VenGrowth Asset Management Inc.

VenGrowth Asset Management Inc.

November 12, 2010 16:41 ET

VenGrowth Funds Respond to GrowthWorks' Solicitation Circular

TORONTO, ONTARIO--(Marketwire - Nov. 12, 2010) - VenGrowth Asset Management Inc. -

On November 11, 2010, GrowthWorks Ltd. ("GrowthWorks") issued a press release stating that they would seek to bring forward what they expect to be a better proposal than the one put forth by the Covington Fund II Inc. ("Covington II"). GrowthWorks has provided no assurance that any proposal will be forthcoming and there is no way to assess the merits of their position that any proposal would be superior or even equivalent to the Covington proposal. The Funds have had no prior formal approach or formal indication of interest from GrowthWorks.

Under the Covington II proposed transaction, Covington II would acquire the assets of VenGrowth's five retail venture capital funds (The VenGrowth Investment Fund Inc, The VenGrowth II Investment Fund Inc., The VenGrowth III Investment Fund Inc, The VenGrowth Advanced Life Sciences Fund Inc., and The VenGrowth Traditional Industries Fund Inc. (collectively the "VenGrowth Funds").

Despite the recent indication by GrowthWorks in response to the Covington proposal that it believes that a better proposal can be formulated, the Board of Directors of the VenGrowth Funds continue to unanimously recommend shareholders vote in favour of the Covington II proposed acquisition.

The proposed transaction with the Covington Fund II is the culmination of a strategic review process by the VenGrowth Funds that has been ongoing for more than a year and a half. Before a decision was made by the Board of Directors to enter into a definitive transaction with Covington II, a variety of options were analyzed and researched, including transactions with other retail venture capital funds.

The criteria established by the Boards of the VenGrowth Funds for any possible transaction were that any transaction provide liquidity options for shareholders, result in a large and diversified portfolio, enhance follow-on funding capabilities within the Funds and result in lower MERs for shareholders. The Covington transaction meets these requirements.

In identifying which potential retail venture capital funds to pursue discussions with, the Board of the VenGrowth Funds considered and evaluated publicly available information related to:

  • the liquidity of the other fund companies
  • pressure of fund companies to liquidate their own portfolio investments,
  • track record, if any, in securing financing to address liquidity and the cost of such financing,
  • past practice and conduct when acquiring other retail venture capital funds, if applicable,
  • MERs charged to shareholders, and
  • performance track record.

Based on this review, the Boards believed that Covington was the stronger candidate with whom to pursue discussions.

The transaction with Covington took months of research, due diligence, structuring and negotiations in order to arrive at what the Boards believe to be the best solution available for shareholders.

The Covington proposal is a fully negotiated transaction that has been reviewed by each of the Independent Review Committees of the Funds and is supported by the Boards of the Funds. Under corporate law the Class B and Class C shareholders must approve separately as classes any merger or sale of assets by the Funds. The holders of the Class B shares of each of the Funds and the Class C shares of those VenGrowth Funds that have Class C shares have agreed to support the Covington transaction.

The Boards of Directors of the VenGrowth Funds believe there is a risk that if the Covington proposal was rejected prior to being able to review the terms of any counter proposal from GrowthWorks, the shareholders of VenGrowth would have lost any opportunity for liquidity as there is no certainty that GrowthWorks will produce a proposal, nor one that is at least equal to or better than the Covington proposal.

With no alternative transaction before them or anticipated in a timely manner, the Boards of Directors of the VenGrowth Funds strongly recommend that shareholders vote in favour of the fully negotiated and certain Covington transaction. Covington has advised that there will be no further offer if not approved by shareholders on November 25th, 2010.

About VenGrowth Asset Management Inc.

A premier Canadian private equity investment group, VenGrowth Asset Management builds innovative companies into global successes. Since 1982, we have invested over $1.3 billion in more than 200 North American companies, working alongside business owners to maximize potential. For more information, visit www.vengrowth.com.

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