Avanti Communications Group Plc – Proposed Cancellation & Notice of General Meeting
Avanti Communications Group PLC (AIM: AVN) (“Avanti” or the “Company”), a leading provider of satellite data communications services in Europe, the Middle East and Africa announces that, following a thorough review, the Independent Directors (being the directors of the Company other than Craig Chobor, Michael Leitner and Adam Kleinman) have concluded that it is in the best interests of the Company and its Shareholders to seek Shareholders’ approval to cancel the admission of the Company’s Ordinary Shares to trading on AIM (the “Cancellation”). In accordance with Rule 41 of the AIM Rules, the Company has notified the London Stock Exchange of the date of the proposed Cancellation.
· The proposed Cancellation is part of the ongoing transformation of the Company as the Directors believe the currently market valuation does not reflect the recent progress the Company has made, the value of the Group’s satellite assets, or the current market opportunity
· Recent results allow the Company to reaffirm prior guidance for FY19 and FY20
· Successful launches of HYLAS 3 and HYLAS 4 provide platform for continued growth
The Independent Directors believe that the Cancellation is in the best interests of the Company and intend to unanimously recommend that Shareholders vote in favour of the Resolution at the General Meeting. The Company has received irrevocable undertakings to vote in favour of the Resolution from certain shareholders in respect of an aggregate of 1,345,749,427 Ordinary Shares, representing approximately 62 per cent. of the existing issued share capital of the Company.
Pursuant to Rule 41 of the AIM Rules, the Cancellation requires the approval of not less than 75 per cent. of the votes cast by Shareholders (whether present in person or by proxy) at the General Meeting to be convened for this purpose at 9.30 a.m. on 5 September 2019 at the Company’s registered office at Cobham House, 20 Black Friars Lane, London EC4V 6EB. If the Resolution is passed at the General Meeting, it is anticipated that the Cancellation will become effective, following the issue of a Dealing Notice, at 7.00 a.m. on 18 September 2019.
The Circular will contain further information on the background to, reasons for, and the implications of the proposed Cancellation and will be posted to Shareholders together with a notice convening the General Meeting, later today. Following publication, the Circular and notice of General Meeting will also be available from the Company’s website at www.avantiplc.com.
Defined terms used in the Circular shall have the same meanings in this announcement.
Background to the Cancellation
April 2018 saw three key events that set the foundations for a new start for the Group’s business.
First, the Company welcomed experienced mobile telecommunications executive Kyle Whitehill as its new Chief Executive. Within a short period, Kyle had refocussed the strategic direction of the Group from the consumer broadband markets to opportunities within the wholesale, government and cellular backhaul markets. This refined commercial strategy quickly delivered several material contract wins for the Group worth in aggregate over US$100 million, including a long-term capacity agreement with Viasat, Inc., and a master distributor agreement with Comsat, Inc. to sell Mil-ka capacity to the US Government and related agencies. By the end of 2018, Avanti was able to announce bandwidth revenues of US$31 million.
Second, was the successful launch of the Group’s HYLAS 4 satellite which enhanced its Ka-band satellite fleet and increased total capacity over Africa, the Middle East and Europe to 45 GHz. HYLAS 4 is smartly designed with four powerful steerable beams that provide dynamic flexibility that is both scarce and in high demand.
Finally, the Group completed a balance sheet restructuring in April 2018 which included the repayment of all of the outstanding 2023 Notes, reducing the Group’s overall debt by US$557 million. The restructuring involved a debt-for-equity swap and resulted in approximately 92.5 per cent. of the enlarged issued share capital of the Company being held the holders of the 2023 Notes, of which approximately 61 per cent. of that debt was held by Solus Alternative Asset Management LP (“Solus”), BlackRock Capital Investment Advisors, LLC – TCP Group (formerly Tennenbaum Capital Partners, LLC (“BlackRock”) and Great Elm Capital Management, Inc. (“Great Elm”).
Since that time, the Group has continued to see steady growth into 2019, with further contract wins including a long-term bandwidth agreement with Turkish operator, Turksat, and a five-year key distribution agreement with MGI Global Services Ltd. to deliver services and capacity into Chad, South Sudan and Angola. In addition, the Company was pleased to announce the further successful launch of its HYLAS 3 satellite.
