15th Feb 2006 07:01
Huntsworth PLC15 February 2006 15 February 2006 Huntsworth PLC ("Huntsworth" or the "Company") Disposal of Citigate Sard Verbinnen LLC ("CSV") INTRODUCTION Huntsworth announces that it has reached agreement with two of the executives ofits US subsidiary Citigate Sard Verbinnen (the "CSV Executives") regarding a newmanagement participation scheme for the CSV Executives which will result in thedisposal of 100 per cent. of CSV by 31 December 2009 (the "Transaction"). Under the Listing Rules, the Transaction is both a Class 1 and related partytransaction and therefore requires, and is conditional upon, the approval ofShareholders. Accordingly, a circular (the "Circular") containing a notice ofan Extraordinary General Meeting will be dispatched to Shareholders shortly. KEY POINTS • Huntsworth has entered into agreements with the CSV Executives,conditional upon the approval of Shareholders, which will result in the disposalof 100 per cent. of CSV by 31 December 2009. • Under these agreements the CSV Executives will purchase 51 per cent.of CSV on 1 January 2007 and acquire the balance no later than 31 December 2009. • Total disposal proceeds of $20 million (£11.5 million)(present value)being paid as capital proceeds and through earnings of CSV. • The divestment marks the end of the integration of Huntsworth andIncepta. There will be no further divestments other than small non-core, non-PRbusinesses where discussions are already in hand. BACKGROUND TO AND REASONS FOR THE TRANSACTION Huntsworth has a clear and focussed strategy: to build, on an internationalscale, a public relations business in the consumer, financial, public affairsand technology sectors alongside a more broadly based communications service tothe healthcare industry. As part of its stated strategy, Huntsworth aims to achieve strong visibility ofsustainable annual revenues. In order to achieve this goal, the Group minimisesdependence on either any one sector or any PR business with a high percentage ofproject income even if, in certain exceptional market conditions, excellentmargins can be achieved. Huntsworth's public relations companies are expectedto start each financial year with around 70 per cent. of projected fees fromannual contracts and long term client commitments. Financial PR and investor relations are particularly challenging sectors inwhich to achieve these strategic goals. Such businesses have a strongdependence on project work, which by its nature is more difficult to forecast.Several of Huntsworth's financial PR companies have already aggressively builttheir retainer base - Citgate Dewe Rogerson, Hudson Sandler and GlobalConsulting Group have in aggregate over 65 per cent. of their business for 2006identified. Whilst CSV is an excellent business in a clear niche in the USmarket, only 35 per cent. of its annual fees are contracted and these areusually on 30 days notice. Some 95 per cent. of all its business is US basedwith limited intra group referrals since acquisition. CSV joined the Huntsworth Group in March 2005 as part of the merger with InceptaGroup plc. CSV operates in the financial PR and investor relations sectors.Following Huntsworth's strategic review, it became clear that there weredifferences between Huntsworth and the CSV Executives as to the future of thebusiness within an enlarged Huntsworth Group. These differences were bothstrategic and cultural and were not capable of resolution during thenegotiations that occurred with the CSV Executives on the expiry of theiremployment contracts. In the absence of the current transaction, we believe the senior executive teamof CSV would leave the Huntsworth Group. In these circumstances, the onlyremedy available to Huntsworth would be to seek damages through the US Courts -a costly and lengthy process, with no assurance of success. Any such litigationwould inevitably involve considerable distraction for senior management.Furthermore, a defection of these senior executives would result in the loss ofa very substantial amount of business of CSV, whilst Huntsworth would continueto have significant financial obligations in the US relating to property leasecommitments of $17 million (£9.8 million) and staff costs. Against this background, the Board has decided to sell CSV back to the CSVExecutives on the basis set out in this announcement and in the Circular. TheHuntsworth Group already owns existing financial, corporate and public affairsbusinesses in New York and Los Angeles, which have been operating successfullyfor over three years. The Transaction has been structured on a basis whichgives Huntsworth up to four years to invest in and develop its other significantbrands in the US. It is the Board's intention to continue to develop a USfranchise which shares the Huntsworth strategic goal of strong visibility ofrevenues and which will be able to enhance the level of cross-referral businesswith our other consultancies worldwide. In this transaction the Board of Huntsworth has been advised by Bridgewell. This summary should be read in conjunction with the full text of the followingannouncement. PRESS ENQUIRIES Huntsworth 020 7408 2232Lord ChadlingtonRoger Selman Bridgewell 020 7003 3000Andrew