AAPV Albion Prime

 
TIDMAAPV 
 
JOINT ANNOUNCEMENT 
 
ALBION VENTURE CAPITAL TRUST PLC ("ALBION VCT") 
ALBION PRIME VCT PLC ("PRIME") 
 
27 JULY 2012 
 
RECOMMENDED PROPOSALS TO MERGE ALBION VCT AND PRIME (TO BE COMPLETED PURSUANT TO 
SECTION 110 OF THE INSOLVENCY ACT 1986) 
 
 
SUMMARY 
 
The boards of Albion VCT and Prime announced on 16 May 2012 that they had agreed 
in principle to merge the companies. Both boards are pleased to advise that 
discussions have now concluded and they are today writing to set out the merger 
proposals to their respective shareholders for consideration. Both companies are 
managed by Albion Ventures LLP ("Albion"). 
 
The merger will, if effected, result in an enlarged company ("Enlarged Company") 
with net assets of over  GBP40 million. 
 
The merger will be effected by Prime being placed into members' voluntary 
liquidation pursuant to a scheme of reconstruction under Section 110 of the 
Insolvency Act 1986 ("Scheme"). Shareholders should note that the merger by way 
of the Scheme 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 both sets of shareholders, with the costs being split 
proportionately based on the merger net asset values. The merger is conditional 
on the approval of the shareholders of both companies. 
 
Further proposals will be put to Albion VCT shareholders including resolutions 
to enable the issuance of shares pursuant to the Scheme, amend its articles of 
association and to increase distributable reserves. Further details of the 
proposed resolutions are set out below. 
 
ILLUSTRATIVE TERMS 
 
As an illustration, had the merger been completed on 31 March 2012 (taking into 
account the interim dividends declared by the companies for the current year 
ending 31 March 2013 and buybacks and issues of shares in the companies between 
31 March 2012 and 16 July 2012), every share in the capital of Prime ("Prime 
Share") in issue would effectively have been exchanged for 0.8823 new shares in 
the capital of Albion VCT ("New Albion VCT Shares"). The actual merger ratio 
will be calculated on 24 September 2012 in accordance with the merger terms, 
though the boards of Albion VCT and Prime do not expect this to be materially 
different, unless an unforeseen event (e.g. an exit opportunity in respect of an 
investment) requires a revaluation of a holding in Albion VCT and/or Prime. 
 
BACKGROUND 
 
Albion VCT (formerly Close Brothers Venture Capital Trust PLC) was launched in 
1996. As at 31 March 2012, Albion VCT had audited net assets of  GBP28.4 million 
(78.0 pence per share) and, in aggregate, venture capital investments in 31 
companies with a carrying value of  GBP25.9 million. The total return to Albion VCT 
shareholders for every  GBP1 invested as at 31 March 2012 is 197.8p. 
 
Prime (formerly Albion Protected VCT PLC and before that Close Brothers 
Protected VCT plc) was launched in 1997. As at 31 March 2012, Prime had audited 
net assets of  GBP14.7 million (68.0 pence per share) and, in aggregate, venture 
capital investments in 30 companies with a carrying value of  GBP13.5 million. The 
total return to Prime shareholders for every  GBP1 invested as at 31 March 2012 is 
115.45p 
 
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, facilitate 
better liquidity management and, as a result, may be able to maximize investment 
opportunities and pay a higher level of dividends to shareholders over its 
life. 
 
In September 2004, 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 (including other VCTs managed by Albion) 
have taken advantage of these regulations to create larger VCTs for economic and 
administrative efficiencies. 
 
With the above in mind, the boards of Albion VCT and Prime entered into 
discussions to consider a merger of the companies to create a single larger VCT. 
The aim of the boards of Albion VCT and Prime is to achieve strategic benefits 
and reductions in the annual running costs for both sets of shareholders and 
establish a platform from which the investment mandate can be better operated. 
 
THE MERGER PURSUANT TO THE SCHEME 
 
Following detailed consideration of the portfolios and the financial position of 
Albion VCT and Prime, the boards of Albion VCT and Prime have reached agreement 
on the terms on which to merge Albion VCT and Prime. The mechanism by which the 
merger will be completed is as follows: 
 
  * Prime will be placed into members' voluntary liquidation pursuant to a 
    scheme of reconstruction under Section 110 IA 1986; and 
  * all of the assets and liabilities of Prime will be transferred to Albion VCT 
    in consideration for the issue of New Albion VCT Shares (which will be 
    issued directly to Prime shareholders). 
 
