Plexus Holdings PLC / Index: AIM / Epic: POS / Sector: Oil Equipment & Services
This announcement contains inside information
Plexus Holdings PLC ('Plexus' or 'the Company')
Proposed Buyback of Ordinary Shares held by Gusar
Plexus Holdings PLC, the AIM quoted oil and gas engineering services business and owner of the proprietary POS-GRIP® friction-grip method of wellhead engineering, is pleased to announce that it has conditionally agreed to acquire 4,950,495 Ordinary Shares (the "Buyback Shares") beneficially held by LLC Gusar (OOO Gusar) Ltd ("Gusar"), by way of an off-market buyback at an aggregate price of £2,500,000 representing a price of 50.5 pence per Ordinary Share (the "Buyback").
The proposed Buyback will enable Gusar, inter alia, to finance the purchase of two POS-GRIP jack-up exploration wellhead systems and associated equipment and tooling from the Company (the sale of which was originally announced by the Company on 14 February 2018) via its preferred mechanism and will expedite the establishment of Plexus' POS-GRIP® equipment in Russia and the CIS (the "Region"), one of the top three hydrocarbon producers in the world with significant gas reserves.
The acquisition of the Buyback Shares constitutes an off-market purchase and, pursuant to s.693(1)(a) of the Companies Act 2006, may only be made pursuant to a buyback contract which has been approved by shareholders prior to the acquisition of the Buyback Shares.
Accordingly, the Company is convening the General Meeting, to be held at the offices of Fox Williams LLP at 10 Finsbury Square, London EC2A 1AF on 1 February 2019 at 2.30p.m., at which the Company will seek Shareholder approval of the Buyback Agreement.
In order to convene the General Meeting, a circular containing a notice of the General Meeting and form of proxy (the "Circular") will be despatched to Shareholders of the Company shortly. The Circular will set out further details of the Buyback, the Resolution and a recommendation from the Directors of the Company that Shareholders vote in favour of the Resolution.
Plexus' CEO Ben Van Bilderbeek said, "Plexus sees the share buyback as a practical and positive move that enables the acceleration of the delivery of the equipment into Russia, and positions Gusar ready to fulfill anticipated rental wellhead exploration orders in Russia, one of the world's three major hydrocarbon producers."
Gusar's General Director Alexander Beryozkin said, "We are delighted that after a period of intense work with Gazprom and other customers, we are preparing to enter the stage of participation in exploration drilling in the Russian Federation as soon as the 2019 drilling season. As we have previously indicated, we have reached an agreement with Gazprom for the supply of Mudline suspension systems localized for manufacturing in Gusar's facilities in Russia further to our License Agreement with Plexus. With the use of POS-GRIP technology, we look forward to delivering to our customers reduced drilling time and costs, while increasing safety by not having to remove the BOP. The Plexus - Gusar alliance gives us an opportunity for the first time to bring localized products to the Russian market using advanced superior technology, which positions us for further participation in the Russian exploration drilling market."
**ENDS**
For further information please visit www.posgrip.com or contact:
Ben van Bilderbeek |
Plexus Holdings PLC |
Tel: 020 7795 6890 |
Graham Stevens |
Plexus Holdings PLC |
Tel: 020 7795 6890 |
Derrick Lee |
Cenkos Securities PLC |
Tel: 0131 220 9100 |
Frank Buhagiar |
St Brides Partners Ltd |
Tel: 020 7236 1177 |
Isabel de Salis |
St Brides Partners Ltd |
Tel: 020 7236 1177 |
Proposed Buyback of Ordinary Shares held by Gusar
and
Notice of General meeting
INTRODUCTION
The Company has today announced that it has conditionally agreed to acquire 4,950,495 Ordinary Shares beneficially held by Gusar, by way of an off-market buyback at an aggregate price of £2,500,000 representing a price of 50.5 pence per Ordinary Share.
The acquisition of the Buyback Shares beneficially held by Gusar constitutes an off-market purchase and, pursuant to s.693(1)(a) of the Companies Act 2006, may only be made pursuant to a buyback contract which has been approved by shareholders prior to the acquisition of the Buyback Shares.
