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Source BioScience issues update regarding funding arrangements for the possible offer for Vindon Healthcare PLC

Source BioScience issues update regarding funding arrangements for the possible offer for Vindon Healthcare PLC

Proposed firm placing to raise up to GBP 9.5 million gross proceedings finral stage negotionations of GBP 9.5 million new debt facility

Nottingham, UK – 24 July 2013 – On 15 July 2013 the Board of Source BioScience (the "Board"), the international diagnostic and genetic analysis services business, announced that it was at an advanced stage of discussions with the board of Vindon Healthcare plc ("Vindon Healthcare"), a leading provider of controlled environment services and products to the pharmaceutical and life sciences sectors in the UK, Ireland, Europe and North America, regarding a possible all cash offer (the "Possible Offer") for the entire issued and to be issued share capital of Vindon Healthcare not already owned by Source BioScience, at a price of 13.7 pence per Vindon Healthcare share (the “Possible Offer Price”).  The Possible Offer Price would value the entire issued and to be issued share capital of Vindon Healthcare at approximately GBP 12.2 million.

Highlights:

• The Board can report good progress which has been made towards securing funding for the Possible Offer
• Since the Possible Offer announcement referred to above, Source BioScience has:
– through its broker N+1 Singer, conditionally raised GBP 9.5 million firm with new and existing institutional investors;
– made good progress towards finalising a new debt facility expected to total GBP 9.5 million, to be provided by its existing lender; and
– continued to advance other preparations towards the announcement of the Possible Offer
• Further information is provided below, including important additional information regarding the conditionality of the funding arrangements being put in place
• This announcement does not constitute an announcement of a firm intention to make an offer or to pursue any other transaction under Rule 2.7 of the Takeover Code.  Accordingly, Vindon shareholders are advised that there can be no certainty that an offer for Vindon will be made, even if the pre-conditions to the Possible Offer are satisfied or waived
The making of any offer by Source BioScience remains subject to certain pre-conditions, including but not limited to the unanimous recommendation of such an offer by the directors of Vindon Healthcare, and the arrangement of suitable funding which is also addressed below.  Source BioScience reserves the right to waive any of the pre-conditions, including that in relation to the unanimous recommendation in the event of a competing offer or proposed offer.


Overview
The Board can report substantial progress in respect of the proposed funding arrangements for the Possible Offer (the “Funding Arrangements”).  The Funding Arrangements are expected to consist of a combination of the partial use of the net proceeds from a GBP 9.5 million firm placing of new shares in the Company, and the partial drawdown under a new GBP 9.5 million debt facility (the “New Debt Facility”), the arrangement of which is expected to be finalised over the coming days. 

Source BioScience has today, through its broker, N+1 Singer, conditionally raised GBP 9.5 million through a firm placing of new shares with new and existing institutional investors.  Under the conditional firm placing, the Company is expected to issue 100,000,000 new ordinary shares of 2 pence each (the “Firm Placing Shares”) at an issue price of 9.5 pence per Firm Placing Share (the "Firm Placing"). 

The Firm Placing has not yet been formally launched and is subject to certain pre-conditions, details of which are set out below.  The Firm Placing remains subject to, amongst other things, the issue of a prospectus and circular, which is required under the Financial Services and Markets Act 2000 and under the Listing Rules,  and of certain resolutions being passed by shareholders in order to give effect to the Acquisition and the Firm Placing.  The issue of the prospectus remains subject to UKLA approval and, while drafting and review is at a reasonably advanced stage, there can be no certainty at this stage that the Possible Offer (or any offer) or the Firm Placing will proceed. 

In parallel with arranging the Firm Placing, the Company has been arranging debt finance and expects to reach agreement on the terms of the New Debt Facility and to enter into a final agreement shortly with the Company’s existing lender, The Royal Bank of Scotland plc.  Utilisation of the New Debt Facility will be conditional, among other things, upon the Possible Offer, if made, becoming or being declared unconditional in all respects in due course and certain minimum funding from the Firm Placing (which the conditional Firm Placing size exceeds). 

Excess proceeds or headroom arising from the Funding Arrangements, after applying the proceeds from debt and equity funding to the Possible Offer as described below and after deducting costs and expenses, are expected to be applied to additional organic and selected acquisitive growth opportunities, in line with the Company’s existing strategy.

