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Sale of Housing Businesses

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RNS Number : 6109S
Galliford Try PLC
07 November 2019
 

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF THAT JURISDICTION.

THE COMPANY EXPECTS TO PUBLISH SHORTLY A CIRCULAR IN CONNECTION WITH THE TRANSACTION. ANY VOTING DECISIONS BY SHAREHOLDERS IN CONNECTION WITH THE TRANSACTION SHOULD BE MADE ON THE BASIS OF THE INFORMATION CONTAINED IN THE CIRCULAR.

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION.

7 November 2019

 

For immediate release

 

Galliford Try plc

Combination between Bovis Homes and Galliford Try's Linden Homes and Partnerships & Regeneration divisions

Transformation of Galliford Try into a well-capitalised, standalone construction-focused group

 

Further to the announcement on 10 September 2019, the Board of Galliford Try plc ("Galliford Try") is pleased to announce that it has entered into an agreement with Bovis Homes Group PLC ("Bovis Homes") regarding a combination of Bovis Homes and Galliford Try's Linden Homes and Partnerships & Regeneration divisions (the "Housing Businesses") (the "Transaction"). The Transaction is subject to, inter alia, the approval of Galliford Try and Bovis Homes shareholders.

Key transaction terms

On the basis of the Bovis Homes closing share price on 9 September 2019, being the last business day prior to the announcement of high-level terms, the Transaction values the Housing Businesses at £1.075 billion.1 The consideration will be satisfied through:

i.    the issue to Galliford Try shareholders of 63,739,385 new Bovis Homes shares (in aggregate) (the "Consideration Shares"), valued at £675 million on the basis of the closing price of a Bovis Homes share on 9 September 2019 (which would equate to 0.57406 Bovis Homes shares for each Galliford Try share based on 111,032,617 Galliford Try shares in issue as at the date of this announcement);

ii.     the payment of £300 million in cash to Galliford Try (the "Cash Consideration"); and

iii.    the assumption by Bovis Homes of Galliford Try's obligations under its £100 million 10-year debt private placement.

1 On the basis of the Bovis Homes closing share price on 6 November 2019, being the last business day prior to this announcement, the Transaction values the Consideration Shares at £741 million and the Housing Businesses at £1.141 billion.

At completion of the Transaction ("Completion"), Bovis Homes will also assume Galliford Try's rights and obligations under two of Galliford Try's pension schemes. The Cash Consideration is subject to customary Completion adjustments.

Benefits of the Transaction

The Galliford Try Board believes the proposed Transaction will:

·      allow Galliford Try to realise an appropriate premium for the Housing Businesses;

·      result in Galliford Try shareholders having investments in two focused and well-financed businesses, through their continuing 100% shareholding in Galliford Try, and a 29.3% shareholding in the enlarged Bovis Homes;

·      create, through the enlarged Bovis Homes, one of the UK's leading housebuilding businesses; and

·      transform Galliford Try into a well-capitalised, standalone construction-focused group.

In addition, the Bovis Homes Board believes the proposed Transaction will achieve estimated recurring run-rate pre-tax cost synergies of at least £35 million per annum by the end of the second full financial year following Completion.

A circular containing further information on the Transaction, along with notices convening shareholder meetings of Galliford Try, is expected to be sent to Galliford Try shareholders on 8 November 2019.

For further detail on Bovis Homes and the impact on Bovis Homes of the Transaction, Galliford Try shareholders should refer to the announcement of the Transaction released by Bovis Homes today.

Peter Ventress, Chairman of Galliford Try plc, commented:

"This transaction is a positive development which is in the best interests of both our shareholders and wider stakeholder group. For Galliford Try, it establishes a focused and well-capitalised construction business led by a very experienced and dedicated management team. Supported by a robust order book and strong market positions in key sectors, Galliford Try will be well positioned for the future. This transaction also creates one of the UK's leading Housebuilding and Partnerships businesses with great opportunity ahead, from which Galliford Try shareholders will benefit through their continued shareholding."                  

The person responsible for making this announcement on behalf of Galliford Try is Kevin Corbett, General Counsel and Company Secretary. This announcement contains inside information for the purposes of article 7 of EU Regulation 596/2014.

Enquiries:

Galliford Try plc

Graham Prothero, Chief Executive

Andrew Duxbury, Finance Director

Kevin Corbett, General Counsel and Company Secretary

 

01895 855 001

 

Rothschild & Co (Lead Financial Adviser to Galliford Try)

John Deans

Neil Thwaites

Peter Everest

 

020 7280 5000

HSBC Bank plc (Joint Financial Adviser, Joint Sponsor and Joint Corporate Broker to Galliford Try)

Mark Dickenson

Adam Miller

Keith Welch

Diraj Ramchandani

 

020 7991 8888

Peel Hunt LLP (Joint Financial Adviser, Joint Sponsor and Joint Corporate Broker to Galliford Try)

Charles Batten

Edward Knight

Harry Nicholas

 

020 7418 8900

Tulchan Communications (PR Adviser to Galliford Try)

James Macey White

Martin Pengelley

Elizabeth Snow

 

020 7353 4200

 

Important Notice

This announcement is for information purposes only and does not constitute a prospectus or prospectus equivalent document. Nothing in this announcement shall constitute an offer or invitation to underwrite, buy, subscribe, sell or issue of the solicitation of an offer to buy, sell, acquire, dispose or subscribe for shares of any other securities. Nothing in this announcement should be interpreted as a term or condition of the Transaction.

