REG - Volex PLC TT Electronics PLC - Possible Offer for TT Electronics plc

TT electronicsAnnouncement

15/11/2024 07:15

For best results when printing this announcement, please click on link below:
https://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20241115:nRSO3458Ma&default-theme=true

RNS Number : 3458M  Volex PLC  15 November 2024

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

THIS IS AN ANNOUNCEMENT FALLING UNDER RULE 2.4 OF THE CITY CODE ON TAKEOVERS
AND MERGERS (THE "CODE"). IT DOES NOT REPRESENT A FIRM INTENTION TO MAKE AN
OFFER UNDER RULE 2.7 OF THE CODE. ACCORDINGLY, THERE CAN BE NO CERTAINTY THAT
AN OFFER WILL BE MADE.

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

FOR IMMEDIATE RELEASE

15 November 2024

 

Volex plc

 

Possible Offer for TT Electronics plc ("TT Electronics")

Volex plc ("Volex" or the "Group"), a global leader in mission critical
applications and power and data connectivity solutions, announces that it has
submitted two proposals to the Board of TT Electronics regarding a possible
cash and shares offer for the entire issued and to be issued share capital of
TT Electronics.

The first proposal comprised 62.9 pence in cash and 0.203 new Volex shares per
TT Electronics share which implied, at the time of the first proposal, a price
of 129.0 pence per TT Electronics share, and the second proposal comprised
62.9 pence in cash and 0.223 new Volex shares per TT Electronics share which
implied, at the time of the second proposal, a price of 135.5 pence per TT
Electronics share (together, the "Volex Proposals")((1)). The Board of TT
Electronics has declined to engage with Volex and rejected each of the Volex
Proposals.

Based on the price of Volex shares as at the close of business on 14 November
2024 (being the latest practicable date prior to the date of this
announcement), Volex's latest proposal, consisting of 62.9 pence in cash and
0.223 new Volex shares per TT Electronics share (the "Second Proposal"), now
implies a value of 139.6 pence per TT Electronics share, values the fully
diluted share capital of TT Electronics at £248.6m and implies a premium of:

·      76.7 per cent. to TT Electronics closing price of 79.0 pence as
at the close of business on 14 November 2024 (being the latest practicable
date prior to the commencement of the offer period on 15 November 2024); and

·      73.2 per cent. to the one month volume weighted average price for
TT Electronics shares as at the close of business on 14 November 2024.

The Board of Volex therefore firmly believes that the terms of the Second
Proposal offer a highly attractive opportunity for TT Electronics shareholders
to realise both an immediate partial cash exit following the ongoing
operational and end market challenges faced by TT Electronics and the
opportunity to share meaningfully in the upside of a highly attractive
enlarged business.

If any offer were made on the basis of the Second Proposal, Volex expects it
would offer a mix-and-match facility to provide TT Electronics shareholders
with flexibility.

Lord Rothschild, Executive Chairman of Volex, commented:

"We believe that bringing Volex and TT Electronics together in a highly
synergistic transaction would create a scaled and diversified leader in the
specialist electronics market which would act as a platform for future organic
and inorganic growth and significant value creation. TT Electronics would
provide the Group with further exposure to structural growth markets, such as
medical and industrial technology, and add a new end-market, aerospace and
defence, to progress Volex's successful strategy of diversification. At the
same time, TT Electronics would benefit from being part of a larger group with
stronger performance and the associated opportunities for revenue and cost
synergies to deliver higher profitability.

Despite the resilience of TT Electronics' underlying business, it has faced
persistent challenges in recent years, which Volex believes have been
exacerbated by execution missteps by the Board, including former and current
executive leadership. As a result TT Electronics' shares are trading at a 10
year low.

Since the disposal of the former Transportation Sensing and Control division
in 2017 for c.£119m, TT Electronics has spent approximately the same amount
on acquisitions (for which the purchase prices have been disclosed), paying
elevated multiples in an effort to develop a higher quality business. Instead,
TT Electronics has delivered a series of inconsistent annual results with
adjusted operating profit only improving 60 bps since 2019 to 8.6% for the
financial year ended 31 December 2023, well below the 10%+ margin target set
by TT Electronics management in 2019. This is before factoring in
restructuring charges, which amounted to a total of £43.9m over the same
period. In comparison, Volex's adjusted operating margin increased by 170 bps
to 9.8% from 2020 to 2024 (financial year ending 31 March), achieving and
sustaining the higher end of management's guidance for 9-10% margin. Volex's
only restructuring charge during this period was £0.8m recognised in 2022.

