25th Jul 2006 07:02
Management Consulting Group PLC25 July 2006 Not for release, publication, or distribution in or into the United States of America, Australia, Canada or Japan. FOR IMMEDIATE RELEASE Management Consulting Group PLC Proposed acquisition of Ineum Summary Management Consulting Group PLC (''MCG'' or the ''Company''), the internationalmanagement consultancy group, today announces that it has entered into aconditional agreement whereby it will acquire the entire issued share capital ofIneum, the largest independent national management consultancy practice inFrance (excluding IT systems integrators and outsourcing practices) (1). The total consideration agreed for the Acquisition is €120 million (£81.9million), which will be satisfied by the payment of €54.0 million (£36.9million) in cash and the issue of 81.0 million New Ordinary Shares. The numberof New Ordinary Shares to be issued was determined on the basis of the averagepounds to euros exchange rate and average Closing Price of Ordinary Shares overthe 30 trading days prior to 25 July 2006. In addition, a maximum of €13.8million (£9.4 million) of net debt will be assumed and refinanced uponcompletion of the Acquisition. The cash element of the consideration and the refinancing of the assumed debtwill be partially satisfied out of MCG's existing cash resources and partiallythrough a new £30 million multicurrency debt facility. In addition, a newworking capital facility of £20 million will be available to the Enlarged Group.These facilities will be provided by MCG's relationship bank, Barclays Bank Plc. The Board believes that the Acquisition is a key development in the execution ofthe Group's strategic goal to be a multidisciplinary consulting and professionalservices group and will broaden and deepen its existing offerings whilstdiversifying the risks of the Group. The proposed Acquisition constitutes a Class 1 transaction under the ListingRules. Accordingly, it is subject to the approval of Shareholders, which is tobe sought at the Extraordinary General Meeting. Those of Ineum's shareholders who are receiving New Ordinary Shares as part oftheir consideration, namely the Ineum Partners and Jacques Manardo(non-executive chairman of Ineum), will, immediately following completion of theAcquisition, together hold 81.0 million Ordinary Shares representing 29.9 percent. of the Enlarged Share Capital of MCG. Such persons will be deemed to bepersons acting in concert for the purposes of the Takeover Code until the Paneldetermines otherwise. Overview of Ineum Ineum is the largest independent, national management consultancy practice(excluding IT systems integrators and outsourcing practices) in France. It wascreated out of the consultancy practice of Deloitte France in 2003, due toFrench regulatory changes that restricted the range of services an audit firm isable to provide to its audit clients. Since becoming independent, Ineum has developed a reputation in the Frenchmarket place for providing high quality consulting services. Ineum'sindependence gives it a greater ability to service clients, compared with manyof its competitors, because it does not suffer from the actual or perceivedconflicts of interest associated with the large multidisciplinary firms thatprovide consulting, auditing and other services. Ineum provides, through its industry groups, a broad range of consultingservices relevant to specific industries including operational strategy,marketing and sales, supply chain management, IT and programme management andnon-industry specific functional expertise in the financial management area. Itsindustry groups provide relevant services to the financial, public,manufacturing, consumer goods, energy and utilities, telecommunications andmedia, transportation and middle-market sectors. Ineum serves the vast majority of major French companies in the CAC 40,including BNP Paribas, EDF, Schneider, Societe Generale, Veolia and Vivendi. Thecompany provides services primarily in France, Belgium and Luxembourg. Benefits of the Acquisition The Board believes that the Acquisition is a key development in the execution ofthe Group's strategic goals. In particular, the Board believes the Acquisitionwill have the following key benefits: Operational • Secures France's largest independent national management consultancy (excluding IT systems integrators and outsourcing practices) • Broadens the Group's range of consulting offerings - industry led business consulting introduced • Strong Ineum brand raises the Group's profile in Europe • Strengthens existing service offerings in France, creating a significant financial management practice in two of the three largest European markets • A platform from which to grow industry-led business consulting • Deepens the Group's talent pool with internationally experienced partners Geographic • Secures a strong position in the world's fourth largest management consulting market place which is forecast to grow at 7.2 per cent. in 2007 (2) • Gives access to a client base of leading French businesses, requiring services in France and internationally • Diversifies the Group's geographic focus by increasing its European presence • Creates a strong platform for further continental European growth Financial • Adds a well-managed and profitable business with growing revenues • Expected to be earnings and operating margin enhancing in 2007 (3) • Creates an opportunity to reduce unit infrastructure costs • Reduces exposure to US dollar earnings • Offers more balanced revenue mix in terms of market and type of services • Improves capital structure by introducing debt at a level which will not constrain strategy implementation Commenting on today's announcement, Rolf Stomberg, Chairman of MCG, said: ''This acquisition is a significant step in the execution of the Group'sstrategy. Ineum has an outstanding reputation for first class consulting and weare confidant that this will be an excellent combination that will bringbenefits for all stakeholders.'' Kevin Parry, Chief Executive of MCG, said: ''I am delighted to welcome the Ineum management and staff to the Group. Bycombining the businesses we will significantly enhance the portfolio of serviceswe are able to offer to existing and prospective clients. Furthermore theacquisition creates a strong platform for further growth by providing access toa new quality client base in the world's fourth largest consultingmarketplace.'' Didier Taupin, Chief Executive of Ineum, said: ''We look forward to working with MCG to grow and develop the business. Ourclients are the major French companies and we will now be able to serve boththeir