The Funding Arrangements
-              The Firm Placing is supported by existing and new institutional investors and is being carried out for the purposes of partially funding the Possible Offer and providing finance for additional organic and selected acquisitive growth opportunities, in line with the Company's existing strategy

-              Assuming the Possible Offer is made, the contractual obligations of the placees in the Firm Placing (the “Firm Placees”) will be subject to:

(1)          the passing of certain resolutions relating to the Acquisition and the Firm Placing by no later than 5 p.m. on 30 August 2013;
(2)          the Acquisition becoming or being declared unconditional in all respects (subject only to admission of the Firm Placing Shares having taken place) by no later than 5 p.m. on 30 October 2013;
and
(3)          Admission of the Firm Placing Shares becoming effective by no later than 8.30 a.m. on 31 October 2013,
as such conditions may be amended, varied or supplemented by the agreement of the Company and N+1 Singer prior to the release of any announcement under Rule 2.7 of the Takeover Code in respect of the Possible Offer

-              Assuming the Possible Offer, having been made at the Possible Offer Price, becomes or is declared unconditional in all respects in due course, approximately GBP 7.3 million of the gross proceeds of the Firm Placing will be used to part fund the consideration payable to Vindon shareholders in connection with the Possible Offer, alongside the use of approximately GBP 6.4 million drawn down from the New Debt Facility

-              The above uses of proceeds of the Firm Placing and the New Debt Facility include the payment of estimated costs and expenses related to the Possible Offer, the Firm Placing and the arrangement of the acquisition funding under the New Debt Facility

-              Assuming the Possible Offer, having been made, becomes or is declared wholly unconditional in all respects, the balance of the New Debt Facility will be used to repay existing debt in Source BioScience of approximately GBP 2.4 million and net debt of approximately GBP 0.7 million expected to remain in Vindon at the time of completion of such an offer (the New Debt Facility is expected to be entered into on more favourable terms, including lower interest rates, than the existing debt held by either Source BioScience or Vindon)

-              Excess net proceeds from the Firm Placing not required for funding the Possible Offer, having been made and become or declared unconditional in all respects, will be applied as growth capital to support additional organic and other selected acquisitive growth opportunities that complement Source BioScience’s existing product and service portfolio in any or all of its Healthcare, LifeSciences or PharmaBiotech business lines and/or which complement its geographic presence in the UK or internationally

-              Source BioScience will continue to seek additional selected acquisition opportunities, irrespective of whether the Acquisition or the Firm Placing complete, including by way of using any mixture the net proceeds of the Open Offer should it proceed as anticipated, available cash in the business and headroom from time to time under existing debt facilities (or under the New Debt Facility and excess proceeds from the Firm Placing if the Acquisition proceeds)

-              If these organic and other selected acquisitive growth opportunities do not materialise on terms sufficiently attractive to Source BioScience, then the net funds from the Open Offer and any remaining funds from the Firm Placing (assuming that the Acquisition completes) may be used, at the Company’s discretion, to pay down existing debt in Source BioScience or, assuming completion of the Acquisition, the enlarged group

-              Source BioScience is not reliant on the Open Offer (described below), or the additional funds raised through the Firm Placing and not used for the Acquisition and associated costs (assuming that the Acquisition completes), to pay down either its existing debt or the New Debt Facility, or to fund the working capital needs of the Group or the enlarged group

-              Both the Firm Placing and the New Debt Facility are conditional on the Possible Offer, having been made, becoming or being declared unconditional in all respects (save for the admission of the Firm Placing Shares). If the Possible Offer, having been made, does not become or is not declared unconditional in all respects (save for Admission of the Firm Placing Shares), the Firm Placing will not proceed and the Company will not have use of the New Debt Facility for any purpose

-              The Firm Placing Shares, when issued and fully paid, will be identical to, and rank in full with, the existing ordinary shares in Source BioScience for all dividends or other distributions declared, made or paid after admission and will rank pari passu in all respects with the existing ordinary shares. No temporary documents of title will be issued
Open Offer

-              Source BioScience is also finalising arrangements for an open offer to raise up to approximately a further GBP 1.0 million by issuing further new ordinary shares in the share capital of the Company (“Open Offer Shares”) at the price of 9.5 pence per share (the “Open Offer”), in order to provide existing shareholders with the opportunity to mitigate in part the effects of dilution of the Firm Placing, and to provide the Company with additional growth capital for organic and further funding for other selected acquisition opportunities

-              The proceeds of the Open Offer will not be required for the purposes of funding the Possible Offer, if made, nor will there be any clawback arrangement in place in respect of the Firm Placing Shares. The Open Offer proceeds will be applied to additional organic and selected acquisitive growth opportunities as for any excess funds or headroom arising from the Funding Arrangements

-              The Open Offer process will run in parallel with a general meeting (the “General Meeting”), notice of which will be included in the prospectus and circular, at which shareholders' approval  will be sought for certain resolutions including, among other things, to approve the Acquisition and enable the Firm Placing to proceed

-              Further details on the Offer, the Firm Placing and the Open Offer, including the terms and conditions on which the Open Offer is to be made and the procedure for application and payment, as well as the expected timetable of key events, will be provided in a prospectus to be issued in due course in connection with the Acquisition, the Funding Arrangements and the Open Offer and, where appropriate, on the relevant application form