TT Electronics' acquisition strategy has also resulted in very disappointing
outcomes. In early 2024, TT Electronics disposed of three sites with a
write-down of £32.5m, including the company's activities at Hartlepool and
Dongguan, which it had acquired through its takeover of Stadium plc in 2018.
Furthermore, TT Electronics now has operational issues at two North American
sites serving aerospace and defence, a market that TT Electronics has targeted
through its acquisitions of Torotel and Covina in the US.

More recently, TT Electronics' 16 September 2024 trading update surprised with
an earnings downgrade, having only confirmed full year guidance in the
company's half-year results on 8 August 2024. As per the trading update on 14
November 2024, guidance was further downgraded to the lower end of the range
provided on 16 September 2024. Analyst consensus forecasts imply that adjusted
operating profit margin will be approximately 7.1% in 2024((2)), a further
downward departure from the company's previous 10%+ margin target and
significantly below its new mid-term adjusted operating profit target of 12%
by 2026.

Since 1 January 2018, TT Electronics' share price has declined by 65%,
compared to Volex's, which has increased over 300%.

We firmly believe that our Second Proposal offers shareholders an extremely
compelling alternative to the status-quo: the opportunity to (1) in the near
term, realise a meaningful element of the offer consideration in cash whilst
operational challenges persist, and (2) alongside our own shareholders, to
participate in the highly attractive upsides offered by the growth qualities
and synergy potential of the combined business led by an experienced team that
has a track record of successfully delivering value accretive acquisitions.

I therefore strongly encourage TT Electronics shareholders to urge the TT
Electronics Board to engage with Volex in delivering an expeditious and highly
attractive outcome for all stakeholders."

 

Strategic rationale for a combination of Volex and TT Electronics

The Volex Board believes the combination of TT Electronics and Volex will
deliver value for both sets of shareholders by:

Creating a scaled leader in specialist electronics for demanding high growth
end markets exposed to industrial megatrends

·      The combination of TT Electronics and Volex would represent a
transformational transaction for both companies, creating a scaled leader
across a diversified range of end markets with a need for bespoke R&D
driven solutions and complex manufacturing services.

·      The combined group would offer exposure to international
megatrends including the decarbonisation of transportation, demographic shifts
in healthcare and technological convergence of aerospace and defence
platforms.

·      Volex's strategy has demonstrated the benefits of diversification
and the proposed combination would further improve the diversification of both
businesses, whilst also offering greater economies of scale and cross-selling
opportunities.

Benefitting from significant opportunities to realise both cost and revenue
synergies and deliver higher profitability

·      Volex believes there are significant opportunities to achieve
cost synergies in the combined business through the removal of duplicate
functions and driving further efficiencies as Volex operates a relatively much
leaner fixed cost base.

·      There are further opportunities to rationalise the combined
businesses' global manufacturing footprint, particularly in Mexico, China and
South East Asia where TT Electronics has been slow to shift its production
away from more expensive markets, and also further leverage Volex's wider
presence in low-cost geographies.

·      Volex has a proven history of delivering margin expansion and
believes that the combination with TT Electronics would be earnings-accretive,
and therefore Volex would expect to outperform its existing medium-term
operating margin targets.

Being run by a highly experienced management team that has delivered outsized
returns for shareholders

·      Volex's management has a track record of delivering profitable
growth, margin expansion and high levels of return on capital employed, via
actions to reduce customer concentration, exiting unprofitable contracts,
expanding the product portfolio to include more high-specification and
customisable products which generate higher margins, rationalisation and
vertical integration of manufacturing operations and a return to strategic
acquisitions.

·      The executive management team of Volex includes multiple key
executives who set up and grew valuable TT Electronics business divisions. As
a result, Volex believes that it already understands the value-creation
drivers of TT Electronics and is well-placed to deliver on TT Electronics'
potential.

·      TT Electronics is exposed to the high structural growth markets
of healthcare, aerospace and defence and automation/electrification. Volex
understands these markets and believes it can unlock additional organic growth
through its manufacturing, sales practices and achievement of cross-selling.

Benefitting from a strong balance sheet combined with significant levels of
cash generation providing capital optionality to maximise shareholder value

·      Based on the Second Proposal, the combined group would have
pro-forma day one leverage of c.2.0x, within Volex's target range of 1.5 -
2.0x.

·      The combined group would generate significant free cash flow and
leverage would be expected to reduce towards the bottom of Volex's target
range in the near term, at which point incremental free cash flow can be
directed towards alternative methods of value creation, including additional
accretive M&A.

·      The combined group would be well positioned to continue being a
UK listed M&A compounder, a strategy Volex has successfully pursued over
the last 6 years with 12 acquisitions completed and integrated within that
period.

