LucasVarity plc to Move to U.S.
9 September 1998
LucasVarity plc to Change Domicile as Part of Growth Strategy
LONDON, Sept. 9 -- The Board of LucasVarity plc ("the
Company") announced today that it has approved a proposal to change the
domicile of the LucasVarity group ("the Group") to the United States. The
transaction is to be effected by a UK scheme of arrangement. Under the scheme
of arrangement, existing shares in LucasVarity plc will be exchanged for
shares in a newly incorporated US company, LucasVarity Corporation.
Application will be made for the LucasVarity Corporation shares to be listed
on the New York Stock Exchange, with a secondary listing on the London Stock
Exchange.
The Board of LucasVarity plc believes that the change of domicile to the
US is the natural next step in the Company's evolution following the
successful merger of Lucas Industries plc and Varity Corporation in 1996.
It will situate the Group amongst its public company peer group (the US
automotive supply sector), allow it to compete with these companies on an
equal footing for investment and acquisition opportunities, and permit a
more flexible management of the Group's capital structure. Such a move is
also consistent with the significant shift towards US shareholders in the
Company.
The Board of LucasVarity plc believes that this proposed change of
domicile is in the best interests of the Company and will create long term
shareholder value. The Company's commitment to its UK businesses, customers
and employees will be unaffected by the change of domicile.
In order to align its capital structure more closely with its US peer
group, on completion of the change of domicile, the Board of LucasVarity
Corporation intends to pursue a programme to repurchase up to 20 per cent. of
its share capital over an 18 month period, subject to market conditions and
any future financing requirements related to any major strategic transaction.
Background and Rationale
The merger of Lucas Industries plc and Varity Corporation in 1996 created
a Group with the scale, global reach, financial strength and technological
capabilities required of a Tier 1 automotive and aerospace systems supplier,
with worldwide leading positions in its core businesses. Since the merger,
the Group has taken significant steps to consolidate and develop its
businesses, including:
* achieving significant cost savings and working capital reductions;
* securing major new contract awards in every division, including a
2 billion pounds sterling agreement with Rolls Royce for Trent aero
engines, 650 million pounds of common rail technology contracts and
several major contracts for the supply of advanced braking and
electrical systems and components;
* strengthening its portfolio by acquiring six strategic businesses in
core activities, divesting VarityPerkins to Caterpillar Inc., announcing
the proposed disposal of its Heavy Vehicle Braking Systems division and
disposing of 16 other non-core businesses;
* enhancing operational performance through the introduction of best
practice across all divisions; and
* improving sales, operating profits and margins from continuing
operations.
Having made this substantial progress, the Company's strategy is to
continue to build on its global leadership positions in its core businesses
that offer attractive growth opportunities, capitalising on the rapid
consolidation of the automotive supply industry. This consolidation has
gathered pace recently, driven substantially by customer pressures. The
Group's peer group companies, most of which are in the US, have been
aggressively strengthening their businesses both domestically and overseas
through acquisitions and investment.
Furthermore, the Company estimates that the proportion of beneficial US
shareholders has grown significantly to around 47 per cent. from a low of
33 per cent. shortly after the merger. By contrast, the estimated proportion
of beneficial UK shareholders has declined from a high of 67 per cent. to
around 47 per cent. currently.
Against this background, the Board has concluded that the Group will be
much better positioned to implement its strategy and deliver long term
shareholder value by changing domicile to the US, which will provide the
following principal benefits:
* the Group will be situated amongst its natural public company peer
group in the US, which enjoys substantial support from a deep pool of
capital dedicated to the automotive and aerospace sectors;
* the Group will be better able to manage its capital base both through
sustaining greater leverage in line with its peer group and through the
greater flexibility to pursue share repurchases which is afforded to US
companies. This will allow the Group to reduce its overall cost of
capital and enhance return on equity and earnings per share; and
* the Group will be in a better position to compete on equal terms with
its peers for acquisition opportunities, most of which are located in
the US, particularly through the greater flexibility it will have to use
equity as an acquisition currency following the change of domicile.
Commenting on the proposal, Ed Wallis, Chairman of LucasVarity plc, said,
"Through the successful merger of Lucas Industries plc and Varity Corporation
we have created a world leading company serving the automotive and aerospace
sectors. This change of domicile is the natural next step in our evolution to
build and sustain leadership positions in the Group's core business sectors."
Victor Rice, Chief Executive of LucasVarity plc, said, "Our industry is
undergoing rapid change, and this step will enable us to compete on an equal
footing with our peer group in pursuing the exciting opportunities that we see
arising. We remain fully committed to our UK customers and employees and to
developing our UK businesses."
The Scheme of Arrangement
The change of domicile will be effected by means of a scheme of
arrangement between the Company and its ordinary shareholders under Section
425 of the Companies Act 1985 ("the Scheme").
