CPR.L Regulatory News (CPR)

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION.

THIS ANNOUNCEMENT DOES NOT CONSTITUTE AN ANNOUNCEMENT OF A FIRM INTENTION TO MAKE AN OFFER UNDER RULE 2.7 OF THE CITY CODE ON TAKEOVERS AND MERGERS (THE "CODE"). THERE CAN BE NO CERTAINTY THAT ANY FIRM OFFER WILL BE MADE, NOR AS TO THE TERMS ON WHICH ANY FIRM OFFER MIGHT BE MADE.

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF THE MARKET ABUSE REGULATION (EU) NO. 596/2014.

LEI: 213800GO32BSNNHXID90

31 October 2019

Carpetright plc

("Carpetright" or the "Company")

Refinancing update, possible offer for the Company and trading update

Introduction

The Company announces an update in respect of its long-term financing arrangements.

As previously disclosed, the Company's revolving credit facility (the "RCF"), purchased by Meditor European Master Fund Limited ("Meditor") on 3 September 2019, is due to expire on 31 December 2019. The Company's overdraft facilities (the "Overdrafts"), provided by NatWest and Ulster Bank but funded by Meditor, are also due to expire on 31 December 2019. The unsecured loan provided to the Company by Meditor on 11 May 2018 is due for repayment on 31 July 2020 at a value of £25.7 million (together with the RCF and the Overdrafts referred to in this announcement as the "Debt Facilities"). The Company's statutory net debt as at 26 October 2019 was approximately £27 million, comprising gross debt of £56 million, offset by cash and cash equivalents of £29 million (of which approximately £20 million was restricted cash and monies due from merchant and finance providers). In addition, accrued interest amounted to £6.2 million. In line with normal seasonal trends, statutory net debt is expected to increase to between approximately £40 million to £50 million in December 2019, and gross debt is expected to rise commensurately.

Refinancing and possible offer for the Company

The Board believes that approximately £80 million is needed for the Company to (i) repay the Debt Facilities; (ii) meet the Company's ongoing working capital requirements; and (iii) provide the Company with the necessary growth capital to execute its strategy as set out below.

The Company has been actively exploring various long-term financing solutions including standard "high street" refinancing, asset-backed lending, strategic asset sales and equity financing. 

Having now explored the viability of all of these possible options, the Board announces that it is in discussions with Meditor in relation to a possible offer by Meditor (or a company incorporated for this purpose by Meditor) to acquire all of the issued and to be issued shares of the Company, expected to be by way of a Scheme of Arrangement (the "Possible Offer"). Meditor has indicated that the Possible Offer would be at 5p per Share, paid in cash. If the Possible Offer is made, then on the Scheme of Arrangement becoming effective, it is expected Meditor will convert the majority of the outstanding debt under the Debt Facilities into equity and provide the Company with additional capital, thereby providing the Company with a stronger balance sheet to enable it to pursue the strategic and growth initiatives set out below.

The Company has received irrevocable undertakings to vote in favour of the Possible Offer in respect of the following ordinary shares in the capital of the Company ("Shares"):

In addition, the Company has received letters of intent to vote in favour of the Possible Offer from the following:

In aggregate, therefore, irrevocable undertakings and letters of intent have been received in respect of an aggregate of 72,951,154 Shares representing 24.0% of the issued share capital of the Company (and 34.3% of the share capital not currently held by Meditor). See Schedule 1 for further detail.

There can be no certainty that the Possible Offer will be made, nor as to its terms. A further statement will be made as appropriate.

In accordance with Rule 2.6(a) of the Code, by not later than 5.00 pm on 28 November 2019, Meditor must either announce a firm intention to make an offer for Carpetright in accordance with Rule 2.7 of the Code or announce that it does not intend to make an offer for Carpetright, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies. This deadline will only be extended with the consent of the Takeover Panel in accordance with Rule 2.6(c) of the Code.

This announcement has been made with Meditor's agreement.

