CTP.L Regulatory News (CTP)

8 Feb 2007 07:02

Redstone PLC08 February 2007 Redstone plc ("Redstone" or "the Group") Acquisition of Comunica Holdings Limited ("Comunica") Proposed placing of 266,666,668 New Ordinary Shares at 6.75 pence per New Ordinary Share Notice of Extraordinary General Meeting • 8 February 2007 - Redstone, the national IT and communications solutions provider, today announces that the Group has agreed to acquire the business of Comunica for a total consideration of up to £22.0 million ("the Acquisition"). • Comunica specialises in network and communications infrastructure solutions, providing design, implementation and project management services, which has a largely blue-chip client base across industries including financial and professional services, retail, energy, media, transport and the public sector. • The Redstone Directors believe that the Acquisition complements the existing business and increases the position of Redstone as a leading UK IT and communications solution provider. • The Directors of Redstone believe that the Acquisition provides Redstone with the following principal strategic benefits: o Removal of a significant competitor from the converged solutions market; o Enhanced prospects due to its increased capacity and scale, with a more substantial presence in key vertical markets; o Increased purchasing power with suppliers, which is expected to help achieve increased revenue growth and win new accounts; o Cost saving benefits of bringing together the back office functions of Redstone and Comunica and integrating their network solutions businesses; and o Significant opportunities to cross sell Redstone's other products and services to Comunica's customer base. • In order to part finance the cash consideration payable by Redstone pursuant to the Acquisition, the Group proposes to raise approximately £18.0 million gross (£16.4 million net of expenses) by way of a placing of 266,666,668 New Ordinary Shares at a price of 6.75 pence per share. • Redstone also gives notice of an EGM to be held on 5 March 2007 at the offices of Osborne Clarke, One London Wall, London EC2Y 5EB at 11.00 a.m., at which resolutions will be proposed for the purposes of implementing the Placing. Martin Balaam, Chief Executive of Redstone, commented, "The acquisition ofComunica is in line with Redstone's strategy of making select acquisitions whileretaining a focus on improving the profitability and growth of the Group'sexisting activities. The Acquisition increases Redstone's reach in theConverged Solutions arena. "Comunica's success in winning business from blue chip firms for largeinfrastructure projects sits ideally with Redstone's own successes in convergedsolutions with securing business from both the corporate and public sectors.Redstone is eager to work with Comunica's existing customer base, which bringsfurther opportunities for cross-selling the Group's services." ENQUIRIESRedstone plc Tel. +44 (0)845 200 2200Martin Balaam, Chief Executive OfficerTim Perks, Chief Financial Officer ICIS Limited Tel. +44 (0)20 7651 8688Tom Moriarty or +44 (0)7769 937 626Paul Youens Evolution Securities Limited is acting as nominated adviser and broker to theCompany for the purpose of the AIM Rules. Evolution Securities Limited, which isauthorised and regulated in the United Kingdom by the Financial ServicesAuthority, is acting exclusively for the Company in relation to the Placing.Evolution Securities Limited is not acting for any other person in connectionwith the matters referred to in this announcement and will not be responsible toanyone other than the Company for providing the protections afforded to clientsof Evolution Securities Limited or for giving advice in relation to the mattersreferred to in this announcement. This announcement, including the appendix, has been issued by the Company and isthe sole responsibility of the Company. This announcement, including the appendix, does not constitute a prospectus orlisting particulars relating to the Company and has not been approved by the UKListing Authority, nor does it constitute or form any part of any offer orinvitation to purchase, sell or subscribe for, or any solicitation of any suchoffer to purchase, sell or subscribe for, any securities in the Company underany circumstances, and in any jurisdiction, in which such offer or solicitationis unlawful. Accordingly, copies of this announcement, including the appendix,are not being and must not be mailed or otherwise distributed or sent in or intoor from the United States, Canada, Australia or Japan or any other jurisdictionif to do so would constitute a violation of the relevant laws of, or requireregistration thereof in, such jurisdiction or to, or for the account or benefitof, any United States, Canadian, Australian or Japanese person and any personreceiving this announcement, including the appendix, (including, withoutlimitation, custodians, nominees and trustees) must not distribute or send it,in whole or in part, in or into or from the United States, Canada, Australia orJapan. Acquisition of Comunica Holdings Limited Proposed placing of 266,666,668 New Ordinary Shares at 6.75 pence per New Ordinary Share