19 May 2014

 

PROPOSED SHARE CAPITAL REORGANISATION

 

·      Further to the announcement on 25 September 2013 in which the Board of Directors of Shepherd Neame Limited (the "Company") stated that it would be undertaking a review to assess the impact of the Company's share capital structure on share liquidity, the Board today announces that it is proposing a simplification of the share capital structure of the Company ("Share Capital Reorganisation").  This will result in the Company having a single class of Ordinary Shares in issue

 

·      Issued 'A' Shares and 'B' Shares to be converted into a single class of Ordinary Shares

 

·      11,457,500 issued 'A' Shares of £1.00 nominal value and 68,000,000 issued 'B' Shares of 2 pence nominal value to be converted into 14,857,000 issued Ordinary Shares of 50 pence nominal value

•       Each 'A' Shareholder will receive 1 Ordinary Share of 50 pence nominal value for each 'A' Share of £1.00 nominal value

•       Each 'B' Shareholder will receive 1 Ordinary Share of 50 pence nominal value for 20 'B' Shares of 2 pence nominal value; equivalent to a 2.5 times premium

 

·      Economic and voting rights of all Shareholders to be re-aligned

 

·      Shepherd Neame will remain a private limited company; Family Members, Directors and employees' aggregate beneficial interest immediately post the Share Capital Reorganisation will be approximately 54% of the issued share capital and votes

 

·      Board intends to grow the dividend rate payable to all Shareholders with a view to a target dividend cover in the region of 2 times basic earnings per share pre-exceptional items in the medium term

 

·      Ordinary Shares will trade on the ISDX Growth Market and will be fully transferable

 

·      The Board has received irrevocable undertakings to vote in favour of the Resolutions from Shareholders holding, in aggregate, 2,812,760 'A' Shares (representing 24.6 per cent. of the issued 'A' Shares and 3.5 per cent. of the total voting rights) and 44,958,042 'B' Shares (representing 66.1 per cent. of the issued 'B' Shares and 56.6 per cent. of the total voting rights), together representing 29.0 per cent. of the total issued share capital and 60.1 per cent. of the total voting rights of the Company.  The Board has also received a letter of intent to vote in favour of the Resolutions in respect of 183,355 'A' Shares, representing 1.6 per cent. of the total 'A' Shares, 1.4 per cent. of the total issued share capital and 0.2 per cent. of the total voting rights of the Company.

 

·      A Circular to the Company's shareholders will be posted today and will shortly be available at www.shepherdneame.co.uk/investor-relations/general-meetings along with a copy of the proposed New Articles.

 

Commenting on today's announcement, Chairman Miles Templeman said:

 

"Shepherd Neame is a highly successful family business with a proud heritage, a clear strategy and a bright future.

 

Over the last few years, the Board has taken some important steps to enhance its business with the acquisition of some excellent pubs and hotels, modernisation of the brewery and strengthening of our brand portfolio, as well as a Business and Board reorganisation to give clear focus to this strategic development and drive higher performance out of existing assets. The Board believes it is well placed to deliver on its objectives and drive future value for Shareholders.

 

Following extensive consultation with our Shareholders we have concluded that now is an appropriate time to simplify our governance and share capital structure and to re-align the voting and economic rights of 'A' and 'B' Shareholders.

 

We will continue as a private limited family company with our shares traded on the ISDX Growth Market as a low cost dealing facility and with considerable tax advantages.

 

We believe this proposal is in the interests of all Shareholders."