Accordingly, the Company is convening the General Meeting, to be held at 2.30 p.m. on 1 February 2019, at which it will seek Shareholder approval of the Buyback Agreement. The Resolution to be proposed at the General Meeting is set out in the Notice of General Meeting at the end of the Circular.
The purpose of the Circular is to provide you with information on and the reasons for the Buyback, to explain why the Board considers the Buyback to be in the best interests of the Company and its Shareholders as a whole and why the Directors recommend that you vote in favour of the Resolution to be proposed at the General Meeting.
You will find set out at the end of the Circular a notice of the General Meeting and a Form of Proxy is also enclosed with the Circular. Completion of the Form of Proxy will not preclude you from attending the General Meeting and voting in person.
REASONS FOR THE BUYBACK
Background
Following the sale of the jack-up exploration business of the Company to FMC Technologies Limited ("TFMC") which completed on 7 February 2018, the Company has been working on expanding its presence in the Region, one of the top three hydrocarbon producers in the world, initially in the jack-up exploration drilling sector.
This is possible as it was a condition of the sale to TFMC that the Company retained the Existing IP Licence Agreement with Gusar in the Region as a "carve out" from the general exclusivity which was granted to TFMC in relation to the jack-up exploration business which was sold.
The Existing IP Licence Agreement permits Gusar to, amongst other things, manufacture, market, supply and service POS-GRIP jack-up exploration wellhead systems in the Region.
The Region has significant gas reserves which is an area in which the technology of the Company excels. The Company believes there is a sizeable commercial opportunity in the Region for its jack-up exploration drilling equipment and it is possible that further applications of the Company's technology may also be able to be introduced in the Region in the future. The Directors believe this will enhance its prospects of further establishing the reputation and market position of its POS-GRIP equipment beyond jack-up exploration.
As a consequence of this strategy, the Company has been working hard with Gusar over the past three years to win a first major contract in the Region. On 14 February 2018, the Company announced the sale of two POS-GRIP rental wellhead sets and associated mudline equipment and tooling to Gusar for c.£1.4 million which at the time was the equipment which had been agreed to be purchased by Gusar. On 27 September 2018, the Company announced that Gusar had entered into an initial agreement to supply Gazprom with two sets of Plexus' Tersus™ - TRT Mudline Suspension System in relation to Gazprom activity on the Kara Sea Shelf in 2019.
In addition, Gusar has indicated that it is in advanced discussions with customers in the Region regarding the potential provision of the Company's wellhead equipment for the construction of exploration gas wells in the Region. The two wellheads which form the main part of the Equipment which is proposed to be purchased by Gusar under the Equipment Supply Agreement were retained from the existing stock which the Company held prior to the sale of the majority of the wellheads and jack up exploration equipment pursuant to the TFMC transaction.
In order to fulfil its anticipated and future commitments with customers, Gusar needs to complete the purchase of the Equipment from the Company. The Equipment is intended to act as a "kick off" set of equipment for Gusar's jack-up rental equipment inventory and the Directors believe this should facilitate and accelerate the generation of further ongoing contract opportunities in the Region.
Gusar needs to finance the purchase of the Equipment prior to shipping and wishes to do so by selling some of the Ordinary Shares which it holds in the capital of the Company. The Company has, subject to shareholder approval, agreed to purchase such Ordinary Shares on the terms of the Buyback Agreement.
As part of the Buyback it is agreed that the existing equipment supply agreement, which was in place at the time of the announcement by the Company on 14 February 2018, will be superseded and replaced by the updated Equipment Supply Agreement which reflects the new terms and list of Equipment which it is agreed is being sold and purchased.
