MMC.L Regulatory News (MMC)

19 Sep 2007 07:02

Management Consulting Group PLC19 September 2007 Management Consulting Group PLC19 September 2007 Not for release, publication, or distribution in or into the United States ofAmerica, Australia, Canada or Japan FOR IMMEDIATE RELEASE Management Consulting Group PLC Proposed acquisition of Kurt Salmon Associates, Inc. Summary Management Consulting Group PLC (''MCG'' or the ''Company'' and together withits subsidiaries, the ''Group''), the international management consultancygroup, today announces that it has entered into a conditional agreement wherebyit will acquire, by way of merger, the entire issued share capital of KurtSalmon Associates, Inc. (''KSA''), a leading international management consultingfirm specialising in services to consumer product suppliers, retailers andhealth care providers. The total consideration agreed for the Acquisition is US$125.0 million (£62.7million), which will be satisfied by the payment of US$75.0 million (£37.6million) in cash, the issue of 48,278,793 New Ordinary Shares (the number ofwhich may be adjusted to up to a maximum of 53,643,103 New Ordinary Shares ordown to a minimum of 43,889,812 New Ordinary Shares pursuant to the ShareConsideration Adjustment) and the grant of options over 6,293,124 OrdinaryShares in exchange for KSA Options (the number of Ordinary Shares the subject ofoptions may be adjusted to up to a maximum of 7,471,466 Ordinary Shares or downto a minimum of 5,525,105 Ordinary Shares). The cash element of the consideration will be funded from a new €81,450,000 andUS$111,325,000 multicurrency debt facility which will also be used to refinancethe Group's existing borrowings and to provide further working capital andacquisition capital. The Acquisition is in line with the Group's strategy of delivering profitableand sustainable revenue growth by broadening and deepening its consultingofferings. Excluding one-off integration costs and the amortisation of intangibles, theBoard believes that the Acquisition will enhance earnings per share in the yearto 31 December 2008.(1) The KSA Vendors will, immediately following Completion and assuming there is noShare Consideration Adjustment, together hold 48,278,793 Ordinary Sharesrepresenting 14.9 per cent. of the Enlarged Share Capital (or 16.3 per cent. ifthe Share Consideration Adjustment results in the maximum upwards adjustment inthe number of New Ordinary Shares). Commenting on today's announcement, Rolf Stomberg, Chairman of MCG, said:''This acquisition is a key development in the execution of the Group'sstrategy. KSA is a well managed and profitable business with growing revenues.It has a strong foothold in the US, the world's largest consulting market, and ahigh quality client base. The combination of this business with our existingportfolio will benefit all stakeholders.'' Kevin Parry, Chief Executive of MCG, said:''I am delighted that the KSA management team and staff are joining MCG. Thedeal provides a strong platform for further growth. It expands our consultingoffering and geographic reach, deepens our talent pool and creates opportunitiesto cross sell our service offerings to the enlarged client base.'' Mark Wietecha, Chairman of KSA, said:''Our ability to advance the success of clients and drive superior resultsstands at an all time high, and becoming part of MCG's worldwide portfolio ofbrands strengthens and expands our capabilities. MCG provides KSA access to alarger base of resources to further advance our vision and strategy as a premiermanagement consulting firm in an increasingly dynamic global market. We lookforward to working with MCG's management team to further grow and develop KSA'sbusiness for the continued benefit of our clients and employees. '' Overview of KSA KSA is headquartered in Atlanta and has a network of offices throughout NorthAmerica. It has operations in Europe and Asia and partnership relationships inIndia and Spain. The Group employs approximately 550 people and was ranked asone of the ''Ten Best Consulting Firms to Work For'' by Consulting Magazine ineach of the six years from 2002-2007. KSA operates through two divisions: the Consumer Products and Retail Divisionand the Health Care Division. The Consumer Products and Retail Division operatesinternationally, principally in North America, Europe and the Asia Pacificregion. The Health Care Division operates primarily in the United States. The Consumer Products and Retail Division consults on business growth, inventoryefficiency, margin management, productivity improvement, technologyeffectiveness programmes and supply chain management. Its services addressstrategy, processes, organisation and technology support in the core areas ofmerchandising, inventory and supply management. Clients include AEON, Carrefour,The Home Depot, J Sainsbury, Macy's, Proctor & Gamble, Sara Lee and Wal-Mart.The revenues of the Consumer Products and Retail Division in the year ended 31December 2006 were approximately US$125 million, approximately 66 per cent. ofwhich related to the United States, approximately 25 per cent. to Europe andapproximately 9 per cent. to the Asia Pacific region. The Board believes that the size of the global markets for consulting servicesto the consumer products and retail industry sectors is approximately US$12billion and US$13 billion respectively and that the growth in those markets willbe between six and ten per cent. per annum over the next three years. The Health Care Division consults on strategy, facility planning and IT tohospitals, medical centres and physician group practices. Its services addressstrategic planning, clinical programme planning, organisation and governance,facility and operational planning and consulting services related to ITstrategy, system selection, negotiation and project management. Clients aretypically major private sector hospital providers in the United States andinclude John Hopkins Hospital, The Mayo Clinic, Cleveland Clinic and the UCLAMedical Center. The Health Care Division has also provided consulting servicesto health care providers in the Middle East including Saudi Arabia, Qatar andthe United Arab Emirates. The revenues of the Health Care Division in the yearended 31 December 2006 were approximately US$28 million. The Board believes that the size of the global market for consulting services tothe health care sector is approximately US$25 billion, and that the growth willbe approximately six per cent. per annum over the next three years. Benefits of the Acquisition The Board believes that the Acquisition is an important step in the execution ofthe Group's strategic goals. In particular, the Board believes the Acquisitionwill have the following key benefits: Operational • Secures an international market leader in consulting to the consumer products and retail sectors and a strong health care practice in the United States • Broadens the Group's range of industry-led consulting offerings in sectors where it is not currently strong • Strong KSA brand raises the Group's profile in the United States, Europe and Asia • Deepens the Group's talent pool with internationally experienced principals • Increases the Group's client base and