TIDMSCIR
RNS Number : 5354X
Scirocco Energy PLC
21 December 2023
21 December 2023
Scirocco Energy plc
("Scirocco Energy" or "the Company")
Proposed Divestment of Interests in Energy Acquisitions Group
Limited
Scirocco Energy (AIM: SCIR), the AIM investing company targeting
attractive assets within the European sustainable energy and
circular economy markets, announces that it has conditionally
agreed the sale of its interest and investment in Energy
Acquisitions Group Limited ("EAG") for an enterprise value of
GBP2.6 million before adjustments, plus contingent consideration of
up to a further GBP150,000 to private equity firm OrbeNovo Capital
(the "Proposed Transaction").
Principal Terms of the Proposed Transaction
-- Scirocco Energy has entered into a conditional Sale and
Purchase Agreement ("SPA") to sell or procure the sale of the
entire issued share capital of EAG to ONC Bidco 1 Limited ("ONC"),
a newly incorporated company controlled by OrbeNovo Sponsor LLP and
an affiliate of OrbeNovo Advisory LLP, for a firm net consideration
of GBP702,267 payable to Scirocco Energy.
-- Contingent consideration of up to GBP150,000, payable in
tranches, if and when EAG completes the acquisition of certain
target anaerobic digestion sites which have been developed in EAG's
deal pipeline within the last twelve months.
-- The SPA in respect of the Proposed Transaction was entered
into between (1) the Company's wholly owned subsidiary, Scirocco
Energy (UK) Limited; (2) Christopher James Kerr ("CK"); (3) Riada
Partners Limited (a company owned and controlled by Neil Adair
"Riada"); and (4) ONC on 19 December 2023.
-- Additionally, under the terms of the SPA, Scirocco Energy has
agreed to assign of all of its rights and obligations under a
shareholder loan agreement dated 24 August 2021 (as amended and
restated on 22 February 2022) in respect of a loan granted by
Scirocco Energy to EAG. As at 30 September 2023, the amount
outstanding under such loan comprised a principal loan amount of
GBP1,270,000 and accrued accumulated balance of GBP1,578,000.
-- The Proposed Transaction constitutes a fundamental change of
business pursuant to AIM Rule 15 of the AIM Rules for Companies and
therefore is conditional upon Shareholder approval to proceed. The
Proposed Transaction is also conditional upon the change of control
consent approval of AIB pursuant to the AIB loan facility dated 3
May 2023 made between EAG's subsidiary and AIB.
-- In respect of the Shareholder approval, the Company intends
to shortly post a Circular to Shareholders, along with accompanying
Notice of General Meeting and Form of Proxy, calling for a General
Meeting to be held in January 2024. Further announcements will be
made as and when appropriate.
-- Following completion of the Proposed Transaction, the Company
will remain an investing company and subject to the requirements of
AIM Note 5.6 for Investing Companies.
Strategic Rational, use of Net Proceeds and Future Strategy
-- The Board of Directors have made the strategic decision to
divest the Company's interest in EAG, a decision founded by the
evaluation of key factors influencing the growth, development and
future valuation of the Company's investment in EAG. This view has
been informed by an independent valuation report prepared by Grant
Thornton NI, which has significant experience in the anaerobic
digestion asset market in Northern Ireland.
-- The growth of EAG is heavily dependent on the ability to
invest more capital to establish a critical mass portfolio of cash
generative assets within this sector. The EAG investment was made
on the premise that further acquisitions, and investments in
digestate processing equipment to manufacture biofertilizer, could
be completed within the two year period since the original
investment. Unfortunately, the inability of the Company to issue
new equity to raise cash, despite requesting authority to do so
from Shareholders several times, constrained Scirocco's capacity to
fund this growth and pursue the strategy.
-- Further complicating matters is the uncertainty surrounding
the first two contingent consideration payments tied to the Ruvuma
development plan. Anticipated now in 2024, having earlier been
expected in 2023, the ambiguity in the timing and receipt of these
payments impedes the Company's ability to make definitive
investment plans.
-- The value of capital assets has decreased across multiple
sectors since the original investment in EAG was made as global
interest rates have increased since early 2022. As the risk -free
rate available to investors increases, the expected or target
return on fixed assets increases, reducing the price investors will
pay for a series of cashflows. When Scirocco Energy invested in EAG
in order to acquire Greenan, UK interest rates were 0.25%. The Bank
of England base rate is currently 5.25%. This has had a negative
impact on the value of Greenan asset owned by EAG.
-- Coupled with the challenges of retaining EAG without
predictable access to capital, and considering the decline in
Greenan NIROC's remaining life, the Board therefore firmly believes
that it is in the best interests of the shareholders to divest at
this time as it provides the optimal window to receive the maximum
consideration for the investment.
-- The net firm proceeds of the Proposed Transaction are
expected to be received in early 2024 following completion of the
General Meeting (assuming the necessary resolution is passed) and
receipt of the change of control consent from AIB and such proceeds
will be retained by the Company. The contingent consideration of up
to GBP150,000 will be received if and when EAG completes the
acquisition of the four targets in the twelve months following
completion.
-- Following receipt of the first contingent payment of $3
million pursuant to the disposal of the Company's interest in the
Ruvuma asset, which is expected later in Q1 2024, and following
settlement of SILOF liabilities but prior to run-rate G&A
costs, the Company expects to have a pro forma cash balance of c.
