13th Oct 2005 07:01
Media Square PLC13 October 2005 Immediate Release 13 October 2005 Media Square plc ("Media Square" or "the Company") Publication of Admission Document Proposed acquisition of the Marketing Services Group of Huntsworth plc ("Huntsworth") (the "Acquisition") Vendor Placing of 120,000,000 new Ordinary Shares at 25p per share And Notice of Extraordinary Meeting Media Square, the retail marketing services and marketing communications group,is pleased to announce the posting to Shareholders of the Admission Document inconnection with the proposed acquisition of the Marketing Services Group ofHuntsworth plc (the "Acquisition") for a total cash consideration of £63 millionand a vendor placing of 120 million new Ordinary Shares at 25p per share. Asummary of key points follows: The Acquisition • The Acquisition will see the creation of an enlarged business with circa £200 million of turnover and circa 1,700 employees and operations spanning Europe, the Far East, Africa and the US • The Enlarged Group will be the 5th largest UK-based quoted marketing communications and marketing services business Funding • The Company has raised £30 million (gross) via a placing of 120 million new Ordinary Shares at a Placing Price of 25p per share (shares suspended on 26 September 2005 at 23.5p) • The Placing Price represents a premium of 6.4% to the suspension price • The Company has secured an acquisition finance facility of up to £38.75 million provided by HBOS to fund the balance of the acquisition and other financing needs of the Enlarged Group Suspension of shares • Trading in the Existing Ordinary Shares on AIM was suspended following the Company's announcement of the proposed Acquisition on 26 September 2005. In accordance with the AIM Rules the Directors expect this suspension to be lifted tomorrow, 14 October 2005, following the publication of the Admission Document. Commenting on the Acquisition, Jeremy Middleton, Chief Executive of MediaSquare, said: "The Acquisition will make Media Square one of the largest marketing andcommunications businesses in the UK, with a significantly strengthened productoffering, a broader blue chip client base, and with sufficient scale to make alarge impact in our sector. We believe that the acquired businesses havesignificant potential under new management and we look forward to rewarding ourexisting and new Shareholders with strong growth over the next few years." For further information, please contact: Media Square plcJeremy Middleton, Chief ExecutiveM: 07889 206 155 e-mail: [email protected] Burns, Finance DirectorM: 07775 854 516 e-mail: [email protected] Buchanan CommunicationsBobby MorseT: 0207 466 5000 e-mail: [email protected] PoddaT: 0207 466 5000 e-mail: [email protected] Collins Stewart Chris Wells e-mail: [email protected]: 0207 523 8350 Collins Stewart Limited, which is regulated by the Financial Services Authority,is acting as Nominated Adviser and Broker exclusively for the Company inconnection with the arrangements described in this announcement, is not actingfor any other person and will not be responsible to any other person forproviding the protections afforded to customers of Collins Stewart Limited, orfor advising any other person in connection with the arrangements described inthis announcement. The responsibilities of Collins Stewart Limited, as NominatedAdviser, are owed solely to the London Stock Exchange. This announcement does not constitute an offer to sell or invitation to purchaseor subscribe for any securities. General Information Introduction On 26 September 2005, the Company announced that it had agreed, subject to,inter alia, Shareholders' approval, to acquire the Marketing Services Group fromHuntsworth. The Company announces that it has agreed to by the MarketingServices Group from Huntsworth for a cash consideration of £63 million includingthe repayment of all debt owed by the Marketing Services Group to Huntsworth atCompletion. The Acquisition will see the creation of an enlarged business withcirca £200 million of pro forma turnover and circa 1,700 employees. The Acquisition is to be partially funded by way of a Placing to institutionaland other investors of 120 million Vendor Placing Shares at a Placing Price of25p per Vendor Placing Share, raising £30 million (gross). In addition theCompany has secured a new acquisition finance facility of up to £38.75 millionprovided by HBOS to fund the balance of the consideration for and transactioncosts of the Acquisition. The Acquisition constitutes a reverse takeover under the AIM Rules by virtue ofits size and is therefore subject to the prior approval of Shareholders at theExtraordinary General Meeting. Trading in the Existing Ordinary Shares on AIMwas suspended following the Company's announcement of the proposed Acquisitionon 26 September 2005. In accordance with the AIM