These efforts enable the Company to reaffirm the previous revenue guidance for FY 2019 and FY 2020 with total revenues increasing 67 per cent. and 30 per cent. respectively, from US$53.5 million for the 12 months ended 31 December 2018, which would include bandwidth revenue growth for the same periods of 125 per cent. and 40 per cent. respectively, from US$31 million for the 12 months ended 31 December 2018. Further, the Company can also reaffirm the delivery of its cost optimisation project, which is expected to reduce total operating costs, excluding equipment and project-related costs directly off-setting with non-bandwidth revenue, by at least 15 per cent. per annum by 2020, from approximately US$80 million for the 12 month period ended 31 December 2018. These measures should result in a positive EBITDA in 2019, with further material growth in 2020.
To continue to deliver on the overall growth strategy of the business will require significant focus from the Group’s management. Whilst efficiencies have already been realised through the cost-optimisation project, a programme of continuous assessment is in place to review all recurring operational costs. As a result of this, and the factors further considered below, the Independent Directors are of the opinion that the commercial disadvantages to the Company of maintaining a quotation outweigh the potential benefits and the Cancellation will allow management to focus their time on the ongoing strategy and reducing recurring operational costs.
Reasons for the Cancellation
The Independent Directors have conducted a comprehensive review of the benefits and disadvantages to the Company and its Shareholders in retaining its admission to trading on AIM.
Due to the conflict of interest presented by their position as representatives of Solus, BlackRock and Great Elm on the Board respectively, neither Craig Chobor, Michael Leitner nor Adam Kleinman participated in the Board’s consideration of the proposed Cancellation.
The Independent Directors believe that the Cancellation is in the best interests of the Company and its shareholders as a whole. In reaching this conclusion, the Independent Directors carefully considered the following key factors, amongst other things:
· As at the date of this announcement and pursuant to the balance sheet restructuring in April 2018, the ten largest Shareholders hold, in aggregate, approximately 85 per cent. of the Ordinary Shares, with approximately 73 per cent., in aggregate, held by the five largest Shareholders. This has resulted in very limited free float and liquidity in the Ordinary Shares with the consequence that the Company’s admission to trading on AIM does not, in itself, offer investors the opportunity to trade in meaningful volumes or with frequency in the market. In the last 12 months approximately 112 million Ordinary Shares have traded representing approximately 5 per cent. of the issued share capital of the Company (source: Factset).
· The poor performance of the share price over the last 12 months has resulted in a market capitalisation of approximately £26 million which the Directors believe no longer accurately reflects the Company’s value. The Independent Directors believe that this under-valuation negatively impacts on customer and supplier engagement. Furthermore, this negative sentiment and under-valuation of the Company’s equity may ultimately impact on the Company’s vision to deliver on its medium-term strategic objective.
· Maintaining the Company’s admission to trading on AIM requires significant management time, legal and regulatory obligations, and comes with material financial costs (such as professional fees, London Stock Exchange fees and other costs associated with being an AIM-traded company) that the Independent Directors believe are disproportionate to the benefits to the Company. It is estimated that Cancellation will reduce the Company’s recurring administrative costs by approximately US$500,000 per annum. The Independent Directors are of the opinion that management time and the cost-savings realised through Cancellation would be better spent investing in the business and delivering on the Group’s stated strategy.
· Given the performance of the share price and low liquidity issues, the Directors have concluded that the only realistic source of future funding will likely be through private capital. There has been no equity capital fundraising by the Company in the last four years, and it is the Independent Directors’ opinion that the Company’s admission to trading on AIM no longer provides the fundamental benefit of giving access to the required investor base for the Company in order to raise growth capital.
Process for, and principal effects of, the Cancellation
Set out below are some of the implications and principal effects of Cancellation which Shareholders should be aware of. However, Shareholders should note that notwithstanding the effects of Cancellation outlined in this paragraph, the Company will continue to be subject to certain disclosure and reporting requirements as a result of the listing of its 2022 Notes on the Irish Stock Exchange. It will also be subject to the disclosure and reporting requirements of The International Stock Exchange when it expects to list the 1.5 Lien Loan Notes later this year. Any such disclosures or reporting will also be made available on the Company’s website.
Shareholders should further note that the City Code will also continue to apply to the Company for a period of at least 10 years from the date of Cancellation. Further, the Company will continue to be managed in accordance with such provisions of the 2018 Corporate Governance Code as the Board considers practicable and appropriate given the size of the Group as a whole and nature of its business activities.
In addition, the Company will remain registered with the Registrar of Companies in England & Wales and in accordance with and subject to the Companies Act 2006, notwithstanding the Cancellation.
