RNS Number : 7534X
Redstone PLC
13 February 2013
 



Redstone PLC

("Redstone" or the "Company")

Proposed Demerger, Placing and Capital Reorganisation

Redstone today announces the proposed Demerger of the Company's Network-Based Managed Services Business to a new AIM quoted Company called Redcentric. Following the acquisition of Maxima, Redstone comprises two main operating divisions: a Network-Based Managed Services Business and an Infrastructure Solutions Business.

Following a strategic review to evaluate the best options for maximising shareholder value, the Board of Redstone has resolved to divide the Redstone Group into two separate AIM quoted businesses. The Demerger is conditional, inter alia, upon the approval of Redstone Shareholders at the General Meeting and the confirmation of the Redstone Reduction of Capital by the Court.

Summary and Highlights

·      Proposed Demerger of Network-Based Managed Services business into new company to be quoted on AIM called Redcentric

·      Board believes Demerger will provide the best opportunity to maximise shareholder value

·      Redstone PLC to retain Infrastructure Solutions division

·      Oversubscribed Placing of £6 million with existing and new institutional shareholders to reduce net debt of the demerged businesses, provide working capital and pay the costs associated with the Demerger

·      Shareholder approval being sought at General Meeting on 4 March 2013

·      Capital reduction required in Redstone to effect the Demerger

·      Court approval required and meeting scheduled for 27 March 2013

·      Redcentric admission to AIM expected to occur on or around 16 April 2013

Background

The Board does not believe that the market fully values the attributes of the Network-Based Managed Services Business while it is combined with the Infrastructure Solutions Business. Businesses with similar characteristics and profit margins to the Network-Based Managed Services Business to be carried on by Redcentric historically command a valuation with a higher price / earnings multiple than that of the Redstone Group. Furthermore, it is the opinion of the Board that the two divisions are less likely to maximise their potential performance if they continue to be operated as part of one group. Given these factors, the Board, together with its advisers, has evaluated several options for maximising shareholder value, giving due consideration to a range of alternatives and factors.

The Board has concluded that the Demerger is in the best interests of the business and will deliver additional value to shareholders over time by:

·      allowing Redstone and Redcentric to pursue their strategic objectives independently with greater control over resources and opportunities;

·      increasing management and board focus on the particular needs of each company;

·      allowing the Network-Based Managed Services Business of Redcentric to become a focused managed services business, showcasing its improved operating margins; and

·      providing shareholders with added flexibility in their investment decisions.

The Demerger will create two distinct entities with different strategic, operational and economic characteristics and with separate operational management teams.

Placing

In order to provide sufficient working capital for each of the demerged businesses and to pay the costs associated with the Demerger and Redcentric Admission, the Company today announced a conditional Placing to raise £6 million (before commission and expenses) by the issuance of 75,000,000 New Redstone Ordinary Shares at a price of 8 pence per share (post share consolidation equating to a price of 1 pence per share as at today).

 

Richard Ramsay, Chairman of Redstone, commented: 

"Having successfully completed the restructuring of Redstone and integrated the recently acquired Maxima managed services business, it is clear that the Group now has a valuable Network-Based Managed Services business that has the key attributes of a business that should be valued more highly. Our Infrastructure Solutions Business continues to win mandates from blue chip organisations and is a well established and profitable business.

"The proposed Demerger offers opportunities for value enhancement for both of the demerged businesses and their stakeholders. We are pleased to have concluded an oversubscribed Placing in order to effect the Demerger and thank our existing and new shareholders for their support in this process. I am excited about the future for both Redstone and Redcentric."

A circular will be sent today to shareholders giving notice of a General Meeting of Redstone to be held on 4 March 2013 at 10.00 a.m. at the offices of DAC Beachcroft LLP, 100 Fetter Lane, EC4A 1BN. A copy of the circular can be found on the Company's website www.redstone.com.

Capitalised terms shall have the meaning given to them in the definitions appearing at the end of this announcement.

 

 

Enquiries:

 

Redstone plc

Tony Weaver, Chief Executive

Peter Hallett, Chief Financial Officer

Tel. +44 (0)845 201 0000

 



finnCap

Charlotte Stranner/ James Thompson

Tel. +44 (0)20 7220 0500



Newgate Threadneedle

John Coles / Hilary Millar

Tel. +44 (0)20 7653 9850

      

 

The following text has been extracted from the circular.

1.         Introduction

As you may be aware, Redstone, since the acquisition of Maxima, comprises two main operating divisions: the Network-Based Managed Services Business and the Infrastructure Solutions Business. Following a strategic review to evaluate the best options for maximising shareholder value, the Board of Redstone has today announced its intention to separate the Redstone Group into two separate AIM quoted businesses.  In order to achieve this, the Board is seeking Shareholder approval to demerge the Company's Network-Based Managed Services Business.

It is proposed that this separation will be effected by way of a demerger of the Network-Based Managed Services Business to a new company called Redcentric.  Redcentric will seek admission of its entire issued and to be issued ordinary share capital to trading on AIM on or around 16 April 2013.  The Demerger is conditional, inter alia, upon the approval of Redstone Shareholders at the General Meeting and the confirmation of the Redstone Reduction of Capital by the Court.