TuckeyFred Ward Bridgewell Securities Limited, which is regulated in the United Kingdom by theFinancial Services Authority, is acting for Huntsworth and no one else inconnection with the Sale and will not be responsible to anyone other thanHuntsworth for providing the protections afforded to clients of BridgewellSecurities Limited or for providing advice in relation to the Sale. 15 February 2006 Disposal of Citigate Sard Verbinnen 1. Introduction Huntsworth has reached agreement with two of the executives of one of its USsubsidiaries Citigate Sard Verbinnen LLC ("CSV") (the "CSV Executives")regarding a new management participation scheme for the CSV Executives whichwill result in the disposal of 100 per cent. of CSV by 31 December 2009 (the "Transaction"). As part of the Transaction, Huntsworth and the CSV Executiveswill enter into the Units Purchase Agreement and the Operating Agreement whichare more fully described below. Under the Listing Rules, the Transaction is both a Class 1 and related partytransaction and therefore requires, and is conditional upon, the approval ofShareholders. The Transaction is regarded as a related party transaction as theCSV Executives, George Sard and Paul Verbinnen, are directors of CSV, which is asubsidiary of Huntsworth. A notice convening an Extraordinary General Meetingto seek Shareholders' approval for the Transaction will be included in theCircular. 2. Background to and reasons for the transaction Huntsworth has a clear and focussed strategy: to build, on an internationalscale, a public relations business in the consumer, financial, public affairsand technology sectors alongside a more broadly based communications service tothe healthcare industry. As part of its stated strategy, Huntsworth aims to achieve strong visibility ofsustainable annual revenues. In order to achieve this goal, the Group minimisesdependence on either any one sector or any PR business with a high percentage ofproject income even if, in certain exceptional market conditions, excellentmargins can be achieved. Huntsworth's public relations companies are expectedto start each financial year with around 70 per cent. of projected fees fromannual contracts and long term client commitments. Financial PR and investor relations are particularly challenging sectors inwhich to achieve these strategic goals. Such businesses have a strongdependence on project work, which by its nature is more difficult to forecast.Several of Huntsworth's financial PR companies have already aggressively builttheir retainer base - Citigate Dewe Rogerson, Hudson Sandler and GlobalConsulting Group have in aggregate over 65 per cent. of their business for 2006identified. Whilst CSV is an excellent business in a clear niche in the USmarket, only 35 per cent. of its annual fees are contracted and these areusually on 30 days notice. Some 95 per cent. of all its business is US basedwith limited intra group referrals since acquisition. CSV joined the Huntsworth Group in March 2005 as part of the merger with InceptaGroup plc. CSV operates in the financial PR and investor relations sector.Following Huntsworth's strategic review, it became clear that there weredifferences between Huntsworth and the CSV Executives as to the future of thebusiness within an enlarged Huntsworth Group. These differences were bothstrategic and cultural and were not capable of resolution during thenegotiations that occurred with the CSV Executives on the expiry of theiremployment contracts. In the absence of the current transaction, we believe the senior executive teamof CSV would leave the Huntsworth Group. In these circumstances, the onlyremedy available to Huntsworth would be to seek damages through the US Courts -a costly and lengthy process, with no assurance of success. Any such litigationwould inevitably involve considerable distraction for senior management.Furthermore, a defection of these senior executives would result in the loss ofa very substantial amount of business of CSV, whilst Huntsworth would continueto have significant financial obligations in the US relating to property leasecommitments of $17 million (£9.8 million) and staff costs. Against this background, the Board has decided to sell CSV back to the CSVExecutives on the basis set out in this announcement and in the Circular. TheHuntsworth Group already owns existing financial, corporate and public affairsbusinesses in New York and Los Angeles, which have been operating successfullyfor over three years. The Transaction has been structured on a basis whichgives Huntsworth up to four years to invest in and develop its other significantbrands in the US. It is the Board's intention to continue to develop a USfranchise which shares the Huntsworth strategic goal of strong visibility ofrevenues and which will be able to enhance the level of cross-referral businesswith our other consultancies worldwide. This divestment marks the end of the integration of Huntsworth with Incepta.There will be no further divestments other than small non-core, non-PRbusinesses where discussions are already in hand. 3. Information on CSV CSV was founded in 1992 by George Sard and Paul Verbinnen and provides strategiccorporate, financial and