GBP4 million.
o The only other material legacy asset which the Company will
hold following the completion of the Proposed Transaction, if
approved, will be the 8.39% of Kiliwani North which is held on the
Company's balance sheet as a contingent decommissioning liability
of GBP160,000.
-- At this point, the Board intends to finalise its review of a
range of potential alternative options available to it by which it
is able to deliver value to Shareholders, which may include the
distribution of available cash, further investments in line with
its investing policy and/or the deployment of the proceeds in
pursuit of a reverse takeover transaction.
Further Information on the Proposed Transaction
Conditions
Completion of the SPA is conditional upon, inter alia, the
following conditions being satisfied (the "Conditions"):
-- a shareholder resolution being passed by the requisite
majority of Scirocco Energy's shareholders at the General Meeting;
and
-- the receipt of a waiver by Allied Irish Banks PLC, as EAG's
primary lender, of any change of control provisions, or equivalent
mechanisms, which may apply to the Proposed Transaction under the
existing loan facility dated 3 May 2023 made between EAG and
AIB.
The Conditions must be satisfied or waived by 31 January 2024
(the "Longstop Date") (unless such date is extended by agreement
between the parties to the SPA), otherwise the SPA automatically
terminates.
Consideration and Leakage
The consideration payable under the SPA comprises:
-- GBP3.00 to be split equally between Scirocco Energy, CK and
Riada as sellers in respect of each of their shares in EAG; and
-- GBP702,266.74 to be paid to Scirocco Energy in respect of the
existing shareholder loan, less any leakage that is not permitted
leakage under the SPA,
(together the "Consideration").
The firm net consideration is calculated as enterprise value of
GBP2.6 million, minus the outstanding AIB bank debt of c. GBP1.8m,
plus/minus certain other adjustments, so that the acquisiton occurs
on an effective cash/debt free basis.
The Consideration is to be subject to reduction on a pound for
pound basis should any leakage of Company funds have occurred
between 30 September 2023 and the date of the SPA (being [19]
December 2023) (both dates inclusive), save in respect of any
leakage of Company funds which have been agreed in advance by the
parties to the SPA as being permitted leakage. The maximum
aggregate liability of each of the Sellers under the leakage
provisions is not to exceed the amount of any such leakage actually
received by that Seller and his or its connected persons or in
respect of which that Sellers and his or its connected persons have
actually benefitted.
Sellers' Warranties
The SPA contains customary warranties for a transaction of this
nature given by the Scirocco Energy, CK and Riada in favour of ONC,
in relation to, inter alia, their capacity to enter into and sign
the documents relating to the Proposed Transaction (including the
SPA), their title to the shares of which they are legal and/or
beneficial owner (as applicable) and there having been no
insolvency type event in relation to the Company nor any of its
subsidiaries as at 30 September 2023.
The EAG management team, CK and RIada, will work with the Buyer
or the Buyer's group going forward.
The maximum aggregate liability of each Seller in respect of any
claims under the SPA shall not exceed the Consideration actually
received by that Seller.
ONC's Warranties
The SPA contains customary warranties given by ONC in favour of
Scirocco Energy, CK and Riada in relation to, inter alia, its
capacity to enter into and sign the documents relating to the
Proposed Transaction (including the SPA), that its entry into such
documents would not require ONC to obtain any consent or approval
and that it shall have immediately available on an unconditional
basis the necessary cash resources to meet its obligations under
the documents relating to the Proposed Transaction and any other
documents which are to be executed by ONC at Completion.
Governing Law
The SPA is governed by the laws of England and Wales.
Schedule Four disclosure
As at 30 June 2023, being the most recent published balance
sheet date position of Scirocco, the value of the loan receivable
from EAG was noted as GBP1,522,000.This represented the entire
carrying value of Scirocco's investment in EAG and was based on the
Board's judgement that the loan would be repaid in full, given the
expectation, at the time, of further investment being available to
deploy into the EAG business, either from Ruvuma sale proceeds
and/or raising capital. Due to the factors listed above, the
Company was not in a position to be able to negotiate a
consideration that reflected this carrying value. The Company,
however, reminds shareholders its initial investment was a lower
amount of GBP1.27 million. During its ownership of EAG, Scirocco
did not receive any dividends and recorded a GBP40,000 share of
profits for the year ended 2022 and a GBP42,000 loss for the six
months ended 30 June 2023.
Commenting on the Proposed Transaction, Tom Reynolds, Scirocco's
CEO stated:
"I am pleased to announce a strategic decision regarding the
proposed divestment of our interests in EAG. This move is grounded
in a thorough evaluation of key factors influencing the growth and
development of our investments.
The combination of the challenges of retaining EAG without
predictable access to capital, and considering the decline in
Greenan's remaining life, the Board is convinced that the
opportunity to sell now on the terms described here provides the
optimal window for divestment. While the consideration payable to
the Company falls short of the total investment made into EAG, it's
important to underscore that the valuation of EAG mirrors the fair
market value of the business in its current form. The Board will
continue its review of the range of alternative opportunities and
next steps for the Company."
For further information:
Scirocco Energy plc +44 (0) 20
Tom Reynolds, CEO 7466 5000
Strand Hanson Limited, Nominated Adviser
Ritchie Balmer / James Spinney / Robert +44 (0) 20
Collins 7409 3494
WH Ireland Limited, Broker +44 (0) 207
Harry Ansell / Katy Mitchell 220 1666
Buchanan, Financial PR +44 (0) 20
Ben Romney / Barry Archer / George Pope 7466 5000
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