Proposed Merger

    RNS Number : 2168X
  Bluehone AIM VCT PLC
  20 June 2008
   

    BLUEHONE AIM VCT PLC
    BLUEHONE AIM VCT2 PLC

    20 June 2008

    RECOMMENDED PROPOSALS FOR A MERGER BETWEEN BLUEHONE AIM VCT PLC ("VCT 1") AND BLUEHONE AIM VCT2 PLC ("VCT 2") TO BE COMPLETED BY PLACING
VCT 1 INTO MEMBERS' VOLUNTARY LIQUIDATION PURSUANT TO S.110 OF THE INSOLVENCY ACT 1986 AND THE TRANSFER BY VCT 1 OF ITS ASSETS AND
LIABILITIES TO VCT 2

    SUMMARY

    The boards of VCT 1 and VCT 2 announce that they have reached agreement on recommended proposals for the merger of VCT 1 and VCT 2 on a
relative net asset basis ("the Merger"). The boards further announce that they are today writing to their respective shareholders with full
details of the proposed Merger.

    The Merger will be effected by VCT 1 being placed into members' voluntary liquidation pursuant to a scheme of reconstruction under
Section 110 of the Insolvency Act 1986. The assets and liabilities of VCT 1 will then be transferred to VCT 2 in exchange for new VCT 2
ordinary shares of 10 pence each ("VCT 2 Ordinary Shares") (which will be issued direct to the shareholders of VCT 1).

    The effective date for the transfer of the assets and liabilities of VCT 1 and the issue of VCT 2 Ordinary Shares pursuant to the Merger
is expected to be 23 July 2008 ("the Effective Date"). Following the Effective Date the listing of the VCT 1 shares will be cancelled.

    The Merger is conditional on the approval of resolutions to be proposed to shareholders of VCT 1 and VCT 2 at extraordinary general
meetings to be held on 15 July 2008 (for both VCT 1 ("VCT 1 EGM 1") and VCT 2 ("VCT 2 EGM")) and 23 July (for VCT 1 only ("VCT 1 EGM 2"))
and dissent not having been expressed by shareholders of VCT 1 holding more than 10 per cent in nominal value of the issued VCT 1 share
capital. 

    VCT 2 will also take this opportunity to amend the articles of association of the VCT 2 ("VCT 2 Articles") to extend the life of VCT 2
and authorise the VCT 2 board to approve directors' conflicts under the new provisions to come into force under the Companies Act 2006.
These amendments will also require approval of VCT 2 shareholders at the VCT 2 EGM and also at separate class meetings to be held on 15 July
2008 ("VCT 2 Class Meetings")

    INTRODUCTION

    In September 2004, the Merger Regulations were introduced allowing VCTs to be acquired or merge without prejudicing tax reliefs obtained
by their shareholders. Several VCTs have now taken advantage of these regulations to create larger VCTs.

    With this in mind, the boards of VCT 1 and VCT 2, following consideration of the portfolios and financial position of each company and
the fact that both have a substantial similar investment objective and policy, common investments and a common manager, have reached an
agreement effectively to merge the two companies. The boards consider that a Merger will bring significant benefits to both VCT 1 and VCT 2
shareholders in that the Merger will:

    * create a VCT of a more economically efficient size with a greater capital base over which to spread administration and management
costs; 
    * lead to a significant reduction in management and administration costs for VCT 2 after the implementation of the Merger ("the Enlarged
Company"); 
    * enhance the Enlarged Company's potential to make distributions and maintain a buy-back mechanism due to the annual cost savings and
reduced need to retain funds for economic viability;
    * provide for a merger with VCTs that have substantially the same investment policy and the same manager without prejudicing existing
tax relief obtained; 
    * create a larger pool of investment funds providing the opportunity for improved liquidity and flexibility to provide further support
for those investments offering the highest potential rewards; 
    * increase the ability to utilise funds raised prior to 6 April 2007 which are subject to less onerous investment restrictions;
    * increase flexibility in meeting the various requirements for qualifying VCT status; and 
    * provide for participation in a larger VCT with the potential for a more diversified portfolio, in particular for VCT 1 and VCT 2 -
this will disperse the portfolio risk across a broader range of investments, technologies, markets and industry sectors. 
    Either company could have acquired the assets and liabilities of the other, however, VCT 2 was selected due to its greater size, greater
liquidity and because of the separate class of C ordinary shares of 50 pence each ("VCT 2 C Shares") within VCT 2 from a recent fundraising
    EXPECTED TIMETABLES

    Expected Timetable for VCT 1
    
 VCT 1 EGM                                          10.30 a.m. on 15 July 2008
 Record date for VCT 1                               5.00 p.m. on 22 July 2008
 shareholders* entitlements under
 the Merger
 Calculation date                              after 5.00 p.m. on 22 July 2008
 Suspension of listing of the                        7.30 a.m. on 23 July 2008
 shares
 VCT 1 EGM 2                                        11.00 a.m. on 23 July 2008
                                                                              
 Effective Date for transfer of                                               
 assets and liabilities of VCT 1
 to VCT 2 and the issue of VCT 2                               on 23 July 2008
 Ordinary Shares
                                                                              
