Co-operative Group Limited announces consent solicitation and tender offer

March 24, 2014

NOT FOR RESALE, PUBLICATION OR DISTRIBUTION TO ANY US PERSON (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT (AS DEFINED BELOW)) OR IN OR INTO THE UNITED STATES, ITS TERRITORIES AND POSSESSIONS (INCLUDING PUERTO RICO, THE US VIRGIN ISLANDS, GUAM, AMERICAN SAMOA, WAKE ISLANDS AND THE NORTHERN MARIANA ISLANDS), ANY STATE OF THE UNITED STATES OR THE DISTRICT OF COLUMBIA (THE UNITED STATES) OR ANY OTHER JURISDICTION WHERE IT IS UNLAWFUL TO DISTRIBUTE THE OFFER MEMORANDUM.

24 March 2014

CO-OPERATIVE GROUP LIMITED ANNOUNCES CONSENT SOLICITATION AND TENDER OFFER

The Co-operative Group Limited (the Society) announces that is inviting holders (the Stockholders) of its outstanding £50,000,000 7.625 per cent. First Mortgage Debenture Stock due 2018 (the Stock) to consent to certain modifications (described briefly in the table below and in more detail in the Offer Memorandum (as defined below)) to the covenants and the cash flow provisions relating to the Stock as proposed by the Society (the Proposal) (such invitation, the Consent Solicitation)

Removal of covenant deletion of the restriction on the Issuer’s Total Consolidated Borrowing in relation to its Tangible Consolidated Net Worth
Coupon uplift increase in the coupon payable on the Stock by 1.25 per cent., commencing from the interest payment date falling on 30 June 2014
Increase in Redemption Amount fixed premium of 5 per cent. of the nominal amount of the Stock, to be paid at final maturity
New information covenant insertion of covenant obliging the Society to make annual valuation reports available to Stockholders


or to tender any and all such Stock for purchase by the Society for cash (such invitation, the Tender Offer).

Description ISIN Outstanding nominal amount Benchmark Security Purchase Spread Earlybird Fee Amount subject to the Tender Offer
£50,000,000 7.625 per cent. First Mortgage Debenture Stock due 2018 GB0002224060 £50,000,000 5 per cent. UK Treasury Stock due March 2018, ISIN: GB00B1VWPC84 50 bps 0.25 per cent. of the nominal amount of the Stock Any and all


The Consent Solicitation and Tender Offer are made on the terms and subject to the conditions contained in the Consent Solicitation and Tender Offer Memorandum dated 24 March 2014 (together, the Offer Memorandum) and should be read in conjunction with the Offer Memorandum. Capitalised terms used but not otherwise defined in this announcement shall have the meaning given to them in the Offer Memorandum.

Rationale for the Proposal and Tender Offer

The Stock contains a covenant which requires the Society’s Total Consolidated Borrowings (as defined in the Trust Deed) not to exceed 125 per cent. of the Society’s Tangible Consolidated Net Worth (as defined in the Trust Deed). As a consequence of the recapitalisation of The Co-operative Bank plc (the Bank) in December 2013, the Society’s shareholding in the Bank was reduced to 30 per cent. and the Bank will therefore not be included in the full year 2013 consolidated accounts of the Society. Further, minority interests are deducted for the purpose of calculating covenant compliance. The Society has substantial goodwill (£1.2bn) and intangible assets (£0.3bn) on its balance sheet. A substantial majority of the reserves of Bank shown in its full year 2012 balance sheet (totalling approximately £1.6bn) were represented by tangible assets. Therefore, the entire basis upon which the financial covenant was constructed has changed.

Accordingly, the Society would like to remove the covenant so that it reflects more recent first mortgage debenture stock terms and will enable the Society to continue to comply with the terms and conditions of all its financial obligations.

Details of the Proposal and Tender Offer

In exchange for the assent of the Stockholders to the deletion of this financial covenant, the Society will provide Stockholders with the option to select consideration in two forms:

(a) Stockholders who do not tender their Stock and prefer to continue holding their Stock will, if the Proposal is approved, receive:

(i) a fixed premium of 5 per cent. of the nominal amount of the Stock, to be paid at final maturity;
(ii) an increase in the coupon payable on the Stock by 1.25 per cent., commencing from the interest payment date falling on 30 June 2014; and
(iii) the benefit of a new covenant obliging the Society to make annual valuation reports available to Stockholders; or

(b) Stockholders who accept the Tender Offer will receive a cash purchase price (the Purchase Price) for each £1.00 in principal amount of Stock accepted by the Society pursuant to the Tender Offer.  The Purchase Price will equal (a) the value of all remaining payments of principal and interest (before the amendments are enacted) on the existing Stock up to and including the scheduled maturity date of such Stock, discounted to the Settlement Date at a discount rate equal to the Purchase Yield, minus (b) Accrued Interest. The Society will also pay an Accrued Interest Payment in respect of Stock accepted for purchase pursuant to the Tender Offer (all such terms as defined in the Offer Memorandum).

