22nd Jan 2008 12:00
International Nuclear Solutions PLC22 January 2008 International Nuclear Solutions PLC Proposed sale of INS Innovation Limited and proposed cancellation of theadmission of INS Shares to trading on AIM 22 January 2008 Introduction International Nuclear Solutions PLC announces today that it has entered into anagreement with Babcock for the sale of INS Innovation to Babcock for a price of£39,820,027 to be satisfied in cash and the assumption by Babcock of certaindebts owed by the Company to INS Innovation on Completion, subject to approvalby Shareholders. INS Innovation is a wholly-owned subsidiary of the Company and all of theGroup's trading activities are carried on through it. Substantially all of theassets and liabilities of the Group are held by INS Innovation. The Directors estimate that the consideration (before expenses) equates to avalue of circa 63 pence per INS Share. Under the AIM Rules, the Disposal is deemed to result in a fundamental change ofbusiness for the Company and accordingly is conditional upon the approval ofShareholders. In addition, since Babcock owns approximately 68 per cent. of theissued share capital of the Company as at 21 January 2008 (being the latestpracticable date prior to the release of this announcement), the Disposal is arelated party transaction for the purposes of the AIM Rules. Under the AIMRules, the Independent Directors are required to state that they consider,having consulted with the Company's nominated adviser, that the terms of theDisposal are fair and reasonable insofar as Shareholders are concerned. The AIMRules do not prohibit Babcock from voting on the resolution to approve theDisposal at the GM and Babcock has indicated that it will vote in favour of suchresolution. As this resolution to be proposed at the GM is an ordinaryresolution if, as indicated, Babcock votes in favour of the resolution, it willbe passed. Babcock has also indicated that it will vote in favour of the otherresolution to be proposed at the GM in respect of the Cancellation. Upon Completion, the Company will not have any trading subsidiaries or anytrading businesses and will have no material assets, other than the net proceedsof the Disposal, or material liabilities other than the expenses and otherliabilities incurred in connection with the Disposal. Should the Disposal beapproved by Shareholders and completed, the Board intends to declare a SpecialDividend which is expected to be approximately 58.83 pence per INS Share whichrepresents the proceeds of the Disposal less an amount (equal to not more than6.7 per cent. of the gross proceeds of the Disposal) to be retained by theCompany to meet the ongoing costs and liabilities of the Company. The Directorsalso propose that, subject to Shareholder approval at the General Meeting, theadmission of the INS Shares to trading on AIM be cancelled. It is expected that a circular will be dispatched to Shareholders today (the "Circular"), the purpose of which will be: (i) to explain the background to theDisposal; (ii) to set out the reasons why the Board believes that the Disposalis fair and reasonable and in the best interests of the Company and itsShareholders as a whole and why the Directors are proposing that the admissionof INS Shares to trading on AIM be cancelled; and (iii) to seek Shareholderapproval for the Disposal and the Cancellation at the General Meeting. Notice of the General Meeting will be included in the Circular. The GeneralMeeting will be convened on 15 February 2008, at which a resolution will beproposed to approve the Disposal and authorise the Directors to complete theDisposal in accordance with the terms of the Sale Agreement and separately toapprove the Cancellation. Background to the Proposals Overview of the Innovations business The Company successfully completed the demerger of INS from Robotic TechnologySystems plc and was admitted to trading on AIM on 30 May 2006 with a closingshare price on that day of 36.5 pence, giving a market capitalisation of £22.8million. INS Innovation is the operating subsidiary of the Company and is a specialistprovider of nuclear engineering and consultancy services in the UK. INSInnovation is focused on providing services and solutions to the nuclearindustry from the initial front end design and development to eventualcommissioning and providing support to the customers' ongoing operations. INS Innovation operates throughout all stages of the project life cycle,providing professional engineering services for design and projectimplementation. These services include procurement, inspection and projectmanagement enabling the Company to take projects from inception through allphases of project implementation to site installation and commissioning. INS Innovation's main areas of expertise include: • support to the commercial operating facilities associated with fuel fabrication and spent fuel reprocessing activities; • waste and nuclear materials handling; • plant asset care and maintenance of redundant facilities; • new build activities covering existing facilities as well as new build required to support accelerated clean-up; • decommissioning; and • supply and integration of special