AIF.L Regulatory News (AIF)

13 Dec 2006 17:29

Acorn Income Fund Ld13 December 2006 ACORN INCOME FUND LIMITED Tender Offer Introduction The Board announced on 29 September 2006 that it would put forward proposals toShareholders which would provide the opportunity for Shareholders to reducetheir investment in the Company at close to net asset value. The Board together with its advisers reviewed a number of proposals that werepresented to it and consulted widely with Shareholders. During that process ithas become apparent that a number of Shareholders would like to continue theirinvestment in the Company. The Board's proposals are, in summary, as follows: • provide for the continuation of the Company under the new overallmanagement of Premier Asset Management (Guernsey) Limited and the continuedmanagement of the smaller companies portfolio by Unicorn; • provide for a Tender Offer for Ordinary Shares and the attendantreduction of the share capital and share premium account of the Company tocreate sufficient distributable reserves out of which to purchase the OrdinaryShares; and • provide for a default mechanism whereby if acceptances under the TenderOffer are such that the net asset value is less than £15 million ("Post TenderAmount") then the Company will no longer be considered to be viable in size, andthe Company will, subject to Shareholder approval, be liquidated. The Proposals In structuring the Proposals, the Board has sought to provide a mechanism tocontinue the Company and provide some assurance as to its minimum size, whilealso recognising that there are a number of Shareholders who wish to realisetheir investment in the Company for cash. For these reasons, the Board isproposing a Tender Offer for Ordinary Shares and a default mechanism whereby,should the residual net asset value following completion of the Tender Offer beless than £15 million ("Minimum Size Condition"), the Company would be placedinto members' voluntary liquidation. In order that either the Tender Offer or the Winding Up Proposals may beimplemented without the need for further documentation or delay, details of bothtransactions are set out in this document and appropriate general meetings arebeing convened as explained below. The Tender Offer There is no maximum number of Ordinary Shares which may be purchased under theTender Offer. However if the number of Ordinary Shares tendered is such thatthe Post Tender Amount would be less than £15 million and therefore the MinimumSize Condition is not achieved, the Tender Offer will not proceed and insteadthe Company will, subject to Shareholder approval, be put into liquidation. Shareholders are being invited to tender some or all of their Ordinary Shares toFairfax who will, as principal, purchase the Ordinary Shares tendered at theTender Price and, following the completion of those purchases, sell them on tothe Company at the Tender Price by way of an on-market transaction, such marketbeing the London Stock Exchange. All Ordinary Shares which the Company acquiresfrom Fairfax following the Tender Offer will be cancelled on acquisition. Alltransactions will be carried out on the London Stock Exchange. Both the Manager and Unicorn have been instructed by the Board to realise assetsso that the Company has sufficient cash out of which to meet the expected levelof the Tender Offer. As of 11 December 2006 the Company had £38.7 million incash or cash equivalent securities. The Tender Price will be calculated by taking the aggregate net asset value ofthe Ordinary Shares on the Tender Offer Calculation Date and deducting an amountequal to the expected expenses of the Tender Offer Proposals. The resultantfigure will be divided by the total number of Ordinary Shares in issue so as toproduce the Tender Price. As at the close of business on 11 December 2006 thenet asset value per Ordinary Share was 201.79 pence. Taking into account theestimated costs of the Tender Offer Proposals (including the termination feepayable to Collins Stewart Fund Management Limited) then, for illustrationpurposes only, based on these figures the Tender Price would be 201p perOrdinary Share. Funding for the Tender Offer Under Guernsey law (The Companies (Purchase of Own Shares) Ordinance, 1998 (the"Ordinance")), a company may, with the appropriate authority from itsshareholders, purchase its own shares. The Company is seeking authority from itsShareholders to repurchase its shares so as to be able to implement the TenderOffer as well as to implement its discount protection mechanisms describedbelow. Whilst the Ordinance permits a company in certain circumstances topurchase shares out of capital, the more normal and practicable method offinancing such purchases is to fund them out of distributable profits. It isproposed that, subject to obtaining the relevant Shareholder approvals referredto below, the Company will apply to the Court to confirm a reduction of theCompany's share capital and share premium account in order to create adistributable reserve out of which Ordinary Shares may be purchased. The authorised and issued share capital of the Company is £7,400,000.50. TheCompany currently has an amount of £17,079,000 standing to the credit of itsshare premium account. The Board proposes to reduce the Company's share capitalby £7,104,000.48 by cancelling 24 of the 25p nominal capital per share and alsoreduce the Company's share premium account by £17,000,000. The Board willcredit such amounts to a distributable reserve so that the Company hassufficient reserves to implement the Tender Offer. The Court will need to be satisfied that the interests of the Company'screditors will not be prejudiced as a result of the reduction of the sharecapital and share premium account and the Company will take such steps in thatregard as it deems appropriate and as required by the Court. Winding Up Proposals As set out above, the Board proposes that the