# Nanoco Group proposed return of up to £33.0 million to shareholders

- Link: https://www.directorstalkinterviews.com/nanoco-group-proposed-return-of-up-to-33.0-million-to-shareholders/4121146668
- Published: 2024-03-11T07:15:00+00:00
- Author: Amilia Stone

**[Nanoco Group plc](https://www.directorstalkinterviews.com/company/nanoco-group-plc/nano.l)**(
[LON:NANO](https://www.directorstalkinterviews.com/company/nanoco-group-plc/nano.l)),
a world leader in the development and manufacture of cadmium-free quantum dots and
other specific nanomaterials emanating from its technology platform, has announced
that it will today post a Circular setting out the details of a proposed return 
of value to shareholders of up to £33m of the Samsung litigation proceeds.

Following the receipt of the Final Litigation Proceeds, the Board and its advisers
consulted with shareholders representing approximately 37.5 per cent. of the Company’s
issued share capital on the different options for a proposed return of capital. 
The Board has determined that, in order to provide flexibility and choice to shareholders,
the most appropriate means of returning value is to conduct a Tender Offer to return
up to £30.0 million to shareholders. In addition to the Tender Offer, the Board 
also intends to return a further sum of up to £3.0 million by way of an on-market
share buyback of Ordinary Shares to provide a continuing value-accretive return 
of capital to Shareholders.

The Tender Offer is being made at a fixed price of 24 pence per Ordinary Share, 
which represents a premium of 25.1 per cent. to the closing mid-market price per
Ordinary Share on 8 March 2024 and a premium of 19.6 per cent. to the 60-day volume
weighted average price per Ordinary Share on 8 March 2024. The Tender Offer is for
up to 38.5 per cent. of the Company’s issued share capital (excluding Ordinary Shares
held in treasury) with the Share Buyback Programme, commencing following completion
of the Tender Offer, having the potential to acquire a further 3.9 per cent. of 
the Company’s issued share capital (if assumed at the Tender Price).

Further details of the Tender Offer are included later in this announcement and 
full details are included in the Circular being posted later today.

Shareholders will be able to decide whether to tender none, some or all of their
Ordinary Shares within the overall limits of the Tender Offer. Shareholders will
be entitled to tender 38.5 per cent. of their shares as a basic entitlement. Further
details are set out in the Circular to be published later today.

Shareholders may decide not to participate fully or partially in the Tender Offer
for a number of reasons, including their view of the potential for the value of 
the Company to increase in the future. If a material amount of the £33.0 million
is not returned through the Tender Offer and Share Buyback Programme, the Board 
will consider a possible further stage of the Return of Value comprising a Special
Dividend.

The Tender Offer is conditional on Shareholders’ approval and a general meeting 
of the Company is to be held at the offices of Reed Smith LLP at The Broadgate Tower,
20 Primrose Street, London EC2A 2RS at 10.00 a.m. on 28 March 2024 to seek the approval
of Shareholders to the proposed Return of Value.

> **Christopher Richards, Non-Executive Chairman of Nanoco, said:**
> _“Over the last five years, Nanoco has been transformed from an R&D first mover
> facing going concern challenges to a commercial manufacturer of nanomaterials,
> with a growing range of leading nanomaterials and a validated IP portfolio supported
> by the strongest commercial and financial position in its history._
> _“Today Nanoco is announcing an exceptional and significant return of capital 
> to shareholders, while retaining and investing funds to support delivery of further
> value from commercial prospects and enhance our future growth and margin profile.
> With growing opportunities and a fully funded commercial business, we are confident
> in enhancing shareholder value over the medium and long term.”_

**Background to the Return of Capital**

On 24 January 2024, the Company announced that it had received the second tranche
of litigation proceeds from Samsung after settling last year on a no-fault basis
for the alleged infringement of the Group’s IP. The Group has received a net sum
of $71.75 million, being $75.0 million less the expected Korean withholding tax,
which amounted to $3.25 million. The Korean withholding tax is available to offset
Nanoco’s future profits in the UK. The Group previously announced the hedging of
this tranche of proceeds at a rate of $1.22 / £1.00. The funds have been converted
at this rate and generated a sterling receipt of £58.8 million. This represents 
a gain of £2.1 million compared to the exchange rate for USD on the date of receipt.

The Board first signalled its intention to return significant funds to shareholders
on 3 February 2023 when the final settlement agreement was signed with Samsung. 
At that time, the Chairman made the following statement:

_“In deciding the allocation of the net proceeds, the Board will balance any investment
needs of Nanoco’s growing organic business with a firm intention to deliver a material
return of capital to shareholders.”_

Over the last five years, Nanoco has been transformed from an R&D first mover facing
going concern challenges to a commercial manufacturer of nanomaterials in the strongest
commercial and financial position in its history.

