14th Feb 2005 07:01
Future PLC14 February 2005 14 February 2005 NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN OR INTO AUSTRALIA, CANADA OR JAPAN Recommended Offer (the "Offer") by Morgan Stanley & Co. Limited ("Morgan Stanley") on behalf of Future plc ("Future") (or by Future in the United States) for Highbury House Communications plc ("Highbury") Summary of the Offer The Boards of Future and Highbury are pleased to announce that they have reachedagreement on the terms of a recommended share offer (with a Partial CashAlternative) to be made by Morgan Stanley, on behalf of Future (or by Future inthe United States), to acquire the whole of the issued and to be issued ordinaryshare capital of Highbury. • The Offer comprises 10 New Future Shares for every 83.25 Highbury Shares and so on in proportion for any number of Highbury shares held. • Under the Partial Cash Alternative, each Highbury Shareholder who validly accepts the Offer, will be able to elect to receive 10.0 pence in cash for each Highbury Share, instead of some or all of the New Future Shares to which he would otherwise have become entitled, subject to the aggregate amount of cash payable under the Partial Cash Alternative being limited to £10 million. If such amount is insufficient to satisfy all elections for the Partial Cash Alternative, such elections will be scaled back pro rata to the applications. • The New Future Shares will rank pari passu with existing Future Shares in all respects, including the right to receive all dividends declared, made or paid from the date the Offer becomes or is declared unconditional in all respects. It is expected that Future's interim dividend for the six months ending 31 March 2005 will be declared after the Offer becomes or is declared unconditional in all respects. • The Offer values the issued share capital of Highbury at approximately £31.6 million and each Highbury Share at 10.0 pence (calculated using the Closing Price of a Future Share of 83.25 pence on 11 February 2005, being the last Dealing Day prior to this Announcement), representing a premium of: - 35.5 per cent over the Closing Price of a Highbury Share of 7.38 pence on 25 January 2005, being the last Dealing Day prior to Highbury's announcement on 26 January 2005 that it had received an approach that might or might not lead to an offer for Highbury; - 6.6 per cent over the Closing Price of a Highbury Share of 9.38 pence on 11 February 2005, being the last Dealing Day prior to this Announcement; and - 20.0 per cent over the price of 8.33 pence per Highbury Share, being the average Closing Price of a Highbury Share over the last three months prior to 26 January 2005. • At the Offer price, Highbury has an enterprise value of £96.5 million, including Highbury's current net debt of £64.9 million, which is being assumed by the Enlarged Group. • The Future Directors believe that the Acquisition represents an attractive opportunity for Future to take a significant further step forward in its stated growth strategy within the special-interest consumer magazine sector and continues the diversification of Future's magazine portfolio. • The Future Directors also believe that the Acquisition will bring significant strategic, commercial and financial benefits to Future, through revenue opportunities and cost saving initiatives from the Enlarged Group's increased scale and stronger platform. • The Future Directors believe that the annualised operating cost savings that will result from combining the two businesses will amount to at least £4.5 million in the first full financial year of ownership of Highbury (the year to 30 September 2006). These savings will be realised through operational efficiencies such as securing enhanced supply terms (including paper, print and cover-mounts) throughout the Enlarged Group and the rationalisation of stock exchange listing and headquarters' costs and other overhead areas. The total costs of achieving these savings are expected to amount to up to £4.0 million, which are expected to be incurred in the current financial year. (see note 1) • The Future Directors believe that other substantial benefits, at a cash cost to be determined, could include improved distribution arrangements and, separately, increased volume sales efficiency and rationalisation of the property portfolio, especially in central London (which may lead to an additional property provision). • The Future Directors believe that the Acquisition will have an accretive effect on earnings per share in the first full year of ownership. (see note 2) • Following the Offer becoming or being declared unconditional in all respects, Future will be the third-largest UK consumer magazine publisher, and will be the second-largest UK publisher of special-interest consumer magazines, as measured by retail sales value. • Following the Offer becoming or being declared unconditional in all respects, Future intends to continue the process of divestment of certain Highbury business units, including the announced BCom disposal, in order to focus on the consumer magazine portfolio. • The Future Directors also believe that the Acquisition would also benefit Highbury Shareholders by affording them an opportunity to share in the success of the Enlarged Group, including the benefit of synergies not otherwise available to Highbury as a stand-alone business. • Irrevocable undertakings have been received from the Highbury Directors (and certain of their connected persons) to accept the Offer in respect of their entire holdings of 4,636,734 Highbury Shares, in aggregate, representing approximately 1.5 per cent of Highbury's issued share capital. These irrevocable undertakings to accept the Offer are binding, unless the Offer lapses or is withdrawn. • The Highbury Directors, who have been so advised by Close Brothers, consider the terms of the Offer to be fair and reasonable and will unanimously recommend all Highbury Shareholders to accept the Offer. • Due to its size, the Offer will be conditional, inter alia, on approval by Future Shareholders at an Extraordinary General Meeting. The Future Directors intend unanimously to recommend Future Shareholders to vote in favour of the Acquisition. Commenting on the Offer, Greg Ingham, Chief Executive of Future, said: "Highbury is a business that we know well and have followed for some time. Weconsider that it represents an opportunity to acquire a significant asset at afair price. Whilst the business has faced some challenges in recent times, weare confident that we can integrate the titles and teams, and improve thefinancial performance and enhance shareholder value. Our respective businessesare complementary so there is a genuine opportunity to generate importantsynergies for the combined group." Commenting on the Offer, Mark Simpson, Chief Executive Officer of Highbury,said: "I am pleased to be recommending Future's offer. It represents fair value forour shareholders, as well as the opportunity to participate