Rockwood Realisation plc
(“Rockwood Realisation” or the “Company”)
Recommended proposal for change of investment strategy, adoption of new investment policy and Notice of General Meeting
The Board of Rockwood Realisation (AIM : RKW) announces that it intends later today to post a circular (the “Circular”) convening a general meeting (the “General Meeting”) for Shareholders to vote on a proposal to change its investment strategy from its current realisation strategy to instead enable the Company to continue as a going concern and to make new investments (the “Proposal”) as summarised below. The new investment strategy will be overseen by the Company's current investment manager, Harwood Capital LLP (“Harwood”) led by Richard Staveley and Christopher Mills.
The Proposal will require Shareholder approval, by way of an ordinary resolution (the “Resolution”) which will be proposed at the General Meeting, details of which are set out below.
Rationale for, and Summary of, the Proposal
On 11 October 2021, the Company announced the conclusion of its strategic review which resulted in the appointment of Harwood as the Company's new investment manager.
On 15 October 2021, the Company announced that it had received a notice of requisition from Rock Nominees Limited (on behalf of Gresham House plc, which is the ultimate parent company of the Company's old investment manager, Gresham House Asset Management Limited) convening a meeting to propose various resolutions which included a resolution to commence the complete realisation of the Company's assets, with such realisation and return of capital to be completed within a period of 24 months (the “Managed Wind-Down”).
On 15 December 2021, Shareholders approved the Managed Wind-Down and the adoption of its new investment policy to reflect the Managed Wind-Down.
The Company has since returned approximately £25 million to Shareholders since the start of the realisation strategy. As at close of business on 1 April 2022, being the latest practicable date prior to the date of this announcement, the Company's net asset value (“NAV”) was £40.7 million.
On 21 March 2022, the Company announced that Gresham House plc's entire c.23.7 per cent interest in the Company (being 602,866 ordinary shares in the capital of the Company) had been sold to a number of institutional investors, including Harwood, resulting in Harwood's interest in the Company increasing to 28.9 per cent (or 29.9 per cent when aggregated with Richard Staveley's holding of 1.0 per cent, who is deemed to be acting in concert with Harwood).
The Company further announced that Harwood has indicated to the Board that it believes that the current investment policy does not operate in the best interests of the Shareholders and should be reviewed.
Following detailed discussion with Harwood (and several other significant shareholders), the Board agrees that the current investment policy does not operate in the best interests of Shareholders as a whole. The Board is therefore proposing that the Company adopts a new strategy of active investment and believes that the experience of the Harwood investment team will provide the opportunity to create long-term value for Shareholders.
The Board believes that the change in the Company's investment policy will enable the Company to take advantage of the inefficiencies in the UK small cap market to generate positive returns for Shareholders, through the use of an active management strategy which will engage with portfolio companies to enhance outcomes.
The Company and Harwood therefore also announce that they have entered into:
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an amendment to the Harwood IMA, conditional on the passing of the Resolution. A summary of the amendments to the Harwood IMA is set out below; and |
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a relationship agreement, conditional on the passing of the Resolution, on near identical terms to the relationship agreement that was entered into between the parties on 10 October 2021 but which was subsequently terminated when Shareholders approved the Managed Wind-Down on 15 December 2021. On almost all matters to be approved by Shareholders, Harwood has restricted its voting rights in respect of any shareholding it has in excess of 10 per cent. of the issued share capital of the Company, but Harwood retains its full voting rights in matters related to a change in going concern status, tender offers and investment policy or investment strategy changes. |
Subject to the Proposal being approved at the General Meeting, the Board also intends to change the name of the Company to Rockwood Strategic plc pursuant to the authority given to the Directors in article 168 of the articles of association of the Company for that purpose. A further announcement would be made in due course confirming when the name change will become effective.
If Shareholders do not approve the change in investment policy, the realisation strategy approved by Shareholders in December 2021 will continue.
If the Resolution is passed, the Company proposes to (i) amend its current investment policy to reflect an active investment strategy; and (ii) recommence making new investments as detailed in the appendix to this announcement. The proposed amendments to the current investment policy are considered a material change, which requires the consent of Shareholders in accordance with the AIM Rules.
The proposed resolution to change the current investment policy will be set out in the Notice of General Meeting at the end of the Circular. Part 2 of the Circular will also set out the new investment policy in full (which is also set out in the appendix to this announcement).
Related party transaction – Amendments to the Harwood IMA
In connection with Harwood's appointment as investment manager of the Company, the Company and Harwood are party to an investment management agreement dated 10 October 2021 (as amended and restated on 29 November 2021) (“Harwood IMA”).
The amendment and restatement of the Harwood IMA on 29 November 2021, which became effective on 15 December 2021 when Shareholders approved the Managed Wind-Down, had the effect of Harwood agreeing to continue to manage the Company in return for which it received no investment management or performance fee. Now that the Board proposes to change the current investment policy so that the Company is no longer in a managed wind-down, the Board believes it is appropriate that Harwood receives investment management fees and, if applicable, performance fees, again, as was agreed when Harwood was first appointed as the investment manager of the Company in October 2021. The Board and Harwood have therefore agreed that the investment management fees and performance fee that applied when Harwood was first appointed last year will be reinstated, conditional upon Shareholder approval of the Resolution, save that whilst the Company's NAV remains below £60 million, Harwood will receive a reduced investment management fee fixed at £120,000 per annum (inclusive of VAT, if any).
Accordingly, on 7 April 2022, the Company and Harwood entered into a deed of amendment and restatement in respect of the Harwood IMA, conditional upon Shareholder approval of the Resolution (the “Amended Harwood IMA”).
With effect from the passing of the Resolution, the key amendments to the Harwood IMA are as follows:
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Harwood's appointment as investment manager is subject to a minimum term of one year, expiring on 5 November 2022; |
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until such time that the Company's NAV equals £60 million or higher, Harwood will receive a management fee of £120,000 per annum (inclusive of VAT, if any); |
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once the Company's NAV equals £60 million or higher, Harwood will be entitled to a management fee of 1 per cent. of NAV (plus VAT, if any), calculated as 1/12th of an amount equal to 1 per cent. of the NAV before deduction of that month's investment management fee and before deduction of any accrued performance fees, payable monthly; |
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Harwood is entitled to a performance fee equal to 10 per cent. of outperformance over the higher of a 6 per cent. per annum total return hurdle and the high watermark. The 6 per cent. per annum compounds weekly. The performance fee is calculated annually; |
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provided that the Company's average NAV is at or below £100 million, performance fees in any performance fee period are capped at 3 per cent. of the Company's average NAV for the relevant performance fee period. In such instance, performance fees in excess of the 3 per cent. cap will not be paid and will instead be deferred into the next performance fee period; |
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if the average NAV exceeds £100 million, the performance fee shall be further limited such that the combined investment management and performance fees shall not exceed 3 per cent. of the Company's average NAV. In such instance, performance fees in excess of the cap will not be deferred and will not become payable at any future date; and |
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the services of Harwood as investment manager have been amended to reflect that it will be the investment manager of the Company in accordance with the new investment policy. |
Richard Staveley will act as lead fund manager, advised by Christopher Mills.