Proposed Subscription

 

TIDMNSV 
 
RNS Number : 2644E 
NetServices PLC 
17 December 2009 
 

17 December 2009 
 
 
NetServices plc 
("NetServices", the "Company" or the "Group") 
 
 
Proposed ShARE subscription, grant of option and Notice of General meeting 
 
 
Proposed investment by Ian Smith, an individual with a proven track record in 
the information technology managed service sector, comprising:- 
 
 
  *  Proposed subscription for 3.3 million new ordinary shares, raising approximately 
  GBP0.1m 
  *  Proposed option to invest up to a further GBP2.0m at 8.7 pence per share to fund 
  a future acquisition 
  *  Proposed appointment of Ian Smith as a non-executive director of the Company, 
  upon completion of subscription 
 
 
 
A circular has today been sent to shareholders of the Company which provides 
details of a proposed investment by Ian Smith in new ordinary shares of 
NetServices ("the "Proposal") and a conditional option agreement to invest 
further funds and which seeks shareholder approval to approve the subscription 
at a General Meeting of shareholders ("GM") to be held on 6 January 2010. A 
summary of the Circular is detailed below and an electronic version of the 
Circular will be available from the Company's website www.netservicesplc.com. 
 
 
The Proposal 
 
 
Ian Smith is an existing NetServices' shareholder. He has acquired 725,000 
ordinary shares of 0.25 pence each, representing approximately 2.4 per cent. of 
the Company's issued share capital at prices ranging from 3.0 pence to 3.3 pence 
in the period from 24 June 2009 to 15 September 2009. Ian is currently the Chief 
Executive of Xploite plc, an AIM-quoted company, which provides information 
technology managed services, and where he has successfully executed two "buy and 
build" strategies. Prior to joining Xploite plc, Ian was a regional director for 
the UK and Ireland division of Foundry Networks, the California based designer 
and manufacturer of computer network equipment. Ian's current investment is, and 
the investment to be made pursuant to the Proposals would be, made in a personal 
capacity and are not linked to his current role with Xploite plc, nor are they 
being made on behalf of Xploite plc. 
 
 
Ian has agreed, conditional upon the passing of the resolutions at the GM, to 
subscribe GBP115,176.39 for an additional 3,290,754 new Ordinary Shares at a 
subscription price of 3.5 pence per share (the "Subscription").  The 
Subscription is also conditional on the admission of the Subscription Shares to 
trading on AIM becoming effective. Following the Subscription, Ian's aggregate 
shareholding would be 4,015,754 Ordinary Shares, representing approximately 12.2 
per cent of the Company's enlarged issued share capital following the 
Subscription. 
 
 
Immediately following completion of the Subscription, Ian will be appointed as a 
non-executive Director of the Company, for which he will receive an annual fee 
of GBP15,000. 
 
 
In addition, Ian Smith and the Company have entered into a conditional option 
agreement to invest an additional maximum of GBP2,001,000 for up to 23,000,000 
new Ordinary Shares at 8.7 pence per share within the next twelve months in 
order to finance a suitable acquisition by the Company (the "Option").  The 
number of new Ordinary Shares issued under this option will be determined by 
agreement between the Company and Ian Smith and based on funds required to 
affect the acquisition.If the Option is not exercised by 31 December 2010 (or 
such later date as agreed between Ian and the Company), it shall lapse. 
 
 
The Option cannot be exercised unless the following conditions are met:- 
 
 
+----+-------------------------------------------------------------------------------------+ 
| 1. | the Company exchanging contracts for the purchase by the Company of a target which  | 
|    | the Directors of the Company (including Ian Smith) have unanimously agreed to       | 
|    | conclude;                                                                           | 
+----+-------------------------------------------------------------------------------------+ 
|    |                                                                                     | 
+----+-------------------------------------------------------------------------------------+ 
| 2. | the passing of resolutions at a general meeting of the Company to allow the issue   | 
|    | of the new Ordinary Shares resulting from the exercise of the Option; and           | 
+----+-------------------------------------------------------------------------------------+ 
|    |                                                                                     | 
+----+-------------------------------------------------------------------------------------+ 
| 3. | in the event that completion of the acquisition referred to in 1. above and         | 
|    | exercise of the Option would result in Ian or any person or persons acting together | 
|    | controlling 30 per cent. or more of the voting rights of the Company, the Company   | 
|    | obtaining a waiver from the Panel on Takeovers and Mergers of the requirement to    | 
|    | make a general offer under Rule 9 of the City Code on Takeovers and Mergers for the | 
|    | entire issued share capital of the Company, and such waiver being approved by the   | 
|    | independent shareholders at a general meeting.                                      | 
+----+-------------------------------------------------------------------------------------+ 
 
 
The Subscription and the Option therefore represent a potential investment by 
Ian of an aggregate of GBP2,116,176.39 in the Company at a weighted average 
subscription price of 8.0 pence, per new Ordinary Share, which represents a 
premium of 68 per cent. to the closing middle market price of 4.75 pence per 
Ordinary Share on 15 December 2009, the most recent practicable date prior to 
the date of this announcement. 
 