A circular is expected to be published on 8 November 2019 in connection with the Transaction (the "Circular"). Copies of the Circular will, following publication, be available through the website of Galliford Try at www.gallifordtry.co.uk. Neither the content of Galliford Try's website nor any website accessible by hyperlinks on the Company's website is incorporated in, or forms part of, this announcement.

Galliford Try urges shareholders to read the Circular once published carefully as it contains important information in relation to the Transaction. Any vote in respect of resolutions to be proposed at the shareholder meetings to approve the Transaction and related matters should be made only on the basis of the information contained in the Circular.

The information contained in this announcement is for background purposes only and does not purport to be full or complete. No reliance may be placed for any purpose on the information contained in this announcement or its accuracy or completeness. The information in this announcement is subject to change.

The availability of this announcement and/or the Circular to shareholders who are not resident in the United Kingdom may be affected by the laws of the relevant jurisdictions in which they are resident (including affecting the ability of such shareholders to vote their shares with respect to the Scheme and the Transaction). Persons who are not resident in the United Kingdom or who are subject to the laws and/or regulations of another jurisdiction should inform themselves of, and should observe, any applicable requirements. Any failure to comply with any such restrictions may constitute a violation of the securities laws of such jurisdiction.

N.M. Rothschild & Sons Limited ("Rothschild & Co"), which is authorised and regulated by the Financial Conduct Authority in the United Kingdom, is acting as lead financial adviser to Galliford Try and for no one else in connection with the Transaction and will not be responsible to anyone other than Galliford Try for providing the protections afforded to clients of Rothschild & Co or for providing advice in relation to the Transaction, the contents of this announcement or any transaction, arrangement or other matter referred to in this announcement.

HSBC Bank plc ("HSBC"), which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the United Kingdom, is acting as joint financial adviser, joint sponsor and joint corporate broker to Galliford Try and Galliford Try Holdings plc in connection with the proposed sale of the Disposal Group (excluding for the avoidance of doubt the associated restructuring) and admission of the shares in Galliford Try Holdings plc to trading on the London Stock Exchange's main market for listed securities and for no one else in connection with the Transaction and will not be responsible to anyone other than Galliford Try or Galliford Try Holdings plc for providing the protections afforded to clients of HSBC or for providing advice in relation to the Transaction, the contents of this document or any transaction, arrangement or other matter referred to in this announcement.

Peel Hunt LLP ("Peel Hunt"), which is regulated by the Financial Conduct Authority in the United Kingdom, is acting as joint financial adviser, joint sponsor and joint corporate broker to Galliford Try and Galliford Try Holdings plc in connection with the proposed sale of the Disposal Group (excluding for the avoidance of doubt the associated restructuring) and admission of the shares in Galliford Try Holdings plc to trading on the London Stock Exchange's main market for listed securities and for no one else in connection with the Transaction and will not be responsible to anyone other than Galliford Try or Galliford Try Holdings plc for providing the protections afforded to clients of Peel Hunt or for providing advice in relation to the Transaction, the contents of this document or any transaction, arrangement or other matter referred to in this announcement.

This announcement has been issued by Galliford Try and is the sole responsibility of Galliford Try. No representation or warranty, express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by Rothschild & Co, HSBC or Peel Hunt, or by any of their affiliates or agents as to, or in relation to, the accuracy or completeness of this announcement or any other written or oral information made available to any interested party or its advisers, and any responsibility or liability, whether arising in tort, contract or otherwise in respect of this announcement or any such statement, therefore is expressly disclaimed.

Notice to US Shareholders

The issue of the shares in Goldfinch (Jersey) Limited ("New Topco") and the Consideration Shares relate to shares of a Jersey company and a UK company respectively and are proposed to be effected by means of a scheme of arrangement under the laws of England and Wales. A transaction effected by means of a scheme of arrangement is not subject to proxy solicitation or tender offer rules under the US Securities Exchange Act of 1934, as amended. Accordingly, the scheme of arrangement is subject to the disclosure requirements, rules and practices applicable in the United Kingdom to schemes of arrangement, which differ from the requirements of US proxy solicitation or tender offer rules.

The financial information included in the Circular has been prepared in accordance with IFRS and thus may not be comparable to financial information of US companies or companies whose financial statements are prepared in accordance with generally accepted accounting principles in the United States.

