MELROSE INDUSTRIES PLC If you have sold or otherwise transferred or sell or otherwise transfer your entire holding of Old Melrose Ordinary Shares, please forward this Circular and the accompanying Forms of Proxy as soon as possible to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for onward transmission to the purchaser or transferee. However, such documents should not be forwarded or transmitted in or into any jurisdiction in which such act would constitute a violation of the relevant laws of such jurisdiction. If you have sold or otherwise transferred only part of your holding of Old Melrose Ordinary Shares please consult the bank, stockbroker or other agent through whom the sale or transfer was effected.
Any person (including, without limitation, custodians, nominees and trustees) who may have a contractual or legal obligation or may otherwise intend to forward this Circular to any jurisdiction outside the United Kingdom should seek appropriate advice before taking any action. The distribution of this Circular and any accompanying document into jurisdictions other than the United Kingdom may be restricted by law. Any person not in the United Kingdom into whose possession this Circular and any accompanying documents come should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities law of any such jurisdiction.
(Incorporated and registered in England and Wales with registered number 8243706)
Recommended Proposals relating to the introduction of New Melrose as the holding company of Old Melrose by means of a Scheme of Arrangement under Part 26 of the Companies Act 2006 and Proposed Return of Capital and related Share Capital Consolidation and Notices of Court Meeting and Old Melrose General MeetingNotices convening the Court Meeting and the Old Melrose General Meeting, each of which will be held at the offices of Investec at 2 Gresham Street, London EC2V 7QP on 29 October 2015, are set out at Part X and XI, respectively, of this Circular. The Court Meeting will start at 10:00 a.m. and the Old Melrose General Meeting will start at 10:15 a.m. (or as soon thereafter as the Court Meeting concludes or is adjourned).
This Circular should be read as a whole and in conjunction with the accompanying Forms of Proxy. Your attention is drawn to the letter from the Chairman of Old Melrose which is set out in Part I (Letter From the Chairman of Old Melrose) of this Circular and which contains a unanimous recommendation from the Board of Old Melrose that you vote in favour of the resolutions to be proposed at the Court Meeting and the Old Melrose General Meeting referred to below. You should note that the Proposals are conditional, among other things, upon the approval by the Shareholders of the resolutions at both the Court Meeting and the Old Melrose General Meeting. A letter from Rothschild explaining the Scheme appears in Part III (Explanatory Statement) of this Circular.A summary of the action to be taken by Shareholders in respect of the Court Meeting and the Old Melrose General Meeting is set out in paragraph 12 of Part III (Explanatory Statement) of this Circular. Shareholders will find enclosed with this Circular a Blue Form of Proxy for use in connection with the Court Meeting and a White Form of Proxy for use in connection with the Old Melrose General Meeting. Whether or not you propose to attend the Court Meeting and/or the Old Melrose General Meeting in person, you are requested to complete and sign the enclosed Forms of Proxy in accordance with the instructions printed on them and return them to Old Melrose's Receiving Agent, Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, as soon as possible, and in any event so as to arrive by no later than 48 hours (excluding any part of a day that is not a working day) before the time appointed for the relevant meeting (although the Blue Form of Proxy for use at the Court Meeting may be handed to Old Melrose's Receiving Agent or the Chairman immediately prior to the Court Meeting).
If you would like to submit your proxy vote electronically, you can do so by visiting www.sharevote.co.uk. You will need to enter your voting reference numbers (the three numbers quoted on your Forms of Proxy) and follow the online instructions. The deadline for receipt of electronic proxies is 48 hours (excluding any part of a day that is not a working day) before the time appointed for the relevant meeting.
If you hold your Old Melrose Ordinary Shares in CREST, you may appoint a proxy by completing and transmitting a CREST Proxy Instruction in accordance with the procedures set out in the CREST Manual so that it is received by Old Melrose's Receiving Agent (under CREST participant ID RA19) by no later than 48 hours (excluding any part of a day that is not a working day) before the time appointed for the relevant meeting.
The return of completed Forms of Proxy, submitting your proxy vote electronically or transmitting a CREST Proxy Instruction will not prevent you from attending either of the meetings and voting in person if you so wish and are so entitled.
If you are a Shareholder and have any questions about the Proposals, the contents of this Circular or the completion and return of your Forms of Proxy, please call Equiniti Limited, Old Melrose's Receiving Agent, on 0871 384 2946 (or, if you are calling from outside the United Kingdom, +44 121 415 0851) between 8:30 a.m. and 5:30 p.m. Monday to Friday (excluding public holidays in the UK). Calls to the 0871 number are charged at 10 pence per minute, plus your phone company's access charge. Please note that calls to these numbers may be monitored or recorded, and no advice on the Proposals can be given.
