Merger Update

 

TIDMGTW TIDMGFV 
 
RNS Number : 7157W 
Gateway VCT PLC 
31 July 2009 
 

JOINT ANNOUNCEMENT 
 
 
GATEWAY VCT PLC 
GUINNESS FLIGHT VENTURE CAPITAL TRUST PLC 
 
 
31 JULY 2009 
 
 
RECOMMENDED PROPOSALS FOR A MERGER BETWEEN GATEWAY VCT PLC ("GATEWAY VCT") AND 
GUINNESS FLIGHT VENTURE CAPITAL TRUST PLC ("GUINNESS FLIGHT VCT") TO BE 
COMPLETED BY PLACING GATEWAY VCT INTO MEMBERS' VOLUNTARY LIQUIDATION PURSUANT TO 
SECTION 110 OF THE INSOLVENCY ACT 1986 AND THE TRANSFER BY GATEWAY VCT OF ALL OF 
ITS ASSETS AND LIABILITIES TO GUINNESS FLIGHT VCT IN CONSIDERATION FOR NEW 
ORDINARY SHARES OF 10 PENCE EACH IN GUINNESS FLIGHT VCT ("GUINNESS FLIGHT VCT 
SHARES") AND THE CANCELLATION OF THE LISTING OF THE GATEWAY VCT ORDINARY SHARES 
OF 5 PENCE EACH ("GATEWAY VCT SHARES") 
 
 
SUMMARY 
 
 
The boards of Gateway VCT and Guinness Flight VCT announced on 28 July 2009 that 
agreement in principle had been reached for the merger of the two companies. 
Both boards are pleased to advise that discussions have concluded and both 
boards are today writing to their respective shareholders with proposals for 
consideration of the proposed merger ("the Scheme"). The Scheme will, if 
effected, result in Gateway VCT being merged into Guinness Flight VCT creating 
an enlarged company ("Enlarged Company") having net assets of over GBP15.3 
million, which is expected to deliver cost savings and other strategic benefits. 
 
The Scheme will be effected by Gateway VCT being placed into members' 
voluntary liquidation pursuant to a scheme of reconstruction under Section 110 
of the Insolvency Act 1986. All of the assets and liabilities of Gateway VCT 
will then be transferred to Guinness Flight VCT in consideration for Guinness 
Flight VCT Shares (which will be issued directly to the shareholders of Gateway 
VCT). The merger will be completed on a relative net asset basis. 
 
The effective date for the transfer of the assets and liabilities of Gateway VCT 
and the issue of Guinness Flight VCT Shares pursuant to the Scheme is expected 
to be 4 September 2009 ("the Effective Date"). Following the Effective Date the 
listing of the Gateway VCT Shares will be cancelled and Gateway VCT will be 
wound up. 
 
The Scheme is conditional, inter alia, on the approval of resolutions to be 
proposed to shareholders of Gateway VCT and Guinness Flight VCT at general 
meetings to be held on 27 August 2009 (for both Gateway VCT ("Gateway VCT GM 1") 
and Guinness Flight VCT ("Guinness Flight VCT GM")) and 4 September 2009 (for 
Gateway VCT only ("Gateway VCT GM 2")) and dissent not having been expressed by 
shareholders of Gateway VCT holding more than 10 per cent. in nominal value of 
the issued Gateway VCT share capital. 
 
 
The board of Guinness Flight VCT also consider it appropriate, subject to 
resolutions being passed at the Guinness Flight VCT GM and the Scheme becoming 
effective, to change the name of Guinness Flight VCT, on completion of the 
Scheme, to Ortus VCT PLC and extend the life of Guinness Flight VCT to 2014. In 
addition, it is also proposed to renew share issue and share repurchase 
authorities for Guinness Flight VCT, as well as approve the further cancellation 
of Guinness Flight VCT's share premium account. 
 