Notice of Extraordinary General Meeting 1. Introduction The Board of Redstone announces that the Company has agreed to acquire theentire issued share capital of Comunica for a total consideration of up to £22.0million. Comunica specialises in network and communications infrastructuresolutions, providing design, implementation and project management services. Ithas a largely blue-chip client base across many industries, including financialand professional services, retail, energy, media, transport and the publicsector. Pursuant to the terms of the Acquisition Agreement, of the maximum consideration£16.1 million is payable in cash and £2.9 million is to be satisfied by theallotment of the Consideration Shares upon completion of the Acquisition. Up toa further £2.5 million is payable in cash and up to a further £0.5 million inOrdinary Shares of the Company subject to the achievement of certain pre-agreedfinancial milestones by Comunica for the year ending 31 May 2007. TheAcquisition is conditional, inter alia, upon holders of over 90 per cent. ofoptions over Comunica Shares accepting Redstone's offer to acquire their sharesand the Placing Agreement completing in accordance with its terms. In order to part finance the cash consideration payable by Redstone pursuant tothe Acquisition Agreement, the Company proposes to raise approximately £18.0million before expenses (£16.4 million net of expenses) by way of a placing of266,666,668 Placing Shares at a price of 6.75 pence per share. Any cash elementdue under the deferred consideration referred to above and the working capitalrequirements of Comunica will be financed from the Company's existing facilitieswith Barclays Bank PLC. The Board had hoped to provide existing Shareholders with the opportunity toparticipate in the fundraising through an offer of Ordinary Shares on apre-emptive basis. However, the Board concluded that it was not in the bestinterests of the Company to make available such a pre-emptive offer due to thetime and cost involved and the necessity to successfully complete theAcquisition in a timely manner. The Placing, which has been arranged and underwritten by Evolution Securitiespursuant to the terms of the Placing Agreement, is conditional, inter alia, uponthe Acquisition Agreement completing in accordance with its terms (save for anyconditions relating to Admission), the Company obtaining approval from itsShareholders to disapply statutory pre-emption rights and to grant the Boardauthority to allot the Placing Shares and Admission. 2. Background to and Reasons for the Acquisition Redstone has stated its aim of becoming one of the leading IT and communicationssolution providers in the UK and Ireland. The UK IT and communications sector is changing significantly as the increasingavailability and affordability of broadband allows businesses and consumers totake advantage of converged technologies. As a consequence of these changes,there continues to be consolidation in this market sector as businesses scale upby acquiring complementary products and services and also enlarge their customerbases. Redstone has previously announced its intention to be an active participant inthis consolidating marketplace. In pursuit of this strategy, in April 2005, theCompany acquired, and subsequently integrated, Xpert Group Limited and, in July2006, acquired both Symphony Telecom Holdings plc ("Symphony") and the Tolerantgroup of companies (being Tolerant Systems Limited, Net-Adept Limited, Net QuestSolutions Limited and Trent Datacomms Limited) both of which have beensubstantially integrated into the Group. In addition, on 22 January 2007,Redstone declared unconditional its offer for IDN Telecom plc ("IDN"), anacquisition that the Directors believe will further enhance the Group's marketposition and generate future growth. The Directors believe that the acquisition of Comunica will represent a furtherstep towards establishing the Company as a leading UK IT and communicationssolution provider. Over the past year, Redstone's Converged Solutions business has successfullydelivered on its contracts with Royal Ascot and has experienced furthersuccesses winning contracts from Foxtons, Telecom Service Centres Limited (TSC)and Lancashire Schools (as part of the Government's £45 billion Building Schoolsfor the Future project). Whilst these are significant contract wins forRedstone, which will deliver revenues in future periods, in order to compete forlarger and more lucrative projects, Redstone's Converged Solutions business willneed to add additional capacity to its existing business. The Acquisitionrepresents a strategic move for Redstone's Converged Solutions division, as thebusiness of Comunica is anticipated to complement this division providing thecritical mass required to increase the profile of Converged Solutions withpotential partners. It also provides Converged Solutions with the necessaryskill sets to continue to bid for and deliver multiple larger projects, enablingthis business area to continue to grow and take advantage of the significantmarket demand. In addition, the Directors believe that the Acquisition provides Redstone withthe following principal strategic benefits: • Removal of a significant competitor from the converged solutions market; • Enhanced prospects due to its increased capacity and scale, with a more substantial presence in key vertical markets; • Increased purchasing power with suppliers, which is expected to help achieve increased revenue growth and win new accounts; • Cost saving benefits of bringing together the back office functions of Redstone and Comunica and integrating their network solutions businesses; and • Significant opportunities to cross sell Redstone's other products and services to Comunica's customer base. The Redstone business is divided into five autonomous units to ensure that thereis consistent focus on profitable business, but, moreover, to allow the Group toexpand rapidly through acquisition whilst minimising disruption. Accordingly,post acquisition, the integration of Comunica will be confined to the ConvergedSolutions business and all other divisions within Redstone will be unaffected bythis integration (save for the additional cross selling opportunities providedby the new customers introduced to the Group by Comunica). Similarly theintegration of IDN, which has been acquired recently, will be confined to theRedstone Telecom division. The expanded Converged Solutions business should provide the Enlarged Group withan improved revenue stream with higher margins, a greater element of contractedrevenues and is expected to increase the contribution of IT services revenues toover 50 per cent. of the Enlarged Group's revenues. Accordingly, the Directors anticipate that the Enlarged Group will be able tooffer a far broader range of IT and communication solutions to businesses andpublic sector organisations in a market that is increasingly reliant on suchsolutions to transact business and interact with its end customers. The Directors believe that Redstone's continued success will be based on itsability to offer a range of innovative IT and communications solutions to itscustomers, combined with excellent customer service. Redstone will continue toseek to enlarge both its customer base and its range of products and serviceswith a focus on organic growth and the successful integration of the recentlyacquired businesses, whilst retaining the flexibility to make strategicacquisitions as opportunities arise. 3. Information on Redstone Redstone is a provider of communications and IT solutions for businesses andpublic sector organisations. The Company's portfolio of products and serviceshelps businesses to maximise the benefits of the latest telecom and converged IPsolutions thereby enhancing customer satisfaction, increasing productivity,maximising operational efficiency, reducing costs and generating valuable newrevenue channels. The Group's business is organised into five distinct businessdivisions: Telecom Redstone Telecom provides telephony network services to the private and publicsector and its portfolio includes business telephony services, line rental,non-geographic services and premium rate services. Redstone Telecom has astrategic relationship with BT Wholesale delivering service quality andavailability. This is complemented by customer-focused services includingdedicated account management and around the clock customer support. TheCompany's recent acquisition of IDN Telecom plc will further strengthen thisdivision of the Group and will, the Directors believe, increase Redstone'scritical mass within its fixed line telecoms division and deliver cost savingsthrough synergies from combining the two UK based fixed line telephonybusinesses. Mobile Redstone Mobile is a leading UK distributor of telecommunications products andservices. Redstone sells mobile, fixed line and data products and servicesdirectly to the SME market and also acts as a distributor for all five mobilenetwork operators within the UK. Redstone's channels to market include its owndirect sales team, a network of independent fixed line and mobile dealers andeight joint ventures with established telephony equipment distributors. Converged solutions Redstone Converged Solutions is a provider of converged IP solutions, withexpertise in contact centres, voice and video, IP networks, Intelligent Building(Onenet) solutions and security. Redstone Converged Solutions providesinnovative solutions to businesses and organisations in the health, education,local government, retail and finance sectors. With over 10 years' expertise inthe fields of voice and data, Redstone Converged Solutions represents a strongproposition in the convergence market. Redstone Converged Solutions has developed long standing partnerships withworld-class suppliers of voice and data technology solutions, including Avaya,BT, Cisco and Mitel. In addition to these relationships, Redstone ConvergedSolutions also partners with technology specific-suppliers which enables it tooffer bespoke and innovative solutions for all voice and data technologyapplications. As it is vendor independent, Redstone Converged Solutions has theflexibility to specify the most appropriate solution for clients' bespokerequirements. Managed solutions Redstone Managed Solutions ("RMS") provides a portfolio of infrastructure andinternet services