In both cases, the Society is also offering an up-front or earlybird cash payment of 0.25 per cent. of the nominal amount of the Stock that is the subject of such Solicitation Instruction or Tender Instruction, as the case may be, to Stockholders who provide irrevocable voting instructions prior to the early instruction deadline (as further described below).

Consent Solicitation and Proposal

Notice (the Notice) of a meeting (the Meeting) of the Noteholders to be held at the offices of Allen & Overy LLP at One Bishops Square, London E1 6AD, United Kingdom at 10.00 a.m. (London time) on 16 April 2014 has been published in accordance with the Trust Deed constituting and securing the Stock.

At the Meeting, the Stockholders will be asked to consider and, if thought fit, pass an extraordinary resolution as set out in the Notice (the Extraordinary Resolution), which will provide, among other things, for the Trustee to be authorised and requested to concur in and execute the Supplemental Trust Deed to effect the necessary modifications pursuant to the Extraordinary Resolution, which will implement the Proposal.

If the Extraordinary Resolution is passed, the proposed modifications to the Trust Deed will be binding on all Stockholders, including those Stockholders who do not vote in respect of, or vote against, the Proposal.

Tender Offer

Payments under the Tender Offer are conditional upon (i) the Extraordinary Resolution being passed and (ii) the Society accepting the tendered Stock for purchase.  The Society will only be able to accept valid tenders of Stock after the Purchase Price has been determined at 2.00 p.m. on 17 April 2014 and will not be able to accept any tenders of Stock if the Extraordinary Resolution is not passed.

If the Extraordinary Resolution is passed and the Society decides to accept valid tenders of Stock pursuant to the Tender Offer, the Society will accept for purchase all of the Stock that is the subject of the Tender Offer that is validly tendered and there will be no scaling of any tenders of Stock for purchase.

General

Details of how to participate in the Consent Solicitation, the Proposal and the Tender Offer are set out in the Offer Memorandum which has been published on the website of the London Stock Exchange. The Offer Memorandum and the Notice have also been submitted to the National Storage Mechanics and are available for inspection at www.Hemscott.com/nsm.do as well as on the Society’s website at www.co-operative.coop/bondholders.

Where payable, the Earlybird Fee will be paid by the Society to relevant Stockholders on the Settlement Date in the same manner as the payment of the Purchase Price and Accrued Interest Payment is made to eligible Stockholders.

By submitting a Solicitation Instruction in favour of the Extraordinary Resolution or a Tender Instruction in acceptance of the Tender Offer, Stockholders will automatically appoint the Chairman of the Meeting as their proxy to vote in favour of the Extraordinary Resolution at the Meeting.  It will not be possible to submit a Solicitation Instruction in favour of the Extraordinary Resolution or a Tender Instruction in acceptance of the Tender Offer without at the same time appointing the Chairman as such.

Indicative Timetable:

Date and time
(all times are London times)
Event
24 March 2014 Launch date
5.00 p.m. on 4 April 2014 Early Deadline
10.00 a.m. on 14 April 2014 Final Deadline
10.00 a.m. on 16 April 2014 Meeting
As soon as reasonably practicable after the Meeting Announcement of results of the Meeting
2.00 p.m. on 17 April 2014 Pricing Time (determination of Purchase Price)
As soon as reasonably practicable after the Pricing Time Announcement Purchase Price of results of the Tender Offer
25 April 2014 Settlement Date


The above times and dates are subject to the right of the Society to extend, re-open, amend, waive any condition of and/or terminate the Tender Offer (subject to applicable law and as provided in the Offer Memorandum). Stockholders are advised to check with any bank, securities broker or other intermediary through which they hold their Stock when such intermediary would need to receive instructions from a Stockholder in order for such Stockholder to participate in, or (in the limited circumstances in which revocation is permitted) to validly revoke their instruction to participate in, the Consent Solicitation, the Proposal or the Tender Offer before the deadlines specified above. The deadlines set by any such intermediary and, in the case of Stock held in uncertificated form in CREST, by CREST, for the submission and (where permitted) revocation of Solicitation Instructions or Tender Instructions will be earlier than the relevant deadlines above. Holders of Stock not held in CREST are also advised to ensure that, where any documents are posted to the Registrar, they allow sufficient time to ensure receipt of such documents by the Registrar by the relevant deadline.

Unless stated otherwise, all announcements in connection with the Consent Solicitation, the Proposal and the Tender Offer will be made by (i) publication on the website of the London Stock Exchange and (ii) publication on the website of the Society at www.co-operative.coop/bondholders.  Such announcements may also be made on the relevant Reuters Insider screen page and/or by the issue of a press release to a Notifying News Service. Stockholders may contact the Dealer Manager for information using the contact details on the last page of this announcement.