If the Demerger proceeds, the Redstone Shareholders who are registered on the Redstone Share Register at the Demerger Record Time will receive:

One Redcentric Ordinary Share for every 10 New Redstone Ordinary Shares

then held by them (save that fractions of a Redcentric Ordinary Share will not be issued).  Redstone Shareholders will continue to own their existing New Redstone Ordinary Shares.

It is proposed that, following the Demerger, Redstone will remain the ultimate holding company for the Redstone Group whose business is Infrastructure Solutions, with the Network-Based Managed Services Business being transferred to Redcentric, and the Redcentric Ordinary Shares will be admitted to trading on AIM.  Redcentric will be an unquoted public limited company pending its admission to trading on AIM.  The New Redstone Ordinary Shares will continue to be traded on AIM.  The Demerger is expected to become effective on 2 April 2013.

In addition, before the Redstone Reduction of Capital and the separation of the two businesses become effective, it is proposed that the Company undertakes a consolidation of its existing ordinary shares so every eight Redstone Ordinary Shares becomes one Consolidated Redstone Ordinary Share.

In order to provide sufficient working capital for each of the demerged businesses and to pay the costs associated with the Demerger and Redcentric Admission, the Company today announced a conditional Placing to raise £6 million (before commission and expenses) by the issuance of 75,000,000 New Redstone Ordinary Shares at a price of 8 pence per share (being 600,000,000 Redstone Ordinary Shares at a price of 1 penny per share pre the Capital Reorganisation and Redstone Reduction of Capital).

The purpose of the circular is to:

(i)       set out the background to and reasons for the Demerger and associated Placing;

(ii)      explain why the Board believes that the Demerger is in the best interests of Redstone Shareholders as a whole;

(iii)     explain the Resolutions to be put to the Redstone Shareholders at the General Meeting to be held on 4 March 2013; and

(iv)     unanimously recommend that Redstone Shareholders vote in favour of the Resolutions.

The size of the Demerger means that the approval of the Demerger Resolution by the Redstone Shareholders is required pursuant to Rule 15 of the AIM Rules.

The circular also advises you regarding the proposals for Redcentric to reduce its share capital following the Demerger becoming effective in order to create distributable reserves.

2.         Background to and reasons for the Demerger

The Network-Based Managed Services Business and the Infrastructure Solutions Business are distinct business units with separate strategic, capital, and economic characteristics. Following the acquisition of Maxima in November 2012 and its subsequent integration, the Company now has a Network-Based Managed Services Business with combined historic revenues of approximately £45 million based on the results for the financial year ended 31 March 2012 for Redstone and the results for the financial year ended 31 May 2012 for Maxima with a targeted divisional EBITDA margin of 20 per cent. per annum. 

The Board does not believe that the market fully appreciates the attributes of this business while it is combined with the Infrastructure Solutions Business. Businesses with similar characteristics and profit margins to the Network-Based Managed Services Business to be carried out by Redcentric historically command a valuation with a higher price / earnings multiple than that of the Redstone Group. Furthermore it is the opinion of the Board that the two divisions are less likely to maximise their potential performance if they continue to be operated as part of one group. Given these factors, the Board, together with its advisers, has evaluated several options for maximising shareholder value, giving due consideration to a range of alternatives and factors.

The Board has concluded that the Demerger is in the best interests of the business and will deliver additional value to shareholders over time by:

·      allowing Redstone and Redcentric to pursue their strategic objectives independently with greater control over resources and opportunities;

·      increasing management and board focus on the particular needs of each company;

·      allowing the Network-Based Managed Services Business of Redcentric to become a focused managed services business, showcasing its improved operating margins; and

·      providing shareholders with added flexibility in their investment decisions.

The Demerger will create two distinct entities with different strategic, operational and economic characteristics and with separate operational management teams.

3.         Information on Redstone

Redstone is a well established Infrastructure Solutions provider to investment banks and other blue chip organisations with a strong annuity based campus network management division and a cabling projects business.

The Directors believe the key strengths of Redstone post-demerger are:

·      its established track record of delivering solutions for complex mission critical systems;

·      its blue chip client base and strength of offering to major investment banks; and

·      that approximately 30 per cent. of Redstone's revenues are contractually recurring.

The Redstone brand is well regarded and respected in the Infrastructure Solutions market, and the Directors believe that, post-demerger, Redstone will be well positioned to benefit from sector consolidation, as a stand alone specialist Infrastructure Solutions business.

4.         Information on Redcentric

Redcentric will be a leading mid-market Network-Based Managed Services provider whose services are differentiated by its proprietary networks creating a genuine end-to-end client service proposition. Businesses with similar characteristics and profit margins to the Network-Based Managed Services Business to be carried on by Redcentric have historically commanded a valuation equal to a higher price / earnings multiple than that of the Redstone Group. The Directors believe the key strengths of Redcentric are:

·      recurring annuity revenues expected to be in excess of 65 per cent. of total revenues in the year to 31 March 2014;

·      a targeted divisional EBITDA margin of  20 per cent. per annum;

·      critical scale and enhanced capability following acquisition of Maxima;

·      opportunities for further organic and acquisitive growth due to fragmented nature of the sector; and

·      strong cash generation, which will support a progressive dividend policy in due course.

As one of the largest independent Managed Services providers Redcentric will be well placed to benefit from sector consolidation and the proposed Redcentric Board is committed to maximising value for Redcentric Shareholders.