purpose plant and equipment. The original Babcock offer On 18 January 2007, the Company announced that it had received a preliminarytakeover approach and on 26 January 2007 Babcock announced that it had acquired24.5 per cent. of the issued share capital of the Company from AutomatedControls Limited at 63 pence per INS Share. This represented a premium ofapproximately 46.6 per cent. to the average closing price of 43 pence per INSShare over the six month period from 18 July 2006 to 17 January 2007. On 27 March 2007, the Company reported turnover of £31.7 million (2005: £24.6million), operating profit before exceptional items of £2.5 million (2005: £2.2million) and profit before tax of £1.7 million (2005: £2.3 million) for the yearended 31 December 2006 and also reported that discussions with Babcock wereongoing. On 4 April 2007, Babcock announced a recommended offer to acquire all of the INSShares it did not already own at 63 pence per INS Share, such acquisition to beeffected by way of a Court approved scheme of arrangement, valuing the existingissued share capital of the Company at the time at approximately £39.3 million. On 14 May 2007, an extraordinary general meeting convened to approve the schemeof arrangement was adjourned as insufficient proxy votes had been received toapprove it. However, on 19 June 2007, as it had acquired or agreed to acquiremore than 30 per cent. of the Company's issued share capital, Babcock wasrequired to make a cash offer for INS at 63 pence per INS Share in accordancewith Rule 9 of the City Code. On 9 July 2007, Babcock declared such offer unconditional in all respects and on31 August 2007 announced that the offer had closed and that it had acquired orhad received valid acceptances for 63.6 per cent. of the issued share capital ofthe Company. As at the latest practicable date before the release of thisannouncement, Babcock's interest in the issued share capital of the Company hadincreased to 67.78 per cent. Because Babcock owns more than 50 per cent. of the INS Shares, the Company isnow a subsidiary of Babcock, whilst remaining a separately quoted company. Current Trading and Prospects On 20 August 2007, the Company reported turnover for the six months ended 30June 2007 of £15.7 million (2006: £12.6 million) and operating profit beforeexceptional items of £1 million (2006: £1 million). As at 30 June 2007, INSInnovation's net assets were £2.477 million and its operating profit beforeexceptional items for the six months ended 30 June 2007 was £1.032 million. The Company further reported that the order book as at 30 June 2007 wassignificantly lower than forecast at £6.4 million (30 June 2006: £11.4 million),which was a result of a slowdown in tendering and contract placement forprojects at both the Sellafield and Magnox sites and that even where contractshave been placed with the Company, either directly or as part of a consortium,projects have been slow to mobilise or have received only partial funding aspart of a phased funding approach. The Company also reported that, althoughquotation activity had increased significantly at the start of the second halfof the year, reflecting increased activity on a number of projects, the delay inkey projects was likely to affect overall revenues for the 12 month period ended31 December 2007. In addition, the Company noted that retention and recruitment remained difficultand there were significant labour cost pressures reflecting the capacityconstraints arising from a buoyant market place for skilled engineeringpersonnel and the competition for this labour by the larger multi-nationalcorporations. However, the Board also stated that it remained optimistic about the outlook forthe 2008 financial year particularly since the level of annual spend at theAldermaston Weapons Establishment (AWE) is expected to increase over the nextfew years and AWE has a significant number of opportunities there that are ofinterest to the Company. On 10th October 2007, the Company announced that the trading conditions referredto in the interim results announced on 20 August 2007 persisted and the Boardre-confirmed that delays in certain major projects were likely to affect overallrevenues for 2007. Since 10 October 2007, although the Company has won some contracts, tradingconditions have remained difficult with continued delays to major projectsresulting in a reduction in expected revenues for the 12 month period ended 31December 2007. The Board therefore expects results for the 12 month period ended31 December 2007 to be materially below their and market expectations held atthe time they recommended Babcock's original offer of 63 pence in cash for thebalance of the issued share capital of INS on 4 April 2007. The Directors believe that trading conditions in 2008 will continue to bechallenging. The Directors believe that there will continue to be fundingdifficulties on the NDA sites in 2008 and that the NDA will focus funding on thehigh hazard sites at Sellafield and Dounreay. The Directors also expect thelevel of competition for contracts to increase as overseas companies and thelarger UK consultancy, engineering, procurement and construction companies seekto grow