 
BACKGROUND 
 
 
In September 2004, the Venture Capital Trusts (Winding-up and Mergers) (Tax) 
Regulations 2004 were introduced, allowing venture capital trusts ("VCTs") to be 
acquired by, or merge with, each other without prejudicing tax reliefs obtained 
by their shareholders. A number of VCTs have now taken advantage of these 
regulations to create larger VCTs where running costs can be spread over a 
substantially greater asset base. 
 
 
With the above in mind, the boards of Gateway VCT and Guinness Flight VCT 
entered into discussions to consider a merger of the companies to create a 
single larger VCT and reduce the overall running costs. Following detailed 
consideration of the portfolio and financial position of each company (both of 
which are managed by Maven Capital Partners UK LLP ("Maven"), have common 
advisers and similar investment policies) the boards of Gateway VCT and Guinness 
Flight VCT have reached an agreement to recommend that the companies be merged. 
 
 
Both boards consider that this merger will bring significant benefits to both 
groups of shareholders through: 
 
 
  *  a reduction in annual running costs for the Enlarged Company compared to the 
  aggregate annual running costs of the separate companies; 
  *  creation of a single VCT of a more economically efficient size with a greater 
  capital base over which to spread administration and management costs; 
  *  creation of an enlarged entity with positive cash balances making Guinness 
  Flight VCT better able to meet its obligations and reducing reliance, in this 
  difficult economic environment, on bank borrowings; 
  *  the creation, on the merger of the two companies, of a broader and more 
  diversified portfolio, reducing dependence on key unlisted investments in both 
  companies' existing portfolios; 
  *  the Enlarged Company's cash position situation should provide an opportunity to 
  further diversify the combined portfolio and thereby disperse the portfolio risk 
  through participation in new investments alongside other funds managed by Maven 
  across a broader range of investments and businesses; 
  *  the potential to pay and maintain distributions in the future due to the 
  increased size and reduced proportionate running costs; 
  *  increased flexibility in meeting the various requirements for qualifying VCT 
  status; and 
  *  a merger being preferable to a liquidation for both companies as, for those 
  shareholders who benefited from capital gains tax deferral relief at the time of 
  initial subscription, it avoids triggering the payment of deferred capital gains 
  tax which, at the unaudited NAVs of the companies as at 31 May 2009, would be 
  substantially greater than the break up value. 
 
The boards believe that the Scheme provides an efficient way of effecting a 
merger with an acceptable level of costs compared with other merger routes. 
Although either company could have acquired all of the assets and liabilities of 
the other, Guinness Flight VCT was selected as the acquirer because of its 
greater size (and, therefore, a lower stamp duty cost would be incurred on the 
transfer of all of the assets and liabilities from Gateway VCT). The merger is a 
step towards enhancing performance and improving cost efficiency in the Enlarged 
Company. Shareholders should note that the merger will be outside the provisions 
of the City Code on Takeovers and Mergers. 
 
 
EXPECTED TIMETABLE 
 
 
Gateway VCT GM 1 
                10.30 a.m. on 27 August 2009 
Guinness Flight VCT GM 
             11.30 a.m. on 27 August 2009 
 
 
Record date for Gateway VCT shareholders' 
entitlements under the merger 
             5.00 p.m. on 3 September 2009 
 
 
Calculation date 
                        after 5.00 p.m. on 3 September 2009 
Suspension of listing of the Gateway VCT Shares 
7.30 a.m. on 4 September 2009 
Gateway VCT GM 2 
                  11.30 a.m. on 4 September 2009 
 
 
Effective Date for transfer of assets and 
        4 September 2009 
liabilities of Gateway VCT to Guinness Flight VCT and the 
issue of Guinness Flight VCT Shares 
 
 
Announcement of results of the Gateway VCT GM 2                          4 
September 2009 
and completion of the Scheme (if applicable) 
 
 
Cancellation of listing of the Gateway VCT Shares 
8.00 a.m. on 7 September 2009 
Admission of and dealings in Guinness Flight VCT Shares                 7 
September 2009 
to commence 
 