Applications will be made to the UKLA for the New Melrose Ordinary Shares to be admitted to the premium listing segment of the Official List and to the London Stock Exchange for the New Melrose Ordinary Shares to be admitted to trading on the main market of the London Stock Exchange (together, ''Admission''). It is expected that Admission will become effective, and that dealings in the New Melrose Ordinary Shares will commence, at 8.00 a.m. on the Effective Date which, subject to the satisfaction of certain conditions, is expected to occur on 19 November 2015. No application has been or is currently intended to be made for any other class of shares issued by New Melrose to be admitted to the Official List or to trading on the London Stock Exchange or to be admitted to listing or dealing on any other exchange.
No New Melrose Ordinary Shares have been marketed to, or are available for purchase in whole or in part by, the public in the United Kingdom or elsewhere in connection with the Admission. This Circular does not constitute or form part of any offer or invitation to purchase, subscribe for, sell or issue, or any solicitation of any offer to purchase, subscribe for, sell or issue, New Melrose Ordinary Shares or any other securities of New Melrose or Old Melrose. This Circular does not constitute a prospectus equivalent document.
Rothschild, which is authorised by the Prudential Regulation Authority and regulated by the FCA and the Prudential Regulation Authority in the United Kingdom, is acting solely for New Melrose and no one else in relation to the Admission and solely for New Melrose and Old Melrose and no one else in relation to the Proposals and, save for any responsibility which may arise under FSMA or the regulatory regime established thereunder, accordingly will not be responsible to anyone other than New Melrose and Old Melrose for providing the protections afforded to the respective clients of Rothschild or for providing advice in connection with the Admission and the Proposals, as applicable, the contents of this Circular or any transaction, arrangement or other matter referred to in this Circular.
Investec, which is authorised by the Prudential Regulation Authority and regulated by the FCA and the Prudential Regulation Authority in the United Kingdom, is acting solely for New Melrose and no one else in relation to Admission and solely for New Melrose and Old Melrose and no one else in relation to the Proposals and, save for any responsibility which may arise under FSMA or the regulatory regime established thereunder, accordingly will not be responsible to any person other than New Melrose and Old Melrose for providing the protections afforded to the respective clients of Investec or for providing advice in connection with the Admission and the Proposals, as applicable, the contents of this Circular or any transaction, arrangement or other matter referred to in this Circular.
The Prospectus relating to the New Melrose Ordinary Shares is expected to be published on or around the date of this Circular. The Prospectus will not be sent to you when published, but it will be possible to obtain a copy of the Prospectus from the Melrose Group's website (www.melroseplc.net) or, on request, free of charge from Old Melrose's Receiving Agent by telephone on 0871 384 2946 (or from outside the UK on +44 121 415 0851) between 8:30 a.m. and 5:30 p.m. Monday to Friday (excluding public holidays in the UK). Calls to the 0871 number are charged at 10 pence per minute, plus your phone company's access charge. A copy of this Circular and the Prospectus will also be available for inspection (i) via the National Storage Mechanism, (ii) at the registered office of Old Melrose and of New Melrose (both being 11th Floor, Colmore Plaza, 20 Colmore Circus Queensway, Birmingham, West Midlands, B4 6AT), and (iii) at the offices of Simpson Thacher & Bartlett LLP (being CityPoint, One Ropemaker Street, London, EC2Y 9HU) up until Admission (in the case of (ii) and (iii)) during normal business hours on any weekday (Saturdays, Sundays and public holidays excepted).
This Circular has been prepared for the purposes of complying with English law, the Listing Rules and the rules of the London Stock Exchange and the information disclosed herein may not be the same as that which would have been disclosed if this Circular had been prepared in accordance with the laws of any other jurisdiction. The distribution of this Circular and the Prospectus and the allotment and issue of New Melrose Ordinary Shares in jurisdictions other than the United Kingdom may be restricted by law. No action has been taken by Old Melrose or New Melrose to obtain any approval, authorisation or exemption to permit the allotment and issue of New Melrose Ordinary Shares or the possession or distribution of this Circular, the Prospectus or any other publicity material relating to the New Melrose Ordinary Shares in any jurisdiction other than the United Kingdom.
