29th Apr 2005 07:20
Highbury House Communications PLC29 April 2005 HIGHBURY HOUSE COMMUNICATIONS PLC Proposed disposal of magazine titles to Future plcFinancial effects of the disposalProposed strategy Summary Further to the announcement made on 15 April 2005, the Board of Highbury HouseCommunications plc ("Highbury" or "the Group") today announces proposals for theGroup following the lapsing of the offer ("the Offer") made by Future plc("Future"). These include: - Operations to be scaled back and focused on the business unit formerlyknown as Paragon Publishing. These publishing assets, based in Bournemouth,include Computing, Photography and Video Games titles - Conditional agreement to dispose of certain parts of the UK and all ofthe US operations of the business to Future for gross proceeds of £30.5m in cash - Proceeds will be used to reduce existing Group debt - Advisers appointed to market other non-core assets not sold to Future,including the Group's South African operations Update on recent events On 14 February 2005, the boards of Future and Highbury announced that they hadreached agreement on the terms of a recommended share offer by Future to acquirethe whole of the issued and to be issued ordinary share capital of Highbury. Future's shareholders approved the acquisition of Highbury at an ExtraordinaryGeneral Meeting held on 31 March 2005, with 99.9% of votes cast in favour of theacquisition. On 14 April 2005, the OFT announced that it would be referring the Offer to theCompetition Commission, a decision which came as a surprise to Highbury and itsadvisers. Accordingly, as required under the City Code on Takeovers andMergers, the Offer lapsed. On 15 April Future announced that it no longerintended to pursue an offer for Highbury. Proposed disposals As set out in the letter to shareholders from Highbury's Chairman, which formedpart of the offer document sent to shareholders by Future on 11 March 2005, thecombination, amongst other things, of several acquisitions in recent years and afailure to integrate those businesses adequately resulted in gearing that wasmuch too high for the scale of the Group. As a result, the Board considered the strategic options available to Highbury toaddress this issue, the ultimate result of which was the Offer. In recommending the Offer to shareholders, the Board believed that theopportunity for shareholders to roll their Highbury shares at a premium into alarger, more stable business with better growth prospects offered Highburyshareholders an attractive alternative to the challenges faced by Highbury as astandalone entity. Following the lapsing of the Offer, the Board has had to consider again itsstrategic options. In considering these options, the Board has beenparticularly mindful of the significant degree of uncertainty amongst staff,Highbury's most important asset, which the Offer and its subsequent lapsing hascaused, as well as the requirement of its banks to reduce Group indebtedness asquickly as possible. This, combined with the operational drift which hadunavoidably resulted during the Offer, has made it necessary for the Board totake swift action to ensure as much value as possible is preserved forHighbury's stakeholders. To this end, the Board is pleased to announce that it has reached conditionalagreement ("the Agreement") to dispose of certain parts of its UK business andall of its US operations to subsidiaries of Future for gross proceeds of £30.5million ("the Disposal"). The Agreement comprises the disposal by Highbury of Highbury Leisure PublishingLimited, Highbury Bleeding Edge Publishing Limited and Highbury HouseCommunications Inc. ("the Sale Companies") and the business and assets relatingto various magazine titles (together referred to as "the Businesses") publishedby members of the Group other than the Sale Companies. The magazine titles or groups of titles to be sold ("the Magazines") include: UK magazines - Fast Bikes, Fast Car, The Guide, Classics; - DJ, Health and Fitness, Pregnancy, Pro Cycling; - Home Cinema Choice, Essential Home Cinema, What Home Cinema, WhatPlasma, What Satellite and Digital TV, What Video, What Digital Camcorder,Digital Video, DVD Review, Total Mobile; - Highbury Entertainment Business (Highbury's entertainment trademagazines); and - Highbury's puzzle magazines. US magazines - Highbury House Communications Inc. - Pregnancy, Men's Edge, Do!, Women's Health & Fitness, Decorating Spaces. In the year ended 31 December 2004, the Sale Companies and Businesses generatedan unaudited aggregate profit before interest, taxation and amortisation ofapproximately £5.3 million. The Group estimates that as at 31 December 2004,the unaudited aggregated net assets of the Sale Companies and individual assetswhich comprise the Businesses was £20.1 million, of which approximately £18.4million relates to intangible publishing rights. Terms of the Disposal The Disposal is to be effected pursuant to the Agreement, which provides for thesale to the purchaser ("the Purchaser") of the entire issued share capital ofthe Sale Companies and the business and assets relating to the publishing,distribution and sale of the Magazines and the operation of the related websitesowned by members of the Group other than the Sale Companies. The totalconsideration for the Disposal is £30.5 million in cash. At Completion, thePurchaser will pay £29.75 million in cash to Highbury. The balance of £0.75million will be paid into a retention account which will be released to Highburysix months after completion to the extent that no claims have been made byFuture under the warranties and certain indemnities contained in the agreement. Certain warranties, indemnities and covenants have been given to the Purchaserby Highbury in relation to the Sale Companies and the Businesses. The proposed sale is subject to Highbury shareholder approval and Futureshareholder approval will be sought if required, such approvals to be obtainedby 30 June 2005. A circular ("the Circular"), which will incorporate details ofthe proposed sale and notice of an Extraordinary