The Volex Board therefore believes that the combined business would deliver
significantly greater benefits to TT Electronics shareholders than TT
Electronics could otherwise achieve on its own.

Volex is convinced of the compelling strategic rationale for a combination
with TT Electronics and has already acquired 5,241,420 TT Electronics shares,
representing approximately 2.95% of TT Electronics' issued share capital.

As required by Rule 2.6(a) of the Code, Volex must, by not later than 5.00
p.m. on 13 December 2024, either announce a firm intention to make an offer in
accordance with Rule 2.7 of the Code or announce that it does not intend to
make an offer, in which case the announcement will be treated as a statement
to which Rule 2.8 of the Code applies. This deadline may be extended with the
consent of the Panel on Takeovers and Mergers in accordance with Rule 2.6(c)
of the Code.

Furthermore, pursuant to Rule 2.5 of the Code, Volex reserves the right to
vary the form and / or mix of the offer consideration. Volex also reserves the
right to make an offer for TT Electronics at a lower value or on less
favourable terms than the Second Proposal:

a) with the recommendation or consent of the TT Electronics Board;

b) following the announcement by TT Electronics of a Rule 9 waiver transaction
pursuant to the Code or a reverse takeover; or

c) if a third party announces a firm intention to make an offer for TT
Electronics which, at that date, is on less favourable terms than the Second
Proposal.

If TT Electronics announces, declares, makes or pays any dividend or any other
distribution or return of value or payment to its shareholders after the date
of this announcement, Volex reserves the right to make an equivalent reduction
to the Second Proposal.

There can be no certainty any offer will be made pursuant to Rule 2.7 of the
Code.

A further announcement will be made in due course.

 

Rule 2.4

 

Under Rule 2.4(c) of the Code, Volex is required to provide details of any
minimum level, or particular form, of consideration it would be obliged to
offer under Rule 6 or Rule 11 (as appropriate). Volex confirms that it has
acquired 5,241,420 ordinary shares of TT Electronics within the last 3 months.
The highest price paid per TT Electronics share was 99.69 pence and therefore,
under Rule 6.1 of the Code, any offer for TT Electronics will not be made on
less favourable terms, except with the consent of the Panel.

 

In the interest of confidentiality it has not been practical for Volex to make
enquiries of all persons acting in concert with it prior to the date of this
announcement in order to confirm whether any details are required to be
disclosed under Rule 2.4(c)(iv) of the Code. To the extent that any such
details are identified following such enquiries, Volex will make an
announcement disclosing such details as soon as practicable, and in any event
by no later than the time it is required to make its Opening Position
Disclosure under Rule 8.1 of the Code.

 

Notes:

(1)   Based on the price of Volex shares as at the close of business on the
date of each proposal, being 24 October 2024 and 31 October 2024

 

(2)   Based on mean FY24 revenue forecast of £537.4m and mean FY24 adjusted
operating profit of £38.2m as per Company Collated Consensus Forecasts by TT
Electronics as of 2 October 2024
(https://www.ttelectronics.com/investors/analyst-consensus/)

 

 

Enquiries:

 Volex plc                                                                +44 (0) 12 5644 2570
 Lord Rothschild, Executive Chairman
 Jon Boaden, Chief Financial Officer

 Jefferies International Limited (Joint Financial Adviser)                +44 (0) 20 7029 8000
 Philip Noblet
 John Park
 Chris Squire
 Samuel Barnett

 Peel Hunt LLP (Joint Financial Adviser, Nominated Adviser & Broker)      +44 (0) 20 7418 8900
 Ed Allsopp
 Michael Nicholson
 Dom Convey
 Sam Cann

 Sodali & Co. (Media Enquiries)                                           +44 (0)78 5543 2699
 James White
 Nicholas Johnson

 

Important Notices

This announcement is not intended to, and does not, constitute or form part of
any offer, invitation or the solicitation of an offer to purchase, otherwise
acquire, subscribe for, sell or otherwise dispose of, any securities whether
pursuant to this announcement or otherwise.

 

Jefferies International Limited ("Jefferies"), which is authorised and
regulated by the Financial Conduct Authority in the United Kingdom, is acting
exclusively for Volex and no one else in connection with the matters set out
in this announcement and will not regard any other person as its client in
relation to the matters in this announcement and will not be responsible to
anyone other than Volex for providing the protections afforded to clients of
Jefferies nor for providing advice in relation to any matter referred to in
this announcement. Neither Jefferies nor any of its affiliates (nor their
respective directors, officers, employees or agents) owes or accepts any duty,
liability or responsibility whatsoever (whether direct or indirect, whether in
contract, in tort, under statute or otherwise) to any person who is not a
client of Jefferies in connection with this announcement, any statement
contained herein or otherwise.

