Filtronic Plc Acquisition -2-

30th Jul 2010 07:00

with the potential for an early step change in business revenues. Products have been developed, manufactured and now qualified in customer trials in both the US and Europe and have led to initial production orders from tier one OEMs and operator customers. New prospects at major operators with products in trial phase provide a platform for potential rapid revenue growth. In the year ended 31 May 2010 Isotek made an unaudited pre-tax loss of GBP1.9 million on turnover of GBP0.8 million and had gross assets of GBP0.6 million at that date. Over the last 3 years Isotek has invested more than GBP5 million in the development of its wireless infrastructure business. Filtronic's market position is expected to improve Isotek's ability to take advantage of the strong growth in 4G mobile data traffic with its new customized microwave filter solutions. Acquisition Due to the size of Isotek's shareholder base the Acquisition will be made by way of offer under Part 28 of the Companies Act 2006 ("Offer"). Under the Agreement, Filtronic has agreed to use its best endeavours to make the Offer no later than 1pm on 30 November 2010 subject to the satisfaction of certain conditions including regulatory approval of the documentation required to give effect to the Acquisition (including a prospectus in relation to the enlarged Filtronic group) and the board of Filtronic continuing to be satisfied that it can recommend the Offer to its shareholders. Filtronic shall not be obliged to make the Offer in the event that the conditions have become incapable of being satisfied, or if (at any time before the Offer is made) Filtronic becomes aware of the occurrence of any event that constitutes, or is likely to constitute, a material adverse change regarding the business of Isotek or a material breach of the warranties given by certain members of Isotek's senior management team. The consideration payable under the Offer will be GBP4.35 million in cash and the issue of 18,550,000 new Filtronic shares on completion which, based on the closing mid price per Filtronic share of 34.25 pence per share as at 29 July 2010, implies a consideration of GBP10.7 million. The Consideration Shares will, when issued, represent circa 20.0 per cent. of the enlarged share capital of the Company. The Offer, when made, will be subject, inter alia, to acceptance by not less than 90 per cent. of the shares to which the Offer relates, the approval of Filtronic's shareholders (as a Class 1 acquisition) and admission of the new Filtronic shares to the Official List of the UK Listing Authority. Filtronic has received irrevocable undertakings from over 90 per cent. of the shareholders of Isotek (on a fully diluted basis) to accept the Offer when it is made. Isotek will be fully integrated as a separately branded subsidiary of Filtronic's business, with its management team remaining in place, and with Alan Needle as the subsidiary's MD and Dr Chris Mobbs as its CTO. It is proposed that, on completion of the Acquisition, Alan Needle will be invited to join the board of Filtronic as an executive director. The Isotek subsidiary will enter into a consultancy contract with Professor David Rhodes to support continued product innovation. The key vendors of Isotek have given Filtronic customary warranties and indemnities and have entered into a restrictive covenant not to compete with the business of Isotek for a period of three years. On completion the vast majority of the consideration shares will be subject to sale arrangements (for Filtronic's benefit) in the event of any shortfall in the working capital or claims under the acquisition documents. Following the expiry of six months from Completion, 50% of the consideration shares (assuming no working capital adjustments or claims under the acquisition documents) will be released from these arrangements; and the remaining consideration shares (assuming no claims under the acquisition documents) will be released from these arrangements following the expiry of 24 months from Completion. Certain key vendors, who directly hold in aggregate circa 66 per cent. of the fully diluted share capital of Isotek, have agreed to enter into lock-in arrangements for the period of 12 months from the date of the completion of the Agreement, with half of these shares being locked in for a further 12 months. Benefits of the Acquisition The Acquisition is in line with Filtronic's strategy to create a differentiated, high growth wireless business through organic growth and selective acquisitions. The Acquisition will deliver rapid entry into the base station market sector, by combining Filtronic's reputation, resources and market access with Isotek's highly differentiated intellectual property and products. Filtronic's background and point to point market position is expected to be attractive to operators and OEMs looking for a stable supplier of scale as well as new and customised solutions to new problems. The Directors believe that the Acquisition is likely to increase Filtronic's turnover in the year ending 31 May 2012 ("FY12") by around GBP15m. The deal is expected to be earnings enhancing in FY12 and significantly earnings enhancing in the second full year of ownership. As at 31 May 2010 Filtronic had GBP16.2m in available funds; cash remaining following the payment of the cash consideration is expected to adequately provide for the working capital requirements of both the existing point to point and the acquired businesses. In the longer term the Directors believe that as a result of the combined business's greater critical mass, the enlarged Filtronic would be well positioned to take advantage of further opportunities in future industry restructuring. Further announcements will be made as appropriate. END This information is provided by RNS The company news service from the London Stock Exchange END ACQLFFFLDAIAFII (END) Dow Jones Newswires July 30, 2010 02:00 ET (06:00 GMT)