in the significantfinancial and commercial benefits of combining Highbury's and Future'sbusinesses. Importantly, I am confident the Offer will also be welcomed byHighbury's other stakeholders. In particular, our employees should benefit fromthe enhanced career opportunities that a larger, more stable group can offer." There will be a presentation for investors and analysts at 10.00 am today atUBS's offices: 1 Finsbury Avenue, London EC2M 2PP. This summary should be read in conjunction with the full text of the attachedAnnouncement. The Offer will be subject to the terms and conditions set out inAppendix I to the attached Announcement and to the further terms which will beset out in the Offer Document and the Form of Acceptance. Note 1: The expected operating cost savings have been calculated on the basis ofthe existing cost and operating structures of the Future and Highbury and byreference to current prices and exchange rates and the current regulatoryenvironment. The statement of estimated operating cost savings relates to futureactions and circumstances which, by their nature, involve risks, uncertaintiesand other factors. Because of this, the cost savings referred to may not beachieved, or those achieved could be materially different from those estimated.This statement should not be interpreted to mean that the earnings per share inthe financial year following the Acquisition, or in any subsequent period, wouldnecessarily match or be greater than those for the relevant preceding financialperiod. Note 2: This statement does not constitute a profit forecast nor should it beinterpreted to mean that future earnings per share of Future following the Offerbecoming or being declared unconditional in all respects will necessarily matchor exceed historical earnings per share of Future. General Enquiries: Future plc Highbury House Communications plcGreg Ingham, Chief Executive Mark Simpson, Chief Executive OfficerJohn Bowman, Finance Director Owen Davies, Finance Director Tel: 01225 442 244 Tel: 020 7608 6600 Morgan Stanley & Co. Limited Close Brothers(Financial adviser to Future) (Financial adviser to Highbury)John Krumins, Managing Director David Bezem, DirectorTom Hill, Vice President Darren Redmayne, Assistant Director Tel: 020 7425 5000 Tel: 020 7655 3100 UBS Investment Bank Panmure Gordon, a division of Lazard & Co., Limited(Broker to Future) (Broker to Highbury)Adrian Haxby, Managing Director Richard Potts, DirectorJonathan Evans, Director Marianne Woods, Director Tel: 020 7568 1000 Tel: 020 7187 2000 Hogarth Partnership College Hill(Financial PR advisers to Future) (Financial PR advisers to Highbury)James Longfield Adrian DuffieldGeorgina Briscoe Tom Baldock Tel: 020 7357 9477 Tel: 020 7457 2020 This Announcement does not constitute an offer to sell or the solicitation of anoffer to subscribe for or buy any security, nor is it a solicitation of any voteor approval in any jurisdiction, nor will there be any sale, issuance ortransfer of the securities referred to in this Announcement in any jurisdictionin contravention of applicable law. Morgan Stanley & Co. Limited is acting for Future and no-one else in connectionwith the Offer, and will not be responsible to anyone other than Future forproviding the protections afforded to its clients nor for providing advice inrelation to the Offer. UBS Investment Bank is acting for Future and no-one else in connection with theOffer, and will not be responsible to anyone other than Future for providing theprotections afforded to its clients nor for providing advice in relation to theOffer. Close Brothers, which is regulated by the Financial Services Authority, isacting for Highbury and no-one else in connection with the Offer and will not beresponsible to anyone other than Highbury for providing the protections affordedto its customers nor for providing advice in relation to the Offer. In addition,Close Brothers has given and has not withdrawn its written consent to the issueof this Announcement with the inclusion of its letter and the reference to itsname in the form and context in which it is included. Panmure Gordon, a division of Lazard & Co., Limited is acting for Highbury andno-one else in connection with the Offer, and will not be responsible to anyoneother than Highbury for providing the protections afforded to its clients norfor providing advice in relation to the Offer. Deloitte & Touche LLP has given and has not withdrawn its written consent to theissue of this Announcement with the inclusion of its letter and the reference toits name in the form and context in which it is included. Unless otherwise determined by Future and except to the extent permitted byapplicable laws, the Offer will not be made, directly or indirectly, in or intoAustralia, Canada or Japan and the Offer will not be capable of acceptance fromor within these jurisdictions. Accordingly, copies of this Announcement are notbeing, and must not be, directly or indirectly, mailed or otherwise forwarded,distributed or sent, in whole or in part, in, into or from Australia, Canada orJapan and persons receiving this Announcement (including custodians, nomineesand trustees) must not mail or otherwise forward, distribute or send it in, intoor from Australia, Canada or Japan, if to do so would violate applicable laws insuch jurisdiction. The ability of Highbury Shareholders who are not resident in the United Kingdomto accept the Offer may be affected by the laws of the relevant jurisdictions inwhich they are located. Persons who are not resident in the United Kingdomshould inform themselves of, and observe, any applicable requirements. The New Future Shares have not been, and will not be, registered under the USSecurities Act or under the securities laws of any state of the United States;have not been, and will not be, qualified for sale or resale under thesecurities laws of any province or territory of Canada; and no prospectus inrelation to them has been, or will be, lodged with, or registered by, theAustralian Securities and Investments Commission or the Japanese Ministry ofFinance. Accordingly, the New Future Shares are not being and will not beoffered, sold, resold or delivered, directly or indirectly, in or intoAustralia, Canada or Japan or any other jurisdiction or to or for the account orbenefit of any residents of Australia, Canada or Japan if to do so wouldconstitute a violation of the laws of, or require registration thereof in, therelevant jurisdiction. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This document contains statements about members of the Future Group and theHighbury Group that are or may be forward-looking statements. All statementsother than statements of historical facts included in this document may beforward-looking statements. Any statements preceded or followed by or thatinclude the words "targets", "plans", "believes", "expects", "aims", "intends","will", "may", "anticipates" or similar expressions or the negative thereof areforward-looking statements. Forward-looking statements include statementsrelating to the following: (i) future capital expenditures, expenses, revenues,profits, economic performance, financial condition, dividend policy, losses andfuture prospects; (ii) business and management strategies and the expansion andgrowth of Future's or Highbury's operations; and (iii) the effects of governmentregulation on Future's or Highbury's businesses. These forward-looking statements involve known and unknown risks, uncertaintiesand other factors which may cause the actual results, performance orachievements of any such person, or industry results, to be materially differentfrom any results, performance, or achievements expressed or implied by suchforward-looking statements. These forward-looking statements are based onnumerous assumptions regarding the present and future business strategies ofsuch persons and the environment in which each will operate in the future. Allsubsequent oral or written forward-looking statements attributable to Future orHighbury, or any of their members or any persons acting on their behalf areexpressly qualified in their entirety by the cautionary statement above. Exceptas required by law, neither Future nor any other party intends to update theseforward-looking statements, even though the affairs of Future will change fromtime to time. OFFER IN THE UNITED STATES The Offer in the United States is being made solely by Future and neither MorganStanley nor any of its affiliates or related entities is making the Offer in theUnited States. Notice to New Hampshire Residents: Neither the fact that a registrationstatement or an application for a license has been filed under this chapter withthe State of New Hampshire nor the fact that a security is effectivelyregistered or a person is licensed in the State of New Hampshire constitutes afinding by the New Hampshire Secretary of State that any document filed underChapter 421-B of the New Hampshire Revised Statutes Annotated is true, completeand not misleading. Neither any such fact nor the fact that an exemption orexception is available for a security or a transaction means that the Secretaryof State of New Hampshire has passed in any way upon the merits orqualifications of, or recommended or given approval to, any person, security, ortransaction. It is unlawful to make, or cause to be made, to any prospectivepurchaser, customer, or client any representation inconsistent with theprovisions of this paragraph. Future is not aware of any jurisdiction in which the making of the Offer isprohibited by any administrative or judicial action pursuant to any validstatute of any state of the United States. If Future becomes aware of any validUS state statute prohibiting the making of the Offer, it will make a good faitheffort to comply with such US state statute or seek to have such statutedeclared inapplicable to the Offer. If, after such good faith effort, Futurecannot comply with any such state statute, the Offer will not be made to (andtenders will not be accepted from or on behalf of) holders in such state. The Offer is being made for securities of a United Kingdom company and UnitedStates investors should be aware that this Announcement, the Offer Document, theListing Particulars and any other disclosure documents relating to the Offerhave been or will be prepared in accordance with the City Code (as applicable),the Listing Rules (as applicable) and United Kingdom disclosure requirements,format and style, all of which differ from those in the United States. Future'sand Highbury's financial statements, and all financial information that isincluded in this Announcement or that may be included in the Offer Document orthe Listing Particulars or any other disclosure documents relating to the Offer,have been or will be prepared in accordance with United Kingdom generallyaccepted accounting principles and thus may not be comparable to financialstatements of United States companies. Future is incorporated under the laws of England and Wales. All of the FutureDirectors are residents of countries other than the United States. As a result,it may not be possible for United States shareholders of Future to effectservice of process within the United States upon Future or such Future Directorsor to enforce against any of them judgements of the United States predicatedupon the civil liability provisions of the federal securities laws of the UnitedStates. It may not be possible to sue Future or its officers or directors in anon-US court for violations of the US securities laws. In accordance with normal UK market practice, Future or its nominees or brokers(acting as agents) may from time to time during the period in which the Offerremains open for acceptance make certain purchases of, or arrangements topurchase, Highbury Shares otherwise than under the Offer, such as in open marketor privately negotiated purchases. Such purchases, or arrangements to purchase,will comply with all applicable UK rules, including the City Code, the ListingRules and the rules of the London Stock Exchange. Any person who, alone or acting together with any other person(s) pursuant to anagreement or any understanding (whether formal or informal) to acquire orcontrol securities of Highbury, owns or controls, or becomes the owner orcontroller, directly or indirectly, of one per cent or more of the issuedHighbury Shares is generally required under the provisions of Rule 8 of the CityCode to notify a Regulatory Information Service and the Panel of every dealingin such securities during the Offer period. Please consult your financialadviser immediately if you believe this Rule may be applicable to you. NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN OR INTO AUSTRALIA, CANADA OR JAPAN Recommended Offer by Morgan Stanley & Co. Limited on behalf of Future plc (or by Future in the United States) for Highbury House Communications plc 1. Introduction The Boards of Future and Highbury are pleased to announce that they have reachedagreement on the terms of a recommended share offer (with a Partial CashAlternative) to be made by Morgan Stanley, on behalf of Future (or by Future inthe United States), to acquire the whole of the issued and to be issued ordinaryshare capital of Highbury. 