Strategy and growth initiatives

In line with UK retail generally, the current flooring market remains challenging, reflecting the wider economic and geopolitical backdrop. Carpetright's position as market leader nevertheless remains strong, with recent surveys showing high levels of brand awareness (88% prompted, 64% unprompted) and an engaged and dedicated workforce. The Company further believes that the fundamentals of the floorcovering market are good, with the UK flooring market expected to grow at a CAGR of 1.9% from £1.97 billion in 2019 to £2.12 billion in 2023.

Strategy

The Company's strategy is focused on several key areas including: implementing IT infrastructure upgrades across the UK business to drive efficiencies and further online opportunities; entering into new partnerships, such as with Furniture Village, to deliver increased customer reach with minimal capital commitments; a continued drive to optimise the UK store estate through selective closures and relocations to further reduce costs; and investing in and delivering improved returns from the Company's operations in the Netherlands and Belgium, together with a turnaround of its currently loss making business in the Republic of Ireland.

Growth initiatives following a refinanced balance sheet

As a result of the Company's current balance sheet constraints, its capital expenditure in recent periods has been limited. With a strengthened balance sheet and an injection of growth capital, following the refinancing the Company expects to invest further in the following areas: the store refurbishment programme; staff training; the development of its digital platform; marketing; and its operations in Continental Europe. The total cost of these initiatives over the medium term is expected to be £20 to £25 million, to be funded as result of the proposed refinancing.

The Company will also use the new funds to mitigate the impact of competition in the sector. In the longer term, the Company will explore opportunities to improve its sourcing arrangements, further develop its distribution model and evaluate potential acquisitions.

Trading update

The Board believes that Carpetright is performing well despite the challenging economic backdrop and intense sector competition. Group profitability is improving as the Company drives store efficiency and reduces the central cost base.

The Company continues to display strong range management across categories, with a key focus on expanding in hard flooring and digital, in line with its strategic growth objectives. Whilst management of supplier terms has been challenging, the Company continues to work well with partners in its supply chain and expects this to yield an improved position moving forward.

The Company's average sales per store ratios have improved in recent periods and the prolonged sales decline appears to be bottoming out; however, in the present UK economic climate, the Board remains cautious. In H1 FY20, LFL sales growth has been achieved in all territories, however the ongoing impact of negative consumer confidence and Brexit on the current retail environment could present a challenge in the balance of the financial year.

The European business, driven by performance in the Netherlands and Belgium, continues to trade well and the Company believes that it is in a good position to improve profitability.

Bob Ivell, Chairman of Carpetright, said:

 "Shareholders will be aware that we have been engaged in comprehensive refinancing discussions to replace existing facilities which expire at the end of this calendar year. The Possible Offer being announced today would put in place a new financing structure for Carpetright which would enable us to continue our recovery and make necessary investments in improving our business."

For further enquiries please contact:

For the purposes of MAR and Article 2 of Commission Implementing Regulation (EU) 2016/1055, this Announcement is being made on behalf of the Company by Jeremy Simpson.

Notes to Editors

Carpetright plc is Europe's leading specialist floor coverings and beds retailer. Since the first store was opened in 1988 the business has developed both organically and through acquisition within the UK and other European countries. The Group is organised into two geographical regions, the UK and the Rest of Europe (comprising the Netherlands, Belgium and the Republic of Ireland).

Disclosure requirements of the Code 

Under Rule 8.3(a) of the Code, any person who is interested in 1% or more of any class of relevant securities of an offeree company or of any securities exchange offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any securities exchange offeror is first identified. An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 pm (London time) on the 10th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 pm (London time) on the 10th business day following the announcement in which any securities exchange offeror is first identified. Relevant persons who deal in the relevant securities of the offeree company or of a securities exchange offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.

Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1% or more of any class of relevant securities of the offeree company or of any securities exchange offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any securities exchange offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s), save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 pm (London time) on the business day following the date of the relevant dealing. 

If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a securities exchange offeror, they will be deemed to be a single person for the purpose of Rule 8.3. 

Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4). 

Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel's website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. You should contact the Panel's Market Surveillance Unit on +44 (0)20 7638 0129 if you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure 

Rule 2.9 disclosure

In accordance with Rule 2.9 of the Code, Carpetright confirms that, as at the date of this announcement, its issued and fully paid share capital consists of 303,787,164 ordinary shares with par value of 1p. The International Securities Identification Number (ISIN) for the ordinary shares is GB0001772945. 

