Quercus Publishing plc
LSE : QUPP

November 14, 2008 02:00 ET

Proposed Placing and Open Offer



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                                                                                                 14 November 2008
                                                                                        GB00B1G17S00/GBP/PLUS-exn

                                            QUERCUS PUBLISHING PLC
                                         ("Quercus" or the "Company")
                                                       
                                       Proposed Placing and Open Offer,
                  Approval of the waiver of obligations under Rule 9 of the Takeover Code and
                                          Notice of a General Meeting
                                                       
                                              Directorate Change

Proposed Placing and Open Offer


Quercus Publishing PLC (PLUS: QUPP) announces that it is proposing to raise approximately £1.75 million (before
expenses)  through a Placing and an Open Offer comprising 5,853,846 New Ordinary Shares at 30p per  share.  The
net  proceeds of the Placing and Open Offer (amounting to approximately £1.64 million) will provide the Company
with additional working capital and will also strengthen its balance sheet.

Pentland Group plc ("Pentland") has conditionally undertaken to apply for its full entitlement of 1,133,333 New
Ordinary  Shares  under  the Open Offer at 30p per share. David Potter, a director of  the  Company,  has  also
irrevocably undertaken to apply for 25,000 New Ordinary Shares. The balance of the Open Offer shares (4,695,513
New  Ordinary  Shares)  have  been  conditionally placed with Pentland, subject  to  the  right  of  Qualifying
Shareholders to apply under the Open Offer and take up their entitlements.

Qualifying  Shareholders may participate in the Open Offer, at the Offer Price of 30p per Offer Share,  on  the
basis of 1 Offer Share for every 2 Existing Ordinary Shares held on the Record Date.



Waiver of Obligations under Rule 9 of the Takeover Code


Pentland  currently  holds  2,266,666 Existing Ordinary Shares, representing 19.4 per  cent.  of  the  existing
ordinary  share capital. Depending on the level of applications under the Open Offer by Qualifying Shareholders
other  than  Pentland,  Pentland's interest in the Company may, on completion of the Placing  and  Open  Offer,
exceed  30 per cent. of the Enlarged Ordinary Share Capital, requiring the approval of Shareholders of a waiver
from  the  obligations of Rule 9 of the Takeover Code that would otherwise require Pentland to make  a  general
offer  to the holders of all of the Ordinary Shares.  Similarly, should Pentland decide to convert the Pentland
Loan Notes after completion of the Placing and Open Offer, its interest in the Company upon such conversion may
exceed 50 per cent. of the Enlarged Ordinary Share Capital (as increased by the Ordinary Shares resulting  from
such  conversion), again requiring approval of Shareholders of a waiver from the obligations of Rule 9  of  the
Takeover Code.

The  Panel has agreed, subject to the passing of the Waiver Resolution, to waive the obligation of Pentland  to
make  a  general offer to Shareholders under Rule 9 of the Takeover Code that would otherwise arise as a result
of  the  implementation  of  the  Proposals or upon conversion of the  Pentland  Loan  Notes.  The  Independent
Directors, who have been so advised by St Helen's Capital, consider the Waiver to be fair and reasonable and in
the  best  interests of the Company and the Independent Shareholders as a whole.  In providing  advice  to  the
Independent  Directors, St Helen's Capital has taken into account the commercial assessments of the Independent
Directors.



Reasons for the Fundraising and Use of Proceeds

The Company's main area of activity is the publishing of books for the contract and trade markets.

Contract Publishing

Contract  publishing  is  the creation and supply of books on a pre-contracted and  firm-sale  basis  to  chain
booksellers,  multiple  retailers and direct marketing specialists. The books are designed  to  the  customer's
specifications and delivered in bulk quantities.

Trade Publishing

Trade publishing is the conventional route to market used by most authors: the publisher prints at its own risk
and sells, on a non-exclusive basis, to book retailers and wholesalers. The publisher incurs the cost of sales,
distribution and marketing.

Proposed Fundraising

The  proposed  Fundraising  is to provide the Company with additional working capital  and  to  strengthen  its
balance  sheet. The Company has recently utilised significant cash resources to acquire, invest in and  develop
the  Group's intellectual property rights, as well as to invest in staff to support, produce, develop, sell and
market the Group's intellectual property.

Prevailing  economic and stock market conditions have meant that the Group has been obliged to fund its  recent
development  principally through loans provided by certain Directors and Pentland, which  currently  amount  to
£775,000 in aggregate.   These loans are due for repayment shortly. The Directors believe that the loans are no
longer  a viable source of ongoing funding for the Company and that the Group now also needs additional funding
to continue its development.

