Polygon Glbl Prtnrs - Offer Update
RNS Number : 4445J
Polygon Global Partners LLP
23 August 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 SUCH JURISDICTION

 

FOR IMMEDIATE RELEASE

 

23 August 2021

 

MANDATORY CASH OFFER

BY

POLYGON GLOBAL PARTNERS LLP

 

TO ACQUIRE THE ENTIRE ISSUED SHARE CAPITAL OF

WATCHSTONE GROUP PLC

 

other than those Watchstone Shares already owned by Polygon

through the Polygon Funds

 

 

 

ANNOUNCEMENT OF ACCEPTANCE LEVELS, FURTHER EXTENSION OF OFFER, AND RESPONSE TO WATCHSTONE

 

·          The Offer is being extended until 1:00 p.m. (London time) on 31 August 2021

 

·          The Offer provides a clear, immediate, cash reward for Watchstone Shareholders in contrast to a uncertain, future, possible return depending on a number of external factors and risks

 

·          Watchstone Shareholders are unlikely to realise value in the short to medium term in excess of the offer price of 34p per Watchstone Share, absent any other offer and in view of the limited liquidity in trading of Watchstone Shares. Polygon already owns 30% of Watchstone and does not expect to accept any other offer to acquire Watchstone

 

·          Watchstone Shareholders are encouraged to read this announcement in full, particularly the section headed 'Response Circular and Half-Year Report', in which Polygon addresses and rebuts certain statements made by Watchstone regarding the Offer which Polygon believes are misleading

 

 

Summary

 

On 1 July 2021 Polygon Global Partners LLP ("Polygon") announced the terms of a mandatory cash offer (the "Offer") pursuant to which Polygon (through the Polygon Funds) will offer to acquire the entire issued and to be issued share capital of Watchstone Group plc ("Watchstone") (in which Polygon (or any persons acting in concert with it) is not already interested) at a price of 34 pence per Watchstone Share (the "2.7 Announcement").

 

The full terms of, and conditions to, the Offer and the procedures for acceptance are set out in the offer document, which was posted to Watchstone Shareholders on 16 July 2021 (the "Offer Document").

 

On 9 August 2021 Polygon announced that the Offer was being extended on the same terms and conditions as set out in the Offer Document so that it would remain open for acceptance until 1:00 p.m. (London time) on 20 August 2021 (the "Second Closing Date").

 

Terms used but not defined in this Announcement have the same meanings as in the Offer Document.

 

Response Circular and Half-Year Report

 

Polygon notes the circular published by Watchstone responding to the Offer ("Response Circular") dated 23 July 2021, and Watchstone's announcement of its Half-Year Report for the 6 months ended 30 June 2021 ("Half-Year Report").

Polygon believes that certain contentions made by the Watchstone Board are inaccurate and potentially misleading for Watchstone Shareholders in assessing the merits of the Offer.

1.     The Offer values the entire issued share capital higher than the net assets and cash of Watchstone as of 30 June 2021

 

Watchstone contend in the Response Circular that the Offer value is below the aggregate value of Watchstone's cash and net assets as of 31 December 2020. Polygon notes that this is no longer accurate or relevant as of 30 June 2021. Cash and net assets as of 30 June 2021 have declined to £15.4m and £14.3m respectively, as set out in the Half-Year Report.1 

The Offer values the entire issued share capital of Watchstone at £15.7 million which is higher than both the net assets and the cash of the Group as of 30 June 20212. The contention in this regard by the Watchstone Board is no longer relevant and may be misleading to Watchstone Shareholders.

Polygon notes that the price of a Watchstone Share, prior to the announcement by Polygon of its firm intention to make the Offer, was in a period of decline (for example, the price of a Watchstone Share was 58 pence on 4 January 2021, being the first business day of the calendar year). There can be no certainty that the price of a Watchstone Share will remain at current levels in the absence of the Offer.

Polygon also invites Watchstone Shareholders to consider the liquidity opportunity that the Offer represents as against the modest trading volumes of Watchstone Shares in recent months, and without dealing costs. Polygon is not aware of any other offer for Watchstone and has no reason to believe that any offer is forthcoming, especially given Polygon's substantial shareholding in the Company and that Polygon does not expect to accept any other offer for the Company.

2.     There can be no certainty as to the outcome, timing or valuation of Watchstone's contingent assets

 

Polygon believes that Watchstone Shareholders should carefully consider the value that can be attributed to these contingent assets, which largely comprise litigation claims.

In particular, Polygon is mindful that: (i) there is no indication that these claims will be resolved in the short to medium term; (ii) there is no certainty that they will be resolved in Watchstone's favour; (iii) there is no certainty as to the cash inflow, if any, from these cases to Watchstone; and (iv) Watchstone's cash and net assets will likely decline until they are resolved.

