19th Apr 2006 15:20
Lookers PLC19 April 2006 NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO THE UNITED STATES OF AMERICA, CANADA, AUSTRALIA OR JAPAN 19 April 2006 FOR IMMEDIATE RELEASE Lookers plc ("Lookers") Posting of circular advising Lookers Shareholders to reject Pendragon's offer and a 2006 Profit Forecast The Board of Lookers announces that it is today posting a circular (the "Circular") setting out its detailed response to Pendragon's offer document andrecommending that Lookers shareholders reject Pendragon's inadequate offer of1.15 Pendragon shares for every Lookers share Lookers also announces today both its record Q1 trading results and its fullyear 2006 forecast of adjusted profit before tax up 39% to not less than £25.1million. Adjusted EPS for 2006 is forecast to be not less than 49.0p, up by 30%on 2005. The basis of the preparation of this forecast, the assumptions onwhich it is based, and the text of the letters which appear in the Circular areset out in Appendix 1 to this announcement. Commenting on the posting of the defence document, Ken Surgenor, Chief Executiveof Lookers said: "Today's Q1 results and accompanying full year profit forecastdemonstrate conclusively that Pendragon's offer is wholly inadequate. Inaddition, shareholders' investment in Lookers' exceptional growth prospectscould be at severe risk if they choose to accept Pendragon shares." The text of a letter from Fred Maguire the Chairman of Lookers, contained in theCircular is set out below: "Dear shareholder On 27 January 2006, Pendragon announced that it had made two formal approachesto the Board of Lookers regarding a possible all-share offer for the Company.As explained in my letter to you dated 31 January 2006, in considering andrejecting those indicative approaches, the Board took into account the nature ofthe consideration being offered and the inadequate premium over the prevailingLookers share price. Despite our readiness to discuss any improvement in the terms of an offer byPendragon for your Company, Pendragon and its advisers expressed no willingnessto improve upon those terms. Subsequently on 9 March 2006, Pendragon announcedits intention to make a hostile offer for Lookers. You will have recentlyreceived an offer document from Pendragon, setting out its offer to acquireLookers on the basis of just 1.15 Pendragon shares for every single Lookersshare. Your Board carefully considered this offer with its advisers as it does with allstrategic matters that affect shareholder value. The Board is convinced thatthis offer very significantly undervalues Lookers and is not in shareholders'best interests. It therefore has no hesitation in advising shareholders toreject this unsolicited offer and not to complete any form of acceptance. This document will demonstrate why: • Lookers has exceptional growth prospects as an independent company • Pendragon's offer substantially undervalues your Company • Pendragon's shares carry significant risk YOU SHOULD RETAIN YOUR SHARES IN LOOKERS This document contains a first quarter trading update for Lookers, supportingthe Board's positive outlook for the future. This update shows that adjustedprofit before tax for the first three months of the current year was up 90% to£11.0 million (Q1 2005: £5.8 million). This document also contains a 2006 profit forecast for Lookers which reinforcesthe continuing strong growth prospects of your Company. Lookers' Board isforecasting adjusted PBT of not less than £25.1m equating to an adjusted EPS forthe year of 49.0p, growth of 30% on 2005. Lookers has exceptional growth prospects Because Pendragon is offering you its shares as consideration for your shares inLookers, your Board has considered carefully the prospects for earnings growthin both Pendragon and Lookers. It has concluded on the basis of historical,current and prospective trading results that Lookers offers materially betterprospects for earnings growth than Pendragon. Accordingly, the Board hasconcluded that Pendragon's offer should be rejected on the basis of the twocompanies' relative growth prospects. Pendragon's all-share offer significantly undervalues Lookers The Lookers' Board believes that a fair exit value for Lookers is in excess of920p per share in cash. Pendragon's offer of 722p in shares is a discount ofmore than 21% to this level. The Board has therefore concluded that Pendragon'soffer should be rejected because it fundamentally undervalues Lookers. Pendragon's all-share offer puts the value of your investment at risk The Lookers Board has considered carefully the risks attaching to holders ofPendragon shares. It has concluded there are three key areas of risk that shouldbe considered when