Rules, the Directors expectthis suspension to be lifted following the publication of the AdmissionDocument. If the Acquisition is approved by Shareholders at the EGM, the dealing facilityfor the Existing Ordinary Shares will be cancelled. Application will then bemade by the Company for the Existing Ordinary Shares to be re-admitted and theVendor Placing Shares to be admitted to trading on AIM. Trading in such shareson AIM is expected to commence on 1 November 2005. Reasons for the Acquisition The Directors believe that the Acquisition represents a unique opportunity forMedia Square Shareholders and for the employees of both Media Square and theMarketing Services Group. The Enlarged Group will be the fifth largest UK-basedquoted marketing communications and marketing services business. The Directorsbelieve that the Acquisition will help to transform Media Square from apredominantly UK-based group with turnover of circa £60 million into aninternational business with pro forma turnover of circa £200 million, more than2,300 clients, some 1,700 employees and operations spanning Europe, the FarEast, Africa and the US. The Directors recognise the challenges associated with increasing the size ofthe business by such an extent, but believe that the Enlarged Group will havethe necessary depth of management and personnel to successfully integrate MediaSquare and the Marketing Services Group and capitalise upon the exceptionalopportunities available. The Directors believe that being capable of offeringthe full range of services to clients, whether it be the requirement for marketresearch and design or advertising, or specialist financial communication andon-line marketing in more than one territory, will provide the Enlarged Groupwith a significant business advantage and an opportunity to accelerate revenuegrowth. Information on the Marketing Services Group The Marketing Services Group is comprised of 16 businesses (consisting of 42individual subsidiaries), with core specialties in the advertising, marketingservices and brand design industries. It employs some 1,000 people, and includescompanies such as Dynamo, one of the largest independent promotional marketingcompanies in the UK, with clients such as Sainsbury's, and Citigate SMARTS, withits regional office network in the UK providing corporate and consumer publicrelations to clients such as the NHS. Whilst the majority of the MarketingServices Group's employees and revenues are based in, and derived from, the UK,the Marketing Services Group also has operations in Germany, the US, SouthAfrica, Singapore, Hong Kong and China. Huntsworth acquired the majority of thebusinesses as a result of its merger with Incepta, in April 2005. Inceptaassembled these businesses over a seven year period and there are no outstandingearnouts resulting from these acquisitions. The Marketing Service Group providesservices to clients including Coca Cola, Unilever, Sainsbury's, Royal Bank ofScotland and Shell. At Completion, Media Square will acquire 100 per cent. ownership (directly orindirectly) of all of the companies which constitute the Marketing ServicesGroup, except for five companies in which certain existing minority interestswill be retained. The recent trading record of the Marketing Services Group, which has beenextracted from the Accountants' Report on the Marketing Services Group, ascontained in the Admission Document, is summarised as follows: Financial year ended 28 February 2005 £m Turnover 140.8Revenue 73.1Adjusted MSG EBIT 10.6Operating profit 8.5Profit before taxation 8.2 The Directors believe that there are significant further operationalimprovements capable of being achieved over the next two to three years. The Acquisition brings with it a number of entrepreneurial and successfulindividuals in the marketing services business. The Directors believe that theEnlarged Group can provide an environment in which these individuals canflourish because Media Square is a business which understands and is fullyfocused on the marketing services sector and is able to incentivise such keyemployees with a view to maximising their performance and Shareholder value. The employees of the Marketing Services Group have had to cope with relativelydifficult corporate and market conditions over the last two years and theDirectors believe that some of the businesses have suffered fromunder-investment. The Marketing Services Group employs some 1,000 people, all of whom are engageddirectly in what will become trading subsidiaries of Media Square. Strategy of the Enlarged Group During the last two years Media Square has developed into a successful and wellorganised retail marketing services and marketing communications company withtwo distinct divisions, more than 1,000 clients and leading positions in anumber of sectors. The transformation of the Group, from a loss-making business,to