RNS Number : 3736U
Absolute Capital Mgmt Holdings Ltd
14 May 2008
Absolute Capital Management Holdings Limited
("Absolute Capital" or the "Company")
Proposed Distribution of the Argo Business
Notice of Extraordinary General Meeting
Absolute Capital is pleased to announce that it is posting documents to its shareholders today proposing the distribution of the Argo
Business to Shareholders, to be managed and owned as an independent entity under Argo Group Limited ("NewCo").
* Under the proposal shareholders will retain their existing holding of Ordinary Shares in Absolute Capital, which will continue to
be traded on AIM and, in addition, receive the same number of Ordinary Shares in NewCo, which will initially be a private company.
* It is intended that an application will be made for the NewCo Ordinary Shares to be admitted to trading on AIM within six months
of the Distribution.
* An Extraordinary General Meeting ("EGM") to approve the Distribution is scheduled for 13 June 2008.
* The Directors of Absolute Capital unanimously recommend that shareholders vote in favour of the resolutions as they intend to do
in respect of their own shareholdings which represent approximately 33% of the Company's existing issued share capital.
Chief Executive Officer of Absolute Capital, Jonathan Treacher, said:
"We have carefully considered the best way forward for the Absolute Capital group following the events of September 2007. The Argo
Business has always operated separately, with its own fund managers, risk controls and regulated entities, making the decision to demerge
the two businesses a sensible and logical one. The Board strongly believes the Demerger will overall enhance shareholder value in the
Absolute Capital and Argo Businesses. Both businesses will be in a stronger position to execute their growth strategies by attracting and
retaining funds under management and expanding their management teams, as independent asset management firms."
Enquiries
Absolute Capital Management Holdings Limited Tel: 41 41 560 9660
Jonathan Treacher
Shamillia Sivathambu
Panmure Gordon Tel: +44 (0)20 7459 3600
Dominic Morley
Callum Stewart
Cardew Group Tel: +44 (0)20 7930 0777
Tim Robertson
Shan Shan Willenbrock
David Roach
The Circular is being published today and will be available on the Company's website at www.abcapman.com
The implications of the Distribution for Shareholders who are resident in, or nationals or citizens of, jurisdictions outside the United
Kingdom ("Overseas Shareholders") may be affected by the laws of their relevant jurisdictions. Overseas Shareholders should inform
themselves about and observe any applicable legal requirements. It is the responsibility of each Overseas Shareholder to satisfy
himself/herself as to the full observance of the laws of the relevant jurisdiction in connection with the Distribution, including the
obtaining of any governmental, exchange control or other consents which may be required, or the compliance with other necessary formalities
which are required to be observed and the payment of any issue, transfer or other taxes due in such jurisdiction.
The distribution of the Circular in jurisdictions other than the United Kingdom may be restricted by law and therefore persons in such
jurisdictions into whose possession the Circular comes should inform themselves about and observe such restrictions. Any failure to comply
with applicable restrictions may constitute a violation of securities laws of any such jurisdiction.
The NewCo Ordinary Shares to be issued pursuant to the Distribution have not been and will not be registered under any securities
legislation including, without limitation, the Securities Act. No prospectus has been filed in relation to the NewCo Ordinary Shares in any
jurisdiction. Accordingly, unless an exemption under relevant securities law is available, the NewCo Ordinary Shares may not be offered,
sold, resold or delivered, directly or indirectly, into or from jurisdictions outside of the United Kingdom. All Shareholders (including
without limitation, nominees, trustees or custodians) who would, or otherwise intend to, forward the Circular and its accompanying documents
to any jurisdiction outside the United Kingdom, should seek appropriate authority and advice before taking any action.
Absolute Capital Management Holdings Limited
("Absolute Capital" or the "Company")
Proposed Distribution of the Argo Business
Notice of Extraordinary General Meeting
Introduction
Absolute Capital today announces that it proposes to distribute the Argo Business to Shareholders, to be managed and owned as an
independent entity. On 29 April 2008 an agreement was entered into by the Company to transfer, conditionally upon the approval of the Cyprus
SEC, the Argo Companies to NewCo (a wholly-owned subsidiary of Absolute Capital incorporated in the Isle of Man for the purpose of the
Distribution) in exchange for the issue of new shares in NewCo. That agreement was completed on 8 May 2008 following the grant of the
approval by the Cyprus SEC. NewCo and Absolute Capital have today entered into the Distribution Agreement (although the Distribution itself
is conditional on Shareholder approval). The Distribution will be effected as a distribution of capital out of share premium to be satisfied
by the in specie distribution by Absolute Capital of the NewCo Ordinary Shares to Shareholders on the Record Date (13 June 2008).
