Statement of the board of directors of PKC Group Plc

PKC Group Plc Company Announcement 8 February 2017 11:10 a.m.

THIS RELEASE MAY NOT BE RELEASED, PUBLISHED OR OTHERWISE DISTRIBUTED, IN WHOLE OR IN PART, IN OR INTO, DIRECTLY OR INDIRECTLY, THE UNITED STATES, CANADA, JAPAN, AUSTRALIA, SOUTH AFRICA OR HONG KONG OR IN ANY OTHER JURISDICTION IN WHICH THE TENDER OFFER WOULD BE PROHIBITED BY APPLICABLE LAW.

Statement of the board of directors of PKC Group Plc regarding the voluntary public tender offer by MSSL Estonia WH OÜ

Motherson Sumi Systems Ltd ("MSSL") and PKC Group Plc ("PKC" or the "Company") have on January 19, 2017 entered into a combination agreement under which they agree to combine the wiring harness businesses of MSSL and PKC (the “Combination Agreement”) and have in order to give effect to the combination announced by stock exchange releases a voluntary public tender offer by an indirectly wholly owned subsidiary of MSSL, MSSL Estonia WH OÜ (the “Offeror”) for the issued and outstanding shares (the "Shares") and the outstanding stock options (the “Stock Options”) in PKC (the Shares and Stock Options together the “ Securities”) (the "Offer").

The Board of Directors of PKC (the "Board" or the "PKC Board") hereby issues its statement regarding the Offer as required by Finnish Securities Market Act (746/2012, as amended) and the Helsinki Takeover Code.

The Offer in Brief

The offer price is EUR 23.55 in cash for each Share (the “Share Offer Price”).
The Share Offer Price represents a premium of:

51.1 percent to the closing price of the Share on Nasdaq Helsinki Ltd (“Nasdaq Helsinki”) on January 19, 2017, i.e. the last day of trading before the announcement of the Offer;

53.1 percent to the three month volume-weighted average price on Nasdaq Helsinki up to and including January 19, 2017; and

25.6 percent to the highest closing price of the Share on Nasdaq Helsinki in the twelve months up to and including January 19, 2017.

The offer price is EUR 6.90 in cash for each outstanding 2012B Stock Option and EUR 0.27 in cash for each outstanding 2012C Stock Option.
The PKC Board has unanimously decided to recommend the Securities holders to accept the Offer.
The Offer is subject to approvals by the relevant regulatory authorities, such as competition authorities, and the Offeror gaining control of more than 90 percent of the Securities, in the aggregate.
The Offeror has on February 3, 2017, published a tender offer document with detailed information on the Offer (“Offer Document”).
The offer period of the Offer is expected to run until March 21, 2017. The Offeror reserves the right to extend the offer period from time to time in accordance with the terms and conditions of the Offer.
Pursuant to the Combination Agreement, the Offeror is to acquire all 24,125,387 Shares, and all 457,300 Stock Options. Should such number of Shares be tendered in the Offer that the Offeror obtains more than 90 percent of all Shares and voting rights in PKC, the Offeror intends to initiate mandatory redemption procedure for the remaining of the Securities and thereafter apply for delisting of the Shares and the 2012B Stock Options from Nasdaq Helsinki.
On the date of the announcement of the Offer Document, MSSL does not hold any Shares, Stock Options or voting rights in PKC.
The Offeror reserves the right to buy Shares and/or Stock Options during the offer period in public trading on Nasdaq Helsinki or otherwise.
The Offer and the combination will further strengthen the management structure, while simultaneously preserving the identity, the employees, the business operations and the assets of PKC.

According to the Combination Agreement, the Offeror has sufficient financing for the Offer‎ through cash and draw down facilities not being subject to any availability or draw down conditions other than the closing conditions as defined in the Combination Agreement (“Closing Conditions”). Such financing will remain available for the offer period, including any extension. The Offeror may, however, at its‎ discretion also use new facilities for financing the actual settlement of the Offer. The‎ completion of the Offer is not conditional upon obtaining financing for the Offer.

Background for the statement of the Board of Directors

For the purposes of issuing this statement, the Offeror has submitted to the PKC Board the Offer Document approved by the Finnish Financial Supervisory Authority on February 3, 2017.

Assessment of the Board of Directors from the perspective of PKC and its shareholders

In evaluating the Combination Agreement, the Offer and the Offer Document and their respective terms and conditions, the PKC Board consulted with senior management of the Company, its financial advisor Merrill Lynch International (“BofA Merrill Lynch”), a subsidiary of Bank of America Corporation, and its legal advisor Borenius Attorneys Ltd. The Board held a number of meetings during the negotiation phase with MSSL and appointed an ad hoc committee of the Board consisting of the Chairman Mr. Matti Ruotsala, Vice Chairman Mr. Robert Remenar and board member Mr. Shemaya Levy (the “Committee”) to lead and monitor the negotiations with MSSL between the Board meetings.

