Downing Plan 2011 Downing Planned Exit Vct 2011 Plc : Proposed Merger

 
TIDMD1GO 
 
 
   JOINT ANNOUNCEMENT 
 
   15 JUNE 2015 
 
   DOWNING STRUCTURED OPPORTUNITIES VCT 1 PLC ("DSO") 
 
   DOWNING PLANNED EXIT VCT 2011 PLC ("DP011") 
 
   DOWNING PLANNED EXIT VCT 6 PLC ("DP6") 
 
   DOWNING PLANNED EXIT VCT 7 PLC ("DP7") 
 
   (TOGETHER, THE "COMPANIES" AND DP2011, DP6 AND DP7 TOGETHER THE "TARGET 
VCTS" AND EACH A "TARGET VCT") 
 
   RECOMMENDED PROPOSALS TO MERGE THE COMPANIES PURSUANT TO SCHEMES OF 
RECONSTRUCTION UNDER SECTION 110 OF THE INSOLVENCY ACT 1986 
 
   The boards of the Companies (the "Boards") are pleased to announce that 
they have agreed terms to merge the four Companies and that they are 
today writing to set out the merger proposals to their respective 
shareholders for consideration. Each of the Companies is managed by 
Downing LLP ("Downing"). 
 
   The merger ("Merger") will be effected by the Target VCTs each being 
placed into members' voluntary liquidation pursuant to schemes of 
reconstruction under section 110 of the Insolvency Act 1986 ("Schemes" 
and each a "Scheme"). Shareholders should note that the Merger by way of 
the Schemes will be outside the provisions of the City Code on Takeovers 
and Mergers. It is proposed that the name of DSO be changed to "Downing 
FOUR VCT plc" immediately following the Merger. 
 
   The planned exit strategy of each of DSO's share classes, as well as 
those of the Target VCTs, will not be affected by the Merger as new 
share classes will be created in line with the current, pre-merger share 
classes in the Target VCTs as illustrated in the table below. 
 
 
 
 
Pre-Merger Share Classes of Target      Post-Merger Share Classes of the 
VCTs                                    Enlarged Company 
DP2011 General Ord Shares               New DP2011 General Ord Shares 
DP2011 A Shares                         New DP2011 General A Shares 
DP2011 Structured Ord Shares            New DP2011 Structured Ord Shares 
DP2011 Structured A Shares              New DP2011 Structured A Shares 
DP2011 Low Carbon Ord Shares            New DP2011 Low Carbon Ord Shares 
DP6 Shares                              New DP67 Ord Shares 
DP7 Shares                              New DP67 Ord Shares 
 
 
   Each Scheme requires the approval of resolutions by the DSO shareholders 
and the relevant Target VCT's shareholders. The DP6 and DP7 Schemes are 
conditional on the DP2011 Scheme going ahead. 
 
   The Merger will, if effected, result in an enlarged DSO ("Enlarged 
Company") with net assets of over GBP60 million. 
 
   Estimated costs of the Merger are GBP400,000, but Downing LLP has agreed 
to contribute 50% of the costs, so net costs for shareholders will be 
GBP200,000. These net costs will be borne by DSO and the Target VCTs on 
a basis which is pro rata to their current net asset values and the 
expected remaining life of each share class. As a result, the running 
cost savings for each share class over their expected remaining life is 
expected to exceed the net costs of the Merger borne by that share 
class. 
 
   For the 12 months following the Merger, Downing has also agreed to 
reduce its investment management fee in respect of DSO Assets from 1.5% 
to 1.3% and, in respect of the DP2011 Assets, from 1.8% to 1.6%. The 
applicable investment management fee in respect of DP6 Assets and DP7 
Assets will remain at 1.35%. 
 
   As part of the proposals, DSO will seek approval to broaden its 
Investment Policy to allow each share class after the Merger to continue 
to be managed in the same way as previously, to renew allotment and 
share purchase authorities, to approve amendments to its articles of 
association and to approve the cancellation of its share premium 
account. 
 
   Further details of the proposals are set out below. The approval of 
resolutions in connection with these proposals will be proposed at 
general meetings of the Companies ("Meetings") being convened as set out 
in the expected timetable below. 
 
   BACKGROUND 
 
   VCTs are required to be listed on the premium segment of the Official 
List, which involves a significant level of costs associated with the 
listing as well as related fees to ensure they comply with all relevant 
legislation and regulations. A larger VCT is able to spread the fixed 
elements of such running costs across a larger asset base and, as a 
result, reduce running costs as a percentage of net assets. In September 
2004, the Merger Regulations were introduced allowing VCTs to be 
acquired by, or merge with, each other without prejudicing the VCT tax 
reliefs obtained by their shareholders. A number of VCTs have taken 
advantage of these regulations to create larger VCTs for economic and 
administrative efficiencies. 
 