It is expected that the Distribution will become effective on 13 June 2008, following which Shareholders will receive one NewCo Ordinary
Share for each Absolute Ordinary Share held on the Record Date. Immediately following the Distribution, therefore, Shareholders will retain
their existing holding of Absolute Ordinary Shares, which will continue to be traded on AIM and, in addition, will receive the same number
of NewCo Ordinary Shares, with NewCo initially being a private company. It is intended that an application will be made for the NewCo
Ordinary Shares to be admitted to trading on AIM within six months of the Distribution Effective Date. Panmure Gordon has been appointed as
the financial adviser to NewCo for this purpose. Between the Distribution Effective Date and the date on which NewCo Ordinary Shares may be
admitted to trading on AIM, there will be no established market for the NewCo Ordinary Shares, but Panmure Gordon will use its reasonable
endeavours to match bargains in NewCo Ordinary Shares off-market.
Reasons for the proposed Distribution
Absolute Capital manages the Absolute Funds and, following the acquisition of Argo in February 2007, owns the Argo Companies which
manage the Argo Funds. Absolute Capital and the Argo Funds have always been, and continue to be, managed independently of each other with
each group having separate fund managers, risk controls and regulated entities.
The events of September 2007 (principally the sudden resignation of Florian Homm, the founder and chief investment officer of the
Absolute Funds) have adversely affected Absolute Capital and the Absolute Funds, but less so the Argo Funds. Whilst these events have
affected how some investors perceive Argo, they have not affected in any material respect the performance of its funds. This was shown by
the positive performance of Argo's two principal funds, which delivered double digit returns to investors for the 12 months to 31 December
2007. The acquisition of Argo by Absolute Capital was strategic with the main aim of building an investment management platform that would
act as an umbrella organisation for a number of smaller firms. This, it was felt, would provide these smaller firms with the benefits of
scale and diversification through common ownership while at the same time allowing them to maintain their individuality and separate
investment processes. However, as a result of the events of September 2007, the Board believes that its previous strategy of combining the two operations is no longer in Shareholders' interests, and the value
of both the Argo Business and Absolute Capital's business to Shareholders would be improved through the Distribution. The Board believes
that, following the Distribution, both businesses will be better able to execute their growth strategies by attracting and retaining funds
under management and maintaining and augmenting their management teams as independent asset management firms. In addition, the Board
believes that by separating the Argo Business, Absolute Capital would be better able to pursue innovative strategies to retain and grow
assets by co-operating with businesses or investors that can offer synergies in their own area of expertise.
Financial information on Argo
In the 12 months ended 31 December 2007, Argo Capital Management Limited generated an audited profit before tax of approximately £2.8
million on turnover of approximately £9.9 million and Argo Capital Management (Cyprus) Limited generated an audited profit before tax of
approximately US$9.1 million on turnover of approximately US$47.0 million. As set out in Note 21.3 to the audited accounts of Argo Capital
Management (Cyprus) Limited for the year ended 31 December 2007, Argo Capital Management (Cyprus) Limited purchased services from Argo
Investor Services Limited for US$4.5 million during that year. Whilst this has been reflected in the income statement and balance sheet for
Argo Capital Management (Cyprus) Limited for that year, Argo Investor Services Limited, being incorporated in October 2007, has not yet
prepared audited accounts.
Further financial information on Argo is set out in the Circular.
As at 1 May 2008, Argo held cash of approximately EUR4.3 million and short term investments of approximately EUR6.0 million.
The unaudited value of Argo as reported in the balance sheet of the Company as at 30 June 2007 was approximately EUR75.4 million.
Effect of the Distribution
The Company acquired Argo in February 2007. Since that time, and despite common ownership, Absolute Capital and Argo have been managed
independently of each other, with each group having separate fund managers, risk controls and regulated entities.
Following the Distribution, the Company and NewCo will continue to be managed separately but will also be under separate ownership,
albeit initially with the same shareholder base. The Board believes that the Distribution should enable the Argo Business and Absolute
Capital better to execute their growth strategies by attracting and retaining funds under management and high qualify staff.
The Distribution will also allow Absolute Capital the flexibility to pursue its strategy of maximising recovery on its side pocket
investments without the constraints of wider business considerations.
