Octopus Apollo VCT1 Octopus Apollo VCT1 plc : RECOMMENDED PROPOSALS TO MERGE THE COMPANIES, AN ENHANCED BUYBACK FACILITY, AN ...

 
TIDMOAP1 
 
JOINT ANNOUNCEMENT 
 
17 AUGUST 2012 
 
OCTOPUS APOLLO VCT 1 PLC ("APOLLO 1") 
OCTOPUS APOLLO VCT 2 PLC ("APOLLO 2") 
OCTOPUS APOLLO VCT 3 PLC ("APOLLO 3") 
OCTOPUS APOLLO VCT 4 PLC ("APOLLO 4") 
(TOGETHER  THE  "COMPANIES"  AND  APOLLO  1, APOLLO  2 AND APOLLO 4 TOGETHER THE 
"TARGET VCTS" AND EACH A "TARGET VCT") 
 
RECOMMENDED  PROPOSALS  TO  MERGE  THE  COMPANIES  (TO  BE COMPLETED PURSUANT TO 
SCHEMES  OF  RECONSTRUCTION  UNDER  SECTION  110 OF THE INSOLVENCY ACT 1986), AN 
ENHANCED  BUYBACK FACILITY,  AN OFFER  FOR SUBSCRIPTION  BY APOLLO 3 AND RELATED 
MATTERS 
 
SUMMARY 
 
The  boards of the  Companies ("Boards") announced  on 25 May 2012 that they had 
agreed terms in principle to merge the four companies. The Boards are pleased to 
advise  that discussions have now  concluded 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 Octopus Investments Limited ("Octopus"). 
 
The  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. 
 
The  merger will  be completed  on a  relative net  asset basis and the benefits 
shared  by each set of shareholders,  with the costs being split proportionately 
based  on the  merger net  asset values.  Each Scheme  requires the  approval of 
resolutions by the relevant Target VCT's shareholders and Apollo 3 shareholders. 
However,  each Scheme is not  conditional on the other  Schemes and will proceed 
independently and irrespective of the other Schemes. 
 
The merger will, if effected, result in an enlarged company ("Enlarged Company") 
with  net assets of approximately   GBP50 million. Based on  the estimated costs of 
the  merger  (being   GBP371,600)  and  the  expected  annual costs savings for the 
Enlarged  Company (being   GBP288,900), the  Boards believe  that the  costs of the 
merger would be recovered within 16 months. 
 
Apollo  3 also proposes to provide shareholders  with the ability to participate 
in  an enhanced buyback facility ("Enhanced Buyback Facility") and raise further 
funds  pursuant to a top-up offer ("Offer"). Implementation of both requires the 
approval  of resolutions by Apollo 3 shareholders. The Enhanced Buyback Facility 
and  the Offer  are not  conditional on  each other  or on  the Schemes becoming 
effective.  The  Schemes  are  not  conditional  on  either the Enhanced Buyback 
Facility or the Offer proceeding. 
 
In  addition,  Apollo  3 intends  to  take  the  opportunity to renew allotment, 
disapplication  of pre-emption  rights and  share purchase  authorities, approve 
amendments  to its articles of association and approve the cancellation of share 
premium and capital redemption reserves. 
 
Further,  Apollo 3 is  seeking the  approval of  its shareholders  to enter into 
related  party transactions with Octopus  in connection with revised performance 
incentive  fee arrangements  and fees  in connection  with the  Enhanced Buyback 
Facility and the Offer. 
 
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 
 
Set  out below is a summary of historical information of the Companies, together 
with  the latest published NAVs (taken from the unaudited management accounts to 
30 April  2012 (which is  prior to  the payment  of dividends and share buybacks 
after  30 April  2012)), the  number  of  venture capital investments within the 
portfolios   of  each  company  and  the  respective  carrying  value  of  these 
investments. 
 