2. The Offer The Offer, which will be subject, inter alia, to the approval of FutureShareholders, and to the terms and conditions set out in Appendix I to thisAnnouncement and the further terms set out in the Offer Document and the Form ofAcceptance, will be made by Morgan Stanley, on behalf of Future (or by Future inthe United States), on the following basis: 10 New Future Shares for every 83.25 Highbury Shares and so on in proportion for any number of Highbury Shares held, provided thatfractions of New Future Shares will not be allotted to Highbury Shareholders whoaccept the Offer. Entitlements to New Future Shares will be rounded down to thenearest whole number of New Future Shares and fractional entitlements will beaggregated and sold in the market and the net proceeds retained for the benefitof the Enlarged Group. The Offer will include a Partial Cash Alternative described in more detailbelow. The Offer values the issued share capital of Highbury at approximately £31.6million and each Highbury Share at 10.0 pence (calculated using the ClosingPrice of a Future Share of 83.25 pence on 11 February 2005, being the lastDealing Day prior to this Announcement), representing a premium of: - 35.5 per cent over the Closing Price of a Highbury Share of 7.38 penceon 25 January 2005, being the last Dealing Day prior to Highbury's announcementon 26 January 2005 that it had received an approach that might or might not leadto an offer for Highbury; - 6.6 per cent over the Closing Price of a Highbury Share of 9.38 penceon 11 February 2005, being the last Dealing Day prior to this Announcement; and - 20.0 per cent over the price of 8.33 pence per Highbury Share, beingthe average Closing Price of a Highbury Share over the last three months priorto 26 January 2005. At the Offer price, Highbury has an enterprise value of £96.5 million, includingHighbury's current net debt of £64.9 million, which is being assumed by theEnlarged Group. The New Future Shares will rank pari passu with existing Future Shares in allrespects, including the right to receive all dividends declared, made or paidfrom the date of the Offer becoming or being declared unconditional in allrespects. It is expected that Future's interim dividend for the six monthsending 31 March 2005 will be declared after the Offer becomes or is declaredunconditional in all respects. The Offer will be conditional, inter alia, on the approval of the Acquisition byFuture Shareholders. An Extraordinary General Meeting of Future will be convenedin due course to approve, inter alia, the Acquisition, further details of whichwill be set out in the Circular to be sent to Future Shareholders. Full acceptance of the Offer (on the basis set out in Appendix I to thisAnnouncement) will result in the issue of up to approximately 38.0 million NewFuture Shares by Future, and in Highbury Shareholders holding approximately 10.5per cent of the Enlarged Share Capital (assuming no elections for cash under thePartial Cash Alternative and no exercises of any of the options under theHighbury Share Option Schemes). Details of the conditions and certain further terms of the Offer are set outbelow and in Appendix I to this Announcement. The full terms of the Offer willalso be set out in the Offer Document and in the Form of Acceptance, includingsuch further terms as may be required to comply with US federal securities laws. 3. Partial Cash Alternative Under the Partial Cash Alternative, each Highbury Shareholder who validlyaccepts the Offer will be entitled to elect to receive (subject to thelimitations set out below) 10.0 pence in cash for each Highbury Share, insteadof some or all of the New Future Shares to which he would otherwise becomeentitled. The aggregate amount of cash payable pursuant to the Partial CashAlternative will not exceed £10 million. Accordingly, the extent to which effectwill be given to elections for the Partial Cash Alternative will depend upon theextent to which elections under the Partial Cash Alternative are not made byother Highbury Shareholders. If such cash amount is insufficient to satisfy allelections for the Partial Cash Alternative such elections will be scaled down asnearly as is practicable on a pro rata basis to the applications, with thebalance of entitlements being satisfied in New Future Shares (subject tofractional entitlements being treated as above). The Partial Cash Alternative will be made available until 3.00 p.m. on the FirstClosing Date and may not be available thereafter. The Partial Cash Alternativewill be conditional upon the Offer becoming or being declared unconditional inall respects. The cash payable under the Partial Cash Alternative will be funded from a newcommitted borrowing facility from Barclays Bank PLC. 4. Recommendation The Highbury Directors, having been so advised by Close Brothers, consider theterms of the Offer to be fair and reasonable. In providing advice to theHighbury Board, Close Brothers has taken into account the commercial assessmentsof the Highbury Directors. Accordingly, the Highbury Directors will unanimously recommend that HighburyShareholders accept the Offer as they (and certain of their connected persons)have irrevocably undertaken to do in respect of their entire holdings ofHighbury Shares amounting to approximately 1.5 per cent of the issued sharecapital of Highbury. 5. Background to and reasons for the Offer Future is a successful international publisher of special-interest consumermagazines. Future's stated strategy has been to focus on organic growth and selectiveacquisition opportunities within the special-interest consumer magazines sectorwhich it knows well, primarily in the UK and US. This strategic focus hasenabled Future to increase group sales by 33 per cent and its adjusted annualoperating profit by 136 per cent comparing the audited year ended 31 December2001 and the unaudited pro forma twelve months to 30 September 2004. As part of this strategy, Future has acquired and successfully integrated 14titles over the two years to 30 September 2004. These acquisitions were fundedfrom the Future Group's own net cash resources rather than debt. Since that dateFuture has purchased a further 15 titles. The Future Directors consider that theFuture Group is well positioned for further acquisition-based growth. The Acquisition of Highbury represents an attractive opportunity for the FutureGroup to take a significant further step forward within the special-interestconsumer magazines sector. Following the Acquisition, Future intends to continuethe process of divestment of certain Highbury business units, initiated by themanagement of Highbury, in order to focus on the consumer magazine portfolio.Following the Acquisition, Future would become the second-largest publisher ofspecial-interest consumer magazines in the UK and the third-largest UK consumermagazine publisher overall, in each case as measured by retail sales value. TheEnlarged Group would have pro forma revenues (excluding approximately £24.5million of revenues relating to BCom) for the year ended 31 December 2003 of£266.3 million and proforma adjusted operating profits (before projected annualcost savings of at least £4.5 million and excluding approximately £0.8 millionof profits relating to BCom) for the year ended 31 December 2003 of £31.8million. As at 31 December 2004, the Enlarged Group (excluding BCom) would havehad approximately 2,000 employees and would have published over 170 consumermagazine titles (excluding Highbury Local titles). The Future Directors believe that, as a result of combining the complementarymagazine portfolios, Future will have increased scale and financial strength forstronger growth. The Future