Company should only continue if itis a viable size, which it has determined would require the Post Tender Amountto be not less than £15 million. In the event that the conditions of the Tender Offer are not satisfied, it isproposed that the Company be placed into voluntary liquidation and that theCompany's assets (after payment of the liabilities and after deducting the costsof implementing the Winding Up Proposals) on such winding up be distributed. On the basis of the net asset value as at the close of business on 11 December2006 of £59.5 million, it is currently estimated that the net assets availablefor distribution to Shareholders on a liquidation would be approximately £59.5or 201p per Ordinary Share. This assumes the successful realisation of all theinvestments at carrying values, no claims arising and the estimated costs of theWinding Up Proposals (see "Expenses" below). Shareholders should note that the amount finally distributed to them may bedifferent due to a variety of factors including movements in the value of theunderlying assets, the level at which assets can be realised, settlement of anycurrently unknown or contingent liabilities and ongoing costs associated withrunning the Company and the realisation process. Liquidation and Dealings It is proposed that Messrs Anthony Christian Pickford and James Robert Toyntonof RSM Robson Rhodes Corporate Recovery (CI) Limited be appointed as liquidatorsof the Company. Assuming that the liquidation of the Company is approved byShareholders as proposed in this document and in the absence of unforeseencircumstances, the Liquidators envisage that they should be in a position tomake distributions by 5 February 2007 to Shareholders of an amount equal to thesurplus assets of the Company after reserving for creditor claims, if any, notpreviously agreed and paid, and the costs of the Winding Up Proposals. Dealings in the Ordinary Shares on the London Stock Exchange will be suspendedat the opening of business on 5 January 2007 and on the same date the listing onthe Official List of the UK Listing Authority will be suspended. The Companywill subsequently apply for the listing on the Official List to be cancelled. Appointment of Premier On 29 September 2006 the Board announced that the Company had served protectivenotice on the Manager of the Company in relation to the termination of the C.I.Management Agreement with Collins Stewart Fund Management Limited ("Manager").Following completion of the Tender Offer, it is proposed that Premier will beappointed as the Company's managers in place of the Manager. The smallcompanies portfolio will continue to be managed by Unicorn. The Board believes that the proposal put forward by Premier and Unicorn willallow for the Company's assets to be managed in a substantially similar way tothe way it is currently managed, reflecting the views of those Shareholders whowish to continue with their investment in the Company. The Board has recently been in negotiations with the Manager surrounding thebasis on which their Management Agreement would be terminated. It has beenagreed that, conditional upon the Tender Offer becoming unconditional in allrespects, the Manager's appointment will be terminated with immediate effectupon the date on which such condition is satisfied. The Termination Agreementprovides that the Manager shall be paid a sum of £150,000 in respect of theperformance fee for the period ending 31 December 2006 and a sum of £187,500 forthe balance of the outstanding notice period under their management agreement.In the event that the Tender Offer does not become wholly unconditional, theManager's appointment under the current management agreement shall continue infull force and effect. However the Company will continue to pay the Manager thesum of £150,000 in respect of the performance fee for the period to 31 December2006 and the Manager will have no further claim for any performance fees. In addition, the Company has entered into a conditional contract with Premier ("the Premier Management Agreement"). This agreement provides that conditionalupon the Tender Offer becoming wholly unconditional, Premier will be appointedas manager to the Company. The agreement provides that the fixed management feewill be equal to 0.7 per cent. per annum of the Company's gross assets and therewill be a performance fee of 15 per cent. of any excess over a total return of10 per cent. per annum. In that agreement, Premier has also agreed to cap thetotal expense ratio of the Company at 1.5 per cent. of gross assets (excludingperformance fees and non-routine professional fees). To the extent that theCompany's annual expenses exceed 1.5 per cent. of the gross assets in anyparticular year, then Premier will reduce its fees received or receivable forthat year accordingly but subject always to it receiving a fixed annual fee ofnot less than £50,000. In addition, Premier may delegate the performance of theadministration functions under the Premier Management Agreement and, in suchcircumstances, it shall be entitled to charge the Company an additionaladministration fee equal to 0.12 per cent. per annum of the Company's grossassets subject to a minimum annual payment of £55,000. This fee may be reviewedfrom time to time. Premier has also agreed to make a contribution to the expenses of thistransaction equivalent to 0.65 per cent. of the value of the Post Tender Amountconditional upon completion of the Tender Offer. On-going Investment Policy The Company's existing investment policy is to allocate approximately 75 percent. of its assets to a smaller companies portfolio, with the balance investedin an income portfolio. It is proposed that this should be amended so thatapproximately 70 per cent. of the Company's assets will be allocated to thesmaller companies portfolio with the balance allocated to the income portfolio.The exact amount allocated between each portfolio will