Coats Regulatory News (COA)

29 Feb 2008 10:04

Guinness Peat Group PLC29 February 2008 Guinness Peat Group plc The following is the text of a letter sent yesterday to shareholders of NewburyRacecourse Plc ("Newbury") in respect of resolutions to be put to anExtraordinary General Meeting of Newbury to be held on 19 March 2008 pursuant toa requisition by Guinness Peat Group plc. "To shareholders of Newbury Racecourse Plc 28 February 2008 Dear Fellow Shareholder, You will have received, in the last week, a document from Newbury Racecourse Plc("Newbury" or the "Company") convening an Extraordinary General Meeting of theCompany, to be held on Wednesday 19 March. At the EGM Shareholders will vote onthe Newbury Board's proposed property development joint venture ("the DWHProposal") with David Wilson Homes Ltd ("DWH") and GPG's proposal to reconfigurethe Newbury Board so that it contains a suitable level of proprietorialinvolvement. A copy of the Notice of Meeting, together with a Form of Proxy, isincluded with this letter. I write to set out the reasons why the resolutions are in the best interests ofthe Company and Shareholders as a whole, and are crucial to the value ofShareholders' investments and, ultimately, the long term future of racing atNewbury. The DWH Proposal The DWH Proposal involves Newbury disposing of its very substantial surplus landholdings, which represent more than half the value of its assets, to the jointventure. Under the proposal DWH would have day-to-day control of the surplusland and would be able to delay the minimum contractual payments to Newbury overnine and a half years from the date of the sale. It is patently uncommercial,and needless to say highly unusual, for assets representing more than half ofthe value of a company to be locked in to such a passive arrangement without theselling company receiving a very substantial up-front payment. The Newbury Board's proposal would put DWH in control of Shareholders' destinyand leave the Company exposed over a 10 year period to the risks of asignificant property downturn. Furthermore, GPG has grave concerns regarding theexposure which Newbury would have to potentially substantial project costoverruns, whether they be due to increased external costs or charges by DWH(whose interests are not aligned with those of Newbury) in excess ofexpectation. The folly of the arrangements is only made more glaring by theNewbury management's paucity of relevant property experience. The Newbury Boardis apparently gloriously unaware of the recent slow-down in the UK residentialproperty market and appears to be determined to enter into the DWH Proposal withscant regard for Shareholder value. GPG believes the DWH Proposal would prove disastrous for Shareholder value.Even if one generously assumed planning permission for the project were obtainedin line with the Company's plans, but that there were no abatement of thecurrent property market downturn, Newbury's pro forma net asset value, based onthe Company's own optimistic assumptions, would only amount to £10.37 per Share.Assuming, in respect of deferred payments from DWH, Shareholders more prudentlyrequired an effective interest rate of 10% per annum rather than the Company's6% per annum allowance, GPG estimates net assets would fall to less than £9.00per Share, which itself would be vulnerable were the Newbury Board to incurunaccounted-for additional consultancy fees or undertake uneconomic racecourse "enhancements". In light of this it is no surprise the Newbury Board has been unable to confirmthat the DWH Proposal would produce net returns in excess of GPG's minimumcriterion of £7 per Share, or £21.3 million in aggregate. Moreover, if the DWHProposal were implemented, Newbury, notwithstanding its having disposed of themajority of its assets, for many years would not be in a position to return anysignificant amounts to Shareholders. Such serious shortcomings of the DWHProposal are even more damning when contrasted with the alternative of astraight sale of the surplus land, which, on the Newbury Board's own numberswould produce a net return in excess of £7 per Share that would then beavailable for Shareholder distribution. In this regard Shareholders should notethat the stock market consistently values such proceeds substantially morehighly in shareholders' hands than in those of a company. Given the above, theNewbury Board's preference for the DWH Proposal is unsound. In summary, GPG believes that were the DWH Proposal to be approved Newbury'sshare price would fall significantly from its current level of £9.50 per Share.Shareholders should ignore the Newbury Board's ploy to side-step the paramountissue for Shareholders - whether the DWH Proposal would deliver value - with itsunconvincing attempt to divert attention to a vacuous debate about strategy. We strongly urge Shareholders to vote for Resolution 5 and thereby registertheir view that the DWH Proposal would be damaging to Shareholder value and isnot in the best interests of the Company. Proper Corporate Governance dictatesthat were the resolution to be carried the Newbury Board should