5.         Summary of how the Demerger is to be effected

The Demerger is to be effected through Redstone declaring a special dividend equal to the book value of Redstone's shareholding in Redcentric Holdings, the proposed holding company of the Redcentric Group.

This, including the steps in the Capital Reorganisation, will involve:

(i)       the consolidation of every eight Redstone Ordinary Shares into one Consolidated Redstone Ordinary Share;

(ii)      the cancellation of Redstone's Deferred Shares, share premium account and capital redemption reserve, which is expected to amount to £54.7 million in aggregate;

(iii)     the reduction of the nominal value of each Consolidated Redstone Ordinary Share from 0.8 pence to 0.1 pence, which is expected to amount to £3.8 million; and

(iv)     Redstone declaring a special dividend equal to the book value of Redstone's shareholding in Redcentric Holdings, the current holding company of the Redcentric Group.  This dividend will be satisfied, in specie, by the transfer by Redstone to Redcentric of the shares in Redcentric Holdings.  In return for this transfer, Redcentric will then allot and issue Redcentric Ordinary Shares to Redstone Shareholders who are registered on the Redstone Share Register at the Demerger Record Time on the basis of one Redcentric Ordinary Share for every 10 New Redstone Ordinary Shares then held (save that fractions of a Redcentric Ordinary Share will not be issued).

In order for the Demerger to benefit from the tax treatments the subject of the tax clearances summarised in Part IV of the circular, the proportion of share capital held by each shareholder of Redstone and Redcentric must, both immediately before and after the relevant time, be the same or as nearly as possible the same.  Redcentric's share capital comprises one ordinary share and 50,000 redeemable shares and, therefore, the Board intends to allot and issue the Redeemable Shares prior to the Demerger becoming effective in order to ensure that the share capital of Redstone mirrors the share capital structure of Redcentric at the Demerger Effective Date.

The Board also intends to allot and issue a nominal amount of Redstone Ordinary Shares to an existing Shareholder of the Company after the General Meeting and before the Capital Reorganisation Record Time to ensure that the entire issued ordinary share capital of Redstone is divisible by eight at the relevant time.

The distributable reserves created following the Court's approval of the Redstone Reduction of Capital will: (a) in the first instance be offset against the existing distributable reserves deficit in Redstone; and (b) then be utilised to effect the special dividend.  Any balance remaining after (a) and (b) will comprise distributable reserves of the Company going forward.

Shareholders will continue to hold their existing shares in Redstone (as consolidated pursuant to the Redstone Reduction of Capital and following the reduction of nominal value pursuant to the Redstone Reduction of Capital).  Following the Demerger, each Shareholder will hold substantially the same percentage of New Redstone Ordinary Shares and Redcentric Ordinary Shares.

The Demerger is conditional, inter alia, on:

(i)       the approval by Shareholders of the Shareholder Resolutions (including the Demerger Resolution);

(ii)      the confirmation of the Redstone Reduction of Capital by the Court;

(iii)     the tax clearance summarised in Part IV of the circular being obtained from HMRC (which is not expected to be withheld); and

(iv)     no other events or developments shall have occurred or shall exist that, in the judgment of the Board, in its sole and absolute discretion, would make it inadvisable to effect the Demerger.

Save for the approval of, Shareholders and the Court required in connection with the Redstone Reduction of Capital and receipt of the tax clearance from HMRC, no other approvals are required for the implementation of the Demerger.  Further details of the tax clearance applied for appear in Part IV of the circular.

All lender consents necessary to effect the Demerger will be obtained prior to the Demerger Effective Date.

It should be noted that, although it is currently the Company's intention that the Demerger should be concluded, the Company is entitled to decide not to proceed with the Demerger at any time prior to the Board resolving to recommend the Demerger Dividend if the Board considers that it would not be in the interests of Shareholders.

Neither the Redstone Group nor Redcentric will have a shareholding in the other following the Demerger.  It is expected that Peter Hallett, Richard Ramsay, David Payne and Tony Weaver will be the only directors common to both Redstone and Redcentric. 

It is proposed that an application will be made for the Redcentric Ordinary Shares to be admitted to trading on AIM on or around 16 April 2013.

Further details of the Demerger are set out in Part III of the circular.

6.         Capital Reorganisation

The Capital Reorganisation should not affect in itself the total market capitalisation of the Company or the value of individual shareholdings (disregarding adjustments for fractional entitlements) but will mean that for every eight Redstone Ordinary Shares held, each Shareholder will instead receive one Consolidated Redstone Ordinary Share with a nominal value of eight times that of a Redstone Ordinary Share.  The Consolidated Redstone Ordinary Shares will have the same rights as those currently accruing to the Redstone Ordinary Shares under the Company's Articles, including those relating to voting and entitlement to dividend.

As at close of business on 12 February 2013, being the latest practicable date prior to the publication of the circular, there were 4,389,738,850 Redstone Ordinary Shares in issue.  Immediately following the Capital Reorganisation and the Redstone Reduction of Capital and the Admission of the Placing Shares, it is expected that there will be 623,717,357 New Redstone Ordinary Shares in issue, on the assumption that the number of Consolidated Redstone Ordinary Shares in issue at the Demerger Record Time does not change from the number in issue as at the close of business on 12 February 2013 (save for the allotment and issue of the Placing Shares and the additional nominal number of Redstone Ordinary Shares mentioned in paragraph 5 above).  It is therefore expected that, immediately following the Demerger, there will be approximately 62,370,000 Redcentric Ordinary Shares in issue.

