27th Sep 2007 07:04
Acal PLC27 September 2007 FOR RELEASE 7:00AM 27 SEPTEMBER 2007 Not for release, publication, or distribution in or into the United States ofAmerica, Australia, Canada or Japan ACAL plc (Leading pan-European, value-added technology based distributor providing specialist design-in, sales and marketing services) PROPOSED DISPOSAL OF THE ACAL IT SOLUTIONS BUSINESS FOR £41 MILLION Highlights • Proposed sale of IT Solutions Business to Avnet, Inc., a US-listed distribution group, for a cash consideration of £41 million. • Initially, the net proceeds will be used to reduce the Group's debt and the balance placed on deposit. In due course, they will be used to invest in growing the Continuing Group. • In view of its size the sale is conditional, amongst other things, upon the approval of Shareholders. A circular containing a notice convening the EGM, at which the Resolution will be proposed, will be sent to Shareholders shortly. Richard Moon, Chairman of Acal plc, said, "Following a strategic review last year the Board of Acal plc has concluded thatthe development of its IT Solutions Business would be best served as a part of alarger organisation with an international reach. Avnet provides an excitingopportunity for the staff and stakeholders of this growing business to maximiseits opportunities for the future. Acal will concentrate its focus on the group's core Electronics and PartsServices businesses." For further information:- Tony Laughton - Chief Executive 01483 544500 Jim Virdee - Finance Director 01483 544500 Richard Barlow 020 7311 1000KPMG Corporate Finance Brian Coleman-Smith/James Verstringhe/Leanne Denman 020 7367 5100Cubitt Consulting Notes to Editors: 1 The Acal Group is a leading European technology based distributorproviding specialist design-in, sales, marketing and other services at presentthrough three divisions: Electronics, Parts Services and IT Solutions. Itsvalue-added philosophy and geographic coverage enables Acal to providespecialist knowledge and support to customers on a pan-European basis. 2 Design-in is the process by which Acal's sales engineers work withcustomers and suppliers to procure components which meet the specific technicaland performance needs of the customers. 3 Acal has operating companies in the UK, Netherlands, Belgium, Germany,France, Italy, Spain and Scandinavia. Westech Electronics, an associatedcompany, is based in Singapore and covers the Far East region. This announcement contains a number of forward-looking statements relating tothe Group and the Continuing Group with respect to, amongst others, thefollowing: financial condition; results of operations; economic conditions inwhich the Group operates and in which the Continuing Group will operate; thebusiness of the Group and the Continuing Group; future benefits of the Disposaland management plans and objectives. The Company considers any statements thatare not historical facts as ''forward-looking statements''. They relate toevents and trends that are subject to risks and uncertainties that could causethe actual results and financial position of either the Group or the ContinuingGroup to differ materially from the information presented in the relevantforward-looking statement. When used in this document the words ''estimate'',''project'', ''intend'', ''aim'', ''anticipate'', ''believe'', ''expect'',''should'' and similar expressions, as they relate to the Group and/or theContinuing Group or the management, are intended to identify such forwardlooking statements. Readers are cautioned not to place undue reliance on theseforward-looking statements which speak only as at the date of this document.Neither the Company nor any member of the Group or the Continuing Groupundertake any obligation publicly to update or revise any of the forward-lookingstatements, whether as a result of new information, future events or otherwise,save in respect of any requirement under applicable laws, the Listing Rules, theDisclosure and Transparency Rules and other regulations. KPMG Corporate Finance, a division of KPMG LLP which is authorised and regulatedby the Financial Services Authority for investment business activities, isacting for the Company as Sponsor and financial adviser in relation to theDisposal and is not acting for any other person in relation to such Disposal.KPMG Corporate Finance will not be responsible to anyone other than the Companyfor providing the protections afforded to its clients or for providing advice inrelation to the contents of this announcement or any transaction or arrangementreferred to herein. FOR RELEASE 7:00AM 27 SEPTEMBER 2007 Not for release, publication, or distribution in or into the United States ofAmerica, Australia, Canada or Japan ACAL plc (Leading pan-European, value-added technology based distributor providing specialist design-in, sales and marketing services) PROPOSED DISPOSAL OF THE ACAL IT SOLUTIONS BUSINESS 1. Introduction The Board of Acal announces today that the Company has conditionally agreed tosell its IT Solutions division excluding Vertec (the ''Acal IT SolutionsBusiness''), to Avnet, Inc., a US-listed distribution group, for a cashconsideration of £41 million. The consideration is subject to certainadjustments calculated in accordance with the Disposal Agreement. In view of its size the Disposal is conditional, amongst other things, upon theapproval of Shareholders. A circular containing a notice convening the EGM, atwhich the Resolution will be proposed, will be sent to Shareholders shortly. 