In the course of making the determination that the Offer is in the best interests of holders of PKC's Securities and recommending that the holders of Securities accept the Offer and tender their Securities pursuant to the Offer, the Board considered various factors, including (without limitation) the factors listed below, each of which, in the view of the Board, supported such determination. The list of factors is not presented in any order of priority:

Financial Terms/Premium to Market Price. The relationship of the consideration offered pursuant to the Offer to (i) the historical market price of the Shares, including that the consideration represents a premium of 51.1% over the trading price at which the Shares closed on the Nasdaq Helsinki on January 19, 2017, the last trading day prior to the announcement of the Offer and (ii) historical takeover premiums in Nasdaq Helsinki.
Cash Consideration. The entire consideration will be payable in cash, providing the Share and Stock Option holders with immediate liquidity and certainty of value as compared to a stand-alone option.
Strategic Fit. The combination of PKC and MSSL creates a partner in the worldwide transportation solutions market and is highly synergistic. This strategic position is reflected in the offered consideration.
The Company's Operating and Financial Condition and Stand-Alone Prospects. The Board has considered the Company’s historical and current financial conditions and results of operations, as well as the prospects and strategic objectives of and options available to the Company. Although the Company is well positioned to continue with its current strategic business plan should the Offer not succeed, the consideration is deemed to offer an attractive risk adjusted premium to stand alone.
Trading Multiples and Other Valuation Methods. The consideration represents an EV/EBITDA multiple of 9.6x at the offer price. [Enterprise Value defined as the Securities valued at the respective offer price totalling EUR 571 million and net debt of EUR 47 million as at December 2016. EBITDA before items affecting comparability of approximately EUR 64 million for the year 2016]. Having considered the historical trading multiples of the Company and its peers and other applicable valuation methods, the Board believes that the consideration fairly reflects the Company's value.
Strategic Alternatives and Competitive Environment. The Board has investigated and considered the trends in the markets and the industry. The Board has also considered the risks and uncertainties associated with such alternatives and the challenges associated with the industry's current and expected competitive environment.
Other Potential Strategic Partners. During the last few years the PKC Board has held various preliminary discussions that could have resulted in strategic consolidation including PKC but which have either not realised or in which PKC has been clearly undervalued. As part of the evaluation of the Offer, the PKC Board has assessed other potential strategic partners from a number of perspectives including but not limited to strategic focus, financial conditions and regulatory constraints. When MSSL approached the PKC Board it was not in the process of auctioning the Company, nor did it receive competing offers during discussions with MSSL leading up to the Combination Agreement and the Offer. MSSL was not granted exclusivity at any point in time and the offer period has been set to approximately six (6) weeks. Accordingly, the PKC board has retained full fiduciary rights in the Combination Agreement to entertain competing offers that the PKC Board determines in good faith to be more favourable to the holders of the Securities than the Offer.
Deal Security. The Board considered that the Offer would reasonably likely be consummated in light of the facts that (i) the Offer is not subject to any financing condition, (ii) MSSL being liable for substantial liquidated damages, should the Offer not be consummated due to MSSL’s material breach of the Combination Agreement, MSSL not consummating the Offer for any other reason than the Closing Conditions, the Closing Conditions of the Offer not being satisfied due to materially adverse regulatory terms and conditions to MSSL, or MSSL invoking the material adverse change Closing Condition (other than as caused by PKC’s material breach of its representations and warranties), (iii) the other terms and conditions of Combination Agreement being on the balance favourable to PKC and (iv) minimal overlap in MSSL and PKC’s existing operations in terms of both geographical presence and product segment to be considered in regulatory approval processes.
Termination Fees. The amount of the PKC termination fee being capped at EUR 3 million for the Offeror’s out-of-pocket costs not preventing PKC from modifying this recommendation in case of a more favorable competing offer and being matched by a reverse break-up fee of the same amount for the Offeror.
Controlled Process. In the negotiations with MSSL, the PKC Board has retained control of the relevant process issues including the time line, access to senior management and level of disclosure.
BofA Merrill Lynch Fairness Opinion. The Board considered the fairness opinion of BofA Merrill Lynch, dated January 18, 2017, to the Board as to the fairness, from a financial point of view and as of such date, of the EUR 23.55 per Share consideration to be received in the Offer by holders of Shares. The full text of BofA Merrill Lynch’s written fairness opinion is attached as Appendix 1 to this statement.