suitable for businesses and public sector organisations. Theseinclude server and desktop deployment, application development, hosting andco-location, network and system management, internet service provision andconsultancy. RMS can manage and support business networks from enterprise level through tothe desktop, with a single source service for business. RMS also provideshosting solutions from its London and Cambridge data centres, with scaleablesolutions, from a single server to multiple racks. Redstone's ISP offersservices including managed IP virtual private networks, managed firewall, emailfiltering, online data backup, global roaming internet access and a WiFi hotspotservice. The Redstone Metropolitan Area Network in Cambridge comprises in excessof 25 kilometres of fibre, providing a state of the art communications backbonecapable of delivering internet, voice, data or point to point services. RMS has a dedicated education sector offering which provides services includingISP connection and filtered email and content control, hosting and domainregistration services, together with niche software developments for schoolsincluding its education sector WebXchange portal and registration administrationproducts. Technology Redstone Technology is one of Ireland's leading specialists in providing HPenterprise storage solutions and is a specialist in HP business criticalenterprise-class servers and provides a wide array of professional, consulting,logistics and maintenance services in the Republic of Ireland and NorthernIreland. Redstone Technology is an HP Preferred Partner and was the first HP AuthorisedService Delivery Partner in Ireland, as well as being HP's leading partner inenterprise storage solutions and business critical servers in Ireland. RedstoneTechnology is also the first Red Hat Linux Advanced Partner in Ireland and aStorageTek Premier Plus Partner. 4. Information on Comunica Comunica specialises in network and communications infrastructure solutions,providing design, implementation and project management services. Founded in1986 and headquartered in Middlesex in the UK, Comunica employs over 300experienced staff who deliver high-quality solutions to a largely blue-chipclient base across industries including financial and professional services,retail, energy, media, transport and the public sector. For the year ended 31May 2006, Comunica achieved a profit before tax of £2.6 million and had netassets of £3.8 million. Comunica's business is made up of four service lines: Support services Comunica supplies the full range of network and desktop support servicesincluding software and hardware maintenance, network management, networkmaintenance, configuration management, PABX maintenance, helpdesk/desktopsupport, moves, additions and changes. Co-ordinated through its EnterpriseSupport Centre, services can be delivered either on-site or remotely, either innormal working hours or with a full 24 hour service. Intelligent infrastructure management Intelligent infrastructure management is the installation and integration of anintelligent cabling infrastructure with other applications and businessprocesses, tracking users and IT assets in real time at a physical level, andthen linking this information with a logical network management system. Theinstalled solution is integrated with software applications and provides majorproductivity benefits in maximising utilisation of these assets, as well assignificantly strengthening network security against hackers and otherintruders. Network solutions Working with leading manufacturers, Comunica designs, commissions and maintainscomplete network implementations, including physical cable infrastructure, LAN,WAN, voice and converged network solutions. Key to this offering is the projectmanagement and delivery of large and complex branch roll-out projects across avariety of industry sectors. Connectivity solutions This has been the group's core activity since inception. This includes managingand delivering complex, bespoke connectivity infrastructure implementations inall environments including greenfield and refurbished sites and largedistributed network roll-out projects. A key strength of the group's abilitiesin this area has been in its ability to deliver fast track projects to demandingtimescales. Comunica provides support services, available 24 hours a day, 365days per year for these projects. 5. Current trading and prospects Redstone Redstone has recently successfully finalised the integration of the acquisitionsof Symphony Telecom Holdings plc and the Tolerant group of companies and hasdeclared unconditional the recommended offer to acquire all of the issued and tobe issued share capital of IDN Telecom plc. Redstone has also continued to winsignificant new contracts, including those with Lancashire Schools, TSC andFoxtons. The financial performance of the Group remains in line with the Directors'expectations and the Directors remain confident of a successful outcome to thefinancial year. The Directors have been encouraged by the gross and net marginsgenerated across the Group and continue to focus on these and earnings beforeinterest, tax and depreciation rather than turnover