Recommended Proposal for Merger

 

TIDMAQT1 TIDMAQT2 TIDMAQTC 
 
RNS Number : 5131E 
Acuity VCT PLC 
21 December 2009 
 

JOINT ANNOUNCEMENT 
 
 
ACUITY VCT PLC 
ACUITY VCT 2 PLC 
 
 
21 DECEMBER 2009 
 
 
RECOMMENDED PROPOSALS FOR A MERGER BETWEEN ACUITY VCT PLC ("ACUITY 1") AND 
ACUITY VCT 2 PLC ("ACUITY 2") TO BE COMPLETED BY PLACING ACUITY 1 INTO MEMBERS' 
VOLUNTARY LIQUIDATION PURSUANT TO SECTION 110 OF THE INSOLVENCY ACT 1986 AND THE 
TRANSFER BY ACUITY 1 OF ALL OF ITS ASSETS AND LIABILITIES TO ACUITY 2 IN 
CONSIDERATION FOR NEW ORDINARY SHARES OF 1 PENCE EACH IN ACUITY 1 ("NEW ACUITY 2 
SHARES") AND THE CANCELLATION OF THE LISTING OF THE ORDINARY SHARES AND C SHARES 
OF 1 PENCE EACH IN ACUITY 1 ("ACUITY 1 SHARES") 
 
 
SUMMARY 
 
 
The boards of Acuity 1 and Acuity 2 announced on 16 December 2009 that agreement 
in principle had been reached for the merger of the two companies.  These 
discussions have now concluded and both boards are today writing to their 
respective shareholders with proposals for consideration for the proposed merger 
("the Scheme"). 
 
The Scheme will be effected by Acuity 1 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 Acuity 1 will be 
transferred to Acuity 2 in exchange for New Acuity 2 Shares (which will be 
issued directly to the shareholders of Acuity 1). The merger will be completed 
on a relative net asset basis. 
 
The effective date for the transfer of the assets and liabilities of Acuity 1 
and the issue of New Acuity 2 Shares pursuant to the Scheme is expected to be 29 
January 2010 ("the Effective Date"), following which the listing of the Acuity 1 
Shares will be cancelled and Acuity 1 will be wound up. 
 
The Scheme is conditional, inter alia, on the approval of resolutions to be 
proposed to shareholders of Acuity 1 and Acuity 2 at general meetings to be held 
on 21 January 2010 (for both Acuity 1 ("Acuity 1 GM 1") and Acuity 2 ("Acuity 2 
GM")) and 29 January 2010 (for Acuity 1 only ("Acuity 1 GM")) and dissent not 
having been expressed by shareholders of Acuity 1 holding more than 10 per cent. 
of the issued Acuity 1 share capital. 
 
 
The board of Acuity 2 also consider it appropriate, subject to resolutions being 
passed at the Acuity 2 GM and the Scheme becoming effective, to change the name 
of Acuity 2, on completion of the Scheme, to "Acuity Growth VCT plc". It is also 
proposed to renew share issue and share repurchase authorities for Acuity 2. 
 
 
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. Some 25 commonly managed VCTs have now merged 
 
 
With the above in mind, the boards of Acuity 1 and Acuity 2 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 
Acuity Capital Management Limited ("Acuity Capital"), and the same investment 
policies) the boards of Acuity 1 and Acuity 2 have reached an agreement to 
recommend that the companies be merged. 
 
 
 
 
The main purpose of the proposed merger is to create a single larger VCT that 
will bring a number of commercial advantages to both sets of shareholders, 
namely: 
 
 
  *  a reduction in the annual running costs of 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 administration, regulatory and 
  management costs; 
  *  participation in a larger VCT with a more diversified portfolio thereby 
  spreading the portfolio risk across a broader range of investments and 
  businesses; 
  *  increase the potential to pay dividend distributions and reinstate and maintain 
  a buy-back programme due to the increased size and the reduced need to retain 
  funds to remain at an economically viable size; and 
  *  increase the flexibility in meeting the various qualifying VCT requirements. 
 
