20th Dec 2005 08:00
Television Corporation PLC20 December 2005 For Immediate Release 20 December 2005 THE TELEVISION CORPORATION PLC Posting of circular to shareholders NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO THE UNITED STATES,CANADA, AUSTRALIA OR JAPAN The Board of The Television Corporation plc will be posting a circular toShareholders today, Tuesday 20 December 2005, detailing the Board's advice as tothe action shareholders should take in relation to the offer from Tinopolis (the"Circular"). The text of the letter from Tom Chandos, the Chairman of the Company, containedin the Circular is attached. For further information please contact: The Television Corporation plc 020 7258 6732Tom Chandos, Chairman Gleacher Shacklock LLP 020 7484 1150Manjit Wolstenholme Bridgewell Securities 020 7003 3000Adrian Hadden Buchanan Communications 020 7466 5000Mark Edwards Unless otherwise indicated, information relating to the Group is derived fromthe published annual reports and accounts and interim results announcements ofthe Company or from management sources. Words and expressions in this announcement shall bear the same meanings as thedefinitions used in the Circular. The Directors of the Company accept responsibility for the information containedin this announcement. To the best of the knowledge and belief of the Directorsof the Company (who have taken all reasonable care to ensure that such is thecase), the information contained in this announcement for which they acceptresponsibility is in accordance with the facts and does not omit anything likelyto affect the import of such information. Gleacher Shacklock LLP, which is regulated in the United Kingdom by theFinancial Services Authority, is acting exclusively for the Company and no oneelse in connection with the Tinopolis Offer and will not be responsible toanyone other than the Company for providing the protections afforded to clientsof Gleacher Shacklock LLP nor for providing advice in relation to the TinopolisOffer. Bridgewell Securities Limited, which is regulated in the United Kingdom by theFinancial Services Authority, is acting exclusively for the Company and no oneelse in connection with the Tinopolis Offer and will not be responsible toanyone other than the Company for providing the protections afforded to clientsof Bridgewell Securities Limited nor for providing advice in relation to theTinopolis Offer. The Tinopolis Offer - response of the Television Corporation Board Text of the letter from Tom Chandos, the Chairman of Television Corporation, contained in the Circular On 10 November 2005, Tinopolis announced its intention to make an all-shareoffer for the entire issued and to be issued share capital of TelevisionCorporation. Since then you will have received the Offer Document from Tinopolissetting out the full detail of its offer. I am writing to you to explain the reasons why your Board considers that,despite its reservations regarding Tinopolis and the Tinopolis Offer, as set outbelow, Shareholders should nonetheless accept the Tinopolis Offer in the eventthat it is declared unconditional as to acceptances. BackgroundIn October 2005, the Board received an unsolicited approach from Tinopolisproposing a cash and share reverse takeover of the Company, subject to duediligence and various other pre-conditions. Tinopolis indicated that it hadreceived the support of a number of Television Corporation Shareholders,accounting for a majority of Television Corporation Shares, for its proposal.These Shareholders confirmed to the Board that they would welcome an offer beingmade for the Company. Accordingly, the Board decided to initiate a formalstrategic review process to identify potential alternative offerors for theCompany in order to ensure the best outcome for its Shareholders as a whole.Tinopolis was invited to participate in this process on the same terms as allother parties, but instead elected to announce a unilateral all-share offer, on10 November 2005. During the strategic review, the Board initiated and held discussions with anumber of parties who may have had an interest in making an offer for theCompany. As a result, on 2 December 2005, the Board announced that it was indiscussions with another party regarding a potential all-cash offer for theCompany. However, since then this party has concluded that it is not in aposition to proceed with an offer for the Company. On the basis of the above, the Board does not expect that a competing offer inthe interests of its Shareholders will be forthcoming within the timetable forthe Tinopolis Offer. Current Television Corporation strategyThe Board recognises that Television Corporation, over a period of years, hadunderperformed in comparison to the best companies in its sector. In the pastthree years, the business has been refocused and the Board and senior managementsubstantially changed, culminating in the appointment in July 2005 of PeterSalmon as Chief Executive. The Board is