European Metals Holdings Regulatory News (EMH)

14 Jun 2005 07:01

European Motor Hldgs PLC14 June 2005 European Motor Holdings plc - Acquisition 14 June 2005 European Motor Holdings plc ("EMH" or the "Company") proposed acquisition ofSmith Knight Fay (Holdings) Limited The Board of EMH is pleased to announce today the acquisition of SKF Holdings, aprivately owned motor retail business operating eighteen motor retail franchisesin the North West of England. Highlights of the Acquisition +----+-------------------------------------------------------------------------+| - |EMH has agreed to acquire SKF Holdings for a consideration of || |approximately £29.8 million to be funded out of existing cash resources || |and bank facilities. Of this amount, EMH will retain £1.5 million for the|| |allotment and issuance of 603,378 Ordinary Shares to the Seller which the|| |Seller has subscribed for, conditional on Completion and Admission. |+----+-------------------------------------------------------------------------+| | || | || | |+----+-------------------------------------------------------------------------+| - |The Acquisition is conditional, inter alia, upon the approval of EMH || |Shareholders and of the FSA. |+----+-------------------------------------------------------------------------+| | || | || | |+----+-------------------------------------------------------------------------+| - |A circular to Shareholders containing full details of the Acquisition and|| |containing a notice of an Extraordinary General Meeting will be sent to || |EMH Shareholders in due course. |+----+-------------------------------------------------------------------------+| | || | || | |+----+-------------------------------------------------------------------------+ Principal reasons for the Acquisition +----+-------------------------------------------------------------------------+| - |Increasing EMH's geographic presence in the North West of England where || |the Group already has a number of established and successful businesses, || |thereby increasing its penetration and offering enhanced opportunities || |for management synergy within the complementary territories of the || |Enlarged Group and its manufacturer partners. |+----+-------------------------------------------------------------------------+| | || | || | |+----+-------------------------------------------------------------------------+| - |Providing the Enlarged Group with greater buying power to increase || |economies of scale. |+----+-------------------------------------------------------------------------+| | || | || | |+----+-------------------------------------------------------------------------+| - |Strengthening the Group's position and relationship with Audi and || |Volkswagen and providing the Group with new opportunities with Toyota and|| |Lexus with whom the Directors have entered preliminary discussions with || |regard to representation. Procedures have commenced to assess the || |Enlarged Group's candidacy for those franchises and approval has been || |given for SKF to continue to operate those franchises in the intervening || |period. |+----+-------------------------------------------------------------------------+| | || | || | |+----+-------------------------------------------------------------------------+| - |Providing additional central resource. |+----+-------------------------------------------------------------------------+ The Directors of EMH believe that the Acquisition will be earnings enhancing forthe Group in its first full financial year(1) 1 This statement should not be interpreted to mean that the future earningsper share of EMH following the Acquisition will necessarily match or exceed thehistorical earnings per share of EMH Commenting on the Acquisition, Richard Palmer, Chief Executive of EMH, said: "We have spent some time looking at a variety of different acquisitionopportunities. We are convinced that the SKF acquisition is the right one forEMH as it gives the right geographical, franchise and operational mix to fulfilthe Group's stated strategy. The Enlarged Group will have many opportunities toachieve improvements from management synergy and economies of scale in the yearsto come." Enquiries: European Motor Holdings plc 01491 413 399Richard PalmerAnn Wilson Investec Investment Banking 020 7597 4000Keith AndersonErik Anderson Investec, which is authorised and regulated by the Financial Services Authority,is acting for EMH in connection with the Acquisition and is not acting for anyperson other than EMH and will not be responsible to any other person other thanEMH for providing the protections afforded to its customers or for providingadvice to any other person in connection with the Acquisition. Proposed Acquisition of SKF Holdings The Board of EMH is pleased to announce today that it has reached agreement,conditional on shareholder approval and FSA approval, to acquire the entireissued share capital of SKF Holdings for a total consideration of approximately£29.8 million in cash, subject to certain adjustments. It has been agreed that,of