Summary Rationale for the Offer
-              The Board believes that the Acquisition represents a strategic opportunity to add additional depth and breadth to Source BioScience’s existing products and services portfolio, thereby strengthening considerably the enlarged group’s proposition to its customers and prospective customers, and to enhance the combined customer base and geographic reach of the enlarged group. The Board believes that the acquisition of Vindon will significantly strengthen the Company’s existing business model and underpin its growth objectives through increased levels of cash generation in the enlarged group1

-              The Acquisition is expected to be accretive to earnings per share in 2014, being the first full financial year following completion of the Acquisition, and potentially expected to result in EBITDA margin enhancement for the enlarged group

-              The Board believes that completion of the Possible Offer, if made, the Funding Arrangements and the proposed Open Offer, are all in the best interests of shareholders and will be recommending that shareholders vote to approve the resolutions to be put to them at the General Meeting in order to give effect to the Possible Offer, if made, and the Funding Arrangements described above and to provide additional growth capital for the Company

-              The Board reasonably expects that the Possible Offer, if made, would receive a unanimous recommendation from the Vindon directors, subject to the receipt by them of appropriate independent advice in accordance with Rule 3 of the Takeover Code.  This statement is being made with the consent of Vindon.


1     This should not be construed as a profit forecast or interpreted to mean that the future earnings per share, profits, margins or cashflows of the Source BioScience group will necessarily be greater than the historic published figures.

Additional Information

The Firm Placing remains subject to and conditional upon, among other things, shareholder approval at a general meeting to be convened shortly (the “General Meeting”), the passing of resolutions to be put to shareholders at the General Meeting to approve the Acquisition and to give effect to the Firm Placing (including to resolutions to disapply pre-emption rights in respect of the Firm Placing and to convey authority for the Company to allot the Firm Placing Shares), the Company entering into the New Debt Facility and the availability of sufficient debt thereunder to allow the Possible Offer to be made (in conjunction with part of the net proceeds of the Firm Placing) with certainty of funding, and admission of the Firm Placing Shares to the Official List and to trading on the Main Market of the London Stock Exchange.

The Firm Placing is not being underwritten. However, N+1 Singer has entered into binding placing letters with the Firm Placees, pursuant to which they have conditionally agreed to take up their allocation of Firm Placing Shares.

Utilisation of the New Debt Facility will be conditional, among other things, upon the Offer becoming or being declared unconditional in all respects (save for admission of the Firm Placing Shares) in due course and certain minimum funding from the Firm Placing (which the conditional Firm Placing size exceeds).  Customary other conditions for a banking arrangement of this type will also apply, including conditions precedent for utilisation of the New Debt Facility, customary covenants, representations and events of default. Covenants will include EBITDA senior interest cover, the senior debt to EBITDA ratio, cash flow cover (the ratio of net operational cash flow, subject to certain adjustments ,to senior finance costs) and a capital expenditure limit in any financial year (with allowance for an unspent portion of prior year budget to be carried forward into the next financial year.  The covenants also include a restriction on making dividend payments if, at the time of the proposed payment, the Company is in breach of the New Debt Facility or cannot give a confirmation that the financial covenants will be complied with during the following 12 months.

The New Debt Facility will be secured by fixed and floating charges and certain legal mortgages granted by Source BioScience and its active UK subsidiaries, and Vindon and its active UK subsidiaries. Following closing, Inverclyde Biologicals Limited (a Source BioScience subsidiary) and Vindon Scientific (Ireland) Ltd (a Vindon subsidiary) are expected to guarantee and secure the New Debt Facility, as this is a requirement under the terms of the New Debt Facility.

Further information is expected to be provided in a prospectus to be issued to Source BioScience shareholders as soon as reasonably practicable, in the “Rule 2.7 Announcement” and in an offer document to be posted shortly thereafter.  The Firm Placing is further dependent upon the issue of a prospectus, which is required under the Listing Rules and the Prospectus Rules in relation to approval of the Acquisition and in relation to the Firm Placing.  The issue of the prospectus remains subject to UKLA approval and, while drafting and review is at a reasonably advanced stage, there can be no certainty at this stage that the Possible Offer (or any offer) or the Firm Placing will proceed.  Similarly, while the arrangement of debt financing is at a near final stage, there can be no certainty that debt funding will be available.

The Open Offer is not conditional upon any of the Firm Placing, the New Debt Facility or the Offer being made and may proceed, subject to shareholder approval, even if the Firm Placing, the New Debt Facility and the Offer do not.

 

Issued for and on behalf of Source BioScience.

To contact the Source BioScience team at College Hill, email SourceBioScience@collegehill.com
 

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Melanie Toyne-SewellManaging Partner