Rural Broadband Sltn - Infrastructure funding and name change

Global Connectivity

07/10/2022 15:40

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RNS Number : 2277C  Rural Broadband Solutions PLC  07 October 2022

 

Rural Broadband Solutions Plc

('RBBS' or the 'Company')

Infrastructure funding complete and name change to Global Connectivity plc

 

Rural Broadband Solutions Plc (AQSE: RBBS), a provider of high speed broadband
to rural areas of Great Britain, announces a proposed investment from Tiger
Infrastructure Partners Fund III LP ("Tiger") into its two operating
subsidiaries and a change of name to Global Connectivity plc.

 

Highlights:

 

• Tiger agrees to invest up to £75 million in Rural Broadband Solutions
Holdings Limited ("RBSHL"), a newly formed company, and will thereby own 85%
of the common equity of RBSHL.  RBBS will transfer the shares it owns in
Secure Web Services Ltd ("SWSL") and Cadence Networks Ltd ("CNL") to RBSHL
(the "Reorganisation") and in return will receive £825,000 in cash over three
years (as partial repayment of a shareholder loan made by RBBS to SWS) and,
for a minimal investment, 15% of the common equity of RBSHL.

 

• Tiger has committed an initial investment of £16 million during its
first year of majority ownership.

 

• The RBBS ownership of RBSHL is not subject to dilution unless and until
Tiger reaches its £75 million capital contribution to RBSHL.

 

• A Management Incentive Plan will be created for the benefit of management
to enable it to participate in the upside of RBSHL.

 

• RBBS will be entitled to representation on the board of RBSHL.

 

• The transaction is subject inter alia to approval by 50.1% of RBBS
shareholders at an extraordinary general meeting scheduled for 24 October
2022.  Shareholders exceeding 52% have signed irrevocable undertakings to
approve the transaction.

 

Keith Harris, Executive Chairman of RBBS, commented: "We have been seeking
infrastructure funding in support of our wider growth strategy.  It was
critical for us to identify a financial and strategic partner who shared our
vision to deploy full fibre to our communities.  In Tiger, we are delighted
to say we have found a like-minded investor whose expertise and capital will
assist in fulfilling this ambition.  Together, we are well-positioned to
assist communities in Shropshire and Wales solve their immediate and
growing requirement for reliable, gigabit-capable connectivity."

 

A circular to shareholders (the "Circular"), including a notice of the
extraordinary general meeting and proposed action to be taken by Shareholders
will be posted today.

 

The Circular is available on the Company's website:
https://www.ruralbroadbandsolutions.com/about/documents
(https://www.ruralbroadbandsolutions.com/about/documents/) /
(https://www.ruralbroadbandsolutions.com/about/documents/) and parts of the
Circular have been reproduced below.

 

 

Proposed Investment

 

In my statement to shareholders in December 2021, I wrote that, since our
initial public offering in October 2020, we had invested the proceeds thereof
and those of a subsequent secondary equity offering in December 2021, to build
the foundations for a larger and stronger operating entity. I discussed in
that statement the opportunities your board identified as a result of the
continuing trend towards fast connectivity in even the most remote areas of
the UK becoming an increasingly essential utility. In November 2021, the
All-Party Parliamentary Group on the Rural Powerhouse warned that "Rural
Britain is not a museum" and is being "held back" by, among other things,
"slow" broadband connectivity. Your company is one of those seeking to deliver
high speed broadband to rural areas.

 

The investment we have made in our dark fibre ring and backhaul capability,
provided by the December 2021 acquisition of Cadence, gave RBBS a foundation
upon which to build its own national data network and provide connectivity to
a wide range of rural towns and villages. We have also invested in an
experienced and enlarged executive management and board capability to provide
the expertise to facilitate a step change in customer numbers. The fund
raising in December 2021 helped RBBS in achieving its strategic objective of
becoming a major presence in the provision of broadband services to rural
areas in the UK. The acquisition of Cadence has allowed us to create our own
national network to enable us to build our own fibre network.

 

Whilst implementing our growth strategy, it became clear that the rural
broadband market was likely to develop more quickly and to a larger extent
than anticipated when we embarked on this enterprise. In discussions with
Analysys Mason, an experienced specialist consultancy in the field of digital
infrastructure planning, it became apparent that the strategy on which we had
embarked would require a further considerable deployment of capital. It was
equally apparent that there was an ever increasing demand within the UK for
nationwide fast and reliable broadband. At this stage, the vision was clear,
but the opportunity was immediate.