2. Background to and reasons for the Disposal Acal currently comprises three divisions: Electronics, Parts Services and ITSolutions. The strategy of the Acal Group is to concentrate on products and services whichcan generate superior margins when compared to ''broadline'' distributors. Thisis largely achieved by selecting products that require significant support and/or added value. On a regular basis the Board reviews all businesses within theAcal Group in order to ensure that this strategy is being delivered and toexamine other opportunities to enhance shareholder value. The Board believes that, in future, the interests of Shareholders will be betterserved by Acal concentrating its management and other resources on thedevelopment and growth of its Electronics and Parts Services divisions. Bothhave opportunities for growth in areas in which they are strong. The Electronics business has at its core a strategy of ''demand creation''distribution, or ''design-in'', rather than demand fulfilment, and this is thekey differentiator between Acal and most other distributors in the industry.This has been considerably enhanced in the past two years by a greater emphasison higher technology products, and in particular, the introduction of a numberof new specialised semiconductor suppliers, which the Board believes not onlyprovide access to a far greater market potential than the Company's moretraditional passive and electromechanical portfolio but also a higher potentialfor growth over the longer term. It has involved considerable investment inpeople and skills which will continue as further complementary suppliers areadded. Acal's ''design-in'' approach to distribution means that there isinevitably a time lag, which can vary from 9 to 24 months, between introductionof a new product line and generation of revenue from that line. In the last yearor so we have started to see the benefits of an enhanced product portfolio. Asnew product lines have been introduced at different times in differentterritories, these benefits have arisen, and will correspondingly arise, overdifferent periods in different territories. The Parts Services business concentrates on the supply and management of partsfor IT infrastructure maintenance and service companies. It offers a distinctivemodel which combines our knowledge of failure rates in IT equipment andtechnical expertise to provide reduced inventory expenditure for customerswithout affecting service levels. Acal Parts Services takes control of allaspects of the supply chain and converts the unpredictability of inventory costfor customers into accurate pricing for all aspects of supply and life cyclemanagement 24 hours a day, 7 days a week, whilst at the same time removing fromthese customers uncertainties relating to inventory obsolescence and the needfor stock write downs - these are increasingly attractive services required bymaintenance and service organisations which operate in an industry withconstantly reducing unit prices and margin pressure. There is a high level ofinterest among customers and potential customers in the Acal Parts Servicesoffering. However, the change to what is essentially an outsourced model forprocurement and management of spare parts involves fundamental changes incustomer organisations and therefore takes considerable time to ''sell'' andimplement. Whilst Acal's strategy is primarily based on organic growth, the Board willconsider selective acquisitions where they accelerate the delivery of thisstrategy. Given the decision to concentrate on the Electronics and Parts Servicesdivisions, the Board has decided to dispose of the Acal IT Solutions Business. Following the Disposal, for reporting purposes, Vertec, our medicalinstrumentation business will be included within the Electronics division. 3. Principal terms of the Disposal Under the terms of the Disposal Agreement which was signed on 27 September 2007,the Company has agreed to sell the companies and businesses comprising the AcalIT Solutions Business to Avnet, for a cash consideration of £41 million which issubject to adjustment, inter alia, for cash and debt in that business as atCompletion. The Disposal Agreement contains warranties, covenants andindemnities given by the Company to the Purchaser and from the Purchaser to theCompany which are customary for a transaction of this nature. The Disposal is conditional upon obtaining the approval of the Shareholders atthe Extraordinary General Meeting and on merger control clearance. The DisposalAgreement will terminate if, amongst other things, shareholder approval is notreceived or if merger control clearance is not obtained, or if these conditionsto Completion are not satisfied or waived on or before 31 January 2008. TheDisposal is not conditional upon the approval of the shareholders of Avnet, Inc. Unless the parties agree otherwise the transfer of the German Business will notcomplete if, before the expiry of one month of being informed of their transfer,five or more employees of the German Business object to the transfer. In thiseventuality, the purchase price will be reduced by a maximum of £1.5 million,according to a mechanism to be determined at that time. This will not, however,affect the completion of the sale and purchase of the other businesses. The sale and purchase of the Swedish Business is conditional on the completionof a consultation process with the trade union of the employees of the SwedishBusiness. In the event that a particular key employee of the Swedish Businessrefuses to transfer to the Purchaser, unless the parties agree otherwise thetransfer of the Swedish business will not complete and the parties willnegotiate a price reduction, subject to a maximum of £0.3 million, according toa mechanism to be determined at that time. This will not, however, affect thecompletion of the sale and purchase of the other businesses. If the sale and purchase of the German Business and/or the Swedish Business isnot completed it will not be practical, and the Board does not intend, tocontinue to operate these businesses. The remainder of the Disposal will goahead, subject to shareholder consent. The Disposal is expected to be completed following receipt of merger controlclearance. 