Directors believe that the Acquisition will bebeneficial to shareholders, customers and employees. Specifically, given the synergies expected to be created through thecombination, shareholders in the Enlarged Group will benefit from the valueintended to be created by: • Further diversification of Future's portfolio Future will have an increasingly diverse portfolio of special-interest consumertitles, lessening its dependence on any one sub-sector. In particular, theFuture Directors estimate that the revenue contribution from games titles forFuture, which was 46 per cent for the year ended 31 December 2003, would reduceto below 35 per cent for the Enlarged Group (excluding BCom); and from 33 percent to below 25 per cent for the enlarged UK business. • Expansion through the addition of a complementary portfolio of assets The Future and Highbury portfolios are highly complementary and they generallyoperate in the same or adjacent sectors. Indeed many of the attractivespecial-interest titles now owned by Highbury have previously been considered asacquisition targets by Future. In particular, the acquisition of Highbury would build on Future's existingoffering in sectors such as cars, computer games, computing, digitalphotography, hobbies & pastimes, home entertainment and parenting and will openup new sectors adjacent to its current operations in areas such as gardening,home interests, men's lifestyle, motorbikes and puzzles. Future envisages that Highbury's US assets will be integrated into Future'sestablished US operations, which in 2003 accounted for 25 per cent of Future'sturnover; and that Highbury's contract publishing business will be merged withFuture Plus, its own existing contract publishing operation. • Increased operational and financial scale The acquisition of Highbury will deliver further momentum to Future's UK and USoperations through increased scale, strengthening its position within the retailenvironment. It will provide further financial strength to drive both organicand subsequent acquisition-led growth. • Enhanced revenue opportunities Future will use its financial strength and proven experience together with thecombined management skills in the Enlarged Group to drive the launch of newtitles and brand extensions. The portfolio of the Enlarged Group will be broaderand deeper. Revenue opportunities include: • greater launch activity with a number of Highbury's titles acting as important platforms; • further development of Highbury's export and licensing activities; • more bases for subsequent acquisitions; and • building on successful contract publishing skill-set. • Attractive cost savings The Future Directors believe that the annualised operating cost savings as aresult of combining the two businesses will amount to at least £4.5 million inthe first full financial year of ownership of Highbury (the year to 30 September2006). These savings will be realised through operational efficiencies such assecuring enhanced supply terms (including paper, print and cover-mounts)throughout the Enlarged Group and the rationalisation of stock exchange listingand headquarters' costs and other overhead areas. The total costs of achievingthese savings are expected to amount in total to up to £4.0 million, which areexpected to be incurred in the current financial year. (see note 3) Other substantial benefits, at a cash cost to be determined, could includeimproved distribution arrangements and, separately, increased volume salesefficiency and rationalisation of the property portfolio, especially in centralLondon (which may lead to an additional property provision). • More efficient balance sheet Following the Offer becoming or being declared unconditional in all respects andprior to the planned Highbury disposal of BCom, the Enlarged Group will assumeHighbury's current net debt of £64.9 million. The Enlarged Group will thereforehave pro forma borrowings of between £80 million and £90 million (assuming noelections under the Partial Cash Alternative and no exercises of any of theoptions under the Highbury Share Option Schemes and before receipt of the BComand former Highbury head office disposal proceeds). This level of gearing ispart of the Future Directors' plan for a more efficient capital structure. TheFuture Directors will continue to maintain a prudent overall approach tofinancing, whilst preserving flexibility to take advantage of further businessopportunities in due course. • Earnings accretion The Future Directors believe that the Acquisition will have an accretive effecton earnings per share in the first full year of ownership. (This statement doesnot constitute a profit forecast nor should it be interpreted to mean thatfuture earnings per share of Future following the Offer becoming or beingdeclared unconditional in all respects will necessarily match or exceedhistorical earnings per share of Future). • Integration plan Future intends to blend Future's and Highbury's consumer businesses in the UKand also to integrate Highbury's smaller US business with Future's US businessand to merge Highbury's contract publishing with Future Plus. Future alsointends to rationalise the Enlarged Group's property portfolio, preferablyestablishing a single central London site. In addition, Future will integrate the different elements of Highbury to provideenhanced management visibility, control and responsiveness. The Future Directorsbelieve that the Enlarged Group will provide an increased range of careeropportunities for employees. The Future Directors believe that, if approved, this transaction will alsobenefit Highbury Shareholders by affording them an opportunity to share in thesuccess of the Enlarged Group including the benefit of synergies not otherwiseavailable to Highbury as a stand-alone business. 6. Inducement fee As an inducement to Future to make the Offer, Highbury and Future have enteredinto an agreement under which Highbury has agreed to pay Future in cash a fee ofapproximately £0.3 million (inclusive of VAT), in the event that the Offer iswithdrawn (whether before or after posting of the Offer Document) or lapses inaccordance with its terms (other than solely as a consequence of (i) the non-fulfilment of the regulatory condition set out in paragraph (d) of Appendix I tothe Announcement or (ii) in the event of a Higher Competing Offer (as definedbelow), the non-fulfilment of the condition set out in paragraph (c) of AppendixI to this Announcement) and prior to such withdrawal or lapse: (i) any person or entity (other than Future or any person acting in concert withFuture, as such term is defined in the Code) publicly announces an intention tomake a Higher Competing Offer (as defined below) in accordance with Rule 2.5 ofthe Code, which has not been withdrawn prior to the withdrawal or lapse of theOffer and such Higher Competing Offer (as defined below) subsequently becomes oris declared unconditional in all respects; (ii) the Highbury Directors (or any independent committee