 

The huge opportunity and bold vision underpinned our belief that we should
seek to partner with an infrastructure fund with proven expertise, strong
capital backing and a shared belief in our vision. As a consequence, we
appointed Investec Bank plc as an infrastructure funding advisor. This
resulted in us entering into discussions with Tiger and those discussions have
now concluded successfully.

 

Tiger agrees to invest up to £75 million to fund the capex costs, working
capital and operating losses during the ramp-up of our business. Their
investment places RBSHL, the new holding company of SWS and Cadence, in a
position to fund growth in the rural broadband market, both organically and by
way of acquisitions, at an increased pace. Significantly, it also enables
RBSHL, in due course, to raise external financial leverage at a lower cost of
capital for the benefit of all stakeholders.

 

RBBS will retain a 15% equity stake in RBSHL. This ownership is not subject to
dilution except in circumstances where the board of RBSHL agrees that further
funding in excess of Tiger's £75 million investment is required and RBBS does
not elect to fund its relevant proportion. RBBS will also receive £825,000 in
cash over the next 3 years (£275,000 per annum) by way of repayment of an
intercompany loan from SWS which will enable RBBS to continue to operate as an
investment vehicle with the capacity, in addition to its carried 15%
investment in RBSHL, to seek opportunities in allied but non-competing
business sectors.

 

Background on Tiger

 

Tiger Infrastructure Partners is a leading middle market investor focused on
providing transformational growth capital to enable the infrastructure of
tomorrow. Tiger targets superior risk-adjusted returns for its investors by
employing the firm's value-add approach to growth investments across the
digital infrastructure, energy transition and transportation sectors in North
America and Europe, where significant tailwinds are driving demand for new
infrastructure.  For more information, visit www.tigerinfrastructure.com
(http://www.tigerinfrastructure.com) .

 

Details of the Investment

 

Pursuant to the Subscription Agreement and the Shareholders' Agreement, Tiger
has conditionally agreed to invest up to £75 million in aggregate into a new
intermediate holding company RBSHL which, following the Reorganisation, will
wholly own SWS and Cadence. Of this aggregate maximum investment of £75
million, £8 million will be invested at Completion with a further £8 million
to be invested within the 12 month period following Completion (subject to no
material adverse event having occurred with respect to the business of SWS or
Cadence). As part of the Reorganisation, RBBS will transfer rights in the
Rural Broadband Solutions name to RBSHL and will capitalise £1,028,470.33 of
the intercompany loan owed to it by SWS with the balance of £825,000 being
repaid over three years at the rate of £275,000 per annum.

 

The Subscription Agreement is conditional upon Shareholders passing the
Resolutions at the EGM and upon the Reorganisation having been completed.
Should either of these conditions not be satisfied, the Company will be liable
to pay to Tiger a break fee in the sum of £900,000.  Completion is expected
to take place within 2 business days following the EGM.

 

Any funds invested by Tiger up to the £75 million will be advanced 70% by way
of shareholder loan and 30% by way of subscription for A Shares. Tiger will
upon Completion of the initial £8 million investment hold 85% of RBSHL's
issued share capital with the balance of 15% being held by the Company in the
form of B Shares. The shareholder loans to be advanced by Tiger will be
unsecured and will carry interest at the rate of 12.5% per annum (the SHL
Rate). If RBSHL cannot pay any interest on its due date, that interest will be
rolled up and accrue additional interest at the SHL Rate. The shareholder
loans shall be repayable in advance of any return of equity. Until Tiger has
funded £75 million in full, the Company will not have any ongoing funding
obligations to RBSHL with Tiger having the right to provide all funding up to
that level (save for nominal sums payable by the Company for further issues of
shares to the Company in order to maintain the Company's 15% shareholding).
After Tiger has invested £75 million, the Company shall be entitled to
participate in its pro rata amount in funding rounds on the same terms as
Tiger.

 

Pursuant to the Subscription Agreement, the Company has given certain
warranties to Tiger and has also given Tiger a tax indemnity on the terms set
out in the Tax Deed. Both the Subscription Agreement and the Tax Deed contain
limitations on the Company's liability customary for a transaction of this
nature. In addition, Tiger has also taken out warranty and indemnity insurance
which provides cover for claims under large majority of the warranties or Tax
Deed save for excluded or partially excluded claims and means that the
Company's liability for any covered claims is capped at £1. The Company will
be liable for claims under certain uncovered warranties and certain uncovered
parts of the Tax Deed if claims exceed £1 million.

