LONDON: Peel Pepper (UK) Limited has increased its best and final cash offer for Harworth Group PLC to 187 pence per share, and Harworth’s board has changed its recommendation and now unanimously supports the deal, the bidder said Friday.

The increased offer values the entire issued and to be issued ordinary share capital of Harworth at approximately 631.7 million pounds. BidCo is an indirectly wholly owned subsidiary of Peel Holdings Group Limited.

The offer represents a 30.2% premium to Harworth’s closing price of 143.6 pence on Aug. 5, the last business day before the offer period began. It is also 48.4% above the one-month volume-weighted average price of 126.0 pence and 47.4% above the three-month volume-weighted average price of 126.8 pence over the same period.

The new price is an 8.4% increase over the 177.5 pence offer announced Sept. 16. BidCo said it will make no adjustment to the offer for Harworth’s interim dividend of 0.592 pence per share announced Sept. 9.

Agreed Purchases

BidCo said it has agreed to purchase 72,080,449 Harworth shares at 187 pence each. The purchases have not yet settled and are expected to settle Sept. 29. Upon settlement, BidCo will own or have received valid acceptances for 170,377,069 Harworth shares, representing about 52.1% of Harworth’s issued share capital, which would satisfy the acceptance condition.

BidCo said it anticipates the offer will become unconditional following settlement and will make a further announcement at that time. It is continuing to seek additional shares through market or other purchases at or below 187 pence per share.

Board Changes Recommendation

The Harworth board said it carefully considered the offer and engaged with shareholders before changing its recommendation. It said the offer is in the best interests of all shareholders because it accelerates returns and removes execution risk associated with the company’s standalone strategic plan.

The board noted the offer represents a 10.4% discount to Harworth’s diluted EPRA NDV per share of 208.8 pence as of June 30, compared with an average discount of 28.2% over the past three years. It also said Harworth’s share price has closed at or below 187 pence on 98.2% of trading days over the past five years.

Barclays and Peel Hunt advised the board on the financial terms and consider them fair and reasonable.

BidCo’s Rationale

BidCo said Harworth faces significant operational challenges, including declining net asset value, higher leverage, a capital-constrained balance sheet, worsening cash flow and lower sales volumes.

It also cited structural challenges, including a concentrated shareholder register, limited liquidity and a free float of less than 25%. BidCo said the offer provides full liquidity and certainty of value in cash.

BidCo noted the market has declined 9% since its first offer and said the average discount of Harworth’s share price to EPRA NDV was 43% in the three months before the offer and 30% over the prior four years.

Financing

BidCo said it entered a commitment letter with HSBC UK Bank PLC and National Westminster Bank PLC, which have agreed to arrange and underwrite debt financing under an interim facilities agreement dated Sept. 25. The offer will be funded through BidCo’s own cash resources and the interim facilities agreement.

Rothschild & Co said it is satisfied that necessary financial resources are available to BidCo to satisfy the consideration payable in full.

Background

BidCo published its original offer document Aug. 26, and Harworth published a response circular Sept. 9. BidCo announced the increased 177.5 pence offer Sept. 16 and said Sept. 17 that it and concert parties had acquired interests representing 30.00% of Harworth’s voting share capital, making the offer mandatory under Rule 9.1(a) of the Takeover Code.

The financial terms of the best and final offer are final and will not be increased, except where a third party announces an offer or possible offer, or the Panel otherwise consents in wholly exceptional circumstances.