4. Financial effects of the Disposal and use of proceeds The net cash proceeds arising from the Disposal are expected to be approximately£38 million after the payment of professional fees and other costs relating tothe Disposal. Initially, these net proceeds will be used to reduce the Group'sdebt and the balance placed on deposit. In due course they will be used toinvest in growing the Continuing Group as noted in paragraph 2 above. The Group will also incur costs, estimated to amount in aggregate toapproximately £3.5 million, to cover certain obligations of the IT SolutionsBusiness which will be retained by the Group following the Disposal. Theseobligations represent costs relating to people, properties and the impairment ofIT systems which will be met in future periods. If the Disposal had occurred on 1 April 2006, the effect would have beenearnings dilutive for the financial year ended 31 March 2007. The Disposal isalso expected to be dilutive to earnings per share in the financial year to 31March 2008 and consequently may result in a reduction in the extent to whichdividends are covered by earnings from continuing activities. It will, however,result in a more focused group and, additionally, in the longer term theinvestment of the proceeds in the Continuing Group is expected to result in anenhanced earnings potential. In the event that the transfers of the German Business and/or the SwedishBusiness do not complete, the consideration received by the Group will bereduced by up to the amounts outlined in paragraph 3 above. The costs associatedwith the closure of these two businesses are not expected to be significant inrelation to the consideration. 5. Information on the Acal IT Solutions Business The IT Solutions Business comprises two product groups, Headway and ASNS,together with a services activity AVAS. Headway Headway is a market-leading specialist European distributor of document imagingand management products. Headway works with system integrators, value-addedresellers and other IT providers to offer document imaging and managementsolutions for end-user customers of such partners. In particular, Headwayfocuses on enterprise customers with complex electronic document managementrequirements. The business operates in the Benelux, France, Germany, Scandinaviaand the UK. ASNS ASNS is a specialist European value-added distributor of storage networking,wired and wireless networking and network security products. The business hasmarket-leading products, strong relationships with leading vendors and anexperienced management team. ASNS has operations in the Benelux, Germany and the UK. The storage networkingbusiness is strategically managed from the UK providing direction and support ona pan-European basis. The ASNS operations in the Benelux, Germany and the UKhave their own sales teams for these products with the UK also selling intoother EMEA countries. Purchasing, warehousing and distribution functions arecentralised in the UK and the Netherlands. The Benelux and the UK operations have teams focused on the sale and support ofnetworking and security products. AVAS AVAS is Acal's in-house services group, which provides installation,maintenance, training and professional services much of it contracted, relatingto the products and customers of the ASNS and Headway activities in the Benelux. For the year ended 31 March 2007, the IT Solutions Business generated a profitbefore interest and tax of £4.9 million (year ended 31 March 2006: £3.4million). The gross assets of the Acal IT Solutions Business at 31 March 2007were £31.4 million and the net assets at the same date were £5.1 million. 6. Current trading Electronics Industry statistics from the UK and Continental Europe indicate that thesoftness in the market for electronic components which the Company identified atthe time of publication of its results for the year ended 31 March 2007 haspersisted throughout the first half of the current financial year. Acal'sElectronics division has not been immune from these market conditions,particularly the traditional electromechanical and passive component activitieswhich experienced weak demand especially in the first quarter. The growingsuccess of Acal's strategy of focusing on higher technology products, primarilyspecialised semiconductors, continues to be of benefit in mitigating the effectsof this weakness. However Acal's "demand creation" approach to distribution means that there isinevitably a time lag, which can vary from 9 to 24 months, between introductionof a new product line and the generation of revenue from that line. Therefore,in the short term, particularly the first half of the current year, thefinancial benefits of the enhanced product portfolio may not entirely offset theeffects of the weak demand referred to above. Profitability of the Electronicsdivision in the first half will also be affected by the costs arising from themajor investment in people made in the second half of last year in order tosupport new product lines, particularly in Germany and Italy, which are not yetgenerating significant revenue. Acal remains confident that its strategy will make it a successful and growingforce in "demand creation" distribution in Europe. Vertec, Acal's medical instrumentation business, has continued to grow with ahelpful first contribution from its South African operations which wereestablished at the end of last year. Parts Services As previously reported, 2006/7 was a difficult year for the Parts Servicesdivision as a consequence of weaker demand, some price erosion and cutbacks on amajor contract. The level of activity to date in the