**The Board now believes that Nanoco has entered a new phase of its development 
as a Company, and is confident in the Group’s future growth prospects, primarily
as a result of the factors below:**

1.    The Group has successfully fulfilled its first commercial production orders
for two new materials;

2.   The Group has a diverse portfolio of second and further generation nanomaterial
development projects underway with some of the world’s most respected electronics
supply chain companies, presenting a compelling pipeline of organic growth opportunities;

3.    Key display and sensing Group patents were validated during the Samsung litigation
by the US Patent Trial and Appeal Board and Samsung felt compelled to take out a
licence over the Group’s IP, with further licensing efforts underway to support 
commercial opportunities; and

4.    The Group is now fully funded and in the strongest financial position in its
history following the receipt of the Final Litigation Proceeds.

The Board believes that the proposal to return up to £33.0 million from the Final
Litigation Proceeds to Shareholders strikes the appropriate balance between the 
investment needs of the business and the desire to return a material amount of capital
to Shareholders.

Following the shareholder consultation noted above, the Board concluded that a Tender
Offer is the best way to return a significant amount of capital to Shareholders 
in a short space of time, offering freedom of choice to all while taking account
of the relative costs, complexity and timeframes of the various possible methods,
as well as the likely tax treatment for Shareholders.

**Allocation of proceeds**

It is the Board’s view that the receipt of the Final Litigation Proceeds presents
a unique opportunity in Nanoco’s history to enhance its financial resilience and
invest in its operational capability, further enhancing the Group’s future growth
prospects, margin profile and ability to provide future potential returns to shareholders.
Therefore, following the completion of the £33.0 million return of capital noted
above, and after allowing for the repayment of the Group’s outstanding debt of approximately
£5 million and remaining cash reserves from the first tranche of litigation proceeds,
the Group expects to have approximately £23 million of cash available to support
the commercial business. As outlined in the circular issued on 20 June 2023, the
Board intends to use the retained funds to invest as follows:

·      Investment in the Group’s production capability to enable further production
efficiencies and expansion of the Group’s gross profit margin as Nanoco continues
to transition from a pure-play R&D first mover towards a commercial producer of 
nanomaterials at scale;

·    Investing to accelerate a number of promising R&D projects focused on developing
new second and further generation sensing materials;

·    Expanding the Runcorn facility to create a capability to make wafer scale sensing
devices to enhance business development and analytical services;

·     Funding the Group’s commercial business activities until it becomes self-financing
which is expected to be achieved during the calendar year 2025;

·      Self-funding the early stages of its IP portfolio licensing programme. These
efforts are in support of the Group’s overall commercial goals. This approach also
mitigates the downside impact on returns that would arise by using licencing agents
or third party funding; and

·     The Board is keen to ensure to the fullest extent possible that Nanoco does
not need to return to the capital markets for funding in the foreseeable future 
or before the adoption of the Group’s technology in high volume consumer electronics
applications. Our blue-chip global partners and potential new customers take comfort
from a more robust balance sheet. If adoption of Nanoco’s technology in higher mass
market volumes accelerates faster than expected, the Board will have the option 
to return further funds to Shareholders.

The Board remains confident that near-term opportunities fully merit the allocation
of funds noted above, namely for growing commercial production of sensing materials,
together with the current interest in the Group’s display materials following the
IP litigation and the growing display market for CFQD® cadmium free quantum dots.

**Details of the Tender Offer**

The key points to the Tender Offer are as follows:

·    The Tender Offer is for up to 38.5 per cent. of the Company’s issued share 
capital (excluding Ordinary Shares held in treasury). Under the Tender Offer, each
Shareholder is entitled to have up to 38.5 per cent. of their shareholding purchased
by Cavendish at the Tender Price.

·      The Tender Offer is being made at a fixed price of 24 pence per Ordinary 
Share, which represents:

o  a premium of 25.1 per cent. to the closing mid-market price per Ordinary Share
on 8 March 2024;

o  a premium of 18.4 per cent. to the 30-day volume weighted average price per Ordinary
Share on 8 March 2024; and

o  a premium of 19.6 per cent. to the 60-day volume weighted average price per Ordinary
Share on 8 March 2024.

·   Shareholders will be able to decide whether to tender none, some or all of their
Ordinary Shares within the overall limits of the Tender Offer.

·  Tenders in excess of a Shareholder’s Basic Entitlement will only be accepted 
to the extent that other Shareholders tender less than their Basic Entitlement or
do not tender any Ordinary Shares and, if necessary, excess demand will be scaled
back on a pro rata basis (save that tenders from Shareholders who hold 2,000 Ordinary
Shares or less will be accepted in full subject to there being capacity to purchase
those Ordinary Shares in accordance with the terms of the Tender Offer).

All Eligible Shareholders on the Register of Members at 6.00 p.m. on 9 April 2024
are entitled, but not required, to tender some or all of their Ordinary Shares for
purchase by Cavendish, acting as principal, at the Tender Price.

Subject to satisfaction of the conditions to the Tender Offer, including Shareholders
voting in favour of the Tender Offer at the General Meeting, Ordinary Shares which
are successfully tendered under the Tender Offer will be purchased at the Tender
Price. Further details can be found in the Circular.

