Circular Rejecting Offer

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The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014 ("MAR"). Upon the publication of this announcement via a Regulatory Information Service ("RIS"), this inside information is now considered to be in the public domain. 

27 March 2019

Findel plc ("Findel" or the "Group")

Circular Rejecting Offer by Sports Direct International Plc ("Sports Direct")

The Board of Findel, announces that it is today publishing its response circular (the "Response Circular") in relation to the mandatory offer for the entire issued and to be issued share capital of Findel not already owned by Sports Direct at a price of 161 pence per share in cash (the "Offer").

The Board reaffirms its previous statements that the Offer significantly undervalues Findel and its future prospects, and strongly urges all shareholders to take no action and reject the Offer for the reasons outlined below:

· Your Group is a market leading UK online value retailer and a leading supplier of resources and equipment to schools worldwide. Both businesses have significant potential. With a strong management team which continues to deliver on its multi-year transformation plan, your Board believes you should receive the benefit of our investment and enjoy our continued growth

· The Offer of 161p per share is opportunistic and undervalues your Group being at a significant discount to fair value, to the Undisturbed Share Price of 250p and to analyst target prices which range from 300p to 350p

· Findel's recent share price performance does not reflect the underlying financial performance of the Group

· Under its current leadership, your Group continues to execute against its digital-first, value-led strategy, ensuring a sustained track record of financial and operational success

· Control by Sports Direct will have a number of potentially adverse consequences for Findel shareholders including an 8.8% dilution in the value of your shareholdings

· Current trading is strong and the Group re-iterates its Q3 trading statement in which it said that "given the strong performance from Studio in Q3, the Group believes that full-year PBT* is now likely to be towards the upper end of current market expectations" (£26 million to £28 million)

* Before fair value movements on derivatives and individually significant items

Your Group is performing admirably and has a coherent and well executed strategy which continues to make your Group fit for a changing retail environment. Your Board, which has been so advised by N+1 Singer and Stifel as to the financial terms of the Offer, unanimously recommends that you should reject the Offer. In providing advice to the Board, N+1 Singer and Stifel have taken into account the Board's commercial assessment. The Findel Directors do not intend to accept the Offer in respect of their own beneficial shareholdings amounting to 492,417 Findel Shares or 0.57% of the issued share capital.

Ian Burke, Chairman of Findel, commented:

"The Findel Board believes that Sports Direct's offer is highly opportunistic and significantly undervalues the Group and its prospects. Sports Direct's offer provides no compelling reason as to why 161p per share represents a fair price, especially given the operational and financial progress made in transforming the Group into a market-leading online value retailer.

As stated in its offer document, Sports Direct endorses the strategic plans that the Findel Board is implementing, and is supportive of the Findel leadership team delivering these. It is against this backdrop that the Board is unanimous in its recommendation that shareholders reject the offer and take no action."

For further information please contact:

Further information for shareholders and the full text of Ian Burke's letter to shareholders is contained in the circular being published today and which will be available later today at the Company's website, https://www.findel.co.uk/investor-centre/mandatory-offer-for-findel-plc.

Response to the mandatory cash offer by Sports Direct International plc for Findel P.L.C.

As you are aware, on 4 March 2019, Sports Direct International Plc ("Sports Direct") made an unsolicited mandatory offer for your Group of 161p in cash per share ("Offer"). It is your Board's strong belief that the Offer is entirely opportunistic and the terms of which fundamentally undervalues Findel and our response circular sets out the key reasons why we believe this to be the case.

Your Group comprises Studio, a market leading UK online value retailer that has transitioned from a catalogue order business to a digital first retailer, and Education, a leading supplier of resources and equipment to schools worldwide, both with significant potential. We have made significant long-term investments across the business and this, coupled with our strong executive management team and a strengthened balance sheet, means we are on track to successfully deliver against our stated strategy. It is the Board's belief that your Group has been successfully shaped in recent years to be fit for purpose in what is a dynamic and fast changing retail environment. As supportive shareholders of Findel, the Board believes that you should receive the benefit of our investment and enjoy our continued growth.

1. The Offer is opportunistic and undervalues your Group

The Offer price of 161p represents a 35% discount to the undisturbed share price of 250p1 ("Undisturbed Share Price") as well as a discount of 10% to the closing share price two days prior to the Offer announcement and 1% to the closing share price of 162p on 1 March 2019, being the trading day prior to the Offer announcement. The Offer price also represents a:

· Discount of 15.0% to the 30-day average closing price;

· Discount of 17.1% to the 60-day average closing price;

· Discount of 21.7% to the 90-day average closing price; and a

· Discount of 27.4% to the 120-day average closing price.