The merger will be completed on a relative net asset value basis, which will be 
calculated on the net asset values of each company as at 30 June 2012, adjusted 
for portfolio valuation movements and other balance sheet movements up to the 
calculation date of the merger and each company's allocation of the merger costs 
which will be split proportionately based on the merger net asset values 
(ignoring merger costs). The merger is conditional upon certain conditions being 
satisfied as further set out in the circulars being posted to shareholders 
today. These conditions include the approval by shareholders of Albion VCT and 
Prime of resolutions to be proposed at their respective general meetings 
(further details of which are set out below) and the passing of the resolutions 
to continue the companies as VCTs as contained in the companies' respective 
annual accounts. 
 
The merger will result in the creation of an enlarged company and should result 
in savings in running costs and simpler administration. As both companies have 
the same investment policies, investment manager and other main advisers, this 
is achievable without major additional cost or disruption to the companies and 
their combined portfolio of investments. 
 
The board of Albion VCT and Prime consider that this merger will bring a number 
of benefits to both groups of shareholders through: 
 
  *  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; 
  *  a reduction in annual running costs for the Enlarged Company compared to 
    the total annual running costs of the separate companies; 
  * amalgamation of the companies' portfolios, which are substantially the same, 
    for efficient management and administration; 
  * 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; and 
  *  enhancing the ability of the Enlarged Company to raise new funds, as well 
    as pay dividends and buy backs in the future. 
 
In addition, the changes announced to the VCT investment limits and size test, 
in particular the removal of the  GBP1 million per annum investment limit per VCT 
in an investee company, will reduce the need for co-investment between sister 
VCTs to participate in larger investments (effective for investments made on or 
after 6 April 2012). 
 
Normal annual running costs, including investment management fees, for Albion 
VCT and Prime are approximately  GBP816,000 and  GBP456,000 respectively ( GBP1,272,000 
in aggregate). These annual costs represent approximately 2.9 per cent. of 
Albion VCT's unaudited net asset value and 3.1 per cent. of Prime's unaudited 
net asset value, in each case as at 31 March 2012. 
 
The aggregate anticipated cost of undertaking the merger is approximately 
 GBP230,000, including VAT, legal and professional fees, stamp duty and the costs 
of winding up Prime. The costs of the merger will be split proportionately 
between Albion VCT and Prime by reference to their respective merger net assets 
(ignoring merger costs). 
 
On the assumption that the net asset value of the Enlarged Company will remain 
the same immediately after the merger, annual cost savings for the Enlarged 
Company are estimated to be approximately  GBP168,000 per annum. This would 
represent 0.4 per cent. per annum of the expected net assets of the Enlarged 
Company. On this basis, and assuming that no new funds are raised or investments 
realised to meet annual costs, the boards of Albion VCT and Prime believe that 
the costs of the merger would be recovered within 18 months. 
 
The boards of Albion VCT and Prime believe that the Scheme provides an efficient 
way of merging the companies with a lower level of costs compared with other 
merger routes. Although either of the companies could have acquired all of the 
assets and liabilities of the other, Albion VCT was selected as the acquirer 
because of its larger size which would have resulted in an increased stamp duty 
cost if Prime had acted as the acquiring VCT. 
 
INVESTMENT MANAGEMENT AND ADMINISTRATION ARRANGEMENTS 
 
Albion is the investment manager of Albion VCT and of Prime and also provides 
administration services to both companies. 
 
In respect of Albion VCT, Albion is entitled to an annual investment management 
fee of an amount equivalent to 2 per cent. of Albion VCT's net assets and an 
annual administration fee which amounted to  GBP43,528 for the year ended 31 March 
2012 and is increased annually by RPI (in each case exclusive of VAT, if any). 
 
In respect of Prime, Albion is entitled to an annual investment management fee 
of an amount equivalent to 1.8 per cent. of the investments and cash held by 
Prime and an annual administration fee of  GBP27,865 (in each case exclusive of 
VAT, if any). 
 
The normal annual running costs of Albion VCT and Prime (including investment 
management and administration fees due to Albion, directors' remuneration, 
registrars' fees, stockbrokers' fees, company secretarial fees, auditors' fees 
and irrecoverable VAT) are capped at an amount equivalent to 3.5 per cent. of 
the net asset value of the respective company, with any excess being paid by 
Albion or refunded by a reduction in Albion's respective management and 
administration fees. 
 