local and international requirements even more comprehensively.'' Shareholder approvals The proposed Acquisition constitutes a Class 1 transaction under the ListingRules. Accordingly, it is subject to the approval of Shareholders, which is tobe sought at an Extraordinary General Meeting expected to be held on 30 August2006. Approval will also be sought at the Extraordinary General Meeting forvarious other proposals described in the main body of this announcement. A circular (also comprising a prospectus for the purposes of Part VI of theFSMA) (the ''Circular'') containing full details of the proposed Acquisition andother proposals is expected to be sent to Shareholders on or shortly after 7August 2006. Trading update and interim results The Company currently anticipates releasing its results for the six-month periodended 30 June 2006 at the same time as it posts the Circular to Shareholders, onor shortly after 7 August 2006. As indicated on 12 May 2006, the Group has made significant progress. ProudfootConsulting has performed well with all geographies delivering strong revenuegrowth. Parson Consulting has shown good revenue growth in all areas with theexception of North America, where it has suffered from a combination of a softerthan expected market and prospecting deficiencies in the sales function. Overall, results for the first half are expected to be in line withexpectations. The information in this summary should be read in conjunction with the main bodyof this announcement. There will be an analysts' presentation at 9.30 a.m. today at the offices of MCGon the 6th Floor of Fleet Place House, 2 Fleet Place, Holborn Viaduct, LondonEC4M 7RF. Enquiries Management Consulting Group PLC Kevin Parry Chief Executive 020 7710 5000Chris Povey Head of M&AMark Currie Finance Director Rothschild (financial adviser and sponsor) Sian Westerman 020 7280 5000Dominic Epton Hoare Govett Limited (corporate broker) Neil Collingridge 020 7678 8000John MacGowan Maitland Suzanne Bartch 020 7379 5151Peter Ogden N M Rothschild & Sons Limited, which is authorised and regulated in the UnitedKingdom by the Financial Services Authority, is acting as financial adviser andsponsor to MCG and no-one else in connection with the matters referred to hereinand will not be responsible to anyone other than MCG for providing theprotections afforded to clients of N M Rothschild & Sons Limited or for givingadvice in relation to such matters. Hoare Govett Limited, which is authorised and regulated in the United Kingdom bythe Financial Services Authority, is acting as corporate broker to MCG andno-one else in connection with the matters referred to herein and will not beresponsible to anyone other than MCG for providing the protections afforded toclients of Hoare Govett Limited or for giving advice in relation to suchmatters. The contents of this announcement which have been prepared by and are the soleresponsibility of MCG have been approved by N M Rothschild & Sons Limited solelyfor the purposes of section 21(2)(b) of the Financial Services and Markets Act2000. This announcement includes statements that are, or may be deemed to be,''forward-looking statements''. These forward-looking statements can beidentified by the use of forward-looking terminology, including the terms''believes'', ''estimates'', ''plans'', ''anticipates'', ''targets'', ''aims'',''continues'', ''expects'', ''intends'', ''may'', ''will'', ''would'' or''should'', or in each case, their negative or other variations or comparableterminology. These forward-looking statements include all matters that are nothistorical facts. They appear in a number of places throughout this announcementand include statements regarding the Company's, or the Group's intentions,beliefs or current expectations concerning, among other things, the Company's,or the Group's results of operations, financial condition, liquidity, prospects,growth, strategies and the industries in which the Company or the Groupoperates. By their nature, forward-looking statements involve risk anduncertainty because they relate to future events and circumstances. A number offactors could cause actual results and developments to differ materially fromthose expressed or implied by the forward-looking statements including, withoutlimitation: conditions in the markets, market position of the Company or theGroup, earnings, financial position, cash flows, return on capital and operatingmargins, anticipated investments and capital expenditures, changing business orother market conditions and general economic conditions. These and other factorscould adversely affect the outcome and financial effects of the plans and eventsdescribed in this announcement. Forward-looking statements contained in thisannouncement based on past trends or activities should not be taken as arepresentation that such trends or activities will continue in the future.Subject to any requirement of the UK Listing Authority or London Stock Exchangeor as a matter of law, neither MCG nor Rothschild undertakes any obligation toupdate or revise any forward looking statements, whether as a result of newinformation, future events or otherwise. Undue reliance should not be placed onforward-looking statements, which speak only as of the date of thisannouncement. The New Ordinary Shares have not been and will not be registered for sale underthe United States Securities Act of 1933 (the "Securities Act").This announcement shall not constitute an offer to sell or the solicitation ofan offer to buy the New Ordinary Shares, nor shall there be any sale of the NewOrdinary Shares in any state or other jurisdiction in which such offer,solicitation or sale would be unlawful prior to registration or qualificationunder the securities laws of any such state or jurisdiction. The New OrdinaryShares are to be offered to shareholders of Ineum in transactions outside theUnited States in reliance on Regulation S under the Securities Act. The NewOrdinary Shares may not be offered or sold in the United States except pursuantto an exemption from, or in a transaction not subject to, the registrationrequirements of the Securities Act and applicable state securities laws. Notes to Editors MCG currently comprises two businesses: Proudfoot Consulting and ParsonConsulting. Proudfoot Consulting helps clients to achieve significant increases inprofitability through the implementation of operational improvements leading toincreased sales, lower operating and overhead costs, greater output and lowercapital expenditure. Its clients include BP, National Australia Bank, NewmontMining, PSA, Peugeot-Citroen and Societe Generale. Parson Consulting