Your Board would also like to highlight that the typical level of premium paid on UK public takeovers over the last 5 years is between 30 - 50 per cent.

Furthermore, analysts' target prices for your Group, derived from research notes published in January and February 2019, range from 300p to 350p, with an arithmetic average of 335p being more than double the Offer price of 161 pence per share.

2. Findel's recent share price performance does not reflect the underlying financial performance of the Group

In early November 2018 Toscafund Asset Management LLP ("Toscafund") took steps to dispose of its entire 18.3% shareholding in your Group (the "Toscafund Sale"). Toscafund implemented the sale of its stake through a series of on market transactions over an extended period, placing considerable downward pressure on the Group's share price. The decision by Toscafund to proceed with the Toscafund Sale was not as a result of their view of your Group and, in a letter to Phil Maudsley (CEO) on 17 December 2018, Toscafund recognised your Group's excellent leadership and its good prospects for the future.

Further downward pressure was placed on your Group's share price when it was reported in the media on 27 February 2019 that City Financial Investment Company Limited had filed for administration on 22 February 2019 and as a result of which its entire 5.78% interest in your Group was put up for sale and subsequently acquired by Sports Direct.

Since the appointment of Phil Maudsley and Stuart Caldwell (CFO) on 6 April 2017 and 13 July 2017 respectively, your Group has reported financial results in relation to the period to 30 March 2018 slightly ahead of market expectations, showing growth in Adjusted PBT of 21%.

This strong performance has continued into the 2019 financial year and on 25 January 2019 we announced record-breaking sales and strong margin performance at Studio in the weeks leading up to Black Friday, which resulted in your Board confirming on the said date that it anticipated full-year Adjusted PBT being towards the upper end of current market expectations for the 52 week period ending 31 March 2019 (£26 million to £28 million).

Your Group delivered this robust financial performance against the backdrop of an adverse macro-economic environment in the wake of much political uncertainty and subdued consumer confidence levels. During the period between 31 October 2018 and 1 March 2019 the share price of your Group declined by 35.1%, which was uncorrelated to the Group's financial performance. Your Group's business model is resilient in these market conditions given its value offering and your Board does not believe that this is reflected in the current share price or the Offer Price.

Based on your Group's robust financial performance, the Board are strongly of the view that the Offer fundamentally undervalues your Group's future prospects.

3. Implications for Findel Shareholders of the Offer by Sports Direct

Your Group's relationship with Sports Direct stretches back to September 2015, when it acquired a 19.9% shareholding in Findel. Since April 2017, your Group's current management has developed a good working relationship with Sports Direct, enabling pilot-scale type commercial tests to be undertaken with Studio.

There have been extensive discussions with Sports Direct around a number of operational areas, but to date progress has been limited to pilot-scale type commercial tests across limited Sports Direct ranges which have represented less than 1% of Studio's product revenue. As Findel shareholders would expect, negotiations with Sports Direct have been conducted on an arm's length basis, as would be necessary between related parties. However, we would have considered arm's length terms that made commercial sense with any suitable supplier, regardless of the ultimate ownership of the supplier.

Whilst the Board is delighted that Sports Direct is supportive of Findel and its management team, there is no reason why an increased shareholding in Findel should influence the outcome of future commercial supply negotiations for either Findel or Sports Direct shareholders.

In addition to the above, the Board of Findel would make the following observations:

· your Group's agreements with its lending banks contain customary change of control provisions. These change of control provisions would be triggered in the event that Sports Direct's share ownership exceeds 50 per cent. Whilst your Group has made good progress in reducing its core net debt2 over a number of years and has good relationships with its lenders there can be no guarantees that the lenders will renew the facilities in the event of a change of control;

· under the agreement reached with the pension trustee in 2016, the Group makes annual contributions of £2.5 million, rising to £5.0 million from April 2019 in order to address the historical pension deficit. In the event of a change of control the pension trustee has the right to review the level of contributions in light of the covenant of the ultimate parent Company. This may result in a change in the level of contributions;

· in the event that Sports Direct share ownership exceeds 50 per cent, the 166,878,704 convertible ordinary shares of 23.97p arising through Findel's 2011 debt restructuring held at nominal value on the Group's balance sheet, will convert automatically into an additional 8,343,935 ordinary shares at the Offer Price for nil consideration, resulting in dilution to all existing Findel shareholders of 8.8 per cent;

