Group Reorganisation

RNS Number:9481L
Shore Capital Group PLC
05 June 2003



Group Reorganisation



1. Introduction

The Board today announces that a Circular will be despatched to Shareholders
shortly setting out details of its proposal to seek authority from Shareholders
for ECMco, a new Group subsidiary, to issue shares to employees for cash.



An Extraordinary General Meeting will be convened to seek approval from
Shareholders for the Proposal.



2. Background to and reasons for the Proposal



During the late 1990s and the beginning of 2000, the stockbroking, market-making
and corporate finance activities of the Group, collectively known as the equity
capital markets business, were highly profitable.  After the inception of the
bear market, however, trading conditions became progressively more difficult.



These challenging trading conditions continued during the early part of 2003, a
period affected by adverse sentiment in advance of the war in the Gulf.  The
Board has pursued a strategy of using the shakeout in the wider investment
banking industry as an opportunity to add good people and broaden the range of
equity capital market services offered.



As part of this process, in November 2002, your Company announced the
appointment of Simon Fine as a Managing Director, Equity Capital Markets, and as
head of all securities trading and sales within this division.  Simon is the
former managing director and co-head of pan European equity cash trading at
Lehman Brothers, and prior to that had spent the previous 14 years at Dresdner
Kleinwort Benson, most recently as head of its pan European equity cash trading.



The Board had agreed at the time of Simon Fine's appointment that consideration
would be given to new structures which might facilitate the growth of the
Company's equity capital markets business and thereby enhance shareholder value
in the Company.  One such route would be to create a new corporate entity
incorporating the Company's current equity capital markets business, which would
enable senior management and key personnel of that business (both existing and
future) to participate in the equity of the division and hence be appropriately
incentivised.



One of the benefits of this strategy for Shareholders is that subscribers for
shares in the new corporate entity would be buying shares directly in the
business in which they are involved.  As a result, the new corporate entity
would be in a position to attract talented employees by issuing shares in
itself, rather than by requiring the Company to issue shares in, or options
over, its own share capital.  Further, because the required net assets of the
new entity would be substantially less than those of the Group, employee
subscribers would be able to obtain an interest of material size to them with a
level of funding within their means.



In this context, the Group has reached agreement with certain former employees
of ING Barings to join Shore Capital Stockbrokers and Shore Capital and
Corporate.  This will assist the equity capital markets business to achieve the
scale which current market conditions require, but will entail additional
overheads, and therefore additional risk.



3. Principal terms



ECMco has been established as an intermediate holding company, into which,
pursuant to the Reorganisation, each of Shore Capital Stockbrokers, the
Company's market-making, institutional stockbroking and private client
stockbroking service, and Shore Capital and Corporate, the Company's corporate
finance advisory arm, will be transferred, (the "Transfer").  The Transfer will
be subject to Inland Revenue tax clearance being obtained by ECMco.  Immediately
prior to the Transfer, the investment management business of Shore Capital
Stockbrokers (comprising private client asset management and specialist fund
management) will be transferred by way of an in-specie distribution to the
Company.  As a result, in economic terms the turnover, profit and loss and
balance sheet of the investment management activities will be separate from
ECMco.



The transfer of the Company's shares in each of SCS and SCC to ECMco will be at
net asset value as at the date of transfer and will be by way of a share for
share exchange.  The Reorganisation will result in ECMco becoming a wholly-owned
subsidiary of the Company, and each of SCS and SCC becoming wholly-owned
subsidiaries of ECMco.



Following this it is anticipated that:



*        new and existing senior employees of SCS and SCC will subscribe for
shares in ECMco at the same net asset value, representing, in aggregate,
approximately 16.9% of ECMco's issued share capital at that time.  Further
shares may be issued on similar terms to employees (some of which will be
subject to performance criteria), but the aggregate amount to be issued to
employees is not expected to exceed 24.99% of the enlarged share capital; and



*        the Company will also provide additional funding to ECMco by way of a
subordinated loan of up to #2.75m, bearing an interest rate of 2% above sterling
LIBOR and repayable within five years.



Each of the above subscriptions would be subject to the passing of the
Resolution and the overall distribution of shares is subject to consent from the
FSA.  Further, the terms of all subscriptions between ECMco and the Subscribers
will provide, inter alia, that in the event any of the Subscribers cease, for
any reason, to be employees of ECMco at any time in the period of three years
from the commencement of their employment with SCS and/or SCC (as appropriate),
or from the date of adoption by ECMco of its new articles of association
(anticipated to be on or about the date of the EGM), whichever is the earlier,
then such person may be required to transfer their shares to a third party or to
ECMco at the prevailing net asset value of the shares at that time.



The implementation of the Reorganisation and the Proposal will involve the
intra-group transfer of, and equity participation in, Group assets at net asset
value.  The Board considers that this is a fair price, for the following
reasons:



  * The Group's shares have traded at a discount to net asset value over the
    last ten months, reflecting the poor rating attributed to equity capital
    markets businesses by the stock market.



  * The subscribers will themselves be adding goodwill to the respective
    businesses by virtue of their reputation and contacts within the City.



  * Although profitable for many years, as discussed above your Company's
    equity capital markets business has, in common with most of its peers, found
    trading conditions difficult in the bear market conditions of the last three
    years.



  * In order to continue to be competitive in this changed market, it is
    important for the Company to scale up its business. To increase its size
    without incurring initial losses, it is necessary to add good people who can
    rapidly bring in business.



  * The terms on which shares in ECMco will be subscribed for by employees
    (either new or existing) will provide that in the event of their ceasing to
    be employed by the relevant company within the new equity capital markets
    group within the first three years of their employment, their shares will be
    subject to mandatory transfer to ECMco or a third party at net asset value.



The subscriptions proposed will be such that control of ECMco will remain with
the Company.



4. Recommendation



The Board considers that the Proposal is in the best interests of the Company
and its Shareholders as a whole.  Accordingly, the Board recommends that
Shareholders vote in favour of the Resolution as they intend to do in respect of
their own shareholdings of 140,565,742 Shares, representing approximately 45.48
per cent. of the current issued share capital of the Company.







Notes:



Unless the context otherwise requires, the terms and expressions in this
announcement have the same meaning as those defined in the forthcoming Circular
to shareholders.



For further information please contact;



Howard Shore          Shore Capital               020 7468 7911






                      This information is provided by RNS
            The company news service from the London Stock Exchange
END

MSCEANKSEEXDEEE