Pentland  has  conditionally  offered to provide the Group with additional  funding  via  the  Placing,  whilst
allowing  other Shareholders to participate in the Fundraising through the Open Offer.  Despite the success  of
the  Company's  business,  it  currently has limited cash resources and its ability  to  secure  external  debt
financing  is severely hampered by the current global financial turmoil.  The Company is looking to  strengthen
its balance sheet and to repay the Directors' loans and Pentland's loan which should, in due course, facilitate
its ability to obtain further bank funding for working capital purposes.  In light of current market conditions
and  the  limited  alternative  financing options available to the  Group  (as  well  as  of  there  being  few
institutional investors amongst the Shareholders), the Independent Directors believe that the Placing is in the
best  interests  of  Shareholders as a whole.  Subject to Shareholder approval, the Placing  will  provide  the
Company with certainty of funding on acceptable terms, particularly as Pentland will not be receiving any  fees
or commissions in respect of the Placing.

However, Pentland is not willing to provide funds via the Placing if, as a consequence of the Placing or of the
conversion  of the Pentland Loan Notes, it would be required to make an offer for the Ordinary Shares  that  it
does not own under Rule 9 of the Takeover Code.  The Independent Directors therefore believe that it is in  the
best interests of the Independent Shareholders that the Waiver be approved.

Use of Proceeds

The Company published 33 trade titles in 2006, 101 in 2007 and 184 in 2008.  The Company intends marginally  to
decrease  the  number of trade titles published to approximately 170 in 2009 but to return  to  increasing  the
number  of  trade titles it publishes on a year by year basis in 2010 when it intends to publish  approximately
200  trade  titles. Part of the Fundraising monies will be invested in both new Trade Publishing  and  Contract
Publishing  titles which will be published in 2010 and subsequent years.  Approximately £650,000 of  the  funds
raised will be used for advances to authors and to expand the Company's list of contracts.

In  respect  of  Contract Publishing, the Board intends to invest part of the monies from the Fundraising  into
improving and strengthening the Company's marketing resources, in particular in those geographic areas where it
is  currently  not well represented, namely continental Europe and Asia.  Approximately £200,000 of  the  funds
raised will be used to strengthen the publishing teams and the foreign rights team which sells and licenses the
Group's intellectual property around the world.

Directors' and Other Loans

As  referred  to above, several of the Directors and Pentland have loaned funds to the Company.   Approximately
£800,000  of  the funds raised in the Placing and Open Offer will be used to repay these loans of  £775,000  in
full, together with approximately £25,000 of interest thereon.



Details of the Placing and Open Offer


Pursuant to the Placing Letter, all of the Placing Shares have been conditionally placed with Pentland  subject
to the rights of Qualifying Shareholders under the Open Offer.

Qualifying Shareholders may apply for any number of Offer Shares under the Open Offer up to a maximum of  their
pro rata entitlement, calculated on the following basis:

1 Offer Share for every 2 Existing Ordinary Shares

and  so  in proportion for any greater number of Existing Ordinary Shares held on the Record Date. Entitlements
of  Qualifying  Shareholders  have been rounded down to the nearest whole number of  Offer  Shares.  Fractional
entitlements  which  would have otherwise arisen will not be capable of being applied  for  by  the  Qualifying
Shareholders but have been aggregated and placed with Pentland under the Placing.

The  Offer  Shares must be paid for in full on application. The latest time and date for receipt  of  completed
Application Forms and payment in respect of the Open Offer is 11 a.m. on 5 December 2008. The Open Offer is not
being made to Overseas Shareholders.

Qualifying  Shareholders should note that the Open Offer is not a rights issue and therefore the  Offer  Shares
which  are  not  applied for by Qualifying Shareholders will not be sold in the market for the benefit  of  the
Qualifying Shareholders who do not apply. The Application Form accompanying the circular to Shareholders is not
a document of title and cannot be traded.

The  Offer  Shares  will be issued credited as fully paid and free of all liens, charges and  encumbrances  and
will,  when issued, rank pari passu in all respects with the Existing Ordinary Shares, including the  right  to
receive all dividends and other distributions declared, made or paid after the date of their issue.

The  Placing  and Open Offer are conditional on the Placing Letter becoming or being declared unconditional  in
all  respects and not being terminated in accordance with its terms before 8 a.m. on 10  December 2008 (or such
later  time  and/or  date,  being not later than 8 a.m. on 15 December 2008, as the Company  may  decide).  The
Placing  and  Open  Offer  are  also  conditional on the Waiver Resolution  being  passed  by  the  Independent
Shareholders and on the other Resolutions being passed by the Shareholders at the General Meeting.

Application will be made for the New Ordinary Shares to be admitted to trading on PLUS Markets. It is  expected
that Admission will become effective and dealings in the New Ordinary Shares will commence on 10 December 2008.