· Sports Direct has indicated in its Offer Document that it wishes to maintain your Group's listing on the London Stock Exchange. Your Board believes it is not in the interests of Findel shareholders for Sports Direct to increase its shareholding beyond 36.8 per cent., since it is highly likely to adversely impact the future liquidity and trading of Findel shares. There is a risk that your Group's free float will fall below the required minimum threshold of 25% under LR9.2.15 of the Listing Rules. In such circumstances your Group will require, as a minimum, a derogation from the UK Listing Authority to remain listed on the Premium Segment of the Official List and admitted to trading on the Main Market of the London Stock Exchange;

· there can be no guarantees, in the event Sports Direct increases its shareholding above the current level, that it does not use its increased level of influence to move your Group away from its current strategy and in a direction that may not benefit Findel shareholders equally.

4. Your Group, under its current leadership, continues to deliver on its strategy, resulting in a strong track record of robust financial performance and future prospects

Your Group's current management has built on a major transformational program in moving Findel from a catalogue to a digital-first retailer, simplifying your Group, improving its balance sheet and is executing strategies to unlock the potential in both the Studio and Education businesses.

The Studio strategy consists of three strategic pillars: improve Retail profitability; maximise the financial services opportunity and build strong foundations. The Education strategy comprises digital enhancement, reintroduction of a more improved value proposition, improved sourcing and measured cost reduction in order to deliver robust return on sales.

As shown by the following metrics and key investment highlights significant positive progress has already been made in both the Studio and Education businesses.

Studio continues to demonstrate strong revenue growth that is complemented by a fit for purpose cost base, leading to growth in operating profits and margins.

Key investment highlights across Studio for the period ended 30 March 2018 included:

· improved brand and customer experience, as well as enhanced customer engagement and retention, along with product range development, which resulted in a 13% increase in Studio's customer base to 1.8 million;

· 8.7% growth in product revenue with clothing sales particularly strong as evidenced by its 14.2% year

on year growth;

· 7% growth in financial services revenue predominantly due to growth in the business;

· investment in digitising the company, predominantly through development of website functionality and enhancing the mobile experience, which led to 68% of product sales occurring online, with over 84% of new customers placing their first orders online;

· implementation of the new "Financier" system which will create opportunities to provide new and relevant financial services products to our customers;

· new segmentation of customers in order to introduce improved targeting of marketing communications; and

· improved operating margins to 9.2% driven by:

· streamlining of product planning, through the reduction in the number of stock lines;

· driving sourcing efficiencies through continued work with suppliers, closing our Hong Kong sourcing office and replacing it with a new office based in Shanghai;

· realising cost savings from the migration of the majority of our parcel deliveries to Hermes;

· strong collections and recoveries which resulted in the reduction in the bad debt charge to 7.2% of revenue, down from 7.7% for the financial year ended 31 March 2017; and

· the substantial completion of the customer redress program within current provision parameters.

The Education business continues to stabilise through its turnaround process with improving margins and profitability.

Key highlights in our turnaround of the Education business include:

· creating a strong portfolio of highly regarded regional, national and specialist brands allowing for a one-stop shop for schools both in the UK and internationally;

· reducing market share loss in the UK, achieved through strong discount incentives for schools and nurseries in order to drive ordering away from catalogues in favour of upgraded websites;

· enhancing our digital offering through the development of online tools to assist teachers in price comparisons versus competitors, thereby driving brand and customer acquisition into our Classmates product range; and

· mitigating against downward pressures on margins through Far East sourcing and an overhaul of the cost base, which led to an improvement in operating margins to 3.4%.

Your Group continues to generate robust and improving cash flows despite exceptional one-off cash flow items with further progress being made in deleveraging its core net debt.

5. Current trading

(a) Q3 trading statement from 25 January 2019

Within Findel's Q3 Trading statement announcement, covering the 15-week period to the end of December 2018 ("Q3"), which was released on 25 January 2019, the Board stated that in respect of the period to 29 March 2019, it anticipated that "given the strong performance from Studio in Q3, the Group believes that full-year [Adjusted PBT] is now likely to be towards the upper end of current market expectations" (£26 million to £28 million).

(b) Q4 trading update

Studio has seen good trading in the seasonally quieter weeks of Q4, with garden ranges benefitting from the warmer weather in early February and homeware ranges trading well throughout. Collections and recoveries from credit receivables have been in line with plan.

Education has seen an acceleration of its customer recruitment in recent weeks and a further increase in online ordering levels, which is encouraging as we go into the new financial year.