enables it to cross sell its services to that enlarged client base Geographic • Rebalances the Group's mix of revenues towards the world's largest consulting market, the United States, following the acquisition of Ineum with its substantially European business in 2006 • Provides complementary consulting offerings in geographies where the Group is already well established • Increases the Group's Asian presence • Provides a platform for further development in growing markets Financial • Adds a well-managed and profitable business with growing revenues • Expected to be earnings enhancing in 2008 before one-off integration costs and the amortisation of intangible assets(2) • Creates an opportunity to reduce unit infrastructure costs • Offers a more balanced revenue mix in terms of market and service offerings and so spreads the risks inherent in the Group over an enlarged portfolio of businesses Shareholder approvals The proposed Acquisition constitutes a Class 1 transaction under the ListingRules. Accordingly, it is subject to the approval of Shareholders, which is tobe sought at an Extraordinary General Meeting expected to be held on 11 October2007. A circular (also comprising a prospectus for the purposes of Part VI of theFSMA) (the ''Circular'') containing full details of the proposed Acquisition isexpected to be sent to Shareholders on or shortly after 21 September 2007. Current trading and prospects The Board gave an update on trading at the time of its interim results publishedon 13 August 2007 and reported that Ineum Consulting's inaugural contribution tothe first half results showed significant like-for-like growth and ProudfootConsulting performed slightly better than in the second half of last year.Parson Consulting's results were mixed. The outlook for the Group has notchanged since that announcement and the Board remains confident that the Groupwill show good progress in 2007. Revenue of KSA for the period from 1 January to 11 August 2007 was approximately18 per cent. ahead of the comparable period last year. The Board has a confident outlook for the Enlarged Group's performance for theremainder of 2007. The information in this summary should be read in conjunction with the main bodyof this announcement. There will be an analysts' presentation at 9.30 a.m. today at the offices of MCGon the 6th Floor of Fleet Place House, 2 Fleet Place, Holborn Viaduct, LondonEC4M 7RF. Enquiries Management Consulting Group PLCKevin Parry Chief Executive 020 7710 5000Chris Povey Head of M&ACraig Smith Finance Director Rothschild (financial adviser and sponsor to MCG)Sian Westerman 020 7280 5000Dominic Epton MaitlandSuzanne Bartch 020 7379 5151Peter Ogden Morgan Stanley & Co, Incorporated has acted as financial adviser to theprincipals of KSA. N M Rothschild & Sons Limited, which is authorised and regulated in the UnitedKingdom by the Financial Services Authority, is acting as financial adviser andsponsor to MCG and no-one else in connection with the matters referred to hereinand will not be responsible to anyone other than MCG for providing theprotections afforded to clients of N M Rothschild & Sons Limited or for givingadvice in relation to such matters. The contents of this announcement which have been prepared by and are the soleresponsibility of MCG have been approved by N M Rothschild & Sons Limited solelyfor the purposes of section 21(2)(b) of the Financial Services and Markets Act2000. This announcement includes statements that are, or may be deemed to be,''forward-looking statements''. These forward-looking statements can beidentified by the use of forward-looking terminology, including the terms''believes'', ''estimates'', ''plans'', ''anticipates'', ''targets'', ''aims'',''continues'', ''expects'', ''intends'', ''may'', ''will'', ''would'' or''should'', or in each case, their negative or other variations or comparableterminology. These forward-looking statements include all matters that are nothistorical facts. They appear in a number of places throughout this announcementand include statements regarding the Company's, or the Group's intentions,beliefs or current expectations concerning, among other things, the Company's,or the Group's results of operations, financial condition, liquidity, prospects,growth, strategies and the industries in which the Company or the Groupoperates. By their nature, forward-looking statements involve risk anduncertainty because they relate to future events and circumstances. A number offactors could cause actual results and developments to differ materially fromthose expressed or implied by the forward-looking statements including, withoutlimitation: conditions in the markets, market position of the Company or theGroup, earnings, financial position, cash flows, return on capital and operatingmargins, anticipated investments and capital expenditures, changing business orother market conditions and general economic conditions. These and other factorscould adversely affect the outcome and financial effects of the plans and eventsdescribed in this announcement. Forward-looking statements contained in thisannouncement based on past trends or activities should not be taken as arepresentation that such trends or activities will continue in the future.Subject to any requirement of the UK Listing Authority or London Stock Exchangeor as a matter of law, neither MCG nor Rothschild undertakes any obligation toupdate or revise any forward looking statements, whether as a result of newinformation, future events or otherwise. Undue reliance should not be placed onforward-looking statements, which speak only as of the date of thisannouncement. The New Ordinary Shares have not been and will not be registered under theUnited States Securities Act of 1933, as amended, (the "Securities Act") orunder the securities laws of any state of the United States and may not beoffered or sold, except pursuant to an exemption from, or in a transaction notsubject to the registration requirements of the Securities Act and applicablestate securities laws. This announcement shall not constitute an offer to sellor the solicitation of an offer to buy the New Ordinary Shares, nor shall therebe any sale of the New Ordinary Shares in any state or other jurisdiction inwhich such offer, solicitation or sale would be unlawful prior to registrationor qualification under the securities laws of any such state or jurisdiction.The New Ordinary Shares may not be resold unless they are registered under theSecurities Act and applicable state securities laws or an exemption fromregistration is available. Notes to Editors The Group currently comprises six specialist consultancies: CBH Consulting,Ineum Consulting, Parson Consulting, Proudfoot Consulting, Salzer Consulting andViaduct Consulting. On 5 September 2007, the Company acquired CBH, a California corporation, by wayof merger for a total consideration of approximately US$10.6 million. CBHConsulting provides performance management and business intelligence solutionsfor enterprises. It assists management to obtain timely accurate and wellpresented information on business performance and information in order to makewell informed business decisions. CBH Consulting serves