REG - Velocys PLC - Funding update and statement re possible offer

VelocysAnnouncement

20/11/2023 07:00

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RNS Number : 9438T  Velocys PLC  20 November 2023

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR
INDIRECTLY, 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") AND DOES NOT CONSTITUTE AN ANNOUNCEMENT OF A FIRM
INTENTION TO MAKE AN OFFER UNDER RULE 2.7 OF THE CODE. THERE CAN BE NO
CERTAINTY THAT ANY FIRM OFFER WILL BE MADE NOR AS TO THE TERMS ON WHICH ANY
FIRM OFFER MIGHT BE MADE.

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF
EU REGULATION 596/2014 (WHICH FORMS PART OF UK LAW BY VIRTUE OF THE EUROPEAN
UNION (WITHDRAWAL) ACT 2018). UPON THE PUBLICATION OF THIS ANNOUNCEMENT, THIS
INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.

FOR IMMEDIATE RELEASE

20 November 2023

Velocys plc

 

("Velocys" or the "Company")

 

Funding update and statement regarding possible offer

 

Velocys plc (VLS.L), the sustainable fuels technology company, provides the
following update.

 

On 31 October 2023, the Company announced that, whilst the long stop date for
the proposed conditional issue of convertible loan note transaction with
Carbon Direct Capital Management LLC would not be extended, active discussions
remained ongoing with potential strategic investors who have been undertaking
due diligence on the Company for some months with a view to obtaining
long-term funding for the business (the "Funding Update"). As part of these
ongoing funding discussions, the Company has received a non-binding indicative
all-cash offer for the entire issued and to be issued ordinary share capital
of the Company (the "Possible Offer") by a consortium led by Lightrock LLP
("Lightrock") and Carbon Direct Capital Management LLC ("Carbon Direct")
(together the "Consortium"), the details of which are outlined below. The
Possible Offer includes the intention for the Consortium to provide
significant funding for the Company to meet its long-term growth capital
needs. In addition, the Company is in discussions with the Consortium
regarding near-term funding. There can be no certainty that an offer will be
made for the Company, nor as to the final terms of any offer, if made.

 

As previously announced in the Funding Update, the Company currently expects
to require funding before the end of this calendar year and, notwithstanding
the Possible Offer (including discussions on near-term funding in connection
with the Possible Offer), there are currently no binding arrangements in place
for near-term funding. The Company continues to explore cost control and other
measures to extend the cash runway, however, at present, in the event that the
Possible Offer (including near-term funding) does not progress shortly, and in
the absence of other meaningful sources of funding or strategic options, it is
currently unlikely that the Company will be able to continue as a going
concern beyond the end of December. Accordingly, the Company continues to
explore its options including the possible sale of the Company ("Strategic
Review"). The Company notes that the timing for significant progression of the
development capital fundraises for Velocys' reference projects is expected to
be dependent on the resolution of the Company's funding challenges.

 

Possible Offer

 

As referred to above, as a component of the possible funding for the Company,
it has received a non-binding indicative all-cash offer from the Consortium
for the entire issued and to-be-issued share capital of the Company at a price
of 0.25 pence per ordinary share, valuing the issued share capital of the
Company at approximately £4.1 million representing a substantial discount to
the Company's current share price.

 

In addition to the very near-term funding necessary to allow completion of the
Possible Offer (which is expected to be in the form of a debt instrument), and
subject to completion of the Possible Offer, the Consortium has indicated its
intention to provide the Company with significant additional funding (which
would be available to the Company following completion of the Possible Offer)
to meet its growth capital needs (the Possible Offer and funding together the
"Proposal"). Completion of the Possible Offer would result in the admission to
trading on AIM of the shares of the Company being cancelled. The Board of
Velocys (the "Board") understands that the Consortium currently intends to
effect the Possible Offer by way of a scheme of arrangement, but that the
Consortium reserves the right to implement the Possible Offer, instead, by way
of contractual offer.

 

The evaluation of the Proposal by the Board and its advisers is ongoing and
the Board recognises that it should assess the Proposal as a whole in light of
the Company's very near-term funding requirements and significant long-term
funding needs. The Board also notes the challenging equity capital market
environment, particularly for small public companies with limited revenue, and
that it has been unable to secure the additional funding it has been seeking
since completion of its last placing of new ordinary shares in June 2023.
Furthermore, the Board notes that, in the event that it were to be able to
secure funding prior to the end of December 2023 to satisfy its funding
requirements, existing shareholders would suffer significant dilution in the
unlikely event that the Company was able to raise sufficient funds through the
issue of new ordinary shares. Accordingly, the Board is continuing engagement
and discussions with the Consortium and its advisers with a view to
progressing and recommending the Proposal.

 

The Board understands that the Proposal remains subject to customary
pre-conditions in respect of final diligence access and other matters. Even
in the event that these pre-conditions are satisfied or waived, there can be
no certainty that any firm offer will be made nor as to the final terms of any
offer, including the conditions to which that offer would be subject. A
further announcement will be made if and when appropriate.

 

In accordance with Rule 2.6(a) of the Code, the Consortium will have until
5.00pm on 18 December 2023, being 28 days after the date of this announcement,
to either announce a firm intention to make an offer for Velocys in accordance
with Rule 2.7 of the Code or announce that it does not intend to make such 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 (the "Takeover Panel") in accordance
with Rule 2.6(c) of the Code.

 

Details on the Consortium

 

Lightrock is a global private equity firm and "impact investor" with a focus
on growth capital. Lightrock's investment philosophy targets companies that
pursue scalable and tech-driven business models around the key impact themes
of people, planet, and productivity-tech for good.