7.         The Redcentric Reduction of Capital

Shortly after the Demerger becomes effective, Redcentric will seek the confirmation of the Court to reduce its capital to create distributable reserves.  The reserves created by this capital reduction will be available at the discretion of the Redcentric Directors for the purpose of supporting the payment of future dividends.  The Court's approval of the Redcentric Reduction of Capital will be sought after the Demerger, and so the Demerger is not conditional on this approval.

Shareholders will be asked to confirm their approval for the Redcentric Reduction of Capital in a special resolution at the General Meeting.  The Redcentric Reduction of Capital will also require the confirmation of the Court.  If both are obtained, the Redcentric Reduction of Capital is expected to be effected on or around 10 April 2013.

8.         Placing

The Company has conditionally raised approximately £6 million (before commission and expenses) through the proposed issue of the Placing Shares at the Placing Price, which represents a discount of approximately 11.9 per cent. to the middle market closing price of 1.135 pence per Redstone Ordinary Share on 12 February 2013, being the last practicable date prior to the publication of the circular.  The Placing Shares will represent approximately 12.02 per cent. of the Enlarged Share Capital

The Placing is conditional upon, inter alia, the Redstone Reduction of Capital being confirmed by the court and the relevant court order being delivered to the Registrar of Companies by 27 March 2013 (or, if the court so orders, the court order confirming the Redstone Reduction of Capital being registered by the Registrar of Companies by 27 March 2013), the Resolutions being passed at the General Meeting and Admission becoming effective on or before 8.00 a.m. on 28 March 2013 (or such later time and/or date as the Company and finnCap may agree, but in any event no later than 8.00 a.m. on 30 April 2013).  The Placing is not conditional upon the Demerger becoming effective.

A summary of the terms of the Placing Agreement is set out in paragraph 7.4 of Part V of the circular.

Use of proceeds

The Directors intend that the proceeds of the Placing will be used to provide sufficient working capital for each of the demerged businesses and to pay the costs associated with the Demerger and Redcentric Admission.

Participation of the Directors

MXC Capital, representing the interests of Ian Smith and Tony Weaver, has agreed to invest £100,000 though the subscription of 10,000,000 Redstone Ordinary Shares (1,250,000 New Redstone Ordinary Shares) in the Placing at the Placing Price. Upon Admission, MXC Capital and Ian Smith's self-invested personal pension plan will be interested in 86,866,084 New Redstone Ordinary Shares representing 13.93 per cent. of the Enlarged Share Capital of the Company.

Settlement and dealings

Application will be made to the London Stock Exchange for the Placing Shares to be admitted to trading on AIM.  It is expected that such Admission will occur on 28 March 2013.

Following Admission, share certificates representing the New Redstone Ordinary Shares to be allotted and issued pursuant to the Placing are expected to be despatched by post to Placees who do not wish to receive shares in uncertificated form, by no later than 30 April 2013, at the relevant Placee's sole risk. No temporary documents of title will be issued in connection with the Placing.

The CREST accounts of Placees who have duly elected to receive their New Redstone Ordinary Shares in uncertificated form are expected to be credited to the designated CREST account on 28 March 2013.

The Placing Shares will, when issued, rank pari passu in all respects with the New Redstone Ordinary Shares.

9.         Current trading and prospects - Redstone and Redcentric

The Company continues to trade in line with management expectations.  In implementing the Demerger, the Company has chosen to accelerate the integration and restructuring of the Network-Based Managed Services Business by combining the recently-acquired managed services business of Maxima with the existing Redstone managed solutions business, while at the same time further leveraging Redstone's resilient core network. These steps will result in greater synergies being realised from the Maxima acquisitions and will result in non-recurring exceptional charges of approximately £2.8 million being recognised in the current financial year. 

Redstone

The Infrastructure Solutions Business continues to perform in line with management expectations with the current project pipeline benefitting by the scheduled delivery of the final two phases of the £21.9 million project for a mission critical data centre for a leading UK Bank, representing approximately 50 per cent. of the total project.  A more selective bidding policy based on only targeting projects with acceptable margins will continue to apply and the business has traded profitability in the current financial year.

Redcentric

The Network-Based Managed Services Business continues to perform in line with management expectations. The integration of Maxima had progressed well and there has been an encouraging level of contract renewals and new contract wins. The broader capabilities of the business are reaping rewards and there are good early indicators of the potential to cross sell successfully to the enlarged customer base and extend the range of services being delivered.

10.        Financial effects of the Demerger

The expected benefits of the Demerger are set out in paragraph 2 of this Part I: "Letter from the Chairman". The illustrative effect on Redstone's assets and liabilities as at 30 September 2012 would be to reduce net assets (excluding any goodwill write off) by an estimated £5.2 million. The illustrative effect on Redcentric's assets and liabilities as at 30 September 2012 would be to increase net assets (excluding any fair value adjustment) by an estimated £5.2 million. The Board expects one-off cash costs arising on the Demerger and Placing to be approximately £1.3 million comprising restructuring, accountancy, legal, financial and corporate broking advice.  The central costs of running two quoted plcs is estimated to be in the region of £350,000 per annum more than expected Redstone central costs in the year to 31 March 2013.

