TIDMWTG
RNS Number : 3396G
Watchstone Group PLC
23 July 2021
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART
IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A
VIOLATION OF THE RELEVANT LAWS OF THAT JURISDICTION
Watchstone Group plc
("Watchstone" or the "Company" or the "Group")
Response document in respect of the Offer by Polygon Global
Partners LLP ("Polygon") issued
The Board of Watchstone Group Plc will today post its response
circular ("Response Document") to Watchstone shareholders in
respect of the mandatory cash offer of 34 pence per Watchstone
share on behalf of Polygon for the whole of the issued and to be
issued share capital of Watchstone ("the Offer"). As required by
the City Code on Takeovers and Mergers, the Board has obtained
independent advice in respect of the Offer from SPARK Advisory
Partners Limited ("SPARK").
The text of the letter from the Chairman of the Company (set out
in full within the Response Document) is reproduced below. The
Response Document and related documents will also be published on
the Company's website at www.watchstonegroup.com.
"Dear Shareholder
Response to the mandatory offer by Polygon Global Partners LLP
("Polygon") for Watchstone Group plc ("Watchstone" or
"Group")("Offer")
1. Introduction
On 1 July 2021, Polygon announced an unsolicited mandatory offer
for the Ordinary Shares it does not already own of 34p in cash per
Ordinary Share. The Directors believe that the Offer does not
reflect an adequate premium for control and significantly
undervalues Watchstone and its prospects. Accordingly, the
Directors recommend that Shareholders should reject the Offer.
TO REJECT THE OFFER YOU NEED TO TAKE NO ACTION
This document sets out the valuation, control and other
considerations taken into account by the Directors in reaching
their conclusion.
2. The Offer is opportunistic and undervalues the Group
The Directors believe that the Offer significantly undervalues
Watchstone and its prospects, both in respect of the lack of
premium to the current share price and the underlying value of the
Group's assets. The Offer values the entire issued and to be issued
share capital of Watchstone at approximately GBP15.65 million and
represents:
- a discount of 16.0 per cent. to the closing price of 40.5
pence per Ordinary Share on 15 July 2021 (being the last Business
Day prior to posting of the Offer Document);
- a discount of 24.4 per cent. to the 30-day average closing
price to 30 June 2021 (being the last Business Day prior to
commencement of the Offer Period); and
- a discount of 37.0 per cent. to the 90-day average closing
price to 30 June 2021 (being the last Business Day prior to
commencement of the Offer Period).
As detailed in the Group's audited Report and Accounts for the
year ended 31 December 2020 ("FY20 Accounts"):
- As at 31 December 2020, the Group had cash of GBP16.66 million
and net assets of GBP17.14 million; and
- Litigation in relation to the historic activities of the Group
is being pursued including claims against PricewaterhouseCoopers
LLP ("PwC") and Aviva Canada Inc ("Aviva Canada"). The Group also
expects to initiate a claim against its former auditor, KPMG LLP
("KPMG"), in respect of its audit of the Group's accounts for the
year ended 31 December 2013. These give rise to contingent assets
which are not recognised within the FY20 Accounts due to the lack
of certainty as to the outcome, despite their potential to result
in material cash inflows to the Group.
Since 31 December 2020, there have been no announceable
developments in respect of the Group's litigation, other assets and
liabilities, or operations.
The Offer value is below the values of the Company's cash and
the net assets as at 31 December 2020, and does not recognise any
value for the contingent litigation assets.
The Directors also note that, at 34 pence per Ordinary Share,
Polygon has, as it is entitled to do, chosen to offer Shareholders
the minimum price it could have offered under the Code, being no
more than the highest price paid by Polygon for any interest in
Ordinary Shares during the 12 months prior to the announcement of
the Offer.
The Directors would expect a price to be paid which reflects the
Group's net assets and the potential for cash inflow from its
litigation assets; as well as a premium for control, and that would
amount to a meaningful premium to the current share price.
The Directors believe that the Offer undervalues the Company and
its prospects and should not be accepted by Shareholders.
3. Implications for Watchstone shareholders of Polygon becoming a majority shareholder
Immediately prior to the latest share purchase, Polygon was
Watchstone's largest shareholder, with an aggregate percentage
interest in Ordinary Shares of 29.9 per cent. Polygon has stated
that it does not intend there to be any effect on Watchstone's
broader strategic plans as a result of the Offer and it has been a
consistent supporter of the actions taken by the Board over the
past few years. However, your Directors wish to highlight that, if
Polygon receives sufficient acceptances for the Offer to increase
its interests to 50 per cent. or more of the voting rights, Polygon
could use its voting power as a majority shareholder to take
actions that may be to the potential detriment of other
Shareholders.