   With the above in mind, the Boards and Downing entered into discussions 
to consider a merger of the four Companies to create a single, larger 
VCT. The aim of the Merger is to achieve strategic benefits and 
reductions in the annual running costs for each set of shareholders, 
while maintaining a platform from which the planned exit strategy of 
each of the share pools can continue to be executed as it is now. 
 
   THE SCHEMES 
 
   The Merger will be effected in the following way. 
 
   First, each Target VCT will be placed into members' voluntary 
liquidation pursuant to a scheme of consolidation under section 110 of 
the Insolvency Act 1986, subject to shareholders' approval. 
 
   Secondly, all of the assets and liabilities of each Target VCT will be 
transferred to DSO in consideration for the issue of Consideration 
Shares by DSO directly to the shareholders of the relevant Target VCT. 
 
   Each Scheme requires the prior approval of the shareholders of the 
relevant Target VCT and the Shareholders of DSO. If a shareholder of a 
Target VCT does not vote in favour of the Merger and expresses his 
dissent in writing then he may require the Liquidators to purchase his 
shares at their break-value price, this being an estimate of the amount 
he would receive in an ordinary winding up of the relevant Target VCT if 
all of the assets had to be realised. The break-value is expected to be 
significantly below the net asset value of the relevant Target VCT. 
 
   For these purposes, whilst there will only be one general meeting of DSO 
at which shareholders will be invited to consider and vote in favour of 
the Mergers, there will be two general meetings for each of the Target 
VCTs. At the Target VCTs' First General Meetings, Target VCT 
shareholders will be invited to approve the Merger. At the Second Target 
VCT Meetings, Target VCT Shareholders will be invited to pass a special 
resolution for the winding up of the relevant Target VCT. 
 
   In addition to the approval of Shareholders being sought at the General 
Meeting, each Scheme is dependent on: 
 
   *   the relevant Scheme being approved by the shareholders of DSO and 
the relevant Target VCT; 
 
   *   notice of dissent not being received from shareholders (of the 
relevant Target VCT) who hold more than 10% in nominal value of the 
issued share capital; and 
 
   *   DSO confirming that it has received no notice of any claims, 
proceedings or actions of whatever nature threatened or commenced 
against any of the Target VCTs which the board of DSO regard as material, 
 
 
   *   the DP2011 scheme becoming effective, 
 
   and so will proceed and become effective immediately after the passing 
of the special resolution for the winding up of the relevant Target VCT. 
 
   The number of Consideration Shares to be issued will be on a "one for 
one" basis with Consideration Shares being issued in a new corresponding 
share class created in DSO. There is one exception being the DP2011 LC 
Shares where 935 Consideration Shares will be issued for every 1,000 
existing DP2011 LC Shares held. (This is because the DP2011 LC shares 
were originally issued at a price of 93.5p per share instead of the more 
common VCT issue price of 100p per share. This adjustment rebases the 
shares to an equivalent original issue price of 100p.) 
 
   Each Scheme is conditional upon certain conditions being satisfied as 
further set out in the circulars being posted to shareholders today, 
including resolutions to be proposed to shareholders of each of the 
Companies. Each Target VCT will apply to the UKLA for cancellation of 
the listing of its shares, upon the successful completion of its Scheme, 
such cancellation is anticipated to take place on 24 August 2015 (the 
cancellation requiring the approval of the relevant Target VCT's 
shareholders). 
 
   The Merger will result in the creation of an enlarged company and should 
result in savings in running costs and simpler administration. As all of 
the Companies have similar investment policies, a number of common 
investments and are managed by Downing, this is achievable without 
material disruption to the Companies and their combined portfolio of 
investments. 
 
   The boards of the Companies consider that the Merger will bring a number 
of benefits to all of the Companies' groups of shareholders through: 
 
   *   A reduction in the expected annual running costs for most 
shareholders; 
 
   *   Annual running costs capped by Downing at 3% of net assets; 
 
   *   a reduction in Downing's investment management fees for the 12 
months following the Merger by 0.2% of the NAV per annum in respect of 
each DSO Share; 
 
   *   increased flexibility for exit and wind up strategies for different 
groups of shareholders; and 
 
   *  enhanced prospects for the possibility of creating an Target share 
class which could be offered to those Shareholders who may wish to 
remain invested and continue to receive tax free dividends at the end of 
the initial planned exit period. 
 
   Additional attractive features of the Merger include: 
 
   *   Downing has agreed to contribute 50% of the costs of the Merger 
meaning that DSO and the Target VCTs will only bear GBP200,000 of the 
GBP400,000 estimated costs; 
 
   *   Downing has agreed to cover 100% of any costs of the Merger in 
excess of GBP420,000; and