As part of the Demerger the Company's existing debt facilities will be split between the businesses and it is currently anticipated that the new facilities will comprise:

·      Redstone plc: a committed facility of £5 million to 1 July 2015; and

·      Redcentric plc: a committed facility of £14.2 million to 1 July 2015.

Redstone has received from its bankers, Barclays Bank plc, an in principle commitment to provide the said facilities and consent to the Demerger subject to satisfaction of certain conditions precedent.

11.        Board structures and corporate governance

The Redstone Group currently has a strong and experienced management team.  Following the Demerger, this team will form the core of the management boards of Redstone and Redcentric, ensuring appropriate continuity for both businesses, and will be supplemented by the addition of new talent in both businesses.

The current directors of Redstone are set out at the beginning of this letter.

With effect from the completion of the Demerger, the directors of Redstone will be:

 

Name

Position

David Payne

Non-Executive Chairman

Ian Smith

Chief Executive Officer

Peter Hallett

Chief Financial Officer

Richard Ramsay

Non-Executive Director

Tony Weaver

Non-Executive Director

 

It is expected that the directors of Redcentric will be:

 

Name

Position

Richard Ramsay

Non-Executive Chairman

Tony Weaver

Chief Executive Officer

Peter Hallett

Chief Financial Officer

David Payne

Non-Executive Director

In addition, the Redcentric Board intends to appoint a Chief Operating Officer at an appropriate point in the future.

The biographies of the members of the boards of both companies are set out in paragraph 3 of Part V: "Additional Information".

12.        Dividend policies

Redstone

The Company does not currently pay a dividend and the Board does not anticipate paying dividends in the near future.

Redcentric

Declaration and payment of dividends by Redcentric will be dependent upon its financial position, cash requirements, future prospects, profits available for distribution and other factors regarded by the Redcentric Board as relevant at the time.  It is expected that Redcentric will generate sufficient profits and free cash flow to consider a dividend for the financial year to 31 March 2014 and it is the Redcentric Board's intention to put in place a progressive dividend policy thereafter.

13.        Risk factors

Shareholders should consider carefully the risks and uncertainties set out in Part II: "Risk Factors" relating to the Demerger, the Redstone Group (in the context of the Demerger), the Redcentric Group (in the context of the Demerger) and the Redcentric Ordinary Shares, along with all of the information set out in the circular.  If any or a combination of these risks actually occurs, the market price of the shares in Redstone and/or Redcentric may decline.

14.        Share schemes

The Company currently operates an Approved Employee Share Option Plan and an Unapproved Share Option Plan.

Following completion of the Demerger, the Directors intend to make appropriate adjustments to the outstanding awards under Redstone's share option schemes.  Adjustments may be made to the number of shares comprising, and the exercise price of, any award together with any performance conditions in respect thereof.

The existing Redstone share schemes will continue for the benefit of Redstone Group employees post-demerger.

15.        Taxation

The attention of Shareholders is drawn to Part IV of the circular.

Shareholders who are in any doubt as to their tax position or who are subject to tax in a jurisdiction other than the UK should contact their professional adviser immediately.  The absence of any reference to the tax consequences of the Demerger for Shareholders who are subject to tax in any other particular jurisdiction should not be taken to imply that the implantation of the Demerger might not have adverse tax consequences for such Shareholder.

16.        Overseas Shareholders

The implications of the Demerger for Overseas Shareholders may be affected by the laws of the jurisdiction in which they are resident or otherwise located.  Overseas Shareholders should inform themselves about and observe all applicable legal requirements.

It is the responsibility of any person into whose possession the circular comes to satisfy themselves as to the full observance of the laws of the relevant jurisdiction in connection with the allotment and issue of Redcentric Ordinary Shares pursuant to the Demerger, including the obtaining of any governmental, exchange control or other consents which may be required and/or compliance with other necessary formalities which are required to be observed and the payment of any issue, transfer or other taxes or levies due in such jurisdiction.

17.        General Meeting

You will find set out at the end of the circular a Notice of General Meeting of the Company to be held at the offices of DAC Beachcroft LLP, 100 Fetter Lane, London EC4A 1BN on 4 March 2013 at 10.00 a.m. at which the Resolutions will be proposed.

The six resolutions that are to be proposed at the General Meeting are:

(1)  Approve the Capital Reorganisation

Resolution 1, which will be proposed as a special resolution, is to approve the Capital Reorganisation to create the Consolidated Redstone Ordinary Shares and approve an amendment to the Company's Articles.

(2)  Approve the Redstone Reduction of Capital

Resolution 2, which will be proposed as a special resolution and which is conditional on the passing of resolution 1 and confirmation of the Court, is to approve: (a) the cancellation of Redstone's Deferred Shares, share premium account and capital redemption reserve; (b) the reduction of the nominal value of each Consolidated Redstone Ordinary Share; and (c) amendments to the Company's Articles.

(3)  Approve the Demerger

Resolution 3, which is proposed as an ordinary resolution and which is conditional on the passing resolutions 1 and 2, is to approve the declaration of a special dividend to give effect to the Demerger (such dividend to be satisfied, in specie, by the transfer of the Network-Based Managed Services Business to Redcentric in consideration for the allotment and issue by Redcentric of one Redcentric Ordinary Share for every 10 New Redstone Ordinary Shares held by Shareholders (save that fractions of a Redcentric Ordinary Share will not be issued) at the Demerger Record Time) and to approve the Demerger for the purposes of Rule 15 of the AIM Rules.