Overseas Shareholders may be affected by the laws of other jurisdictions in relation to the Proposals or the distribution of this Circular. Persons into whose possession this Circular comes should inform themselves about and observe any applicable restrictions and legal, exchange control or regulatory requirements in relation to the Proposals, the distribution of this Circular and the Prospectus. Any failure to comply with such restrictions or requirements may constitute a violation of the securities laws of any such jurisdiction.
The contents of this Circular should not be construed as legal, financial or tax advice. Shareholders should consult their own legal adviser, financial adviser or tax adviser for legal, financial or tax advice.
Neither the delivery of this Circular nor Admission shall, under any circumstances, create any implication that there has been no change in the affairs of the Melrose Group since the date of this Circular or that the information is correct as of any time subsequent to the date of this Circular.
Nothing contained herein shall be deemed to be a forecast, projection or estimate of the future financial performance of Old Melrose, New Melrose or the Melrose Group except where otherwise stated.
Some financial and other numerical information in this Circular has been rounded and, as a result, the numerical figures shown as totals in this Circular may vary slightly from the exact arithmetic aggregation of the figures that precede them.
Certain terms used in this Circular, including certain capitalised terms and certain technical and other terms, are defined in Part IX (Definitions) of this Circular.
Certain statements contained in this Circular, including those in the part headed ''Risk Factors'' constitute ''forward-looking statements''. In some cases, these forward-looking statements can be identified by the use of forward-looking terminology, including the terms ''believes'', ''continues'', ''estimates'', ''plans'', ''prepares'', ''anticipates'', ''expects'', ''intends'', ''aims'', ''may'', ''will'' or ''should'' or, in each case, their negative or other variations or comparable terminology. Shareholders should specifically consider the factors identified in this Circular which could cause actual results to differ before making a decision. Undue reliance should not be placed on any forward-looking statements as such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of Old Melrose, New Melrose and/or the Melrose Group, or industry results, to be materially different from
any future results, performance or achievements expressed or implied by such forward-looking statements. Undue reliance should not be placed on any forward-looking statements as such forward-looking statements are based on numerous assumptions regarding Old Melrose's, New Melrose's and/or the Melrose Group's present and future business strategies and the environment in which Old Melrose, New Melrose and/or the Melrose Group will operate in the future. Among the factors that could cause actual results to differ materially from those described in the forward-looking statements are changes in the global political, economic and/or business sphere, competitive, market and regulatory forces, future exchange and interest rates, changes in tax rates and future business combinations or dispositions. Such risks, uncertainties and other factors are set out more fully in the section of this Circular headed ''Risk Factors'' and include, among others: risks relating to commodity prices, risks relating to the economic conditions of the markets in which Old Melrose, New Melrose and the Melrose Group operates and risks relating to the possible volatility of the price of Old Melrose Ordinary Shares and/or the New Melrose Ordinary Shares. These forward-looking statements speak only as at the date of this Circular. Except as required by the FCA, the London Stock Exchange or applicable law (including as may be required by the Prospectus Rules, Listing Rules and the Disclosure and Transparency Rules), Old Melrose expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this Circular to reflect any change in its expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
Forward-looking statements contained in this Circular do not in any way seek to qualify the working capital statement contained in paragraph 10 of Part VIII (Additional Information) of this Circular.
TABLE OF CONTENTSExpected Timetable of Events 1
Part I Letter from the Chairman of Old Melrose 2
Part II Summary 6
Part III Explanatory Statement 12
Part IV Risk Factors 22
Part V Unaudited Pro Forma Information on the Melrose Group 25
Part VI Scheme of Arrangement 30
Part VII United Kingdom Taxation 35
Part VIII Additional Information 37
Part IX Definitions 47
Part X Notice of Court Meeting 53
Part XI Notice of Old Melrose General Meeting 56
INFORMATION FOR US SHAREHOLDERSThis Circular is not an offer of securities for sale in the United States. New Melrose Ordinary Shares to be issued to Shareholders in connection with the Scheme have not been, and will not be, registered with the SEC under the US Securities Act, and will be issued in reliance upon the exemption from the registration requirements of the US Securities Act provided by Section 3(a)(10) of that act. For the purpose of qualifying for the exemption from the registration requirements of the US Securities Act provided by Section 3(a)(10) of that act with respect to the New Melrose Ordinary Shares issued pursuant to the Scheme, Old Melrose will advise the Court that it will rely on the Section 3(a)(10) exemption based on the Court's sanctioning of the Scheme, which will be relied upon by Old Melrose as an approval of the Scheme. Notice is hereby given to all Shareholders that the Court will hold a hearing on the Scheme's fairness to Shareholders, at which hearing all such Shareholders will be entitled to attend in person or through counsel to support or oppose the sanctioning of the Scheme.