Key Deal Terms
The Company has agreed, subject to shareholder approval, a deal with Gusar which encompasses a number of different aspects, each of which the Board believes is in the best interests of the Company and furthers the commercial objectives of the Company in the Region. The relevant aspects of the proposed deal are as follows:
· pursuant to the Buyback Agreement, the Company will buy back 4,950,495 Ordinary shares from Gusar for an aggregate price of £2,500,000 representing a price of 50.5 pence per Ordinary Share, being the closing market bid price on the business day before the date on which the Buyback Agreement was signed;
· of the £2,500,000 paid by the Company for the Buyback Shares, £1,727,376.08 will be immediately paid back to the Company to satisfy the obligations of Gusar to make the Agreed Gusar Payments, which include the agreed payments in respect of the Equipment Supply Agreement, the sum of £76,389.13 owed by Gusar to POSL under an existing invoice and the sum of £50,000 as a contribution to the legal costs of the Buyback; and the balance of £772,623.92 will be paid to Gusar in cash following receipt of the shares being purchased;
· as a condition to the Buyback, the Company and Gusar will also enter into the Royalty Agreement under which Gusar has agreed that it will pay a royalty to the Company of 20% in relation to any revenue generated by Gusar in relation to the rental of POS-GRIP wellhead systems (other than mudline systems), this royalty being in addition to the 20% royalties already payable by Gusar to the Company under the Existing IP Licence Agreement;
· subject to the Buyback being approved by the shareholders, the Company and Gusar will enter into the Equipment Supply Agreement under which Gusar will purchase the following items from the Company for the aggregate amount of £1,600,986.95:
a. £311,146.48 for the purchase of mudline equipment;
b. £1,048,125.47 for the purchase of two wellhead systems; and
c. £241,715.00 for the purchase of other agreed items of equipment.
· the additional royalty under the Royalty Agreement is payable for one of the following periods:
- if the minimum licence fee of US$5,000,000 under the Existing IP Licence Agreement has been paid in full to the Company by Gusar prior to the expiry of the Equipment Rental Agreement, the duration of the Equipment Rental Agreement; or
- if the minimum licence fee of US$5,000,000 has not been paid in full prior to the expiry of the Equipment Rental Agreement, until the minimum licence fee of US$5,000,000 has been paid.
There are a number of reasons why the Board believes the Buyback is in the best interests of the Company as follows:
Reasons for the Buyback
· The Buyback will enable Gusar to finance the purchase of the two POS-GRIP wellhead systems and associated equipment and tooling from the Company which it is anticipated will be rented to customers of Gusar in the Region. Following the purchase of the equipment, Gusar should be well placed to promote Plexus' products to its clients which should enable the Company to establish an increased presence in the Region;
· Gusar has indicated to the executive directors of the Company that it intends to use the balance of the consideration for the Buyback, after payment of the Agreed Gusar Payments, on essential items of equipment which should accelerate the ability of Gusar to service and supply the market in the Region with the products of the Company. Gusar is considering using the balance of the consideration on the purchase of further associated equipment from the Company, the purchase of connectors from a third party and towards the cost of building a testing facility;
· The Buyback Agreement arrangements enable Gusar to fund the purchase of the equipment by its preferred route - monetizing a non-core asset, which is intended to expedite the process of Plexus establishing a presence in the Region; and
· The execution of the Royalty Agreement means that the royalties due to the Company for the sale or rental of POS-GRIP wellhead systems in the Russian Federation by Gusar will increase from 20% to 40% of revenue generated (being 20% under the Existing IP Licence Agreement and 20% under the Royalty Agreement) for an agreed period (as described above) and this increased royalty percentage should enhance the margins of the Company.
PRINCIPAL TERMS AND CONDITIONS OF THE BUYBACK AGREEMENT
The Company has signed the Buyback Agreement with Gusar, which, subject to shareholder approval, sets out the terms on which the Company will purchase the Buyback Shares beneficially held by Gusar.
Buyback Agreement
Pursuant to the Buyback Agreement, the Company has agreed to purchase the Buyback Shares beneficially held by Gusar at an aggregate price of £2,500,000 representing a price of 50.5 pence per Buyback Share, being the closing market bid price of the Ordinary Shares on 10 January 2019 (the last trading day prior to the announcement of the Buyback), subject to (inter alia):
(i) the Company obtaining shareholder approval, such approval to be sought at the General Meeting convened pursuant to the Notice of General Meeting set out at the end of the Circular; and
(ii) the Royalty Agreement being executed, dated and delivered; and
(iii) the Equipment Supply Agreement being executed, dated and delivered.
It is intended that, subject to the conditions being satisfied including receipt of the Buyback Shares by the Company, settlement of the Buyback will occur within two business days after all the conditions in the Buyback Agreement are satisfied. On this date, the Company will pay the £2,500,000 of consideration payable in respect of the Buyback Shares to Gusar by making such payment into an escrow account operated by Fox Williams LLP, the solicitors to the Company.