 (4)  Authority to allot New Redstone Ordinary Shares

Resolution 4, which will be proposed as an ordinary resolution and which is conditional on the passing of resolution 1 and the Redstone Reduction of Capital becoming effective, is to authorise the Directors to allot the Placing Shares in connection with the Placing, to allot the Redeemable Shares and otherwise to allot relevant securities up to £207,905.79 in nominal value (representing approximately one third of the Enlarged Share Capital) provided that such authority shall (subject to limited exceptions), expire fifteen months from the passing of the resolution or, if earlier, the conclusion of the next annual general meeting of the Company.

(5)  Authority to allot New Redstone Ordinary Shares on a non pre-emptive basis

Resolution 5, which will be proposed as a special resolution and which is conditional on the passing of resolutions 1 and 4 and the Redstone Reduction of Capital becoming effective, dis-applies Shareholders' pre-emption rights in relation to the allotment of the Placing Shares, in relation to the allotment of the Redeemable Shares and grants a further authority to allot equity securities for cash on a non pre-emptive basis up to an aggregate nominal amount of £62,371.74 (representing 10 per cent. of the Enlarged Share Capital) provide that such authority shall (subject to limited exceptions), expire fifteen months from the passing of the resolution or, if earlier, the conclusion of the next annual general meeting of the Company.

(6)  Approve the Redcentric Reduction of Capital

Resolution 6, which is conditional on the Demerger becoming effective, will be proposed as a special resolution, is to approve the Redcentric Reduction of Capital.

The majority required to pass resolutions numbered 1, 2, 5 and 6 above is not less than 75 per cent. of the votes cast.  Resolutions numbered 3 and 4 above require a simple majority.

Shareholders should read the Notice of General Meeting at the end of the circular for the full text of the Resolutions and for further details about the General Meeting.

The attention of Shareholders is also drawn to the voting intentions of the Directors and connected parties as set out in the paragraph entitled "Recommendation" below.

18.        Action to be taken

Set out at the end of the circular you will find a notice convening a General Meeting to be held at the offices of DAC Beachcroft LLP, 100 Fetter Lane, London EC4A 1BN at 10.00 a.m. on 3 March 2013 to consider and, if thought fit, approve the Resolutions.

Shareholders will find enclosed with the circular a Form of Proxy for use in connection with the General Meeting. Whether or not Shareholders intend to be present at the General Meeting, they are requested to complete and return the Form of Proxy in accordance with the instructions printed thereon as soon as possible and, in any event, so as to be received by the Company's registrars, Capita Registrars, PXS, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU, not later than 48 hours before the General Meeting is scheduled to begin. The completion and return of the Form of Proxy will not preclude Shareholders from attending the General Meeting and voting in person should they so wish.

19.        Further Information

Your attention is drawn to the risk factors of the Demerger in Part II of the circular, the principal terms of the Demerger in Part III and the additional information in Part V.

Shareholders are advised to read the whole of the circular and not only rely on the summary information contained in this letter.

20.        Documents available

Copies of the circular will be available to the public, free of charge, at the Company's registered office and the offices of finnCap at 60 New Broad Street, London EC2M 1JJ during usual business hours on any weekday (Saturdays, Sundays and public holidays excepted) for one month from the date of the circular.  The document is also available on the Company's website, www.redstone.com.

21.        Recommendation

The Directors, having consulted with finnCap, consider that the Resolutions are in the best interests of the Company and would promote the success of the Company for the benefit of its Shareholders as a whole.  Accordingly, the Directors recommend that Redstone Shareholders vote in favour of the Resolutions to be proposed at the General Meeting, as each Redstone Director has undertaken to do in respect of his own beneficial shareholdings, amounting in aggregate to 717,459,847 Redstone Ordinary Shares, representing approximately 16.34 per cent. of the Company's existing issued Redstone Ordinary Shares.

 

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

Event

Time and/or date

2013

Date of the circular

13 February

Latest time and date for receipt of Forms of Proxy

10.00 a.m. on 28 February

General Meeting

10.00 a.m. on 4 March

Latest time and date for lodging transfers of Redstone Shares in order for the transferee to be registered at the Demerger Record Time

4.30 p.m. on 26 March

Capital Reorganisation Record Time

5.00 p.m. on 26 March

Redstone Ordinary Shares disabled in CREST and Redstone Share Register closed

5.00 p.m. on 26 March

Court hearing to confirm the Redstone Reduction of Capital

27 March**

Effective Date of the Redstone Reduction of Capital

27 March**

Cancellation of trading of Redstone Ordinary Shares

7.00 a.m. on 28 March*

New Redstone Ordinary Shares (including the Placing Shares) admitted to trading on AIM and dealings in New Redstone Ordinary Shares commences

8.00 a.m. on 28 March*

CREST accounts credited with New Redstone Ordinary Shares (including the Placing Shares)

8.00 a.m. on 28 March*

Demerger Record Time

8.00 a.m. on 28 March

Demerger Effective Date (issue of Redcentric Ordinary Shares)

2 April*

CREST stock accounts to be credited with Redcentric Ordinary Shares

2 April*

Court hearing to confirm the Redcentric Reduction of Capital

10 April*

Expected Date of Redcentric's Reduction of Capital

10 April*

Estimated time and date for the admission of the Redcentric Ordinary Shares to trading on AIM

8.00 a.m. on 16 April*

Expected date for despatch of definitive share certificates for New Redstone Ordinary Shares (including any Placing Shares)

By 30 April*

Expected date for despatch of definitive share certificates for Redcentric Ordinary Shares

By 15 May*

 

(1) The times and dates set out in the expected timetable of principal events above and mentioned throughout the circular may be adjusted by Redstone and Redcentric in consultation with finnCap, in which event details of the new times and dates will be notified to the London Stock Exchange, and where appropriate, Redstone Shareholders.