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. 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 
 
 
Acuity 1 GM 1 11:30 a.m. on 21 January 2010 
Acuity 2 GM 11:00 a.m. on 21 January 2010 
 
 
Record date for Acuity 1 shareholders' 
entitlements under the merger 28 January2010 
 
 
Calculation date 
                                      after 5 p.m. on 28 January 2010 
Suspension of listing of the Acuity 1 Shares 8 a.m. on 29 January 2010 
Acuity 1 GM 2  11:30 a.m. on 29 January 2010 
 
 
Effective Date for transfer of assets and  29 January 2010 
liabilities of Acuity 1  to Acuity 2 and the 
issue of New Acuity 2 Shares 
 
 
Announcement of results of the Acuity 1 GM 2  29 January 2010 
and completion of the Scheme (if applicable) 
 
 
Cancellation of listing of the Acuity 1 Shares  3 February 2010 
Admission of and dealings in New Acuity 2 Shares 3 February 2010 
to commence 
 
Share certificates for the New Acuity 2 Shares to be 
                      17 February 2010 
issued pursuant to the Scheme despatched 
 
 
                        despatched 
 
 
BACKGROUND TO ACUITY 1 AND ACUITY 2 
 
 
Acuity 1 was launched in 2001 with the objective to achieve capital gains and 
maximise UK tax-free income to its shareholders from dividends and capital 
distributions.  Acuity Capital has been the investment manager of Acuity 1 since 
its launch. 
 
 
As at 30 September 2009, Acuity 1 had an audited net asset value of 
GBP19,965,000, and investments in 21 companies with a valuation of GBP18.4 
million. 
 
 
Acuity 2 was launched in 2004 with the same objective as Acuity 1. Acuity 2 
raised GBP35.0 million since launch. 
As at 30 September 2009 Acuity 2 had net assets of 28,656,000 with investments 
in 21 companies. Following a management buy-out of Acuity Capital from Electra 
Partners Group in February 2008, Acuity 2 has retained Acuity Capital as its 
investment manager. 
 
 
The Acuity 1 and Acuity 2 boards comprises five non-executive directors, Rupert 
Lascelles Pennant-Rea, David Donnelly, Nicholas Ross, David Sebire and Catrina 
Holme. Both boards have discussed the size and future composition of the Acuity 
2 board and it has been concluded that the board of Acuity 2 will remain the 
same (subject to, if the Scheme is effected, an increase in directors fees to 
take into account additional duties and time in relation to Acuity 2). 
 
 
THE MERGER 
 
 
The merger of the companies should result in a number of commercial advantages, 
including cost savings and enhanced administrative efficiency. As both companies 
have the same investment manager, and the same investment policies, this is 
achievable without major additional cost or disruption to the portfolio 
investments. The existing investment management arrangements between Acuity 
Capital and Acuity 2 will remain in place. 
 
 
The aggregate anticipated cost of undertaking the merger by way of the Scheme is 
approximately GBP326,000, including VAT, legal and professional fees, stamp duty 
and the costs of winding up Acuity 1. The costs of the Scheme will be split 
proportionally between Acuity 1 and Acuity 2 by reference to their respective 
merger values. Following completion of the Scheme, annual cost savings for the 
Enlarged Company of at least GBP370,000 per annum (representing 0.8% per cent. 
per annum of the expected net assets of the Enlarged Company) are expected to be 
achieved. 
 
DOCUMENTS AND APPROVALS 
 
 
Acuity 1 shareholders will receive a circular convening Acuity GM 1 on 21 
January 2010 and Acuity 1 GM 2 on 29 January 2010 (together with the Acuity 2 
prospectus) at which Acuity 1 shareholders will be invited to approve 
resolutions in connection with the Scheme. 
 
 
Acuity 2 shareholders will also receive a copy of a circular convening the 
Acuity 2 GM to be held on 21 January 2010 (together with the Acuity 2 
prospectus) at which Acuity 2 shareholders will be invited to approve 
resolutions in connection with the Scheme, to change the name of Acuity 2 to 
"Acuity Growth VCT PLC" (subject to the Scheme becoming effective) and to renew 
share issue and share repurchase authorities. 
 
 
Copies of the prospectus and the circulars for Acuity 1 and Acuity 2 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 Acuity 1 and Acuity 2 
Acuity Capital Management Limited 
Mark Speeks/Nicholas Ross 
Telephone: [phone] 
 
 
Sponsor to Acuity 1 and Acuity 2 
Howard Kennedy 
Keith Lassman 
Telephone: [phone] 
 
 
The directors of Acuity 2 accept responsibility for the information relating to 
Acuity 2 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 Acuity 2 and its 
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 Acuity 1 accept responsibility for the information relating to