specialises in financial management consultancy. It is free ofauditing conflicts and provides Sarbanes-Oxley compliant services. It has fourservice lines: governance and risk management, operational financial management,strategic financial management and transaction support. Its clients includeAvis, Citigroup, Ford, General Mills, Kingfisher, Shell and Warner Bros. Not for release, publication, or distribution in or into the United States ofAmerica, Australia, Canada or Japan. FOR IMMEDIATE RELEASE Management Consulting Group PLC Proposed acquisition of Ineum 1. Introduction Management Consulting Group PLC (''MCG'' or the ''Company''), the internationalmanagement consultancy group, today announces that it has entered into aconditional agreement whereby it will acquire the entire issued share capitalof Ineum, the largest independent national management consultancy practice inFrance (excluding IT systems integrators and outsourcing practices)1. The total consideration agreed for the Acquisition is €120 million (£81.9million), which will be satisfied by the payment of €54.0 million (£36.9million) in cash and the issue of 81,020,798 New Ordinary Shares. The number ofNew Ordinary Shares to be issued was determined on the basis of the averagepounds to euros exchange rate and average Closing Price of Ordinary Shares overthe 30 trading days prior to 25 July 2006. In addition, a maximum of €13.8million (£9.4 million) of net debt will be assumed and refinanced uponcompletion of the Acquisition. The cash element of the consideration and the refinancing of the assumed debtwill be partially satisfied out of MCG's existing cash resources and partiallythrough a new £30 million multicurrency debt facility. In addition, a newworking capital facility of £20 million will be available to the Enlarged Group.These facilities will be provided by MCG's relationship bank, Barclays Bank Plc. The Board believes that the Acquisition is a key development in the execution ofthe Group's strategic goal to be a multidisciplinary consulting and professionalservices group and will broaden and deepen its existing offerings whilstdiversifying the risks of the Group. The proposed Acquisition constitutes a Class 1 transaction under the ListingRules. Accordingly, it is subject to the approval of Shareholders, which is tobe sought at the Extraordinary General Meeting. Those of Ineum's shareholders who are receiving New Ordinary Shares as part oftheir consideration, namely the Ineum Partners and Jacques Manardo(non-executive chairman of Ineum), will, immediately following completion of theAcquisition, together hold 81,020,798 Ordinary Shares representing 29.9 percent. of the Enlarged Share Capital of MCG. Such persons will be deemed to bepersons acting in concert for the purposes of the Takeover Code until the Paneldetermines otherwise. 2. Information on MCG The Group currently comprises two specialist consultancies: Proudfoot Consultingand Parson Consulting. Proudfoot Consulting implements sustainable operational improvements at no netannualised cost to its clients through process improvements, People SolutionsTMand management operating systems. The successful combination of these threedisciplines results in installed change. The change process is project managedusing the proprietary technique of Co-Venture(R) which, through partnership withProudfoot Consultant's clients, accelerates the pace of change from theconsulting engagement. Parson Consulting develops excellence in finance and operations. It assistschief financial officers by providing valuable financial information and insightinto stakeholders through strategic finance, accounting and finance operations,governance and risk management, and corporate finance support. It does notundertake auditing or resell software and is therefore free of conflicts ofinterest. The businesses of the Group are primarily focussed on the main geographicalmarkets for consulting services, which are currently North America and Europe,and, in addition, provide services in other smaller consulting markets such asAustralia, Brazil, China and South Africa. 3. Background to, and reasons for, the Acquisition The Group's strategy is to: • operate and continually invest in its consultancies and its people to deliver profitable, sustainable revenue growth that is ahead of the market rates of growth for the consultancy sector; and • acquire consultancies that either diversify the range of consulting offerings available to clients or deepen the coverage of existing Group offerings. Each consulting offering goes to market through its own brand and is operated separately with its own dedicated management team. Group management co-ordinates the introduction of clients as between thedifferent offerings and seeks to communicate clearly, fairly and regularly withall of its stakeholders. The proposed Acquisition secures a high quality consulting practice focused onFrance, a key European management consulting market place. Ineum has client relationships with a vast majority of the companies in thecurrent CAC 40 (the index of the 40 largest companies by market capitalisationon the Paris stock market) as well as with 28 of the current 39 French GlobalFortune 500 companies, and has, to some extent, been constrained by its lack ofinternational presence. Ineum goes to the market via its industry consulting groups and as a financialmanagement consultancy. Financial management consulting comprises nine partnersand approximately 125 professionals. Its services are similar to those of ParsonConsulting, but are more developed and more extensive in France when comparedwith the existing small French business of Parson Consulting. It is proposedthat the financial management practice of Ineum will be combined with that ofParson Consulting to provide a step change in the French, European and worldwideoperations. The combined business will trade as Parson Consulting. Ineum's industry led business will continue to trade under the Ineum brand. Thisprovides a third consulting offering with industry specialisms. MCG will continue to invest in the Parson Consulting and Ineum offerings throughrecruitment of suitably qualified and experienced people and will continue toseek bolt-on acquisitions of suitable management consulting businesses. The Chief Executive Officer of Parson Consulting and Ineum will be DidierTaupin. He has been President of Ineum since its foundation in 2003, and has anaccomplished track record of growing profitable revenue. Rick Fumo, currentlyChief Executive Officer of Parson Consulting, has indicated a desire to retirefrom his position but continue to work with specific clients and will act asChairman of the advisers to Parson Consulting. The Group Chief Executive hasagreed that Mr Fumo may resign as Chief Executive Officer of Parson Consultingwith effect from the date of completion of the Acquisition, but he will continueto manage some important client accounts, assist with the integration of thefinancial management businesses of Parson and Ineum and work with the Company'sNorth American advisers. In addition, Miguel de Fontenay, currently Vice Chairman of Ineum Consulting,who has overall market and sales responsibilities for Ineum and each of theleaders of Ineum's industry led and functional expertise groups, will enhancethe depth of the Group's management capabilities. Mr Fontenay will be appointedas Senior Vice President of Sales and Global Accounts and will, in addition tohis existing responsibilities, co-ordinate the cross-selling of the Group'sservices to clients of the three Group consultancies. 