the commercial andpublic sectors with particular industry expertise in financial services, healthcare and state and local government. It works closely with and is a preferredpartner of Cognos, a corporate performance planning and business intelligencesoftware provider. Ineum Consulting provides a range of services to businesses in the private andpublic sectors through its dedicated industry groups and offers market,strategic, functional and technology expertise. Ineum Consulting serves thefinancial, manufacturing, utilities, telecoms and media, public andtransportation sectors. It also has a specialist middle market group to meet theneeds of dynamic and growing businesses. Parson Consulting develops excellence in finance and operations. It assistschief financial officers by providing valuable financial information and insightto stakeholders through strategic finance, accounting and finance operations,governance and risk management, and corporate transaction support. It does notundertake auditing or resell software and is therefore free of conflicts ofinterest. Proudfoot Consulting implements sustainable operational improvements at no netannualised cost to its clients through process improvements, People SolutionsTMand management operating systems. The successful combination of these threedisciplines results in installed change. The change process is project managedusing the proprietary technique of Co-Venture(R) which, through partnership withProudfoot Consulting's clients, accelerates the pace of change from theconsulting engagement. Salzer Consulting markets itself as the partner of choice for companies in theAsia-Pacific region that are expanding rapidly. It provides human resourcesproject management and human effectiveness improvement through proven productsand tailor-made solutions and it combines deep commercial knowledge with a soundcultural understanding of the Asia-Pacific region. Viaduct Consulting assists private equity providers and corporates in makinginvestment decisions. It undertakes commercial and operational due diligence andsynergy assessments and critiques market and enterprise growth strategies. Thepractice serves defined industry sectors and draws on the expertise available inother MCG Group consultancies. The businesses of the MCG Group are primarily focused on the main geographicmarkets for consulting services, which are currently North America and Europe,and, in addition, provide services in other smaller consulting markets such asAustralia, Brazil, China and South Africa. Management Consulting Group PLC19 September 2007 Not for release, publication, or distribution in or into the United States ofAmerica, Australia, Canada or Japan. FOR IMMEDIATE RELEASE Management Consulting Group PLC Proposed acquisition of Kurt Salmon Associates, Inc. 1. Introduction Management Consulting Group PLC (''MCG'' or the ''Company'' and together withits subsidiaries, the "Group"), the international management consultancy group,today announces that it has entered into a conditional agreement whereby it willacquire, by way of merger, the entire issued share capital of Kurt SalmonAssociates, Inc. (''KSA''), a leading international management consulting firmspecialising in services to consumer product suppliers, retailers and healthcare providers. The total consideration agreed for the Acquisition is US$125.0 million (£62.7million), which will be satisfied by the payment of US$75.0 million (£37.6million) in cash, the issue of 48,278,793 New Ordinary Shares (the number ofwhich may be adjusted to up to a maximum of 53,643,103 New Ordinary Shares ordown to a minimum of 43,889,812 New Ordinary Shares pursuant to the ShareConsideration Adjustment described below) and the grant of options over6,293,124 Ordinary Shares in exchange for KSA Options (the number of OrdinaryShares the subject of options may be adjusted to up to a maximum of 7,471,466Ordinary Shares or down to a minimum of 5,525,105 Ordinary Shares pursuant to anadjustment mechanism described below). The cash element of the consideration will be funded from a new €81,450,000 andUS$111,325,000 multicurrency debt facility which will also be used to refinancethe Group's existing borrowings and to provide further working capital andacquisition capital. The proposed Acquisition constitutes a Class 1 transaction under the ListingRules. Accordingly, it is subject to the approval of Shareholders, which is tobe sought at the Extraordinary General Meeting. The Acquisition is in line with the Group's strategy of delivering profitableand sustainable revenue growth by broadening and deepening its consultingofferings. The KSA Vendors will, immediately following Completion and before the effect ofany Share Consideration Adjustment, together hold 48,278,793 Ordinary Sharesrepresenting 14.9 per cent. of the Enlarged Share Capital (or 16.3 per cent. ifthe Share Consideration Adjustment results in the maximum upwards adjustment inthe number of New Ordinary Shares, or 13.8 per cent. if the Share ConsiderationAdjustment results in the maximum downwards adjustment in the number of NewOrdinary Shares). 2. Information on MCG The Group currently comprises six specialist consultancies: CBH Consulting,Ineum Consulting, Parson Consulting, Proudfoot Consulting, Salzer Consulting andViaduct Consulting. On 5 September 2007, the Company acquired CBH, a California corporation, by wayof merger for a total consideration of approximately US$10.6 million. CBHConsulting provides performance management and business intelligence solutionsfor enterprises. It assists management to obtain timely, accurate and wellpresented information on business performance and information in order to makewell informed business decisions. CBH Consulting serves the commercial andpublic sectors with particular industry expertise in financial services, healthcare and state and local government. It works closely with and is a preferredpartner of Cognos, a corporate performance planning and business intelligencesoftware provider. Ineum Consulting provides a range of services to businesses in the private andpublic sectors through its dedicated industry groups and offers market,strategic, functional and technology expertise. Ineum Consulting serves thefinancial, manufacturing, utilities, telecoms and media, public andtransportation sectors. It also has a specialist middle market group to meet theneeds of dynamic and growing businesses. Parson Consulting develops excellence in finance and operations. It assistschief financial officers by providing valuable financial information and insightto stakeholders through strategic finance, accounting and finance operations,governance and risk management, and corporate transaction support. It does notundertake auditing or resell software and is therefore free of conflicts ofinterest. Proudfoot Consulting implements sustainable operational improvements at no netannualised cost to its clients through process improvements, People SolutionsTMand management operating systems. The successful combination of these threedisciplines results in installed change. The change process is project managedusing the proprietary technique of Co-Venture(R) which, through partnership withProudfoot Consulting's clients, accelerates the pace of change from theconsulting engagement. Salzer Consulting markets itself as the partner of choice for companies in theAsia-Pacific region that are expanding rapidly. It provides human resourcesproject management and human effectiveness improvement through proven productsand tailor-made solutions and it combines deep commercial knowledge with a soundcultural understanding of the Asia-Pacific region. Viaduct Consulting assists private equity providers and corporates in makinginvestment decisions. It undertakes commercial and operational due diligence andsynergy assessments and critiques market and enterprise growth strategies. Thepractice serves defined industry sectors and draws on the expertise available inother MCG Group consultancies. The businesses of the MCG Group are primarily focused on the main geographicmarkets for consulting services, which are currently North America and Europe,and, in addition, provide services in other smaller consulting markets such asAustralia, Brazil, China and South Africa. 