 

The Shareholders' Agreement will be entered into on Completion in order to
regulate the ongoing relationship between the Company and Tiger as
shareholders of RBSHL. As majority shareholder and funder, Tiger will have
control of RBSHL at both board and shareholder level subject to certain
minority shareholder protections for the Company. The Company shall have the
right to receive certain information in relation to the continuing business
and to appoint a director to the Board of RBSHL, the first such director to be
Keith Harris. The Shareholders' Agreement includes restrictive covenants which
prevent the Company from competing with RBSHL and its subsidiaries and from
soliciting employees, customers and suppliers.

 

Chris New and Simon Hersh have committed to increase their time commitments to
RBSHL and its subsidiaries (and to reduce their time commitment to the
Company).

 

In order to incentivise the senior management team of RBSHL, it is intended
soon after Completion for RBSHL to adopt the MIP. Under the terms of the MIP,
members of the senior management team (which may include Keith Harris,
Christopher New, Simon Hersh, Adam Gent and Rod Lawrence) may receive an
increasing share of the proceeds of any future sale of RBSHL up to a maximum
of 20%. The allocation of the MIP has not yet been decided. The Independent
Directors consider the proposed terms of the MIP to be fair and reasonable in
the context of the transaction as whole. The exact terms of the MIP, including
vesting hurdles, will be approved by the non-executive directors' of RBSHL
after completion of the transaction.

 

Certain members of the senior management team have entered into the Management
Warranty Deed containing market standard warranties from the senior management
team in favour of Tiger in relation to matters such as the business plan and
due diligence reports.

 

 

Irrevocable undertakings

 

Irrevocable undertakings to vote in favour of the Resolutions have been
received by the Company in respect of, in aggregate, 189,977,472 Ordinary
Shares, representing approximately 52 per cent of the Company's current issued
share capital. This includes the following directors and their related
parties:

 

% of

No. of           Current

 Ordinary           issued

Director
 
                Shares             share capital

Keith Harris
 
     34,126,667             9.43%

Keith Harris' wife
 
   2,000,000             0.55%

Christopher Stone
 
 13,000,000             3.59%

Total
 
     49,126,667           13.57%

 

 

Recommendation

 

Shareholder approval is being sought, in accordance with the AQSE Growth
Market rules, because completion of Subscription Agreement will result in
RBBS's holding in RBSHL (and therefore ultimately in Cadence and SWS) being
reduced from 100% to 15%, resulting in a fundamental change in the Company's
circumstances.

 

The Directors consider the Investment to be in the best interests of the
Company and its Shareholders as a whole and accordingly unanimously recommend
Shareholders to vote in favour of the Resolutions to be proposed at the EGM.

 

Certain Shareholders have irrevocably undertaken to vote in favour of the
Resolutions in respect of, in aggregate, 189,977,472 Ordinary Shares,
representing approximately 52.49 per cent. of the current issued ordinary
share capital of the Company.

 

 

 

--ENDS--

 

 

 

For more information, contact:

 

Keith Harris

Executive Chairman

Rural Broadband Solutions Plc

Email: info@ruralbroadbandsolutions.com
(mailto:info@ruralbroadbandsolutions.com)

www.ruralbroadbandsolutions.com (http://www.ruralbroadbandsolutions.com)

 

Claire Louise Noyce

AQSE Stock Exchange corporate broker

Hybridan LLP

Tel: +44 20 3764 2341

Email: claire.noyce@hybridan.com (mailto:claire.noyce@hybridan.com)

www.hybridan.com (http://www.hybridan.com)

 

Jon Isaacs

AQSE Stock Exchange corporate adviser

Alfred Henry Corporate Finance Limited

Tel: +44 (0) 203 772 0021

Email: jisaacs@alfredhenry.com (mailto:jisaacs@alfredhenry.com)

www.alfredhenry.com (http://www.alfredhenry.com)

 

 

About Rural Broadband Solutions Plc

Rural Broadband Solutions Plc is a broadband service provider for deep rural
communities in the UK. RBBS uses using leading-edge technologies such as Fixed
Wireless and Fibre with a choice of packages and connections from 30Mbps to
900Mbps to provide high-speed broadband services comparable to cities to rural
communities. All its connections support VoIP (Voice over Internet Protocol)
phone services for home and business. RBBS, through the acquisition of SWS
Broadband in 2020, and Cadence Networks Ltd in December 2021, has been
building its broadband network in Shropshire and Wales by using Fixed Wireless
Access (FWA). RBBS has also been deploying Fibre to the Premises (FTTP) where
this is economically viable based on expected take-up rates or with the
support of the Gigabit Broadband Voucher Scheme.

 

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