Specifically, the Directors draw your attention to the fact
that, on any ordinary resolution put to Shareholders, Polygon will
be able to carry the vote on its own and, as such, the other
Shareholders will have no influence. Shareholders should also be
aware that, in the event that Polygon's interests reach 75 per
cent. of Ordinary Shares the voting rights following completion of
the Offer, Polygon's ability to carry the vote and this lack of
influence for other Shareholders would extend to any special
resolution put to Shareholders.
The Directors draw your attention to the fact that to the extent
Polygon controls Ordinary Shares carrying 75 per cent. or more of
the voting rights attaching to the Ordinary Shares by virtue of
valid acceptances of the Offer or otherwise, Polygon intends that
an application will be made to AQSE to cancel trading in Ordinary
Shares on the AQSE Growth Market.
The Directors believe that, while the cancellation of the
Company's trading facility on AQSE will save costs in the short
term, it is not in the interests of Shareholders for the following
reasons:
- it will significantly reduce the liquidity and marketability
of Ordinary Shares held by Shareholders who have not accepted the
Offer, prejudicing their ability to realise (and have access to a
readily available valuation of) their investment in the
Company;
- Shareholders who have not accepted the Offer will own Ordinary
Shares in an unlisted company and will not have the benefit of the
transparency or the regulatory oversight afforded to companies
traded on AQSE; and
- as mentioned above, remaining Shareholders will have limited
ability to influence the affairs of the Company by the exercise of
their voting rights and will have only limited statutory protection
against the conduct of the Company's affairs in a manner which is
unfairly prejudicial to their interests.
If Polygon increases its shareholding to 50 per cent. or more,
it will have significantly more influence over the Group and may
use that influence to the detriment of the interests of other
Shareholders.
4. Other factors Shareholders should consider
Shareholders should also consider the following reasons why they
may wish to accept the Offer:
- the Offer represents an opportunity for Shareholders to
realise their investment for cash at a price of 34 pence per
Ordinary Share and without dealing costs;
- Watchstone's remaining assets are legal cases in England and
Canada. As with any legal case, even where the advice received by
the Board is positive and confidence in prospects is high, there
are risks attached. Cases may be unsuccessful, resulting in adverse
cost consequences, or the amounts recovered by the Company in
damages and/or costs may be lower than anticipated;
- the Company continues to incur significant operating costs in
the pursuit of successful case outcomes and in dealing with its
legacy issues; and
- there is a risk of claims being brought against the Group in
the future, although Shareholders should note that it is now more
than 18 months since a threat of new litigation against the Group
was last received and in 2020, the SFO notified the Company that
its investigation into the Group's historical business and
accounting practices was closed.
5. The Directors' views on the effect of the implementation of
the Offer on Watchstone's interests, employees and locations
The Code requires the Directors to give their views on the
effects of the implementation of the Offer on all Watchstone's
interests, including, specifically, employment, and their views on
Polygon's strategic plans for Watchstone and their likely
repercussions on employment and the locations of Watchstone's
places of business.
In fulfilling their obligations under the Code, the Directors
can only comment on the details provided in the Offer Document and,
in doing so, have considered, in particular, paragraph 5 of Part 1
of the Offer Document. The Directors note that Polygon has not set
out any detailed or considered plans about its intentions for the
business of Watchstone, its management or employees following
completion of the Offer. Without information regarding Polygon's
detailed plans for Watchstone, the Directors cannot be certain as
to the full repercussions of the Offer on the Company's interests
and are unable to comment further.
The Directors welcome Polygon's statements that (i) it does not
intend to cause Watchstone to effect any material change with
regard to the continued employment of its employees and managers
and the conditions of employment or balance of skills and functions
of the management of Watchstone, in each case as a result of the
Offer and; (ii) it intends to ensure that, in the event of
completion of the Offer, the existing statutory employment rights,
including any pension rights, of the management and employees of
Watchstone will be fully safeguarded.
The Directors also welcome Polygon's statement that it does not
intend there to be any effect on Watchstone's broader strategic
plans or places of business (including its headquarters and
headquarters functions) as a result of the Offer and that it
intends to support management in its existing objective of
generating value through the maximisation of its remaining
assets.
However, the Directors note that the foregoing are statements of
intention and not undertakings with binding effect under the Code.
Accordingly, there can be no certainty that Polygon will not alter
the strategy of Watchstone in the future.