as a primary key performancemetric. Comunica Comunica has continued to win significant new contracts over the course of thisfinancial year. During the year the focus has been on margin improvement andwinning several important new contracts. Comunica is currently the preferredbidder on the White City contract and is currently undertaking contractnegotiations. The Directors believe that the prospects for Comunica areencouraging. The Enlarged Group Following the Acquisition the Directors believe that the Company will haveestablished a firm basis from which to grow in the future. The ConvergedSolutions division will be in a position to bid for further large contracts andthe Redstone Telecoms division, following the acquisitions of Symphony and IDN,has reached sufficient critical mass to optimise its usage of its existingnetwork with BT. The Directors anticipate that the Enlarged Group will undertakeincreased investment in bidding for further contracts, leveraging off its recentsuccesses, to establish a strong order book of committed revenue for futureyears. Inclusive of this investment, the Directors anticipate that thecombination of the Acquisition and the acquisition of IDN will be earningsdilutive for the Group as a whole. This should not be construed as a profitforecast or be interpreted to mean that future earnings per share or profits ofRedstone will necessarily be greater than its historic published earnings pershare, profits or losses. Redstone will continue to seek to maximise shareholder returns from theacquisitions it has undertaken over the past year through their successfulintegration, the continued promotion of cross selling throughout the EnlargedGroup and through utilising the increased scale of the Converged Solutionsbusiness to win larger long term contracts and improve revenue visibility forthe Enlarged Group. To complement this growth, Redstone will look to strengthenits Managed Solutions business and repeat in the UK the success its technologybusiness has experienced in Ireland. 6. Details of the Placing and the Placing Agreement The Placing In order to part finance the cash consideration payable by Redstone pursuant tothe Acquisition, the Company proposes to raise approximately £18.0 millionbefore expenses (£16.4 million net of expenses) by way of a placing of266,666,668 Placing Shares at a price of 6.75 pence per share. The Placing Price represents a discount of 8.47 per cent. to the closing middlemarket price of 7.375 pence per Existing Share on 7 February 2007, being thelast practicable date prior to the date of this announcement. The Placing Shareswill represent 18.4 per cent. of the Company's issued share capital immediatelyfollowing Admission. The Placing Agreement Pursuant to the terms of the Placing Agreement, Evolution Securities hasconditionally agreed to use its reasonable endeavours, as agent for the Company,to place the Placing Shares with certain institutional and other investors. ThePlacing has been fully underwritten by Evolution Securities. The PlacingAgreement is conditional upon, inter alia, the Acquisition completing inaccordance with its terms (save for any conditions relating to Admission), theResolutions being duly passed at the EGM and Admission. The Placing Agreement contains customary warranties from the Company in favourof Evolution Securities in relation to, inter alia, the accuracy of theinformation in this announcement and the Circular, and other matters relating tothe Group and its business and Comunica. In addition, the Company has agreed toindemnify Evolution Securities in relation to certain liabilities it may incurin respect of the Placing. Under the Placing Agreement, the Company has agreed to pay Evolution Securitiesa fee of £340,000, together with any applicable value added tax. Settlement and dealings Application will be made to the London Stock Exchange for the New OrdinaryShares to be admitted to trading on AIM. It is expected that, subject to thepassing of the Resolutions at the EGM, Admission will become effective on 6March 2007. The New Ordinary Shares will, when issued, rank pari passu in all respects withthe Existing Shares including the right to receive dividends and otherdistributions declared following Admission. 7. Working capital and significant changes The Directors are of the opinion that, taking into account existing cashresources, banking and other facilities available to the Enlarged Group, and thenet proceeds of the Placing, the Enlarged Group has sufficient working capitalfor its present requirements, that is, for at least the next 12 months from thedate of Admission. There has been no significant change in the financial or trading position ofRedstone since 30 September 2006 (the date to which the latest interim resultsof Redstone were prepared) or Comunica since 31 May 2006 (the date to which thelatest audited accounts of Comunica were prepared). 