Disposal of Comunica Holdings Limited for £9.5m

Redstone plc

 ("Redstone", "the Company" or "the Group")

Disposal of Comunica Holdings Limited for £9.5 million 

Redstone (AIM:RED) today announces it has conditionally agreed to sell its the ICT Infrastructure, data centre and smart building solutions business, Comunica Holdings Limited ("Comunica" or the "Redstone ICT Business") to Coms PLC ("Coms") for a total cash consideration of £9.5 million to be settled by the payment of £7.65 million at completion and deferred consideration of £1.85 million (the "Disposal").

Key Terms of the Proposed Disposal

· Coms to acquire the ICT Infrastructure, data centre and smart building solutions business including the Redstone brand and associated IP

· Total cash consideration of £9.5 million:

§ Initial consideration of £7.65m payable at completion, £1.85 million payable in 12 months

§ Disposal conditional on approval by shareholders of Redstone

§ All relevant intellectual property of Redstone including the Redstone brand, trademarks and domain names, are to be transferred to Coms

· Redstone to change name to Castleton Technology plc (TIDM: CTP) and following Disposal will be a technology company engaged in software support and consultancy; Maxima Information Group, a software business and a QAD software consultancy business to be retained by Group post Disposal

· Irrevocable undertakings to vote in favour of the Disposal and change of name received from shareholders representing 46.5 per cent. of Redstone's issued share capital

· Expected cash of £3 million in Group post Disposal and pre receipt of deferred consideration and no debt, save for certain liabilities in relation to an interest rate swap derivative estimated at £1.1 million

A notice convening the general meeting to approve the Disposal and the change of the Company's name to Castleton Technology plc has been sent to shareholders. The general meeting will be held at the offices of DAC Beachcroft LLP, 100 Fetter Lane, London EC4A 1BN, at 11 a.m. on 21 November 2013.

Further details of the Disposal are detailed in an extraction below taken from the circular posted to shareholders today and which can be found on the Company's website www.redstone.com.

Ian Smith, Chief Executive of Redstone commented:

"The Disposal marks the end of a restructuring phase that begun on my appointment in 2010. We believe that the Disposal offers a fair price for our shareholders while offering Coms an opportunity to build upon the restructuring work completed under our management. I would like to take the opportunity to thank the employees of the Redstone ICT Business for their contribution to helping to build a profitable, cash generative business that attracted interest from a number of parties in recent months."

David Breith, Chief executive of Coms added:

"I am delighted that Coms is acquiring the Redstone ICT Business; it is a quality operator with a well recognised brand and a blue chip client base to which Coms can seek to leverage and cross-sell its broader suite of services. This will be the 7th acquisition since I became Chief Executive of Coms and I am pleased to report that we are well on our way to delivering our strategy of becoming a full service communications and ICT business"

Enquiries:

The following has been extracted from the circular posted to shareholders today, a copy of which can be found on the Company's website www.redstone.com

Introduction and summary

The Company has today entered into a conditional sale and purchase agreement in respect of the disposal of the entire issued share capital of Comunica Holdings Limited to Coms plc for a total cash consideration of £9,500,000. Further details of the Sale and Purchase Agreement are set out below.

The Disposal constitutes a fundamental change of business by the Group pursuant to Rule 15 of the AIM Rules. Accordingly, in accordance with the AIM Rules, the Company is required to send a circular to Shareholders setting out the reasons for, and the principal terms, of the Disposal.

A notice convening a general meeting of the Company for 11 a.m. on 21 November 2013 to consider and, if thought fit, approve the Resolutions is accordingly set out at the end of this document including the proposal to change the name of the Company to Castleton Technology plc.

Background to and reasons for the Disposal

Following the successful demerger of the Group's Network-Based Managed Services Business into a new company called Redcentric PLC, the Board has continued to focus on growing and developing the businesses that remained in Redstone. Trading and progress across the Group for the year to date is in line with management and market expectations and the Board remains committed to maximising value for Shareholders.

Comunica is the holding company of RCS, the Group company which carries on the Infrastructure Solutions Business, and the Directors consider that, while a considerable opportunity exists to further develop and grow the business, that opportunity could be best exploited if the business was part of a larger, communications-focused, business. The Board believes that the Disposal will be in the best interests of both Shareholders and Comunica's stakeholders. Comunica is now well-positioned for a sale having delivered on many of objectives in the current year, enabling existing Shareholders to capitalise on the value created to date, as well as providing the acquirer with an opportunity to build upon these successes.