one of the most well financed in the UK marketing services sector, wascompleted in 2004. From a corporate perspective, the Directors expect that the Enlarged Group willbe positioned as the leading small cap marketing services group in the UK. TheDirectors believe that this will leave the Enlarged Group well placed tochallenge for growth through both client and new business acquisition. TheDirectors intend that, operationally, the Enlarged Group will be reorganisedinto our principal divisions; the Retail Marketing Services division, theMarketing Communications division, the Specialist Communications division, andthe On-line Advertising division. The Directors believe that following the Acquisition, there is an opportunity tore-incentivise and re-invigorate the brands and employees of the MarketingServices Group. Summary Terms of the Acquisition Agreement Under the Acquisition Agreement (as amended), the Company has conditionallyagreed to pay Huntsworth a total consideration of £63.0 million for its interestin the Marketing Services Group, £30 million to be satisfied by the allotment ofthe Vendor Placing Shares and the balance from the Acquisition Finance. Of the£63 million, an amount of £8.0 million shall be held in escrow pending finaldetermination of the completion accounts. In addition, if the adjusted netassets of the Marketing Services Group are less than £8.28 million onCompletion, Huntsworth shall pay to the Company an amount equal to thedifference. The Acquisition is conditional, inter alia, on: (i) the approval of the Resolutions by Media Square's Shareholders to beproposed at the EGM; (ii) the Acquisition Finance and the Additional Facilities becomingunconditional in all respects; (iii) the approval of the disposal of the Marketing Services Group byHuntsworth's shareholders; and (iv) the Placing Agreement becoming unconditional in all respects. Details of the Placing The Company has entered into a Placing Agreement with Collins Stewart pursuantto which, inter alia, Collins Stewart has agreed to procure placees for theVendor Placing Shares at the Placing Price to raise £30 million. The PlacingPrice represents a premium of 6.4 per cent. to the closing middle-market priceof an Existing Ordinary Share on 23 September 2005, the last day of dealingsprior to the suspension of trading in the Company's Existing Ordinary Shares onAIM. The Placing, which has been fully underwritten by Collins Stewart, isconditional, inter alia, upon the passing of the Resolutions at the EGM.Shareholders have no right of pre-emption in respect of the Vendor PlacingShares and accordingly the Vendor Placing Shares are not being made available tothe holders of the Existing Ordinary Shares in proportion to their holdings ofExisting Ordinary Shares except to the extent that they are included as placeesprocured by Collins Stewart. The Vendor Placing Shares will be credited as fully paid and will rank paripassu in all respect with the Existing Ordinary Shares, including the right toreceive all dividends and other distributions declared, made or paid on theExisting Ordinary Shares. Following the introduction of the Prospectus Rules on 1 July 2005 and theconsequential increases in costs and time required for AIM companies to raisenew equity capital on a pre-emptive basis, the Directors have been advised thatthe Placing is the most cost effective and expeditious method of raising newequity capital. Summary of the Acquisition Finance and Additional Facilities Under a facility agreement dated 12 October 2005, HBOS has conditionally agreedto make available to the Company a sterling term facility in an aggregate amountof £48.35 million and a multicurrency revolving facility in the amount of £10.0million. The sterling term facility is divided into Tranche A (£20.0 million),Tranche B (£24.75 million) and Tranche C (£3.6 million). The Consideration forand the costs of the Acquisition will be partly met by the Acquisition Finance,comprised of Tranche A and up to £18.75 million of Tranche B to be drawn down onCompletion. The remainder of Tranche B of up to £6.0 million has been arrangedto provide the Company with additional finance, in relation to potential furtheracquisitions. Tranche C is to be used to refinance an existing loan held byMedia Square. The revolving facility is to be used to provide the Enlarged Groupwith working capital. Tranche A is repayable over 5 years, Tranche B isrepayable in a single bullet payment in 2011 and Tranche C is repayable over 9years. The interest payable on amounts drawn in respect of Tranche A is 2.25 percent. per annum over LIBOR, Tranche B is 2.75 per cent. per annum over LIBOR andTranche C is 1.75 per cent. per annum over LIBOR, in each case plus MandatoryCosts (as detailed in the facility agreement), if any. Financial Effects of the Acquisition The Acquisition is expected to substantially