6. Conclusion

Your Group is performing admirably and has a coherent and well executed strategy which continues to make your Group fit for a changing retail environment. Your Board, which has been so advised by N+1 Singer and Stifel as to the financial terms of the Offer, unanimously recommends that you should reject the Offer. In providing advice to the Board, N+1 Singer and Stifel have taken into account the Board's commercial assessment. The Findel Directors do not intend to accept the Offer in respect of their own beneficial shareholdings amounting to 492,417 Findel Shares or 0.57% of the issued share capital.

1 Findel closing share price on 31 October 2018, being the last practicable date before Toscafund Asset Management LLP began selling its entire 18.3% shareholding.

2 Core net debt excludes obligations under finance leases and securitisation borrowings thereby disclosing net debt with reference to draw down of the Company's revolving credit facility netted off against cash and overdrafts.

3 Before fair value movements on derivatives and individually significant items

Further information for shareholders and the full text of Ian Burke's letter to shareholders is contained in the circular being published today and which will be available later today at the Company's website, https://www.findel.co.uk/investor-centre/mandatory-offer-for-findel-plc.

Further information

N+1 Singer Advisory LLP ("N+1 Singer"), which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting exclusively for Findel and no one else in connection with the above and will not be responsible to anyone other than Findel for providing the protections offered to clients of N+1 Singer nor for providing advice in relation to the subject matter of this announcement or any other matters referred to in this announcement.

Stifel Nicolaus Europe Limited ("Stifel"), which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting exclusively for Findel and no one else in connection with the above and will not be responsible to anyone other than Findel for providing the protections offered to clients of Stifel nor for providing advice in relation to the subject matter of this announcement or any other matters referred to in this announcement.

Disclosure requirements of the Takeover Code

Under Rule 8.3(a) of the Code, any person who is interested in 1% or more of any class of relevant securities of an offeree company or of any securities exchange offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any securities exchange offeror is first identified. An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 pm (London time) on the 10th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 pm (London time) on the 10th business day following the announcement in which any securities exchange offeror is first identified. Relevant persons who deal in the relevant securities of the offeree company or of a securities exchange offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.

Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1% or more of any class of relevant securities of the offeree company or of any securities exchange offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any securities exchange offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s), save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 pm (London time) on the business day following the date of the relevant dealing.

If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a securities exchange offeror, they will be deemed to be a single person for the purpose of Rule 8.3.

Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4).

Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Panel's website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. You should contact the Panel's Market Surveillance Unit on +44 (0)20 7638 0129 if you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure.

Publication on website and hard copies

A copy of this announcement and the documents required to be published by Rule 26 of the Takeover Code will be available, subject to certain restrictions relating to persons resident in Restricted Jurisdictions, on Findel's website, www.findel.co.uk, at by no later than 12 noon on the Business Day following the date of this announcement. For the avoidance of doubt, the content of the website is not incorporated into and does not form part of this announcement.

If you receive the Response Circular in electronic form or by it being published on Findel's website, you may request a copy of it in hard copy form if so entitled in accordance with Rule 30.3 of the Takeover Code. Hard copies will be sent only where valid requests are received from such persons. Requests for hard copies are to be submitted to the Registrars, Equiniti on 020 7463 1080 (or if calling from outside the UK +44 (0) 20 7463 1080). Calls are charged at the standard geographic rate and will vary by provider. Calls made from outside the United Kingdom will be charged at the applicable international rate. A hard copy of the Response Circular and any other document referred to in the Response Document will not be sent to you unless so requested. You may also request that all future documents, announcements and information to be sent to you in relation to the Offer should be in hard copy form.

Please be aware that addresses, electronic addresses and certain other information provided by shareholders and persons with information rights and other relevant persons for the receipt of communications from Findel may be provided to Sports Direct during the offer period as required by the Takeover Code.

 Forward Looking Statements

This announcement contains certain statements which are, or may be deemed to be, "forward-looking statements" which are prospective in nature. The words "believe", "anticipate", "expect", "intend", "aim", "plan", "predict", "continue", "assume", "positioned", "may", "will", "should", "shall", "risk" and other similar expressions that are predictions of or indicate future events and future trends identify forward-looking statements. These forward-looking statements include all matters that are not current or historical facts. By their nature, forward-looking statements involve risks and uncertainties because such statements relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not indicative of future performance and Findel's actual results of operations, financial condition and liquidity, and the development of the industry in which Findel operates, may differ materially from those made in or suggested by the forward- looking statements contained in this announcement. The cautionary statements set out above should be considered in connection with any subsequent written or oral forward-looking statements that Findel, or persons acting on its behalf, may issue.