the total consideration, EMH will retain £1.5 million for the allotment andissuance of 603,378 Ordinary Shares to the Seller which the Seller hassubscribed for conditional on Completion and Admission. The Subscription Shareswill be issued at a price of 248.6 pence per share and will representapproximately 1.12 per cent. of the enlarged issued share capital of the Companyfollowing the issue of such Subscription Shares. The Consideration is to befunded from EMH's existing cash resources and bank facilities. In view of its size in relation to EMH, the Acquisition is conditional upon theapproval of Shareholders at an Extraordinary General Meeting to be convened forthis purpose. A document providing Shareholders with information relating to the Acquisition,to explain the rationale for the Acquisition and why the directors of EMHconsider the Acquisition to be in the best interests of EMH and the Shareholdersas a whole will be sent to Shareholders in due course. The document will alsoinclude a Notice of the Extraordinary General Meeting at which the Resolutionwill be proposed. The Directors have irrevocably undertaken to vote in favour of the Resolution inrespect of their entire aggregate beneficial shareholdings in EMH amounting to2.6 per cent. of EMH's current issued share capital (prior to the issue of theSubscription Shares). Information on EMH EMH operates through two principal divisions: Motor Retail and Motor Services. Motor Retail Division The Motor Retail Division operates thirty seven motor retail franchises sellingnew and used vehicles and providing after sales service. The Motor RetailDivision concentrates on premium marques and has chosen strategically torepresent a relatively small number of manufacturers in this segment of themarket. Following a period of selected acquisitions of premium franchises andcontrolled disposals of non-core businesses, thirty five of the Motor RetailDivision's thirty-seven franchises are now held with its chosen manufacturerpartners; the BMW group, the Premier Automotive Group and the Volkswagen group.The remaining two franchises are held with MG Rover and, as announced on 27April 2005 following the placing of MG Rover Group Limited into administration,the Board decided to implement a structured closure of these dealerships and onehas already been closed. The Motor Retail Division's continuing dealerships aremainly located in the North East and North West of England, together with asmaller number in South West London and the West and East of England. The MotorRetail Division generally operates in market areas where it has a number offranchises for the same manufacturer with contiguous territories. This allowsthe Motor Retail Division to benefit from the co-ordinated marketing and theoperating and financial efficiencies that this structure affords. The Motor Retail Division's dealerships are: Audi Swindon, TetburyBentley Leicester, Newcastle, NorwichBMW Malton, Stockton, Sunderland, YorkBMW motor cycles SunderlandJaguar Doncaster, Harrogate, Leeds, Preston, YorkLand Rover Chester, PrestonMG Rover ChesterMINI Malton, Stockton, Sunderland, YorkVolkswagen Bebington, Chester, Cirencester, Chiswick, Heathrow, Sunderland, Twickenham, WrexhamVolvo Durham, Harrogate, Hexham, Newcastle, Stockton, Sunderland The Motor Retail Division also operates motor auctions in Telford andQueensferry and holds the United Kingdom import and distribution licence for thePerodua range of cars manufactured in Malaysia. Motor Services Division The principal operating company in the Motor Services Division is WilcomaticLimited, a market leader in the sale and servicing of vehicle washing equipmentin the United Kingdom. Its main customers are supermarkets, oil companies,independent forecourts and motor retail businesses. Information on SKF Group The SKF Group is a privately owned motor retail business, founded by the Sellerin 1970 which currently operates eighteen motor retail franchises in the NorthWest of England, which are: Audi Bolton, Chester, Macclesfield, StockportLexus StockportMazda StockportToyota Denton, Macclesfield, StockportVolkswagen Altrincham, Bolton, Bury, Hyde, Macclesfield, Manchester, Oldham, StockportVolkswagen light commercial vehicles Manchester The table below summarises the results of the SKF Group for the three yearsended 31 May 2004 and the net assets of the SKF Group at each of those dates. 