(2) All references in the circular to times are to London time unless otherwise stated.

* These dates are indicative only and will depend, amongst other things, on the dates on which the Court confirms the Redstone Reduction of Capital and on which the Redstone Reduction of Capital becomes effective.

** These dates are indicative only and will depend, amongst other things, on the date that the Court confirms the Redstone Reduction of Capital.

 

 STATISTICS

 

Number of Redstone Ordinary Shares in issue at the date of the circular

4,389,738,850

Number of Redstone Ordinary Shares in issue immediately prior to the Capital Reorganisation Record Time

4,389,738,856

Estimated number of Consolidated Redstone Ordinary Shares in issue following the Capital Reorganisation

548,717,357

Placing Price (pre-Capital Reorganisation and Redstone Reduction of Capital)

1 penny

Placing Price (post-Capital Reorganisation and Redstone Reduction of Capital)

8 pence

Number of Placing Shares (pre-Capital Reorganisation and Redstone Reduction of Capital)

600,000,000

Number of Placing Shares (post-Capital Reorganisation and Redstone Reduction of Capital)

75,000,000

Estimated Enlarged Share Capital

623,717,357

Placing Shares as a percentage of the Enlarged Share Capital (approximately)

12.02 per cent.

Estimated proceeds of the Placing receivable by the Company (before expenses)

£6,000,000

AIM trading symbol

RED

Current ISIN

GB00B1VGFJ71

New ISIN

To be advised by RNS once available

 

DEFINITIONS

 

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

 

"Act"

the Companies Act 2006;

"Admission"

the admission to trading on AIM of the Placing Shares;

 

"AIM"

the market of that name operated by the London Stock Exchange;

"AIM Rules"

the AIM Rules for Companies published by the London Stock Exchange from time to time which set out the rules and responsibilities in relation to companies whose shares are admitted to trading on AIM;

"Articles"

 

the articles of association of Redstone in force at the date of the circular;

"Business Day"

 

a day, not being a Saturday, Sunday or public holiday, on which the clearing banks in London are generally open for business;

"Capita Registrars"

the trading name of Capita Registrars Limited;

"Capital Reorganisation"

the proposed consolidation of every eight Redstone Ordinary Shares into one Consolidated Redstone Ordinary Share;

"Capital Reorganisation Record Time"

5.00 p.m. on 26 March 2013;

 

"certificated form" or "in certificated form"

an ordinary share recorded on a company's share register as being held in certificated form (namely, not in CREST);

"Company" or "Redstone"

Redstone plc, a company incorporated in England and Wales with registered number 03336134;

"Consolidated Redstone Ordinary Shares"

the new Redstone shares of 0.8 pence each in the capital of the Company resulting from the Capital Reorganisation;

"Continuing Redstone Group"

 

Redstone and its subsidiaries and subsidiary undertakings following completion of the Demerger, excluding those companies which form part of the Redcentric Group;

"Court"

the High Court of Justice of England and Wales;

"CREST"

 

the relevant system (as defined in the Uncertificated Securities Regulations 2001, as amended) in respect of which Euroclear UK & Ireland Limited is the operator;

"Deferred Shares"

the deferred shares of 9.9 pence each in the capital of Redstone;

"Demerger"

 

the proposed demerger of the Network-Based Managed Services Business from the Redstone Group to be effected by way of a special dividend demerger on the terms and subject to the conditions set out in the Demerger Agreement;

"Demerger Agreement"

 

the agreement between Redstone and Redcentric relating to the demerger of the Network-Based Managed Services Business from the Redstone Group entered into on 12 February 2013, a summary of the principal terms of which is set out in paragraph 7.1 of Part V of the circular;

"Demerger Dividend"

 

the proposed special dividend to be declared by Redstone in connection with the Demerger, the amount of which is equal to the book value of the Company's interest in Redcentric Holdings, as set out in the Demerger Resolution;

"Demerger Effective Date"

the time at which the demerger becomes effective, expected 2 April 2013;

"Demerger Record Time"

8.00 a.m. on 28 March 2013;

"Demerger Resolution"

the resolution numbered 3 set out in the Notice of General Meeting;

 

"Directors" or "Board"

 

the directors of the Company whose names are set out on page 32 of the circular, or any duly authorised committee thereof, and "Director" means any one of them;

"Enlarged Share Capital"

 

all of the issued New Redstone Ordinary Shares following the Capital Reorganisation, the Redstone Reduction of Capital and the issue of the Placing Shares;

"finnCap"

 

finnCap Ltd, a company registered in England and Wales under company number 06198898;

"Form of Proxy"

the form of proxy accompanying the circular for use in connection with the General Meeting;

"General Meeting"

the general meeting (or any adjournment thereof) of the Redstone Shareholders to be convened pursuant to the Notice of General Meeting set out at the end of the circular;