4. Benefits of the Acquisition The Board believes that the Acquisition is a key development in the execution ofthe Group's strategic goals. In particular, the Board believes the Acquisitionwill have the following key benefits: Operational • Secures France's largest independent national management consultancy (excluding IT systems integrators and outsourcing practices) • Broadens the Group's range of consulting offerings - industry led business consulting introduced • Strong Ineum brand raises the Group's profile in Europe • Strengthens existing service offerings in France, creating a significant financial management practice in two of the three largest European markets • A platform from which to grow industry-led business consulting • Deepens the Group's talent pool with internationally experienced partners Geographic • Secures a strong position in the world's fourth largest consulting market place which is forecast to grow at 7.2 per cent. in 2007 (2) • Gives access to a client base of leading French businesses, requiring services in France and internationally • Diversifies the Group's geographic focus by increasing its European presence • Creates a strong platform for further continental European growth Financial • Adds a well-managed and profitable business with growing revenues • Expected to be earnings and operating margin enhancing in 20073 • Creates an opportunity to reduce unit infrastructure costs • Reduces exposure to US dollar earnings • Offers more balanced revenue mix in terms of market and type of services • Improves capital structure by introducing debt at a level which will not constrain strategy implementation 5. Information on Ineum Background Ineum is the largest independent national management consultancy practice inFrance (excluding IT systems integrators and outsourcing practices)1. It wascreated out of the consultancy practice of Deloitte France in 2003, due toFrench regulatory changes that restricted the range of services an audit firm isable to provide to its audit clients. Since becoming independent, Ineum has developed a reputation in the Frenchmarket place for providing high quality consulting services. Ineum'sindependence gives it a greater ability to service clients, compared with manyof its competitors, because it does not suffer from the actual or perceivedconflicts of interest associated with the large multidisciplinary firms thatprovide consulting, auditing and other services. Operations Ineum provides, through its industry groups, a broad range of consultingservices relevant to specific industries like operational strategy, marketingand sales, supply chain management, IT and programme management and non-industryspecific functional expertise in the financial management area. Its industrygroups provide relevant services to the financial, public, manufacturing,consumer goods, energy and utilities, telecommunications and media,transportation and middle-market sectors. Services are primarily provided from Ineum's head office in Paris. In addition,there are French offices in Lyon, Marseille and Nantes. In the past 12 months,additional offices have been opened in Brussels and Luxembourg. Ineum serves the vast majority of major French companies in the CAC 40,including BNP Paribas, EDF, Schneider, Societe Generale, Veolia and Vivendi. Thecompany provides services primarily in France, Belgium and Luxembourg. The size of the French market place for management consulting is estimated to be€3.1 billion (2). Ineum is estimated to have a 3 per cent. French market share (1)(2). Kennedy Information, Inc., a leading commentator on the consultingmarketplace, estimates that the French management consulting market will grow byapproximately 7.2 per cent. in 2007 (2) compared with a compound average growthrate during the period 2004 to 2007 of 6.3 per cent. per annum (2). The industrygroupings account for approximately 75 per cent. of Ineum's total revenue. Thebiggest industry group is the financial services industry sector. The otherindustry groupings are the public sector, manufacturing, energy and utilities,telecommunications/media, transportation and the middle market. The financialmanagement consultancy practice accounts for the other 25 per cent. of Ineum'stotal revenues. Management and employees Jacques Manardo has been the non-executive chairman (President du Conseil deSurveillance) of Ineum since 2003. Didier Taupin, who was appointed as Presidentof Ineum at the same time, is responsible for managing the company. He isassisted by Miguel de Fontenay, the Vice Chairman of Ineum Consulting, whojoined Ineum in 2004 from Cap Gemini. Following completion, the management ofIneum will be structured on the basis described above in paragraph 3. The employees of the business who are also shareholders are referred to as''partners''. Since 2003, the business has developed with the admission of newpartners through both lateral hires from other firms and internal promotions.There are currently 42 partners who, together with other senior employees, inaggregate own approximately 49.7 per cent. of the equity of Ineum. The remainingequity is owned by Mr Manardo (as to approximately 2.1 per cent) and by 3i Fundsand Tecnet Participations (as to approximately 48.2 per cent.). Ineum employs approximately 675 people. 