The New Melrose Ordinary Shares have not been and will not be registered on a United States securities exchange or quoted on any inter-dealer quotation system in the United States. New Melrose does not intend to take any action to facilitate a market in New Melrose Ordinary Shares in the United States. Consequently, New Melrose believes that it is unlikely that an active trading market in the United States will develop for the New Melrose Ordinary Shares.
The New Melrose Ordinary Shares have not been, and will not be, registered under the securities laws of any state or jurisdiction in the United States and, accordingly, will only be issued to the extent that exemptions from the registration or qualification requirements of state ''blue-sky'' securities laws are available or such registration or qualification requirements have been complied with.
Neither the SEC nor any other US federal or state securities commission or regulatory authority has approved or disapproved the New Melrose Ordinary Shares or passed an opinion on the adequacy of this Circular. Any representation to the contrary is a criminal offence in the United States.
A person who is entitled to receive New Melrose Ordinary Shares and who is an affiliate of New Melrose following the Effective Date may not resell such securities without registration under the US Securities Act or pursuant to the applicable resale provisions of Rule 144 of the US Securities Act or another applicable exemption from registration or in a transaction not subject to registration (including a transaction that satisfies the applicable requirements of Regulation S under the US Securities Act). Whether a person is an affiliate of a company for the purposes of the US Securities Act depends on the circumstances but affiliates can include certain officers, directors and significant shareholders. Persons who believe that they may be affiliates of New Melrose should consult their own legal advisers prior to any sale of securities received pursuant to the Scheme.
Shareholders who are citizens or residents of the United States are advised that any securities issued pursuant to the Scheme have not been and will not be registered under the US Exchange Act. New Melrose intends, if necessary, to rely on an exemption from the reporting requirements of Section 12(g) of the US Exchange Act pursuant to Rule 12g3-2(b) thereunder.
Old Melrose and New Melrose are public limited companies incorporated under the laws of England and Wales. All of the Directors of Old Melrose and New Melrose are citizens or residents of countries other than the United States. Substantially all of the assets of such persons and a significant proportion of the assets of Old Melrose and New Melrose are located outside the United States. As a result, it may not be possible to effect service of process within the United States upon such persons, Old Melrose or New Melrose, or to enforce against them judgments of US courts, including judgments predicated upon civil liabilities under the securities laws of the United States or any state or territory within the United States. The United States and the United Kingdom do not have a treaty providing for the reciprocal recognition of judgements (other than arbitral awards) in civil and commercial matters. Consequently, a final and conclusive judgement by any federal or state court of the United States based on civil liability, whether or not predicated solely upon US federal securities laws, would not automatically be enforceable in England and Wales. In addition, it is doubtful whether the courts of England and Wales would accept jurisdiction and impose civil liability if proceedings were commenced in England or Wales in an original action predicated solely upon US federal securities laws.
NOTICE TO NEW HAMPSHIRE RESIDENTS NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENCE HAS BEEN FILED UNDER RSA 421-B OF THE NEW HAMPSHIRE REVISED STATUTES (''RSA 421-B'') WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF THE STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE OF THE STATE OF NEW HAMPSHIRE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. EXPECTED TIMETABLE OF EVENTSEach of the times and dates in the table below is indicative only and subject to change without further notice. References to a time of day are to London time.
The Scheme and Initial Reduction of Capital
Posting of the Circular to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . 6 October
Latest time and date for receipt of Blue Form of Proxy for the Court
Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10:00 a.m. on 27 October(1)
Latest time and date for receipt of White Form of Proxy for the Old
Melrose General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10:15 a.m. on 27 October(2)
Scheme Voting Record Time (in respect of the Old Melrose General
Meeting and the Court Meeting) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6:00 p.m. on 27 October(3)
Court Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10:00 a.m. on 29 October
Old Melrose General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10:15 a.m. on 29 October(4)
Court Hearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 November
Last day for dealings in Old Melrose Ordinary Shares . . . . . . . . . . . . . . . 18 November Scheme Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 November
Scheme Record Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6:00 p.m. on 18 November
Effective Date of the Scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 November Delisting of Old Melrose Ordinary Shares, Admission of New Melrose
Ordinary Shares, crediting of New Melrose Ordinary Shares to CREST accounts and dealings in New Melrose Ordinary Shares commence on
the London Stock Exchange's main market for listed securities . . . . . . . 8:00 a.m. on 19 November Name changes expected to become effective . . . . . . . . . . . . . . . . . . . . . . 19 November
Court hearing of the claim form to confirm the Initial Reduction of
Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 November
Initial Reduction of Capital becomes effective . . . . . . . . . . . . . . . . . . . . . 23 November Despatch of the New Melrose Ordinary Share certificates . . . . . . . . . . . . By 3 December
Notes:
Blue Forms of Proxy for the Court Meeting not returned by this time may be handed to the Chairman or the Registrars at the Court Meeting prior to the vote being taken.