Neither the shares in New Topco nor the Consideration Shares have been, and nor will they be, registered under the US Securities Act of 1933, as amended (the "Securities Act") or under the securities laws of any state or other jurisdiction of the United States. Accordingly, neither shares in New Topco nor the Consideration Shares may be offered, sold, resold, delivered, distributed or otherwise transferred, directly or indirectly, in or into the United States absent registration under the Securities Act or an exemption therefrom. The shares in New Topco and the Consideration Shares are expected to be issued in reliance upon the exemption from the registration requirements of the Securities Act provided by Section 3(a)(10) thereof. Galliford Try shareholders who are affiliates of New Topco after the scheme of arrangement becomes effective or affiliates of Bovis Homes after the Transaction has been completed will be subject to certain US transfer restrictions relating to the shares in New Topco and the Consideration Shares received in connection with the scheme of arrangement and the Transaction, respectively.

The shares in Galliford Try Holdings plc ("New Galliford Try") have not been and are not required to be registered under the Securities Act. The shares in New Galliford Try should not be treated as "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act and persons who receive shares in New Galliford Try (other than affiliates) may resell them without restriction under the Securities Act.

For the purposes of qualifying for the exemption from the registration requirements of the Securities Act afforded by Section 3(a)(10), the Company will advise the Court through counsel that its sanctioning of the scheme of arrangement will be relied upon by New Topco and Bovis Homes as an approval of the scheme of arrangement following a hearing on its fairness to Galliford Try shareholders.

Each Galliford Try shareholder is urged to consult his or her independent professional adviser immediately regarding the tax consequences of the Transaction.

It may be difficult for US Shareholders to enforce their rights and claims arising out of the US federal securities laws, since New Galliford Try, Bovis Homes and Galliford Try are located in countries other than the United States, and some or all of their officers and directors may be residents of countries other than the United States. US Shareholders may not be able to sue a non-US company or its officers or directors in a non-US court for violations of the US securities laws. Further, it may be difficult to compel a non-US company and its affiliates to subject themselves to a US court's judgment.

None of the securities referred to in this announcement have been approved or disapproved by the US Securities and Exchange Commission, any state securities commission in the United States or any other US regulatory authority, nor have such authorities passed upon or determined the adequacy or accuracy of the information contained in this document. Any representation to the contrary is a criminal offence in the United States.

Forward-looking statements

This announcement contains statements which are, or may be deemed to be, "forward-looking statements" and which are prospective in nature. All statements other than statements of historical fact included in this announcement may be forward-looking statements. They are based on current expectations and projections about future events, and are therefore subject to risks and uncertainties which could cause actual results to differ materially from the future results expressed or implied by the forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of forward-looking words such as "plans", "expects", "is expected", "is subject to", "budget", "scheduled", "estimates", "forecasts", "predicts", "intends", "anticipates", "believes", "targets", "aims", "projects", "future-proofing" or words or terms of similar substance or the negative of such words or terms, as well as variations of such words and phrases or statements that certain actions, events or results "may", "could", "should", "would", "might" or "will" be taken, occur or be achieved. Such statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations. Such forward-looking statements involve known and unknown risks and uncertainties that could significantly affect expected results and are based on certain key assumptions. Many factors may cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Neither Galliford Try, HSBC or Peel Hunt, nor any of their respective associates, directors, officers, employees or advisers, provides any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward-looking statements in this announcement will actually occur. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this announcement. Other than in accordance with their legal or regulatory obligations, neither Galliford Try nor HSBC or Peel Hunt are under any obligation and each expressly disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Quantified financial benefits

Statements of estimated cost savings and synergies relate to future actions and circumstances which, by their nature, involve risks, uncertainties and contingencies. As a result, the cost savings and synergies referred to may not be achieved, may be achieved later or sooner than estimated, or those achieved could be materially different from those estimated.

 

Galliford Try plc

Combination between Bovis Homes and Galliford Try's Linden Homes and Partnerships & Regeneration divisions

Transformation of Galliford Try into a well-capitalised, standalone construction-focused group

 

1.     Introduction

Further to the announcement on 10 September 2019, the Board of Galliford Try plc ( "Galliford Try") is pleased to announce that it has entered into an agreement with Bovis Homes Group PLC ("Bovis Homes") regarding a combination of Bovis Homes and Galliford Try's Linden Homes and Partnerships & Regeneration divisions (the "Housing Businesses" or the "Disposal Group") (the "Transaction"). The Transaction is subject to, inter alia, the approval of Galliford Try and Bovis Homes shareholders.

On the basis of the Bovis Homes closing share price on 9 September 2019, being the last business day prior to the announcement of high-level terms, the Transaction values the Housing Businesses at £1.075 billion.1 The consideration will be satisfied through:

i.      the issue to Galliford Try shareholders of 63,739,385 new Bovis Homes shares (in aggregate) (the "Consideration Shares"), valued at £675 million on the basis of the closing price of a Bovis Homes share on 9 September 2019 (which would equate to 0.57406 Bovis Homes shares for each Galliford Try share based on 111,032,617 Galliford Try shares in issue as at the date of this announcement);

ii.     the payment of £300 million in cash to Galliford Try (the "Cash Consideration"); and

iii.    the assumption by Bovis Homes of Galliford Try's obligations under its £100 million 10-year debt private placement (the "PP Bond").