crisis communications advice and services to clientsincluding Fortune 500 companies, smaller public companies, financial andprofessional services firms, privately held firms and high-profile individuals.The company is headquartered in New York with offices in Chicago and SanFrancisco and currently employs 65 staff members. George Sard is Chairman and Chief Executive Officer of CSV. Before co-foundingSard Verbinnen in 1992, George was Chairman of the flagship New York office ofOgilvy Adams & Rinehart, a corporate and financial public relations firm. Paul Verbinnen is President of CSV. Before co-founding Sard Verbinnen in 1992,Paul was Executive Vice President, International for The Ogilvy Public RelationsGroup, and a Managing Director of Ogilvy Adams & Rinehart. The following financial information has been extracted without materialadjustment from the consolidation schedules which support the audited financialstatements for Incepta, acquired by Huntsworth pursuant to the Merger, for theyears ended 28 February 2003, 29 February 2004 and 28 February 2005. Investorsshould read the financial information contained in the Circular and not relysolely on the summarised financial information contained in this announcement. Year ended 28 Year ended 29 Year ended 28 February 2005 February 2004 February 2003 £ 000 £ 000 £ 000Gross profit 9,713 10,870 11,590Administrative expenses (6,710) (6,875) (6,140) Operating profit 3,003 3,995 5,450Net interest payable - - (440) Profit on ordinary activities before taxation 3,003 3,995 5,010Tax on profit on ordinary activities - - - Profit for the financial period 3,003 3,995 5,010 Foreign currency exchange rate used for consolidation 1.841 1.661 1.527purposes £:$ 4. Principal terms and conditions of the Transaction As part of the Transaction, Huntsworth and the CSV Executives will enter intothe Units Purchase Agreement and the Operating Agreement. Under theseagreements, the CSV Executives will purchase from Huntsworth 51 per cent. of theUnits of CSV on 1 January 2007 for an aggregate cash consideration of $2.5million (£1.4 million). Subject to the conditions set out in the Circular, theywill have an obligation to purchase the balance (49 per cent.) no later than 31December 2009 (the "Final Purchase") for a total cash consideration of up to $20million (£11.5 million) including the $2.5 million (£1.4 million) payment aboveand cash distributions from CSV. Immediately prior to the purchase by the CSV Executives of 51 per cent. of theUnits, CSV will distribute to Huntsworth undistributed earnings from 2006 up toa 21 per cent. operating margin. In addition, in the six months to 30 June 2007,CSV will distribute to Huntsworth up to $2.7 million (£1.6 million) for theexcess of net tangible assets at 31 December 2005 over an agreed working capitalamount. In consideration for the CSV Executives entering into a legally binding purchasecommitment for the Units, and subject to approval of the Transaction byShareholders, Huntsworth will pay the CSV Executives and other CSV seniormanagement a transaction payment (the "Conditional Transaction Payment")amounting to, in aggregate, $1 million (£0.6 million). Further details of the Units Purchase Agreement and Operating Agreement areprovided in the Circular. 5. Financial effects of the Transaction (i) CSV In the year to 28 February 2005, CSV generated revenues and profit before tax of£9.7 million and £3.0 million respectively. As at 28 February 2005 the grossassets of CSV were £52.6 million and the net assets were £51.7 million includingintangible assets and intercompany balances. (ii) Effects on the balance sheet and profits of Huntsworth In consideration for the sale of CSV to the CSV Executives, Huntsworth willreceive the following: • On 1 January 2007, the CSV Executives will pay Huntsworth $2.5million (£1.4 million) in return for 51 per cent. of CSV. • As of 31 December 2009, or at any prior time that Lord Chadlingtonshall cease to serve as Chief Executive Officer of Huntsworth or in the eventthat Huntsworth is in default under any material financial obligation, the CSVExecutives may acquire Huntsworth's 49 per cent. share of CSV for an amount(present value as at 1 January 2006, calculated at an annual discount rate of 6per cent.) equal to $20 million (£11.5 million) less the present value as at 1January 2006 (calculated at an annual discount rate of 6 per cent.) of: o the $2.5 million (£1.4 million) payment received from the CSVExecutives for the initial purchase of 51 per cent. of the business; and o the cash distributions from CSV from and after 1 January 2006 receivedby Huntsworth described below. • If they have not already done so by 31 December 2009, the CSVExecutives must complete the purchase of CSV on that date with the price to bedetermined as the outstanding balance of $20 million (£11.5 million)(presentvalue as at 1 January 2006, calculated at an annual discount rate of 6 percent.), according to the formula above. • In the period to 31 December 2006 Huntsworth will be entitled toreceive the lower of: o CSV's cash EBIT, and o 21 per cent. of CSV's gross revenues. • Following the disposal of 51 per cent. of CSV and until the date ofthe Final Purchase, Huntsworth will be entitled to receive the lower of: o 49 per cent. of CSV's cash EBIT, and o 10.29 per cent. of CSV's gross revenues. Under certain circumstances Huntsworth may receive additional distributions fromCSV. The balance, if any, of the initial consideration received from the CSVExecutives, net of transaction costs and the Conditional Transaction Payment,will be used for general corporate purposes and to pay down debt. The netproceeds receivable from the Final Purchase will provide further financialflexibility for the Huntsworth group to develop and grow other subsidiaries andthe Huntsworth group as a whole. From and after 1 January 2007, CSV's contribution to the Company's earnings isexpected to be lower than it would have been had CSV continued to remain whollyowned by the Company, and had the CSV executives continued to work for CSV.However during the period prior to Final Purchase, the Company plans to replacethese earnings by investing and developing its other significant brands in theUS. Completion of the Transaction will have the following impact on the ContinuingGroup's balance sheet. There will be a reduction of tangible fixed assets ofapproximately £220,000. Intangible fixed assets on CSV's balance sheet at 28February 2005 of £37.0 million represent historical goodwill recorded whenIncepta acquired CSV. Following Huntsworth's merger with Incepta in April 2005,the value of these intangible assets was adjusted to a value of £23.0 million inHuntsworth's consolidated balance sheet. As a result of the Transaction, thatfigure will be reduced further by approximately £12.0 million. The residualbalance represents the implied goodwill value which will remain in the accountsas a result of the Transaction. The overall effect will therefore be to reducethe Continuing Group's fixed assets by approximately £12.2 million. As CSV has minimal work in progress and cash on its balance sheet, debtors makeup the vast majority of its £15.4 million of current assets. Approximately£12.7 million of these debtors relate to inter-company balances which do notform part of the disposal assets as they will be cleared through distributionsto Huntsworth immediately prior to the completion of the Transaction. Thereduction to the Continuing Group's debtors will therefore be approximately £2.7million. Huntsworth will also receive $2.5 million (£1.4 million) inconsideration for the disposal of 51 per cent. of CSV. After the deduction ofadvisory fees and other costs of approximately $2 million (£1.2 million), theresulting increase in cash at 1 January 2007 will be of the order of £300,000(assuming an exchange rate of £0.60 to $1.00). In addition, Huntsworth willreceive over the six month period to 30 June 2007 a distribution ofapproximately $2.7 million (£1.6 million) representing the excess of nettangible assets at 31 December 2005 over an agreed working capital amountresulting in a further increase in cash of approximately £1.8 million over thisperiod. CSV has minimal short term creditors and no long term creditors, so the onlyeffect on the Continuing Group's liabilities will be to reduce short termliabilities by approximately £0.9 million. The information on CSV in this section has been extracted without materialadjustment from the financial information set out in the Circular. Investorsshould read the whole of the Circular and not rely solely on the summaryfinancial information contained in this announcement. DEFINITIONS "Board" the current board of directors of Huntsworth, whose names are set out in the Circular "Bridgewell" Bridgewell Securities Limited "Circular" the circular to be posted to shareholders shortly "CSV" Citigate Sard Verbinnen LLC "CSV Executives" George Sard and Paul Verbinnen "Continuing Group" Huntsworth PLC and/or its subsidiary undertakings as the context may require, excluding the business interests of CSV "EBIT" earnings before interest and tax "Extraordinary General Meeting" or "EGM" the extraordinary general meeting of Huntsworth, notice of which is set out at the end of the Circular, or any adjournment thereof "Final Purchase" the purchase by the CSV Executives of the balance (49 per cent.) of the Units on or before 31 December 2009 "Huntsworth" or the "Company" Huntsworth PLC and/or its subsidiary undertakings as the context may require "Incepta" Incepta Group PLC "Listing Rules" the listing rules prepared by the Financial Services Authority in its capacity as the competent authority under Part VI of the Financial Services and Markets Act 2000 "Operating Agreement" the operating agreement between Huntsworth and the CSV Executives which is described in the Circular "Shareholder" or "Shareholders" a holder of Shares "Shares" or "Ordinary Shares" ordinary shares of 50 pence each in the share capital of Huntsworth "Transaction" the transaction described in the Circular "Units" membership interests of CSV "Units Purchase Agreement" the agreement between Huntsworth and the CSV Executives which is described in the Circular "US" the United States of America Unless otherwise stated, the exchange rate used in this document is £1:$1.735 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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