6. Current trading and Cash position
At the time of announcing its preliminary results for the year
ended 31 December 2020 on 6 May 2021, Stefan Borson, Group Chief
Executive Officer set out the current status of the Group's
contingent assets as detailed in paragraph 7 below. Since that time
there have been no announceable developments in respect of its
litigation or other assets and liabilities.
The Directors wish to inform Shareholders that the Group's cash
(derived from management accounts and excluding escrow accounts of
GBP1.8 million) as at 30 June 2021 was GBP14.3 million (31 December
2020- GBP16.7 million excluding escrow accounts of GBP1.9
million).
The Directors current expectation is that the unaudited interim
accounts for the period to 30 June 2021 will be issued in August,
prior to Day 39 of the Offer.
7. Litigation
The attention of Shareholders is drawn to the Group Chief
Executive Officer's update on outstanding legacy matters included
in the FY20 Accounts in respect of the Group's cases against PwC,
Aviva Canada and HMRC and, potentially, KPMG:
"In August 2020, we filed and served a claim against PwC in the
High Court. The claim against PwC is for damages or equitable
compensation of GBP63m plus interest and costs. The claim is for
breach of contract and/or breach of confidence and/or breach of
fiduciary duty and/or unlawful means conspiracy. PwC has filed its
defence and the matter is not expected to go to trial before H2
2022. The Group expects to initiate a claim against its former
auditor, KPMG LLP ("KPMG"), in respect of its audit of the Group's
accounts for the year ended 31 December 2013 which were restated in
the subsequent financial year. Our claim for the recovery of
historic VAT paid in the ingenie business is expected to go to a
Tribunal in December 2021. Finally, our Canadian subsidiary's claim
against Aviva Canada is ongoing. We will continue to co-operate
with the continuing SFO investigation but the Company itself is no
longer a suspect and will not be prosecuted in respect of it."
The Directors draw your attention to the following excerpts from
the FY20 Accounts which explain why no account is taken of these
contingent assets in the Group's accounts:
1. Critical Accounting judgements and key sources of estimation uncertainty - note 4
"The Group is involved with a number of actual or potential
legal cases which, if successful, could result in material cash
inflows to the Group. The relative merits of these cases and the
assessment of their likely outcome is highly judgemental by nature.
Similarly, management recognise the hurdle set by accounting
standards to recognise an asset or disclose a contingent asset is
very high and therefore neither is recognised or disclosed within
these Financial Statements."
2. Contingent Assets and Liabilities - note 30
"Litigation in relation to the historic activities of the Group
is being pursued including claims against PricewaterhouseCoopers
LLP and Aviva Canada Inc. The Group expects to initiate a claim
against its former auditor, KPMG LLP, in respect of its audit of
the Group's accounts for the year ended 31 December 2013. These
give rise to contingent assets, which are not recognised within the
Financial Statements due to lack of certainty as to the outcome,
despite an inflow of economic benefit being considered
probable."
8. Recommendation of the Board
Your decision as to whether to accept the Offer will depend upon
your individual circumstances. If you are in any doubt as to what
action you should take, you should seek your own independent
professional advice.
However, the Directors, who have been so advised by SPARK as to
the financial terms of the Offer, consider that the Offer
undervalues Watchstone and its prospects and, in light of this, and
notwithstanding the other considerations outlined above,
unanimously recommend that Shareholders reject the Offer.
SPARK is providing independent financial advice to the Directors
for the purposes of Rule 3 of the Code and, in doing so, has taken
into account the commercial assessments of the Directors.
Accordingly, the Directors unanimously recommend that YOU SHOULD
TAKE NO ACTION in relation to the Offer and that YOU SHOULD NOT
SIGN ANY DOCUMENT WHICH POLYGON OR ITS ADVISERS S TO YOU.
If you have already accepted the Offer, there are certain
circumstances in which you can withdraw your acceptance of the
Offer and a summary of the rights of withdrawal is set out in
paragraph 3 of Appendix 1 Part B of the Offer Document.
The Directors who hold Ordinary Shares do not intend to accept
the Offer in respect of their own beneficial interests in those
Ordinary Shares.
Yours faithfully
Richard Rose
Non-Executive Chairman"
In accordance with Rule 26.1 of the Code, a copy of this
announcement will be available (subject to certain restrictions) on
the Company's website at www.watchstonegroup.com by no later than
12 noon on 26 July 2021. The content of the website referred to in
this announcement is not incorporated into and does not form part
of this announcement.
