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IP Group rebuffed in merger approach to Touchstone Innovations; launches £200mln cash-raising

Last updated: 13:25 23 May 2017 BST, First published: 08:00 23 May 2017 BST

Rejected offer
Touchstone advised shareholders “to take no action at this time”

IP Group Plc (LON:IPO) stayed weak in afternoon trading after revealing it recently had an all-share merger approach to fellow technology investor Touchstone Innovations Plc (LON:IVO) rejected, and separately announced plans for a £200mln cash-raising plus the launch of IP Group Australia.

The FTSE 250-listed firm said the terms of the possible offer made to Touchstone comprised the issue of 2.1490 IP Group shares for each Touchstone share held, and would result in Touchstone shareholders owning approximately 38% of the enlarged group.

The implied offer value was 307p per Touchstone share, based on IP Group's closing share price of 143p last night, with Touchstone shares having closed at 294.75p yesterday.

However, IP Group said that if, as a result of an increase in its share price, the implied offer value per Touchstone share were to become worth more than 320p, the number of offer shares to be issued share will be reduced such that the implied offer value remains at 320p per share.

In early afternoon today, Touchstone shares were 5.4%, or 16.00p higher at 310.75p, while IP Group shares were down 2.8%, or 4p at 139p.

Touchstone advises shareholders “to take no action"

In its own statement this morning, Touchstone confirmed IP Group's merger approach and said it engaged in discussions over it “because the proposal has certain merits and because the Company's large shareholders asked the Board to do so.”

However, Touchstone added: “An agreement on terms and governance could not be agreed prior to the capital raise announced today by IP Group.

“Any recommended proposal would need to reflect the best interests of Touchstone and its shareholders as a whole, and having regard to its management, the interests of employees and the position of portfolio companies.”

Touchstone advised shareholders “to take no action at this time”.

Meanwhile, in an update, IP Group revealed that it has now received irrevocable undertakings from Invesco Asset Management Ltd and Lansdowne Developed Markets Master Fund Limited, as well as Woodford Investment Management, in connection with the possible offer.

In aggregate, IP said it has irrevocable undertakings or letters of intent in support of the possible offer from shareholders representing 74.3% of Touchstone's issued share capital.

IP considers combination "would create an international leader"

In its initial statement on the merger approach, IP Group said its directors “consider that the Combination would create an international leader in IP commercialisation and an enlarged business with substantial capabilities that would be greater than the sum of the two parts.”

It added: “The Combination would allow both the Company's and Touchstone's shareholders to participate in any future value generated by the enlarged Group and its more diversified portfolio.”

IP Group said its directors’ “look forward to further engagement with Touchstone regarding this proposal.”

Analysts at broker Jefferies International said that while Touchstone has rejected the offer, a combination would make sense, improving liquidity in both stocks as well as reducing IP Group's reliance on its main investment, Oxford Nanopore.

Capital raising will “strengthen the financial position" of IP Group

In a separate announcement today, IP Group announced the launch of a placing, 1-for-13 open offer and offer for subscription of approximately 145.857mln new shares at a price of 140p each to raise net proceeds of around £195.7mln.

The group also said it has the ability to raise an additional £66.6mln through the issue of around a further 47.571mln shares.

Part of the fund raising is a firm placing to raise gross proceeds of £135mln underwritten by Numis Securities which will include the participation of new shareholders including Temasek and Telstra Super Pty Ltd, as well as existing shareholders including Invesco, Woodford and Lansdowne

The firm said the capital raising will “strengthen the financial position of the Group, enabling IP Group to deploy further capital into new and existing commercialisation opportunities both in the UK and the US and will provide the necessary capital to successfully launch and develop IP Group Australia.”

Increased global scale boosted by launch of IP Group Australia

Alan Aubrey, IP Group’s chief executive officer, said: "The transactions announced today represent a transformational step forward in IP Group's development.

“The increased global scale achieved through the Capital Raising, the establishment of IP Group Australia anchored by nine new university agreements, and the possible combination with Touchstone will enable us to build on our strong track record of value creation, partnering with world-leading research universities”.

Illustrating the increased global scale, the firm also unveiled the launch of IP Group Australia, a wholly-owned private company incorporated in the State of Victoria, Australia “focused on the creation and support of world changing companies in Australia and New Zealand.”

The company said it and IP Group Australia have entered into commercialisation agreements with nine leading Australian and New Zealand research universities under which it intends to form spin-out companies based on disruptive IP developed in such universities.

IP Group said the capital raise is not conditional on the completion of the combination with Touchstone, and vice versa, but added that it is required to confirm the merger approach ahead of the placing and open offer announcement.

 -- Adds broker comment, updates share prices --

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