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Mon 9th Oct 2017 - Deltic unveils revised proposals for merger with Revolution
Deltic unveils revised proposals for merger with Revolution, lambasts board for failing to engage in discussions: Deltic Group has unveiled a revised proposal for a merger with Revolution Bars Group and lambasted its board for failing to engage in discussions. Deltic said: “The merger proposal remains Deltic’s preferred structure through which to combine the businesses of Deltic and Revolution. Following positive feedback from a significant number of Revolution shareholders with whom Deltic has met in respect of the merger proposal, Deltic herein sets out an alternative merger proposal as follows. The revised merger proposal continues to be based on the proposal announced on 5 October under which existing Revolution shareholders would own 65% and Ranimul’s (Deltic’s parent company) shareholders 35% of the enlarged group. The Ranimul loan (£22.3m as at 24 February) will still be, as set out in the merger proposal, refinanced alongside other facilities with third-party debt to reflect a level of gearing that Deltic believes prudent and desirable. However, as the purpose of refinancing the Ranimul loan was to replace high coupon debt with third-party debt at commercial rates and not to extract cash, the Ranimul loan holders would, as an alternative to the original merger proposal, be prepared to convert all or part of the value of the Ranimul loan into additional shares in Revolution at a conversion price of not less than 203 pence per share subject to a special dividend or equivalent mechanism for a return of capital of not less than 20 pence per share being paid to all shareholders in the enlarged group on the merger becoming effective. This demonstrates Deltic’s confidence in 203 pence as a minimum per share valuation for the enlarged group; its commitment to be treated equally with Revolution shareholders; and its belief in the value creation opportunity of the enlarged group. It is not possible to implement the revised merger proposal without the full engagement and agreement of the directors of Revolution. As at the date of this announcement, this has regretfully still not been forthcoming. Furthermore, in the announcement by Revolution dated 9 October, Revolution continues to reject any merger proposal by Deltic. Based on the fact that Revolution has since 6 October raised negligible enquiries on the due diligence information provided to it, Deltic can only assume that Revolution has conducted highly limited analysis on Deltic and, by its comments in the Revolution response announcement, has demonstrated it has not sought to gain any genuine understanding of Deltic or its business model. Furthermore, Revolution has not conducted any meetings with Deltic’s wider management team. Rather, Deltic believes the Revolution board has sought to apply its preconceptions and prejudices in reconfirming the position it has held since Deltic made its first approach. To put this in context, Revolution’s chief executive has not had a single conversation, meeting or any other form of communication with either Deltic or its advisors in respect of the merger proposals. Against such a backdrop of hostility, negativity and ill-informed commentary, Deltic does not intend to comment individually on each of the points made by Revolution. Instead, given its very clear value proposition, it would instead invite Revolution shareholders to question why Revolution’s board has failed to engage meaningfully in any alternative to Stonegate’s offer of 203 pence per share. Deltic also notes the announcement by Stonegate dated 6 October in which Stonegate commented on the certainty of Stonegate’s offer as compared with the merger proposal. The revised merger proposal is not a high-risk proposition and is straightforward to execute if Revolution is prepared to engage. Deltic believes Revolution shareholders are perfectly capable of reaching their own determination as to where value lies. Deltic confirms it has until 5pm on 10 October either to announce a firm intention to make an offer for Revolution under rule 2.7 of the code or announce that it does not intend to make an offer for Revolution.” Deltic chairman Bob Brannan added: “Deltic is incredulous that Keith Edelman, the only board member of Revolution who has had any contact with Deltic in respect of the merger proposals, and its advisers can, given feedback from Revolution’s shareholders, continue to recommend Stonegate’s offer at a price below both the current Revolution share price and all broker estimates whilst refusing to have any meaningful engagement with Deltic and demonstrating a limited understanding of the nightclub market. If Deltic succeeds in implementing its revised merger proposal, it will adopt a very different approach to the stewardship of shareholders’ capital.”


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