6. Summary financial information on Ineum Ineum had consolidated gross assets as at 31 May 2006 of €94.2 million (£64.3million) and profits before tax for the year ended 31 May 2006 of €10.3 million(£7.0 million) (as extracted from Ineum's audited IFRS accounts for the yearended 31 May 2006). The revenue, operating profit (before and after non-recurring items) andoperating profit margin (before non-recurring items) for the three years ended31 May 2006 are summarised below. Years ended 31 May 2004 2005 2006 • • • '000 '000 '000 Revenue 81,130 86,425 105,039Operating profit before non-recurring items 3,318 6,953 12,063Operating profit after non-recurring items 3,155 7,641 11,017Operating profit margin before non-recurring 4.1% 8.0% 11.5%items The Circular will contain audited historical financial information on Ineum forthe three years ended 31 May 2006. 7. Financial effects of the Acquisition MCG proposes to finance the Acquisition from its existing cash resources, newbank borrowing facilities and through the issue of the New Ordinary Shares tothe Ineum Partners and Mr Manardo. The Board believes that the Acquisition will enhance earnings per share in theyear to 31 December 2007. This statement is not intended to constitute a profitforecast and should not be interpreted to mean that the actual earnings of theEnlarged Group following the Acquisition will necessarily match or exceed thehistoric published earnings. It is envisaged that one-off costs (excluding fees in relation to theAcquisition) estimated to amount to €5.5 million (£3.8 million) in aggregateassociated with the integration of Ineum into the Group will be incurred in thefinancial year ending 31 December 2006 and subsequent financial year. 8. Additional Director Upon completion of the Acquisition, the Board has agreed, pursuant to the termsof the Relationship Agreement, that Jacques Manardo, the non-executive chairman of Ineum, will jointhe Board as a non-executive Director. Mr Manardo, aged 60, holds a masters degree in private law and is a qualifiedaccountant. He was formerly chairman and chief executive officer of Deloitte &Touche France and Europe and a member of its worldwide executive committee. Heis chairman of GEM Group, a holding company which he founded in 2001 and whichconsists of a number of start-up businesses with different service offerings. Hehas served as a board member of the IMD School in Lausanne and of the WorldBusiness Council for Sustainable Development in Geneva and has been a member ofthe International Accounting Standards Committee strategy working party. He hasbeen a non-executive director of Fortis since 2004. He is decorated with theChevalier de la legion d'honneur. He currently serves as the non-executivechairman of Ineum. Mr Manardo has entered into a conditional letter of appointment with the Companydated 25 July 2006. His appointment to the Board as a non-executive Director isconditional upon completion of the Acquisition. The appointment will last untileither Mr Manardo resigns, is not re-appointed nor deemed reappointed followingretirement in accordance with the Company's Articles of Association or isotherwise removed in accordance with the Act or the Company's Articles ofAssociation. The agreement provides for a fee per annum at a rate to be agreedat the Company's December board meeting each year. The rate applicable for the2006 financial year is £30,000. In addition, it has been agreed that he will bepaid a yearly retainer of €25,000 for additional advisory services to beprovided to the Group. In the light of Mr Manardo's previous duties with Ineumhe will not be considered to be an independent Director. As a non-independentnon-executive Director, Mr Manardo is also eligible to receive at the Board'sdiscretion additional fees for additional services to be provided to the Group. Mr Manardo will stand for re-election as a non-executive Director at the nextannual general meeting of the Company. In accordance with LR9.6.15G of the Listing Rules, the Company confirms thatthere are no further matters to be reported under LR9.6.13R of the ListingRules. 9. Summary terms of the Acquisition The principal agreements relating to the Acquisition are (i) the AcquisitionAgreement (ii) the Relationship Agreement and (iii) the Escrow Agreement.Summaries of the key terms of these agreements are set out below. Acquisition Agreement Under the Acquisition Agreement, MCG has conditionally agreed to purchase all ofthe outstanding share capital of Ineum from the Ineum Partners, Jacques Manardo,the 3i Funds and Tecnet Participations in return for a total consideration of€120 million (£81.9 million), which will be satisfied by the payment of €54.0million (£36.9 million) in cash and the issue of 81,020,798 New Ordinary Sharesto the Ineum Partners and Mr Manardo on completion of the Acquisition.Representations and warranties of a usual nature have been given by the IneumPartners. Completion of the Acquisition Agreement is conditional upon, inter alia: • the passing of resolutions necessary to approve the Acquisition and to authorise the issue of the New Ordinary Shares at the Extraordinary General Meeting; and • the Escrow Agreement and the Relationship Agreement becoming unconditional except insofar as any condition relates to the Acquisition Agreement becoming unconditional. Completion of the Acquisition will take place shortly after satisfaction of theabove conditions precedent, and is expected to occur on 1 September 2006. The Ineum Partners and Mr Manardo will, immediately following completion,together hold 81,020,798 Ordinary Shares representing 29.9 per cent. of theEnlarged Share Capital of MCG. Such persons will be deemed to be persons actingin concert for the purposes of the Takeover Code until the Panel determinesotherwise. Relationship Agreement Under the terms of the Relationship Agreement, which will be entered into priorto completion of the Acquisition, MCG and the Ineum Partners will agree upon thestrategic direction of the Enlarged Group and to certain restrictions in respectof the New Ordinary Shares. Rights and obligations under the Relationship Agreement will be conditionalupon, inter alia, the Acquisition Agreement becoming wholly unconditional in allrespects (except for any condition relating to the Relationship Agreementbecoming unconditional). a) Lock-up Undertakings Each Ineum Partner will agree, subject to certain limited exceptions, not todispose of any New Ordinary Shares within four years of completion of theAcquisition. Subject to the provisions outlined below relating to claw back and the strategicplan, (i) each Ineum Partner may dispose of up to 50 per cent. of his NewOrdinary Shares after the third anniversary of completion of the Acquisition and(ii) after the fourth anniversary of completion of the Acquisition, all NewOrdinary Shares will be released from any restrictions on disposal. b) Claw Back In the event that an Ineum Partner ceases to be employed by Ineum or the MCGGroup (except if as a result of retirement, permanent disability or