Following the Disposal, Redstone will retain ownership of Maxima Information Group ("MIG") a software businessand a QAD software consultancy business. Further details of the remaining trading businesses can be found below.

The Directors believe that the Disposal represents a good opportunity for the Company, led by an experienced management team, to seek opportunities to maximise the value of the remaining trading businesses in order to generate higher returns for investors, which may include strategic acquisitions within the sector. The proceeds from the Disposal will be used for these purposes.

The Board has therefore concluded that the Disposal is in the best interests of the business at this time and will deliver additional value to Shareholders over time. Further information on the proposed strategy and the financial position of the Company post the Disposal is set out below.

Information on Comunica

RCS, the trading subsidiary of Comunica, provides ICT infrastructure, data centre and smart building solutions to investment banks and other blue chip organisations via a strong annuity based campus network business and a cabling projects business.

Following the demerger of the Group's Network-Based Managed Services Business into a separate company called Redcentric PLC, the projects business has become more selective in competitive bids, targeting only those projects with an attractive margin. The campus network management business remains stable and has been successful in securing the renewal of contracts with two key clients for a further 3 years.

RCS has been focused on consolidating its market share by offering new services to its client base, and particularly by further developing its "smart building" range of products. In this respect, RCS remains a trusted partner of sophisticated global institutions and major corporate clients, retaining the high degree of expertise required to design, deliver and manage complex and sensitive IT infrastructure installations in a competitive market.

RCS's financial results for the year ended 31 March 2013 reported turnover for continuing operations of £30.8 million and EBITDA of £2.5 million. Trading in the current year remains in line with management expectations.

Information on Coms

Coms is an AIM quoted provider of cloud-based telephony services over the internet and mobile devices to customers. Coms' strategy is to deliver a full service telecommunications package based around its carrier class VOIP telephony platform.

Coms was admitted to AIM in September 2006. Following the appointment of David Breith as Coms' Chief Executive on 9 January 2013, the company has achieved significant growth, both organically and through acquisitions.

The board of Coms believes that the Coms brand is well regarded and respected and will be recognised within the Infrastructure Solutions Business market. Furthermore, the directors of Coms believe that Coms, as enlarged by Comunica, will be well positioned to benefit from a broader product offering as an end-to-end supplier of business critical communications services.

Conditional Sale and Purchase Agreement

Comunica is the holding company of the principal trading business of the Group, RCS. The Board believes that it would be beneficial to the Group as a whole to proceed with the current disposal opportunity and accordingly the Company has entered into the SPA for the purposes of the proposed sale of Comunica to Coms.

Following the Disposal, the Company will retain Maxima Information Group, a software business,and a QAD software consultancy business as its main trading entities. However, as Comunica is the Company's principal asset and holding company of the Group's primary operating subsidiary, the sale of this company represents a fundamental change of business for the purposes of Rule 15 of the AIM rules. Accordingly, the Disposal is conditional, inter alia, on Shareholder approval being obtained at the General Meeting.

The key terms of the SPA are as follows:

o consideration payable by Coms of £9.5 million, to be settled by the payment of £7.65 million in cash at Completion and deferred consideration of £1.85 million in cash, payable 12 months following Completion, subject to reduction for agreed and settled claims against the Company under the SPA;

o the agreement is conditional on approval of the Disposal by Shareholders; and

o all relevant intellectual property, of Redstone (save for those relating to the businesses retained by Redstone post Disposal) including the Redstone brand, trademarks and domain names, are to be transferred to Coms.

Current trading and prospects

Comunica has continued to perform in line with management expectations following the demerger of the Network-Based Managed Services Business into Redcentric PLC. Targeting only higher margin contracts has proved to be successful for the business, which maintains a healthy pipeline, including significant work on a mission critical data centre for a major UK bank. Trading for the Group overall is in line with market expectations.

Following the Disposal, the Directors believe they will be able to leverage the Company's strong pre-existing relationships and extensive experience within the industry, in carrying out the strategy as set out below.

Proposed strategy post Disposal

Following the Disposal, the Company proposes to change its name to Castleton Technology plc and will be a technology company engaged in software support and consultancy. The Company will retain ownership of two distinct software consultancy businesses that were formerly subsidiaries of Maxima Group Holdings plc:

· MIG, a software business focused on supporting a range of its own developed and proprietary ERP, reservation and ticketing and payroll software products (www.ferrysoftware.co.uk); and

· A QAD software consultancy business focussed on QAD consultancy and technical services to support ERP systems in the manufacturing and distribution sectors (www.maximaqadservices.co.uk).