To be valid the White Forms of Proxy for the Old Melrose General Meeting must be lodged at least 48 hours (excluding any part of a day that is not a working day) before the time appointed.
If either the Court Meeting or the Old Melrose General Meeting is adjourned, the Scheme Record Time for the adjourned meeting will be 6:00 p.m. on the day which is two days (excluding any part of a day that is not a working day) before the date of the adjourned meeting.
To commence at the time fixed or, if later, immediately following the conclusion or adjournment of the Court Meeting.
These dates are indicative only and will depend, among other things, on the date upon which the Court sanctions the Scheme and confirms the Initial Reduction of Capital.
The Proposed Return of Capital
Following the completion of the Disposal, which is expected to occur in the first quarter of 2016, steps will be taken to effect the Proposed Return of Capital, unless the Board considers that it is no longer in the best interests of Shareholders to do so. Whilst the precise timing of the Proposed Return of Capital will depend, among other things, on the availability of Court dates, New Melrose would seek to return capital to Shareholders within 5 to 7 weeks following the completion of the Disposal. The Proposed Return of Capital will require two court hearings, but no further general meeting of the Shareholders of New Melrose.
PART I LETTER FROM THE CHAIRMAN OF OLD MELROSEIncorporated and registered in England and Wales with Registration No. 8243706
Directors: Registered office:
Christopher Miller (Executive Chairman) 11th floor
David Roper (Executive Vice-Chairman) Colmore Plaza Simon Peckham (Chief Executive) 20 Colmore Circus
Geoffrey Martin (Group Finance Director) Queensway
Perry Crosthwaite (Senior Non-Executive Director) Birmingham John Grant (Non-Executive Director) West Midlands
Justin Dowley (Non-Executive Director) B4 6AT
Elizabeth Hewitt (Non-Executive Director)
6 October 2015
Dear Shareholder,
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Introduction
Today the Board (the ''Board'') of Melrose Industries PLC (''Old Melrose'') announced its intention to implement a corporate reorganisation in order to enable the Melrose Group to efficiently and promptly return the proceeds of the disposal of the Elster Group to Shareholders. This corporate reorganisation follows a similar process to the one implemented in 2012 and reflects the significantly larger quantum of the proposed return of capital which is to occur following completion of the sale of Elster, a world leader in measuring and improving the flow of natural gas, electricity and water, to Honeywell International Inc. (the ''Disposal'').
In accordance with the Melrose Group's ''buy, improve, sell'' business model, following the intended completion of the Disposal the Board intends to return between £2.0-2.5 billion of the sale proceeds to Shareholders. Other highlights of the Disposal include:
a return of 2.3 times equity investment and 33 per cent. equity IRR within the three years since the Melrose Group acquired the Elster Group for £1.8 billion in August 2012; and
the transfer of pension liabilities, which includes the Melrose Group's FKI UK and McKechnie defined benefit pension schemes, freeing up the Melrose Group balance sheet from approximately
£900 million of gross long term liabilities.
This Disposal and subsequent Return of Capital will be a significant validation of the success of the Melrose Group's model and the Board views the resultant reduction in the size of the Melrose Group as an exciting opportunity. The Board wishes to make clear to Shareholders that there is no change to the Melrose business model nor will this sale influence the size of the acquisition opportunities that the Melrose Group are able to pursue. The search for the next acquisition continues and the Board believes that the Melrose Group will, if anything, benefit from a greater level of flexibility for its next acquisition. The Board is excited to begin the next successful chapter in Melrose's history and in due course looks forward to inviting shareholders to invest in the next project.
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Summary of Proposals
The Board is seeking your approval in connection with the implementation of three related actions. Firstly, it is proposed that a new holding company be introduced for the Melrose Group by means of a Court- sanctioned scheme of arrangement (the ''Scheme''). The new company, New Melrose Industries PLC (to be renamed Melrose Industries PLC shortly after the Scheme becomes effective and referred to as ''New Melrose''), is a newly incorporated company registered in England and Wales.