 
Share certificates for the Guinness Flight VCT Shares to be                18 
September 2009 
issued pursuant to the Scheme despatched 
 
 
BACKGROUND TO GATEWAY VCT AND GUINNESS FLIGHT VCT 
 
 
Gateway VCT was launched in 2000 with the objective to invest in venture capital 
opportunities related to the technology sector, and to provide further exposure 
to the technology sector by also investing in listed technology markets. Gateway 
VCT raised GBP13.6 million between launch and 30 June 2000. Following a review 
of the performance, prospects and objective, the Gateway VCT board concluded 
that it was not in the best interests of Gateway VCT to continue as a 
self-managed VCT. 
 
 
Following discussions with a number of new potential managers, Aberdeen Asset 
Managers Limited ("Aberdeen") took over the management of Gateway VCT in March 
2008. As at 31 March 2008 (this being the first valuation date following the 
appointment of Aberdeen), Gateway VCT had net assets of GBP4.8 million with 
investments in 13 companies. Following a management buy-out of Aberdeen's 
Private Equity division by its senior managers, Gateway VCT novated the 
management contract to Maven on 9 June 2009. 
 
 
As at 31 May 2009, Gateway VCT had an unaudited net asset value of GBP4,414,036 
(32.5p per Gateway VCT Share) and investments in 21 companies with a valuation 
of GBP3.2 million. 
 
 
Guinness Flight VCT was launched in 1996 and has an objective of achieving 
long-term capital appreciation and generating maintainable levels of income for 
shareholders. Guinness Flight VCT raised GBP30.0 million between launch and 
2006. Following a review of the performance, prospects and objective, the 
Guinness Flight VCT board concluded that it was not in the best interests of 
Guinness Flight VCT to review its management arrangements. 
 
 
Following discussions with a number of new potential managers and the approval 
of proposals put to shareholders, Aberdeen was awarded the management of 
Guinness Flight VCT in December 2006. As at 28 February 2007 (this being the 
first valuation date following the appointment of Aberdeen), Guinness Flight VCT 
had net assets of 13.4 million with investments in 21 companies. Following a 
management buy-out of Aberdeen's Private Equity division by its senior managers, 
the Guinness Flight VCT also novated the management contract to Maven on 9 June 
2009. 
 
 
As at 31 May 2009, Guinness Flight VCT had unaudited net asset value of 
GBP11,146,819 (41.07p per Guinness Flight VCT Share) and investments in 17 
companies with a valuation of GBP11.5 million. 
 
 
The Guinness Flight VCT board comprises four non-executive directors, Raymond 
Pierce (chairman), David Liddell, David Potter and James Stewart. Both boards 
have discussed the size and future composition of the Guinness Flight VCT board 
and it has been concluded that, subject to the Scheme effective, David Liddell 
and James Stewart will resign as directors of Guinness Flight VCT and Charles 
Scott, Neil Kennedy and William Nixon (directors of Gateway VCT) will be 
appointed as directors of Guinness Flight VCT. If the merger is effected, 
although the number of directors in Guinness Flight VCT will increase to ensure 
continuity in board representation from both companies, the total of the 
directors' fees across both companies will reduce. 
 
 
  THE MERGER 
 
 
The merger of the companies should result in significant cost savings and 
enhanced administrative efficiency. As both companies have the same investment 
manager, common advisers and similar investment policies, this is achievable 
without major additional cost or disruption to the portfolio investments. The 
existing investment management arrangements between Maven and Guinness Flight 
VCT will remain in place. 
 