General Meeting ("the EGM"), isbeing prepared and it is anticipated it will be posted to Highbury shareholdersduring May 2005. Completion is expected to take place by the end of May or inearly June 2005. A fee of £0.5 million is payable by either party if theapproval of their respective shareholders for the Disposal is not obtained by 30June 2005. Highbury has undertaken that until the earlier of all relevantshareholder resolution conditions having been met, or Highbury or Futureshareholders rejecting the relevant resolution, it will not discuss or negotiatewith any third party or enter into any agreement to dispose of the SaleCompanies or Businesses. Financial effects of the Disposal After allowing for estimated expenses relating to the Disposal of approximately£1 million and the retention of £0.75 million referred to above, the expectednet cash proceeds of the Disposal at Completion will amount to approximately£28.75 million. These net cash proceeds, after deduction of costs associatedwith the restructuring referred to below, will be used to reduce existing Groupdebt, the net balance of which currently stands at approximately £53 million. The Disposal is expected to result in an exceptional profit in the currentfinancial year of approximately £10 million with consequential effect on theconsolidated shareholders' funds of the Group in the current financial year. It is not expected that the Group will have a material tax liability as a resultof the Disposal. Further disposals and restructuring Following the disposal to Future, Highbury will scale back its operations torefocus the ongoing activities of the Group on its most stable businessplatform, the unit formally known as Paragon Publishing, based in Bournemouth.In order to achieve this and reduce indebtedness further, the Group plans todispose of its non-core assets i.e. its Special Interest and South Africanoperations as well as those elements of the Lifestyle portfolio not sold toFuture, via a small number of sale processes. The non-core Lifestyle portfolio includes the titles Front, Real Homes, Home,Inspirations, Garden's Monthly and the Contract Publishing division whilstSpecial Interest includes Highbury's portfolio of crafts and hobbies titles. Inrespect of these non-core operations, the Board has appointed advisers toinitiate the process of marketing the businesses for sale. As a result of the Disposal and the planned further disposal of these non-coreoperations, the Group will be left with an inappropriate overhead structurewhich will need to be restructured to provide Highbury with a more costeffective and efficient cost base appropriate to its size. The level of debt which the Group will need to service following the anticipateddisposals highlighted above is likely to remain significant given the size ofthe ongoing business. However, the directors of Highbury have receivedconfirmation that it is the Group's bankers' current intention to continue toprovide credit facilities to the Group and to work with it in order to reviewthe financial covenants which apply to the Group's facilities in order to agreethe financial covenants that the lenders consider are appropriate for the Group(taking into account the views of the Group and the core markets in which theGroup operates) either on an on-going basis or in light of the proposeddisposals. Strategy for Highbury Following a period of significant disruption and turbulence for Highbury and itsstaff, the Board believes that management's immediate objective following thesale of those assets now designated as non-core should be to stabilise theslimmed-down business. It will then be possible to explore ways to improvevalue for stakeholders. Information on Future Future was founded in the UK in 1985. Today, it publishes over 100 regularmonthly special-interest consumer magazines worldwide with strong portfolioswithin the computing, computer games, music, sports and hobby sectors. As at 28April 2005, Future's market capitalisation was £250 million. Future employs approximately 1,200 people in offices in the UK, US, France andItaly. Over 100 international editions of Future's magazines are also publishedunder licence in 30 other countries across the world. Future is listed on theLondon Stock Exchange and is headquartered in Bath. In the UK, Future's magazines are published principally in Bath and London by asubsidiary, Future Publishing Limited. In the US, Future's magazines arepublished by Future Network USA, Inc., in France by Future France S.A.S. and inItaly by Future Media Italy S.p.A.. For the year ended 31 December 2003, Future reported audited turnover of £182.7million and an audited profit before tax and goodwill amortisation of £22.7million. As at 31 December 2003, Future had audited net assets of £111.9million, including audited net cash of £13.4 million. For the nine months ended 30 September 2004, Future reported audited turnover of£133.0 million and an audited profit before tax and goodwill of £13.3 million.As of 30 September 2004, Future had audited net assets of £107.7 million,including audited net cash of £9.8 million. For the twelve months to 30September 2004, Future had unaudited sales of £190.4 million and an unauditedadjusted operating profit of £23.6 million. Simon Neathercoat, Non-Executive Chairman of Highbury commented: "The Highbury Board was shocked and disappointed by the decision of the OFT torefer the Offer made by Future to the Competition Commission with the resultthat Future's Offer automatically lapsed. In the short period following theOFT's announcement, the Board has sought to move quickly to preserve as muchvalue as possible for Highbury's stakeholders by making this significantdisposal, which will enable the Group to reduce its indebtedness substantiallyand provide new operational focus." 29 April 2005 Enquiries: Highbury House Communications PLC 020 7608 6600 Mark Simpson, Chief Executive Officer Owen Davies, Finance Director College Hill 020 7457 2020 Tom Baldock / Adrian Duffield This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Future