Albion is also entitled to a performance incentive fee from both Albion VCT and 
Prime, subject to certain criteria being met. The companies will pay Albion an 
amount equal to 8 per cent. (in respect of Albion VCT and 10 per cent. (in 
respect of Prime) of any excess above a total return (representing dividends 
paid and annual growth in net asset value) of 5 per cent. per annum, paid 
annually in cash. Any shortfall of the target return in one year will be carried 
forward into subsequent periods and the incentive fee will only be paid once all 
previous and current target returns have been met. 
 
Albion will continue to provide investment management services to the Enlarged 
Company following the merger on the same annual fee basis as is currently in 
place with Albion VCT, except that Albion VCT and Albion have agreed that the 
management fee will be reduced from the date the merger becomes effective to an 
amount equivalent to 1.9 per cent of Albion VCT's net assets. The administration 
and performance incentive arrangements currently in place with Albion VCT shall 
also continue unchanged for the Enlarged Company and will automatically cover 
the enlarged assets and New Albion VCT Shares issued. 
 
Albion has, subject to the Scheme becoming effective, agreed to terminate the 
investment management, administration and performance incentive arrangements 
with Prime with effect from the date the merger becomes effective without notice 
or penalty. 
 
 
 
THE ALBION VCT BOARD 
 
The Albion VCT board of directors has four non-executive directors: David 
Watkins (Chairman), John Kerr, Jonathan Rounce and Jeff Warren. 
 
The board of Albion VCT and Prime have considered what the size and future 
composition of the Enlarged Company's board should be following the merger and 
it has been agreed that Jonathan Rounce will step down as a director of Albion 
VCT and that Ebbe Dinesen (a director of Prime) will be appointed as a director 
of Albion VCT (a proposed director). This will result in reducing the aggregate 
number of directors from eight across both companies to four for the Enlarged 
Company resulting, in aggregate, in an annual cost saving of  GBP60,000. 
 
The directors of Prime have (subject to the Scheme becoming effective) agreed to 
waive directors' fees in respect of their appointments to Prime from the date 
the merger becomes effective. Jonathan Rounce, being a director of Albion VCT, 
has also agreed to terminate his appointment from the date on which the merger 
becomes effective without compensation. 
 
 
 
ALBION VCT CHANGES TO ITS ARTICLES AND SHARE ISSUE AND BUYBACK AUTHORITIES 
 
Under CA 2006, all provisions contained in a company's memorandum of association 
were, from 1 October 2009, deemed to be contained in the articles. As a result, 
from 1 October 2009, Albion VCT has been limited as to the amount of Shares it 
can issue by reference to its authorised share capital of  GBP34,000,000. In order 
to allow the Directors to issue the New Albion VCT Shares pursuant to the Scheme 
and for the purpose of further issues, the Directors propose to amend the 
Articles by removing such authorised share capital provisions. Albion VCT 
shareholder approval (pursuant to an ordinary resolution) is required to make 
this amendment. 
 
In order to implement the merger, the Albion VCT board will need to be 
authorised to issue New Albion VCT Shares pursuant to the Scheme. 
 
Albion VCT also proposes at its general meeting on 17 September 2012 to renew 
and increase its authorities to issue shares (having disapplied pre-emption 
rights) for general purposes and make market purchases of shares reflecting the 
increased share capital of Albion VCT following the merger. These are general 
annual authorities taken each year. 
 
 
 
CANCELLATION OF CAPITAL, THE SHARE PREMIUM ACCOUNT AND THE CAPITAL REDEMPTION 
RESERVE 
 
The Albion VCT board considers it to be in the interest of shareholders to 
enhance Albion VCT's ability to support the future payment of dividends by, 
subject to the approval of the Court, restructuring Albion VCT's balance sheet 
by means of the cancellation and extinction of 49 pence of the amount paid up or 
credited as paid up in respect of the nominal value of its issued shares. In 
addition, the Albion VCT Board considers it prudent to take the opportunity also 
to seek approval of shareholders at the Albion VCT general meeting on 17 
September 2012 of the cancellation of the share premium account and the capital 
redemption reserve (subject to the sanction of the Court). 
 
 The sums set free by the proposals above would create further distributable 
reserves to fund distributions to shareholders and buybacks, to set off or write 
off losses and for other corporate purposes of Albion VCT. If Albion VCT 
shareholders approve the relevant resolution proposed at the Albion VCT general 
meeting, the Albion VCT board intends to apply to Court to sanction the 
cancellations (which is not conditional on the merger being completed). It is 
expected that the completion of the cancellations will take place before the end 
of the year, though each such cancellation might be undertaken independently. 
 