After the Scheme becomes effective, it is then intended that a Court-confirmed reduction of capital of New Melrose will be used to create distributable reserves, currently expected to be between £50-150 million (the ''Initial Reduction of Capital'').
Finally, subject to the Scheme becoming effective and the completion of the Disposal, New Melrose intends to capitalise its merger reserves and undertake a Court-confirmed return of capital to Shareholders of between £2.0-2.5 billion (the ''Proposed Return of Capital'' and together with the Scheme and the Initial Reduction of Capital, the ''Proposals'').
The Proposals will not affect the trading operations of the Melrose Group.
You will own the same number of ordinary shares in the Melrose Group before and after implementation of the Scheme and the Initial Reduction of Capital. However, the Proposed Return of Capital is expected to involve a share capital consolidation which will reduce the number of ordinary shares in New Melrose so that, subject to normal market movements, the Melrose Group share price stays approximately the same immediately before and after the Proposed Return of Capital. The consolidation involved in the Proposed Return of Capital will affect the number of ordinary shares in New Melrose which you own, but not the proportion (subject to allowance for fractional entitlements). The ratio used for the share capital consolidation will be determined by the Board prior to the date of the Proposed Return of Capital.
Inserting a holding company is a common method of creating reserves. All of the Directors of Old Melrose have been appointed as Directors of New Melrose. The implementation of the Scheme will have no impact on the reported historical financial statements of the Melrose Group or the way in which the Melrose Group will report its financial results on an ongoing basis. The Proposals are being put forward to Shareholders at this stage due to the lengthy process required to undertake such a corporate reorganisation and to approve the Proposed Return of Capital. Proceeding with the Proposals now reduces the time required for the implementation of the Proposed Return of Capital following completion of the Disposal. The Board considers the combination of the Proposals in this manner will also be beneficial in the ability to move quickly to secure any new acquisition opportunity that may arise prior to the Proposed Return of Capital.
This Circular sets out details of the steps required to implement the Proposals and why the Board considers the Proposals to be in the best interests of Old Melrose and Shareholders as a whole. The Board is unanimously recommending that you vote in favour of the Proposals.
A summary of the Proposals is set out on pages 6 to 11 to help you understand what is involved. You should nevertheless read the whole of this Circular and the documents incorporated herein by reference and not rely solely on the ''Summary'' section of this Circular.
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The Scheme
The reorganisation will be carried out by a formal procedure, known as a scheme of arrangement, under the Companies Act. The key features of the Scheme are as follows:
Share capital
Under the Scheme:
all of the issued ordinary share capital of Old Melrose will be cancelled by way of a Court confirmed reduction of capital;
as a result of such cancellation the reserve arising will be applied in paying up and issuing to New Melrose such number of ordinary shares in the capital of Old Melrose that have an aggregate nominal value equal to the aggregate nominal value of the Old Melrose Ordinary Shares cancelled pursuant to paragraph (a) above, so that New Melrose will own all of the issued share capital of Old Melrose and accordingly Old Melrose will become a subsidiary of New Melrose; and
you will receive 1 New Melrose Ordinary Share for every 1 Old Melrose Ordinary Share that you hold at the Scheme Record Time.
Court Meeting and General Meeting
The Scheme requires the approval of Shareholders at the Court Meeting. If the Scheme is approved by the requisite majority at the Court Meeting, an application will be made to the Court to sanction the Scheme at the Court Hearing.
All holders of options over Old Melrose 2012 Incentive Shares have undertaken not to exercise their options between the Latest Practicable Date and the Effective Date (inclusive) or, if the Scheme lapses, 31 December 2015 and, pursuant to the terms of the options, upon the Scheme becoming effective, will receive options over New Melrose 2012 Incentive Shares in exchange for their existing options over Old Melrose 2012 Incentive Shares on a one-for-one basis on substantially the same terms and economic basis as their existing options. The terms of the options over the New Melrose 2012 Incentive Shares are set out in paragraph 2 of Part VIII (Additional Information) of this Circular.
Shareholders will also be asked to approve resolutions implementing matters in connection with the Scheme at the Old Melrose General Meeting including, among other things, providing the Directors with authority to give effect to: (i) the Scheme by approving the cancellation of the Old Melrose Ordinary Shares and authorising the allotment and issue of the Capitalisation Shares to New Melrose as part of the Scheme; (ii) the Initial Reduction of Capital; and (iii) the Proposed Return of Capital.