**Benefits of the Tender Offer for Shareholders**

The benefits of the Tender Offer for Shareholders as a whole are that:

·    it is available to all Eligible Shareholders regardless of the size of their
holdings;

·   it provides Eligible Shareholders who wish to reduce their holdings of Ordinary
Shares with an opportunity to do so at a market driven price at a premium of 25.1
per cent. to the closing mid-market price per Ordinary Share on 8 March 2024;

·    it provides Shareholders with an opportunity to sell their shares without incurring
any dealing costs, and therefore avoids Shareholders holding a small number of Ordinary
Shares having their proceeds significantly eroded by dealing costs; and

·   it permits Shareholders who wish to retain their current investment in the Company
and their Ordinary Shares to do so since no Shareholder is required to participate
in the Tender Offer.

The Company intends to cancel approximately 90 per cent. of the Ordinary Shares 
acquired in connection with the Return of Value which will reduce the number of 
Ordinary Shares in issue. Assuming the Company’s earnings stay the same, this should
have a positive impact on the Group’s earnings per share. The Company intends to
transfer the remaining approximately 10 per cent. balance of the Ordinary Shares
which are not cancelled from treasury to the Nanoco Employee Benefit Trust to meet
potential future obligations which may arise from the Company’s share option schemes.

**Notice of General Meeting**

A General Meeting of the Company will be held at the offices of Reed Smith LLP at
The Broadgate Tower, 20 Primrose Street, London EC2A 2RS at 10.00 a.m. on 28 March
2024 to seek Shareholder approval for two Resolutions in relation to the Return 
of Value.

Resolution 1 seeks authority for the Company to make market purchases of Ordinary
Shares in connection with the Tender Offer. The Resolution specifies the Tender 
Price and the maximum number of Ordinary Shares which may be acquired pursuant to
this authority. The authority sought will expire on 31 December 2024.

Resolution 2 seeks authority to approve an amendment to the rules of the Nanoco 
2015 Long Term Incentive Plan (the “LTIP”) and the Nanoco 2015 Deferred Bonus Plan(
the “DBP”), which were originally approved by shareholders at the 2015 Annual General
Meeting, and subsequently amended at the 2021 Annual General meeting. Awards under
the LTIP and the DBP are subject to a combined limit of exercised and outstanding
options at any point in time being less than 10 per cent. of the issued share capital
at that point in time. The cancellation of approximately 90 per cent. of the Ordinary
Shares acquired as part of the Return of Value will have a disproportionate impact
on this limit. The Board does not consider that employees should be penalised as
a result of the Return of Value which is beneficial to Shareholders. Therefore, 
in order to be able to continue to issue options under the LTIP and the DBP, Shareholders
are being asked to approve an amendment to the rules of the LTIP and DBP to allow
shares held in the Nanoco Employee Benefit Trust to be excluded in assessing the
10 per cent. limit.

The full Notice of General Meeting will be set out in the Circular.

**Timetable**

| Tender Offer opens  | 11 March 2024 | 
| Latest time and date for receipt of Form of Proxy or CREST Proxy Instruction in respect of General Meeting | 10.00 a.m. on 26 March 2024 | 
| General Meeting  | 10.00 a.m. on 28 March 2024 | 
| Announcement of the results of the General Meeting | 28 March 2024 | 
| Latest time and date for receipt of Tender Forms and share certificates or other documents of title for tendered certificated Ordinary Shares (i.e. close of the Tender Offer)   | 1.00 p.m. on 9 April 2024 | 
| Latest time and date for settlement of TTE Instructions for tendered uncertificated Ordinary Shares (i.e. close of the Tender Offer)  | 1.00 p.m. on 9 April 2024 | 
| Record Date for the Tender Offer | 6.00 p.m. on 9 April 2024 | 
| Announcement of the results of the Tender Offer | 11 April 2024 | 
| Unconditional Date for the Tender Offer and purchase of Ordinary Shares under the Tender Offer | 12 April 2024 | 
| CREST accounts credited with unsuccessfully tendered uncertificated Ordinary Shares | by 25 April 2024 | 
| CREST accounts credited in respect of Tender Offer proceeds for uncertificated Ordinary Shares | by 25 April 2024 | 
| Cheques despatched in respect of Tender Offer proceeds for certificated Ordinary Shares | by 25 April 2024 | 
| Return of share certificates in respect of unsuccessful tenders of certificated Ordinary Shares | by 25 April 2024 | 
| Despatch of balance share certificates in respect of unsold Ordinary Shares in certificated form | by 25 April 2024 |

_The dates set out in the expected timetable may be adjusted by the Company, in 
consultation with Cavendish, in which event details of the new dates will be notified
to Shareholders via an announcement through a regulatory information service in 
the United Kingdom. All references are to London time._

**Circular**

Capitalised terms shall have the meaning attributed to them in the Circular unless
otherwise defined in this announcement.

Once it has been published, following regulatory approval by the FCA, the Circular
can be viewed on the Company’s website at https://www.nanocotechnologies.com/investors/
documents/ and will be submitted to the National Storage Mechanism and available
for inspection at https://www.fca.org.uk/markets/primary-markets/regulatory-disclosures/
national-storage-mechanism shortly. In addition, those Shareholders (other than 
Restricted Shareholders) who have elected to receive hard copies of documents will
receive a copy of the Circular by post.

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