 
Background to and Reasons for the Investment 
 
 
Over the last 2 years, NetServices has successfully re-positioned its business 
to become a Cisco powered managed service provider of MPLS networks. This is 
very important, as it has provided validation of the Company's technical 
capabilities and demonstrates to current and future customers that our services 
are "fit for purpose". This also involved the investment during the financial 
year 2008 of approximately GBP0.4 million in upgrading the Company's core 
network, which is the base on which the technical skills and services are 
delivered. This core network is currently operating at approximately 10 per 
cent. capacity. 
 
 
In addition, the Company has focused its sales activity in more recent times 
upon a few, select, key partners and has scaled back its own sales force as a 
consequence. The Company's organic growth is therefore heavily dependent upon 
those partnerships proving fruitful. A key area where the Directors have 
targeted is the local government sector. However, sales cycles in this area are 
expected to be extended, and whilst potential contracts could be larger, it 
could take some time to demonstrate the financial success of this strategy. 
 
 
Outside the local government sector, the managed service market in which 
NetServices operates is characterised by a great number of companies providing 
"me too" solutions, all of which operate using the same, or similar, network 
footprint. This means that they all have equipment in and between the major 
DataCentres in the UK, effectively duplicating costs on both infrastructure and 
people. A great number of these companies have annual turnover of below GBP15 
million. There are undoubtedly significant synergistic cost benefits to be 
obtained from executing a buy and build strategy in this sector, and one or two 
companies have already commenced doing this. 
 
 
The Board recognises that the Company currently lacks scale and it has, over the 
last 12 months, reviewed various options. During this period, the Board has also 
considered what it perceives to be a disconnect between the intrinsic value of 
the technical capability that has been built within the Company and its market 
capitalisation. 
 
 
The Board considers that the Proposal is in the best interests of the Company 
and its shareholders as a whole for the following reasons:- 
 
 
  *  the access to funds will allow the business to begin scaling its operations on a 
  non-organic basis and enable it to pursue an acquisition strategy; 
 
 
 
  *  the addition of Ian as a non-executive director, with his in-depth knowledge of 
  the industry and track record of success in the identification and integration 
  of acquisitions will strengthen the Company's ability to deliver shareholder 
  value; and 
 
 
 
  *  the Option provides the Company with the support and necessary confidence to 
  allow an acquisition to be sought, which can further utilise the Company's 
  skills and network capacity. 
 
 
 
The Option may only be called by the Company after the conditions outlined above 
have been met. If the full amount of GBP2,001,000 is not required, the Company 
will draw down such lesser amount as may be required to fund the acquisition and 
the number of Option Shares to be issued will be reduced accordingly. 
 
 
Current trading and prospects 
 
 
In the announcement on 17 November 2009 of the Company's full year results to 31 
August 2009, the Company commented that the business had successfully 
transformed itself into a Cisco powered managed service provider, and it was 
hopeful that this would lead to an improved financial result. 
 
 
Since then, marketing and sales activities have continued to be focused and 
aligned with the Company's key technology partners. 
 
 
The Company acknowledged in the results announcement, the sales cycles for the 
business now being pursued are extended, and therefore it could still be a while 
before the value of this focus can be demonstrated in financial terms. In the 
meantime, continued focus has been applied to ensure that the Company's costs 
are controlled. 
 
 
General Meeting 
 
 
Set out in the Circular is a notice convening the GM to be held at  11.00 am 
on 6 January 2010 at the offices of Halliwells LLP, 3 Hardman Square, 
Spinningfields, Manchester, M3 3EB, at which the Resolutions will be proposed 
for the purposes of implementing the Proposal. 
 
 
For further information, please contact: 
 
 
+--------------------------------------------+--------------------------------------------+ 
| NetServices                                | Tel No: 0870 753 0900                      | 
+--------------------------------------------+--------------------------------------------+ 
| Mark Vickers, Chief Executive              |                                            | 
+--------------------------------------------+--------------------------------------------+ 
| Ian Winn, Finance Director                 |                                            | 
+--------------------------------------------+--------------------------------------------+ 
|                                            |                                            | 
+--------------------------------------------+--------------------------------------------+ 
| MC2 (Manchester) Limited                   | Tel No: 01565 872 478                      | 
+--------------------------------------------+--------------------------------------------+ 
| Melanie Miotte                             |                                            | 
+--------------------------------------------+--------------------------------------------+ 
|                                            |                                            | 
+--------------------------------------------+--------------------------------------------+ 
| Arbuthnot Securities                       | Tel No: 020 7012 2000                      | 
+--------------------------------------------+--------------------------------------------+ 
| Tom Griffiths/ Alasdair Younie             |                                            | 
+--------------------------------------------+--------------------------------------------+ 
 
 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
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