Further details of the Distribution
It is expected that the Distribution will become effective on 13 June 2008, following which Shareholders will receive one NewCo Ordinary
Share for each Absolute Ordinary Share held on the Record Date. Immediately following the Distribution, therefore, Shareholders will retain
their existing holding of Absolute Ordinary Shares, which will continue to be traded on AIM and, in addition, will receive the same number
of NewCo Ordinary Shares, with NewCo initially being a private company. It is intended that an application will be made for the NewCo
Ordinary Shares to be admitted to trading on AIM within six months of the Distribution Effective Date. Panmure Gordon has been appointed as
the financial adviser to NewCo for this purpose. Between the Distribution Effective Date and the date on which NewCo Ordinary Shares may be
admitted to trading on AIM, there will be no established market for the NewCo Ordinary Shares, but Panmure Gordon will use its reasonable
endeavours to match bargains in NewCo Ordinary Shares off-market. The ISIN for NewCo Ordinary Shares will be IM00B2RDSS92.
The Distribution is conditional upon Shareholder approval.
The implications of the Distribution for Shareholders who are resident in, or nationals or citizens of, jurisdictions outside the United
Kingdom ("Overseas Shareholders") may be affected by the laws of their relevant jurisdictions. Overseas Shareholders should inform
themselves about and observe any applicable legal requirements. It is the responsibility of each Overseas Shareholder to satisfy
himself/herself as to the full observance of the laws of the relevant jurisdiction in connection with the Distribution, including the
obtaining of any governmental, exchange control or other consents which may be required, or the compliance with other necessary formalities
which are required to be observed and the payment of any issue, transfer or other taxes due in such jurisdiction.
The distribution of the Circular in jurisdictions other than the United Kingdom may be restricted by law and therefore persons in such
jurisdictions into whose possession the Circular comes should inform themselves about and observe such restrictions. Any failure to comply
with applicable restrictions may constitute a violation of securities laws of any such jurisdiction.
The NewCo Ordinary Shares to be issued pursuant to the Distribution have not been and will not be registered under any securities
legislation including, without limitation, the Securities Act. No prospectus has been filed in relation to the NewCo Ordinary Shares in any
jurisdiction. Accordingly, unless an exemption under relevant securities law is available, the NewCo Ordinary Shares may not be offered,
sold, resold or delivered, directly or indirectly, into or from jurisdictions outside of the United Kingdom. All Shareholders (including
without limitation, nominees, trustees or custodians) who would, or otherwise intend to, forward the Circular and its accompanying documents
to any jurisdiction outside the United Kingdom, should seek appropriate authority and advice before taking any action.
Regulatory approvals
Argo Capital Management Limited is authorised to undertake its business by the FSA and Argo Capital Management (Cyprus) Limited is
authorised to undertake its business by the Cyprus SEC. The requisite approvals have been granted by both the FSA and the Cyprus SEC in
respect of both a pre-Distribution reorganisation of the Argo Companies (so that they all became wholly owned Subsidiaries of NewCo) and the
Distribution.
Current trading and outlook
Absolute Capital's estimated assets under management (excluding the Argo Funds) as at 30 April 2008 stood at in excess of an estimated
EUR700 million, comprising approximately EUR529 million in its funds' core portfolios and approximately EUR177 million in its funds' side
pocket portfolios.
The Directors expect that Absolute Capital's fee revenue will be adequate to enable it to execute its business plan and to meet its
working capital requirements for 2008. The majority of its funds have restrictions on redemptions until November 2008. Absolute Capital's
ability to retain and grow assets under management beyond November 2008 will depend largely on the performance of its funds through the end
of the third quarter of 2008.
Going forward, the Company plans to refocus on its core expertise of managing European long-short equity funds through research-driven
trading strategies. Since January 2008, the Company has begun the process of shifting its funds' investment mandates to focus on mid and
large cap trading strategies. The Company has also begun the process of improving its risk management and trading support systems with a
view to improving the quality and timeliness of its investor reporting.
It is expected that Absolute Capital will, in its accounts for the financial year ended 31 December 2007, write down the value of Argo
in its balance sheet to approximately EUR21 million, representing the fair value of Argo at that date, which amount is subject to audit.
That write down from its unaudited book value of approximately EUR75.4 million as at 30 June 2007 will have an impact upon the profit and
loss account of Absolute Capital for the financial year ended 31 December 2007.
As at 1 May 2008, the Company and its subsidiaries (but excluding Argo) held cash of approximately EUR4.5 million and investments of
approximately EUR2.9 million (representing seed capital invested in the Absolute Activist Value Fund and the Absolute India Fund).
The Argo Funds, which have achieved double digit annualised returns since their inception, continue to perform well. The funds, which
use little or no leverage, have not been materially affected by the market dislocation and the directors of Argo expect the Argo Funds to
continue to perform well.