3. Background to, and reasons for, the Acquisition The Group's strategy is to: • operate and continually invest in its consultancies and its people to deliver profitable, sustainable revenue growth that is ahead of the market rates of growth for the consulting sector; and • acquire consultancies that either diversify the range of consulting offerings available to clients or deepen the coverage of existing Group offerings. Each consulting offering goes to market through its own brand and is operated separately with its own dedicated management team. Group management co-ordinates the introduction of clients as between thedifferent offerings, provides oversight of key client relationships and broadensthe range of consulting offerings available to clients by shaping consultancies'strategies and by acquisitions. The Group management additionally determines theinvestment priorities and provides expert financial and other infrastructureskills and assets. The proposed Acquisition secures a high quality consulting practice focused onthe retail, consumer products and health care industries. It will broaden theclient base of, and services provided by, the MCG Group and provides theopportunity for the clients of KSA to be introduced to the Group's otherconsultancies and for clients of the MCG Group to be introduced to the servicesof KSA. KSA provides the Group with a further major consulting offering focusing onindustry specialisms. Its industry led business will continue to trade under theKSA brand. MCG will continue to invest in its existing consulting offerings throughrecruitment of suitably qualified and experienced people and will continue toseek bolt-on acquisitions of suitable management consulting and professionalservices businesses. 4. Benefits of the Acquisition The Board believes that the Acquisition is an important step in the execution ofthe Group's strategic goals. In particular, the Board believes the Acquisitionwill have the following key benefits: Operational • Secures an international market leader in consulting to the consumer products and retail sectors and a strong health care practice in the United States • Broadens the Group's range of industry-led consulting offerings in sectors where it is not currently strong • Strong KSA brand raises the Group's profile in the United States, Europe and Asia • Deepens the Group's talent pool with internationally experienced principals • Increases the Group's client base and enables it to cross sell its services to that enlarged client base Geographic • Rebalances the Group's mix of revenues towards the world's largest consulting market, the United States, following the acquisition of the substantially European Ineum business in 2006 • Provides complementary consulting offerings in geographies where the Group is already well established • Increases the Group's Asian presence • Provides a platform for further development in growing markets Financial • Adds a well-managed and profitable business with growing revenues • Expected to be earnings enhancing in 2008 before integration costs and the amortisation of intangible assets(3) • Creates an opportunity to reduce unit infrastructure costs • Offers a more balanced revenue mix in terms of market and service offerings and so spreads the risks inherent in the Group over an enlarged portfolio of businesses 5. Information on KSA BackgroundKSA is a leading international management consulting firm operating through twodivisions: the Consumer Products and Retail Division and the Health CareDivision. The business was founded in Washington, D.C. in 1935 and has itsglobal headquarters in Atlanta. OperationsThe Consumer Products and Retail Division operates internationally, principallyin North America, Europe and the Asia Pacific region. The Health Care Divisionoperates primarily in the United States. Over the course of 2005 and 2006, the Consumer Products and Retail Divisioncompleted a restructuring of its operations and its consulting offerings thatincluded the withdrawal from certain consulting activities associated with ITservices. The impact of this period of restructuring was reflected in thereported revenues and operating profits of the KSA business in the three yearsended 31 December 2004, 2005 and 2006. The revenues of KSA increased by 8.4 percent. from US$141.1 million in 2005 to US$152.9 million in 2006. The Consumer Products and Retail Division consults on business growth, inventoryefficiency, margin management, productivity improvement, technologyeffectiveness programmes and supply chain management. Its services addressstrategy, processes, organisation and technology support in the core areas ofmerchandising, inventory and supply management. Clients include the fullspectrum from suppliers to retailers, including within the last five years 30 ofthe 50 largest global retailers. Its clients include, for example, AEON,Carrefour, The Home Depot, J Sainsbury, Macy's, Procter & Gamble, Sara Lee andWal-Mart, together with private equity firms that are active in this industrysector. The revenues of the Consumer Products and Retail Division in the yearended 31 December 2006 were approximately US$125 million, approximately 66 percent. of which related to the United States, approximately 25 per cent. toEurope and approximately 9 per cent. to the Asia Pacific region. The Health Care Division consults on strategy, facility planning and IT tohospitals, medical centres and physician group practices. Its services addressstrategic planning, clinical programme planning, organisation and governance,facility and operational planning and consulting services related to ITstrategy, system selection, negotiation and project management. Clients aretypically major private sector hospital providers in the United States such asacademic medical centres, community hospitals, children's hospitals andphysician groups and include all of the 2001-2006 US News & World Report ''HonorRoll'' institutions such as John Hopkins Hospital, The Mayo Clinic, ClevelandClinic, Massachusetts General Hospital, UCLA Medical Center and the Children'sHospital of Philadelphia. The Health Care Division