2nd May 2008 11:26
North Midland Construction PLC02 May 2008 North Midland Construction PLC (the "Company") Acquisition of shares in North Midland Building Limited 2 May 2008 North Midland Construction plc is pleased to announce that it has conditionallyagreed to purchase all of the shares in North Midland Building Limited notalready owned by it, taking its ownership from 85% to 100%. The considerationis £1.7 million payable in cash. The shares are currently held by Brian Evans,a director of the Company and also chairman of North Midland Building Limited,accordingly the acquisition is a related part transaction and is conditional onshareholder approval. A circular has been sent to shareholders dated 1 May 2008 convening a GeneralMeeting to be held at the Company's offices, Nunn Close, The County Estate,Huthwaite, Sutton-in-Ashfield, Nottinghamshire NG17 2HW at 12.00 noon on 29 May2008. Background North Midland Building is already a subsidiary of the Company and was formed in1995. North Midland Building is one of five operating businesses within theGroup and operates both on a regional and national level. Since it was formed in1995, it has become a significant player in the industry achieving year on yeargrowth with blue chip clients to contribute volume business to the Group. Asthe building arm of the Group, North Midland Building was established toundertake new build and refurbishment projects between £2.0 million and £30.0million in value under a wide range of contract types, including design andbuild and partnering. North Midland Building has expertise in projects in thefollowing sectors: commercial and industrial, hotel and leisure, prisons, innercity living, retail, schools, the Ministry of Defence, residential andcommercial fitting out, universities and student accommodation. North Midland Building is a significant contributor to Group profits; for theyear ended 31 December 2007 it had revenues of £37.4 million and profit aftertaxation of £2.3 million, and gross assets of £7.9 million. Reasons for the Acquisition The articles of association of North Midland Building require that should MrEvans decide to sell his shares he must first offer them to the Company. By aseparate letter dated 16 August 2000, a valuation method was agreed for such atransaction. This letter provides that the price paid should be based on avaluation of the whole company equal to the higher of six times the average ofprofit on ordinary activities after taxation as per the audited accounts for theprevious three years and the equity shareholders' funds as per the latestaudited balance sheet. Accordingly, the Company proposes to acquire the entireissued share capital in North Midland Building not already owned by it for£1,730,202 being an amount equal to 15 per cent of six times the average profitsafter tax for the past three years in accordance with the formula agreed on 16August 2000. The Acquisition Agreement dated 1 May 2008 provides that the Company willacquire the 15,000 ordinary shares in North Midland Building not already ownedby it subject only to the passing of the Resolution by Shareholders. The Companyhas committed to pay the cash consideration within 5 days of the General Meetingon 29 May 2008. The Independent Directors believe the Acquisition has significant financial andstrategic benefits for the Company: • the Acquisition will permit the Group to assume complete managementcontrol of North Midland Building. This will allow it to be managed in a waythat is more closely aligned with the interests of North Midland and itsShareholders; • the Acquisition price equates to 5.1 times the profits after taxationof North Midland Building for the year ended 31 December 2007, whereas theCompany's market capitalisation is equal to 9.6 times consolidated profits aftertaxation for the year ended 31 December 2007 (based upon the closing price of ashare on 28 April 2008, being the latest date prior to the posting of thisdocument); and • the Acquisition is expected to enhance the Company's earnings perOrdinary Share from the time at which the Acquisition is completed but thisstatement should not be interpreted to mean that earnings per Ordinary Share inthe first full financial year following completion of the Acquisition, or inany subsequent period, will necessarily match or be higher than those for therelevant preceding financial period. Financing and Financial Effects of the Acquisition The cost of the Acquisition will be financed from existing cash balances andbanking facilities. The results of North Midland Building were consolidated into the Group accountsfor periods up to 31 December 2007. In the most recent Group accounts, theminority interest shown on the profit and loss account relating to Mr Evansinterest in North Midland Building was £571,000 and on the balance sheet was£1,259,000. As a consequence of the Acquisition, the minority interestsattributable to Mr Evans' interest in North Midland Building will be eliminated. The Independent Directors expect the Acquisition to enhance the Company'searnings per Ordinary Share from the time at which the Acquisition is completedbut this statement should not be interpreted to mean that earnings per OrdinaryShare in the first full financial year following completion of the Acquisition,or in any subsequent period, will necessarily match or be higher than those forthe relevant preceding financial period. Trading update Trading in the first four months of the year is consistent with managementexpectations. There are no further updates following the publication of theCompany's preliminary results on 4 April 2008. Recommendation The Board, who have been so advised by Brewin Dolphin, consider that theAcquisition is fair and reasonable so far as the Shareholders are concerned. Inproviding advice to the Directors, Brewin Dolphin has taken into account theIndependent Directors' commercial assessment of the Acquisition. In accordancewith the Listing Rules, Mr Evans (as a related party) has not taken part in theBoard's consideration of the Acquisition and is precluded from voting inrelation to the Acquisition. Mr Evans has undertaken to abstain and to take allreasonable steps to ensure that his associates will abstain from voting at theGeneral Meeting. Accordingly, the Board consider that the Acquisition is in the best interests ofthe Company and its Shareholders as a whole and unanimously recommend thatShareholders vote in favour of the Resolution as they intend to do in respect oftheir own beneficial holdings, which, in aggregate, amount to 595,066 OrdinaryShares representing approximately 6.1 per cent of the issued ordinary sharecapital of the Company. Capitalised terms used in this announcement but not defined herein shall havethe meaning given to them in the shareholder circular dispatched to shareholdersof the Company yesterday. Enquiries: North Midland Construction plc 01623 515008 Robert Moyle, Chief Executive Mike Garratt, Finance Director Brewin Dolphin Investment Banking 0845 270 8610 Andrew Emmott Sean Wyndham-Quin ENDS This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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