1 On the basis of the Bovis Homes closing share price on 6 November 2019, being the last business day prior to this announcement, the Transaction values the Consideration Shares at £741 million and the Housing Businesses at £1.141 billion.

At completion of the Transaction ("Completion"), Bovis Homes will also assume Galliford Try's rights and obligations under two of Galliford Try's pension schemes.

The Cash Consideration is subject to customary Completion adjustments.

The Consideration Shares received by Galliford Try shareholders will rank pari passu in all respects with existing Bovis Homes shares, save that they will not be entitled to receive the Bovis Homes second interim dividend, which is expected to be declared in lieu of the Bovis Homes 2019 final dividend for the year ending 31 December 2019.

Bovis Homes has also announced today a non pre-emptive placing with institutional investors of up to 13,472,591 new ordinary Bovis Homes shares (the "Placing Shares") representing up to approximately 9.99 per cent. of Bovis Homes' existing issued share capital (the "Bovis Homes Placing"), which is expected to raise gross proceeds of up to £157 million. Bovis Homes proposes to use the net proceeds of the Bovis Homes Placing and funds to be drawn down at Completion from its new debt financing to fund the Cash Consideration.

Bovis Homes and Galliford Try have agreed that conditional upon Completion, rather than pay the expected special dividend of £60 million, Bovis Homes will return value to shareholders by way of a bonus issue (the "Bovis Homes Bonus Issue") settled at Completion through the issue of 5,665,723 Bovis Homes ordinary shares to shareholders on the Bovis Homes register of members as at 6.00 p.m. on 2 January 2020. This will include holders of the Placing Shares but exclude recipients of the Consideration Shares. On the basis of the Bovis Homes closing share price on 6 November 2019, being the last business day prior to this announcement, the Bovis Homes Bonus Issue would be for an amount of approximately £66 million.

As a result, following Completion, and taking into account the issue of new Bovis Homes shares under the Bovis Homes Placing and the Bovis Homes Bonus Issue, Galliford Try shareholders are expected to own in aggregate approximately 29.3 per cent. of the enlarged Bovis Homes group.

Up to 2,056,812 additional Galliford Try shares may be issued prior to Completion based on the vesting and/or exercise of outstanding share awards under Galliford Try's current LTIP and Sharesave schemes. If all such awards were to vest and/or be exercised, and on the basis of 63,739,385 Consideration Shares, Galliford Try shareholders would be issued approximately 0.56362 Bovis Homes shares per Galliford Try share. 755,960 conditional awards granted under the LTIP scheme are currently outstanding, the entitlement to which is subject to certain performance hurdles, and 1,300,852 Galliford Try shares are subject to outstanding Sharesave options, exercisable at prices in the range of £8.23 to £12.3441. This compares to £7.42, being the closing price of a Galliford Try share on the last business day prior to this announcement.

The Galliford Try and Bovis Homes Boards believe that, following Completion, the combination of Bovis Homes and the Disposal Group will create one of the UK's leading housebuilding businesses with enhanced scale to compete more effectively in the UK private and affordable housebuilding markets. With a complementary geographical footprint and strategic land bank, the Bovis Homes Board believes that the Transaction will generate recurring operational and procurement run-rate pre-tax cost synergies of at least £35 million per annum in the enlarged Bovis Homes group.

The Galliford Try Board believes that the Transaction will also result in Galliford Try becoming a well-capitalised construction-focused group (the "Continuing Group"), benefiting from the recent operational restructuring which refocused the business to deliver improved future performance. Galliford Try's strengths in UK building and infrastructure, particularly in the highways and water sectors, along with the spread of work for both public and private clients, provide a strong foundation for Galliford Try's future as an independent construction-focused group, owned entirely by Galliford Try shareholders.

The Galliford Try Board therefore believes that the Transaction will result in Galliford Try shareholders having investments in two distinct, focused and well-financed businesses. The respective management teams will be able to focus better on each business's specific requirements and the separate businesses should be well positioned to attract sector-specific investor interest.

For further detail on Bovis Homes and the impact on Bovis Homes of the Transaction, Galliford Try shareholders should refer to the announcement of the Transaction released by Bovis Homes today.

The Transaction constitutes a Class 1 transaction for both Galliford Try and Bovis Homes under the Listing Rules and is, therefore, conditional upon the approval of both Galliford Try and Bovis Homes shareholders. Completion is expected to occur on 3 January 2020.

The Galliford Try Board considers the Transaction to be in the best interests of Galliford Try and the Galliford Try shareholders as a whole and unanimously recommends that all Galliford Try shareholders vote in favour of all resolutions to be proposed at the Galliford Try shareholder meetings, as the Directors intend to do in respect of their aggregate shareholdings in Galliford Try representing approximately 0.1 per cent. of the total voting rights in Galliford Try as at the date of this announcement. Since Graham Prothero will join the Bovis Homes Board on Completion, he has not participated in the Board's decision to approve the Transaction or to support the Board recommendation to Galliford Try shareholders to vote in favour of the relevant resolutions.