has also provided consultingservices to health care providers in the Middle East including Saudi Arabia,Qatar and the United Arab Emirates. The revenues of the Health Care Division inthe year ended 31 December 2006 were approximately US$28 million. KSA operates from a network of offices in North America: Atlanta, Los Angeles,Mexico City, Minneapolis, New York, Philadelphia, Princeton, San Bruno and SanFrancisco; from four countries in Europe (France, Germany, the Netherlands andthe United Kingdom); and from two countries in Asia (China and Japan). KSAadditionally has collaboration arrangements with consultancies in India andSpain. The Board believes that the size of the global markets for consulting servicesto the consumer products and retail industry sectors is approximately US$12billion and US$13 billion respectively and that the growth in those markets willbe between six and ten per cent. per annum over the next three years. The Board further believes that the size of the global market for consultingservices to the health care sector is approximately US$25 billion, and that thegrowth will be approximately six per cent. per annum over the next three years. Management and employeesThe employees of the KSA business who are also shareholders are referred to as"principals". There are currently 77 principals who in aggregate own 100 percent of the common stock of KSA. The KSA Group employs approximately 550 people working in six languages. KSA wasranked as one of the ''Ten Best Consulting Firms to Work For'' by ConsultingMagazine in each of the six years from 2002-2007. 6. Summary financial information on KSA KSA had consolidated gross assets as at 31 December 2006 of US$86.8 million andprofits before tax for the year ended 31 December 2006 of US$9.4 million (asextracted from KSA's audited IFRS accounts for the year ended 31 December 2006). The revenue, operating profit (before and after restructuring and exceptionalbad debt charges) and operating profit margin (before restructuring andexceptional bad debt charges) for the three years ended 31 December 2006, whichare presented in accordance with International Financial Reporting Standards,are summarised below. Years ended 31 December 2004 2005 2006 US$'000 US$'000 US$'000Revenue 156,925 141,070 152,936 Operating profit before restructuringand exceptional bad debt charges 12,567 7,515 12,794 Operating profit after restructuringand exceptional bad debt charges 8,412 1,830 10,610 Operating profit margin before restructuringand exceptional bad debt charges 8.0% 5.3% 8.3% The Circular will contain audited financial information on KSA for the threeyears ended 31 December 2006. 7. Financial effects of the Acquisition MCG proposes to finance the Acquisition from new bank borrowing facilities andthrough the issue of the New Ordinary Shares to the KSA Vendors and by grantingoptions over Ordinary Shares in exchange for KSA Options. It is envisaged that one-off costs (excluding fees in relation to theAcquisition) estimated to amount to £4 million in aggregate associated with theintegration of KSA into the Enlarged Group will be incurred in the financialyear ending 31 December 2007 and the two subsequent financial years. The Acquisition will result in the recognition of intangible assets. Inaccordance with IFRS, intangible assets other than goodwill are amortised in theincome statement over their estimated economic life. Excluding one-off costs and the amortisation of intangibles, the Board believesthat the Acquisition will enhance earnings per share in the year to 31 December2008. This statement is not intended to constitute a profit forecast and shouldnot be interpreted to mean that the actual earnings of the Enlarged Groupfollowing the Acquisition will necessarily match or exceed the historicpublished earnings. Excluding one-off costs and the amortisation of intangibles, the Board believesthat if the Acquisition had occurred at the beginning of the year ended 31December 2006, then it would have had a dilutive impact on the Enlarged Group'searnings per share in that year. 8. Summary terms of the Acquisition Summaries of the key terms of the proposed Acquisition are set out below. Agreement and Plan of Merger The Agreement and Plan of Merger is dated 18 September 2007. The parties to itare: (1) MCG, (2) KSA Acquisition Corporation, (3) KSA Subco Corporation and (4)the Stockholder Representative (as defined in the Agreement and Plan of Merger).Under the Agreement and Plan of Merger, MCG has conditionally agreed to acquireKSA by way of merger under Delaware law. This will involve a two step process.In the first step, a new Delaware subsidiary of MCG will merge into KSA, withKSA being the surviving corporation. In the second step, KSA will merge into anew Delaware corporation that is a subsidiary of MCG, with that corporationbeing the surviving entity and the KSA operating entity going forward. As aresult of these steps, the current KSA entity will dissolve and the corporationwill hold all of the business, assets and liabilities of KSA. The total consideration agreed for the Acquisition is US$125.0 million (£62.7million), which will be satisfied by the payment of US$75.0 million (£37.6million) in cash, the issue of 48,278,793 New Ordinary Shares (the number ofwhich may be adjusted to up to a maximum of 53,643,103 New Ordinary Shares ordown to a minimum of 43,889,812 New Ordinary Shares pursuant to the ShareConsideration Adjustment described below) and the grant of options over6,293,124 Ordinary Shares in exchange for KSA Options (the number of OrdinaryShares the subject of options may be adjusted to up to a maximum of 7,471,466Ordinary Shares or down to a minimum of 5,525,105 Ordinary Shares pursuant to anadjustment mechanism described below). The number of the New Ordinary Shares being issued is, subject to adjustment,48,278,793, which number was calculated by reference to (i) the price perOrdinary Share resulting from taking the average mid-market Closing Price overthe 30 trading days prior to the signing of the Agreement and Plan of Merger on18 September 2007 and (ii) the average Sterling/US$ exchange rate, as publishedin the UK edition of the Financial Times, for the 30 trading days prior to thesigning of the Agreement and Plan of Merger on 18 September 2007. The adjustmentin the number of New Ordinary Shares referred to above may arise depending onthe movement in the share price of Ordinary Shares and the movement in theSterling/US$ exchange rate between signing of the Agreement and Plan of Mergerand Completion. However, no such adjustment will be made for any pricefluctuation in excess of 10 per cent. The maximum amount of New Ordinary Sharesthat could be issued as a result of the adjustment mechanism is 53,643,103. Thenumber of New Ordinary Shares issued could also, as a result of the adjustmentmechanism, be reduced to a minimum of 43,889,812. Completion is conditional upon, inter alia: • the passing of resolutions necessary to approve the Acquisition and to authorise the issue of the New Ordinary Shares; • approval of the merger transaction by the KSA common stockholders; and • the expiration or termination of any applicable waiting period under the United