first half of the currentyear has been similar to the first half of last year, but as yet the effect ofthe price erosion referred to above on profitability has not been reversed. Acal continues to extend its offerings to the supply chain in the ITinfrastructure maintenance industry and whilst there continue to be a number ofgood opportunities going forward, their timing remains difficult to predict. IT Solutions The Group's IT Solutions division is showing a year-on-year improvement inperformance in the first half of the current financial year with relativestability in pricing and margins and a continuing emphasis in the product mix ondevices which have greater capability and intelligence as well as its focus onvalue added solutions. Network and security products and AVAS have beenparticularly successful. Acal's results for the half year ending 30 September 2007 are expected to bepublished on 29 November 2007. 7. Extraordinary General Meeting The Disposal is conditional upon, amongst other things, the approval of theholders of Acal Ordinary Shares at the EGM. Assuming shareholder approval isobtained, completion will occur following receipt of merger control clearance. A circular, including the notice for the EGM, will be posted to Shareholdersshortly. For further information:- Tony Laughton - Chief Executive 01483 544500 Jim Virdee - Finance Director 01483 544500 Richard Barlow 020 7311 1000KPMG Corporate Finance Brian Coleman-Smith/James Verstringhe/Leanne Denman 020 7367 5100Cubitt Consulting This announcement contains a number of forward-looking statements relating tothe Group and the Continuing Group with respect to, amongst others, thefollowing: financial condition; results of operations; economic conditions inwhich the Group operates and in which the Continuing Group will operate; thebusiness of the Group and the Continuing Group; future benefits of the Disposaland management plans and objectives. The Company considers any statements thatare not historical facts as ''forward-looking statements''. They relate toevents and trends that are subject to risks and uncertainties that could causethe actual results and financial position of either the Group or the ContinuingGroup to differ materially from the information presented in the relevantforward-looking statement. When used in this document the words ''estimate'',''project'', ''intend'', ''aim'', ''anticipate'', ''believe'', ''expect'',''should'' and similar expressions, as they relate to the Group and/or theContinuing Group or the management, are intended to identify such forwardlooking statements. Readers are cautioned not to place undue reliance on theseforward-looking statements which speak only as at the date of this document.Neither the Company nor any member of the Group or the Continuing Groupundertake any obligation publicly to update or revise any of the forward-lookingstatements, whether as a result of new information, future events or otherwise,save in respect of any requirement under applicable laws, the Listing Rules, theDisclosure and Transparency Rules and other regulations. KPMG Corporate Finance, a division of KPMG LLP which is authorised and regulatedby the Financial Services Authority for investment business activities, isacting for the Company as Sponsor and financial adviser in relation to theDisposal and is not acting for any other person in relation to such Disposal.KPMG Corporate Finance will not be responsible to anyone other than the Companyfor providing the protections afforded to its clients or for providing advice inrelation to the contents of this announcement or any transaction or arrangementreferred to herein. DEFINITIONS ''Acal'' or ''Company'' Acal plc ''Acal Group'' or ''Group'' Acal, its subsidiaries and subsidiary undertakings ''Acal IT Solutions the IT Solutions business,Business'' comprising the IT Solutionsor ''IT Solutions DivisionBusiness'' excluding Vertec, to be disposed of as a result of the Transaction ''ASNS'' the Storage Networking, Network and Security product group of the IT Solutions Business ''AVAS'' Acal Value Added Services, the services activities of the IT Solutions Business in the Benelux ''Avnet, Inc.'' or "Avnet" Avnet, Inc, its subsidiaries and subsidiary undertakings as at the date of signing the Disposal Agreement ''Benelux'' the countries of Belgium, the Netherlands and Luxembourg together ''Board'' or ''Directors'' the board of directors of Acal ''Completion'' the completion of the Disposal which is expected to occur following receipt of merger control clearance ''Continuing Group'' Acal following Completion ''Disposal'' or ''Transaction'' the proposed disposal by Acal of the Acal IT Solutions Business pursuant to the Disposal Agreement ''Disposal Agreement'' the conditional sale agreement dated 27 September 2007 between Acal and Avnet relating to the Disposal ''EMEA'' Europe, Middle East and Africa ''Extraordinary General the extraordinary general meetingMeeting'' of the Company to be convened foror ''EGM'' the purpose of considering the Resolution ''German Business'' the Headway and ASNS business currently carried on by Acal GmbH ''Headway'' the document imaging and management product group of the IT Solutions Business ''Ordinary Shares'' ordinary shares of 5p each in the capital of Acal ''Purchaser'' Avnet, Inc. ''Resolution'' the ordinary resolution to be proposed at the EGM to approve the Disposal ''Shareholders'' the holders of Ordinary Shares ''Swedish Business'' the Headway business currently carried on by Acal AB in Sweden ''UK'' United Kingdom of Great Britain and Northern Ireland ''Vertec'' Vertec Scientific Limited, currently a part of the Acal IT Solutions Division This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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