Watchstone has active legal claims against PricewaterhouseCoopers LLP ("PWC") which is not expected by Watchstone to go to trial before 2023 and Aviva Canada Inc which is still ongoing after 4 years and with no public indication of either a resolution or its timing3. Watchstone state that they have only done preliminary work with regard to an action against KPMG LLP ("KPMG") which may be filed by the end of this year, and on the assumption that KPMG defends this action, it is unlikely such claim will be resolved prior to the PWC claim.

Full and final resolution of the claims is therefore expected to take a significant amount of time, with uncertain prospects of success.

3.   Polygon believes that Watchstone's cash and net assets of are likely to decline materially by the end of 2023.

Polygon estimates that the current cash burn (excluding legal costs) is no less than £2m per year. This is borne out by the decrease in cash in the 6 months to 30 June 2021 as confirmed by the Interim Accounts (a decline in cash over that period of £2.4m and in net assets of £1.7m).4

The Group's net assets do not take into account any provision for legal costs which Polygon believe are likely to be significant, and Polygon expects these costs to increase as the PWC claim proceeds to trial and the KPMG claim is progressed.

4.   Polygon believes that the Offer Price is highly compelling as compared to the expected decline in the net asset value per Watchstone Share over coming years, and confirms that the Offer does recognize value for such contingent litigation assets

 

The Watchstone Board aims to return further cash sums to Watchstone Shareholders in due course. Polygon, for the reasons set out above, take a cautious view in this regard and believe that the Offer Price represents a compelling proposition as compared to the net asset value per Watchstone Share which is expected to decline in coming years.

The Watchstone Board states that the Offer does not recognise any value for the Group's contingent litigation assets. Polygon responds that this is incorrect as:

 

·          Watchstone reported cash of £14.3 million (which had reduced to £14.1 million by 13 August 2021)1 and net assets of £15.4m as of 30 June 20215.

 

·          By way of illustration, and assuming a continuing decline in net assets and cash of £2m per year (on the basis described in paragraph 3 above) until 31 December 2023 (on the assumption that the contingent assets have not been realised by such date) and no other changes, Watchstone would report net assets of £10.4m and cash of £9.3m as of 31 December 2023.7

 

·          This infers a net asset value per Watchstone Share of 22.6p8 as compared to the Offer Price of 34 pence, with the balance representing the value of the contingent assets. 

 

In the event of any delay in the realisation of Watchstone's legal claims beyond 2023, Polygon anticipates that the value of the Group's net assets would continue to further decline, and the implied value of the Offer with respect to the contingent assets of the Group accordingly to continue to increase.

Watchstone Shareholders are urged to consider what discount factor and other consideration to apply in assessing the value today and potential for capital returns of a Watchstone Share.

 

 

Further Extension of the Offer and action to be taken by Watchstone Shareholders

 

The Offer, which remains subject to the terms and conditions set out in the Offer Document, is being further extended and will remain open for acceptance until 1:00 p.m. (London time) on 31 August 2021 (the "Third Closing Date").

 

Should there be any further extension of the Offer, this will be publicly announced by no later than 8:00 a.m. (London time) on the Business Day following the day on which the Offer is due to expire, or such later time or date as the Panel may agree.

 

Watchstone Shareholders who have not yet accepted the Offer and who wish to do so should take action to accept the Offer as soon as possible. Details of the procedure for doing so are set out under the heading "Procedure for acceptance of the Offer" below and in the Offer Document.

 

Level of acceptances and interests in Watchstone Shares

 

As at 1:00 p.m. (London time) on 20 August 2021, being the Second Closing Date of the Offer, Polygon had received valid acceptances in respect of a total of 560,550 Watchstone Shares, representing approximately 1.21 per cent. of the issued share capital of Watchstone. So far as Polygon is aware, none of these acceptances have been received from persons acting in concert with Polygon.

 

As at the close of business in London on 20 August 2021 (being the latest practicable time and date prior to the date of this Announcement), neither Polygon nor, so far as Polygon is aware, any person acting in concert with Polygon:

 

·            has any interest in, or right to subscribe in respect of, or any short position in relation to Watchstone relevant securities, including any short position under a derivative, any agreement to sell or any delivery obligation or right to require another person to take delivery of Watchstone relevant securities;

 

·            has any outstanding irrevocable commitment or letter of intent with respect to Watchstone relevant securities;

 

·            has borrowed or lent any Watchstone relevant securities (including any financial collateral arrangements), save for any borrowed shares which have been either on-lent or sold,

 

save for the following Watchstone relevant securities held by Polygon and persons acting in concert with Polygon:

 

Name

Watchstone Shares

Percentage of
Watchstone Shares

Polygon (through the Polygon Funds)

 

13,811,500

30.00%

W.H. Ireland[1]

7,621

0.02%

TOTAL

13,819,121

30.02%

Accordingly, as at 1.00 p.m. on 20 August 2021, Polygon had received acceptances in respect of Watchstone Shares which, together with Watchstone Shares acquired before or during the Offer, result in Polygon and any person acting in concert with it holding 14,379,671 Watchstone Shares, representing 31.23 per cent. of Watchstone's issued share capital, all of which may count towards satisfaction of the Acceptance Condition to the Offer.