EXPECTED TIMETABLE 
 
 
 
 Albion VCT Annual General Meeting              11.00 am 17 September 2012 
 
 Albion VCT General Meeting                     12.00 noon 17 September 2012 
 
 Prime Annual General Meeting                   2.30 pm 17 September 2012 
 
 Prime General Meeting                          3.30 pm 17 September 2012 
 
 Prime register of members closed               24 September 2012 
 
 Calculation date for the Scheme                after 5.00 pm 24 September 2012 
 
 Suspension of listing of Prime shares          7.30 am 25 September 2012 
 
 Prime Second General Meeting                   10.30 am 25 September 2012 
 
 Effective date for the transfer of assets and  25 September 2012 
 liabilities 
 of Prime to Albion VCT and issue of New Albion 
 VCT Shares 
 
 Announcement of results of the meetings and    25 September 2012 
 completion 
 'of the Scheme (if applicable) 
 
 Admission of and dealings in the New Albion    26 September 2012 
 VCT Shares 
 issued pursuant to the Scheme to commence 
 
 CREST accounts credited with New Albion VCT    26 September 2012 
 Shares 
 
 Certificates for New Albion VCT Shares         3 October 2012 
 dispatched 
 
 Cancellation of the Prime share listing        8.00 am 24 October 2012 
 
 
 
 
DOCUMENTS AND APPROVALS 
 
Albion VCT shareholders will receive a copy of a circular convening the Albion 
VCT general meeting to be held on 17 September 2012 (together with the Albion 
VCT prospectus and Albion VCT annual report for the year ended 31 March 2012) at 
which Albion VCT shareholders will be invited to approve resolutions in 
connection with the Scheme, amending its articles of association, the renewal 
and increase of the authority to issue and repurchase shares and cancel capital 
and reserves. 
 
Prime shareholders will receive a circular convening the Prime first general 
meeting on 17 September 2012 and the Prime second general meeting on 25 
September 2012 (together with the Albion VCT prospectus and Prime annual report 
for the year ended 31 March 2012) at which Prime shareholders will be invited to 
approve resolutions in connection with the Scheme. 
 
Copies of the Albion VCT prospectus and the circulars for Albion VCT and Prime 
have been submitted to the UK Listing Authority and will be shortly available 
for download both from Albion's website (www.albion-ventures.co.uk) and the 
national storage mechanism (www.morningstar.co.uk /uk/NSM). Copies of the 
companies' annual reports can also be downloaded from the same sites. 
 
 
Investment Manager, Administrator and Company Secretary for Albion VCT and Prime 
Albion Ventures LLP 
Patrick Reeve/Henry Stanford 
Telephone: 0207 601 1850 
Solicitors to Albion VCT and Prime 
SGH Martineau LLP 
Kavita Patel/Robert Newman 
Telephone: 0800 763 2000 
 
Sponsor to Albion VCT 
BDO LLP 
John Stephan/Susan Jarram 
Telephone: 0121 352 6200 
 
 
 
The directors and proposed director of Albion VCT accept responsibility for the 
information relating to Albion VCT and its directors and proposed director 
contained in this announcement. To the best of the knowledge and belief of such 
directors and proposed director (who have taken all reasonable care to ensure 
that such is the case), the information relating to Albion VCT 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 Prime accept responsibility for the information relating to 
Prime 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 Prime 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. 
 
SGH Martineau LLP are acting as legal advisers for Albion VCT and Prime and for 
no one else in connection with the matters described herein and will not be 
responsible to anyone other than Albion VCT and Prime for providing the 
protections afforded to clients of SGH Martineau LLP or for providing advice in 
relation to the matters described herein. 
 
BDO LLP, which is authorised and regulated in the United Kingdom by the 
Financial Services Authority, is acting as sponsor for Albion VCT and no one 
else and will not be responsible to any other person for providing the 
protections afforded to customers of BDO LLP or for providing advice in relation 
to any matters referred to herein. 
 
 
 
 
 
 
This announcement is distributed by Thomson Reuters on behalf of 
Thomson Reuters clients. The owner of this announcement warrants that: 
(i) the releases contained herein are protected by copyright and 
    other applicable laws; and 
(ii) they are solely responsible for the content, accuracy and 
     originality of the information contained therein. 
 
Source: Albion Prime VCT PLC via Thomson Reuters ONE 
[HUG#1629844] 
 

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