2004 2003 2002 £'000 £'000 £'000 Turnover 273,930 191,711 154,232 Operating profit 5,538 4,149 4,140 Profit on ordinary activities before taxation 4,182 3,829 3,172 Profit on ordinary activities after taxation 2,822 2,870 2,129 Net assets 16,639 14,022 11,452 The above figures have been extracted without material adjustment from theaccountants' report on SKF Holdings set out in the circular to be sent toShareholders. In order to make a proper assessment of the financial position ofSKF Holdings, the Shareholders should not rely solely on the summary financialinformation set out above but should read the whole of the circular being sentto Shareholders. The SKF Holding's business has grown substantially over the past three years asa result of a series of acquisitions. During the year ended 31 May 2004, theconsolidation of those acquisitions coincided with a difficult period forVolkswagen, which represents half of the SKF Group's franchises. As a result,the profit before taxation for that year of £4.2 million was below the SKF Group's management expectations. The difficulties associated with Volkswagencontinued into the financial year ended 31 May 2005, particularly within the SKFGroup's newly acquired businesses, and resulted in a substantial deteriorationin the SKF Group's trading. However, Volkswagen has announced plans tointroduce within the next twelve months a number of significant new models inthe United Kingdom; the new Passat range, Golf Plus, new Polo, Fox, Jetta and aSports Convertible. It is expected that the introduction of these vehicles,together with other measures taken by the manufacturer, will generate animproved trading performance of the Volkswagen dealer network. The SKF Group'sother franchises have performed satisfactorily during these periods. Background to and reasons for the Acquisition In line with its stated strategy, over the last five years the Group has focusedon the premium sector of the UK car retail market, disposing of non-corebusinesses and building its portfolio of franchises with its chosen manufacturerpartners. With the exception of the two MG Rover dealerships, of which one isnow closed and the other is in the process of being closed, these businesses areall operating broadly in line with management expectations and the Groupannounced a record profit in its results for the year ended 28 February 2005following five successive financial years of profit growth. For many years, the Group has consistently been cash generative in itsoperations which, together with cash recently received in respect of aretrospective VAT refund and associated interest and funds generated from thedisposal of certain non-core assets and businesses, has resulted in a strongcash position. Following the consideration of a number of alternative uses ofthese funds, the Directors believe that the acquisition of the SKF Group willbest advance the continuation of the Group's successful growth strategy andcreate shareholder value. EMH benefits from the changes in October 2002 to the Block Exemption regulationsconcerning new passenger cars which allow franchised dealers to acquire otherbusinesses holding the same franchise without prior approval from themanufacturer. The Board believes that the Acquisition will create a number of opportunitiesand benefits including: • increasing EMH's geographic presence in the North West of England where theGroup already has a number of established and successful businesses, therebyincreasing its penetration and offering enhanced opportunities for managementsynergy within the complementary territories of the Enlarged Group and itsmanufacturer partners; • providing the Enlarged Group with greater buying power to increase economiesof scale; • strengthening the Group's position and relationship with Audi and Volkswagenand providing the Group with new opportunities with Toyota and Lexus with whomthe Directors have entered preliminary discussions with regard torepresentation. Procedures have commenced to assess the Enlarged Group'scandidacy for those franchises and approval has been given for SKF to continueto operate those franchises in the intervening period; and • providing additional central resource. The Directors of EMH believe that the Acquisition will be earnings enhancing forthe Group in its first full financial year (this statement should not beinterpreted to mean that the future earnings per share of EMH following theAcquisition will necessarily match or exceed the historical earnings per shareof EMH). Terms of the Acquisition EMH has conditionally agreed to purchase the entire issued share capital of SKFHoldings for a total consideration of £29.8 million in cash, subject to certainadjustments relating to the net asset value of the SKF Group as at 31 May 2005.It has been agreed that, of the total consideration, EMH will retain £1.5million for the allotment and issuance of the Subscription Shares to the Sellerwhich the Seller has subscribed for, conditional on Completion and Admission.The Subscription Shares will represent approximately 1.12 per cent of theenlarged issued share capital of the Company following the issue of theSubscription Shares. The consideration is to be funded from a combination ofEMH's existing cash resources and bank facilities. Pursuant to the Sale andPurchase Agreement, the Seller has agreed not to sell or otherwise dispose ofthe Subscription Shares for a period of 12 months from Completion and to consultwith the Company and its broker prior to any disposal of the Subscription Sharesfor a period of 12 months thereafter. EMH will acquire the SKF Group subject to its existing indebtedness. As at 31May 2004, the last date to which SKF has prepared audited accounts, theindebtedness of SKF (excluding vehicle financing) was £27.9 million. The Subscription Shares will, when issued, rank pari passu in all respects withthe existing Ordinary Shares in issue at the date of Completion including theright to receive all dividends thereafter declared, made or paid on the issuedshare capital of the Company. Application has been made for the SubscriptionShares to be admitted to the Official List and the London Stock Exchange'smarket for listed securities. The Subscription Shares are being issued to theSeller pursuant to the Sale and Purchase Agreement and are not being marketed inwhole or in part to the public in conjunction with the application. The Acquisition is conditional on the approval of Shareholders which is to besought at the EGM to be convened for this purpose and on obtaining regulatoryconsent from the FSA. Further details of the Sale and Purchase Agreement will be set out in thecircular to be sent to Shareholders in due course. Management and organisation of the Enlarged Group The Board is delighted that SKF Holdings' Chairman and Chief Executive, MrKnight, will, on Completion, continue his existing role within the SKF Group.He and the operational directors of SKF have confirmed their intention to staywith the Enlarged Group following the Acquisition. On Completion, Richard Palmerand Ann Wilson will join SKF Holdings' board. On Completion, the SKF Group will become part of EMH's Motor Retail Division. Current Trading and Prospects of EMH As announced on 27 April 2005, the Group enjoyed record profit before tax andexceptional items of £15.5 million for the year ended 28 February 2005. Inaddition, the Group made exceptional profits of £14.6 million in the sameperiod. Trading since the results for the year ended 28 February 2005 has beenencouraging and remains in line with management expectations. The Directors ofthe Company look forward to the rest of the current financial year withconfidence. DEFINITIONS The following definitions apply throughout this announcement unless the contextrequires otherwise: "£" pounds sterling, the lawful currency of the United Kingdom "Acquisition" the acquisition of the entire issued share capital of SKF Holdings by EMH pursuant to the Sale and Purchase Agreement "Admission" (i) the admission of the Subscription Shares to the Official List of the UK Listing Authority becoming effective in accordance with the Listing Rules; and (ii) admission of the Subscription Shares to trading on the London Stock Exchange's main market for listed securities becoming effective in accordance with the Admission and Disclosure Standards of the London Stock Exchange from time to time "Board" or "Directors" the directors of EMH being Roger John Smith (Non Executive Chairman), Richard Terence Palmer (Chief Executive), Ann Chrisette Wilson (Finance Director) and Roger Graham Abrahams (Non Executive Director) "Completion" completion of the Acquisition pursuant to the Sale and Purchase Agreement "Consideration" the consideration payable by EMH to the Seller for the entire issued share capital of SKF Holdings, being cash consideration of approximately £29.8 million (of which £1.5 million will be retained by EMH as subscription monies payable by the Seller for the Subscription Shares), subject to certain adjustments as set out in the Sale and Purchase Agreement "EGM" or the Extraordinary General Meeting of the "Extraordinary General Meeting" Company, notice of which will be included with the circular to shareholders to be posted in due course "EMH" or "the "Company" European Motor Holdings plc "Enlarged Group" the Group following Completion "FSA" the Financial Services Authority "FSMA" the Financial Services and Markets Act 2000 "Group" EMH and its subsidiaries "Investec" Investec Investment Banking, a division of Investec Bank (UK) Limited, which is regulated by the Financial Services Authority "SKF" Smith Knight Fay Limited "SKF Holdings" Smith Knight Fay (Holdings) Limited "SKF Group" SKF Holdings and its subsidiaries and any subsidiaries of such subsidiaries "Listing Rules" the listing rules made by the UKLA for the purposes of Part VI of FSMA, as amended from time to time "London Stock Exchange" London Stock Exchange plc "Notice" the Notice of EGM to be included with the circular to shareholders to be posted in due course "Ordinary Shares" ordinary shares of 40p each in the capital of the Company "Resolution" the resolution set out in the Notice "Sale and Purchase Agreement" the conditional agreement between (1) Seller, and (2) EMH dated 13 June 2005 in respect, inter alia, of the Acquisition, a summary of which will be set out in the circular to shareholders to be posted in due course "Seller" Graham Knight "Shareholders" holders of Ordinary Shares "Subscription Shares" the 603,378 Ordinary Shares to be issued to the Seller on Completion pursuant to the Sale and Purchase Agreement "UKLA" the UK Listing Authority, part of the Financial Services Authority, acting in its capacity as the competent authority for the purposes of Part VI of FSMA All references to time are to London Time. 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