In accordance with Rule 41 of the AIM Rules, the Company has notified the London Stock Exchange of the intention to cancel the Company’s admission to trading on AIM, subject to Shareholder approval, giving 20 business days’ notice. Under the AIM Rules, it is a requirement that the Cancellation is approved by not less than 75 per cent. of votes cast by Shareholders (in person or by proxy) at the General Meeting. Subject to the Resolution approving the Cancellation being passed at the General Meeting, it is anticipated that trading in the Ordinary Shares on AIM will cease at the close of business on 17 September 2019, with the Cancellation taking effect, following issue of a Dealing Notice, at 7.00 a.m. on 18 September 2019.
If the Cancellation becomes effective following the General Meeting, Shareholders should be aware of the implications and principal effects of the Cancellation, which include the following:
· there will be no public market on any recognised investment exchange or multilateral trading facility for the Ordinary Shares and, consequently, there can be no guarantee that a Shareholder will be able to purchase or sell any Ordinary Shares. The Company, however, intends to implement the Matched Bargain Facility in order to give Shareholders an opportunity to trade the Ordinary Shares should the Cancellation become effective. The details of this Matched Bargain Facility are set out in more detail in paragraph titled, Liquidity in trading of the Ordinary Shares following the Cancellation, below;
· in the absence of a formal market and quote, it will be more difficult for Shareholders to determine the market value of their investment in the Company at any given time;
· the regulatory and financial reporting regime applicable to companies whose shares are admitted to trading on AIM will no longer apply;
· Shareholders will no longer be afforded the protections given by the AIM Rules, such as the requirement to be notified of certain events and the requirement that the Company seek shareholder approval for certain corporate actions, where applicable, including substantial transactions, financing transactions, reverse takeovers, related party transactions and fundamental changes in the Company’s business, including certain acquisitions and disposals;
· the levels of disclosure and corporate governance within the Group may not be as stringent as those for a Company quoted on AIM;
· AIM Rule 26, obligating the Company to publish prescribed information on its website, will cease to apply;
· the Company will cease to have a nominated adviser and broker; and
· the Cancellation may have personal taxation consequences for Shareholders. Shareholders who are in any doubt about their tax position should consult their own independent tax adviser.
The above considerations are not exhaustive, and Shareholders should seek their own independent advice when assessing the likely impact of the Cancellation on them.
Liquidity in trading of the Ordinary Shares following the Cancellation
The Directors are aware that the proposed Cancellation, should it be approved by the Shareholders at the General Meeting, would make it difficult to buy and sell Ordinary Shares should they wish to do so. Accordingly, the Company intends to implement the Matched Bargain Facility to assist Shareholders to trade in the Ordinary Shares with effect from the date of Cancellation.
The Matched Bargain Facility will be provided by JP Jenkins. JP Jenkins is part of Peterhouse Corporate Finance Limited, which is authorised and regulated by the FCA, a Member of the London Stock Exchange and a NEX Exchange Corporate Adviser. Under the Matched Bargain Facility, Shareholders or persons wishing to acquire or dispose of Ordinary Shares will be able to leave an indication with JP Jenkins, through their stockbroker (JP Jenkins is unable to deal directly with members of the public), of the number of Ordinary Shares that they are prepared to buy or sell at an agreed price. In the event that JP Jenkins is able to match that order with an opposite sell or buy instruction, they would contact both parties and then effect the bargain. Should the Cancellation become effective and the Company put in place the Matched Bargain Facility, details will be made available to Shareholders on the Company’s website at https://investor.avantiplc.com/ and directly by letter or e-mail (where appropriate).
Shareholders are strongly advised to consult their professional advisers about their own personal tax position arising in connection with the Cancellation.
The General Meeting
The General Meeting is to be held at 9.30 a.m. on 5 September 2019 at the Company’s registered office at Cobham House, 20 Black Friars Lane, London EC4V 6EB, at which the Resolution will be proposed for the purposes of approving the Cancellation.
The Resolution will be proposed as a special resolution and therefore requires the approval of not less than 75 per cent. of the votes cast by Shareholders (whether present in person or by proxy).
The Company has received irrevocable undertakings to vote (or procure the vote) in favour of the Resolution at the General Meeting from each of Solus, BlackRock and Great Elm in respect of an aggregate of 1,345,749,427 Ordinary Shares, representing approximately 62 per cent. of the existing issued share capital of the Company.
The Independent Directors consider the Cancellation to be in the best interests of the Company and its Shareholders as a whole and therefore intend to unanimously recommend that Shareholders 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 179,004 Ordinary Shares, representing approximately 0.01 per cent. of the existing issued share capital of the Company.