Publication on website

In accordance with Rule 26.1 of the Code, a copy of this announcement will be available on the website of Carpetright at https://www.carpetright.plc.uk/investors promptly and by no later than 12 noon (London time) on the business day following this announcement. The content of the website referred to in this announcement is not incorporated into and does not form part of this announcement.

Other notices

Peel Hunt LLP ("Peel Hunt"), which is authorised and regulated by the Financial Conduct Authority in the UK, is acting exclusively for Carpetright and no one else in connection with the matters described in this announcement and will not be responsible to anyone other than Carpetright for providing the protections afforded to clients of Peel Hunt nor for providing advice in connection with the matters referred to herein. Neither Peel Hunt nor any of its subsidiaries, branches or affiliates owes or accepts any duty, liability or responsibility whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) to any person who is not a client of Peel Hunt in connection with this announcement, any statement contained herein or otherwise. 

Additional information 

This announcement includes statements that are, or may be deemed to be, forward-looking statements. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms anticipates, believes, estimates, expects, intends, may, plans, projects, should or will, or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this announcement and include, but are not limited to, statements regarding the Company's and/or Directors' intentions, beliefs or current expectations concerning, amongst other things, the Group's results of operations, financial position, prospects, growth, strategies and expectations for the floorcoverings and beds market.

Any forward-looking statements in this announcement reflect the Company's current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Group's operations, results of operations and growth strategy. Shareholders should specifically consider the factors identified in this announcement which could cause actual results to differ before making any investment decision. Subject to the requirements of the Prospectus Rules, the Disclosure Guidance and Transparency Rules, and the Listing Rules, none of the Company, the Directors nor Peel Hunt undertakes any obligation publicly to release the result of any revisions to any forward-looking statements in this announcement that may occur due to any change in the Company's expectations or to reflect events or circumstances after the date of this announcement. Past performance of the Company is not necessarily indicative of future performance.

This announcement is not an offer to sell or the solicitation of an offer to buy any securities, and neither this announcement nor anything herein forms the basis for any contract or commitment whatsoever. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements in this announcement may not occur. 

Neither the content of the Company's website (or any other website) nor any website accessible by hyperlinks on the Company's website (or any other website) is incorporated in, or forms part of, this announcement.

Schedule 1: Irrevocable undertaking and letters of intent

Irrevocable undertaking 

In accordance with Rule 2.10 of the Code, the Company announces that Aberforth Partners LLP has entered into an irrevocable undertaking with Meditor and the Company representing a shareholding of approximately 12.6 per cent in Carpetright to vote in favour of any offer to be made by Meditor for the Company by way of Scheme of Arrangement (the "Irrevocable Undertaking").

The Irrevocable Undertaking will cease to be binding if, among other things: 

Aberforth may transfer Shares in certain circumstances and the Irrevocable Undertaking ceases to bind any of the Shares to which it is subject to the extent that such Shares are transferred by Aberforth as a result of (i) a distribution to an investor in funds managed by Aberforth by way of redemption in specie; (ii) a termination or amendment of Aberforth's discretion to manage the assets of the relevant investor; or (iii) disposal at a price of 8 pence or higher, or (iv) the Shares being subject to stock lending (save that Aberforth has agreed to endeavour to recall such Shares).

Letters of intent

The Company has received a non-binding letter of intent from Majedie Asset Management in favour of the Possible Offer representing approximately 6.6% of the Company's issued share capital of on 30 October 2019.

The Company has received a non-binding letter of intent from Countywide Developments Limited in favour of the Possible Offer representing approximately 2.2% of the Company's issued share capital of on 30 October 2019.

The Company has received a non-binding letter of intent from Soros Fund Management LLC in favour of the Possible Offer representing approximately 2.6% of the Company's issued share capital of on 30 October 2019.

At the close of business on 30 October 2019, Meditor held 91,097,241 Shares. Accordingly, in aggregate, irrevocable undertakings and letters of intent have been received in respect of 34.3% of the share capital of the Company not currently held by Meditor.