Once Fox Williams LLP has received such payment on behalf of Gusar, it has the authority to pay the Agreed Gusar Payments to the Company and to pay the balance in cash to Gusar.
Once the Buyback Shares have been transferred to the CREST account of the Company, the equipment will be shipped to Gusar pursuant to the terms of the Equipment Supply Agreement.
Any Ordinary Shares purchased by the Company pursuant to the Buyback Agreement will be held in treasury and will not rank for any future dividends and no voting rights will be exercised in respect of such Ordinary Shares.
FINANCING OF THE BUYBACK
The Company will fund the consideration of £2,500,000 payable under the Buyback Agreement from the Plexus Group's existing cash reserves.
It is a requirement of the Companies Act 2006 that the Company must finance the Buyback out of distributable profits and the Company shall have sufficient distributable profits to comply with the Companies Act in relation to the Buyback. The Directors have confirmed that the Company will have sufficient distributable profits at the anticipated date of the Buyback.
EFFECT OF THE BUYBACK
Following the Buyback there will be 100,435,744 Ordinary Shares of the Company in issue (not including the 4,950,495 Buyback Shares which will be placed into treasury).
As at 11 January 2019 (being the latest practicable date prior to the date of publication of the Circular), so far as the Directors are aware, the Buyback will not immediately result in any Shareholder becoming a substantial shareholder of the Company, holding 10 per cent. or more of the Company's issued share capital.
A summary of the principal terms of the Buyback Agreement is set out in the Circular.
Once the Buyback is complete the Ordinary Shares which have been bought back will be placed into treasury.
RECOMMENDATION
The Directors believe that the Buyback will help promote the success of the Company for the benefit of its Shareholders as a whole.
The Directors unanimously recommend Shareholders to vote in favour of the Resolution to be proposed at the General Meeting as they intend to do so in respect of their own beneficial holdings* amounting, in aggregate, to 59,700,673 Ordinary Shares, representing approximately 56.65 per cent. of the Existing Ordinary Shares.
* J. Jeffrey Thrall, has an indirect beneficial interest in a company which controls 32.477% of Mutual Holdings Limited. The number of Ordinary shares held by Mutual Holdings Limited in the Company at the date of this circular is 42,700,001. Additionally, J. Jeffrey Thrall has an indirect beneficial interest in Nazdar Limited, a company which holds 1,591,512 Ordinary shares in the Company and he holds 4,000 Ordinary shares through Thrall Enterprises Inc.
Ben van Bilderbeek is settlor of a trust which controls 59.962% of the shares of Mutual Holdings Limited and the entire issued share capital of OFM Investment Limited. At the date of this circular, Mutual Holdings Limited holds 42,700,001 shares and OFM Investment Limited holds 15,069,767.
Additionally, Ben van Bilderbeek holds 307,693 Ordinary shares directly, Graham Stevens holds 15,100 Ordinary Shares directly and Craig Hendrie holds 12,600 Ordinary Shares directly.
Capitalised terms in this announcement have the same meaning as in the Circular published by the Company in connection with the proposed Buyback
NOTES:
AIM-traded oil and gas engineering services company Plexus (AIM: POS) is an IP-led company that has developed a range of products and applications based on its patent-protected POS-GRIP friction-grip technology. Having proved the superior qualities of POS-GRIP within the jack-up wellhead exploration market through the sale of this business to FMC Technologies Limited ("FMCT"), a subsidiary of TechnipFMC (Paris:FTI, NYSE:FTI), in early 2018, the Company is now focused on establishing its technology and equipment in other markets including surface production, subsea and de-commissioning.
Its suite of new products and applications includes: the Python™ Subsea Wellhead (a new standard for subsea wellheads - supported by BG, Royal Dutch Shell, Wintershall, Maersk, Total, Tullow Oil, eni, Senergy, and Oil States Industries Inc); the POS-SET™ Connector for the growing de-commissioning and abandonment market; HP/HT dual marine barrier risers which provide an efficient, safe and cost effective solution for use on jack-up rigs; an innovative HP/HT Tie-Back connector product; and a new Well Tree product. Importantly, the Company has a Collaboration Agreement with TFMC, which provides a platform to seek to further develop and commercialise these and other applications utilising POS-GRIP technology.