assessing Pendragon's offer which are as follows: • Pendragon is a highly indebted company. Lookers' Board estimates Pendragon's financial commitments to be more than £1.4 billion; • Four manufacturers have already notified Lookers that they will withdraw franchises in the event of a takeover by Pendragon resulting in £232 million of lost revenues; and • Pendragon's own Information Memorandum acknowledges the material risks of failure to integrate the Lookers group. We believe that there are particular risks in relation to Lookers Northern Irish activities (2005 revenues: £349 million) and to FPS, Lookers' successful non-franchised parts distribution business (2005 revenues: £76 million). Pendragon has chosen not to offer you cash for your shares. If you accept thisoffer, you will become exposed to the risks set out above. Your Board has therefore concluded that Pendragon's offer should also berejected on the basis of the unacceptable risks Lookers' shareholders would faceif they were to accept the offer. Management and strategy Pendragon accuses Lookers of having a confused strategy. However, Lookers hasconsistently focused on its strategy of developing high quality relationshipswith a mix of volume and prestige manufacturers, and developing its presence incomplementary markets. Meanwhile, Pendragon has frequently changed its statedstrategy to justify whichever opportunistic acquisition comes along. Pendragon also states that management accountability is key. However, Pendragonhas consistently failed to provide any insight into the synergies gained fromits acquisitions. Furthermore, Pendragon also claims that an acquisition ofLookers is low risk with regard to manufacturer relations. However, your Boardhas already told you that 26.5% of Lookers 2005 turnover is at risk ifmanufacturers that are entitled to terminate their agreements, do so as a resultof a Pendragon takeover. Four manufacturers have notified Lookers of theirexpress intention not to do business with Lookers if it falls under Pendragonownership. Pendragon's management has pursued a strategy that has resulted in lower growth,compared with Lookers, and increased risk for its shareholders. It isunderstandable that Pendragon would wish to acquire your Company to offset theresults of its own strategy. It is not however, prepared to pay you a fairprice. Pendragon's 722p offer is final. Pendragon's management has made a number of crude and ill-judged statements.Their own strategy is inconsistent and opportunistic. Do not allow Pendragon'smanagement to put the value of your investment at risk. Recommendation The Board of Lookers, which has been so advised by Rothschild, its financialadviser, unanimously recommends that Lookers' shareholders reject Pendragon'soffer and take no action in respect of their shareholdings. In providing adviceto the Board of Lookers, Rothschild has taken into account the commercialassessment of its Directors. Your Directors will not be accepting Pendragon's offer in respect of their ownbeneficial shareholdings. You are strongly advised not to sign any documentwhich Pendragon or its advisers send to you. Yours sincerelyFred MaguireChairman" Further details of the matters referred to in this announcement are set out inthe Circular which is being posted to Lookers shareholders today and copies ofwhich will be available for collection at the offices of Addleshaw Goddard at150 Aldersgate Street, London EC1A 4EJ and will be available on Lookers' website(www.lookers.co.uk) shortly. Copies of the Circular are being submitted to theFinancial Services Authority and will shortly be available for inspection at theFinancial Services Authority Document Viewing Facility, which is situated at 25The North Colonnade, Canary Wharf, London E14 5HS (Tel: +44 (0)20 7676 1000). Enquiries: Ken SurgenorDavid DysonLookers plc 0161 291 0043 Richard BaileyAndrew ThomasN M Rothschild & Sons Limited 0161 827 3800 Andrew HayesNick LyonJames HillHudson Sandler 020 7796 4133 Christopher WilkinsonNumis Securities 020 7776 1530 Terms used in the announcement shall, unless the context otherwise requires,have the meaning given to them in Appendix 3 to this announcement. N M Rothschild & Sons Limited ("Rothschild"), which is authorised and regulatedby the Financial Services Authority in the United Kingdom, is acting for Lookersin connection with the Offer and no one else and will not be responsible toanyone other than Lookers for providing the protections offered to clients of NM Rothschild & Sons Limited nor for providing advice in relation to the Offer. NM Rothschild & Sons Limited has given and not withdrawn its written consent tothe publication in this announcement of its name in the form