Given Argo's experience and track record in distressed investing, both The Argo Fund Limited and the Argo Global Special Situations Fund
are positioning themselves to take advantage of the growing number of distressed debt opportunities resulting from the credit crisis.
Argo fully intends to capitalise on these new trading opportunities and is increasing capacity to cater for new demand. Consequently,
between 10 per cent. and 20 per cent. of each portfolio is currently held in cash, giving the Argo Funds the flexibility and speed to
respond to opportunities created by the credit market fallout.
Argo is also in the process of launching a multi-strategy fund which will allow investors to access all the Argo Funds, including any
new funds Argo might launch in the future. The Argo Multi Strategy Fund aims to achieve above average returns on a risk adjusted basis and
will invest substantially all of its assets in, and become a shareholder of The Argo Fund Limited, Argo Global Special Situations Fund, the
Argo Real Estate Opportunities Fund Limited and Argo Capital Partners Fund.
Strategy of the Company following the Distribution
Absolute Capital will continue to streamline its operations and seek cost reductions where practical. The Company has recently wound
down the operations of Absolute Capital Management (Spain) S.L., and now operates from its offices in Zug, Switzerland and Grand Cayman,
Cayman Islands.
The Company has recently recruited two investment professionals (a portfolio adviser and a trader) to replenish staff numbers, and it
will continue to seek to recruit additional high calibre fund management professionals.
Since September 2007 the Company has been focused on stabilising its operations and implementing changes to management personnel,
investment management and risk policies, fund administration, financial reporting and external audit. The Company expects that with these
tasks nearing completion, it will resume marketing its funds with a view to re-growing assets under management. The Company will continue to
source marketing and capital introduction services from Argo Investor Services Limited and from its own network of third party capital
introduction agents and may use its quoted shares to attract new fund managers or fund management businesses with existing assets under
management.
Investigation of investment strategies
As announced by Absolute Capital on 6 November 2007, PricewaterhouseCoopers ("PwC") and Berwin Leighton Paisner ("BLP") have each been
instructed to undertake a review of the investment strategies of the Absolute Funds under Florian Homm's management (the former chief
investment officer for the Absolute Funds). PwC's forensic investigation is currently underway and, following the conclusion of such
investigation, BLP will undertake a further investigation to ascertain whether and to what extent (if any) such investment strategies were
in breach of the investment restrictions pertaining to the Absolute Funds. Dependent on the conclusions of such reviews and the resultant
reports it is possible that adversely affected parties may consider and/or commence litigation against Absolute Capital and that Absolute
Capital may commence litigation against third parties. The Company has not received any notice of any claims with regard to such investment
strategies at the date of this document.
EGM
The notice convening the Extraordinary General Meeting of ACMH for 13 June 2008, is set out in the Circular. At that meeting,
shareholder approval will be sought for the Distribution and other related proposals. If approved by Shareholders, it is expected the
Distribution will become effective on 13 June 2008.
Board recommendation
The Board considers the passing of the Resolutions to be in the best interests of Absolute Capital and its Shareholders. Accordingly,
your Directors unanimously recommend that Shareholders vote in favour of the Resolutions as they intend to do in respect of their own
beneficial holdings of Absolute Ordinary Shares which represent approximately 33 per cent. of Absolute Capital's existing issued share
capital.
Information on the Argo Business
Argo, which employs around 45 staff, is focused on generating absolute returns through the management of four funds investing in
emerging market fixed income credit products, distressed debt, special situations, private equity and real estate. Argo has a consistent
performance record dating back to 2000 and has won multiple awards during that period.
Funds managed by Argo
The Argo Fund Limited invests globally in emerging markets. Investments are made on a relative-value basis across the whole spectrum of
credit products including distressed debt, bank loans and Eurobonds as well as local currency and interest rates in order to maximise the
total return in a diversified sovereign and corporate fixed-income portfolio. The strategy takes an active long/short approach to reduce
volatility. The Argo Fund Limited also invests in distressed debt/special situations where prices may become depressed due to market
sentiment and is experienced in taking positions in corporate and sovereign restructurings using a deep value bottom up approach. In 2004
The Argo Fund Limited was voted by "Hedge Fund Review" as the "Best Performing Single Manager Fund" on a "Risk Adjusted Basis" over three
years. As at 31 March 2008, The Argo Fund Limited had assets of US$414.7 million.