 

The percentages of Watchstone Shares referred to in this section are based upon a figure of 46,038,333 Watchstone Shares in issue as at the close of business in London on 20 August 2021 (being the latest practicable time and date prior to the date of this Announcement).

 

 

Procedure for acceptance of the Offer

 

Watchstone Shareholders who have not yet accepted the Offer are urged to do so as soon as possible in accordance with the following deadlines and procedures:

 

·            Acceptances of the Offer in respect of certificated Watchstone Shares should be made by completing and returning the Form of Acceptance (along with the relevant share certificate(s) and/or other appropriate documents of title) using the first class reply-paid envelope (for use within the United Kingdom only) enclosed with the Offer Document and Form of Acceptance as soon as possible and, in any event, by no later than 1:00 p.m. (London time) on 31 August 2021.

 

·            Acceptances of the Offer in respect of uncertificated Watchstone Shares should be made electronically through CREST so that the TTE Instruction settles as soon as possible and, in any event, by no later than 1:00 p.m. (London time) on 31 August 2021.

 

Full details on how to accept the Offer are set out in Part C and Part D of Appendix 1 of the Offer Document and, in respect of certificated Watchstone Shares, as further described in the Form of Acceptance. The Offer Document and Form of Acceptance are available on Polygon's website at https://www.polygoninv.com/uk-regulatory-disclosures/ and on Watchstone's website at https://www.watchstonegroup.com/investors/shareholder-information/.

 

If you require assistance, please telephone the Receiving Agent on 0370 707 4040 (if calling from within the UK) or +44 370 707 4040 (if calling from outside the UK) between 9:00 a.m. to 5:00 p.m. (London time) Monday to Friday.

 

Enquiries

 

finnCap (Financial Adviser to Polygon)

 

Henrik Persson, Kate Bannatyne and Tim Harper                                

 

Tel: (+44) 020 7220 0500

Important notices about financial advisers

 

finnCap, which is authorised and regulated in the United Kingdom by the FCA, is acting as financial adviser to Polygon and for no one else in connection with the Offer and will not be responsible to anyone other than Polygon for providing the protections afforded to its clients nor for providing advice in relation to the Offer or any other matters referred to in this Announcement.

 

This Announcement is for information purposes only and is not intended to and does not constitute, or form part of, an offer to sell or an invitation to purchase any securities or a solicitation of an offer to buy, otherwise acquire, subscribe for, sell or otherwise dispose of any securities pursuant to the Offer or otherwise, nor shall there be any purchase, sale, issuance or exchange of securities or such solicitation in any jurisdiction in which such offer, solicitation, sale issuance or exchange is unlawful. The Offer is made solely by means of the Offer Document, which contains the full terms of the Offer. Any decision or acceptance in relation to the Offer should be made only on the basis of the information contained in the Offer Document and such Form of Acceptance (if applicable). Watchstone Shareholders are advised to read the Offer Document and Form of Acceptance (if applicable) carefully.

 

Overseas jurisdictions

The release, publication or distribution of this Announcement in jurisdictions other than the United Kingdom may be restricted by the laws of those jurisdictions and therefore persons into whose possession this Announcement comes should inform themselves about and observe such restrictions.  Further details in relation to the Overseas Shareholders are contained in the Offer Document.  Any failure to comply with any such restrictions may constitute a violation of the securities laws of any such jurisdiction.  To the fullest extent permitted by applicable law, the companies and persons involved in the Offer disclaim any responsibility or liability for the violation of such restrictions by any person.

Unless otherwise determined by Polygon or required by the Takeover Code, and permitted by applicable law and regulation, the Offer will not be made available, directly or indirectly, in, into or from a Restricted Jurisdiction where to do so would violate the laws in that jurisdiction.  Accordingly, copies of this Announcement and all documents relating to the Offer are not being, and must not be, directly or indirectly, mailed or otherwise forwarded, distributed or sent in, into or from a Restricted Jurisdiction where to do so would violate the laws in that jurisdiction, and persons receiving this Announcement and all documents relating to the Offer (including custodians, nominees and trustees) must not mail or otherwise distribute or send them in, into or from such jurisdictions where to do so would violate the laws in that jurisdiction.

The availability of the Offer to Watchstone Shareholders who are not resident in the United Kingdom may be affected by the laws of the relevant jurisdictions in which they are resident.  Persons who are not resident in the United Kingdom should inform themselves of, and observe, any applicable requirements.