Under the Scheme it is proposed that all of the Company's existing issued
ordinary share capital will be cancelled and new ordinary shares of 25p each
in the Company will be issued to LucasVarity Corporation. LucasVarity
Corporation will issue new shares of common stock of $0.01 par value each
("LucasVarity Corporation Shares") to the Company's ordinary shareholders on
the Company's register at the close of business on the business day prior to
the effective date of the Scheme on the following basis:
for every 10 LucasVarity plc ordinary shares:
1 LucasVarity Corporation Share
For holders of LucasVarity plc ADSs (each representing 10 LucasVarity plc
ordinary shares) this is equivalent to:
for each LucasVarity plc ADS:
1 LucasVarity Corporation Share
The entitlement of LucasVarity ordinary shareholders to fractions of
LucasVarity Corporation Shares will be satisfied in cash by LucasVarity
Corporation.
The Scheme will require approval by special resolution of holders of
LucasVarity plc ordinary shares to be proposed at an extraordinary general
meeting of LucasVarity plc and also approval by a majority in number
representing three-fourths in value of holders of the LucasVarity ordinary
shares present and voting, either in person or by proxy, at a meeting to be
convened by direction of the High Court for the purposes of considering and,
if thought fit, approving the Scheme. These meetings are expected to be held
on 6 November 1998. Under the Companies Act 1985 the Scheme also requires the
sanction of the High Court. Once the necessary approvals from the Company's
ordinary shareholders and the sanction of the High Court have been obtained
and the other conditions to which the Scheme is subject have been satisfied,
the Scheme will become effective upon the delivery of a copy of the order of
the High Court sanctioning the Scheme to the Registrar of Companies in England
and Wales which is expected to occur in early December 1998.
Exchangeable Security
If demand exists from UK shareholders who represent at least 15 per cent.
of LucasVarity plc's issued share capital, LucasVarity Corporation will
consider making arrangements pursuant to which such shareholders would,
following the effective date of the Scheme, be offered the opportunity to
exchange their newly issued LucasVarity Corporation shares for a security in a
UK company. These securities would be exchangeable into LucasVarity
Corporation Shares. Application would be made to the London Stock Exchange
for such security to be admitted to the Official List. Further details in
relation to this security will be included in the documents to be sent to the
Company's shareholders.
Board of Directors
The composition of the Board of Directors of LucasVarity Corporation
following implementation of the Scheme will be identical to the current Board
of Directors of the Company. In addition, the responsibilities of individual
executive Directors will remain unchanged following implementation of the
Scheme.
Employees
Following the change of domicile, the head office of LucasVarity
Corporation will be located at the Group's existing offices in Buffalo, New
York. The Group's regional headquarters for Europe will be based in London.
There will be no material changes to the rights, including pension
arrangements, of the Group's employees arising from the Scheme. Appropriate
communications will be made in due course to participants in the Group's
employee share schemes regarding planned schemes for LucasVarity Corporation.
Dividends and Distribution Policy
An interim dividend of 2.5p per share for the half year ended 31 July 1998
will be paid by the Company on 30 November 1998 to its shareholders on the
register on 16 October 1998. This dividend would normally have been paid in
January 1999.
It is intended that the Company's existing dividend policy will be
continued by LucasVarity Corporation for the current financial year. In
accordance with the Company's normal practice, the dividend policy will be
reviewed at the financial year end. LucasVarity Corporation will consider
making arrangements to enable UK shareholders to receive dividends in
sterling.
Following the change of domicile, the Board of LucasVarity Corporation
intends to pursue a programme to repurchase up to 20 per cent. of the share
capital of LucasVarity Corporation over an 18 month period, subject to market
conditions and any future financing requirements related to any major
strategic transaction.
Taxation
United Kingdom
A United Kingdom shareholder will not be treated, for capital gains tax
purposes, as disposing of his shares in the Company as a result of the Scheme,
save to the extent that he receives cash in respect of a fractional
entitlement to a LucasVarity Corporation Share.
United States
The Scheme will be a tax free reorganisation for US federal income tax
purposes. Cash received in lieu of fractional LucasVarity Corporation Shares
may result in a taxable gain or loss. Generally, no gain or loss will be
recognised by a US shareholder upon the receipt of LucasVarity Corporation
Shares. Shares held in particular positions (such as "straddles") and by
certain shareholders (such as financial institutions) may be subject to
special rules. US shareholders are urged to consult their own tax adviser as
to the US tax consequences of the Scheme to them.
Listing, Dealings and Settlement
Application will be made to the New York Stock Exchange to list the new
LucasVarity Corporation Shares. Application will also be made to the London
Stock Exchange for the new LucasVarity Corporation Shares to be admitted to
the Official List of the London Stock Exchange by way of a secondary listing.