 

Expected timetable of events

        ·      Latest time and date for receipt of Form(s) of Proxy:
       o  For the General Meeting: 12 noon on 3 June 2014
       o  For the Class Meeting of 'A' Shareholders: 12.15 p.m. on 3 June 2014

          o  For the Class Meeting of 'B' Shareholders: 12.20 p.m. on 3 June 2014

        ·      General Meeting: 12 noon on 5 June 2014

        ·      Class Meeting of 'A' Shareholders: 12.15 p.m. on 5 June 2014

        ·      Class Meeting of 'B' Shareholders: 12.20 p.m. on 5 June 2014

        ·      Record Date: 6.00 p.m. on 6 June 2014

        ·      Admission and first day of dealings in Ordinary Shares: 9 June 2014

        ·      Date on which existing share certificates become void: 9 June 2014

        ·      CREST accounts credited with Ordinary Shares: 9 June 2014

        ·      Date for dispatch of new share certificates in respect of Ordinary Shares: by 11 June 2014

 

Enquiries

Shepherd Neame Jonathan Neame Mark Rider Miles Templeman	+44 (0) 1795 532 206
J.P. Morgan Cazenove James Mitford Kunal Ranpara	+44 (0) 207 742 7000

Media Enquiries

Kreab Gavin Anderson Marc Cohen Christina Clark

+44 (0) 207 074 1800

 

 

1.           Introduction

In 2014 Shepherd Neame celebrates its 100th AGM since incorporation. Shepherd Neame is Britain's Oldest Brewer and a family business with a proud heritage and clear strategy for the future.  The last few years have seen the Company take important steps to enhance its business with the acquisition of some excellent pubs and hotels, transformational developments of many of our key sites, modernisation of the brewery and strengthening of our brand portfolio.  These strategic developments have resulted in a strong trading performance in the current year to date and will, we believe, drive higher returns for the Company in the future.

Over the past year, your Board has carried out a business and Board reorganisation as referenced in the 2013 Annual and Interim Reports and, as announced on 25 September 2013, has also been conducting a review to assess the impact of the Company's capital structure on share liquidity.

In addition to the measures we have taken to strengthen the business further, we believe now is the time to modernise our capital structure.  In August 2013 the 'A' Shares qualified for ISA Investment and in September 2013 the 'A' Shares were admitted to the CREST trading platform, with your Board passing a Resolution to remove the minimum 'A' shareholding qualification.  Your Board is also pleased to note a further important step with the establishment of a Family Council, which allows for regular engagement and clearer communication with Family Members.

 

Following its review, your Board is proposing a simplification of the share capital structure of the Company that will result in the Company having a single class of Ordinary Shares in issue.

 

Under the Share Capital Reorganisation:

 

·      each 'A' Shareholder will receive 1 Ordinary Share of 50 pence nominal value for each 'A' Share of £1.00 nominal value; and

·      each 'B' Shareholder will receive 1 Ordinary Share of 50 pence nominal value for every 20 'B' Shares of 2 pence nominal value.

 

This will result in the 11,457,500 issued 'A' Shares (each of £1.00 nominal value) and the 68,000,000 issued 'B' Shares (each of 2 pence nominal value) being converted into 14,857,500 issued Ordinary Shares (each of 50 pence nominal value). 

The Company will remain a private limited company, but the Share Capital Reorganisation will re-align the voting and economic rights of the Company. Immediately following the Share Capital Reorganisation, the Directors believe that the Family Members, Directors and employees will hold an aggregate beneficial interest of approximately 54 per cent. of both the issued share capital (increasing from approximately 47 per cent. prior to the Share Capital Reorganisation) and the votes (decreasing from approximately 91 per cent. prior to the Share Capital Reorganisation).

The Ordinary Shares will be admitted to trading on the ISDX Growth Market (where the 'A' Shares are currently traded), will be admitted to CREST and will be fully paid, rank pari passu and be freely transferable.  Your Board believes that the ISDX Growth Market, as a low cost dealing service offering ISA investment eligibility and inheritance tax relief, provides significant benefits to the Shareholders.  Additionally, the government has announced relief from stamp duty and stamp duty reserve tax on transactions in securities admitted to trading on the ISDX Growth Market, with effect from 28 April 2014, although the legislation implementing this measure is not expected to receive Royal Assent until July 2014, with the result that the availability of the relief going forward is conditional on Royal Assent occurring.  In addition, the efforts of ICAP in promoting the attractiveness of ISDX as a dealing platform and implementing a new governance structure are further reasons for continuing to trade the Company's Shares on this platform following the completion of the Share Capital Reorganisation.  However, your Board monitors the appropriateness of the ISDX Growth Market for the Company's Shares, has reviewed other trading options and will continue to do so.