death),certain of the New Ordinary Shares held by such Ineum Partner will be giftedback by the relevant Ineum Partner to MCG on the basis of (i) 75 per cent. inyear one; (ii) 60 per cent. in year 2; (iii) 45 per cent. in year three; and(iv) 30 per cent. in year 4. In the event that an Ineum Partner ceases to be employed by Ineum or the MCGGroup as a result of personal performance issues or redundancy of the occupiedposition, certain of the New Ordinary Shares held by such Ineum Partner will begifted back by the relevant Ineum Partner to MCG on the basis of (i) 50 percent. in year 1; (ii) 35 per cent. in year 2; and (iii) 20 per cent. in years 3and 4. Except where the requirement to gift back shares arises from a personalperformance issue, such gifting back of New Ordinary Shares will result in allremaining obligations and liabilities of the relevant Ineum Partner in relationto the Acquisition Agreement, the Relationship Agreement and the EscrowAgreement terminating other than with respect to certain undertakings in theAcquisition Agreement. c) Strategic Plan MCG will agree to use its reasonable endeavours for four years from completionof the Acquisition to follow the strategy set out below in respect of the MCGGroup. MCG will seek to expand with different types of consulting and professionalservices to complement the existing divisions of Proudfoot Consulting(operational improvement); Parson Consulting (financial management); IneumConsulting (industry sector led consulting). The Group does not intend todiversify into outsourcing and other consulting businesses that might create aconflict of interest or perceived conflict of interest with the existing MCGbusinesses. MCG will seek to reflect the broad geographic balance of the world'sconsulting spend. The transatlantic axis will be crucial with Europe and NorthAmerica being reasonably balanced and there is a commitment to grow in AsiaPacific as that geography takes on greater world significance. MCG's objectiveis to deliver shareholder value over the medium term by acquisition and organicrevenue and margin growth as a multidisciplinary consulting and professionalservices group. Under the Relationship Agreement, if after extensive consultations with theBoard, Mr Manardo determines (acting in good faith) that there has been amaterial change in the strategy, the Ineum Partners are released from theirobligations under the Relationship Agreement and the New Ordinary Shares heldfrom time to time by the Ineum Partners will be voted as a single block by MrTaupin (or his replacement from time to time) on behalf of all Ineum Partners insuch manner as the Ineum Partners determine. d) Succession to Mr Manardo Mr Manardo will be appointed to the Board on completion of the Acquisition. IfMr Manardo ceases to be a Director within four years from the date of completionof the Acquisition, Mr Taupin (or his replacement from time to time) is entitledto put forward a suitably qualified and experienced replacement candidate forconsideration. If such candidate is not appointed, a further candidate can beput forward and if such further candidate is not appointed then Mr Taupin willbe put forward. If the Board fails to approve the appointment of any of thesecandidates then the Escrow Agreement and the lock-up and claw back arrangementsin the Relationship Agreement will be unconditionally released and the NewOrdinary Shares held thereafter from time to time by the Ineum Partners willunconditionally and irrevocably be voted at any general meeting of the MCGshareholders on any resolution as a single block by Mr Taupin (or hisreplacement from time to time) on behalf of all the Ineum Partners. Escrow Agreement The Escrow Agreement will be executed between the Ineum Partners, MCG and asuitable escrow agent on or immediately before the date of completion of theAcquisition. The Escrow Agreement will provide for an escrow agent to hold sharecertificates and stock transfer forms relating to the New Ordinary Shares inescrow and, in circumstances where MCG has a warranty claim under theAcquisition Agreement or a right to claw back shares under the RelationshipAgreement, will sell certain of the New Ordinary Shares or release them to MCG. Further details of the Acquisition Agreement, the Escrow Agreement and theRelationship Agreement will be set out in the Circular. The French works councils of each of Ineum and MCG have been appropriatelyconsulted and provided with information in relation to the Acquisition. 10. Employee retention The Board recognises the importance of retaining key people in the business andaligning their interests with those of the Shareholders generally. For thatreason, the consideration payable to the Ineum Partners is primarily by way ofNew Ordinary Shares that cannot be realised until the third or fourthanniversaries following completion of the Acquisition, as described above inparagraph 9. In addition, there is a proposal for the adoption of a FrenchSub-Plan to the Proudfoot PLC 1998 Executive Share Option Scheme to allow thegrant of options to French resident employees, as described below in paragraph11. 11. Amendments to Existing Share Option Scheme The following amendments are proposed to be made to the Proudfoot PLC 1998Executive Share Option Scheme, subject to Shareholder approval at theforthcoming EGM of the Company: (a) An amendment to increase the headroom capacity under theProudfoot PLC 1998 Executive Share Option Scheme. The cash consideration for theAcquisition has the effect of reducing proportionately the ability of MCG togrant options under the Proudfoot PLC 1998 Executive Share Option Scheme to bothexisting employees of the Group and Ineum employees, as the share capital fromwhich the headroom limits under the Scheme will not increase in sizeproportionate to the size of business acquired. Rather than create separateemployee retention pools (as agreed by shareholders in previous transactions),the Board is seeking Shareholders' approval to increase the capacity forgranting options to Group employees by an amount which approximately equates tothe cash component of the consideration payable for the Acquisition. Inaggregate, this will allow the granting of unfunded share options overapproximately 12.8 per cent. of the enlarged fully diluted share capital of theCompany. (b) An amendment to allow MCG to satisfy the exercise of optionsgranted under the Proudfoot PLC 1998 Executive Share Option Scheme by issuing orprocuring the transfer of only that number of Ordinary Shares which has a value,at the time of the exercise of the options, equal to the net gain resulting fromthe exercise - that is, the amount