States Hart Scott Rodino Antitrust Improvements Act of 1976. Completion will take place shortly after satisfaction of the above conditionsprecedent, and is expected to occur on 16 October 2007. Admission of the NewOrdinary Shares to the Official List and to trading on the London StockExchange's market for listed securities is intended to occur on the firstbusiness day after Completion. KSA is providing certain representations and warranties relating to the businessand affairs of KSA in favour of MCG. The warranties provided by KSA arecustomary for a transaction of the nature and type of the Acquisition. The KSA Vendors' liability in respect of the warranties is subject to certainlimitations. In particular, it is subject to an overall aggregate cap of US$5million. A claim will only lie where the amount of loss in respect of a singleclaim or series of claims exceeds US$5,000 and where the aggregate liabilityexceeds US$1 million. The KSA Vendors will have no liability for a breach ofwarranty unless MCG provides them with a notice of claim: (i) prior to theexpiration of the applicable statute of limitations period in respect of certainmatters, including tax matters, or (ii) by 31 March, 2009 for all other matters. The Agreement and Plan of Merger also contains certain limited representationsand warranties by MCG in relation to authorisation, execution and issue of theNew Ordinary Shares with an indemnity in favour of the KSA Vendors in a formsimilar to that provided by the KSA Vendors in the event of breach. Each KSA Vendor will continue to be subject to a covenant, for a period of twoyears from their date of departure as an employee, not to solicit any customeraccounts with respect to which, at any time during the two year period prior tosuch departure, that KSA Vendor was the primary contact or served as the projectmanager therefor. In addition, each KSA Vendor will continue to be subject to acovenant, for a period of 18 months after his departure, not to solicit orinduce any employee of KSA to leave their employment with KSA. KSA will pay a break fee to MCG in the amount of US$5 million, plus MCG'saccrued fees and expenses, capped in aggregate at US$10 million, in the eventthat KSA terminates the Merger Agreement and Plan of Merger in order to accept asuperior proposal. Stockholders Agreement The Stockholders Agreement is to be entered into on or shortly beforeCompletion. The parties to it are the KSA Vendors, MCG and KSA SubcoCorporation. Under the Stockholders Agreement, MCG and the KSA Vendors haveagreed to certain restrictions in respect of the New Ordinary Shares. Subject to the provisions relating to lock up (certain of which are outlinedbelow), (i) each KSA Vendor may dispose of up to 50 per cent. of his NewOrdinary Shares after the fourth anniversary but prior to and including thefifth anniversary of Completion and (ii) after the fifth anniversary ofCompletion, all New Ordinary Shares will be released from any restrictions ondisposal. Each KSA Vendor has agreed to use reasonable endeavours to procure that anysales of New Ordinary Shares between the fourth anniversary of Completion andthe date falling five years and six months following Completion will be effectedthrough MCG's brokers. Furthermore the provisions of the Stockholders Agreementrelating to disposals of New Ordinary Shares do not apply, among other things,to (i) an offer to acquire the entire issued share capital of MCG made on thesame terms in relation to all shares to which it relates, (ii) any disposalrequired by an order of a court of competent jurisdiction, (iii) an offer by MCGto purchase its own shares made on identical terms to all holders of the sameclass of share or (iv) a disposal pursuant to the terms of the Share EscrowAgreement. In the event that a KSA Vendor ceases to be employed by a member of the EnlargedGroup (except if as a result of termination without cause, retirement, permanentdisability, death, redundancy or resignation for good reason or after the age of62), that KSA Vendor agrees to pay liquidated damages to MCG equal to the valueof certain of the New Ordinary Shares held by such KSA Vendor on the followingbasis (which can be satisfied in cash or by arranging to sell such number of NewOrdinary Shares as are required to satisfy the amount due): • where the date of that KSA Vendor's employment ceases on or before the first anniversary of Completion, 75 per cent. of the New Ordinary Shares issued to him; • where the date of that KSA Vendor's employment ceases after the first anniversary but on or before the second, the relevant percentage is 50 per cent.; • where the date of that KSA Vendor's employment ceases after the second anniversary but on or before the third, the relevant percentage is 25 per cent. Share Escrow Agreement The Share Escrow Agreement will be executed on or shortly before the date ofCompletion. The parties to it are: (1) the KSA Vendors, (2) MCG and (3) JPMorgan Chase Bank, National Association (the ''Escrow Agent''). Under the ShareEscrow Agreement, the parties agree that the Escrow Agent will hold sharecertificates and stock transfer forms relating to the New Ordinary Shares inescrow and, in certain circumstances, will release certain of the New OrdinaryShares for sale, with the proceeds being remitted to MCG. Option Consideration KSA Optionholders hold KSA Options under the Kurt Salmon Associates, Inc. 2002Stock Option and Incentive Plan (the ''KSA Plan''). The following paragraphsdescribe the consideration that theKSA Optionholders will receive in return for the cancellation of their KSAOptions (the ''Option Consideration''). In return for the cancellation and surrender of approximately 60 per cent (finalpercentages are subject to adjustment at Completion based on changes in thetrading price of Ordinary Shares and the US dollar/pound sterling exchange rate,but subject to the minimum and maximum share issuance limits described in theIntroduction) of the KSA Options held by each KSA Optionholder, each KSAOptionholder will receive a cash cancellation payment equal to the amount bywhich the market value of the KSA Shares under those KSA Options at Completionexceeds their exercise price. The cash cancellation payments will be paid to theKSA Optionholders after Completion after the deduction of any amounts of incometax, employee social security contributions or National Insurance contributionsor other taxes, state taxes or similar charges that are required to be withheldand accounted to any revenue authorities. In return for the cancellation and surrender of the remaining KSA Options(approximately 40 percent), KSA Optionholders will receive new options toacquire Ordinary Shares (''New Options'') of equivalent value of those KSAOptions. The number of Ordinary Shares over which New Options are granted, andthe exercise price per Ordinary Share under each New Option, will be determinedaccording to a formula that is designed to ensure that the intrinsic value of aNew Option will, immediately on the option exchange on Completion, be equal tothe intrinsic value of the corresponding KSA Option that has been exchanged.Accordingly, it is intended that the total market value of the shares subject