The Offer shall be subject to the applicable requirements of the Takeover Code, the Panel, the London Stock Exchange, the Financial Conduct Authority, the AQSE Growth Market and AIM Rules.

Forward-looking statements

This Announcement (including information incorporated by reference in this Announcement), oral statements made regarding the Offer, and other information published by Polygon contains statements about Polygon, the Polygon Funds and Watchstone that are or may be deemed to be forward looking statements.  All statements other than statements of historical facts included in this Announcement may be forward looking statements.  Without limitation, any statements preceded or followed by or that include the words "targets", "plans", "believes", "expects", "aims", "intends", "will", "may", "anticipates", "estimates", "projects" or words or terms of similar substance or the negative thereof, are forward looking statements.  Forward looking statements include statements relating to the following: (i) future capital expenditures, expenses, revenues, earnings, economic performance, indebtedness, financial condition, dividend policy, losses and future prospects; (ii) business and management strategies and the expansion and growth of Polygon, the  Polygon Funds', or Watchstone's operations resulting from the Offer; and (iii) the effects of government regulation on Polygon, the Polygon Funds' or Watchstone's business.

These forward-looking statements are not guarantees of future performance.  Such forward-looking statements involve known and unknown risks and uncertainties that could significantly affect expected results and are based on certain key assumptions.  Many factors could cause actual results to differ materially from those projected or implied in any forward-looking statements.  These factors include, but are not limited to, the satisfaction of the conditions to the Offer, as well as additional factors, such as changes in political and economic conditions, changes in the level of capital investment, retention of key employees, success of business and operating initiatives, impact of any acquisitions or similar transactions, changes in the regulatory environment, fluctuations of interest and exchange rates.  Due to such uncertainties and risks, readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date of this Announcement.  All subsequent oral or written forward-looking statements attributable to Polygon or the Polygon Funds or any of its respective members, directors, officers or employees or any persons acting on their behalf are expressly qualified in their entirety by the cautionary statement above.  Polygon disclaims any obligation to update any forward-looking or other statements contained in this Announcement, except as required by applicable law.

Dealing disclosure requirements of the Takeover Code

Under Rule 8.3(a) of the Takeover Code, any person who is interested in 1% 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% 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.

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).

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.

Publication of this Announcement on website

A copy of this Announcement will be available, free of charge, subject to certain restrictions relating to persons resident in Restricted Jurisdictions, on Polygon's website at https://www.polygoninv.com/uk-regulatory-disclosures/ by no later than 12:00 p.m. on the Business Day following this Announcement.

For the avoidance of doubt, the contents of these websites and any websites accessible from hyperlinks on these websites are not incorporated into and do not form part of this Announcement.

Right to receive documents in hard copy form

Any person entitled to receive a copy of documents, announcements and information relating to the Offer is entitled to receive such documents in hard copy form free of charge.  A person may also request that all future documents, announcements and information in relation to the Offer are sent to them in hard copy form.

A hard copy of this Announcement may be requested by contacting finnCap Ltd at (+44) 020 7220 0500.

 

Appendix

Sources of Information and Bases of Calculation

1.   Watchstone company information, "Half-year Report" RNS Announcement dated 16 August 2021, section entitled "Financial Update".

2.   Value of the Offer calculated by reference to an Offer Price of 34 pence per Watchstone Share multipled by 46,038,333 Watchstone Shares in issue

3.   Watchstone company information, "Half-year Report" RNS Announcement dated 16 August 2021, "Business review and legal update".

4.   Watchstone company information, "Half-year Report" RNS Announcement dated 16 August 2021, "Financial Update" setting out a decline during the half year to 30 June 2021 in cash of £2.4m and that legal costs of £0.6m were incurred in that half year period. It is on the basis of these half year figures that Polygon estimate that "current cash burn (excluding legal costs) is no less than £2m per year".

5.   Watchstone company information, "Half-year Report" RNS Announcement dated 16 August 2021, "Condensed Consolidated Statement of Financial Position".

6.   Watchstone company information, "Half-year Report" RNS Announcement dated 16 August 2021, "Financial Update".

7.   Based on Polygon's assumption of a £2m annual decline in net assets and cash (as set out above), for the period from 1 July 2021 to 31 December 2023, resulting in a total reduction of £5m to each of net assets and cash from their respective values as at 30 June 2021.

8.   Net assets of £10.4m divided by the 46,038,333 Watchstone Shares in issue resulting in a net asset value per Watchstone Share equal to 22.6p.

 

 

[1]   [1] Holding of Watchstone Shares immediately prior to date of the 2.7 Announcement and as at the close of business in London on 20 August 2021 (being the latest practicable time and date prior to the date of this Announcement) in its capacity as a market-maker.

 

 

 

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