SQS Software Quality Systems AG (AIM:SQS) Recommended cash offer

Bidco and SQS are pleased to announce that they have reached agreement on the terms of a recommended all cash offer to be made by Weilchensee 884. V V GmbH (“Bidco”) for the entire issued and to be issued share capital of SQS Software Quality Systems AG (“SQS” or the “Company”) not already owned, or agreed to be acquired, by Bidco (the “Offer”).

Summary

· Bidco is a newly incorporated German company acquired by Assystem Technologies SAS (“Assystem Technologies”) for the purpose of making and implementing the Offer. Further details in relation to Assystem Technologies and Bidco are set out in paragraph 10 of the following announcement.

· Under the terms of the Offer, SQS Shareholders who accept the Offer will be entitled to receive 825 pence in cash for each SQS Share (the “Offer Price”).

· The Offer values the entire issued and to be issued share capital of SQS at approximately £281.3 million on a fully diluted basis and represents a premium of approximately:

· 56.4 per cent. to the Closing Price per SQS Share of 527.5 pence on 14 December 2017, being the last Business Day prior to the date of this announcement;

· 53.0 per cent. to the volume weighted average Closing Price per SQS Share of 539.1 pence in the six months to 14 December 2017, being the last Business Day prior to the date of this announcement; and

· 31.5 per cent. to the highest ever Closing Price per SQS Share of 627.5 pence in May 2015.

· The SQS Management Board and SQS Supervisory Board, who have been so advised by Numis as to the financial terms of the Offer, each consider the terms of the Offer to be fair and reasonable. In providing advice to the SQS Boards, Numis has taken into account the commercial assessments of the SQS Managing Directors and the SQS Supervisory Board Members. Numis is providing independent financial advice to the SQS Boards.

· Accordingly, the SQS Management Board and the SQS Supervisory Board each intends to recommend unanimously that SQS Shareholders accept the Offer, as all of the SQS Managing Directors and all of the SQS Supervisory Board Members who hold SQS Shares have irrevocably undertaken to do, or procure to be done, in respect of their own and their close relatives’ beneficial holdings of, in aggregate, 4,126,049 SQS Shares, representing approximately 12.7 per cent. of the existing issued share capital of SQS. SQS Shareholders should refer to paragraph 7 of the following announcement for further detail on the background to, and reasons, for the SQS Boards’ recommendations.

· Bidco has also received irrevocable undertakings from Rudolf Van Megen, Herald Investment Management Limited and Marlborough Fund Managers Limited to accept, or procure acceptances of, the Offer in respect of a total of 7,104,868 SQS Shares, representing, in aggregate, approximately 21.9 per cent. of SQS’s existing issued share capital. Further details of these irrevocable undertakings are set out in Appendix 3 to the following announcement.

· In addition, Bidco has also received non-binding letters of intent from Octopus Investments Ltd, Brooks Macdonald Asset Management Limited, Rock (Nominees) Limited, Miton Asset Management Limited, J O Hambro Capital Management Limited and Schroder Investment Management Limited to accept, or procure acceptances of, the Offer in respect of a total of 10,172,543 SQS Shares, representing, in aggregate, approximately 31.4 per cent. of SQS’s existing issued share capital. Further details of these non-binding letters of intent are set out in Appendix 3 to the following announcement.

· Accordingly, Bidco has received irrevocable undertakings and non-binding letters of intent to accept, or procure the acceptance of, the Offer in respect of a total of 21,403,460 SQS Shares representing, in aggregate, approximately 66.0 per cent. of SQS’s existing issued share capital.

· The Offer is conditional upon, amongst other things, (a) Bidco receiving valid acceptances (which have not been validly withdrawn) in respect of SQS Shares which, when taken together with any other SQS Shares acquired by Bidco (whether pursuant to the Offer or otherwise), represent not less than 75 per cent. in nominal capital of the SQS Shares and of the voting rights normally exercisable at a general meeting of SQS (assuming exercise of all SQS Stock Options which are outstanding at that time which are not the subject of valid acceptances of the Stock Option Proposals); (b) valid acceptances of the Stock Option Proposals being received (and not validly withdrawn) which will result in the total number of outstanding SQS Stock Options representing, in aggregate, less than 5 per cent. of the nominal capital of the SQS Shares and of the voting rights then normally exercisable at a general meeting of SQS; (c) the German Federal Cartel Office (Bundeskartellamt) (“GFCO”) informing Bidco that it may proceed with the proposed acquisition of the entire issued and to be issued share capital of SQS by Bidco as contemplated by this Offer (“Proposed Acquisition”) or the time periods given to the GFCO under the Act Against Restraints of Competition to: (i) initiate a second phase investigation or (ii) deliver a decision prohibiting the Proposed Acquisition, in each case, having expired; (d) the Austrian Federal Competition Authority (Bundeswettbewerbsbehörde) (“AFCA”) informing Bidco that the AFCA and the Austrian Federal Cartel Prosecutor (Bundeskartellanwalt) (“AFCP”) have both waived their right to initiate an in-depth review under Section 11 of the Cartel Act (Kartellgesetz 2005) (“Cartel Act”) of the Proposed Acquisition of SQS by Bidco or the time periods given to: (i) the AFCA and the AFCP to initiate an in-depth review under Section 11 of the Cartel Act having expired or (ii) the Cartel Court to order the prohibition of the Proposed Acquisition pursuant to Section 14 of the Cartel Act having expired; and (e) no request to the European Commission having been made by either the GFCO or the AFCA under Article 22(1) of the Council Regulation (EC) No. 139/2004 (“EUMR”), and SQS not having made a submission pursuant to Article 4(5) of the EUMR for the Proposed Acquisition to be examined by the European Commission under the EUMR.