MIG has been actively involved in the Ferry Ticketing and Ferry Reservation Software market for over 15 years, providing solutions to meet business and regulatory requirements. The company's services include the provision of software, hardware, development and continued support. Customers include Caledonian MacBrayne (winner - 'Best Ferry Company' 2010 and 2011, Guardian and Observer travel awards), Orkney Ferries, Western Ferries (Clyde) and Pentland Ferries.

The QAD software consultancy business is comprised of applications consultants, technical consultants, developers, dedicated support staff and project managers. QAD solutions enable customers to streamline their business operations, provide visibility and collaboration throughout the supply chain, aiming to reduce costs and improve customer service. QAD Enterprise Applications (formerly known as MFG/PRO) is a fully integrated software suite designed for manufacturing and distribution companies in specific vertical industries. Approximately 6,000 sites use QAD ERP solutions worldwide in as many as 27 languages.

In the year to 31 March 2013, MIG and the QAD software consultancy business generated approximately £2.8 million of revenue and EBITDA (adjusted for impairment of fixed asset investment) of approximately £0.65 million.

As a result of the Disposal the Company will have a greatly reduced cost base due to a significant decrease in employees and office costs; the Company will have two offices only: one in Glasgow where MIG is based, and one in Cheltenham out of which the QAD software consultancy business operates. In addition, the Directors intend to further reduce the costs within the Company.

The focus of the Board, following the Disposal, will be on maximising the opportunity it has with these remaining business units while considering the most appropriate way of utilising the surplus cash generated by the Disposal. The Board has sought independent advice regarding potential capital distributions and has concluded that as a result of certain outstanding banking commitments that will remain in the Company and the tail of certain other agreements, as detailed in paragraph 8 below, this would not be feasible and consequently the Board believes that the best strategy and use of capital will be to concentrate on the remaining trading businesses and seek to make further acquisitions within the technology sector. The Board, and in particular Ian Smith and Tony Weaver (Chief Executive and Non-Executive Director respectively), has a proven track record of investing in this sector.

Financial Position of the Company following Disposal

Following the Disposal the Company will have cash of approximately £3 million, net of transaction costs in relation to the Disposal of approximately £190,000 and not including the deferred consideration of £1.85 million, expected to be received 12 months following the Disposal. The Company will be debt free but will retain certain liabilities in relation to an interest rate swap derivative ("the Derivative") taken out in September 2008 that matures in September 2015. The estimated gross liability under the Derivative stands at £1.14 million. The Company proposes to continue to service the Derivative until its maturity which is expected to cost in the region of £600,000 per annum. The Company will also retain the responsibilities under the sale and purchase agreements relating to the disposals of Marcom Communications Limited, Redstone Technology Ireland and the Transitional Services Agreement entered into with Redcentric PLC as part of the Demerger.

Irrevocable undertakings

The Company has received irrevocable undertakings to vote in favour of the Resolutions from Shareholders representing 46.5 per cent. of the outstanding issued share capital. This includes irrevocable undertakings from certain Directors, which account for 12.9 per cent. of the issued share capital of the Company.

Related Party Transaction

Redstone was advised on the transaction by MXC Capital Advisory LLP, a corporate advisory practice focused on the TMT sector. Pursuant to the terms of the consultancy agreement dated 8 April 2013 between MXC Capital Advisory LLP and the Company, a fee of up to £219,000 will be charged in relation to the Disposal; £100,000 is to be paid upon announcement of the Disposal and up to £119,000 will be payable dependent on the quantum of the deferred consideration received by the Company 12 months post Disposal. Mantin Capital Limited is a partner in MXC Capital Advisory LLP and, while they do not have executive roles in MXC Capital Advisory LLP, Ian Smith (Chief Executive of the Company) and Tony Weaver (Non Executive Director of the Company) are the controlling shareholders of Mantin Capital Limited. The payment of the above fee is therefore a related party transaction pursuant to AIM Rule 13. The independent Directors (being David Payne, Richard Ramsay and Peter Hallett) consider, having consulted with finnCap Limited, the Company's Nominated Adviser, that the terms of the transaction are fair and reasonable insofar as Shareholders are concerned.

Change of Name

In line with the revised Company strategy detailed above the Company is proposing to change its name to Castleton Technology plc. As part of the Disposal, the Company is selling all of the intellectual property and associated trademarks and websites of Redstone, save for those relating to the businesses retained by Redstone following the Disposal, and consequently it is required that the Company change its name.

It is not proposed to re-issue share certificates and accordingly the current issued shares certificates will remain valid.

DEFINTIONS

The following definitions apply in this announcement unless the context otherwise requires: