DCD.L Regulatory News (DCD)

11 Jul 2007 07:00

DCD Media PLC11 July 2007 DCD Media plc ("DCD" or the "Group") Proposed Acquisitions, Fundraising, 100 for 1 Share Consolidation and Notice of EGM Acquisitions of Independent Production Businesses DCD Media is delighted to announce a trio of acquisitions in the independenttelevision production sector that are intended to cement its position as aleading independent producer and distributor in UK television. Prospect Pictures Limited (a producer of lifestyle entertainment such as Dailyand Saturday Cooks), September Holdings Limited (a producer of popular factualentertainment such as Hollywood Lives) and West Park Pictures Limited (aproducer of documentary content with a long-term contract with Stephen Fry) willbe acquired for a total consideration of approximately £19.1 million, to besatisfied as to approximately half cash and half shares. Full details of theconsideration for each individual company as well as detailed financialinformation appear below. Each of the businesses joining the DCD group is established in its field andoffers organic growth opportunities. However, as part of the DCD group,collectively they are expected to be able to capitalise on advantages notpreviously available. As has been evidenced by the performance of Box TV andDone and Dusted since joining the group in 2005/6, the benefits are expected toarise not only from the economies of scale but more importantly from thesynergies between the production divisions. Furthermore, with the benefit ofDCD's in-house distributor NBD TV, the Group proposes to retain almost all theupside from each production business's content as the necessity for outsourceddistribution is eliminated. Each of the acquired companies' Managing Directors is to join the executivemanagement board of DCD whilst all key management have agreed to enter threeyear service agreements. The Company is further pleased to announce that these acquisitions, and thefuture growth of the Group, have been supported by a number of existing and newinvestors. As such DCD has raised £8.5 million before expenses via a placing of10,625,000 new Ordinary Shares with certain institutional investors at 80 penceper share following a planned 100 for 1 share consolidation. In addition, theCompany has agreed in principle to raise £4 million in convertible loan fromcertain institutional investors. Completion of the acquisitions and the placing,which is expected to take place on 7 August 2007, is conditional on shareholderapproval at an EGM on 6 August 2007 and finalisation of the loan notedocumentation, which is expected to be in place by 3 August 2007. Chief Executive of DCD Media, Chris Hunt, commented, "The joining together of these newly acquired production businesses with ourexisting subsidiaries will mean that DCD has a significant presence across awide variety of television: drama, arts, musical entertainment, popular factualentertainment, lifestyle and documentaries. These deals are all earningsaccretive; we anticipate that this will be enhanced as the newly acquiredbusinesses' growth as part of our group will be significant. There is littledoubt that as a result we will begin to get on the radar of the larger mediaplayers as measured by turnover and we expect that DCD will now climb well intothe top ten UK independent producers." Enquiries: Chris Hunt, Chief ExecutiveDCD Media plcTel. 020 7297 8000 Ben SimonsHansard GroupTel. 020 7245 1100 Tom Price / Jeremy EllisEvolution SecuritiesTel. 020 7071 4300 Introduction The Company has conditionally agreed to acquire the entire issued share capitalof each of Prospect Pictures Limited, September Holdings Limited and West ParkPictures Limited for an aggregate consideration of approximately £19.1 million,comprising £9.37 million in cash, £0.18 million in loan notes and £9.55 millionin new Ordinary Shares. These companies operate in the areas of factual TV production, lifestyle TVproduction and factual entertainment TV production and meet the Company'scriteria for growth by acquisition. The Fundraising In order to part finance the Acquisitions, the Company proposes to raiseapproximately £8.5 million (before expenses) by way of a placing of 10,625,000new Ordinary Shares at a price of 80p per share. The Placing is conditional,inter alia, upon the Company obtaining approval from its Shareholders todisapply statutory pre-emption rights and to grant the Board authority to allotthe New Ordinary Shares. The Placing, which has been arranged by Evolutionpursuant to the terms of the Placing Agreement, is also conditional uponAdmission and has been fully underwritten by Evolution. In addition, the Company has agreed in principle to raise £4 million inconvertible loan from certain institutional investors. Completion of theAcquisitions and the Placing is conditional on finalisation of the loan notedocumentation, which is expected to be in place by 3 August 2007. Suchdocumentation will be based on the documentation in respect of the Company'sexisting convertible loan notes. The principal proposed terms are as follows: acoupon of LIBOR plus 2.5% per annum whilst the notes have a second prioritylien, reducing to LIBOR plus 1.5% after the notes are granted a first prioritylien; an initial conversion price of 88p (that is 110% of the Placing Price); amaturity of 5 years; an interest make-whole provision and investor options torequire the Company to repay the notes in January 2010 and January 2011. Background to and reasons for the Acquisitions The Company has made significant progress recently in shifting its focus towardsproduction from the distribution of programme content for TV. The acquisitionprogramme started in late 2005 with the acquisitions of NBD Television Limitedand Box TV Limited, which were followed in February 2006 by the acquisition ofDone and Dusted Group Limited. The Group is now recognised as a leadingvertically integrated TV producer and distributor, focused on the arts,entertainment and drama. In addition to continuing organic growth, it is part ofthe Group's strategy to make further acquisitions within other genres, includinglifestyle and factual production, which it believes will create commercialsynergies. The market dynamics are currently very positive for the Group. The 2004 OfcomCode of Practice gave independent production companies the right for the firsttime to exploit the international rights in programmes they produce for themajor UK broadcasters. This structural change in the sector provides a newopportunity for production companies, which have not yet exploited these rights,to benefit from the revenues generated thereby, and for distributors to obtainvaluable new rights from which to generate sales commission. Additionally, asnew forms of delivery emerge, such as video on demand, high definitiontelevision, IPTV and mobile applications, new revenue streams are expected tomaterialise for those able to offer suitable content. The Directors believe the Acquisitions meet the Company's criteria for growth byacquisition and will help capitalise on the available market opportunity. The Acquisitions Prospect Pictures Limited The company is a major producer of weekday mid afternoon entertainmentprogrammes comprising cookery and other lifestyle television. It has a highvolume of low cost productions and has recurring output deal contracts, whichprovide relatively stable and visible earnings. The total consideration for the acquisition is £7.05 million, comprising £3.35million in cash, £0.18 million in loan notes and £3.52 million to be satisfiedby 4,406,250 new Ordinary Shares. September Holdings Limited The company is a major producer of 'factual entertainment' for TV media channelsheaded by David Green, an internationally renowned producer and director. Animportant part of the business of September Holdings Limited is in the US, witha full time operating office in Los Angeles. Its credits include 'Bridezillas'in its fourth season for Women's Entertainment channel in the US and 'theHollywood' brand now transmitting its thirteenth series for ITV1. It retains theinternational exploitation rights, which it exploits through its in-housedistribution arm, to these programmes. The total consideration for the acquisition is £9.06 million, comprising £4.53million in cash and £4.53 million to be satisfied by 5,662,152 new OrdinaryShares. West Park Pictures Limited The company is a producer of documentary content with an international flavour.It has established links with well known UK presenter personalities, includingStephen Fry, and also produces works for Prince Charles' artistic foundation. The total consideration for the acquisition is £2.96 million, comprising £1.48million in cash and £1.48 million to be satisfied by 1,850,391 new OrdinaryShares. Summary financial information (i) Prospect Pictures Unaudited Unaudited Unaudited Limited 12m to 12m to 7m to 30 September 30 September 30 April 2005 2006 2007 £000 £000 £000 Turnover 7,207 6,390 4,839 Gross Profit 1,650 1,479 1,570 Operating Profit 328 407 1,074 Profit Before Tax 365 474 1,090 Profit After Tax 253 339 796 Net Assets 23 362 1,158 (ii) September Holdings Audited Audited Audited Limited 12m to 12m to 12m to 31 December 31 December 31 December 2004 2005 2006 £000 £000 £000 Turnover 7,124 5,100 7,329 Gross Profit 2,526 1,624 2,898 Operating (Loss)/Profit (290) (52) 707 (Loss)/Profit Before Tax (303) (76) 669 (Loss)/Profit After Tax (284) (74) 629 Net Assets 892 820 1,460 (iii) West Park Pictures Unaudited Unaudited Unaudited Limited 12m to 12m to 2m to 31 March 2006 31 March 2007 31 May 2007 £000 £000 £000 Turnover 612 1,098 26 Gross Profit/(Loss) 237 307 (25) Operating Profit/(Loss) 41 58 (55) Net (Liabilities)/Assets (33) 25 (30) Current trading and prospects for the Enlarged Group The Company announced its interim results for the six months to 31 December 2006on 30 March 2007. In it the Company noted that "the Directors are satisfied thatthe new subsidiaries are performing according to expectations, and that thepre-existing operations are also in line with those expectations". It also notedthat "the Directors are comfortable with their overall full year expectations",which remains the case. The Directors believe that the prospects for the TV production business remainpositive, and that the benefits to the sector of the Codes of Practice approvedby Ofcom in 2004, which enabled independent producers to retain theinternational exploitation rights to content commissioned by the major UKterrestrial broadcasters, remain applicable following the Acquisitions. TheDirectors expect the Enlarged Group to be able to gain further and better accessto the broadcasting marketplace following Completion as the production companiesto be acquired have existing trading histories in areas not previously coveredby the Group and hence have in place relationships with broadcasters,particularly in the UK and USA, which the Group has not previously enjoyed.Additionally these companies have been acquired with productions at variousstages of development and/or commissioning. The Directors further believe that these acquisitions will help to smooth theCompany's existing profile of profits and cashflow, which have been largely theresult of producing a small number of relatively high turnover projects. Inparticular, Prospect Pictures has a contract to produce daily cooking programmesover most weeks of the year, which is expected to result in regular andpredictable revenues. The Directors expect the Acquisitions to generate significant additionalrevenues for the Company's in-house distribution division, as they producecontent suitable for international exploitation. 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 Admission willoccur on 7 August 2007. The New Ordinary Shares will, when issued, rank paripassu in all respects with the existing Ordinary Shares following Admissionincluding the right to receive dividends and other distributions declaredfollowing Admission. Share Consolidation The Directors are of the view that it would benefit the Company and theShareholders to reduce the number of shares with a resulting adjustment in themarket price of its shares, by consolidating its ordinary share capital on thebasis of one new ordinary share of 10 pence for each 100 existing OrdinaryShares. Extraordinary General Meeting An EGM is to be held on 6 August 2007 at which resolutions will be proposed forthe purposes of implementing, inter alia, the Acquisitions, the Consolidationand the Placing. This information is provided by RNS The company news service from the London Stock Exchange