and context inwhich it appears. PricewaterhouseCoopers LLP has given and not withdrawn its written consent tothe publication in this announcement of its name in the form and context inwhich it appears. This announcement contains statements that are or may be forward-looking withrespect to the financial condition, results of operations and businesses ofLookers. These forward-looking statements include risk and uncertainty becausethey relate to events and depend on circumstances that will occur in the future.There are a number of factors which could cause or may cause actual results ordevelopments to differ materially from those expressed or implied by suchforward-looking statements. APPENDIX 1 PROFIT FORECAST FOR LOOKERS FOR THE YEAR ENDING 31 DECEMBER 2006 In the absence of unforeseen circumstances and on the bases and assumptions setout below, the Directors of Lookers forecast that for the year ending 31December 2006 adjusted profit before tax will be not less than £25.1 million. Onthis basis, adjusted earnings per share (undiluted) will be not less than 49.0p. Bases 1. The profit forecast has been prepared on a basis consistent with the accounting policies that are expected to be used in Lookers' 2006 Annual Report. 2. The profit forecast is based on the unaudited management accounts for the three months ended 31 March 2006 and a forecast for the nine months ending 31 December 2006. 3. Adjusted profit before tax is calculated before deducting the amortisation of intangible assets, impairment of goodwill and exceptional items (which include the bid defence costs). 4. The estimated taxation charge of £7.53 million is calculated using an effective rate of 30%. 5. The adjusted earnings per share (undiluted) has been calculated by dividing the forecast adjusted profit before tax for the year ending 31 December 2006 of £25.1 million, less the estimated taxation charge of £7.53 million, by the forecast weighted average number of ordinary shares of 35,842,355 in issue during the year ending 31 December 2006. Assumptions The principal assumptions on which the profit forecast is based are set outbelow: 1. There will be no material change in the rates of interest, inflation or taxation (direct and indirect) from those currently prevailing. 2. There will be no material acquisitions or disposals of businesses other than that already reported. 3. There will be no material change in current levels of demand in the Group's principal markets caused by significant changes in economic or other factors. 4. There will be no major disruptions to the business of the Group, its suppliers or customers by reason of natural disaster, extreme weather conditions, industrial disruption, civil disturbance or government action. 5. There will be no change in legislation or regulatory requirements that will have a material impact on the Group's operations. 6. There will be no material change in the present management or control of Lookers. LETTER FROM NM ROTHSCHILD & SONS LIMITED IN RELATION TO THE PROFIT FORECAST NM Rothschild & Sons Limited 82 King Street Manchester M2 4WQStrictly Private & ConfidentialLookers plc776 Chester RoadStretfordManchesterM32 0QH 19 April 2006 Dear Sirs We have discussed with you as Directors of Lookers plc, the profit forecastcomprising adjusted profit before tax, profit before tax and adjusted earningsper share of Lookers plc and its subsidiaries for the year ending 31 December2006 (the "Profit Forecast") and the bases and assumptions on which it has beenprepared. We have also discussed the accounting policies and basis ofcalculation for the Profit Forecast with PricewaterhouseCoopers LLP, Lookersplc's auditors, and we have considered their letter of today's date addressed toboth yourselves and ourselves on this matter. On the basis of the foregoing, we consider that the Profit Forecast for whichyou as Directors of Lookers plc are solely responsible, has been compiled withdue care and consideration. This letter is provided to you solely in connection with Rule 28.3(b) of theCity Code on Takeovers and Mergers and for no other purpose. Yours truly, N M Rothschild & Sons Limited PricewaterhouseCoopers LLP 101 Barbirolli Square Lower Mosley Street Manchester M2 3PW The DirectorsLookers plc776 Chester RoadStretfordManchesterM32 OQH N M Rothschild & Sons82 King StreetManchesterM2 4WQ 19 April 2006 Dear Sirs Lookers plc We report on the profit forecast comprising the statement by Lookers plc (the "Company") for the year ending 31 December 2006 (the "Profit Forecast"). The Profit Forecast and the material assumptions, upon which it is based, areset out in Appendix 2 of the circular issued by the Company dated 19 April 2006(the "Circular"). This