confident that, as a result of actionstaken, the Group is now well positioned to capitalise on the substantialopportunities in the UK independent television production sector and on itsposition in that market to the benefit of its shareholders. Key actions taken since the beginning of 2005 include: • Programme to dispose of non-core assets completed: following the sale of Visions, the Group is refocused as a creator and exploiter of television and related content; • Balance sheet strengthened significantly: Television Corporation reported net cash of £7.1 million at 30 June 2005; • Cost cutting programme implemented: aggregate annualised cost savings of £1.5 million achieved, of which £900,000 has been or is planned to be reinvested in production capability to protect and enhance the Company's position with its customers; • Loss-making Los Angeles operation closed: resulted in a non-recurring cost to the Group in 2005 of £500,000; • Drama business expanded: from one-offs into series; • New entertainment venture, Splash, established: leading industry figures, Jane Lush and Fenia Vardanis, recruited to lead the Splash business. Splash's first development deal, with Five, was announced within two weeks of the venture being established; • Investment in the Group's Hawk-Eye ball-tracking technology: resulted in its approval by the International Tennis Federation for use as an umpiring aid for the professional tennis circuit; and • Payment of dividends from the Group's cash resources facilitated: Court consent to re-organise the Company's reserves has been received which will allow payment of dividends. Television Corporation is now positioned as a multi-genre, scale player in theUK independent television production sector with a strong balance sheet. TheGroup has leading positions in the areas of sport, AFP (advertiser fundedprogramming) and factual production and is growing in the areas of entertainmentand drama. A new management team has been established, which the Board isconfident would be able to build on the Group's existing strong relationshipswith a range of major broadcasters and to attract and retain industry-leadingcreative talent at the same time as continuing to control costs. In the words ofTinopolis' broker, Panmure Gordon, Television Corporation "is re-emerging as afinancially sound and successful indie prod under an excellent new managementteam"(1). The Tinopolis OfferValuation of the Tinopolis OfferTinopolis is offering 1.73 new Tinopolis Shares for each Television CorporationShare in an all-share reverse takeover offer. On the basis of a price perTinopolis Share of 40 pence, being the closing mid-market share price on 19December 2005, the Tinopolis Offer values each Television Corporation Share at69.2 pence. However, as it highlights in its Offer Document, Tinopolis does nothave a full stock market listing being quoted on the Alternative InvestmentMarket (AIM) and has a free float of less than 15 per cent. of its sharecapital. Consequently, Tinopolis Shares are highly illiquid with very lowtrading volumes such that even small trades can have a disproportionately largeimpact on the share price. Historically, there has been limited visibilityregarding the prospects for Tinopolis' business as it receives no coverage fromstock market research analysts. Tinopolis' share price has traded between 38.5pence and 50.5 pence since 9 November 2005 (the day prior to its announcement ofa firm intention to make an offer for Television Corporation) and the impliedoffer price per Television Corporation Share has fluctuated between 66.6 penceand 87.4 pence. Accordingly, the Board believes there is considerableuncertainty regarding the realisable value of a Tinopolis Share and hence thevalue of the Offer. Tinopolis' strategyIn its Offer Document, Tinopolis lists a number of benefits that it believes itsoffer will bring to Television Corporation Shareholders and states that "in asector where growth has become overly fashionable at the expense of otherbusiness fundamentals the enlarged company has the potential to demonstrate thevalue to investors of a focussed margin-led approach". However, Tinopolis hasnot explained in any detail how it plans to manage the Television Corporationbusiness to achieve these benefits. Therefore, the Board cannot assess fully thevalue that Tinopolis could bring to Shareholders. The Board believes there are a number of significant risks associated with theTinopolis Offer which it would like to bring to the attention of Shareholders: • Focus on niche market: Tinopolis has operated largely in a niche Welsh language market. Television Corporation believes the growth prospects in this market are limited; • Lack of track record with major broadcasters: Tinopolis management's ability to operate successfully in the more competitive national and international markets in which Television Corporation is present is unproven. The Directors believe that there is a risk that Television