Admission
The New Melrose Ordinary Shares will be listed only in the United Kingdom. Application will be made to the UKLA for the New Melrose Ordinary Shares to be admitted to the premium segment of the Official List and to the London Stock Exchange for such shares to be admitted to trading on the London Stock Exchange's main market for listed securities. The Board expects that the New Melrose Ordinary Shares will be admitted, and that dealings in them will commence, at 8:00 a.m. on 19 November 2015. No application has been or is currently intended to be made for any other class of shares issued by New Melrose to be admitted to the Official List or to trading on the London Stock Exchange or to be admitted to listing or dealing on any other exchange.
In relation to Old Melrose Ordinary Shares held in uncertified form, such Old Melrose Ordinary Shares under the ISIN GB00BV9FYX34 will be disabled by 4:30 p.m. on 18 November 2015 and on, or soon after 8:00 a.m. on 19 November 2015, the CREST accounts of holders of such shares will be credited with New Melrose Ordinary Shares under ISIN GB00BYRJP462.
Name Change
Shortly after Admission, pursuant to resolutions of the Boards of New Melrose and Old Melrose, respectively, New Melrose will be renamed Melrose Industries PLC and Old Melrose will be renamed and will be re-registered as a private limited company.
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Initial Reduction of Capital
New Melrose has not traded since incorporation and, as such, lacks distributable reserves. The Initial Reduction of Capital which will occur following, and subject to, the Scheme becoming effective will involve the reduction of New Melrose's ordinary share capital by reducing the nominal amount of each New Melrose Ordinary Share issued pursuant to the Scheme to 1 penny. This reduction will create distributable reserves, currently expected to be between £50-150 million, which can be used for future dividends and/or used to absorb any costs of New Melrose without hindering the ability to pay future dividends.
This is a legal and accounting adjustment and should not have any impact on the market value of the New Melrose Ordinary Shares. Prior to confirming the reduction of capital of New Melrose, the Court will need to be satisfied that the creditors (if any) of New Melrose are not thereby prejudiced. New Melrose will put in place such form of creditor protection (if any) as it may be advised is appropriate to satisfy the Court in this regard.
The Initial Reduction of Capital is expected to become effective on 23 November 2015.
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Proposed Return of Capital
Following, and subject to, the Scheme becoming effective and the completion of the Disposal, New Melrose intends to undertake a Court-confirmed return of capital to Shareholders of between £2.0-
2.5 billion.
The Proposed Return of Capital will involve: (i) the issue to the holders of New Melrose Ordinary Shares, as at a record time and date to be determined by the Board, of non-voting B shares in New Melrose credited as fully paid up with an aggregate nominal value which is equal to the aggregate amount of capital to be returned and carrying the rights and restrictions set out in paragraph 3 of Part VIII (Additional Information) of this Circular (the ''B Shares''); (ii) the subsequent cancellation of each of the B Shares in return for a payment to the holder of the B Share of an amount equal to the nominal value of such B Share; and (iii) the consolidation of New Melrose Ordinary Shares (the ''Share Capital Consolidation'') in order to reduce the number of New Melrose Ordinary Shares in line with a ratio to be determined by the Board prior to the date of the Proposed Return of Capital, to reflect the size of the Proposed Return of Capital relative to the market capitalisation of New Melrose immediately prior to the Share Capital Consolidation.
The B Shares will not be admitted to listing or dealing on any exchange.
The Board shall not proceed with the Proposed Return of Capital if, at the relevant time, they no longer believe it to be in the best interests of the Shareholders of New Melrose as a whole to proceed.
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United Kingdom Taxation
Certain UK tax considerations which arise from the implementation of the Proposals and which will apply to Shareholders resident in the UK are summarised in Part VII (United Kingdom Taxation) of this Circular.
All Shareholders who are unsure of their tax position, including those who are subject to tax in a jurisdiction other than the United Kingdom, should consult their professional advisers without delay. -
Action to be Taken
For guidance on what action you need to take with respect to the Court Meeting and the Old Melrose General Meeting, please refer to paragraph 12 of Part III (Explanatory Statement) of this Circular.