Lazard Brothers & Co., Limited and Morgan Stanley & Co. Limited are acting as
joint sponsors to the listing on the London Stock Exchange. Cazenove & Co.
and Hoare Govett are acting as brokers to the Company and to LucasVarity
Corporation. Certificates for new LucasVarity Corporation Shares and cheques
for fractional entitlements are expected to be available for despatch by post
no later than 21 days after the effective date of the Scheme. Further details
on listings, dealings and settlement will be included in the documents to be
sent to the Company's shareholders.
Recommendation
The Directors of LucasVarity plc have given careful consideration to the
proposal and consider it to be in the best interests of the Company's
shareholders as a whole. The Board of LucasVarity plc, which has been so
advised by Lazard Brothers & Co., Limited and Morgan Stanley & Co. Limited,
considers the financial terms of the proposal to be fair and reasonable to its
shareholders as a whole. In giving their advice, Lazard Brothers & Co.,
Limited and Morgan Stanley & Co. Limited have relied upon the LucasVarity
Board's commercial assessment of the proposal.
The Board of LucasVarity plc unanimously recommends the Company's
shareholders to vote, and holders of LucasVarity plc ADSs to instruct the
Depository to vote, in favour of the resolutions to be proposed at the Court
meeting and the extraordinary general meeting of the Company, as they intend
to do in respect of their respective beneficial holdings totalling
1,694,457 LucasVarity plc ordinary shares.
General
A circular which contains full details on the Scheme, together with
listing particulars prepared in accordance with the listing rules made under
section 142 of the Financial Services Act 1986 relating to LucasVarity
Corporation, will be posted to holders of LucasVarity plc ordinary shares and
LucasVarity plc ADSs as soon as practicable.
In a separate announcement today, LucasVarity plc disclosed its second
quarter and half year results, including US GAAP information, for the periods
ended 31 July 1998. Financial results and commentary, including US GAAP
information, for the year ended 31 January 1998 (fiscal year 1997) is
contained in the Company's Annual Report and Accounts and the Annual Report on
Form 20-F as filed with the US Securities and Exchange Commission. Copies of
each of these documents can be obtained by contacting the Company's Investor
Relations department.
This announcement has been approved for the purposes of Section 57 of the
Financial Services Act 1986 by Lazard Brothers & Co., Limited and Morgan
Stanley & Co. Limited, each of which is regulated in the United Kingdom by The
Securities and Futures Authority Limited. Each of Lazard Brothers & Co.,
Limited and Morgan Stanley & Co. Limited is acting as joint financial adviser
to LucasVarity plc and LucasVarity Corporation and joint sponsor of
LucasVarity Corporation in relation to the proposed listing of LucasVarity
Corporation on the London Stock Exchange and no-one else, and will not be
responsible to anyone other than LucasVarity plc and LucasVarity Corporation
for providing the protection afforded to customers of Lazard Brothers & Co.,
Limited and Morgan Stanley & Co. Limited nor for providing advice in relation
to the proposals.
This announcement does not constitute or form part of any offer of or any
solicitation of an offer for securities. Any acquisition of, or application
for, LucasVarity Corporation Shares should be made only on the basis of
information contained in the listing particulars to be issued in connection
with the proposed application for listing.
Posting of the relevant documents to shareholders in Canada is subject to
the receipt of any necessary regulatory approvals.
Statements included herein which are not historical facts are forward
looking statements. Such forward looking statements are made pursuant to the
safe harbour provisions of the U.S. Private Securities Litigation Reform
Act of 1995 (the "PSLRA"). The forward looking statements involve a number of
risks and uncertainties and are subject to change at any time. In the event
such risks or uncertainties materialise the Group's results could be
materially affected. The Company has no obligation under the PSLRA to update
any forward looking statements and does not intend to do so.
Notes to editors:
The Group designs, manufactures and supplies advanced technology systems,
products and services in the world's automotive and aerospace industries. The
Group operates in twenty five countries and for the year ended 31 January 1998
had revenues from continuing operations of 4.0 billion.
The Group is one of the ten largest independent automotive suppliers in
the world, by turnover. It is a major provider of braking systems and
components for cars and light trucks, diesel fuel injection systems for cars
and vans, and electrical and electronic systems for the automotive industry
and is a leading provider of aftermarket products and services.
Within the aerospace sector, the Group provides the global aerospace
industry with high integrity systems in engine controls, electrical power
generation and management, flight controls and cargo handling, all backed by a
worldwide customer support operation.
The Company's continued positive momentum is reflected in results for the
second quarter ended 31 July 1998, announced separately today. Despite the
effect of a major labour dispute at General Motors, one of its largest
customers, the Company's sales, operating profits and margins from continuing
operations all grew over the prior year second quarter and half year periods.