· If the Offer becomes, or is declared, unconditional in all respects and valid acceptances of the Offer are received which, when taken together with any other SQS Shares acquired by Bidco (whether pursuant to the Offer or otherwise), will result in Bidco holding 75 per cent. or more of the SQS Shares and of the voting rights normally exercisable at a general meeting of SQS (assuming exercise of all SQS Stock Options which are outstanding at that time which are not the subject of valid acceptances of the Stock Option Proposals), Bidco intends to procure that SQS will make an application to the London Stock Exchange for the cancellation of the admission to trading on AIM of the SQS Shares. Bidco also intends to procure that SQS will make an application to the Frankfurt Stock Exchange for the cancellation of inclusion of SQS Shares in the Open Market of Deutsche Börse. Cancellation of admission to trading on AIM of SQS Shares and to the inclusion of SQS Shares on the Open Market of Deutsche Börse is likely to reduce significantly the liquidity and marketability of any SQS Shares in respect of which the Offer has not been accepted at such time.

· If the Offer becomes, or is declared, unconditional in all respects Bidco will consider (i) concluding with SQS a profit and loss transfer agreement and, at Bidco’s option, a domination agreement in order to create a tax unity between Bidco and SQS or (ii) a merger of SQS into Bidco combined with a compulsory acquisition proceeding pursuant to Section 62 paragraph 5 of the German Transformation Act (Umwandlungsgesetz) or (iii) a compulsory acquisition proceeding pursuant to Sections 327a ff. of the German Stock Corporation Act (Aktiengesetz). In relation to (ii) and (iii), SQS Shareholders should be aware that the cash compensation payable for each SQS Share in these circumstances may be equal to, higher than or lower than the Offer Price. Further details are set out in paragraph 18 of the following announcement.

· SQS is a German registered company whose shares are traded on AIM. It is, therefore, not subject to the UK City Code on Takeovers and Mergers (“Code”). Accordingly, the Code does not apply to the Offer by Bidco for SQS and this transaction is not subject to the jurisdiction of, or regulated by, the UK Panel on Takeovers and Mergers (“Takeover Panel”). However, SQS and Bidco have agreed, to the extent and subject as set out in the Framework Agreement, that they will conduct themselves and the Offer as if the Offer were subject to the Code. Further details are set out in paragraph 20 of the following announcement.

· The German Takeover Act (Wertpapiererwerbs- und Übernahmegesetz) (“WpÜG”) does not apply to the Offer as the SQS Shares are not traded on an organised market pursuant to Section 1 paragraph 1 of the WpÜG.

Commenting on the Offer, Diederik Vos, Chief Executive Officer of SQS, said:

“The SQS Boards welcome the Offer and believe that it reflects an attractive valuation for SQS at a significant cash premium to the prevailing share price. We believe that it is an opportunity to join up with an organisation that is complementary and which provides enhanced opportunity for the benefit of our staff and customers. Combining the two companies will create a truly global business delivering a “best in class” offering to customers based on a shared culture of technical excellence, continued innovation and providing the highest standards of service.”

Commenting on the Offer, Olivier Aldrin, Chief Executive Officer of Assystem Technologies and Managing Director of Bidco, said:

“We are delighted that our proposal has been recommended by the SQS Boards. The coming together of Assystem Technologies and SQS creates a dynamic, fast-growing international business with complementary outlook, strategic geographical presence and an enhanced ability to market innovative products and services. The enlarged business will combine SQS’s expertise in quality assurance and process consulting in the digital world, with Assystem Technologies’ breadth of engineering product design capabilities, positioning the Enlarged Group to leverage the convergence of the digital and physical worlds to offer quality assurance of both products and processes to its enterprise customer base across a range of complementary geographies and end markets. We believe that the potential revenue synergies available from combining SQS with Assystem Technologies, as well as some limited integration benefits, are fairly reflected in the significant cash premium which the Offer represents.”

This summary should be read in conjunction with, and is subject to, the full text of the following announcement (including its Appendices). The Offer will be subject to the Conditions and certain further terms set out in the following announcement and to the full terms and conditions that will be set out in the Offer Document and, in respect of SQS Shares held directly in registered form, the Form of Acceptance.

Read the full RNS and appendices here.



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