Noteholders are advised to read carefully the Offer Memorandum for full details of and information on the procedures for participating in the Proposal and the Tender Offer.

Requests for information in relation to the Consent Solicitation, the Proposal or the Tender Offer should be directed to:

The Dealer Manager
UBS Limited
1 Finsbury Avenue
London EC2M 2PP
Telephone: +44 20 7567 0525
Attention: Liability Management Group
Email: mark-t.watkins@ubs.com

Requests for information in relation to the procedures for participating in the Consent Solicitation, the Proposal or the Tender Offer, and the submission of a Solicitation Instruction or a Tender Instruction should be directed to:

The Registrar
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6AH13 8AE
Telephone: +870 889 4026

DISCLAIMER This announcement must be read in conjunction with the Offer.  This announcement and the Offer Memorandum contain important information which should be read carefully before any decision is made with respect to the Consent Solicitation, the Proposal or the Tender Offer.  If any Stockholder is in any doubt as to the action it should take or is unsure of the impact of the implementation of the Extraordinary Resolution to be proposed at the Meeting, it is recommended to seek its own financial and legal advice, including as to any tax consequences, from its broker, bank manager, solicitor, accountant or other independent financial or legal adviser.  Any individual or company whose Stock is held on its behalf by a broker, dealer, bank, custodian, trust company or other nominee or intermediary must contact such entity if it wishes to participate in the Consent Solicitation or the Proposal or tender its Stock in the Tender Offer.  None of the Dealer Manager, the Registrar, the Trustee or the Society expresses any opinion about the terms of the Consent Solicitation, the Proposal or the Tender Offer or makes any recommendation as to whether Stockholders should participate in the Consent Solicitation or otherwise participate in the Proposal or the Tender Offer.

TENDER OFFER AND DISTRIBUTION RESTRICTIONS Neither this announcement nor the Offer Memorandum constitutes an offer to buy or the solicitation of an offer to sell Stock (and tenders of Stock for purchase pursuant to the Tender Offer will not be accepted from Stockholders) in any circumstances in which such offer or solicitation is unlawful.  In those jurisdictions where the securities, blue sky or other laws require the Tender Offer to be made by a licensed broker or dealer and the Dealer Manager or any of their respective affiliates is such a licensed broker or dealer in any such jurisdiction, the Tender Offer shall be deemed to be made by the Dealer Manager or such affiliate, as the case may be, on behalf of the Society in such jurisdiction.

The distribution of this announcement and/or the Offer Memorandum in certain jurisdictions may be restricted by law.  Persons into whose possession this announcement and/or the Offer Memorandum comes are required by the Society, the Dealer Manager and the Registrar to inform themselves about, and to observe, any such restrictions.

United States

The Stock has not been, and will not be, registered under the Securities Act or under the securities laws of any state or other jurisdiction of the United States and may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the United States Securities Act of 1933, as amended (the Securities Act), and applicable U.S. state securities laws.

The Tender Offer is therefore being made only to holders of the Stock who are located outside the United States in accordance with Regulation S under the Securities Act.

Accordingly, each Stockholder participating in the Tender Offer will be required to represent that it is not located in the United States.  For the purposes of this and the above two paragraphs, United States means the United States of America, its territories and possessions, any state of the United States of America and the District of Columbia.

United Kingdom

The Offer Memorandum referred to herein may only be communicated to persons in the United Kingdom in circumstances where section 21(1) of the Financial Services and Markets Act 2000 does not apply. Accordingly, the Offer Memorandum is only for circulation to persons inside the United Kingdom who fall within one of the following categories:

(a) a person who is a holder of any Existing Securities; or
(b) any other person also falling within Article 43(2) or within Article 49(2)(a) to (d) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order) or falling within the definition of “investment professionals” (as defined in Article 19(5) of the Order).

The Offer Memorandum is only available in the United Kingdom to such persons, and the transactions contemplated herein will be available only to, and may be engaged in only with, such persons.

General

In addition to the representation referred to above in respect of the United States, each holder of Stock participating in the Tender Offer will also be deemed to give certain other representations as set out in the Offer Memorandum.  Any offer of Stock for tender pursuant to the Tender Offer from a Stockholder that is unable to make these representations will not be accepted.  Each of the Society, the Dealer Manager, the Trustee and the Registrar reserves the right, in its absolute discretion, to investigate, in relation to any offer of Stock for tender pursuant to the Tender Offer, whether any such representation given by a Stockholder is correct and, if such investigation is undertaken and as a result the Society determines (for any reason) that such representation is not correct, such offer shall not be accepted.