 
The aggregate anticipated cost of undertaking the merger by way of the Scheme is 
approximately GBP245,000, including VAT, legal and professional fees, stamp duty 
and the costs of winding up Gateway VCT. The costs of the Scheme will be split 
proportionally between Gateway VCT and Guinness Flight VCT by reference to their 
respective merger values (ignoring merger costs). Following completion of the 
Scheme, annual cost savings for the Enlarged Company (ignoring the current 
annual expenses cap of 3.5 per cent, of the net assets value of Gateway VCT as 
this would not apply in the Enlarged Company and the amortisation payment made 
by Aberdeen to Gateway VCT when Aberdeen was appointed as Gateway VCT's 
investment manager which falls away in November 2009) of at least GBP151,000 per 
annum (representing 0.99% per cent. per annum of the expected net assets of the 
Enlarged Company) are expected to be achieved this includes the facility fees 
and interest payment savings by Guinness Flight VCT to the Bank of Scotland in 
relation to its overdraft facility. On this annualised costs savings basis and 
on the basis no new funds were raised or investments realised to meet annual 
costs, both boards believe that the costs of the Scheme will be recovered within 
20 months. 
 
 
DOCUMENTS AND APPROVALS 
 
 
Gateway VCT shareholders will receive a circular convening the Gateway VCT GM 1 
on 27 August 2009 and the Gateway VCT GM 2 on 4 September 2009 (together with 
the Guinness Flight VCT prospectus) at which Gateway VCT shareholders will be 
invited to approve resolutions in connection with the Scheme. 
 
 
Guinness Flight VCT shareholders will also receive a copy of a circular 
convening the Guinness Flight VCT GM to be held on 27 August 2009 (together with 
the Guinness Flight VCT prospectus) at which Guinness Flight VCT shareholders 
will be invited to approve resolutions in connection with the Scheme, to change 
the name of Guinness Flight VCT to Ortus VCT PLC and extend the life of Guinness 
Flight VCT (subject to the Scheme becoming effective), to renew share issue and 
share repurchase authorities and approve the cancellation of Guinness Flight 
VCT's share premium account. 
 
 
Copies of the prospectus and the circulars for Gateway VCT and Guinness Flight 
VCT have been submitted to the UK Listing Authority and will be shortly 
available for inspection at the UK Listing Authority's Document Viewing Facility 
which is situated at: 
 
 
Financial Services Authority 
25 The North Colonnade 
Canary Wharf 
London E14 5HS 
Telephone: [phone] 
 
 
Investment Manager and Administrator for Gateway VCT and Guinness Flight VCT 
Maven Capital Partners UK LLP 
David Russell/Rosemary O'Neil 
Telephone: [phone] 
 
 
Solicitors to Gateway VCT and Guinness Flight VCT 
Martineau 
Kavita Patel 
Telephone: [phone] 
 
 
Sponsor to Guinness Flight VCT 
Howard Kennedy 
Keith Lassman 
Telephone: [phone] 
 
 
The directors and the proposed directors of Guinness Flight VCT accept 
responsibility for the information relating to Guinness Flight VCT and its 
directors and proposed directors contained in this announcement. To the best of 
the knowledge and belief of such directors and proposed directors (who have 
taken all reasonable care to ensure that such is the case), the information 
relating to Guinness Flight VCT and its directors and proposed directors 
contained in this announcement, for which they are solely responsible, is in 
accordance with the facts and does not omit anything likely to affect the import 
of such information. 
 
 
The directors of Gateway VCT accept responsibility for the information relating 
to Gateway VCT and its directors contained in this announcement. To the best of 
the knowledge and belief of such directors (who have taken all reasonable care 
to ensure that such is the case), the information relating to Gateway VCT and 
its directors contained in this document, for which they are solely responsible, 
is in accordance with the facts and does not omit anything likely to affect the 
import of such information. 
 
 
Martineau are acting as legal advisers for Gateway VCT and Guinness Flight VCT 
and for no one else in connection with the matters described herein and will not 
be responsible to anyone other than Gateway VCT and Guinness Flight VCT for 
providing the protections afforded to clients of Martineau or for providing 
advice in relation to the matters described herein. 
 
 
Howard Kennedy, which is authorised and regulated in the United Kingdom by the 
Financial Services Authority, is acting as sponsor for Guinness Flight VCT and 
no one else and will not be responsible to any other person for providing the 
protections afforded to customers of Howard Kennedy or for providing advice in 
relation to any matters referred to herein. 
 
 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
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