The Galliford Try Board has received financial advice from N.M. Rothschild & Sons Limited ("Rothschild & Co"), HSBC Bank plc ("HSBC") and Peel Hunt LLP ("Peel Hunt") in relation to the proposed sale of the Disposal Group (excluding for the avoidance of doubt the associated restructuring). In providing their advice to the Galliford Try Board, Rothschild & Co, HSBC and Peel Hunt have relied upon the Galliford Try Board's commercial assessment of the proposed sale of the Disposal Group.

2.     Background to and reasons for the Transaction

On 4 April 2019, Bovis Homes approached Galliford Try with an initial proposal to combine the Disposal Group with Bovis Homes. Following further discussions, Bovis Homes made a revised proposal which the Galliford Try Board rejected publicly on 28 May 2019 as it did not believe that the proposal fully reflected the value of the Disposal Group and the need to ensure that the remaining Galliford Try Construction business ("Construction") had a viable capital structure.

Following further engagement, the Galliford Try Board announced on 10 September 2019 that it had agreed high-level terms with Bovis Homes on the Transaction, which it believes to be in the best interests of Galliford Try shareholders and other stakeholders as a whole for the following principal reasons: 

·      the Transaction allows Galliford Try to realise an appropriate premium for the Disposal Group;

·      with a complementary geographical footprint and strategic land bank, the Transaction will create one of the UK's leading housebuilding and partnerships businesses from which Galliford Try shareholders will benefit through a 29.3 per cent. holding in the enlarged Bovis Homes group;

·      Bovis Homes expects to generate significant recurring run-rate pre-tax operational and procurement cost synergies of at least £35 million per annum, which will provide additional value creation for Galliford Try shareholders through their holding in the enlarged Bovis Homes group; and

·      the Cash Consideration and the assumption by Bovis Homes of Galliford Try's obligations under the £100 million PP Bond means that Galliford Try will be a well-capitalised, UK construction-focused group, strongly positioned for future growth following the recent restructuring and focus on its core operations. The Continuing Group will be supported by a robust order book and £41.6 million of PPP assets (Directors' valuation as at 30 June 2019).

3.     Information on the Continuing Group - a well-capitalised, UK construction-focused business

Following Completion, Galliford Try will be a well-capitalised, UK construction-focused group delivering building and infrastructure projects for clients in the public, private and regulated sectors across the UK focusing on building, transportation, water and environmental under the Galliford Try and Morrison Construction brands. The Construction business is organised into the Building, Infrastructure and PPP Investment divisions. During the financial year ended 30 June 2019, both the Building and Infrastructure divisions were successful at winning new work and were appointed to contracts and frameworks worth over £580 million and £497 million, respectively.

In April 2019, the Company announced a strategic review of the Construction business that would reduce the size of the business, focusing on its key strengths in markets and sectors with sustainable prospects for profitability and growth. In response to the conclusions of that strategic review, Construction has increased its operational focus and simplified its structure. It is now concentrating on markets and clients with long-term growth and profitability potential, such as its regional building, highways and water operations, where it has a track record of success, supported by a robust tendering process and contract discipline. The review included an assessment of operational progress and contract positions throughout the Construction business. As at 30 June 2019, the order book for the Construction business stood at £2.9 billion. Of this, 79 per cent. is in the public sector, 16 per cent. is in the private sector and 5 per cent. is in regulated industries.

Following Completion, the Galliford Try Board expects Galliford Try to be well positioned in markets with significant opportunity and to deliver on clear and identified operational upside potential. The Galliford Try Board believes the Continuing Group will:

·      be focused on markets where it has a track record of success with significant growth potential, underpinned by major long-term, planned critical public sector, infrastructure and regulatory spend, as demonstrated by:

the 2016 National Infrastructure Delivery Plan which sets out a five-year £100 billion investment programme; and

continued cross-party political commitment to investing in the UK's public services and infrastructure;

·      be focused on long-term client relationships, with frameworks representing 79 per cent. of the current £2.9 billion order book demonstrating the high visibility of future revenues, with 88 per cent. of financial year 2020 revenues already secured;

·      have a highly disciplined approach to risk management in contract bidding (having already ceased bidding on fixed-price all-risk major infrastructure projects in 2016), contract delivery and health & safety, which is embedded in the business from the bottom up and fundamental to its culture;

·      have a highly experienced senior management team focused on optimising:

the operational performance of the Construction business, benefitting from its national scale with local delivery and its highly skilled workforce; and

the growth, margin and cash flow potential of the business - through improved contract discipline the Continuing Group will target an operating profit margin of over 2 per cent. in the medium term;

·      have a strong balance sheet, with a significant net cash position and no significant liabilities in relation to defined benefit pension schemes, which will allow Galliford Try to:

demonstrate the Continuing Group's financial capacity, stability and security, providing a competitive advantage in a sector where customers and suppliers are increasingly scrutinising their partners' balance sheet positions;

take full advantage of business growth opportunities through the investment required in bid costs and innovation and technology necessary to enhance the service offering in ways increasingly demanded by customers; and

provide flexibility to make selected in-fill acquisitions to complement the Continuing Group's existing capabilities as opportunities arise;

·      benefit fully from any future cash receipts from the realisation of its portfolio of £41.6 million of PPP assets (Directors' valuation as at 30 June 2019) and the settlement of major claims, including the Aberdeen Western Peripheral Route claim.