Strategic Plans of the Offeror and Their Likely Effects on Operations and Employment

The Offeror has announced its intention to retain the identity and customer relationships of PKC, while contributing to PKC’s strategic insight, new partnerships and engineering capabilities. The business of PKC will become a significant part of the wiring harness division of a larger listed company, MSSL.

The Offeror believes that it can help PKC in achieving its expansion opportunities given MSSL’s strong market position in the Asia Pacific region. Based on the analysis of MSSL, all of the leading global commercial vehicle manufacturers and component suppliers are increasingly focused on strengthening their presence and gaining market share in the Asian transportation market, a direction that PKC is also pursuing. Leveraging this opportunity and the capabilities of the combined company are expected to accelerate growth and profitability improvement of the combination. Furthermore, MSSL’s enhanced product range is expected to further strengthen customer relationships of the combined company.

While supporting PKC to accomplish its expansion opportunities, the combined company will according to the Offeror further invest in new technologies which are required to maintain market leadership and in achieving its goal as the preferred solutions provider for the transportation industry globally. All transportation vehicles are becoming increasingly complex and rely more on electronics, which emphasizes the importance of managing complexity in MSSL as well. The combination of MSSL and PKC would leverage knowhow of both companies’ management teams to enhance their offering in the increasingly complex future and it would also ensure that the combination be well positioned to grow its business together with customers globally.

The Offeror expects the combination to be highly synergistic as there is minimal overlap between the Offeror’s and PKC’ existing operations in terms of both geographical presence and product segment. PKC has a strong presence in the American and European wiring harness markets for commercial vehicles, which will provide new opportunities for MSSL and its customers. There are also inherent advantages with customers and suppliers of PKC in offering a larger and more diversified product portfolio as well as the enhanced capabilities and scale of MSSL.

Based on the above information received from MSSL, which the PKC Board cannot independently verify, the PKC Board does not expect any material changes in the organization, management team, production sites or employment of PKC and its subsidiaries.

PKC Board has not received any formal statements from any employee representatives of PKC and its subsidiaries regarding the Offer and its likely effects on operations and employment.

Financing of the Offer

The Offeror has sufficient financing for the Offer‎ through cash and draw down facilities not being subject to any availability or draw down conditions other than the Closing Conditions. Such financing will remain available for the offer period, including any extension. The Offeror may, however, at its‎ discretion also use new facilities for financing the actual settlement of the Offer. The‎ completion of the Offer is not conditional upon obtaining financing for the Offer.

The Recommendation of the Board of Directors of PKC

Based on the above, the PKC Board believes that the consideration offered by the Offeror for the Securities carries an attractive premium to the stock exchange prices of the Share and the listed 2012B Stock Option and to the value of the unlisted 2012C Stock Option, and takes into account the strategic value of PKC’s business and is as such fair to the holders of the Securities.

The Board of Directors of PKC has decided, by unanimous decision, to recommend that the Security holders accept the Offer and tender their Securities pursuant to the Offer.

Other Matters

PKC has committed itself to comply with the Helsinki Takeover Code referred to in Chapter 11 Section 28 of the Finnish Securities Market Act.

This statement of the PKC Board does not constitute investment, legal or tax advice. The PKC Board does not in this statement specifically evaluate the general price development or the risks relating to the Shares and Stock Options in general. The holders of Securities must independently decide whether to accept the Offer, and they should consult their own financial, legal and tax advisers and take into account all relevant information available to them, including information presented in the Offer Document and this statement when making their decision.

According to Chapter 18, Section 1 of the Finnish Companies Act (624/2006, as amended), the Offeror has the right to redeem the Shares of other shareholders at a fair price, if its holding exceeds nine-tenths (9/10) of the Shares and voting rights carried by the Shares. A shareholder, whose Shares the Offeror has the right to redeem, will also have the right to demand that the Offeror redeems his/her Shares. The mandatory redemption procedure is set forth in more detail in the Finnish Companies Act.

If the Offeror acquires more than nine-tenths (9/10) of the Shares and voting rights carried by the Shares, it will make a redemption claim to the other shareholders of PKC in accordance with the Finnish Companies Act.

The Offeror may waive the 90% conditionality of the Offer. If the Offeror would through the Offer or otherwise gain the control of not less than 2/3 of the Shares and votes in the Company, it could alone (without the support of other shareholders) inter alia resolve upon changing the articles of association of the Company and other structural changes that could substantially weaken the liquidity of the Securities.

BofA Merrill Lynch has acted as the financial advisor to PKC with respect to the Offer and Borenius Attorneys Ltd has acted as legal advisor. Merrill Lynch International (“BofA Merrill Lynch”), a subsidiary of Bank of America Corporation, is acting exclusively for PKC in connection with the Offer and for no one else and will not be responsible to anyone other than PKC for providing the protections afforded to its clients or for providing advice in relation to the Offer.