by which the market value of the OrdinaryShares over which the optionholder is exercising his or her options exceedsthe total exercise price payable for those Ordinary Shares. The aim of theproposal is to reduce the need to issue new Ordinary Shares under the ProudfootPLC 1998 Executive Share Option Scheme, thereby reducing the dilutive effect ofthe Scheme. (c) The adoption of a French Sub-Plan to the Proudfoot PLC 1998Executive Share Option Scheme to allow the grant of options to French residentemployees on modified terms that should enable both the employees and MCG toobtain more beneficial tax treatment in respect of their options. The rules ofthe French Sub-Plan would prevent the exercise of vested options at any timewhen the Ineum Partners' and Mr Manardo's aggregate holding following exercisewould exceed 30 per cent. of the then ordinary share capital of the Company. (d) Additional amendments to take into account developments inlaw and practice since the adoption of the Proudfoot PLC 1998 Executive ShareOption Scheme, including in particular amendments to take into account new agediscrimination legislation. The existing employee share ownership trust of MCG, the Proudfoot Employee ShareOwnership Trust, is an onshore employee share ownership trust. It is commonpractice for employee share ownership trusts to be located in offshorejurisdictions to prevent capital gains tax charges arising within the trust. TheBoard are considering the tax implications further of having the existing trustonshore and are considering whether it may be better to set up a new employeeshare ownership trust offshore or transfer the residency of the ProudfootEmployee Share Ownership Trust offshore. Accordingly the Board is also seekingauthority for the adoption of a new employee share ownership trust to be set upoffshore. 12. Details of banking facilities The Company has entered into a new, secured, multi-currency committed termfacility for £30 million and a new revolving, secured, multi-currency, committedcredit facility for £20 million arranged by Barclays Bank Plc. The purpose ofthe new term loan is to finance acquisitions made prior to 15 September 2006.The purpose of the revolving credit facility is to provide working capitalfacilities to the Enlarged Group. Further details of the new debt facilities will be set out in the Circular. 13. MCG trading update on 12 May 2006 MCG released a trading update on 12 May 2006 which contained the followingstatement: ''Revenue for the first four months of the year is in line with the Board'sexpectations and is significantly ahead of the same period of 2005. The Proudfoot Consulting business has made very good progress in all geographicregions. The slow start to the year in Parson North America has continued asSarbanes Oxley related work has been completed and the transition to otherservices continues. Our strategy of expanding the Parson offering andgeographies beyond the US has limited the impact of this softening in the USmarket. We anticipate that similar trading conditions will prevail for the remainder ofthe first half and that accordingly group revenue for the half year will besignificantly ahead of the same period last year.'' 14. The Extraordinary General Meeting An Extraordinary General Meeting of MCG is expected to be held on 30 August 2006for the purpose of considering and, if thought fit, passing the followingresolutions in connection with the proposals outlined above: (a) the approval of the Acquisition; (b) the approval of the increase in the authorised share capital of theCompany; (c) the authorisation of the Directors to allot relevant securities subjectto the usual statutory limitations; (d) the disapplication of the statutory pre-emption rights contained insection 89 of the Act in relation to the allotment of equity securities for cashsubject to the usual statutory limitations; (e) the approval of amendments to the rules of the Proudfoot PLC 1998Executive Share Option Scheme and authorisation of the adoption of a new employee share ownership trust; and (f) the approval and adoption of the French Sub-Plan to the Proudfoot PLC1998 Executive Share Option Scheme. Details of the Extraordinary General Meeting will be set out in the Circular. Further details in relation to the Acquisition (and other proposals) will be setout in the Circular which is expected to be sent to Shareholders on or shortlyafter 7 August 2006, together with a notice convening the Extraordinary GeneralMeeting. Enquiries Management Consulting Group PLC Kevin Parry Chief Executive 020 7710 5000Chris Povey Head of M&AMark Currie Finance Director Rothschild (financial adviser and sponsor) Sian Westerman 020 7280 5000Dominic Epton Hoare Govett Limited (corporate broker) Neil Collingridge 020 7678 8000John MacGowan Maitland Suzanne Bartch 020 7379 5151Peter Ogden N M Rothschild & Sons Limited, which is authorised and regulated in the UnitedKingdom by the Financial Services Authority, is acting as financial adviser andsponsor to MCG and no-one else in connection with the matters referred to hereinand will not be responsible to anyone other than MCG for providing theprotections afforded to clients of N M Rothschild & Sons Limited or for givingadvice in relation to such matters. Hoare Govett Limited, which is authorised and regulated in the United Kingdom bythe Financial Services Authority, is acting as corporate broker to MCG andno-one else in connection with the matters referred to herein and will not beresponsible to anyone other than MCG for providing the protections afforded toclients of Hoare Govett Limited or for giving advice in relation to suchmatters. The contents of this announcement which have been prepared by and are the soleresponsibility of MCG have been approved by N M Rothschild & Sons Limited solelyfor the purposes of section 21(2)(b) of the Financial Services and Markets Act2000. This announcement includes statements that are, or may be deemed to be,''forward-looking statements''. These forward-looking statements can beidentified by the use of forward-looking terminology, including the terms''believes'', ''estimates'', ''plans'', ''anticipates'', ''targets'', ''aims'',''continues'', ''expects'', ''intends'', ''may'', ''will'', ''would'' or''should'', or in each case, their negative or other variations or comparableterminology. These forward-looking statements include all matters that are nothistorical facts. They appear in a number of places throughout this announcementand include statements regarding the Company's, or the Group's intentions,beliefs or current expectations concerning, among other things, the Company's,or the