increase the revenues of theEnlarged Group and the Directors believe that the historically steady revenuesof the Marketing Services Group will help smooth any seasonal trends in thefuture revenues of the Enlarged Group. The Directors believe that marginimprovement opportunities will exist in the Enlarged Group. The Directors believe that the Acquisition, taking into account the full effectsof the Placing, will be earnings enhancing. (1) (1) Note: This statement should not be interpreted to mean the future earningsper share of Media Square, following completion of the Acquisition and thePlacing, would necessarily match or exceed the historical earnings per share ofMedia Square. For these purposes earnings per share is measured before goodwillamortisation and exceptional items. Current Trading and Prospects Media Square Media Square has enjoyed considerable growth and development in its businessduring the last two and a half years. It achieved its internal targets for thehalf year to 30 April 2005. Since the acquisition of Coutts Holdings plc last year, Media Square hasexperienced a change in seasonal trends and the balance of its profitability hasskewed markedly to the first and last quarters of the financial year. Thischange is principally due to the large value of retail marketing services work,the majority of which is focused on pre-Christmas tactical displays andpromotions. There are clearly material risks to profitability which areassociated with periods of such intense activity. The Marketing Services Group Historically, the Marketing Services Group has had a consistent revenue stream.However, theuncertainty caused by the merger between Huntsworth and Incepta has had anegative effect on trading at the start of its current financial year.Improvements in trading have been seen in recent months and, following duediligence, the Directors of Media Square have concluded that internal forecastsfor the current year are challenging, but achievable. Enlarged Group The Directors of Media Square believe that the Enlarged Group will occupy aleading position in the UK and overseas marketing communications and marketingservices sector. As the fifth largest UK-based quoted group of its type, theEnlarged Group will be well positioned to compete for rapid growth. Dealings and Settlement The proposed Acquisition will constitute a reverse takeover under the AIM Rules,and is therefore dependent on the approval of Shareholders being sought at theEGM, details of which are set out below. Trading in the Existing Ordinary Shares on AIM was suspended following theCompany's announcement of the proposed Acquisition on 26 September 2005. Inaccordance with the AIM Rules the Directors expect this suspension to be liftedfollowing the publication of admission document. If the Acquisition is approved by holders of the Existing Ordinary Shares at theEGM, the dealing facility for the Existing Ordinary Shares will be cancelled.Application will be made by the Company for the Existing Ordinary Shares to bere-admitted and the Vendor Placing Shares to be admitted to trading on AIM.Trading in such shares on AIM is expected to commence on 1 November 2005. Completion of the Acquisition will take effect upon payment of the Considerationto Huntsworth which is expected to take place no more than three business daysfollowing Admission. Financial Calendar The Company's current year end for accounting purposes is 31 October. As aresult of the Acquisition, and conditional on Admission, the Company intends tochange its financial year end to February, with an exact date to be specified ata later date. All of the companies comprising the Marketing Services Group havea financial year end of 28 February (or 31 December in the case of Holmes &Marchant). The primary purpose of this change of financial year end is to bringall the operating companies of the Enlarged Group onto a consistent year endbasis. Following this change being effected, the Company currently intends topublish a second set of interim financial results in respect of the six monthsending 31 October 2005 by the end of January 2006. Further, the Company expectsto publish, in June 2006, audited accounts for the Enlarged Group, in respect ofthe 16 month period ending February 2006. These results will consolidate theresults of the Marketing Services Group for the four month period fromCompletion of the Acquisition until the revised year end of the Company. Recommendations and Voting Intentions The Directors, who have received financial advice from Collins Stewart inrelation to the Acquisition, believe that the Acquisition is in the bestinterests of the Company and its Shareholders as a whole. In providing advice tothe Directors, Collins Stewart has taken into account the Directors' commercialassessment of the Acquisition.Accordingly, the Directors unanimously recommend that Shareholders