Capital allocation framework

Following Completion, Galliford Try's focus on construction will remove the competition for capital which has existed under the Galliford Try group's historical mixed business model. The Galliford Try Board recognises the importance of capital discipline and following Completion, recognising its construction focus, Galliford Try will adopt the following capital allocation framework:

·      Organic growth investments

The Galliford Try Board will prioritise investment in optimising organic growth opportunities, where contract risk is appropriate to returns and consistent with the operational expertise of the business.

·      Regular returns to shareholders

The Board recognises the importance of regular semi-annual dividends to Galliford Try shareholders in line with its stated dividend policy, which is set out in more detail below.

·      Acquisitions

The Galliford Try Board believes Galliford Try has a well-defined and disciplined approach to evaluating any potential acquisitions. The Galliford Try Board may explore value enhancing acquisition opportunities consistent with its strategic priorities, appropriate to its disciplined risk framework and which complement its existing capabilities.

·      Return of capital

In accordance with its capital allocation priorities, the Galliford Try Board believes it is appropriate to maintain a strong and flexible balance sheet, typically maintaining a positive average group net cash position. Whilst the Galliford Try Board will necessarily take a conservative approach to balance sheet strength, where the Board believes it has capital in excess of the Group's medium-term requirements, it will consider returning such excess capital to Galliford Try shareholders.

4.     Galliford Try dividends

Following Completion, Galliford Try will target a dividend cover of around three times underlying earnings, provided that such dividend is at least covered by free cash flow generated in the period, given the importance to Galliford Try of maintaining a strong capital base going forward. The first dividend paid under this policy will be declared with the interim results for Galliford Try for the half year ending 31 December 2019, with the dividend based on underlying earnings excluding the contribution of the Housing Businesses in the period.

The Consideration Shares received by Galliford Try shareholders will rank pari passu in all respects with existing Bovis Homes shares, save that they will not be entitled to receive the Bovis Homes second interim dividend, which is expected to be declared in lieu of the Bovis Homes 2019 final dividend for the year ending 31 December 2019.

Galliford Try shareholders on the register at 8 November 2019 remain entitled to receive the final dividend of 35.0 pence per share for the year ended 30 June 2019, as announced by Galliford Try on 11 September 2019.

5.     Galliford Try Board

Graham Prothero, Chief Executive, intends to step down from Galliford Try on Completion and will become Chief Operating Officer of Bovis Homes. With effect from Completion, Bill Hocking, currently Chief Executive of Construction, will be appointed Chief Executive of the Continuing Group. Bill Hocking has been Chief Executive of Construction since 1 August 2016. It is expected that Bill Hocking will enter into a new service agreement, the terms of which will reflect his appointment as Chief Executive of the Continuing Group.

6.     Galliford Try's current trading, trends, financial position and future prospects

On 11 September 2019, the Company announced its annual results for the year ended 30 June 2019. The results statement included the following summary of the significant trends in the financial performance of the Galliford Try group for this period:

"We continue to make great progress in Linden Homes, focusing on the benefits of standardising our range and rationalising process. We are building homes more cost effectively while delivering well-designed, high quality units which meet our customers' needs, as reflected in our improving satisfaction scores. We continue to head towards our target of 80% of completions being Linden Collection.

Partnerships & Regeneration has continued its excellent performance with both revenue growth and margin expansion, as we increase our delivery of affordable new homes. The acquisition of Strategic Team Group in Yorkshire accelerates our strategy of targeting growth in key regions around the country. We continue to see strong demand across the regions, and we are well placed to respond to this, working alongside Housing Associations, local authorities and other partners.

Construction's result for the year has been impacted by challenges with both legacy and some current projects and by the restructure, which is now complete. The business continues to see good demand in its Building and Infrastructure divisions and is focusing on disciplined growth across its core sectors of building, water and highways, which we believe will deliver improved margins."

Since 11 September 2019 there has continued to be political and macroeconomic uncertainty affecting the markets in which Galliford Try's businesses operate, particularly Linden Homes and Construction. The Galliford Try Board remains confident in achieving the group's full year expectations, but anticipates that the result will be more weighted towards the second half year than in previous years. Galliford Try is continuing its negotiations with Transport Scotland in relation to the Aberdeen Western Peripheral Route claim, and separately its £54 million claim for three contracts with a single client remains ongoing.

7.     Information on the Disposal Group

Linden Homes

Linden Homes develops high-quality private and affordable housing in prime locations with a commitment to providing excellent customer service, primarily for first-time buyers and families. It has 10 divisions with a strong presence in the South and East of England and a growing presence in other regions of the UK. Linden Homes acquires prime sites with good transport links and local amenities, where it can create communities that people aspire to live in.

