following basis: for every #1 of cash consideration, #1 nominal of Loan Notes. The issue of the Loan Notes will be conditional on the Offers becoming or being declared unconditional in all respects and valid elections having been received by such time for at least #3 million in nominal value of Loan Notes. A maximum of #7.5 million in nominal value of Loan Notes will be available to be issued under the Loan Note Alternative and to satisfy elections for Loan Notes following the implementation of the provisions relating to the compulsory acquisition of Brockhampton contained in Sections 428 to 430F of the Act. To the extent that valid elections for Loan Notes exceed the maximum available, such elections shall be scaled back pro rata to the amounts respectively applied for so that the #7.5 million limit is not exceeded. The balance of the consideration due under the Offers will be paid in cash. The payment by South Downs in respect of principal under the Loan Notes will be guaranteed by RBS. The holders of the Loan Notes will be entitled to require South Downs to repay all or any part (being #100 in nominal amount or any integral multiple of it) of their holdings of Loan Notes at par, together with accrued interest up to (but excluding) the date of repayment, on the first interest payment date falling at least six months after the date of issue of the relevant Loan Notes and on subsequent interest payment dates. The Loan Notes will bear interest, payable in arrear, up to but excluding the date of payment (less any applicable tax) every six months on 31 March and 30 September in each year, at a rate per annum, calculated by South Downs, equal to 1 per cent. below LIBOR for six- month sterling deposits. The first payment will be made on the date which is the first 31 March or 30 September to fall on or after the first date of issue of any of the Loan Notes in respect of the period from and including the date of issue of the Loan Notes up to but excluding the relevant payment date. If at any time after twelve months from the date of first issue of the Loan Notes, the principal amount of all Loan Notes outstanding is equal to or less than #500,000, South Downs shall have the right, on giving to the remaining holders of Loan Notes not less than 30 days' notice in writing, to redeem all (but not part only) of the outstanding Loan Notes by payment of their nominal amount together with accrued interest (after deduction of tax) up to but excluding the date of redemption. Any Loan Notes not previously redeemed or purchased will be redeemed at their principal amount, together with accrued interest (after deduction of tax) up to but excluding the date of redemption, on the date falling three years and one month after the first interest payment date. Rothschild has advised that, based on market conditions on 23 October 2001 (the day prior to the date of this announcement), in its opinion, if the Loan Notes had been in issue on that date the estimated value of the Loan Notes would have been not less than 98.5 pence per #1 in nominal value. 13. Financing of the Offers Full acceptance of the Offers (assuming no valid elections for the Loan Note Alternative are made and all outstanding options over Brockhampton Shares are exercised while the Offers remain open for acceptance) would require a cash payment of approximately #72.3 million by South Downs. Rothschild is satisfied that sufficient resources are available for South Downs to satisfy full acceptance of the Offers. 14. Inducement fee RBS and Brockhampton have entered into an arrangement under which Brockhampton has agreed to pay to RBS a fee of #708,000 if: (i) the Independent Directors of Brockhampton either (a) decline to recommend the Offers to the Brockhampton Shareholders or (b) withdraw or materially amend such recommendation and (in the case of (a)) the Offers are not made or (in the case of (b)) the Offers subsequently lapse or are withdrawn; or (ii) an announcement is made by a third party which is not acting in concert with RBS in relation to the Offers of an intention to make an offer (whether or not the subject of pre-conditions) for Brockhampton conforming with or pursuant to Rules 2.4 or 2.5 of the Code or of any other proposal to Brockhampton or the Brockhampton Shareholders which involves, in either case, a change of control of Brockhampton and, as a consequence, the Offers are not made or subsequently lapse or are withdrawn. 15. General The Offer Document will be posted to Brockhampton Shareholders and (for information only) to participants in the Brockhampton Share Option Scheme as soon as practicable. A summary of the conditions and certain further terms of the Offers is set out in Appendix I of this announcement. The definitions of certain expressions used in this announcement are contained in Appendix II. Mr Nicholas Roadnight and Mr Neville Smith, who are acting in concert with South Downs, hold, together with their connected persons, an aggregate of 39,463 Brockhampton "A" Shares and, pursuant to the terms of the Brockhampton Share Option Scheme, options over 1,472 Brockhampton Ordinary Shares and options over 28,765 Brockhampton "A" Shares. Save for these holdings and options and for the irrevocable undertakings summarised in paragraph 4 above, neither South Downs nor any person acting in concert with it owns or controls any Brockhampton Shares or any securities convertible or exchangeable into Brockhampton Shares or any rights to subscribe for or purchase, or options (including traded options) in respect of, or derivatives referenced to, any such shares ("Relevant Brockhampton Securities") nor does any such person have any arrangement in relation to Relevant Brockhampton Securities. For these purposes, "arrangement" includes any indemnity or option arrangement, any agreement or understanding, formal or informal, of whatever nature, relating to Relevant Brockhampton Securities which may be an inducement to deal or refrain from dealing in such securities. Enquiries South Downs: Rory Cullinan Tel: 020 7360 4900 Nicholas Roadnight Tel: 020 7360 4900 Rothschild: Richard Noble Tel: 020 7280 5000 Ed Welsh Tel: 020 7280 5000 Brockhampton: Martin Copp Tel: 01425 474 241 Close Brothers: Peter Alcaraz Tel: 020 7655 3100 David Bezem Tel: 020 7655 3100 Smithfield Financial: John Antcliffe Tel: 020 7360 4900 Rothschild, which is regulated in the United Kingdom by The Securities and Futures Authority Limited, is acting exclusively for RBS and South Downs and no one else in connection with the Offers and will not be responsible to anyone other than RBS and South Downs for providing the protections afforded to its customers or for providing advice in relation to the Offers. Close Brothers, which is regulated in the United Kingdom by The Securities and Futures Authority Limited, is acting exclusively for Brockhampton and no one else in connection with the Offers and will not be responsible to anyone other than Brockhampton for providing the protections afforded to its customers or for providing advice in relation to the Offers. The Offers (including the Loan Note Alternative) are not being made, directly or indirectly, in or into, or by use of the mails, or by any means or instrumentality (including, without limitation, facsimile or electronic transmission, telex and telephone) of interstate or foreign commerce, or of any facility of a national securities exchange of, the USA, Canada, Australia or Japan and the Offers cannot be accepted by any such use, means, instrumentality or facility or from within the USA, Canada, Australia or Japan. The Loan Notes have not been, and will not be, registered under the Securities Act nor under the securities laws of any state of the USA nor the applicable securities laws of Canada, Australia or Japan. The Loan Notes may not be offered, sold or delivered (directly or indirectly) in or into the USA, Canada, Australia or Japan. MORE TO FOLLOW OFFPUGAPUUPGUPC
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