Current Trading and Prospects

In the Company's interim results for the six months ended 30 June 2008, it was stated that the Group's revenues
for  the  period had met the Directors' expectations. The Group has continued to perform well since then,  with
strong sales growth from both its Contract Publishing and Trade Publishing divisions.

The  Directors  intend to continue to seek further growth by expanding the Group's contract publishing  to  new
categories, developing its paperback division and securing new authors and titles. Whilst the current  economic
climate  requires  the Group to maintain a cautious outlook, the Directors believe that the  Group's  strategy,
organisational structure and publishing programmes continue to provide a strong platform from which  the  Group
can continue to grow its business.



Notice of General Meeting

A  circular  containing further information about the Proposals and convening a General Meeting of the  Company
for  11.00 am on 1 December 2008 to approve, amongst other matters, the waiver of Rule 9 of the Takeover  Code,
is being posted to Shareholders today.



Change in Directorate

Quercus also announces that Anthony Cheetham will move from Executive Chairman to become Non-Executive Chairman
of the Company with immediate effect.

Anthony  Cheetham  has  been  the Chairman of Quercus for two years, during which  time  he  has  overseen  the
Company's  development  into  one of the UK's leading independent publishers.  Anthony  remains  a  significant
shareholder  in the Company with 1,101,668 shares, representing approximately 9.4% of the issued share  capital
of the Company.

In  addition,  Quercus has appointed David North as Managing Director of its Trade Publishing business.   David
North left Pan Macmillan in April of this year after eight years as Managing Director and joined Quercus on 3rd
November 2008.

Anthony Cheetham commented:

"The  Group has seen transformational growth since flotation in October 2006 and I'm confident that we  have  a
strong  team  in  place to continue to drive the Group's strategic vision.  Assuming the role of  Non-Executive
Chairman  is  therefore a natural progression to ensure a stable transition into the next stage of the  Group's
development."

Mark Smith, Chief Executive, commented:

"Anthony has made a significant contribution to Quercus in his Executive role, and the Company thanks  him  for
that.  I look forward to working closely with Anthony on the Group's future strategy and publishing policy.

The  appointment of David North completes the management structure that Quercus has been putting in place  over
the  last 18 months and I am delighted to have someone with David's knowledge and experience joining  us  at  a
time  when  we  face  the challenges and opportunities that moving from a small publisher  to  a  medium  sized
publisher brings."

The Directors of Quercus Publishing PLC accept responsibility for this announcement.

Enquiries:

QUERCUS PUBLISHING PLC           Mark Smith, Chief Executive Officer               Tel: 020 7291 7200

REDLEAF COMMUNICATION            Emma Kane/Sanna Sumner                            Tel: 020 7822 0200

ST HELEN'S CAPITAL PLC           Mark Anwyl/Duncan Vasey                           Tel: 020 7628 5582



Expected Timetable for the Open Offer


Record Date - Close of business on                                                   10 November 2008

Ex-entitlement date for the Open Offer                                               14 November 2008

Latest time and date for splitting Application Forms
(to satisfy bona fide market claims only)                                   3 p.m. on 1 December 2008

Latest time and date for receipt of completed Application Forms
and payment in full under the Open Offer                                   11 a.m. on 5 December 2008

Admission and commencement of dealings in New Ordinary Shares               8.a.m on 10 December 2008



Definitions

The following definitions apply throughout this announcement unless the context otherwise requires:

"Admission"                               the  admission of the New Ordinary Shares to trading on PLUS becoming
                                          effective in accordance with the PLUS Rules;
                                          
"Application Form"                        the  application form on which Qualifying Shareholders may apply  for
                                          Offer Shares under the Open Offer;
                                          
"Board" or "Directors"                    the directors of the Company as at the date of this announcement;
                                          
"Company" or "Quercus"                    Quercus  Publishing plc, a company registered in  England  and  Wales
                                          with company number 05437517;
                                          
"Contract Publishing"                     the  creation and supply of books on a pre-contracted and  firm  sale
                                          basis  to  chain booksellers, multiple retailers and direct marketing
                                          specialists,   where  the  books  are  designed  to  the   customers'
                                          specifications and delivered in bulk quantities;
                                          
"Enlarged Ordinary Share Capital"         the   issued  ordinary  share  capital  of  the  Company  immediately
                                          following Admission comprising the Existing Ordinary Shares  and  the
                                          New Ordinary Shares;
                                          
"Existing Ordinary Shares"                11,707,692 Ordinary Shares in issue at the date of this document;
                                          