"HMRC"

HM Revenue & Customs;

"Infrastructure Solutions Business"

 

the business of designing and building the physical infrastructure that powers corporate offices and data-centres and delivering end point services for customers as well as responding to support issues and providing structured cabling moves, adds and changes;

"ISP"

Internet Service Provider;

"London Stock Exchange"

London Stock Exchange plc;

"Maxima"

Maxima Holdings plc, incorporated in England and Wales with company registration number 05043538;

"MXC Capital"

 

MXC Capital Limited, incorporated in England and Wales with company registration number 07039551;

"Network-Based Managed Services Business"

the business of providing cloud, data-centre, ISP and network services and managed Wide Area Networks;

"New Redstone Ordinary Shares"

 

the new Redstone shares of 0.1 pence each in the capital of the Company resulting from the Capital Reorganisation and the Redstone Reduction of Capital;

"Notice of General Meeting"

the notice convening the general meeting contained in the circular;

"Overseas Shareholders"

Shareholders with registered addresses outside the UK or who are incorporated in, registered in or otherwise resident or located in, countries outside the UK;

"Placees"

persons who agree conditionally to subscribe for Placing Shares under the Placing;

"Placing"

 

the conditional placing of the Placing Shares by finnCap as agents for the Company, as described in the circular, pursuant to the Placing Agreement;

"Placing Agreement"

 

the conditional agreement dated 12 February 2013, between (1) the Company, (2) the Directors and (3) finnCap relating to the Placing, further details of which are set out in paragraph 7.4 of Part V of the circular;

"Placing Price"

8 pence per New Redstone Ordinary Share;

"Placing Shares"

the New Redstone Ordinary Shares to be issued pursuant to the Placing;

"Redcentric"

Redcentric plc, a company incorporated in England and Wales with registered number 08397584;

"Redcentric Admission"

the admission to trading on AIM of the Redcentric Ordinary Shares;

"Redcentric Admission Document"

 

the document comprising an admission document relating to Redcentric for the purposes of Redcentric Admission (together with any supplements or amendments thereof);

"Redcentric Articles"

the articles of association of Redcentric;

"Redcentric Board"

the board of directors of Redcentric from time to time;

"Redcentric Group"

 

the companies operating the Network-Based Managed Services Business from time to time which will include Redcentric and its subsidiaries and subsidiary undertakings from the Demerger Effective Date;

"Redcentric Holdings"

 

Redcentric Holdings Limited, a company incorporated in England and Wales with registered number 08399756;

"Redcentric Ordinary Shares"

ordinary shares in the capital of Redcentric;

"Redcentric Reduction of Capital"

the proposed reduction of the nominal value of each Redcentric's Ordinary Shares under Part 17, Chapter 10 of the Act;

"Redcentric Shareholders"

holders of Redcentric Ordinary Shares from time to time;

"Redeemable Shares"

 

the 500,000 redeemable shares of 10 pence each to be allotted and issued in the Company;

"Redstone Group"

 

in respect of any period prior to the Demerger Effective Date, Redstone and its subsidiaries and subsidiary undertakings including those companies which form part of the Redcentric Group and, in respect of any period following the Demerger Effective Date, the Continuing Redstone Group;

"Redstone Ordinary Shares"

ordinary shares of 0.1 pence each in the capital of Redstone;

"Redstone Reduction Court Hearing"

the hearing at which the Redstone Reduction Court Order is made;

"Redstone Reduction Court Order"

the order of the Court granted at the Redstone Reduction Court Hearing to confirm the Redstone Reduction of Capital;

"Redstone Reduction of Capital"

 

the proposed cancellation of the Company's Deferred Shares, share premium account and capital redemption reserve and the proposed reduction of the nominal value of each Consolidated Redstone Ordinary Share from 0.8 pence to 0.1 pence under Part 17, Chapter 10 of the Act;

"Redstone Share Register"

the register of members of the Company;

"Registrar"

Capita Registrars;

"Regulations"

the Uncertificated Securities Regulations 2001 (SI 2001 No. 01/3755);

"Regulatory Information Services"

has the same meaning as defined in the AIM Rules;

"Resolutions"

each of the resolutions which are set out in the Notice of General Meeting;

"SDRT"

stamp duty reserve tax;

"Shareholders"

holders of ordinary shares in Redstone from time to time;

"Shareholder Resolutions"

 

the resolutions to approve the Capital Reorganisation, the Redstone Reduction of Capital and the Demerger to be proposed at the General Meeting, as set out in the Notice of General Meeting at the end of the circular;

"subsidiary"

has the meaning given in section 1159 of the Act;

"subsidiary undertaking"

has the meaning given in section 1162 of the Act;

"UK" or "United Kingdom"

the United Kingdom of Great Britain and Northern Ireland;

"uncertificated" or "in uncertificated form"

 

an ordinary share recorded on a company's share register as being held in uncertificated form in CREST and title to which, by virtue of the Uncertificated Securities Regulations 2001, as amended, may be transferred by means of CREST; and

"US" or "United States"

the United States of America, its territories and possessions, any state of the United States and the District of Columbia;

"US Securities Act"

the US Securities Act of 1933, as amended; and

"VAT"

 

value added tax.

Unless otherwise indicated, all references in this announcement are to times are to London times.

 


This information is provided by RNS
The company news service from the London Stock Exchange