For the financial year ended 30 June 2019, Linden Homes completed 3,229 units, of which 2,227 were private housing and 1,002 were affordable housing, with an average selling price of £284,000. At 9 September 2019, Linden Homes had a land bank of 12,600 plots representing around 3.5 years' supply, with an average gross margin of 24.4 per cent., and a strategic land portfolio comprising 2,850 acres, sufficient to generate 13,240 plots.

As at 30 June 2019, the gross assets of Linden Homes were £1,244.4 million. Linden Homes' operating profit (including share of joint ventures profit before interest and tax, but excluding amortisation) for the year ended 30 June 2019 was £160.5 million.

Partnerships & Regeneration

Partnerships & Regeneration is Galliford Try's specialist affordable housing and regeneration business. It delivers mixed‑tenure solutions working with housing associations, local authority and private sector partners, combining contracting, land-led contracting and mixed-tenure development with a proven track record of delivery and quality. During the financial year ended 30 June 2019, Partnerships & Regeneration completed 1,178 units at an average selling price of £217,000. Notable current projects include partnerships with:

·      Homes England to deliver 885 homes across the UK under the Delivery Partner Panel;

·      Enfield Council to build the first 725 homes at the £6.0 billion Meridian Water development in the Lea Valley; and

·      Ealing Council to create a new mixed-use scheme, including 470 homes.

As at 30 June 2019, the gross assets of Partnerships & Regeneration were £412.5 million. Partnerships & Regeneration's operating profit (including share of joint ventures profit before interest and tax, but excluding amortisation) for the year ended 30 June 2019 was £34.8 million.

Key Individuals

Andrew Hammond, Chief Executive of Linden Homes, is a key individual of Linden Homes. Stephen Teagle, Chief Executive of Partnerships & Regeneration, is a key individual of Partnerships & Regeneration. Each of Andrew Hammond and Stephen Teagle will be joining Bovis Homes on Completion.

8.     Summary of the principal terms of the Transaction

The Transaction will be undertaken pursuant to the terms of a sale and purchase agreement entered into by Galliford Try and Bovis Homes on 7 November 2019 and related agreements. In order to implement the Transaction, it will be necessary for the Galliford Try group to carry out a restructuring, including a scheme of arrangement made under Part 26 of the Companies Act (the "Scheme") in order to enable Galliford Try shareholders to receive the benefit of the Transaction in a tax efficient manner whilst simultaneously ensuring that Galliford Try receives the relevant cash proceeds to support the Continuing Group after Completion. The material steps of the restructuring are summarised below.

Restructuring

A new Jersey registered company ("New Topco") will be incorporated, which will hold the entire issued share capital of Galliford Try. The insertion of New Topco will be effected by way of the Scheme. Under the terms of the Scheme, all existing Galliford Try shares will be cancelled and Galliford Try shareholders will receive one New Topco A share for every Galliford Try share that they hold.

Upon the Scheme becoming effective, Galliford Try will transfer the entire issued share capital of Galliford Try Homes Limited ("Homes Limited") to New Topco such that it becomes a subsidiary of New Topco. Galliford Try will retain a special share in Homes Limited in order to facilitate the payment of the post-Completion adjustment described below.

New Topco will undertake a bonus issue of shares to Galliford Try shareholders such that each Galliford Try shareholder will receive one New Topco B share for each New Topco A share that they hold. The New Topco B shares are to be issued to facilitate the demerger of the Continuing Group, as described in the paragraph immediately below. The New Topco A shares will carry an entitlement to the returns in New Topco attributable to Linden Homes. The New Topco B shares will carry an entitlement to the returns attributable to the Continuing Group and Galliford Try Partnerships Limited ("Partnerships Limited").

New Topco will then undertake a reduction of capital pursuant to which each of the New Topco B shares will be cancelled. The reduction of capital will be satisfied by the transfer of the entire issued share capital of Galliford Try to Galliford Try Holdings plc ("New Galliford Try"). New Galliford Try is a company which has been incorporated for the purposes of holding the Continuing Group after Completion and which will, following Completion, be owned entirely by Galliford Try shareholders. In exchange for the shares in Galliford Try, New Galliford Try will issue New Galliford Try shares to Galliford Try shareholders on the basis of one New Galliford Try share for every New Topco B share held by that Galliford Try shareholder. Application will be made for the entire issued share capital of New Galliford Try to be admitted to listing on the premium segment of the Official List and to the London Stock Exchange's main market for listed securities with effect from 8.00 a.m. on 3 January 2020.

Sale of the Disposal Group

Bovis Homes will acquire all of the shares in New Topco (being the New Topco A shares following cancellation of the New Topco B shares) from Galliford Try shareholders in exchange for the issue of the Consideration Shares, pursuant to the mandatory transfer provisions in the New Topco articles of association. Galliford Try shareholders will receive their pro rata proportion of Consideration Shares based on their holding of New Topco A shares (which will be equal to their pro rata holding of Galliford Try shares immediately before the Scheme becomes effective). Bovis Homes will then acquire the entire issued share capital of Partnerships Limited in consideration for the payment of the Cash Consideration to Galliford Try and the assumption by Bovis Homes of Galliford Try's obligations under the £100 million PP Bond.