terminate theDWH Proposal forthwith. Reconfiguration of the Newbury Board to contain a suitable level ofproprietorial involvement. The Newbury Board is custodian of the Shareholders' interests in the Company.However, GPG believes that the current Board has lost sight of this mandate. Thebusiness case for the DWH Proposal is far from compelling and GPG, Newbury'slargest shareholder, has indicated that it cannot support the proposal. It istelling that, notwithstanding the Newbury Board's empty rhetoric concerningCorporate Governance, in the case of this highly controversial transaction,which would have a permanent and fundamental impact on the Company, the "Independent Directors" chose not to follow best practice Corporate Governanceand refused to submit the DWH Proposal to a Shareholder vote. This is clearevidence, in GPG's view, that the current structure of the Newbury Board isill-suited to its role as custodian. To remedy this deficiency GPG has proposed a reconfiguration of the NewburyBoard so that, in future, it would contain a suitable level of proprietorialinvolvement. The reconfigured Board would then be able to review the operationsof the Company with a fresh outlook: that is with a view to optimizing the valueof the surplus land and returning the racecourse to profit. Contrary to theNewbury Board's baseless scare-mongering, GPG wishes to reiterate that it iscommitted to the long term future of profitable racing at Newbury. The Newbury Board has not delivered an operating profit over the last five yearsnor has it given any indication of when Shareholders might expect one to beforthcoming. This and the substantial level of debt, run up as a result of themassive overspend on the DWH Proposal, are clear indications that the NewburyBoard has an insufficiently commercial approach to the running of the Company. Another significant matter for the reconfigured Board's scrutiny is the "missing" £12 million in expenditure GPG has previously highlighted and which recently,and somewhat mysteriously, disappeared from the Newbury Board's costings for theDWH Proposal. In this regard, the disbursement of the proceeds from theCompany's 2002 sale of a plot of land for £8.7 million is highly relevant. Overthe subsequent four years this sum was consumed by racecourse expenditure andoperating losses - although Shareholders did receive a paltry distribution ofsome £450,000. The net impact on operating profit of the expenditure was adeterioration of over £1 million per annum. The reconfigured Newbury Board wouldensure that a commercial approach was brought to bear in the consideration ofany such future expenditure. At present, two Shareholders owning some 22% of Newbury have two nominees, ErikPenser and Lady Lloyd-Webber, on the Newbury Board. Under the proposedreconfiguration, GPG, which owns 27% of the Company, would likewise have twonominees, and the Chairman and two of the other four non-executive directorswould leave the Board. The three largest Shareholders would thus be representedby four nominees out of a total of nine Board members, which is wholly logicaland appropriate. In summary, the proposed level of proprietorial involvement will ensure that theNewbury Board is, in future, focused on delivering value for all Shareholders,rather than on its current confused strategic imperatives, which now even seemto favour receipt of the proceeds of major asset sales over the long term ratherthan the short term. Despite the Newbury Board's spurious contentions to thecontrary, GPG's two nominees on a nine member Board, would remain very much inthe minority, albeit together with the other Shareholder nominees better placedto influence the Board for the benefit of all Shareholders. As such, we stronglyrecommend that Shareholders vote in favour of resolutions 1 to 4 which wouldimplement the proposed reconfiguration. Recommendation GPG has succeeded in forcing the Newbury Board, against its wishes, to reveal asubstantial amount of vital information about the DWH Proposal and to grantShareholders the opportunity to express their views on these essential matters.As set out above, GPG considers the proposed resolutions to be in the bestinterests of the Company and Shareholders as a whole, and to be crucial toavoiding a calamitous destruction of Shareholder value. In consequence, GPG hasno hesitation in recommending that Shareholders vote FOR all the resolutions. Action to be taken Shareholders who wish to register their support for the resolutions will findenclosed a Form of Proxy for this purpose. This requires only signing and datingwhere indicated at the bottom of the form. A postage paid envelope is enclosedfor your convenience. Your votes are important and even if you intend to attendthe EGM in person you are strongly urged to lodge a Proxy to arrive no laterthan Friday 14 March. Yours sincerely Blake NixonUK Executive Director" J R RussellCompany SecretaryGuinness Peat Group plc+44 207 484 3370 29 February 2008 Enquiries Citigate Dewe Rogerson Tel: (020) 7638 9571Kevin Smith This information is provided by RNS The company news service from the London Stock Exchange