This announcement explains the background to, and reasons for the Share Capital Reorganisation.  The proposed Share Capital Reorganisation requires the approval of the Shareholders at the General Meeting and the consent of the 'A' Shareholders and 'B' Shareholders at the Class Meetings, all of which are to be held on 5 June 2014.

2.           The proposed Share Capital Reorganisation

(a)        Background to and reasons for the proposed Share Capital Reorganisation

For some time, your Board has been assessing the appropriateness of the Company's capital structure against the backdrop of the Group's strategy for growing the business.  Up until 1977, the share capital of the Company comprised 'A' Shares, 'B' Shares and preference shares.  In 1977, the preference shares were converted to 'B' Shares and, since this time, the two tier share capital structure has been in place.

Following the announcement by your Board in September 2013 of its share capital structure review and on the basis of discussions with both 'A' Shareholders and 'B' Shareholders since 2012, your Board concluded that there is widespread support amongst Shareholders for a simplification of the Company's share capital structure into a single class of Ordinary Shares.

At present, the total voting rights of the current issued share capital are 79,457,500.  On the basis of one vote per 'A' or 'B' Share, as provided for by the Existing Articles, the voting rights attaching to each 'A' Share (of which there are 11,457,500 in issue, each with a nominal value of £1.00) are identical to those attaching to each 'B' Share (of which there are 68,000,000 in issue, each with a nominal value of 2 pence).  As a result, the 'A' Shares represent 89.4 per cent. of the economic interest in the share capital of the Company and hold 14.4 per cent. of the voting rights in the Company and the 'B' Shares represent 10.6 per cent. of the economic interest in the share capital of the Company and hold 85.6 per cent. of the voting rights in the Company.  The Share Capital Reorganisation will re-align the voting and economic rights of the Company, as shown below:

http://www.rns-pdf.londonstockexchange.com/rns/4121H_1-2014-5-18.pdf 

Your Board believes that the proposed Share Capital Reorganisation is in the best interests of both the 'A' Shareholders and 'B' Shareholders in the long term for the following reasons:

a)         a dual share class structure is unusual for a UK company with traded shares.  The Share Capital Reorganisation will remove this anomaly, increasing the attractiveness of the Shares to investors and potentially enhancing liquidity for all Shareholders;

 

b)         the new structure simplifies the governance into one regime;

 

c)         since recent tax changes, the 'A' Shares are eligible for ISA investment but 'B' Shares are not and so the Share Capital Reorganisation opens up that opportunity for all Shareholders;

 

d)         on a pari passu basis, the 'B' Shares trade at a variable "internal market" premium to the 'A' Shares which will be regularised by the move to a single share class; and

 

e)         the current capital structure is inflexible and restricts the free transferability of 'B' Shares, which would be removed as a result of the Share Capital Reorganisation.

 

Family Members currently own both 'A' Shares and 'B' Shares. Following the Share Capital Reorganisation, the Company will remain an independent company with strong family links and involvement as evidenced by the Family Council set up earlier this year.  In addition, for so long as Family Members hold, in aggregate, 20 per cent. or more of the issued ordinary share capital of the Company following the implementation of the Share Capital Reorganisation, it is proposed that the New Articles shall require the Company to have a minimum of three Directors who are Family Members.  Your Board will therefore continue to contain an appropriate balance of Family Members and non-Family Members. 

Your Board will continue to run the Company in the interests of Shareholders as a whole and will be focused on the objectives of an increasing underlying return on existing assets and a progressive dividend policy. 