 Announcement of results of the EGM                                           
 2 and completion
 of the Merger (if applicable)                       8.00 a.m. on 24 July 2008
                                                                              
 Cancellation of listing of the VCT                               24 July 2008
 1 shares
 Admission and dealings in VCT 2                      8.00 a.m on 28 July 2008
 Ordinary Shares to commence
 Expected Timetable for VCT 2                                                 
                                                                              
 VCT 2 EGM                                          11.00 a.m. on 15 July 2008
                                                                              
 VCT 2 Class Meetings                11.20 a.m. and 11.25 a.m. on 15 July 2008
                                                                              
 Adjourned Class Meetings              9.30 a.m. and 9.35 a.m. on 16 July 2008
                                                                              
 Effective Date for transfer of                                               
 assets and liabilities of
 VCT 1 to VCT 2 and the issue of                                  23 July 2008
 VCT 2 Ordinary Shares
                                                                              
 Announcement of completion of the                   8.00 a.m. on 24 July 2008
 Merger (if applicable)
                                                                              
 Admission of and dealings in the                                             
 VCT 2 Ordinary Shares
 to commence                                          8.00 a.m on 28 July 2008


      Background to VCT 1 and VCT 2

    VCT 1 as at 13 June 2008 had investments in 46 companies with an aggregate value of £11.4 million. The unaudited NAV per VCT 1 share as
at 13 June 2008 was 56.80 pence and VCT 1 has paid 32.9 pence of dividends per VCT 1 share since launch.

    VCT 1 was, as at 13 June 2008, ranked 4 out of 14 over 5 years and 4 out of 21 over 3 years out of the AIM VCTs. In respect of all the
unquoted and AIM VCTs VCT 1 was ranked 25 out of 58 over 5 years and 48 out of 91 over 3 years. (Trustnet as at 16 June 2008).

    VCT 2 has raised £48.3 million and has bought back shares worth £7.9m. It had, as at 13 July 2008, investments in 67 companies with an
aggregate value of £26.0 million. The unaudited net asset value as at 13 July 2008 was 70.98 pence per VCT Ordinary Share and 84.77 pence
per VCT 2 C share. In addition VCT 2 has paid dividends of 17.5 pence per VCT 2 Ordinary Share and 3.0 pence per VCT 2 C Share since
launch.

    VCT 1 and VCT 2 as at 13 June 2008 had 36 investments in common representing 68.9 per cent of the Enlarged Company had VCT 1 and VCT 2
been merged on that date.

    The Merger of the two companies is expected to result in strategic benefits as listed above, cost savings and enhanced administrative
efficiency. Due to their common features, this is achievable without incurring additional costs in terms of rearranging the existing board
constitution, investment and administrative arrangements of the two companies. 

    Overall risk for both companies and their shareholders should be reduced as the portfolio can be spread across a larger number of
investments and industry sectors. The Enlarged Company will have additional funds available to support further investment in both new and
existing companies which require additional investment. 

    For the audited 12 month period ended on 30 November 2007, total operating expenditure for VCT 1 was £436,000 (representing 3.5 per cent
of VCT 1's net asset value at the year end) and for VCT 2 was £1,150,000 (representing 3.3 per cent of its average net asset value for the
year). In respect of VCT 1, the annual expenses cap was in operation reducing the amount of total operating expenditure as the excess was
met through a reduction in the management fee payable to Bluehone Investors LLP ("Bluehone"). If the annual expenses cap had not been in
operation the total expenditure would have been £559,000 (representing 4.5 per cent of the net asset value of VCT 1 at the year end). 

    In the first 12 months after the merger, during which Bluehone has agreed to a reduced fee as detailed below, total operating
expenditure for the Enlarged Company is expected to be some £960,000 (representing 2.3 per cent of the expected net asset value of the
Enlarged Company following the merger). After the first 12 months, annual cost savings of £140,000 are expected to be achieved for the
Enlarged Company which gives an estimated total operating expenditure of £1,160,000 (representing 2.80 per cent of the net asset value of
the Enlarged Company following the merger). The boards of both companies, therefore, believe that significant savings will be achieved by
combining the companies and removing certain fixed costs. No part of the Scheme costs attributable to VCT 2 will be charged to the VCT 2 C
shares fund. 

    The Merger

    The Merger provides for VCT 1 to be put into members' voluntary liquidation and for the assets and liabilities of VCT 1 to be
transferred (pursuant to a transfer agreement to be entered into between VCT 1 (acting by its liquidators) and VCT 2) to VCT 2 in
consideration for new VCT 2 Ordinary Shares of an equivalent value (which will be issued direct to VCT 1 shareholders). VCT 2 will agree,
pursuant to the transfer agreement, to meet all liabilities of VCT 1 including, but not limited to, the costs of the Merger but an amount
estimated to cover such liability will be reflected as a liability in the calculation of the Roll-Over Value of VCT 1 share. Following the
transfer, VCT 1 will be wound up and the shares cancelled. 

    The Scheme is conditional on, inter alia, the approval by VCT 1 and VCT 2 shareholders of the resolutions to be proposed at their
respective extraordinary general and class meetings (as applicable). 