          Date of    Funds    Unaudited net NAV per    Number of     Carrying 
          launch     raised    assets ( GBP)    share      venture    value of the 
                     since                    (p)       capital       venture 
                     launch                           investments     capital 
                      ( GBP)                                           investments 
                                                                        ( GBP) 
 
 
Company  July 2006   27.1      24,457,715     91.4        19        22,720,754 
                    million 
 
Apollo 1 May 2006     8.8       8,121,668     94.9        14         7,265,870 
                    million 
 
Apollo 2 May 2006     8.8       8,120,274     94.9        14         7,265,870 
                    million 
 
Apollo 4 June 2008   11.5      11,234,814     97.7        12        10,507,158 
                    million 
 
 
The  objective of each of the  Companies is the same, that  being to invest in a 
diversified  portfolio of UK  smaller companies in  order to generate income and 
capital  growth over the long-term. The  Companies also have the same investment 
policies. 
 
The  separate 'Apollo' named  VCTs were originally  established so as to provide 
the  ability to access larger deals through co-investment. As a result, 88.4% of 
the  aggregate portfolio across the Companies  is represented by venture capital 
investments  held  by  two  or  more  of  the  Companies  as  at  30 April 2012 
(representing   GBP42.2  million  out  of  the  aggregate   GBP47.8 million of venture 
capital  investments). As  the portfolios  of the  Companies are  now materially 
invested,  and due  to the  changes made  to the  VCT investment limits and size 
tests  (in particular, the removal of the   GBP1 million investment limit per VCT), 
the benefit of 'sister' VCTs is now significantly reduced. 
 
VCTs  are required  to be  listed on  the premium  segment of the Official List, 
which  involves a significant level of listing costs, as well as related fees to 
ensure  they comply with all relevant legislation. A larger VCT should be better 
placed  to spread such running  costs across a larger  asset base and facilitate 
better liquidity management and, as a result, may be able to maximise investment 
opportunities  and sustain a higher level  of dividends to shareholders over its 
life. 
 
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 administration efficiencies, 
as well as to improve portfolio diversification. 
 
With  the  above  in  mind,  the  Boards  entered  into discussions to merge the 
Companies  to  create  a  single,  larger  VCT.  The aim is to achieve long-term 
strategic   benefits  and  reductions  in  the  annual  running  costs  for  all 
shareholders. 
 
THE SCHEMES 
 
The mechanism by which the merger will be completed is as follows: 
 
 ·                each   Target  VCT  will  be  placed  into  members'  voluntary 
liquidation  pursuant  to  a  scheme  of  reconstruction under Section 110 of IA 
1986; and 
 
 ·               all of  the assets  and liabilities  of each  Target VCT will be 
transferred  to the Company in consideration for  the issue of new shares of 10 
pence  each in the  capital of Apollo  3 ("New Apollo 3 Shares")  (which will be 
issued directly to the shareholders of the relevant Target VCT). 
 
In  respect  of  each  Scheme,  the  New  Apollo  3 Shares  to be issued will be 
calculated  on a relative net  asset value basis. The  relative net asset values 
will  be the unaudited net  asset values of the  Companies as at the Calculation 
Date  (this  being  26 September  2012), adjusted  to  take into consideration a 
company's allocation of the estimated merger costs. 
 
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 26 October  2012 (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  the  same  investment  policies,  a  number  of common investments and are 
managed  by  Octopus,  this  is  achievable  without  material disruption to the 
Companies and their combined portfolio of investments. 
 
The  Board considers that the  merger will bring a  number of benefits to all of 
the Companies' 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; 
 
 ·               the creation  of a single  VCT of a  more economically efficient 
size with a greater capital base over which to spread annual running costs; 
 
 ·               participation in a larger VCT with the longer term potential for 
a  more diversified  portfolio, thereby  spreading the  portfolio risk  across a 
broader range of investments; 
 
 ·              increasing the  ability to support  follow-on investments and new 
investments in the future due to the increased size and reduced running costs of 
the Enlarged Company; and 
 
 ·                the potential to  enhance the ability  to pay dividends and buy 
back shares in the future due to the increased size and reduced running costs of 
the  Enlarged Company, as well as improve  liquidity in the secondary market, as