(b)        Compensation for 'B' Shareholders: the 'B' Share Premium

A conversion of the 'B' Shares into 'A' Shares on the basis of their nominal value only would result in a significant loss of voting rights for the 'B' Shareholders.  In order to compensate the 'B' Shareholders for this loss in voting rights, they will, on completion of the Share Capital Reorganisation, receive an increased percentage in the capital of the Company by way of the Subdivision of the 'A' Shares and the Compensatory Bonus Issue, as a result of which the 'B' Shares will be valued at a premium to the 'A' Shares, with this premium being referred to as the 'B' Share Premium.  In consequence and as described above, the aggregate votes attributable to the Existing 'B' Shares will reduce from approximately 85.6 per cent. to 22.9 per cent.

 

The Board has established a committee, consisting of James Leigh-Pemberton and myself, in order to consider an appropriate level for the 'B' Share Premium.  The committee has considered a number of factors, including:

a)            the aggregate votes currently attributable to the Existing 'B' Shares with the voting control that the Existing 'B' Shares have as a result and the proportion of the capital of the Company the 'B' Shareholders should receive to compensate them for the reduction in their voting rights under the Share Capital Reorganisation;

b)            the impact of earnings dilution and dividend entitlement for the 'A' Shareholders;

c)            the historic level of the 'B' Share price and the premia at which the 'B' Shares have traded over 'A' Shares in recent years; and

d)            precedent levels from similar share capital reorganisations undertaken by other publicly traded companies.

The proposed 'B' Share Premium determined by the committee for the purposes of the Share Capital Reorganisation is 2.5 times. 

 

The proposed 'B' Share Premium of 2.5 times is within the "internal market" premium range at which the 'B' Shares have traded above the 'A' Shares in recent years.  Taking into account the earnings and dividend impacts of the Share Capital Reorganisation on 'A' Shareholders and 'B' Shareholders (details of which are set out below), the committee believes that the proposed 'B' Share Premium fairly represents the interests of all Shareholders.

(c)        Earnings and Dividends

The Share Capital Reorganisation will result in an approximate 13.8 per cent. dilution in the issued share capital of (and earnings attributable to) the 'A' Shareholders. The Share Capital Reorganisation will result in a premium of 2.5 times the earnings attributable to the 'B' Shareholders.

The total dividend payable to 'B' Shareholders will increase by 2.5 times (in line with the 'B' Share Premium and increase in the earnings attributable to the 'B' Shareholders).  Consequently, the total dividend payable by the Company to Shareholders will increase by around 16 per cent. post the Share Capital Reorganisation.  The total dividend rate payable to 'A' Shareholders will not be affected by the Share Capital Reorganisation and the new dividend rate will be determined in the usual way. 

Subject to satisfactory performance, your Board intends to continue to grow the dividend rate payable to all Shareholders and with a view to a target dividend cover in the region of 2 times basic earnings per share pre-exceptional items in the medium term.

(d)        Tax

The Company has been advised that the Share Capital Reorganisation will constitute a reorganisation of the share capital of the Company for the purposes of UK tax on chargeable gains and as such should not give rise to any occasion of charge to UK tax for Shareholders. Instead, a Shareholder's new holding of Ordinary Shares should be treated as the same asset, and with the same base cost, as the Existing 'A' Shares and/or Existing 'B' Shares (as applicable) held by such Shareholder. 

 

For the purposes of business property relief from inheritance tax, the period of ownership of a Shareholder's holding of Ordinary Shares arising as a result of the Share Capital Reorganisation should include his or her period of ownership of Existing 'A' Shares and/or Existing 'B' Shares (as applicable).

 

Any person who is in any doubt as to his or her tax position, or who is subject to taxation in any jurisdiction other than that of the UK, should consult his or her own professional advisers immediately. Shareholders' attention is drawn to Part IV of the Shareholder Circular.

(e)        Admission

The Share Capital Reorganisation will become effective on the Record Date, being 6.00 p.m. on 6 June 2014.