    The number of new VCT 2 Ordinary Shares to be issued to VCT 1 shareholders pursuant to the Merger will be calculated by reference to the
relative net asset values of VCT 1's shares and the VCT 2 Ordinary Shares as at the Effective Date. These relative net asset values will be
based, inter alia, on the unaudited net asset value of the VCT 1 shares and the VCT 2 Ordinary Shares as at 30 June 2008 adjusted to take
into account movements in portfolio valuations, material changes in other net assets and the costs of implementing the Scheme up to 22 July
2008.  

    As at 13 June 2008, the unaudited net asset value of VCT 1 was 56.80 pence per share (unaudited management accounts of the Company to 13
June 2008) and the Roll-Over Value, if the Company had been wound up on that date, would have been approximately 56.08 pence per VCT 1 share
(assuming no dissenting Shareholders). The Roll-Over Value cannot finally be determined until after the close of business on 22 July 2008,
this being the last business day immediately prior to the Effective Date. 

    The unaudited net asset value of a VCT 2 Ordinary Share as at 13 June 2008 was 70.98 pence per share (unaudited management accounts of
VCT 2 to 13 June 2008) and the Merger Value for a VCT 2 Ordinary Share, if the Scheme had been implemented on that date, would have been
approximately 70.42 pence per VCT 2 Ordinary Share. The VCT 2 Ordinary Share Merger Value also cannot be finally determined until after the
close of business on 22 July 2008, this being the last business day immediately prior to the Effective Date. 

    For illustrative purposes only, if VCT 1 and the VCT 2 ordinary shares fund had been merged as at 13 June 2008 by reference to the above
approximate Roll-Over Value of a VCT 1 share and the Merger Value of a VCT 2 Ordinary Share as at 13 June 2008, Shareholders would have
received 0.796272 VCT 2 Ordinary Shares for every VCT 1 share held. 

    Bluehone Investors LLP ("Bluehone")

    Bluehone has been appointed as the investment manager to both VCT 1 and VCT 2 since their respective launches and will continue to
provide investment management services to the Enlarged Company. 

    Bluehone has agreed, subject to the Scheme being implemented, to a reduced annual fee of 1.5 per cent of net assets for the 12 months
following the Effective Date for the Enlarged Company and the waiver of all rights to performance incentive fees. In addition, Bluehone has
agreed, subject to the Scheme being implemented, to the ongoing reduction of the annual expenses cap for the Enlarged Company from 3.5 per
cent to 3.25 per cent of the average net assets per annum.

    Cancellation of Listing 

    VCT 1 will apply for cancellation of it's listing upon the successful completion of the Scheme, which is anticipated to be on 24 July
2008. 

    Documents and Approvals

    VCT 2 shareholders will receive a copy of the prospectus together with a circular convening the VCT 2 EGM and VCT 2 Class Meetings to be
held on 15 July 2008 at which VCT 2 shareholders will be invited to approve resolutions in connection with the Merger.

    VCT 1 shareholders will also receive a circular in relation to the Schemes, together with the prospectus in respect of the VCT 2
Ordinary Shares to be issued to VCT 1 shareholders in connection with the Merger. The circular convenes VCT 1 EGM 1 and VCT EGM 2 at which
VCT 1 shareholders will be invited to approve resolutions in connection with the Merger.

    Copies of the prospectus and the circulars for VCT 1 and VCT 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 for VCT 1 and VCT 2 
    Bluehone Investors LLP 
    Robert Mitchell
    Telephone: [phone]

    Corporate Finance Adviser and Sponsor to VCT 2    
    Landsbanki Securities (UK) Limited
    Jonathan Becher
    Telephone: [phone]

    Corporate Finance Adviser and Sponsor to VCT 1
    Charles Stanley Securities
    Rick Thompson or Philip Davies
    Telephone: [phone]

    Solicitors to VCT 1 and VCT 2    
    Martineau Johnson
    Kavita Patel
    Telephone: [phone]

    The directors of VCT 2 accept responsibility for the information relating to VCT 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 VCT 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 VCT 1 accept responsibility for the information relating to VCT 1 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 VCT 1 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.

    Landsbanki Securities (UK) Limited, which is authorised and regulated by The Financial Services Authority, is acting exclusively for VCT
2 and for no one else in connection with the matters described herein and will not be responsible to anyone other than VCT 2 for providing
the protections afforded to customers of Landsbanki Securities (UK) Limited or for providing advice in relation to any matters referred to
herein.

    Charles Stanley Securities, which is authorised and regulated by The Financial Services Authority, is acting exclusively for VCT 1 and
for no one else in connection with the matters described herein and will not be responsible to anyone other than VCT 1 for providing the
protections afforded to customers of Charles Stanley Securities or for providing advice in relation to any matters referred to herein.

    Martineau Johnson are acting exclusively for VCT 1 and VCT 2 and for no one else in connection with the matters described herein and
will not be responsible to anyone other than VCT 1 and VCT 2 for providing the protections afforded to clients of Martineau Johnson for
providing advice in relation to the matters described herein.


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