8. Extraordinary General Meeting Set out in the Circular is a notice convening the EGM to be held on 5 March 2007at the offices of Osborne Clarke, One London Wall, London EC2Y 5EB at 11.00a.m., at which the Resolutions will be proposed for the purposes of implementingthe Placing. Resolution 1, which will be proposed as an ordinary resolution and which issubject to the passing of Resolution 2 and the Placing Agreement becomingunconditional, is to authorise the Directors to allot the New Ordinary Shares inconnection with the Placing and Acquisition. Resolution 2, which will be proposed as a special resolution and which issubject to the passing of Resolution 1 and the Placing Agreement becomingunconditional, disapplies Shareholders' statutory pre-emption rights in relationto the issue of the Placing Shares. 9. Recommendation The Board, which has been so advised by Evolution Securities, considers that thePlacing is in the best interests of the Company and its Shareholders as a whole.In giving this advice, Evolution Securities has relied upon the commercialassessments made by the Board. Accordingly, the Directors unanimously recommend that you vote in favour of theResolutions to be proposed at the EGM, as they and their immediate families andconnected persons (within the meaning of Section 346 of the Act) intend to do inrespect of their aggregate holdings of 7,093,508 Existing Shares, representing0.62 per cent. of the Company's existing issued ordinary share capital. APPENDIX I Definitions "Acquisition" the proposed acquisition by the Company of Comunica pursuant to the Acquisition Agreement "Acquisition Agreement" the conditional share purchase agreement dated 8 February 2007 and made between Redstone and the Comunica Shareholders relating to the Acquisition "Act" the Companies Act 1985 (as amended) "Admission" admission of the Placing Shares and Consideration Shares to trading on AIM becoming effective in accordance with Rule 6 of the AIM Rules "AIM" the AIM Market operated by the London Stock Exchange "AIM Rules" the AIM rules for companies published by the London Stock Exchange from time to time "business day" a day (other than a Saturday, Sunday or public holiday) when the clearing banks are open for all normal banking business in the City of London "Capita Registrars" a trading division of Capita IRG Plc "certificated form" or a share or other security recorded on a company's share register as being"in certificated form" held in certificated form (namely, not in CREST) "Circular" the circular dated 8 February 2007 to be sent to Shareholders "Company" or "Redstone" Redstone plc "Consideration Shares" the 39,973,547 Ordinary Shares to be issued to the Comunica Shareholders pursuant to the terms of the Acquisition Agreement as part of the consideration in relation to the Acquisition "CREST" the relevant system (as defined in the Uncertificated Securities Regulations 2001) in respect of which CRESTCo is the operator (as defined in those regulations) "CRESTCo" CRESTCo Limited, the operator of CREST "Comunica" Comunica Holdings Limited "Comunica Directors" the directors of Comunica at the date of this document "Comunica Group" Comunica and its subsidiaries and subsidiary undertakings "Comunica Shareholders" holders of shares of Comunica "Directors" or "Board" the directors of the Company or any duly authorised committee thereof "EGM Notice" the notice convening the EGM, which is set out in the Circular "EGM" or "Extraordinary the extraordinary general meeting of the Company to be held at the offices ofGeneral Meeting" Osborne Clarke, One London Wall, London EC2Y 5EB at 11.00 a.m. on 5 March 2007 "Enlarged Group" the Group, as enlarged by the Acquisition "Evolution Securities" Evolution Securities Limited, the Company's nominated adviser, financial adviser and broker "Existing Shares" the Ordinary Shares in issue at the date of this document, all of which are admitted to trading on AIM "Form of Proxy" the form of proxy for use in connection with the EGM which accompanies this document "Group" the Company, its subsidiaries and its subsidiary undertakings "London Stock Exchange" London Stock Exchange plc "New Ordinary Shares" the Placing Shares and the Consideration Shares "Ordinary Shares" ordinary shares of 1 penny each in the capital of the Company "Placing" the conditional placing of the Placing Shares by Evolution Securities, as agent on behalf of the Company, pursuant to the Placing Agreement "Placing Agreement" the conditional agreement dated 8 February 2007 and made between Evolution Securities and the Company in relation to the Placing "Placing Price" 6.75 pence per New Ordinary Share "Placing Shares" the 266,666,668 new Ordinary Shares to be issued pursuant to the Placing "Resolutions" the resolutions set out in the EGM Notice "Shareholders" holders of Ordinary Shares "SME" small and medium sized enterprises "UK" the United Kingdom of Great Britain and Northern Ireland "US" or "United States" the United States of America, each state thereof, its territories and possessions (including the District of Columbia) and all other areas subject to its jurisdiction "uncertificated" or "in a share or other security recorded on a company's share register as beinguncertificated form" held in uncertificated form in CREST and title to which, by virtue of the Uncertificated Securities Regulations 2001, may be transferred by means of CREST This information is provided by RNS The company news service from the London Stock Exchange