be reviewed and, ifappropriate, the amount allocated to the smaller company portfolio may beincreased. The smaller companies portfolio will continue to be managed by Unicorn and willprincipally be invested in UK equities with a market capitalisation of under £1billion. Unicorn will focus on companies with experienced and well motivatedmanagement products or services supplying growth markets, sound operational andmanagement controls, good cash generation and a progressive dividend. Unicornintends to target a yield on this part of the portfolio of around 3.75 per cent.per annum. Premier will manage the income portfolio. The objectives of this part of theportfolio will be to maximise income with the objective of capital protection.The portfolio will include sterling denominated fixed interested securitiesincluding corporate bonds, preference and permanent interest bearing shares,convertibles, reverse convertibles, debentures and other similar securities.The income portfolio may also contain higher yielding shares of other investmentcompanies, including property investment companies, however these will notexceed 15 per cent. of the overall portfolio (at the time of acquisition). Thetarget yield on this part of the portfolio will initially be around 8 per cent.per annum. Although this investment policy is broadly in line with the Company's existinginvestment policy there is an amendment to the investment policy of theCompany's income portfolio as it will now allow the Company to invest in reverseconvertible bonds and property investment companies in addition to the othersecurities referred to in the paragraph above which securities the Company wasable to invest in under the previous investment policy for the income portfolio.The investment policy also provides for a slightly lower allocation to thesmaller companies portfolio. Accordingly, the Directors believe that as therewill be some changes to the way in which the income portfolio is managed that itis appropriate that Shareholders should approve this investment policy.Consequently a resolution is being proposed at the First EGM to approve thisinvestment policy. Borrowings The Company repaid the Bank of Scotland Offshore Facility in full on 15 November2006. In the event that the Tender Offer completes and the Company continues inexistence, the Board intends that the Company should enter into furtherborrowings with a suitable lender. The Board intends to fix the permittedamount of borrowings by the Company at not more than 30 per cent. of the grossasset value of the Company at the time the borrowings are entered into. Dividends If the Tender Offer proceeds and the Company continues it is estimated that forthe period from 1 January 2007 to 31 December 2007 in the absence of unforeseencircumstances the Company should pay a dividend of 8p. This is a dividendestimate only and should not be treated as a forecast of profits. Discount Protection The Directors believe it is important that once the Tender Offer has beencompleted the Ordinary Shares do not trade on a wide discount to net assetvalue. In this respect: • the Company will take powers, which it will seek to renewannually, to make purchases of its Ordinary Shares. It is proposed thatOrdinary Shares acquired by the Company will initially be held in treasury andmay be sold by the Company out of treasury should the opportunity arise. TheBoard will look to use these powers to manage the discount to net asset value; • the Company's Articles will be amended to provide Shareholderswith the opportunity at the Annual General Meeting to be held in 2011 to votewhether the Company should continue as an investment company. At the same time,it is proposed to remove the current article 134(3) which requires the Companyto convene an EGM to wind-up the Company in circumstances where the Companyserves notice to terminate the appointment of its investment manager; and • Premier has undertaken to actively market the Company's sharesand will include the Company within its ISA and savings products. Board Changes Upon completion of the Tender Offer Martin Bralsford will retire as bothChairman and Director of the Company. John Boothman, who has been a director ofthe Company for 3 years, has agreed to become Chairman. Eitan Milgram will alsostand down once the Tender Offer has been completed. The Board intends toappoint a further director to replace Martin Bralsford once the Tender Offer hasbeen completed and will make a further announcement in respect of this. TIMETABLE Tender Offer 2007Latest time and date for receipt of Tender Forms 3 JanuaryTender Offer Record Date 3 JanuaryTender Offer Calculation Date 3 JanuaryLatest time and date for receipt of Forms of Proxy for the First EGM 11.00 a.m. on 3 JanuaryResult of Tender Offer announced 4 JanuaryFirst EGM 11.00 a.m. on 5 JanuaryCourt hearing of application to confirm reduction of the share premium account 12 Januaryof the CompanyEffective date of reduction of the share capital and share premium account of 15 Januarythe CompanySettlement of Tender Offer consideration 17 January Winding Up 2007Latest time and date for receipt of Forms of Proxy for the First EGM 11.00 a.m. on 3 JanuaryLatest time and date for receipt of Forms of Proxy for the Second EGM 11.05 a.m. on 3 JanuarySuspension of Ordinary Shares from trading on the London Stock Exchange and 7.30am on 5 Januarysuspension of listing on the Official ListShare registers close 5 JanuaryFirst EGM 11.00 a.m. on 5 JanuarySecond EGM 11.05 a.m. on 5 JanuaryEffective date for implementation of the liquidation 5 JanuaryCancellation of listing of the Ordinary Shares on the Official List 8.00am on 5 FebruaryInitial liquidation distributions 5 February Enquiries Paul Richards 020 7598 5368Fairfax I.S. PLC Nigel Sidebottom 01483 306 090Premier Asset Management PLC This information is provided by RNS The company news service from the London Stock Exchange