The sale and purchase agreement contains a customary post-Completion adjustment mechanism that is based on the level of Tangible Gross Asset Value ("TGAV") of Homes Limited and Partnerships Limited delivered as part of the Transaction on the date of Completion. The price payable by Bovis Homes for the special share in Homes Limited will be determined by reference to the TGAV of Homes Limited as determined pursuant to that adjustment.

Completion of the Transaction is subject to the satisfaction or waiver (where capable of waiver) of certain conditions under the sale and purchase agreement. Galliford Try and Bovis Homes also have certain termination rights. Further details are set out in the circular which is expected to be sent to Galliford Try shareholders on 8 November 2019.

Transfer of the Group's pension schemes

At Completion, Bovis Homes will also assume Galliford Try's rights and obligations under two of Galliford Try's pension schemes, being the Galliford Try Final Salary Pension Scheme and the Galliford Try (Holdings) Limited Pension & Assurance Scheme. The schemes have combined membership of approximately 2,059 individuals and have combined assets of approximately £244.8 million. The remaining pension scheme, being the Galliford Try Special Scheme, will remain with Galliford Try. The Galliford Try Special Scheme currently has only five members and is in the process of being wound up.

Timing

Subject to the satisfaction or waiver (where capable of waiver) of all applicable conditions under the sale and purchase agreement, each of the steps of the restructuring (including the Scheme) is expected to be implemented and to become effective after the close of trading on the London Stock Exchange on 2 January 2020. Completion of the Transaction pursuant to the sale and purchase agreement and admission of the New Galliford Try shares and the Consideration Shares, respectively, is expected to occur not later than 8.00 a.m. on 3 January 2020.

New Galliford Try shares

New Galliford Try will publish a prospectus in relation to the admission of the New Galliford Try shares on or around 25 November 2019. Application will be made to the FCA for the New Galliford Try shares to be admitted to the premium listing segment of the Official List, and to the London Stock Exchange's main market for listed securities. It is currently expected that admission of the New Galliford Try shares will become effective at 8.00 a.m. on 3 January 2020.

Consideration Shares

Bovis Homes will publish a prospectus in relation to the admission of the Consideration Shares on 7 November 2019 and the Galliford Try Board has been informed that application will be made to the FCA for the Consideration Shares to be admitted to the premium listing segment of the Official List, and to the London Stock Exchange's main market for listed securities. It is currently expected that admission of the Consideration Shares will become effective at 8.00 a.m. on 3 January 2020.

9.     Use of proceeds and financial effects of the Transaction on the Continuing Group

The cash proceeds arising from the Transaction are expected to be approximately £300 million, adjusted based on the TGAV of the Disposal Group at Completion with up to £25 million of this adjustment amount deferred to April 2020. There will also be an assumption by Bovis Homes of Galliford Try's obligations under the £100 million PP Bond. The combination of the net cash proceeds and the assumption of obligations by Bovis Homes under the PP Bond will result in the Continuing Group having a well-capitalised balance sheet by reducing indebtedness and providing a net cash position upon Completion. The Galliford Try Directors intend that the net cash proceeds of the Transaction will be used to prepay and cancel the outstanding amount under the Galliford Try group's main syndicated bank facility as well as to finance the ongoing working capital requirements of the Continuing Group.

Financial effects of the Transaction on the Continuing Group

In the financial year ended 30 June 2019, the Disposal Group contributed revenue of £1.44 billion, approximately half of Galliford Try's total revenue. Construction contributed revenue of approximately £1.42 billion to Galliford Try.

In the financial year ended 30 June 2019, Galliford Try generated pre-exceptional operating profits (including share of joint ventures' profit) of approximately £177 million. The Disposal Group contributed pre-exceptional operating profits (including share of joint ventures' profit) of approximately £195 million. Construction contributed a pre‑exceptional operating loss (including share of joint ventures' profit) of approximately £18 million, reflecting £33 million of write downs taken on a number of contracts following the strategic review of the Construction business undertaken in the year.

10.  Impact of the Transaction on shareholders

Upon Completion, Galliford Try shareholders will hold the entire issued share capital of New Galliford Try in the same proportions that they hold their Galliford Try ordinary shares as at the record time for the Scheme. In addition, Galliford Try shareholders will also receive the Consideration Shares on a pro rata basis by reference to their holdings of Galliford Try ordinary shares as at the record time for the Scheme.

11.  Galliford Try shareholder approvals

The Transaction is conditional, among other things, upon the approval of Galliford Try shareholders. Notices convening those shareholder meetings to be held at the offices of CMS Cameron McKenna Nabarro Olswang LLP at Cannon Place, 78 Cannon Street, London EC4N 6AF are expected to be sent to Galliford Try shareholders on 8 November 2019.


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
 
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