 

Peel Hunt LLP ("Peel Hunt"), which is authorised and regulated in the United
Kingdom by the Financial Conduct Authority, is acting exclusively as joint
financial adviser, nominated adviser and corporate broker to Volex and for no
one else in connection with the matters referred to in this announcement and
will not be responsible to any person other than Volex for providing the
protections afforded to clients of Peel Hunt, nor for providing advice in
relation to the matters referred to herein. Neither Peel Hunt nor any of its
affiliates owes or accepts any duty, liability or responsibility whatsoever
(whether direct or indirect, whether in contract, in tort, under statute or
otherwise) to any person who is not a client of Peel Hunt in connection with
the matters referred to in this announcement, or otherwise.

 

This announcement is not intended to, and does not, constitute or form part of
any offer, invitation or the solicitation of an offer to purchase, otherwise
acquire, subscribe for, sell or otherwise dispose of, any securities, or the
solicitation of any vote or approval in any jurisdiction, whether pursuant to
this announcement or otherwise. Any offer, if made, will be made solely by
certain offer documentation which will contain the full terms and conditions
of any offer, including details of how it may be accepted.

 

The release, distribution or publication of this announcement in whole or in
part, directly or indirectly in, into or from jurisdictions outside the United
Kingdom may be restricted by laws of the relevant jurisdictions and therefore
persons into whose possession this announcement comes should inform themselves
about, and observe, such restrictions. Any failure to comply with the
restrictions may constitute a violation of the securities law of any such
jurisdiction.

 

Overseas jurisdictions

 

The distribution of this announcement, in whole or in part, in, into or from
any jurisdictions other than the United Kingdom may be restricted by the laws
of those jurisdictions and therefore persons into whose possession this
announcement comes should inform themselves about, and observe, any such
restrictions. Failure to comply with any such restrictions may constitute a
violation of the securities laws of any such jurisdictions.

 

Forward-looking statements

 

This announcement (including information incorporated by reference in this
announcement), oral statements made regarding the Second Proposal, and other
information published by Volex contain statements about Volex and TT
Electronics that are or may be deemed to be forward looking statements. All
statements other than statements of historical facts included in this
announcement may be forward looking statements. Often, but not always,
forward-looking statements can be identified by the use of forward-looking
words such as "targets", "plans", "believes", "expects", "aims", "intends",
"will", "may", "should", "would", "could", "anticipates", "estimates",
"projects" or "strategy" or words or terms of similar substance or the
negative thereof. Forward looking statements include statements relating to
the following: (i) future capital expenditures, expenses, profits, revenues,
earnings, synergies, economic performance, indebtedness, financial condition,
dividend policy, losses and future prospects; (ii) business and management
strategies and the expansion and growth of Volex operations and potential
synergies resulting from the Second Proposal; and (iii) the effects of
government regulation on the wider Volex group or the wider TT Electronics
group's business.

 

These forward-looking statements are not guarantees of future performance.
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 could cause actual results to differ
materially from those projected or implied in any forward-looking statements.
These factors include, but are not limited to, the satisfaction of any
conditions to the Second Proposal (if any), as well as additional factors,
such as changes in political and economic conditions, changes in the level of
capital investment, retention of key employees, changes in customer habits,
success of business and operating initiatives and restructuring objectives,
impact of any acquisitions or similar transactions, changes in customers'
strategies and stability, competitive product and pricing measures, changes in
the regulatory environment, fluctuations of interest and exchange rates, the
outcome of any litigation. Due to such uncertainties and risks, readers are
cautioned not to place undue reliance on such forward-looking statements,
which speak only as of the date of this announcement. All subsequent oral or
written forward-looking statements attributable to Volex or TT Electronics or
any of their respective members, directors, officers or employees or any
persons acting on their behalf are expressly qualified in their entirety by
the cautionary statement above. Volex disclaims any obligation to update any
forward-looking or other statements contained in this announcement, except as
required by applicable law.