Admission of the Ordinary Shares to the ISDX Growth Market is expected to take place and dealings to commence on 9 June 2014.

3.           Articles of Association

Amendments will be required to the Existing Articles to reflect the fact that, following the implementation of the Share Capital Reorganisation, the 'A' Shares and 'B' Shares will be re-designated as Ordinary Shares.  In addition, the Directors consider that it is appropriate to take this opportunity to update the Existing Articles.  The Resolution to be proposed at the General Meeting will make the necessary changes by way of the adoption of the New Articles. A copy of the New Articles will be available at www.shepherdneame.co.uk/investor-relations/general-meetings

4.           Shareholder Meetings and Action to be Taken

The proposed Share Capital Reorganisation is conditional upon:

·                 Shareholders passing the Resolution to approve the Share Capital Reorganisation (including the adoption of the New Articles and the renewal of the Company's share buyback authority) at the General Meeting; and

·                 'A' Shareholders and 'B' Shareholders approving the passing of the Resolution to approve the Share Capital Reorganisation (including the adoption of the New Articles and the renewal of the Company's share buyback authority) at the Class Meetings.

The Resolution to be proposed at the General Meeting will need to be passed as a special resolution in order to approve the Share Capital Reorganisation, requiring a majority in favour of the Resolution of not less than 75 per cent. of the votes cast by Shareholders who vote in person or by proxy at the General Meeting.  Similarly, the Resolutions to be proposed at the Class Meetings will need to be passed as extraordinary resolutions, also requiring a majority in favour of the Resolutions of not less than 75 per cent. of the votes cast by 'A' or 'B' Shareholders who vote in person or by proxy.

5.           Strategy and Current Trading

Shepherd Neame is Britain's Oldest Brewer and a family business with a proud heritage.  We have a clear strategy to grow and strengthen the business further.

We aim to provide a memorable experience for our customers when they visit our unique individual pubs and hotels and drink our distinctive and celebrated beers.  In recent years, we have invested to improve the quality of our estate, the look and feel of our individual outlets and the quality of service and offer we provide to our customers and so drive footfall.  Simultaneously, we have strengthened our portfolio of beers with licensed partnerships, such as Asahi Super Dry and Samuel Adams Boston Lager, and we have invested more in marketing and increased distribution in national and international markets for our key brands, such as Spitfire, Bishops Finger and Whitstable Bay.  We are currently in the process of restructuring the Business and Board around two trading divisions (Brewing and Brands and Retail and Tenanted Pubs) to give clear focus to this strategic development and to drive higher performance out of existing assets.

We will grow the business through driving enhanced performance from existing outlets, by making individually selected high quality acquisitions of pubs and hotels, and by developing new customers and markets for our expanding portfolio of beers. 

Your Board believes that the strong asset backing of our high quality pub and hotel estate and strong cashflow ensure that the business is well placed to deliver on our strategic objectives and provide consistent dividend growth for our Shareholders over the longer term.

Please see the separate trading update published today for further details.

Further details of the Share Capital Reorganisation are provided in the Shareholder Circular. 

DEFINITIONS

 

 

In this announcement, the following definitions shall apply unless the context require otherwise:

"Admission"	admission of the Ordinary Shares to trading on the ISDX Growth Market;
"'A' Shares"	the Existing 'A' Shares or the New 'A' Shares, as the context requires;
"'A' Shareholders"	holders of 'A' Shares;
"AGM"	an annual general meeting of the Company;
"Board" or "Directors"	your Board of directors of the Company;
"Bonus Issue 'B' Shares	the new Existing 'B' Shares to be issued, credited as fully paid, pursuant to the Compensatory Bonus Issue;
"'B' Shares"	the Existing 'B' Shares or the Consolidated 'B' Shares, as the context requires;
"'B' Shareholders"	holders of 'B' Shares;
"Class Meeting of 'A' Shareholders"	the separate class meeting of 'A' Shareholders convened for 12.15 p.m. on 5 June 2014 (or as soon thereafter as the General Meeting shall have concluded or been adjourned), or any reconvened meeting following adjournment thereof;
"Class Meeting of 'B' Shareholders"	the separate class meeting of 'B' Shareholders convened for 12.20 p.m. on 5 June 2014 (or as soon thereafter as the Class Meeting of 'A' Shareholders shall have concluded or been adjourned), or any reconvened meeting following adjournment thereof;
"Class Meeting"	the Class Meeting of 'A' Shareholders and/or the Class Meeting of 'B' Shareholders, as the context requires;
"Compensatory Bonus Issue"	the proposed issue to 'B' Shareholders of the Bonus Issue 'B' Shares;
"Consolidated 'B' Shares"	following the Consolidation, the 'B' ordinary shares of 50 pence each in the capital of the Company;
"Consolidation"	the consolidation of the Existing 'B' Shares into the Consolidated 'B' Shares;
"CREST"	the system of paperless settlement of trades in listed securities and holding of uncertificated securities operated by Euroclear UK & Ireland in accordance with the CREST Regulations;
"CREST Regulations"	the Uncertificated Securities Regulations 2001 (SI 2001/3755) (as amended);
"Deferred Shares"	following the Subdivision, the deferred shares of 50 pence each in the capital of the Company;
"Existing Articles"	the articles of association of the Company as currently in force;
"Existing 'A' Shares"	'A' ordinary shares of £1.00 each in the capital of the Company;
"Existing 'B' Shares"	'B' ordinary shares of 2 pence each in the capital of the Company;
"Family Members"	direct descendants of Percy Beale Neame or spouses or adopted children of direct descendants of Percy Beale Neame or sons-in-law, daughters-in-law, fathers, mothers, brothers, sisters, nephews or nieces of the spouse of a direct descendant of Percy Beale Neame or any of their descendants;
"Form of Proxy" or "Forms of Proxy"	the white form of proxy for use in connection with the General Meeting, the yellow form of proxy for use in connection with the Class Meeting of 'A' Shareholders and/or the blue form of proxy for use in connection with the Class Meeting of 'B' Shareholders, as the context requires;
"General Meeting"	the General Meeting of the Company convened for 12 noon on 5 June 2014, or any reconvened meeting following any adjournment thereof;
"Group"	the Company and its subsidiaries;
"ISDX"	ICAP Securities & Derivatives Exchange Limited, a recognised investment exchange under section 290 of the Financial Services and Markets Act 2000 (as amended from time to time);
"ISDX Growth Market"	the primary market for unlisted securities operated by ISDX;
"New 'A' Shares"	following the Subdivision, 'A' ordinary shares of 50 pence each in the capital of the Company;
"New Articles"	the proposed new articles of association of the Company to be considered and, if thought fit, approved by Shareholders at the General Meeting;
"Ordinary Shares"	the ordinary shares of 50 pence each in the capital of the Company following the implementation of the Share Capital Reorganisation;
"Ordinary Shareholders"	holders of the Ordinary Shares;
"Record Date"	the date on which the Share Capital Reorganisation becomes effective, being 6.00 p.m. on 6 June 2014, or such later date as the Directors may determine;
"Resolution" or "Resolutions"	the resolution set out in the notice of General Meeting and/or the resolutions set out in the notices of the Class Meetings in the Shareholder Circular, as the context requires;
"Shares"     "Share Capital Reorganisation "	'A' Shares, 'B' Shares and/or Ordinary Shares, as the context requires; the proposed reorganisation of the share capital of the Company such that it has one class of identical Ordinary Shares ranking pari passu;
"Shareholder"	'A' Shareholders, 'B' Shareholders and/or Ordinary Shareholders, as the context requires;
"Shareholder Circular"       "Subdivision"	the circular to be sent today to Shareholders in connection with the Share Capital Reorganisation; the subdivision of each Existing 'A' Share into one New 'A' Share and one Deferred Share.