their businesses in the UK, which the Directors expect to increase thedemand for skilled engineering personnel and a consequential increase in payscales. As a result of these factors, the Directors do not anticipate revenuesin the 2008 calendar year to be significantly greater than revenues for the 2007calendar year with a consequent material reduction in profitability for boththose periods relative to market expectations at the time the Directorsrecommended Babcock's original offer of 63 pence in cash for the balance of theissued share capital of INS on 4 April 2007. Reasons for the Disposal and use of proceeds from the Disposal On 3 September 2007, the Board received an indicative offer from Babcock toacquire Innovation. Discussions concerning this letter and subsequentcorrespondence from Babcock has resulted in the offer to acquire INS Innovationfor £39,820,027. The proposal has been considered by the Independent Directors,being the Directors except Archibald Bethel and Kevin Thomas, as they areemployees of Babcock. The Independent Directors believe that the Disposal is in the best interests ofthe Company and the Shareholders as a whole for the following reasons: • The Independent Directors believe that the nuclear decommissioningmarket in the UK is becoming more focused on tenders for a smaller number oflarger value contracts. Given the increased value of these contracts, theIndependent Directors believe that the likely winners of these tenders will bethe larger nuclear focused companies and consortia. The Independent Directorsbelieve that the consolidation and restructuring of the nuclear service industry(as demonstrated by the recent sale of Nukem to a French conglomerate, theacquisition of BNFL's Magnox Reactor Sites management company by US based EnergySolutions, the sale of British Nuclear Group Project Services to VT Group andthe announcement by the UK Government that it is considering selling the nucleardecommissioning division of the UKAEA) is a response to this trend. TheIndependent Directors believe that, without being part of a larger group, theCompany will find it increasingly difficult to bid for leading roles on futurecontracts and framework agreements (including contracts that will flow from theBritish Government's recently published proposals to build a new generation ofnuclear power stations) and will only be able to access them as part of aconsortium. • Babcock has confirmed that, as the Company is not a wholly ownedsubsidiary, Babcock would not be able to provide financial support to theCompany in the form of bonds or guarantees. In particular, Babcock could notoffer any form of guarantee to any of the Company's customers or banks. Whilethe Independent Directors consider that Babcock's majority ownership and theabsence of any financial support from Babcock will not have a short term impacton the business, they do consider that it will not only limit the Company'sability to pursue some of the larger opportunities in the marketplace but alsomake it more difficult to join bidding consortia, which, as stated above, willbe the Company's main access to the larger value contracts. • There have been funding cuts and project delays at the various NDAsites, which is the primary cause of the expected material reduction inprojected revenues and profitability for INS in 2007 and 2008. As a wholly-ownedsubsidiary of Babcock, the Independent Directors believe that INS would haveaccess to opportunities in other nuclear sectors, namely Ministry of Defence andBritish Energy, where Babcock is strongly represented. • The Disposal presents a route that allows those Shareholders that didnot accept the Babcock offer of 63 pence the opportunity to monetise theirexisting investments at a price which the Independent Directors believe to befair and reasonable. This is especially so taking into account the currentuncertain market conditions and the reduced financial expectations of INS,further details of which are set out in the section above entitled "CurrentTrading and Prospects". • As referred to above, the Company remains quoted on AIM whilst being asubsidiary of Babcock by virtue of its approximate 68 per cent. interest in theCompany's issued share capital. This means that the Company still has to meetthe costs associated with being a quoted company. These costs will be eliminatedfollowing the Disposal and the subsequent Cancellation. Following the Disposal, the Company will have no material assets, other than theproceeds of the Disposal, or material liabilities other than the expenses andother liabilities incurred in connection with the Proposal. Immediatelyfollowing Completion, the Board anticipates that the Company's assets willsubstantially comprise cash of approximately £38,684,000, of which the Boardbelieves approximately £37,680,000 will be distributable reserves. The Boardintends to use approximately £37,184,000 of these distributable reserves bydeclaring a Special Dividend which is expected to be approximately 58.83 penceper INS share which represents the proceeds of the Disposal less an amount(equal to not more than 6.7 per cent. of the gross proceeds of the Disposal) tobe retained by the Company to