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20 May, 2019 - 08:33 By Tony Quested

Science Group angry at Frontier as takeover talks are torpedoed

Frontier Smart Sethill

Science Group, owner of Sagentia in Cambridge, has been rebuffed in a potential takeover of Frontier Smart Technologies Group, which also has operations in the UK technology capital.

Science Group, which has been angered and frustrated by Frontier’s stance, had offered 30p a share for all Frontier’s holding in cash and said that a deal would relieve the pressure on its Cambridge and London neighbour whose financial performance has alarmed shareholders.

Frontier, headed by Anthony Sethill, said talks between the companies had ended “as the board considered a number of the conditions to be potentially prejudicial to shareholders' interests and/or of a type that would not be permissible under the UK Takeover Code if it applied to the company.”

A statement issued by Frontier today, independently of Science Group, said: “The board considers the protection of shareholders to be of utmost importance and so undertook, while bearing in mind shareholders' best interests, to adhere to the general principles of the Code in respect of the possible offer in so far as it was able, or was reasonably practicable, so to do.”

Science Group has acquired 3.685 million Frontier shares, representing nine per cent of the carrying voting rights so has established a toehold should it wish to revive a deal – which is far from certain.

Frontier reinforced its defiant stance by saying it was confident in turning round its financial fortunes and “reconfirms its expectations to report sales of approximately $36.6 million.”

Frontier is a pioneer in technologies for Digital Radio and Smart IoT Devices. Science Group is an international consultancy providing product development, applied science, technology advisory and regulatory services to a diverse client base. 

In recent months, Science Group and Frontier have held discussions with regard to potential cooperation, which have included the possibility of Science Group making an offer for the entire issued and to be issued share capital of Frontier at an attractive premium to the Frontier share price at close of business on May 17.

Science Group has gross cash balances in excess of £26m and is on the hunt for synergistic acquisitions.

Science Group claimed in a statement that Frontier had hidden behind the takeover code. The statement said: “Subsequent to receipt of the proposal, the Frontier Board has sought to selectively apply the principles of the UK Takeover Code, to which Frontier's own website and listing admission document state that it is not subject. The board of Science Group considers this arbitrary action by the Frontier board to be a conscious attempt to obstruct the proposal.”

Science Group said that, as a result of this action, it had notified the Frontier board that it has withdrawn its proposal.

It added: “Frontier is incorporated in the Cayman Islands and is therefore not within the jurisdiction of the UK City Code on Takeovers and Mergers. Frontier's admission document dated 10 October 2005 (available on Frontier's website) made it clear (on page 30) that Frontier was not subject to the Code.

“At any time in the past 14 years, should the Frontier board have wished Frontier to adopt principles set out in the Code, it could have proposed amendments to the Articles of Association to apply those principles to Frontier, as a number of other quoted companies have done. 

“Alternatively, the Frontier board could, at any time in the past 14 years, have moved the domicile of Frontier from Cayman Islands to the UK. The Frontier board has consistently elected not to take either of these actions. 

“Indeed, the Frontier board recently proposed changes to the Articles which were approved by Frontier's shareholders at the Annual General Meeting on May 14, 2019. None of the proposed changes to the Articles sought to adopt any principles set out in the Code.”

The Frontier board anticipates an H1 2019 trading EBITDA loss of $2.2 million followed by a return to EBITDA profitability in the second half.
Science Group adds that at December 31, 2018, Frontier reported accumulated retained losses of $176m. 

“Since early 2018, the share price of Frontier has declined by over 90 per cent from around 200 pence per share to around 15 pence as at close of business on May 17, 2019. At the same time, Frontier's cash balance has declined by $7.9m. 

“Despite this substantial reduction in shareholder value; the deterioration in operating performance; the high cash burn rate at a time when Frontier should be receiving a positive cash inflow; and the inability to convert the enormous investment made in Frontier technology into shareholder returns, the Frontier board has not progressed, and has even sought to frustrate, the Science Group proposal.

“Science Group considers that there are significant potential synergies with Frontier and that a combination would be in the best interests of Frontier's employees, customers and shareholders. Science Group has a strong, asset-backed balance sheet, with significant cash resources and an experienced management team which has delivered value to shareholders.

“Science Group may or may not make further purchases of Frontier shares in the market and may or may not make an offer for Frontier. There is no certainty that an offer will be made by Science Group nor as to the terms of any such offer should one be made.”

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