of the Highbury boardof directors) withdraw or modify, in a manner adverse to Future, theirrecommendation to the Highbury Shareholders in respect of the Offer; or (iii) Highbury (or any other member(s) of the Highbury Group) enters into anagreement to dispose of any of Highbury's (or the Highbury Group's) assets(other than an agreement to dispose of BCom and/or Highbury Local) having anaggregate value in excess of £6 million without the consent of Future. For the purposes of this paragraph 6, a Higher Competing Offer means an offer orproposal (however effected, including by means of a scheme of arrangement) toacquire Highbury ordinary shares carrying more than 50 per cent of the votingrights normally exercisable at general meetings which is made or to be made by,or on behalf of, a person or entity other than Future or any person acting inconcert with Future and which involves either a cash offer (or a cashalternative to a securities exchange offer) at a price in excess of 10.0 penceper Highbury Share or a securities exchange offer (without a cash alternative),involving either (a) the issue of securities of a class already admitted totrading on the London Stock Exchange (or on the Alternative Investment Market ofthe London Stock Exchange or admitted to trading on any other exchange) or (b)the issue of unlisted securities, the value of which offer or proposal, ineither case, on the day of announcement exceeds 10.0 pence per Highbury Share. 7. Irrevocable undertakings to accept the Offer Future has received irrevocable undertakings from the Highbury Directors (andcertain of their connected persons) to accept the Offer in respect of theirentire holdings of 4,636,734 Highbury Shares in aggregate representingapproximately 1.5 per cent of Highbury's issued share capital. These irrevocableundertakings to accept the Offer are binding unless the Offer lapses or iswithdrawn. 8. Financing of the Partial Cash Alternative The cash payable under the Partial Cash Alternative will be funded from a newcommitted borrowing facility from Barclays Bank PLC. 9. 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. It is thefifth largest consumer magazine publisher in the UK as measured by retail salesvalue. As at 11 February 2005, Future's market capitalisation was £270.9million. 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 (symbol FUTR) 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. 10. Current trading for Future To coincide with Future's Annual General Meeting on 26 January 2005, Futurereleased a trading update in relation to its revenues and general trading forthe three months ended 31 December 2004. The trading update indicated thattrading was satisfactory. 11. Information on Highbury Highbury is a publisher of over 200 consumer, business to business and contractmagazines. It publishes 94 consumer titles primarily in the UK (from a number ofoffices, including London, Swanley, Manchester, Ely, Orpington and Bournemouth),and also has operations in South Africa, North America and Australia. Itdistributes titles throughout Europe, North America and Africa, and employsapproximately 1,000 people in total. In the year ended 31 December 2003, Highbury reported audited turnover of £108.1million and an audited profit before tax, goodwill amortisation, impairment andexceptional items of £7.1 million. As at 31 December 2003, Highbury had auditednet assets of £99.9 million including audited net debt of £61.9 million.For the half year ended 30 June 2004, Highbury reported unaudited turnover of£55.5 million and an unaudited profit before tax, goodwill amortisation,impairment, exceptional items and refinancing fees of £2.3 million. As at 30June 2004, Highbury had unaudited net assets of £74.0 million, includingunaudited net debt of £59.3 million. On 9 February 2005, Highbury announced that it had entered into a conditionalagreement to dispose of BCom. 12. Current trading for Highbury The text below is extracted from the pre-close trading statement made byHighbury on 31 January 2005: "Financial Review As was indicated in the statement on 21 December 2004, trading was softer thananticipated in Q3 and Q4 in parts of the Highbury Group's business. In Decembertrading was patchy, primarily weaker in some parts of the UK Lifestyle division,but the Highbury Group enjoyed some pick-up in Highbury Entertainment, wherecopy sales were stronger than expected. Highbury Group revenues in 2004 wereapproximately £115m of which UK newsstand consumer businesses contributed nearly£70m. • UK Consumer Overall, in the UK Consumer divisions, revenue from newsstand magazines in Q4was 3% lower compared to 2003, of which circulation revenue was 2% lower andadvertising down 7%. On a like-for-like basis, taking into account titles closedin 2004, revenues were respectively lower by 2%, 1% and 5%.Performance was disappointing in Highbury Lifestyle (which includes Front, RealHomes, Fast Car, Gardens Monthly) where both advertising and copy sales in themen's lifestyle and home interest titles were weaker than expected. Overall, Q4revenues were 7% lower than 2003. Nonetheless, the Highbury Group's mostprofitable title, Fast Car, increased its share in a tough sector during thisperiod. Trading was more robust in Highbury Entertainment with Q4 revenues 3% higherthan in 2003 due to a strong December most notably in videogames, home cinema,digital photography and PC. Profits in the former Paragon Publishing division,acquired in August 2003, were at a record monthly level in December despitesofter advertising revenues in the run-up to Christmas. Revenues here were also7% higher in Q4 than the previous year, of which videogames was 9% higher andcomputing 3% higher. • Other UK Highbury Business finished as expected in Q4 and cemented the recovery from2003. Highbury Local weakened slightly in December due to soft propertyadvertising but has maintained its margins. Highbury Direct (direct mail,newsletters and fulfilment) struggled, especially in December, and made a smallloss at year-end. • International Trading in the overseas divisions of South Africa and USA was on target andrevenues and operating profit for both finished the year ahead of 2003. • Strategic and Operational Review Good progress is being made with the disposal programme of non-core assets. TheHighbury board believes that the sale of Highbury Business is moving into itsfinal phase and still expects to complete this disposal by the end of Q1.Negotiations are progressing for the sale of Highbury Local and a recentapproach to acquire Highbury's South African division is being carefullyconsidered. The sale of the Highbury Group's former head office has advancedwith exchange of contracts now having taken place. This disposal will realiseapproximately £2m after expenses. As indicated last month, the Highbury Group has also sought to exit from itsnewsletters and direct marketing and fulfilment operations. The former is due tobe sold shortly albeit for a nominal sum, whilst the