 

Disclosure requirements of the Code

 

Under Rule 8.3(a) of the Code, any person who is interested in 1% or more of
any class of relevant securities of an offeree company or of any securities
exchange offeror (being any offeror other than an offeror in respect of which
it has been announced that its offer is, or is likely to be, solely in cash)
must make an Opening Position Disclosure following the commencement of the
offer period and, if later, following the announcement in which any securities
exchange offeror is first identified. An Opening Position Disclosure must
contain details of the person's interests and short positions in, and rights
to subscribe for, any relevant securities of each of (i) the offeree company
and (ii) any securities exchange offeror(s). An Opening Position Disclosure by
a person to whom Rule 8.3(a) applies must be made by no later than 3.30 pm
(London time) on the 10th business day following the commencement of the offer
period and, if appropriate, by no later than 3.30 pm (London time) on the 10th
business day following the announcement in which any securities exchange
offeror is first identified. Relevant persons who deal in the relevant
securities of the offeree company or of a securities exchange offeror prior to
the deadline for making an Opening Position Disclosure must instead make a
Dealing Disclosure.

 

Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1%
or more of any class of relevant securities of the offeree company or of any
securities exchange offeror must make a Dealing Disclosure if the person deals
in any relevant securities of the offeree company or of any securities
exchange offeror. A Dealing Disclosure must contain details of the dealing
concerned and of the person's interests and short positions in, and rights to
subscribe for, any relevant securities of each of (i) the offeree company and
(ii) any securities exchange offeror(s), save to the extent that these details
have previously been disclosed under Rule 8. A Dealing Disclosure by a person
to whom Rule 8.3(b) applies must be made by no later than 3.30 pm (London
time) on the business day following the date of the relevant dealing.

 

If two or more persons act together pursuant to an agreement or understanding,
whether formal or informal, to acquire or control an interest in relevant
securities of an offeree company or a securities exchange offeror, they will
be deemed to be a single person for the purpose of Rule 8.3.

 

Opening Position Disclosures must also be made by the offeree company and by
any offeror and Dealing Disclosures must also be made by the offeree company,
by any offeror and by any persons acting in concert with any of them (see
Rules 8.1, 8.2 and 8.4).

 

Details of the offeree and offeror companies in respect of whose relevant
securities Opening Position Disclosures and Dealing Disclosures must be made
can be found in the Disclosure Table on the Takeover Panel's website at
www.thetakeoverpanel.org.uk, including details of the number of relevant
securities in issue, when the offer period commenced and when any offeror was
first identified. You should contact the Panel's Market Surveillance Unit on
+44 (0)20 7638 0129 if you are in any doubt as to whether you are required to
make an Opening Position Disclosure or a Dealing Disclosure.

 

Rule 26.1 Disclosure

 

In accordance with Rule 26.1 of the Code, a copy of this announcement will be
available on the website of Volex at http://www.volex.com/investor-relations
promptly and by no later than 12 noon (London time) on the business day
following this announcement. The content of the website referred to in this
announcement is not incorporated into and does not form part of this
announcement.

 

Rule 2.9 information

 

In accordance with Rule 2.9 of the Code, Volex confirms that, as at the close
of business on 14 November 2024 (being the business day immediately prior to
the date of this announcement), it had in issue 181,651,108 ordinary shares of
25 pence each. Volex does not hold any ordinary shares in treasury. The
International Securities Identification Number (ISIN) of Volex's ordinary
shares is GB0009390070.

 

Market Abuse Regulations

 

The information contained within this announcement would have, prior to its
release, constituted inside information as stipulated under Article 7 of the
Market Abuse Regulations (EU) No.596/2014 as incorporated into UK domestic law
by virtue of the European Union (Withdrawal) Act 2018 (together, "UK MAR").
Upon the publication of this announcement via a regulatory information
service, this inside information will be considered to be in the public
domain. For the purposes of UK MAR, the person responsible for arranging for
the release of this information on behalf of Volex is Christian Bedford, Group
General Counsel and Company Secretary.

 

No profit forecasts, estimates or qualified benefits statements

 

No statement in this announcement, or incorporated by reference in this
announcement, is intended as a profit forecast, profit estimate or quantified
benefits statement for any period.

 

Sources of information

In this announcement, unless otherwise stated or the context otherwise
requires, the following sources of information have been used:

 

·      TT Electronics' issued share capital being no greater than
177,735,491 ordinary shares of 25.0 pence each, as set out in TT Electronics'
fully diluted share capital, taking into account all shares, share schemes,
and in-the-money options and shares held by Employee Benefit Trust being in
line with the latest public disclosure in TT Electronics'  2023 Annual Report
and taking into account in-year grants of share options, estimated as 303,407
potential dilutive ordinary shares based on public disclosures.

·      The volume-weighted average prices have been derived from
Bloomberg.

·      Certain figures included in this announcement have been subject
to rounding adjustments.

·      USD figures have been converted to GBP using the £:$ exchange
rate of 1.27 as at 16:30 GMT on 14 November 2024 (being the last Business Day
before the date of this announcement)

 

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
rns@lseg.com (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  OFDDXBDBCXBDGSS