PKC Group Plc

Board of Directors

Matti Hyytiäinen

President & CEO

Further information:

Matti Ruotsala, Chairman of the Board of Directors, PKC Group Plc, contact Sinikka Ravander, Tel. +358 40 1209 277, sinikka.ravander@pkcgroup.com

Matti Hyytiäinen, President & CEO, PKC Group Plc, Tel. + 358 400 710968

Distribution

Nasdaq Helsinki

Main media

www.pkcgroup.com

APPENDIX: BofA Merrill Lynch’s Opinion

PKC Group is a global partner, designing, manufacturing and integrating electrical distribution systems, electronics and related architecture components for the commercial vehicle industry, rolling stock manufacturers and other selected segments. The Group has production facilities in Brazil, China, Finland, Germany, Lithuania, Mexico, Poland, Russia, Serbia and the USA. The Group's revenue from continuing operations in 2015 totalled EUR 847 million. PKC Group Plc is listed on Nasdaq Helsinki.

DISCLAIMER

THIS RELEASE IS NOT A TENDER OFFER DOCUMENT AND AS SUCH DOES NOT CONSTITUTE AN OFFER OR INVITATION TO MAKE A SALES OFFER. IN PARTICULAR, THIS RELEASE IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES DESCRIBED HEREIN, AND IS NOT AN EXTENSION OF THE TENDER OFFER, IN THE UNITED STATES, CANADA, JAPAN, AUSTRALIA, SOUTH AFRICA OR HONG KONG. INVESTORS SHALL ACCEPT THE TENDER OFFER FOR THE SHARES AND THE STOCK OPTIONS ONLY ON THE BASIS OF THE INFORMATION PROVIDED IN A TENDER OFFER DOCUMENT. OFFERS WILL NOT BE MADE DIRECTLY OR INDIRECTLY IN ANY JURISDICTION WHERE EITHER AN OFFER OR PARTICIPATION THEREIN IS PROHIBITED BY APPLICABLE LAW OR WHERE ANY TENDER OFFER DOCUMENT OR REGISTRATION OR OTHER REQUIREMENTS WOULD APPLY IN ADDITION TO THOSE UNDERTAKEN IN FINLAND.

THE TENDER OFFER IS NOT BEING MADE DIRECTLY OR INDIRECTLY IN ANY JURISDICTION WHERE PROHIBITED BY APPLICABLE LAW AND, WHEN PUBLISHED, THE TENDER OFFER DOCUMENT AND RELATED ACCEPTANCE FORMS WILL NOT AND MAY NOT BE DISTRIBUTED, FORWARDED OR TRANSMITTED INTO OR FROM ANY JURISDICTION WHERE PROHIBITED BY APPLICABLE LAW. IN PARTICULAR, THE TENDER OFFER IS NOT BEING MADE, DIRECTLY OR INDIRECTLY, IN OR INTO, OR BY USE OF THE POSTAL SERVICE OF, OR BY ANY MEANS OR INSTRUMENTALITY (INCLUDING, WITHOUT LIMITATION, FACSIMILE TRANSMISSION, TELEX, TELEPHONE OR ELECTRONIC TRANSMISSION BY WAY OF OR THE INTERNET OR OTHERWISE) OF INTERSTATE OR FOREIGN COMMERCE OF, OR ANY FACILITIES OF A NATIONAL SECURITIES EXCHANGE OF, THE UNITED STATES, CANADA, JAPAN, AUSTRALIA, SOUTH AFRICA OR HONG KONG. THE TENDER OFFER CANNOT BE ACCEPTED, DIRECTLY OR INDIRECTLY, BY ANY SUCH USE, MEANS OR INSTRUMENTALITY OR FROM WITHIN THE UNITED STATES, CANADA, JAPAN, AUSTRALIA, SOUTH AFRICA OR HONG KONG. NO HOLDER AND ANY PERSON ACTING FOR THE ACCOUNT OR BENEFIT OF A HOLDER IN THE UNITED STATES, CANADA, JAPAN, AUSTRALIA, SOUTH AFRICA OR HONG KONG SHALL BE PERMITTED TO ACCEPT THE TENDER OFFER.

PKC’S SHARES HAVE NOT BEEN AND WILL NOT REGISTERED UNDER THE US SECURITIES ACT OF 1933, AS AMENDED (THE ”SECURITIES ACT”), OR UNDER ANY OF THE RELEVANT SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES OF AMERICA. PKC’S SHARES MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES, EXCEPT PURSUANT TO AN EXEMPTION FROM THE SECURITIES ACT OR IN A TRANSACTION NOT SUBJECT TO THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.

Statement of the board of directors of PKC Group Plc regarding the voluntary public tender offer by MSSL Estonia WH OÜ

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