report is required by Rule 28.3(b) of the City Code andis given for the purpose of complying with that relevant Rule and for no otherpurpose. The work we have carried out on the Profit Forecast is solely for the purpose ofreporting to the Directors and to the Financial Adviser. Accordingly, we assumeno responsibility in respect of this report to Pendragon plc (the "Offeror") orany other person connected to, or acting in concert with the Offeror or to anyother person who is seeking or may in future seek to acquire control of theCompany (an "Alternative Offeror") or to any other person connected to or actingin concert with an Alternative Offeror. Responsibilities It is the responsibility of the directors of the Company (the "Directors") toprepare the Profit Forecast in accordance with the requirements of the CityCode. It is our responsibility to form an opinion as required by Rule 28.3(b) of theCity Code as to the proper compilation of the Profit Forecast and to report thatopinion to you. Basis of preparation of the Profit Forecast The Profit Forecast has been prepared on the basis stated in Appendix 2 of theCircular and is based on the unaudited management accounts for the 3 monthsended 31 March 2006 and a forecast for the nine months ending 31 December 2006.The Profit Forecast is required to be presented on a basis consistent with theaccounting policies of the Company. Basis of opinion We conducted our work in accordance with the Standards for Investment Reportingissued by the Auditing Practices Board in the United Kingdom. Our work includedevaluating the basis on which the historical financial information included inthe Profit Forecast has been prepared and considering whether the ProfitForecast has been accurately computed based upon the disclosed assumptions andthe accounting policies of the Company. Whilst the assumptions upon which theProfit Forecast are based are solely the responsibility of the Directors, weconsidered whether anything came to our attention to indicate that any of theassumptions adopted by the Directors which, in our opinion, are necessary for aproper understanding of the Profit Forecast have not been disclosed or if anymaterial assumption made by the Directors appears to us to be unrealistic. We planned and performed our work so as to obtain the information andexplanations we considered necessary in order to provide us with reasonableassurance that the Profit Forecast has been properly compiled on the basisstated. Since the Profit Forecast and the assumptions on which it is based relate to thefuture and may therefore be affected by unforeseen events, we can express noopinion as to whether the actual results reported will correspond to those shownin the Profit Forecast and differences may be material. Opinion In our opinion, the Profit Forecast has been properly compiled on the basis ofthe assumptions made by the Directors and the basis of accounting used isconsistent with the accounting policies of the Company. Yours faithfullyPricewaterhouseCoopers LLPChartered Accountants APPENDIX 2 BASES OF CALCULATION AND SOURCES OF INFORMATION 1.1 Unless otherwise stated and subject to paragraph 1.2 below,the financial and other information relating to the Lookers Group is derivedfrom Lookers' annual report and accounts for the year ended 31 December 2005,the Profit Forecast and related information set out in Appendix 1, otherpublished annual reports and accounts of Lookers for the relevant periods andother information made publicly available by the Lookers Group. 1.2 Financial information relating to the Lookers Group for theperiods prior to 31 December 2004 was prepared on the basis of UK GAAP. Thefinancial information for the year ended 31 December 2005 was originallyprepared on the basis of UK GAAP and was restated on a basis consistent withIFRS (as published and explained by Lookers in a public announcement on 9 August2005 (the "IFRS Announcement")). Unless otherwise stated, the financialinformation in this announcement for the financial year ended 31 December 2005is as restated under IFRS and, unless otherwise stated, is derived from the IFRSAnnouncement. Financial information relating to the Lookers Group for each yearcontained in this announcement is based on its financial year end of 31December. 1.3 Unless otherwise stated, information contained in thisannouncement regarding market share, sector analysis and the size of, positionand growth in, UK automotive retail market in relation to the Lookers Group, itscompetitors and to these markets generally, is based on Lookers' managementestimates and calculations sourced from Lookers' internal market databases and,where applicable, is presented by reference to calendar years rather thanfinancial years. 