vote infavour of the Resolutions, as they intend to do in respect of their ownbeneficial holdings, which amount in aggregate, to 12,073,983 Existing OrdinaryShares, representing approximately 5.9 per cent. of the current issued sharecapital of the Company. Collins Stewart Limited, which is regulated by the Financial Services Authority,is acting as Nominated Adviser and Broker exclusively for the Company inconnection with the arrangements described in this announcement, is not actingfor any other person and will not be responsible to any other person forproviding the protections afforded to customers of Collins Stewart Limited, orfor advising any other person in connection with the arrangements described inthis announcement. The responsibilities of Collins Stewart Limited, as NominatedAdviser, are owed solely to the London Stock Exchange. This announcement does not constitute an offer to sell or invitation to purchaseor subscribe for any securities. DEFINITIONS The following definitions apply throughout this announcement unless otherwisestated or the context otherwise requires: "Acquisition" the proposed acquisition by the Company of Huntsworth's interest in the subsidiaries which form the Marketing Services Group, pursuant to the Acquisition Agreement "Acquisition Agreement" the conditional agreement between Huntsworth and the Company dated 26 September 2005 relating to the acquisition by the Company of the Marketing Services Group "Acquisition Finance" the borrowing facility of up to £38.75 million provided by HBOS expected to be drawn down on Completion "Additional Facilities" additional borrowing facilities provided by HBOS of up to £19.6 million available to be drawn down to fund the ongoing financing requirements of the Company "Adjusted MSG EBIT" MSG's aggregated earnings before interest and tax for the year ended 28 February 2005, pre-exceptional items and adjusted as detailed in the Admission Document "Admission" the re-admission of the Existing Ordinary Shares and the admission of the Vendor Placing Shares to trading on AIM becoming effective in accordance with the AIM Rules "AIM" a market operated by the London Stock Exchange "AIM Rules" the rules for AIM companies in force at the date of this announcement issued by the London Stock Exchange "Amendment Agreement" the amendment agreement between Huntsworth and the Company dated 12 October 2005, amending certain terms of the Acquisition Agreement "Collins Stewart" Collins Stewart Limited "Company" or "Media Square" Media Square plc "Completion" Completion of the Acquisition "Consideration" £63.0 million payable to Huntsworth on Completion, including the repayment of all debt owed by the Marketing Services Group to Huntsworth at Completion "Coutts" Coutts Holdings plc, a subsidiary of Media Square "CREST" the electronic settlement system operated by CRESTCo Limited, which facilitates the transfer of title to shares in uncertificated form "Directors" or "Board" the directors of Media Square, namely Arthur Jeremy Barritt Middleton, Graeme Ian Burns and Nigel Douglas Bacon "EGM" or "Extraordinary the extraordinary general meeting of theGeneral Meeting" Company convened for 9.00 a.m. on 31 October 2005, or any adjournment thereof "Enlarged Group" the Group as enlarged by the acquisition of the Marketing Services Group "Existing Ordinary Shares" the 205,276,253 Ordinary Shares in issue as at the date of this announcement "Form of Proxy" the form of proxy accompanying the Admission Document to be used by Shareholders in respect of the EGM "FSA" the Financial Services Authority "FSMA" the Financial Services and Markets Act 2000 "Group" Media Square and its subsidiaries "HBOS" Halifax Bank of Scotland plc, and its Subsidiaries "Huntsworth" Huntsworth plc "Incepta" Incepta Group plc "London Stock Exchange" the London Stock Exchange plc "MSG" or "Marketing Services together the companies the subject of theGroup" Acquisition "Official List" the Official List of the UK Listing Authority "Ordinary Shares" ordinary shares of 5p each in the capital of the Company "Placing" the placing of the Vendor Placing Shares by Collins Stewart, at the Placing Price "Placing Agreement" the conditional agreement dated 12 October 2005 between the Company and Collins Stewart "Placing Price" the issue price of 25p per Vendor Placing Share "Pro Forma Net Assets" the pro forma net assets of the Enlarged Group "Resolutions" the resolutions to be proposed at the EGM "Shareholders" holders of Ordinary Shares "US" the United States of America, its territories and possessions, any state of the United States and the District of Columbia "Vendor Placing Shares" the 120,000,000 new Ordinary Shares to be placed by Collins Stewart pursuant to the Placing Agreement This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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