 

Carbon Direct is a global growth investment firm that partners with carbon
management technology companies. The firm believes that investing with a
science-focused approach maximizes both climate impact and financial returns.

 

Background to the Company's funding requirements

 

As previously announced, the Company has for some time been seeking
significant long-term funding for the business. The funding targeted is
intended to allow the Company to significantly scale the business and allow
for acceleration of delivery of its technology to clients, including the
Company's reference projects. This funding is expected to unlock recurring
sales revenues to initially reach positive sustainable cashflow, and
subsequently to full revenue recognition and profitability.

 

The Company has a capital light, scalable licensing model with revenues
expected in due course from technology licencing, engineering services, and
Company reactor and catalyst supply over the lifetime of biofuel
refineries. However, the provision of this integrated technology and service
model requires significant engineering and project resources alongside a
robust balance sheet to support the business whilst its revenue pipeline
develops (including the two reference projects in development) and to provide
performance guarantees to future clients. In addition, the Company requires
funding for its recently commissioned manufacturing facility including
production start-up and strengthening of catalysis service delivery to
clients. Commercial progress of the Company and in turn the timing of
significant revenues and income for the Company, is dependent on external
factors such as favourable government policies relating to sustainable
aviation fuel and the construction funding of biorefineries by third parties.
The potential for delays to the Company's revenue potential means that
significant working capital continues to be required to support the business
during the growth phase.

 

This announcement has been made by Velocys without the consent of the
Consortium.

 

The person responsible for arranging the release of this information on behalf
of Velocys is David Bate, General Counsel, Senior Vice President and Head of
Compliance for Velocys plc.

 

The attention of shareholders is drawn to the disclosure requirements of Rule
8 of the Code, which are summarised below.

 

For further information, please contact:

 

 Velocys                                                                    +44 1865 800821

 Henrik Wareborn, CEO

 Philip Sanderson, CFO

 Panmure Gordon (UK) Limited (Financial Adviser, Rule 3 Adviser, Nomad and  +44 20 7886 2500
 Joint Broker)

 Emma Earl (Corporate Finance)

 John Prior (Corporate Finance)

 Will Goode (Corporate Finance)

 Mark Rogers (Corporate Finance)

 Hugh Rich (Corporate Broking)

 Shore Capital Stockbrokers Limited (Joint Broker)                          +44 20 7408 4090

 Henry Willcocks (Corporate Broking)

 Toby Gibbs (Corporate Advisory)

 James Thomas (Corporate Advisory)
 Radnor Capital (Investor Relations)                                        +44 20 3897 1830

 Joshua Cryer

 Iain Daly
 Buchanan (Financial PR)                                                    +44 20 7466 5000

 Helen Tarbet

 Simon Compton

 

 

--Ends--

 

Notes to Editors

 

Velocys is an LSE-listed, international sustainable fuels technology company,
traded on the AIM, providing customers with a technology solution to enable
the production of negative Carbon Intensity synthetic, drop-in fuels from a
variety of waste materials. Synthetic fuel is the only commercially available,
permanent alternative to fossil aviation fuels. The Velocys technology is
IP-protected in all major jurisdictions.

 

Two reference projects (Bayou Fuels, US, and Altalto Immingham, UK) are
designed to accelerate the adoption and standardise the Velocys proprietary
Fischer Tropsch (FT) technology with an integrated end to end solution,
including renewable power and carbon sequestration.

Velocys is enabling commercial scale synthetic fuel production in response to
the clean energy transition, with significant additional positive air quality
impacts.

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

 

Disclaimer

A copy of this announcement will be made available, subject to certain
restrictions relating to persons resident in restricted jurisdictions, on
Velocys' website at www.velocys.com promptly and in any event by no later than
12 noon (London time) on 21 November 2023. The content of the website referred
to in this announcement is not incorporated into and does not form part of
this announcement.

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.

The release, publication or distribution of this announcement in whole or in
part, directly or indirectly, in jurisdictions outside the United Kingdom may
be restricted by law 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.

Panmure Gordon (UK) Limited, which is authorised and regulated in the United
Kingdom by the Financial Conduct Authority, is acting as financial adviser to
Velocys and no one else in connection with the matters described in this
announcement and will not be responsible to anyone other than Velocys for
providing the protections offered to clients of Panmure Gordon or for
providing advice in connection with any matter referred to in this
announcement.

Shore Capital and Corporate Limited ("Shore Capital"), which is authorised and
regulated in the United Kingdom by the Financial Conduct Authority, is acting
as an adviser to Velocys and no one else in connection with the matters
described in this announcement, and will not be responsible to anyone other
than Velocys for providing the protections afforded to clients of Shore
Capital nor for providing advice in connection with any matter referred to in
this announcement.

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 (http://www.thetakeoverpanel.org.uk/) ,
(http://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 2.9 of the Code

In accordance with Rule 2.9 of the Code, Velocys confirms that, as at close of
business on 17 November 2023 (being the business day prior to the date of this
announcement), it had 1,651,798,992 shares in issue. Velocys holds no shares
in treasury. Accordingly, the total number of voting rights in Velocys is
1,651,798,992. The International Securities Identification Number ("ISIN") of
Velocys shares is GB00B11SZ269.

Rule 2.11 of the Code

Please be aware that addresses, electronic addresses and certain other
information provided by the Company's shareholders, persons with information
rights and other relevant persons for the receipt of communications from the
Company may be provided to the Consortium during an offer period as required
under Section 4 of Appendix 4 of the Code to comply with Rule 2.11.

 

 

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