PearlStreet hands over reins to Catalyst

Asset management firm PearlStreet has accepted a recapitalisation proposal that will result in private equity firm Catalyst Investment Managers taking a 63 per cent stake in the company.

More to come...

The announcement is below:

The Board of PearlStreet Limited (PearlStreet) is pleased to announce that it has accepted a binding recapitalisation proposal from a major private equity firm, Catalyst Investment Managers Pty Ltd (Catalyst).
The recapitalisation will be completed at a significant 60% premium to PearlStreet's current share price, based on the 5 day VWAP.

The re-capitalisation of PearlStreet by Catalyst will immediately result in a total of $23 million invested into the Company. These funds will include a $20m placement, and the exercise of options totalling $3.4m.

The Chairman of PearlStreet, Mr David Eiszele commented "that with Catalyst as a new major shareholder owning a minimum of 46% of the Company, PearlStreet is in an excellent position, with a strong balance sheet, to grow its business through increased exposure to the energy and resource sectors within Australia and internationally. This is a wonderful opportunity for all shareholders and I fully support the Catalyst proposal".

The proceeds of the placement and the exercise of the options will be used to repay Company debt.

Managing Director of Catalyst, Mr Simon Dighton commented "PearlStreet provides a unique opportunity to gain exposure to the growing inspection & testing services sector in Australia. We see this market providing a stable earnings base but also strong growth potential, particularly in the oil and gas, resources & power infrastructure segments. We look forward to supporting the company and the existing management team, led by Anthony Wooles, in capturing the exciting opportunities that exist in both Australia and internationally"

The key elements of the recapitalisation proposal are as follows:

- A placement of 40 million PearlStreet shares to Catalyst at 50 cents per share

- A placement of 5 million PearlStreet options with an exercise price of 50 cents and term of 3 years to Catalyst

- Catalyst provides a sale facility to allow:

• all PearlStreet shareholders to sell up to 31.5% of their existing share holding at a purchase price of 50 cents per share; and
• all holders of PearlStreet's listed 30 November options to sell up to 100% of their existing options at a purchase price of 14 cents per option

- Catalyst will be entitled to appoint 2 directors to the PearlStreet Board

- Provided that the PearlStreet Board is satisfied (acting reasonably) that it will not materially reduce the likelihood that the proposal is approved by shareholders, Catalyst will be granted a "drag-along right" over Anthony Wooles' shareholding which allows Catalyst to require the sale of those shares to a proposed purchaser of Catalyst's shares on the same terms, provided that it is at least 3 years after the proposal is implemented

Catalyst has agreed to provide the sale facility for a proportion of each shareholder's shares, and acquire all 30 November options in order to provide the existing holders with an opportunity to realise a proportion of their investment at this attractive price.

The Board has been advised by Managing Director Anthony Wooles that he supports the proposal and that, provided the proposal continues to receive PearlStreet Board support and in the absence of a superior competing proposal, Mr Wooles intends to accept into the Catalyst sale facility for 31.5% of his shareholding and all of his listed 30 November options.

Conditions

As the recapitalisation proposal will result in Catalyst holding more than 20% of the shares in PearlStreet, it will require PearlStreet shareholder approval. The elements of the proposal are inter-conditional and must all be approved if the proposal is to proceed.

In addition to shareholder approval, Catalyst's obligation to proceed with the proposal is subject to satisfaction of the following conditions:

1. completion of satisfactory financial, legal and market due diligence and final investment committee approval by Catalyst; and

2. completion of mutually satisfactory formal agreements required to implement the proposal.

Payment of Costs

In order to facilitate the proposal proceeding, PearlStreet has agreed to reimburse Catalyst for its externally invoiced costs up to a maximum amount of $910,000 if:
- the board of PearlStreet fails to recommend or withdraws a recommendation for the proposal (other than due to the independent expert not recommending the proposal); or

- a competing proposal is made for PearlStreet and the third party making the competing proposal acquires 50% or more of PearlStreet's shares.

Timetable

It is anticipated that the Catalyst due diligence should be completed within the next 4 weeks. Preparation of formal agreements and materials for the PearlStreet shareholder meeting will also be prepared during this period. At this stage it is intended that the PearlStreet shareholder meeting to consider the proposal will be held in early December, 2009.

PearlStreet is being advised by Argonaut and Freehills in this transaction.