Corporation's existing broadcaster relationships could be negatively impacted; • Potential loss of creative talent: the Directors believe the uncertainty resulting from the lack of information regarding the Tinopolis management's intentions has increased the risk of loss of key creative talent from the Group. In addition, a number of Television Corporation's major production contracts contain "key man" clauses: if named key executives were to leave the Group, these contracts could be terminated by the relevant broadcaster; • Reduced growth prospects: a predominantly margin-led approach, as described by Tinopolis in its Offer Document, will limit the scope for investment in the new talent and development that is critical to capitalising on the emerging opportunities in the UK independent television production sector; • Integration risk: Tinopolis has no track record in managing a significant public company or in integrating a major corporate acquisition. In terms of revenue, Television Corporation is more than four times larger than Tinopolis; and • Value leakage from combined group: according to its Offer Document, Tinopolis will incur costs and expenses of £1.1 million relating to its offer. This represents a value leakage equivalent to almost 10 per cent. of its current stock market value. Irrevocable undertakings and letters of intentTinopolis has received irrevocable undertakings to accept its offer from TalpaBeheer BV and Terry Bate (as beneficial owners) in respect of 29.9 per cent. ofthe current issued Television Corporation Shares. These irrevocable undertakingswill only cease to be binding in the event that a third party offer is announcedat an offer price in excess of 96.1 pence per Television Corporation Share.Tinopolis has also received letters of intent to accept the Tinopolis Offer fromSchroder Investment Management Limited, Talpa Beheer BV and Terry Bate (asbeneficial owners) in respect of a further 21 per cent. of the current issuedTelevision Corporation Shares. In aggregate, these irrevocable undertakings andletters of intent account for 50.9 per cent. of the current issued TelevisionCorporation Shares. All of these Shareholders have made it clear to the Boardthat they would like an offer for the Company to succeed. The Board has received indications that the Tinopolis Offer will receiveacceptances for more than 50 per cent. of the share capital of TelevisionCorporation to which the Offer relates. Under the conditions of the TinopolisOffer, this would allow Tinopolis to declare its offer unconditional as toacceptances. In the event that the other conditions to the Tinopolis Offer aresatisfied, as is likely, and the Offer is declared wholly unconditional,Tinopolis would obtain voting control over Television Corporation and would beable to control the composition of the Television Corporation Board and directits future strategy. The ability of existing Television Corporation Shareholderswho did not then accept the Tinopolis Offer to influence the direction of theCompany would be severely impaired. Therefore, the Board does not consider thatit would be in the interests of Shareholders to remain as a minority shareholderin a controlled subsidiary of Tinopolis. RecommendationThe Board believes that the Tinopolis Offer, if successful, would significantlyincrease the level of risk associated with the Group's business in the shortterm and that the ability of the Tinopolis management team to operatesuccessfully in the competitive national and international television productionmarkets is unproven. If Tinopolis declares its Offer unconditional as to acceptances, such that it ishighly likely to become a controlling shareholder in the Company, the Boardwould not advise shareholders to remain in a minority position in a controlledcompany. Furthermore, on the basis of discussions held with potential alternativeofferors during the strategic review, the Board does not expect that a competingoffer in the interests of shareholders will be forthcoming. Despite the risk factors identified above, the directors of TelevisionCorporation, who have been so advised by Gleacher Shacklock and BridgewellSecurities, reluctantly recommend that shareholders in Television Corporationaccept the Tinopolis Offer in the event that it is declared unconditional as toacceptances as they intend to do in respect of their own beneficial holdingstotalling 760,464 Television Corporation Shares representing approximately 1.83per cent. of the total issued share capital of Television Corporation. Inproviding advice to the directors of Television Corporation, Gleacher Shacklockand Bridgewell Securities have taken into account the commercial assessments ofthe directors of Television Corporation. --------------------------(1) Panmure Gordon & Co research report titled "Independent ProductionCompanies", dated 23 August 2005 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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