YOUR VOTES COUNT. It is important that the maximum number of votes possible are cast at the Court Meeting so as to demonstrate that there is a fair representation of Shareholder opinion. You are encouraged to vote at both the Court Meeting and the Old Melrose General Meeting. - Recommendation The Board has received advice in respect of the Proposals from Rothschild. In providing their advice, Rothschild have placed reliance on the Board's commercial assessment of the Proposals. In the Board's opinion the Proposals are in the best interests of the Shareholders as a whole. Accordingly, the Board unanimously recommends that Shareholders vote in favour of the Scheme at the Court Meeting and the resolutions to be proposed at the Old Melrose General Meeting, as the Directors intend to do in respect of their own aggregate shareholdings of 34,173,740 Old Melrose Ordinary Shares, representing approximately 3.43 per cent. of the existing issued ordinary share capital of Old Melrose.
The Scheme
As part of the Proposals, New Melrose will be put in place as the new listed holding company of Old Melrose. Upon the Scheme becoming effective, New Melrose will own all shares in the current listed company, Old Melrose, and you will hold New Melrose Ordinary Shares in New Melrose in place of your Old Melrose Ordinary Shares. All the New Melrose Ordinary Shares will be admitted to the premium listing segment of the Official List and admitted to trading on the London Stock Exchange's main market for listed securities. No application has been or is currently intended to be made for any other class of shares issued by New Melrose to be admitted to the Official List or to trading on the London Stock Exchange or to be admitted to listing or dealing on any other exchange.
Under the Scheme, you will receive 1 New Melrose Ordinary Share for every 1 Old Melrose Ordinary Share that you hold at the Scheme Record Time.
The Scheme Record Time is expected to be 6:00 p.m. on 18 November 2015 (subject to the date on which the Court sanctions the Scheme).
You will not have to pay anything for the New Melrose Ordinary Shares issued to you pursuant to the Scheme.
If the Proposals proceed as currently envisaged, it is expected that dealings in Old Melrose Ordinary Shares will continue until close of business on 18 November 2015 and that Admission of the New Melrose Ordinary Shares will become effective, and that dealings in the New Melrose Ordinary Shares will commence, at 8:00 a.m. on 19 November 2015. Shortly after Admission, pursuant to resolutions of the Boards of New Melrose and Old Melrose, respectively, New Melrose will be renamed Melrose Industries PLC and Old Melrose will be renamed and will be re-registered as a private limited company.
The nominal value of each New Melrose Ordinary Share will be set by the Board on or prior to the Effective Date of the Scheme and will be announced at that time. The difference between the aggregate nominal value of the New Melrose Ordinary Shares and the market capitalisation of Old Melrose at the Scheme Record Time will be credited to a merger reserve of New Melrose.
The Initial Reduction of Capital
The Initial Reduction of Capital which will occur following, and subject to, the Scheme becoming effective will involve the reduction of the New Melrose's ordinary share capital by reducing the nominal amount of each New Melrose Ordinary Share issued pursuant to the Scheme to 1 penny. This reduction will create distributable reserves, currently expected to be between £50-150 million, which can be used for future dividends and/or used to absorb any costs of New Melrose without hindering the ability to pay future dividends.
The Proposed Return of Capital
The Scheme Record Time is expected to be 6:00 p.m. on 18 November 2015 (subject to the date on which the Court sanctions the Scheme).
The nominal value of each New Melrose Ordinary Share will be set by the Board on or prior to the Effective Date of the Scheme and will be announced at that time. The difference between the aggregate nominal value of the New Melrose Ordinary Shares and the market capitalisation of Old Melrose at the Scheme Record Time will be credited to a merger reserve of New Melrose.
Overseas Shareholders should refer to paragraph 8 of Part III (Explanatory Statement) of this Circular for further information.
Yours faithfully
Christopher Miller Executive Chairman
PART II SUMMARYThis Circular explains the steps to be effected to implement the Proposals. Old Melrose has prepared this summary to help you understand what is involved in the Proposals. You should read the whole of this Circular and not rely solely on the summary below.
The Proposals consist of three principal events: (a) the Scheme; (b) the Initial Reduction of Capital; and
(c) the Proposed Return of Capital.
Following, and subject to, the Scheme becoming effective and completion of the Disposal, New Melrose intends to return capital of between £2.0 and 2.5 billion to Shareholders. It is envisaged that this will be carried out through the issue, and subsequent cancellation, of B Shares, with a sum equal to the nominal value of the B Shares being returned as capital to holders of the B Shares.
The rights and restrictions attaching to the B Shares are set out in paragraph 3 of Part VIII (Additional Information) of this Circular.
The Proposals will not affect the trading operations of the Melrose Group and you will own the same number and proportion of the ordinary share capital of the Melrose Group before and after
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