meet the ongoing costs and liabilities of theCompany. The Board will then consider various options for the future of theCompany. Details of the Disposal Pursuant to the Sale Agreement, Babcock has agreed to acquire the entire issuedshare capital of INS Innovation for a consideration of £39,820,027 to besatisfied in cash and the assumption by Babcock of certain debts owed by theCompany to INS Innovation. The Sale Agreement contains customary warranties given by the Company to Babcockin connection with the Company's title to the share capital of INS Innovationand relating to the valid existence of both the Company and INS Innovation alongwith a warranty that it owns no assets other than the shares in INS Innovation.The Company also agrees to indemnify Babcock to the extent that any assets ofINS Innovation have been transferred to the Company since 31 December 2006(other than as agreed). The Disposal is conditional, among other things, upon the approval ofShareholders at the GM. Completion of the Disposal is expected to take place onor around 18 March 2008. Further information on the terms of the Sale Agreement will be set out in theCircular. Related Party Transaction Shareholders' attention is drawn to the fact that, as at 21 January 2008 (beingthe latest practicable date prior to the release of this announcement), Babcockowns or controls approximately 68 per cent. of the issued share capital of theCompany. Accordingly, the Disposal is a related party transaction for thepurposes of Rule 13 of the AIM Rules and, in giving approval to the resolutionbeing proposed at the GM, Shareholders will be approving the sale ofsubstantially all the assets of the Company to a related party of the Company.The AIM Rules do not prohibit Babcock from attending and voting at the GM andBabcock has indicated that it will vote in favour of the resolution relating tothe approval of the Disposal to be proposed at the GM. As the resolution to beproposed at the GM is an ordinary resolution if, as indicated, Babcock votes infavour of the resolution, it will be passed. Special Dividend If the requisite majority of Shareholders approve the Disposal and Completionoccurs, the Board intends to declare a Special Dividend which is expected to beapproximately 58.83 pence per INS Share which represents the proceeds of theDisposal less an amount (equal to not more than 6.7 per cent. of the grossproceeds of the Disposal) to be retained by the Company to meet the ongoingcosts and liabilities of the Company, payable on 19 March 2008 to allShareholders on the Register on the Dividend Record Date. The Company hascapital reserves of approximately £1,004,000, which are not distributable andmay not be used to pay a dividend. Proposed Cancellation Following completion of the Disposal and in anticipation of payment of theSpecial Dividend being made, the Company will have no material assets orbusiness and, in the absence of alternative fundraising arrangements being putin place, would be unlikely to be able to meet the costs of being a Companyquoted on AIM. Therefore, the Directors do not believe that it would beappropriate for the Company to retain its trading facility in such a situationand therefore proposes that the Cancellation be effected. Subject to Shareholder approval at the General Meeting, the admission of INSShares to trading on AIM will be cancelled with effect from 25 February 2008.The Board is therefore giving to Shareholders at least 20 clear business days'notice of the cancellation of the admission of INS Shares to trading on AIM. Theeffect of the Cancellation will be that INS Shares will no longer be quoted ortradable on AIM and Shareholders will not therefore be readily able to selltheir INS Shares. INS does not anticipate moving to an alternative tradingplatform for its shares. Shareholders will be able to buy or sell INS Shares "off market" although this will be more difficult than trading "on market". Theonly other opportunity for Shareholders to sell INS Shares would arise upon asale of all of the issued share capital of INS to a third party. There is nocurrent intention to do this and no proposals have been received from anotherthird party to acquire all of the issued shares of INS. The resolution to approve the Cancellation at the General Meeting will beproposed as a special resolution and therefore requires votes in favourrepresenting at least 75 per cent. of the votes cast in person or by proxy atthe meeting. Babcock (which owns approximately 68 per cent. of the issued sharecapital of the Company) has indicated that it will vote in favour of theresolution. It is intended that, in light of the proposals set out in this announcement, ifthe Cancellation resolution to be proposed at the GM is passed by the requisitemajority, admission of INS Shares to trading on AIM will be cancelled from 25February 2008. Future Strategy The Board is considering various options for the future of the Company. TheBoard anticipates that following completion of the Disposal of its operatingbusiness, INS Innovation, to Babcock, and regardless of whether the Cancellationis approved, the Company (which, at such time, will be a company with no tradingsubsidiaries