Group's results of operations, financial condition, liquidity, prospects,growth, strategies and the industries in which the Company or the Groupoperates. By their nature, forward-looking statements involve risk anduncertainty because they relate to future events and circumstances. A number offactors could cause actual results and developments to differ materially fromthose expressed or implied by the forward-looking statements including, withoutlimitation: conditions in the markets, market position of the Company or theGroup, earnings, financial position, cash flows, return on capital and operatingmargins, anticipated investments and capital expenditures, changing business orother market conditions and general economic conditions. These and other factorscould adversely affect the outcome and financial effects of the plans and eventsdescribed in this announcement. Forward-looking statements contained in thisannouncement based on past trends or activities should not be taken as arepresentation that such trends or activities will continue in the future.Subject to any requirement of the UK Listing Authority or London Stock Exchangeor as a matter of law, neither MCG nor Rothschild undertakes any obligation toupdate or revise any forward looking statements, whether as a result of newinformation, future events or otherwise. Undue reliance should not be placed onforward-looking statements, which speak only as of the date of thisannouncement. The New Ordinary Shares have not been and will not be registered for sale underthe United States Securities Act of 1933 (the "Securities Act").This announcement shall not constitute an offer to sell or the solicitation ofan offer to buy the New Ordinary Shares, nor shall there be any sale of the NewOrdinary Shares in any state or other jurisdiction in which such offer,solicitation or sale would be unlawful prior to registration or qualificationunder the securities laws of any such state or jurisdiction. The New OrdinaryShares are to be offered to shareholders of Ineum in transactions outside theUnited States in reliance on Regulation S under the Securities Act. The NewOrdinary Shares may not be offered or sold in the United States except pursuantto an exemption from, or in a transaction not subject to, the registrationrequirements of the Securities Act and applicable state securities laws. DEFINITIONS The following definitions apply throughout this announcement unless the contextrequires otherwise: ''3i Funds'' 3i Europartners III and 3i Coinvest III, both being Fonds Commun de Placement a Risques organised under French law ''Act'' or the Companies Act 1985 (as amended)''Companies Act'' ''Acquisition'' the proposed acquisition of the entire issued share capital of Ineum ''Acquisition the conditional share purchase agreement dated 25 July 2006Agreement'' between the Ineum Partners, Mr Manardo, the 3i Funds, Tecnet Participations and MCG ''Board'' or the board of directors of the Company''Directors'' ''Closing Price'' the closing middle market quotation of an Existing Ordinary Share as derived from the Daily Official List published by the London Stock Exchange ''Company'' or Management Consulting Group PLC''MCG'' ''EBITDA'' earnings before interest, taxes, depreciation and amortisation ''Enlarged the Group as enlarged by the AcquisitionGroup'' ''Enlarged Share the issued ordinary share capital of the Company, as enlargedCapital'' by the allotment and issue of the New Ordinary Shares ''Existing the 189,951,771 Ordinary Shares currently in issueOrdinary Shares'' ''Extraordinary the extraordinary general meeting of the Company expected toGeneral Meeting'' be held on 30 August 2006, notice of which will be set out inor ''EGM'' the Circular ''Escrow the escrow agreement to be entered into by MCG, the IneumAgreement'' Partners and a suitable escrow agent on or immediately before completion of the Acquisition ''Euro'' or ''•'' the lawful currency of the participating member states of the European Union ''FSMA'' the Financial Services and Markets Act 2000, as amended ''Group'' or the Company and its subsidiary undertakings''MCG Group'' ''Ineum'' Ineum Conseil et Associes SA, a societe anonyme organised under the laws of France ''Ineum the holders of the shares in Ineum immediately prior toPartners'' completion of the Acquisition other than the 3i Funds, Tecnet Participations and Mr Manardo ''Listing Rules'' the listing rules issued by the UK Listing Authority under section 73A of FSMA ''London Stock London Stock Exchange plcExchange'' ''New Ordinary the 81,020,798 new Ordinary Shares to be issued pursuant toShares'' the Acquisition ''Ordinary ordinary shares of 25 pence each in the capital of the CompanyShares'' ''Panel'' the Panel on Takeovers and Mergers ''Proposed Jacques Manardo who is proposed to be appointed as anDirector'' additional non-executive Director of the Company on completion of the Acquisition ''Relationship the conditional agreement to be entered into on or beforeAgreement'' completion of the Acquisition between the Ineum Partners and MCG relating, inter alia, to the lock-up arrangements and the strategy of MCG following completion of the Acquisition ''Shareholders'' holders of Ordinary Shares ''Sterling'' or the lawful currency for the time being of England, Wales and''£'' Scotland ''Takeover Code'' the Takeover Code of the Panel ''Tecnet Tecnet Participations, a societe unipersonnelle aParticipations'' responsabilite limitee organised under the laws of France ''UK Listing the Financial Services Authority in its capacity as theAuthority'' competent authority for the purposes of Part VI of FSMA ''United the United Kingdom of Great Britain and Northern IrelandKingdom'' or''UK'' ''United States'' the United States of America, its territories and possessions,or ''US'' any state of the United States and the District of Columbia Save where otherwise provided, the exchange rate used to convert amounts in thisdocument denominated in Euros into amounts denominated in UK pounds sterling isas follows: €1.4655 to £1.-------------------------- 1 Source: ''Consulting Opportunities in France and Belgium: Key Data, Forecasts& Trends'' published by Kennedy Information, Inc., 2006 (page 100). 2 Source: ''Consulting Opportunities in France and Belgium: Key Data, Forecasts& Trends'' published by Kennedy Information, Inc., 2006 (page 51). 3 This statement is not intended to constitute a profit forecast and should notbe interpreted to mean that the actual earnings of the Enlarged Group followingthe Acquisition will necessarily match or exceed the historic publishedearnings. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
MMC.L