CTEA.L Regulatory News (CTEA)

29 Aug 2006 07:02

Milestone Group PLC29 August 2006 For Immediate Release 29 August 2006 Milestone Group PLC DISPOSAL AGREEMENT AIM listed Milestone Group PLC ("Milestone" or "the Company") announces it haswritten to Shareholders having finalised agreements to dispose of its entireloss making publishing division for an aggregate consideration of £1,450,000. On 4 August 2006, Milestone announced it was in negotiation to sell the whole ofits publishing division, of which the Property Weekly series of publications(the "Property Weekly Business") is a significant part, for an aggregateconsideration of just over £1 million (subject to a net asset price adjustment),to Letterbronze Limited ("Letterbronze"). On 21 August 2006, Milestone announced negotiations with Letterbronze had beenterminated and it had entered into a different agreement to dispose of theProperty Weekly Business to Tindle Newspapers Limited ("Tindle") for aconsideration of £1,400,000 (the "Property Weekly Consideration"), whilstseeking to identify a third party buyer for its remaining publishing assets. The Company is pleased to confirm that, on 25 August 2006, it successfullyreached agreement to dispose of what will be left of its publishing division,following the sale of the Property Weekly Business. The Company has entered intoan agreement, subject to the approval of Milestone Shareholders, to sell theentire issued share capital of Tri Media Publishing Limited ("TMP") to HowardTaylor, who is currently employed by the Company in the role of Group PublishingManager, for a nominal consideration of £50,000. TMP is a wholly owned subsidiary of the Company and acts as the immediate parentholding company for Milestone's two newspaper trading companies; CourierNewspapers (Oxford) Limited ("CNL") and Basingstoke Observer Limited ("BOL").Under the terms of the proposed sale, TMP and its subsidiaries will be sold freeof Milestone debt and with net liabilities at the date of completion notexceeding £1. Further consideration will be payable if Howard Taylor sells onany major part of TMP's business within six months of completion. The two separate disposals of (i) the Property Weekly Business to Tindle (the"Property Weekly Disposal") and (ii) TMP to Howard Taylor (the "TMP Disposal")are both subject, inter alia, to the approval of Milestone Shareholders at anExtraordinary General Meeting ("EGM") to be held on 11 September 2006. Acircular setting out the main terms of the two disposals, a notice of EGM, andthe two ordinary resolutions to be proposed at the EGM was posted to MilestoneShareholders this weekend. Selected extracts from the circular are reproduced atthe end of this announcement. The aggregate consideration of £1.45 million for the Property Weekly Disposaland the TMP Disposal represents an increase in total of approximately £425,000over the original offer received for the Company's publishing assets fromLetterbronze. Milestone Chief Executive, Andy Craig, said: "Having agreed to sell Property Weekly for a consideration of £1.4 million, theBoard is delighted to have managed to quickly reach a further agreement todispose of the remainder of the group's publishing assets which have been amajor contributor to the Company's cash burn over recent times, havingconsiderably underperformed management expectations at what is a challengingtime for the industry. "By agreeing to sell TMP before the end of this financial year, the Board hasacted decisively to protect the positive cash position of the Company followingthe sale of Property Weekly. Indeed, the Board felt strongly that, following theProperty Weekly sale, a rapid disposal of the Company's remaining publishingassets would avoid a damaging period of continued uncertainty for investors,staff and clients. "Property Weekly is, in particular, a product which Milestone has made greateffort to support and expand, having in recent months launched Newbury PropertyWeekly in West Berkshire and a sophisticated on-line web portal for both clientsand consumers. The significant interest and ultimate consideration received forthe Property Weekly Business reflects the commitment we have put into developingattractive media assets despite the current difficult trading environment. "The Board offers its best wishes to the Company's employee, Howard Taylor,following his decision to acquire TMP as a going concern after the PropertyWeekly sale." An EGM has been convened for 10.00 a.m. on 11 September 2006 at the offices ofLawrence Graham LLP, 190 Strand, London WC2R 1JN at which resolutions will beproposed to approve the Property Weekly Disposal and the TMP Disposal. TheDirectors have recommended that Shareholders vote in favour of the resolutionsto be proposed at the EGM. Subject to the appropriate resolution being carried,the Property Weekly Disposal is expected to complete on 11 September 2006, orshortly thereafter. Subject to the prior completion of the Property WeeklyDisposal and the appropriate resolution being carried, the TMP Disposal isexpected to complete on 15 September 2006, or shortly thereafter. For further information Milestone Tel: 01235 547 800Andy Craig/Daniel Cass Arden Partners Tel: 0207 398 1632Richard Day Buchanan Communications Tel: 0207 466 5000Bobby Morse/Suzanne Brocks Edited extracts from circular sent to the holders of ordinary shares in theCompany ("Shareholders") dated 25 August 2006: \* The Property Weekly Business* Property Weekly is a free broadsheet newspaper containing advertisements forhomes to buy and rent with three separate editions covering north