1.4 Values stated throughout this announcement have been roundedto the nearest whole number and are given to the stated number of decimalplaces. 1.5 Bases of calculations and sources of information are providedbelow in the order in which the relevant information appears in thisannouncement; accordingly, where any such information is repeated in thisannouncement, the underlying bases and sources are not. 1.6 The references to Pendragon's Offer have been extracted orderived from the Offer Document. 1.7 The reference to Lookers forecast profit before tax of£25.1million and the adjusted EPS figure of 49.0 pence is sourced from theprofit forecast contained at appendix 1, which has been reported on byPricewaterhouseCoopers LLP. 1.8 The reference to Q1 trading adjusted profit before tax of£11.0m is sourced from Lookers' Q1 trading statement issued on 19 April 2006 acopy of which has been included in the Circular. 1.9 The reference to Pendragon's offer of 722 pence is based onthe share exchange ratio that Pendragon has offered of 1.15 Pendragon's sharesper single Lookers share multiplied by the latest closing price of 627.5 penceper Pendragon share as at 17 April 2006 being the latest practicable date priorto the publication of the defence document. The discount of 21% is based uponthe offer price of 722 pence divided by a price of 920 pence, being the pricethat the Board believes to be a fair exit price for Lookers, minus 1 andmultiplied by 100. 1.10 The source of the information relating to estimated financialcommitments of more than £1.4billion is the annual report and accounts forPendragon for the year ended 2005. The pro-forma net debt has been calculated byadding the net borrowings of Pendragon (£177.0m) to the net borrowings of RegVardy (£21.5m) and adding in an amount of £510.7 million, representing thepurchase price for Reg Vardy (which was an entirely debt funded transaction)inclusive of £13.7 million of estimated costs as set out in the Pendragonrevised offer document dated 14 February 2006. The estimate of Pendragon'sstocking loans is based upon vehicle stocking loans which incurred an interestcharge of £18.6 million during the financial year ended December 2005. On thebasis of a typical interest rate for vehicle stocking loans of 6%, it isestimated that the average level of these stocking loans during the year was£310m, being £18.6m divided by 6%. The reference to total estimated financialcommitments of £1.4 billion is based on a summation of the pro-forma net debt(£709.2m), Pendragon's aggregate outstanding operating lease commitments(£318.4m), Pendragon's pension obligations (£90.4m) and an estimate of £310m inrespect of stocking loans as detailed above. 1.11The source of the information relating to the potential lost revenues andrelating to Charles Hurst and to FPS is the Company's internal managementaccounts for the year ended 31 December 2005. APPENDIX 3 DEFINITIONS The following definitions shall apply in this announcement unless the contextrequires otherwise. Board or Lookers Board the board of directors of Lookers CAGR Compound Annual Growth Rate CD Bramall CD Bramall plc, now CD Bramall Limited (Company No. 444 795) Charles Hurst means Charles Hurst Corporation Limited and its subsidiaries which undertake the Group's trade in Northern Ireland under the name of " Charles Hurst" City Code The City Code on Takeovers and Mergers Directors the directors of the Company EMH or European Motor Holdings European Motor Holdings plc (Company No. 122207) EPS earnings per share EU European Union FPS FPS Distribution Limited (Company No. 122207) Group Lookers and each of its subsidiary companies Information Memorandum the Information Memorandum issued by Pendragon to Lookers shareholders, in connection with its offer being equivalent to that of a prospectus Lookers or Company Lookers plc (Company No. 111876) Lookers Share Options Schemes means the Lookers Executive Share Options Scheme, the Lookers Company Share Scheme, the Lookers Key Executive Incentive Performance Plan and the Lookers Matching Share Plan Lookers share an ordinary share of 25p each in the capital of Lookers Office of Fair Trading United Kingdom of Great Britain and office of the UK Department of Trade and Industry PBT profit before tax Pendragon Pendragon PLC (Company No. 2304195) Reg Vardy Reg Vardy plc (Company No. 611190) Rothschild N M Rothschild & Sons Limited Taggarts the business of JN Holdings Limited and its subsidiaries which undertake the Group's trade in Scotland under the name of "Taggarts" UK United Kingdom of Great Britain and Northern Ireland This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
LOOK.LPDG.L