tothe KSA Options being exchanged will be equal to the total market value,immediately after the grant of the New Options, of the Ordinary Shares subjectto the New Options. In addition, it is intended that the total amount payable bythe KSA Optionholders to exercise their New Options shall be equal to the totalamount that would have been so payable under the KSA Options being exchanged.The option exercise price per Ordinary Share under the New Options will beadjusted to reflect the application of the formula and, as such New Options willhave an intrinsic value immediately on their grant following Completion, will begranted at a discount to the market value of an Ordinary Share at that time. Theoption exercise formula takes into account the Share Consideration Adjustmentand the total number of Ordinary Shares over which New Options may be granted issubject to the same percentage adjustment. No New Option will be granted with an exercise price below the nominal value ofan Ordinary Share. If (for any reason, including currency fluctuations) thestrict application of the formula would otherwise lead to a New Option beinggranted with an exercise price below the nominal value of an Ordinary Share, theNew Options will be granted with an exercise price of the nominal value of anOrdinary Share, and the number of shares under option will be increased tocompensate the option holders for the increase in the total exercise price.Consequently, the holders of New Options will still retain immediately after thegrant of the New Options the same inherent value that they previously had intheir KSA Options immediately before they were exchanged. The New Options will (apart from the adjustments described above) otherwiseremain subject to the rules of the KSA Plan. The KSA Plan will be operated by the Board. After the initial exchange of KSAOptions for New Options, no further options may be granted under the KSA Plan.Only the holders of KSA Options will be granted New Options. The number ofOrdinary Shares issued or issuable pursuant to New Options will not counttowards the plan limits under the Management Consulting Group PLC 1998 ExecutiveShare Option Scheme (the "1998 Scheme"). Each New Option shall vest and become exercisable according to the vestingschedule and on the terms specified in relation to the corresponding KSA Option.Options cannot be exercised after the tenth anniversary of the date the KSAOption was granted. If the holder of a New Option ceases to be employed by the Company or asubsidiary of the Company, the New Option, or such portion of the New Option asremains unexercised on the date of cessation, shall lapse on the date ofcessation. In the event of a takeover of the Company, the Board may in relationto each New Option either (i) deem the New Option to be fully vested andexercisable, or (ii) unilaterally cancel the New Option in exchange either forsuch number of Ordinary Shares which the holder of the New Option would havereceived had the New Option been exercised on a date fixed by the Board prior tosuch takeover or for cash or other property of equivalent value. If no suchdetermination is made by the Board, and the New Options are not exchanged foroptions over the new acquiring company's shares, the New Options shall becomefully vested and exercisable immediately prior to the takeover. On a variation of the Company's share capital including a capitalisation orrights issue, the exercise price and the number of Ordinary Shares comprised ina New Option may be adjusted by the Board. The Board may amend the rulesprovided that no amendment may be made which would materially prejudice aparticipant's rights under a New Option without the participant's consent. Inaddition, no amendment to the advantage of participants may be made to theprovisions relating to maximum period for the exercise of New Options withoutthe consent of the Shareholders in general meeting. The benefits received underthe New Options are not pensionable. 9. Dilution of ordinary share capital upon completion Upon Completion and following allotment and issue of the New Ordinary Shares,and before the impact of the Share Consideration Adjustment, the Enlarged ShareCapital is expected to be 323,535,651 Ordinary Shares (or a maximum of328,889,961 Ordinary Shares pursuant to the Share Consideration Adjustment) (ineach case assuming no further exercise of options to subscribe for new OrdinaryShares under the Share Option Scheme). On this basis, the New Ordinary Shareswill represent approximately 14.9 per cent. of the Enlarged Share Capital andthe Existing Ordinary Shares will represent approximately 85.1 per cent. of theEnlarged Share Capital (or 16.3 per cent. and 83.7 per cent. respectively if theShare Consideration Adjustment results in the maximum upwards adjustment in thenumber of New Ordinary Shares). Following issue of all of the New Ordinary Shares and assuming (i) no furtherexercise of any rights to subscribe for New Ordinary Shares under the ShareOption Scheme and (ii) before the effect of the Share Consideration Adjustment,existing Shareholders will suffer an immediate dilution of approximately 14.9per cent. in their interests in the Company (or 16.3 per cent. if the ShareConsideration Adjustment results in the maximum upwards adjustment in the numberof New Ordinary Shares). 10. Employee retention The Board recognises the importance of retaining key people in the business andaligning their interests with those of the Shareholders generally. For thatreason, the consideration payable to the KSA Vendors includes New OrdinaryShares that cannot (subject to certain exceptions) be realised until the fourthand fifth anniversaries following Completion, as described above in paragraph 8. 11. Current trading and prospects The Board gave an update on trading at the time of its interim results publishedon 13 August 2007 and reported that Ineum Consulting's inaugural contribution tothe first half results showed significant like-for-like growth and ProudfootConsulting performed slightly better than in the second half of last year.Parson Consulting's results were mixed. The outlook for the Group has notchanged since that announcement and the Board remains confident that the Groupwill show good progress in 2007. Revenue of KSA for the period from 1 January to 11 August 2007 was approximately18 per cent. ahead of the comparable period last year. The Board has a confident outlook for the Enlarged Group's performance for theremainder of 2007. 