Oxfordshire,south Oxfordshire and Newbury, together with an associated website.Approximately 75,000 copies of Property Weekly are currently printed each weekand distributed via a mixture of door-to-door delivery and dispensers that arelocated in outlets such as estate agents and retailers. Property Weekly iscurrently published by CNL, a wholly owned subsidiary of the Company. Nogoodwill carrying value is directly attributable to Property Weekly in theaccounts of CNL. \* The TMP business* TMP is a holding company for the publishing division of Milestone and tradesthrough its two wholly owned subsidiaries, CNL and BOL. Apart from Property Weekly, CNL publishes the Courier Journal series, a weeklyfree newspaper with four editions covering south Oxfordshire, north Oxfordshire,west Oxfordshire and Oxford City (the latter branded Oxford City Journal). TheCourier Journal series primarily obtains revenue by selling advertising withinthe series to local companies. CNL also publishes Auto Weekly, a free weeklysupplement distributed within the Courier Journal series containing motorsadvertising. The Courier Journal series and Auto Weekly currently have a totalweekly print run of approximately 77,000. In addition, CNL publishes Oxfordshire Living, a monthly magazine targetingABC1s in Oxfordshire as well as occasional special publications including thoseproduced on behalf of clients and third parties. CNL has a contract with WestBerkshire District Council to publish West Berkshire News, a quarterly magazine. BOL publishes the Basingstoke Observer, a weekly free newspaper for NorthHampshire distributed via dispensers placed at retail outlets with a totalweekly print run of approximately 25,000. *Financial summary* The table below sets out the revenue and estimated profit/loss for all of TMP'smain publications, including the Property Weekly Business, for the ten monthsended 31 July 2006. As a large proportion of the overheads of the PropertyWeekly Business have traditionally been absorbed by CNL, the table below isbased upon a management estimate of the profitability of each of the mainpublishing units of the Company if they had been operating as largely autonomousbusinesses, as is proposed following completion of the Property Weekly Disposal. Business Unit Property Weekly CNL (excluding Property Weekly BOL Business Business)Revenue £856,000 £798,000 £366,000Profit / (loss) £138,000 (£536,000) (£141,000) Notes: "Revenue" is based on the unaudited management accounts of the Company."Profit / (loss)" has been adjusted by management based upon an estimate of thecosts that would have been incurred had Property Weekly been acting as a standalone business unit, responsible for its own distribution and providingdistribution to CNL. The sale of the Property Weekly Business and TMP will complete the strategic review of Milestone's publishing divisionwhich, in the twelve months ended 30 September 2005, made consolidated losses of £0.9 million on sales of £2.9 million as set out below: •CNL made an operating loss of £762,000 on turnover of £2,332,000 (2004: loss of £147,000 on turnover of £2,998,000). •BOL made an operating loss of £152,000 on turnover of £600,000 (2004: loss of £103,000 on turnover of £768,000). The goodwill carrying value of CNL in the books of the Company at 31 July 2006was approximately £1.7 million. The goodwill carrying value of BOL in the booksof the Company at 31 July 2006 was approximately £0.5 million. \* The Property Weekly Disposal* Pursuant to the terms of the Property Weekly Disposal, CNL has agreed to selland Tindle has agreed to purchase the Property Weekly Business for £1.4 millionpayable in cash on completion. Major contracts relating to the Property WeeklyBusiness and CNL's newspaper distribution department will be assigned from CNLto Tindle. Tindle has paid a 100 per cent. deposit which is being held by the Company'ssolicitors. The agreement is conditional upon the Shareholders of Milestoneapproving the Property Weekly Disposal, the release of certain bank charges andthere being no material breach of warranty. CNL has given limited warranties in respect of the Property Weekly Business andCNL's liability is capped at the amount of the Property Weekly Consideration.Under the terms of the PW Business Sale Agreement, CNL and the Company arerestricted from competing with Property Weekly in Oxfordshire and WestBerkshire. As part of the Property Weekly Consideration, Tindle has agreed notto compete with CNL's main publications in Oxfordshire and West Berkshire. A key element of the Property Weekly Disposal is the entering into by CNL of a cooperation agreement with Tindle that guarantees continued door-to-door delivery for CNL's free newspapers in Oxfordshire, substantially reducing CNL's distribution costs from that which it had previously been paying. These reduced rates will apply for a minimum period of two years following completion of the Property Weekly Disposal. As part of this cooperation agreement, CNL agrees to make available to Tindle a number of services currently provided by CNL to the Property Weekly Business, such as advertisement design services, on commercial terms. \* The TMP Disposal* Pursuant to the terms of the TMP Disposal, Howard Taylor has agreed to acquirethe entire issued share capital of TMP for £50,000 payable in cash oncompletion. As Milestone has previously not made any contribution towards rent, rates,service charges or utilities for partial use of CNL's offices and equipment atMarcham Road in Abgindon, the Company has agreed to make an exceptional paymentto CNL of £29,000 net of VAT, reflecting one quarter's current rental costs toCNL, in return for continued use of certain of these facilities for a threemonth period following completion. The Company has also agreed to repay or waive any outstanding inter-group loansprior to completion, and to facilitate that TMP is acquired with a balance sheetshowing net liabilities of not more than £1. Milestone will therefore beeffectively paying down approximately £200,000 of creditors of CNL and BOL. Milestone has given minimal warranties and restrictive covenants. Howard Taylorhas given undertakings in respect of certain ongoing obligations, including thecontinued publication within certain of CNL's titles of programme listings forSIX TV, the local television channel for Oxfordshire operated by OxfordBroadcasting Limited, a wholly owned subsidiary of the Company. *Reasons for the disposals* As set out in the circular dated 4 August 2006, in its interim results statementreleased on 30 June 2006, the Board announced that a number of parties hadindicated strong interest "in acquiring some or all of the group's assets" andstated that it hoped to be "in a position to report back to shareholders in thenear future". Since June 2005, the Board has consistently stated that it will maintain acontinuous review of strategy with a view to exploring all opportunities tomaximise shareholder value. In recent months, Milestone has disposed of itscontrolling interests in four radio stations (only one of which was whollyowned), successfully achieving an aggregate consideration of approximately £2.3million. Overall, the Board believe that CNL and BOL are loss making businesses with anumber of high fixed costs and that considerable additional losses are likely tobe incurred in restructuring these companies to generate significant profits. The Board recognised that the Property Weekly Business was likely to be the mostattractive asset held within its publishing division and, once disposed of, theremainder of the Company's main publishing assets are loss making. Havingidentified Tindle as a buyer for the Property Weekly Business, the Board waskeen to identify a buyer for the remainder of the publishing assets who wouldpotentially be in a position to complete rapidly. Howard Taylor is currently employed by CNL in the role of Group PublishingManager, responsible for the operational management of both CNL and BOL. HowardTaylor is not a director of the Company or any of its subsidiaries and is nottherefore a connected party in relation to the TMP Disposal. By reaching agreement with Howard Taylor, the Board has managed to agree termsfor the TMP Disposal on the basis of minimal due diligence and warranties. Thiswill enable the Company to complete the TMP Disposal shortly after the PropertyWeekly Disposal and before the end of Milestone's financial year, saving theCompany the additional losses that would be incurred in negotiating the disposalof TMP to any third party undertaking a full due diligence exercise. Having conducted a comprehensive strategic review on an extended period, theBoard considers that the consideration for both the Property Weekly Disposal andthe TMP Disposal is fair. This view has been reached in light of the currentchallenging nature of the newspaper industry in general and, in particular, theongoing losses of CNL and BOL. By disposing of TMP shortly after the Property Weekly Disposal, the Boardbelieves it is acting decisively to reduce the cash burn and protect the cashposition of the Company's listed vehicle, thereby maximising the benefit of theincreased aggregate consideration over that offered by Letterbronze. Following the Property Weekly Disposal and TMP Disposal, the Company's maintrading unit will be Oxford Broadcasting Limited trading as SIX TV ("OBL"). OBLoperates "SIX TV" branded local television channels in Oxford and Southampton ona low overhead. Although the Board believes OBL has ongoing business potential,this company carries no ongoing goodwill value in the books of the Company. *Use of proceeds* The Board intends to use approximately £200,000 of the Property WeeklyConsideration to meet existing liabilities within the Company's publishingdivision and to enhance the balance sheet of CNL. The Board notes that theCompany would have been committed to a broadly similar level of cash outlay toreduce the net liabilities of CNL under the terms of the original offer todispose of CNL and BOL to Letterbronze for an (unadjusted) aggregateconsideration of £1,025,000. Following this cash contribution to CNL and BOL,the remainder of the proceeds of the Property Weekly Disposal will betransferred by CNL to the Company, prior to completion of the TMP Disposal. The balance of the aggregate proceeds from the Property Weekly Disposal and TMPDisposal will be used, in part, to meet the general working capital requirementsof the Company and its subsidiaries. However, it is the intention of theDirectors that a significant proportion of the proceeds will be retained, eitherto be distributed to Shareholders or to be re-invested developing new businessopportunities. The Board continues to consider and will be discussing with itsShareholders and nominated adviser, Arden Partners PLC, the ongoing strategy ofthe Company, including the best use of these funds, in line with its duty toconsider all options to maximise shareholder value. This will be done under thechairmanship of John Sanderson, the Company's Non-Executive Chairman andindependent director. This information is provided by RNS The company news service from the London Stock Exchange