or trading businesses) will consider its options which includeseeking Shareholders' approval to place the Company in members voluntaryliquidation. If the Cancellation resolution is not approved, followingcompletion of the Disposal, the Company will, pursuant to the AIM Rules, be aninvesting Company and will also consider the adoption of an investing strategyin relation to any surplus funds it retains following the proposed payment ofthe Special Dividend to Shareholders. Recommendation The Independent Directors (being the Directors except Archibald Bethel and KevinThomas who are employees of Babcock) having consulted with Collins Stewart, theCompany's nominated adviser for the purposes of the AIM Rules, consider that theterms of the Disposal are fair and reasonable insofar as the Shareholders areconcerned and that they are in the best interests of the Company andShareholders as a whole. Accordingly, the Independent Directors unanimouslyrecommend Shareholders to vote in favour of the resolution relating to theProposal to be proposed at the General Meeting. The Directors consider the cancellation of the admission of INS Shares totrading on AIM to be in the best interests of the Company and the Shareholdersas a whole. Accordingly, the Directors unanimously recommend Shareholders tovote in favour of the cancellation resolution to be proposed at the GeneralMeeting. Further information: International Nuclear Solutions plcChris Brown, Chairman +44 (0) 161 777 2043 Collins StewartChris Wells/Mark Connelly +44 (0) 20 7523 8350 Collins Stewart, which is regulated in the UK by the Financial ServicesAuthority, is acting exclusively for INS and no-one else in connection with thisannouncement and will not be responsible to anyone other than INS for providingthe protections afforded to clients of Collins Stewart or for providing advicein relation to the matters set out in this announcement. APPENDIX I EXPECTED TIMETABLE OF PRINCIPAL EVENTS Latest time and date for receipt of Forms of Proxy for the General 11.00 a.m. on 13 February 2008Meeting General Meeting 11.00 a.m. on 15 February 2008 Admission of INS Shares to trading on AIM cancelled 8.00 a.m. on 25 February 2008 Ex-dividend date for the Special Dividend 27 February 2008 Dividend Record Date 29 February 2008 Completion of the Disposal 18 March 2008 Cheques in respect of the Special Dividend dispatched by 19 March 2008 These times and dates are indicative only and subject to change. All times shownin this announcement are London times unless otherwise stated. APPENDIX II DEFINITIONS The following definitions apply throughout this announcement unless the contextrequires otherwise. "Act" the Companies Act 1985 (as amended) or the Companies Act 2006, as applicable "AIM" AIM, a market of the London Stock Exchange "AIM Rules" the rules for AIM companies issued by the London Stock Exchange "Babcock" Babcock International Group plc, incorporated in England and Wales with registered number 2342138 "Cancellation" the proposed cancellation of the admission of INS Shares to trading on AIM "City Code" the City Code on Takeovers and Mergers "Collins Stewart" Collins Stewart Europe Limited, the Company's nominated adviser and broker "Completion" completion of the Disposal pursuant to the Sale Agreement "Directors" or "Board" the directors of the Company being Christopher Brown, Archibald Bethel, John Ridings and Kevin Thomas "Disposal" the proposed disposal of INS Innovation described in this announcement "Dividend Record Date" the record date for the Special Dividend, expected to be close of business on 29 February 2008 "Form of Proxy" the form of proxy for use at the GM, to be enclosed with the Circular "General Meeting" or "GM" the general meeting of the Company to be held at 11.00 a.m. on 15 February 2008, notice of which will be included in the Circular "Group" the Company and its subsidiaries "Independent Directors" the Directors other than Kevin Thomas and Archibald Bethel "INS Innovation" INS Innovation Limited, a wholly owned subsidiary of the Company, incorporated in England and Wales with registered number 4109440 "INS Shares" the ordinary shares of 1 pence each in the capital of the Company "INS" or "Company" International Nuclear Solutions plc, incorporated in England and Wales with registered number 5738079 "London Stock Exchange" London Stock Exchange plc "NDA" the Nuclear Decommissioning Authority "Pounds" or "£" the lawful currency of the United Kingdom "Proposals" the matters set out in the resolutions contained in the notice of GM which will be included in the Circular along with the proposed declaration of the Special Dividend by the Board "Register" the register of members of the Company "Sale Agreement" the agreement dated 22 January 2008 made between (i) the Company and (ii) Babcock relating to the disposal of INS Innovation "Shareholders" holders of INS Shares "Special Dividend" the special dividend, expected to be of approximately 58.83 pence per INS Share, proposed to be paid to INS Shareholders on the Register on the Dividend Record Date "UK" the United Kingdom of Great Britain and Northern Ireland This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
INS.L