"General Meeting"                         the  general  meeting of the Company, to be held at  the  offices  of
                                          Beachcroft  LLP, 100 Fetter Lane, London EC4A 1BN at  11  a.m.  on  1
                                          December  2008,  notice  of which is set  out  at  the  end  of  this
                                          document;
                                          
"Fundraising"                             the fundraising by the Company by way of the Placing and Open Offer;
                                          
"Group"                                   the Company and its subsidiaries as at the date of this document;
                                          
"Independent Directors" or                the Board or Directors, in either case excluding Barry Mosheim;
"Independent Board"

"Independent Shareholders"                Shareholders other than Pentland;

"Loan Notes"                              the  £850,000 secured convertible loan notes issued to Pentland  (the
                                          "Pentland   Loan  Notes")  and  the  £300,000  unsecured  convertible
                                          subordinated loan notes issued to Anthony Cheetham;
                                          
"New Ordinary Shares"                     new  Ordinary  Shares to be issued by the Company under  the  Placing
                                          and Open Offer;
                                          
"Offer Price"                             30 pence per New Ordinary Share;

"Offer Shares"                            5,824,836  New  Ordinary  Shares being made available  to  Qualifying
                                          Shareholders under the Open Offer (being all the New Ordinary  Shares
                                          other  than those New Ordinary Shares for which Overseas Shareholders
                                          would  have been entitled to apply if they were considered Qualifying
                                          Shareholders  and fractional entitlements arising from  the  rounding
                                          down of Open Offer Entitlements to the nearest whole number);
                                          
"Open Offer"                              the  conditional  offer to Qualifying Shareholders,  constituting  an
                                          invitation  to apply to subscribe for Offer Shares on the  terms  and
                                          subject  to  the  conditions set out in the circular to  Shareholders
                                          and in the Application Form;
                                          
"Open Offer Entitlement"                  the  pro-rata  entitlement of a Qualifying Shareholder  to  apply  to
                                          subscribe  for Offer Shares in proportion to the number  of  Existing
                                          Ordinary Shares held by him on the Record Date;
                                          
"Ordinary Shares"                         ordinary shares of 0.8 pence each in the capital of the Company;

"Overseas Shareholder"                    a Shareholder with a registered address outside the United Kingdom;
                                          
"Panel"                                   the Panel on Takeovers and Mergers;

"Pentland"                                Pentland  Group plc, a company registered in England and  Wales  with
                                          company number 00793577;
                                          
"Placing"                                 the  conditional  placing of the Placing Shares with  Pentland  under
                                          the Placing Letter;
                                          
"Placing Letter"                          the conditional placing letter dated 13 November 2008;
                                          
"Placing Shares"                          the  4,695,513 New Ordinary Shares conditionally placed with Pentland
                                          (being all the New Ordinary Shares, other than Pentland's Open  Offer
                                          Entitlement  and  the  25,000 New Ordinary  Shares  for  which  David
                                          Potter,  a  non-executive  Director, has  irrevocably  undertaken  to
                                          apply);
                                          
"PLUS" or "PLUS Markets"                  PLUS Markets Group plc;
                                          
"PLUS-quoted market"                      the primary market for unlisted securities operated by PLUS;

"PLUS Rules"                              the  PLUS  Rules  for  issuers,  which  set  out  the  admission  and
                                          disclosure standards for companies on the PLUS-quoted market;
                                          
"Proposals"                               the Placing, the Open Offer and the Waiver;

"Qualifying Shareholders"                 holders  of Ordinary Shares on the register of members of the Company
                                          at the Record Date (but excluding any Overseas Shareholder);
                                          
"Record Date"                             the  close  of business in London on 10 November 2008 in  respect  of
                                          the entitlements of Qualifying Shareholders under the Open Offer;
                                          
"Resolutions"                             the  resolutions set out in the notice of the General Meeting at  the
                                          end of the circular to Shareholders;
                                          
"Shareholders"                            holders of Ordinary Shares;

"St Helen's Capital"                      St  Helen's  Capital Plc, the Company's corporate adviser,  which  is
                                          authorised and regulated by the FSA;
                                          
"Takeover Code"                           The City Code on Takeovers and Mergers, published by the Panel;
                                          
"Trade Publishing"                        the  conventional route to market used by most authors: the publisher
                                          prints  at its own risk and sells, on a non exclusive basis, to  book
                                          retailers and wholesalers, with the publisher incurring the  cost  of
                                          sales, distribution and marketing;
                                          
"Waiver"                                  the waiver by the Panel of Rule 9 of the Takeover Code; and

"Waiver Resolution"                       the  resolution contained in the notice of General Meeting  approving
                                          the Waiver for the purposes of Rule 9 of the Takeover Code.
                                          

Contact Information

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