latter is due to be closeddown by the end of Q1 unless a buyer can be quickly found. As a result of these management actions, and in light of the on-going disposals,the Highbury Group will incur exceptional restructuring costs, in addition tothose highlighted in the Highbury Group's interim results and a significantfurther non cash write down of intangible assets. Furthermore, followingmanagement's review of the Highbury Group's balance sheet, significantexceptional charges will also be made at the year-end. The Highbury Group hopes to complete shortly, and before the end of February,the renegotiation of new banking facilities to reflect the planned much changedstructure of the business. These discussions are at an advanced stage andmanagement are confident that these new terms will be satisfactorily concluded.As a consequence of the reorganisation of the UK consumer operations in the pastsix months, a significant number of new appointments have been made tostrengthen publishing management in both UK consumer divisions. These include anew editor and publisher for Front magazine (the latter being a newly createdpost to support this title's efforts in an increasingly competitive sector), aswell as a number of senior appointments of highly experienced managers inHighbury Entertainment. Additionally, much of the Highbury Group's UKadvertising sales structure has been overhauled with many new replacement staffjoining. There is now more focus on cross-portfolio selling, incentivisationplans have been changed and sales management tightened. Circulation andpublishing management teams have also been reorganised to make them morecustomer focused. The Highbury Group has made progress in repositioning many of its key titlese.g. the imminent re-launch of all its UK home interest magazines, refocusingand increasing promotion efforts and enhancing the creative execution ofeditorial, design and packaging. Highbury's Management believes this will domuch to improve product competitiveness. • Outlook The Highbury Board believes that the action taken so far to improve theoperational capabilities of the Highbury Group, together with the anticipatedresults of the disposals referred to above, will put Highbury on a firmerfooting from which to move forward." The text below is extracted from the profit estimate made by Highbury on 11February 2005: "Having completed the work necessary for the profit estimate to be reported on,the board of Highbury confirms that its pre-tax profit for the year ended 31December 2004 is expected to be approximately £3.8 million (before goodwill andintangible amortisation and impairment, exceptional items, refinancing chargesand FRS4 debt issue cost amortisation). As a result of actual and planned disposals and the closure of Wyvern andcertain titles, together with (Highbury) management's review of the ongoingportfolio, the total intangible publishing rights and goodwill non-cashimpairment charge for the year to 31 December 2004 is expected to be not morethan £53 million. Of this figure, £26 million relates to the second half of theyear and of this £22 million is attributable to the businesses identified forsale or closure. As expected, and as foreshadowed in the Highbury trading update on 31 January,further exceptional restructuring costs and significant exceptional charges havebeen made at the year-ended 31 December 2004. These are expected to beapproximately £4.8 million, comprising approximately £1.9 million ofrestructuring and legal costs (being £1.4 million of redundancy costs and £0.5million of legal charges) and approximately £2.9 million of non-cash balancesheet write-downs. The cash cost of the restructuring and legal charges wassubstantially incurred in 2004. In addition, there are approximately £0.9million exceptional refinancing costs, other refinancing charges of £0.6 millionand £0.3 million amortisation of FRS4 debt issue costs charged to interest." The above statements regarding financial performance for the twelve months ended31 December 2004 and the year to that date (the "Profit Estimate") constitute aprofit estimate within the definitions set out in the City Code. Accordingly,the following statements are required. The Profit Estimate has been prepared on the basis of the accounting policiesnormally adopted by Highbury and takes into account the results shown byunaudited interim accounts for the six months ended 30 June 2004, and theresults shown by unaudited management accounts for the six months ended 31December 2004. Letter from Deloitte & Touche LLP: "The DirectorsHighbury House Communications plcJordan House47 Brunswick PlaceLondonN1 6EB The DirectorsClose Brothers Corporate Finance Limited10 Crown PlaceLondonEC2A 4FT 14 February 2005 Dear Sirs Highbury House Communications plc (the "Company") We have reviewed the accounting policies and calculations used in preparing theprofit estimate for the Company and its subsidiaries (the "Group") for the yearended 31 December 2004, for which the Directors of the Company are solelyresponsible, as set out in the announcement by Future plc of a firm intention toacquire the Company (the "14 February Announcement"). The profit estimate takesaccount of the results shown by unaudited interim accounts for the six monthsended 30 June 2004, and the results shown by unaudited management accounts ofthe Group for the six months ended 31 December 2004. We conducted our work in accordance with the Statements of Investment CircularReporting Standards issued by the Auditing Practices Board. Our work has not been carried out in accordance with auditing or other standardsand practices generally accepted in the United States or other jurisdictions andaccordingly should not be relied upon as if it had been carried out inaccordance with those standards and practices. In our opinion, the profit estimate, so far as the accounting policies andcalculations are concerned, has been properly compiled on the basis stated bythe Directors of the Company in the 14 February Announcement and the basis ofaccounting is consistent with the accounting policies of the Group. The work we have carried out on the profit estimate is solely for the purpose ofreporting to the Directors of the Company, and hence to the existingshareholders of the Company, and to the Directors of Close Brothers CorporateFinance Limited. As a result, we assume no responsibility to any offeror or anyother person other than the Directors of the Company, and hence to the existingshareholders of the Company, and to the Directors of Close Brothers CorporateFinance Limited in respect of or arising out of or in connection with our workon the profit estimate. Yours faithfully Deloitte & Touche LLPChartered Accountants" Letter from Close Brothers: "The DirectorsHighbury House Communications plcJordan House47 Brunswick PlaceLondonN1 6EB 14 February 2005 Dear Sirs We refer to the statements regarding financial performance for the year ended 31December 2004 of Highbury House Communication