This announcement is not intended to and does not, constitute or
form part of an offer, invitation or the solicitation of an offer
to purchase, otherwise, acquire, subscribe for, sell or otherwise
dispose of, any securities whether pursuant to this announcement or
otherwise.
For further information:
Watchstone Group plc Tel: 03333 448048
investor.relations@watchstonegroup.com
SPARK Advisory Partners Limited, Rule 3 Adviser Tel: 020 3368 3555
---------------------
Andrew Emmott
Adam Dawes
---------------------
WH Ireland Limited, Adviser and Broker Tel: 020 7220 1666
---------------------
Chris Hardie
Lydia Zychowska
---------------------
Each of WH Ireland and SPARK are authorised and regulated in the
United Kingdom by the Financial Conduct Authority and are acting
exclusively for Watchstone and no one else in connection with the
Offer and will not be responsible to anyone other than Watchstone
for providing the protections afforded to their clients or for
providing advice in relation to the Offer, the contents of this
document or any other matters referred to in this document.
The information contained in this announcement is deemed to
constitute inside information as stipulated under the Market Abuse
Regulations (EU) No. 596/2014 (which applies in the United Kingdom
by operation of the European Union (Withdrawal) Act 2018 (as
amended)). Upon publication of this announcement, this information
is now considered to be in the public domain.
Dealing and Opening Disclosure requirements of the Takeover
Code
Under Rule 8.3(a) of the Takeover Code, any person who is
interested in 1 per cent. or more of any class of relevant
securities of an offeree company or of any securities exchange
offeror (being any offeror other than an offeror in respect of
which it has been announced that its offer is, or is likely to be,
solely in cash) must make an Opening Position Disclosure following
the commencement of the offer period and, if later, following the
announcement in which any securities exchange offeror is first
identified. An Opening Position Disclosure must contain details of
the person's interests and short positions in, and rights to
subscribe for, any relevant securities of each of (i) the offeree
company and (ii) any securities exchange offeror(s). An Opening
Position Disclosure by a person to whom Rule 8.3(a) applies must be
made by no later than 3.30 p.m. (London time) on the 10th business
day following the commencement of the offer period and, if
appropriate, by no later than 3.30 p.m. (London time) on the 10th
business day following the announcement in which any securities
exchange offeror is first identified. Relevant persons who deal in
the relevant securities of the offeree company or of a securities
exchange offeror prior to the deadline for making an Opening
Position Disclosure must instead make a Dealing Disclosure.
Under Rule 8.3(b) of the Takeover Code, any person who is, or
becomes, interested in 1 per cent. or more of any class of relevant
securities of the offeree company or of any securities exchange
offeror must make a Dealing Disclosure if the person deals in any
relevant securities of the offeree company or of any securities
exchange offeror. A Dealing Disclosure must contain details of the
dealing concerned and of the person's interests and short positions
in, and rights to subscribe for, any relevant securities of each of
(i) the offeree company and (ii) any securities exchange
offeror(s), save to the extent that these details have previously
been disclosed under Rule 8. A Dealing Disclosure by a person to
whom Rule 8.3(b) applies must be made by no later than 3.30 p.m.
(London time) on the business day following the date of the
relevant dealing.
If two or more persons act together pursuant to an agreement or
understanding, whether formal or informal, to acquire or control an
interest in relevant securities of an offeree company or a
securities exchange offeror, they will be deemed to be a single
person for the purpose of Rule 8.3 of the Takeover Code. Opening
Position Disclosures must also be made by the offeree company and
by any offeror and Dealing Disclosures must also be made by the
offeree company, by any offeror and by any persons acting in
concert with any of them (see Rules 8.1, 8.2 and 8.4 of the
Takeover Code).
Details of the offeree and offeror companies in respect of whose
relevant securities Opening Position Disclosures and Dealing
Disclosures must be made can be found in the Disclosure Table on
the Takeover Panel's website at www.thetakeoverpanel.org.uk,
including details of the number of relevant securities in issue,
when the offer period commenced and when any offeror was first
identified. You should contact the Panel's Market Surveillance Unit
on +44 (0)20 7638 0129 if you are in any doubt as to whether you
are required to make an Opening Position Disclosure or a Dealing
Disclosure.
Availability of hard copies
You may request hard copies of any document published on
Watchstone's website in connection with the Offer by contacting
Watchstone's registrars, Link Group, 10(th) Floor Central Square,
29 Wellington Street, Leeds, LS1 4DL (telephone number: 0371 664
0300). You may also request that all future documents,
announcements, and information to be sent to you in relation to the
Offer should be in hard copy form.
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END
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July 23, 2021 10:00 ET (14:00 GMT)
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