The Argo Global Special Situations Fund is strategy specific and not bound by geography, although the majority of its portfolio is in
emerging markets. It adopts a multi-strategy approach to exploit situations resulting from credit events including credit rating movements,
sovereign defaults, devaluations, regulatory shifts and resulting balance sheet pressures and financial restructurings. The result is
valuations which overstate risks and market inefficiencies that create long only, arbitrage or relative value opportunities. The Argo
Special Situations Fund has a substantial emerging markets equity component and has been short-listed by the Eurohedge Awards over the last
two years in the high yield and distressed categories. As at 31 March 2008, Argo Global Special Situations Fund had assets of US$330.2
million.
The Argo Capital Partners Fund aims to capture special situations where a 2 to 3 year investment horizon is required. The Argo Capital
Partners Fund's policy is to manage a portfolio of instruments carrying equity risk and returns, including ordinary and preference stock,
stock options, mezzanine loans with warrants, pay-in-kind notes and convertible debt, and shareholder loans. The Argo Capital Partners
Fund's investment approach is to invest globally seeking to exploit specific sector themes through private equity type of engagement. The
Argo Capital Partners Fund seeks to acquire controlling stakes or minority stakes with enhanced voting protections in companies. The
investment opportunities may arise from partnerships with local entrepreneurs seeking growth capital or through the development and
acquisition of businesses on a sector basis. The Argo Capital Partners Fund seeks to pursue the following investment themes: (a) work-out of
non-performing loans; (b) securitisation of performing loans; (c) real estate asset-backed transactions; (d) debt equity swaps with active strategic and financial shareholder involvement; and (e) traditional
private equity. The Argo Capital Partners Fund has substantially completed its investment programme and is closed to new subscriptions. As
at 31 March 2008, The Argo Capital Partners Fund had assets of US$54.0 million and, in addition, assets of EUR45.1 million. It is envisaged
that Argo will establish further Argo private equity funds with substantially similar investment objectives.
In July 2007, the Group acquired North Asset Management's interest in the management contract of the North Real Estate Opportunities
Fund Limited, a closed-end property investment company quoted on AIM which raised EUR100 million at IPO in August 2006 and which has since
substantially committed its IPO proceeds to property investments in Romania, Ukraine and Moldova. This fund is now called the Argo Real
Estate Opportunities Fund Limited.
TIMETABLE
Latest time for receipt of 5.00 p.m. (UK time) on 11
Forms of Proxy for the June 2008
Extraordinary General Meeting
Extraordinary General Meeting 11.00 a.m. (Cayman Islands
time) on 13 June 2008
Record Date for participation 5.00 p.m. (UK time) on 13
in the Distribution June 2008
Distribution Effective Date 13 June 2008
CREST accounts credited in 16 June 2008
respect of NewCo Ordinary
Shares
Certificates in respect of by 27 June 2008
NewCo Ordinary Shares
despatched
DEFINITIONS
"Absolute Ordinary Shares" ordinary shares of EUR0.01 each in the
capital of Absolute Capital
"Argo Business" the business conducted by the Argo Companies
of managing the Argo Funds
"Argo Companies" Argo Capital Management (Asia) Pte Limited,
Argo Capital Management (Cyprus) Limited,
Argo Capital Management Limited, Argo Capital
Management Property Limited and Argo Investor
Services Limited
"Argo Funds" Argo Global Special Situations Fund, Argo
Capital Partners Fund Limited, The Argo Fund
Limited and Argo Real Estate Opportunities
Fund Limited
"Circular" the circular to be posted to Shareholders
today in connection with the Distribution
"Cyprus SEC" the Cyprus Securities and Exchange Commission
"Distribution" the proposed distribution of the Argo
Business, by Absolute Capital by way of a
distribution of capital, the details of which
are set out in the Circular
"Distribution Agreement" the agreement dated 14 May 2008 between
Absolute Capital and NewCo pursuant to which
the parties agreed to effect a number of
matters in relation to the Distribution
"Distribution Effective Date" the date on which the Distribution becomes
effective which, if approved, will be the
date upon which the necessary Shareholder
resolutions are passed at the Extraordinary
General Meeting on 13 June 2008
"FSA" the UK Financial Services Authority
"NewCo" Argo Group Limited
"NewCo Ordinary Shares" ordinary shares of USD$0.01 each in the
capital of NewCo
"Record Date" the record date for receipt of the
Distribution and participation in the
Distribution being 5.00 p.m. (UK time) on 13
June 2008
"Securities Act" the US Securities Act of 1933 (as amended)
"Shareholder" a holder of Absolute Ordinary Shares
This information is provided by RNS
The company news service from the London Stock Exchange
END
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