plc (the "Profit Estimate") setout in a press announcement of today's date. We have considered the letter of today's date addressed to you and CloseBrothers Corporate Finance Limited from Deloitte & Touche LLP regarding theaccounting policies adopted and calculations made in arriving at the ProfitEstimate. On the basis of our discussions with you and having regard to the letter fromDeloitte & Touche LLP, we consider that the Profit Estimate, for which you asDirectors of Highbury House Communications plc are solely responsible, has beenmade after due and careful consideration. Yours faithfully Close Brothers Corporate Finance Limited" 13. Management and employees Future has confirmed that the existing employment rights, including pensionrights, of all employees of Highbury will be fully safeguarded. It is intended that Mark Simpson, Highbury's Chief Executive Officer, and OwenDavies, its Finance Director, will be retained on a consultancy basis to assistwith the integration of Highbury and the various existing disposal projects. Itis intended that the other Highbury Directors will stand down from the board ofHighbury once the Offer becomes or is declared unconditional in all respects. 14. Disclosure of interests in Highbury Save as disclosed in paragraph 7, neither Future nor, so far as Future is aware,any person deemed to be acting in concert with Future owns or controls anyHighbury Shares or has any options to acquire Highbury Shares, nor does any suchperson have any arrangements in relation to Highbury Shares or any securitiesconvertible into or exchangeable into Highbury Shares or options (includingtraded options) in respect of, or derivatives referenced to, any such shares.For these purposes, "arrangement" includes any indemnity or option arrangement,any agreement or understanding, formal or informal, of whatever nature, relatingto Highbury Shares which may be an inducement to deal or refrain from dealing insuch shares. In the interests of confidentiality prior to this Announcement,Future has not made any enquiries in this respect of certain parties who may bepresumed by the Panel to be acting in concert with Future for the purposes ofthe Offer. 15. Further details of the Offer The Highbury Shares will be acquired by Future fully paid and free from allliens, charges, equitable interests, encumbrances and any other third partyrights of any nature whatsoever and together with all rights now or hereafterattaching to them, including the right to receive in full and retain alldividends and other distributions (if any) subsequently declared, made or paid.The New Future Shares to be issued pursuant to the Offer will be issued creditedas fully paid and free from all liens, equities and encumbrances. The New FutureShares will rank pari passu in all respects with the existing Future Shares,including the right to receive all future dividends and other distributionsdeclared, made or paid by Future following the date on which the Offer becomesor is declared unconditional in all respects. Fractions of New Future Shareswill not be allotted to Highbury Shareholders who accept the Offer (includingholders who are deemed to accept the Offer) but will be aggregated and sold inthe market and the net proceeds retained for the benefit of the Enlarged Group.The Offer will be subject to the conditions and terms of the Offer set out inAppendix I, and the further terms that will be set out in the Offer Document andin the Form of Acceptance and such further terms as may be required to complywith US federal securities laws. The Offer will lapse if it is referred to the Competition Commission before theFirst Closing Date or the date on which the Offer becomes or is declaredunconditional as to acceptances, whichever is the later. The Offer will also be conditional, inter alia, on Future Shareholders approvingthe Acquisition. An Extraordinary General Meeting of Future will be convened indue course to consider the appropriate resolutions, further details of whichwill be set out in the Circular to be sent to Future Shareholders. The FutureDirectors intend to recommend Future Shareholders to vote in favour of suchresolutions as they intend to do in respect of their entire beneficial holdingsof, in aggregate, 5,385,980 Future Shares (representing approximately 1.7 percent of Future's existing issued share capital). An application for clearance will be made to the Inland Revenue under section138 of the Taxation of Chargeable Gains Act 1992 to seek clearance that theOffer will meet the commercial requirement necessary to qualify as a share forshare exchange. This is relevant to a Highbury Shareholder (if any) who, aloneor together with persons connected to him, holds more than 5 per cent ofHighbury Shares. The Offer is not conditional on such clearance being obtained.16. Listing of and dealings in New Future Shares Application will be made to the UKLA for the New Future Shares to be admitted tothe Official List of the UK Listing Authority and an application will also bemade to the London Stock Exchange for the New Future Shares to be admitted totrading on the London Stock Exchange's markets for listed securities. Dealingsin the New Future Shares are expected to commence on the first Dealing Dayfollowing the date on which the Offer becomes or is declared unconditional inall respects (save for the condition relating to Admission). 17. Compulsory acquisition and cancellation of listing and trading If Future receives acceptances under the Offer in respect of, and/or otherwiseacquires, 90 per cent or more of the Highbury Shares to which the Offer relatesand the Offer becomes unconditional in all respects, Future intends to exerciseits rights pursuant to the provisions of sections 428 to 430F (inclusive) of theAct to acquire compulsorily Highbury Shares in respect of which acceptances havenot then been received. It is intended that, following the Offer becoming or being declaredunconditional in all respects and subject to any applicable requirements of theUK Listing Authority, Future will procure that Highbury applies to the UKListing Authority for the listing of the Highbury Shares on the Official List tobe cancelled and to the London Stock Exchange for the admission to trading ofthe Highbury Shares to be cancelled. It is anticipated that such cancellationswill take effect no earlier than 20 business days after the Offer becomes or isdeclared unconditional in all respects. Delisting would significantly reduce theliquidity and marketability of any Highbury Shares in respect of whichacceptances of the Offer have not been submitted. Following the Offer becoming or being declared unconditional in all respects, itis also the intention of Future to propose a resolution to re-register Highburyas a private company. 18. Highbury Share Option Schemes The Offer will extend to any Highbury Shares issued or unconditionally allottedand fully paid (or credited as fully paid) whilst the Offer remains open forRelated Shares:
Future