12. Details of banking facilities MCG has entered into a new committed term facility, comprised of a US$50,600,000term A facility commitment and a €37,000,000 term B facility commitment, and acommitted multicurrency revolving credit facility (RCF), comprised of aUS$60,725,000 RCF A commitment and a €44,450,000 RCF B commitment, arranged byBarclays Capital, HSBC Bank plc and Lloyds TSB Corporate Markets pursuant to afacilities agreement dated 18 September 2007 between (1) MCG and certain of itssubsidiaries (as original borrowers) (2) MCG and certain of its subsidiaries (asoriginal guarantors) (3) Barclays Bank PLC as agent, security agent and originalissuing bank (4) Barclays Bank PLC, HSBC Bank plc and Lloyds TSB Bank plc (asthe original lenders) (the ''Facilities Agreement''). A signing arrangement feeof US$278,313 and €203,625 and a drawdown arrangement fee of US$1,113,250 and€814,500 are payable. The commitment fee for the loans is 40 per cent. of theapplicable margin on the undrawn portion of the facilities, the combinedfacility and security agency fee is £25,000 per annum and the margin over LIBORon the loans is between 0.8 per cent. per annum and 1.5 per cent. per annumdependent on the ratio of Total Net Debt on the last day of a Relevant Period toAdjusted EBITDA in respect of that Relevant Period (as such terms are defined inthe Facilities Agreement). The new term loan will be for five years; it will beavailable for drawing from the date of the Facilities Agreement for a period of90 days. The revolving credit facility will be available from the date of theFacilities Agreement until one week prior to the date falling five years afterthe date of the Facilities Agreement. Further details of the new debt facilities will be set out in the Circular. 13. Dividend policy The Board intends to continue a progressive dividend policy dependent on theperformance of the underlying business of the Enlarged Group, its debt servicingrequirements and future acquisition opportunities. This statement should not beconstrued as a dividend forecast or as a guarantee that any dividends will bepaid in the future. The Board intends for there to be two dividends per annum. 14. Extraordinary General Meeting An Extraordinary General Meeting of MCG is expected to be held on 11 October2007 for the purpose of considering and, if thought fit, passing the followingresolutions: • the approval of the Acquisition; • the approval of an increase of the authorised share capital of the Company; and • the authorisation of the Directors, pursuant to section 80 of the Act, to allot relevant securities in connection with the Acquisition. Details of the Extraordinary General Meeting will be set out in the Circular. Further details in relation to the Acquisition (and other proposals) will be setout in the Circular which is expected to be sent to Shareholders on or shortlyafter 21 September 2007, together with a notice convening the ExtraordinaryGeneral Meeting. Enquiries Management Consulting Group PLCKevin Parry Chief Executive 020 7710 5000Chris Povey Head of M&ACraig Smith Finance Director Rothschild (financial adviser and sponsor)Sian Westerman 020 7280 5000Dominic Epton MaitlandSuzanne Bartch 020 7379 5151Peter Ogden N M Rothschild & Sons Limited, which is authorised and regulated in the UnitedKingdom by the Financial Services Authority, is acting as financial adviser andsponsor to MCG and no-one else in connection with the matters referred to hereinand will not be responsible to anyone other than MCG for providing theprotections afforded to clients of N M Rothschild & Sons Limited or for givingadvice in relation to such matters. The contents of this announcement which have been prepared by and are the soleresponsibility of MCG have been approved by N M Rothschild & Sons Limited solelyfor the purposes of section 21(2)(b) of the Financial Services and Markets Act2000. This announcement includes statements that are, or may be deemed to be,''forward-looking statements''. These forward-looking statements can beidentified by the use of forward-looking terminology, including the terms''believes'', ''estimates'', ''plans'', ''anticipates'', ''targets'', ''aims'',''continues'', ''expects'', ''intends'', ''may'', ''will'', ''would'' or''should'', or in each case, their negative or other variations or comparableterminology. These forward-looking statements include all matters that are nothistorical facts. They appear in a number of places throughout this announcementand include statements regarding the Company's, or the Group's intentions,beliefs or current expectations concerning, among other things, the Company's,or the Group's results of operations, financial condition, liquidity, prospects,growth, strategies and the industries in which the Company or the Groupoperates. By their nature, forward-looking statements involve risk anduncertainty because they relate to future events and circumstances. A number offactors could cause actual results and developments to differ materially fromthose expressed or implied by the forward-looking statements including, withoutlimitation: conditions in the markets, market position of the Company or theGroup, earnings, financial position, cash flows, return on capital and operatingmargins, anticipated investments and capital expenditures, changing business orother market conditions and general economic conditions. These and other factorscould adversely affect the outcome and financial effects of the plans and eventsdescribed in this announcement. Forward-looking statements contained in thisannouncement based on past trends or activities should not be taken as arepresentation that such trends or activities will continue in the future.Subject to any requirement of the UK Listing Authority or London Stock Exchangeor as a matter of law, neither MCG nor Rothschild undertakes any obligation toupdate or revise any forward looking statements, whether as a result of newinformation, future events or otherwise. Undue reliance should not be placed onforward-looking statements, which speak only as of the date of thisannouncement. The New Ordinary Shares have not been and will not be registered under theUnited States Securities Act of 1933, as amended, (the "Securities Act") orunder the securities laws of any state of the United States and may not beoffered as sold, except pursuant to an exemption form, or in a transaction notsubject to, the registration requirements of the Securities Act and applicablestate securities laws. This announcement shall not constitute an offer to sellor the solicitation of an offer to buy the New Ordinary Shares, nor shall therebe any sale of the New Ordinary Shares in any state or other jurisdiction inwhich such offer, solicitation or sale would be unlawful prior to registrationor qualification under the securities laws of any such state or jurisdiction.The New Ordinary Shares may not be resold unless they are registered under theSecurities Act and applicable state securities laws or an exemption fromregistration is available. DEFINITIONS The following definitions apply throughout this announcement unless the contextrequires otherwise: "Act" or "Companies Act" the Companies Act 1985 (as amended)"Acquisition" the proposed acquisition by way of merger of the entire issued share capital of KSA"Agreement and Plan of Merger" the conditional agreement and plan of merger dated 18 September 2007 between KSA Subco Corporation, KSA Acquisition Corporation, the Stockholder Representative (each term as defined therein) and MCG"Board" or "Directors" the board of directors of the Company"Company" or "MCG" Management Consulting Group PLC"Completion" completion of the Acquisition"Enlarged Group" the Group as enlarged by the Acquisition"Enlarged Share Capital" the issued ordinary share capital of the Company, as enlarged by the allotment and issue of the New Ordinary Shares"Existing Ordinary Shares" the 275,256,858 Ordinary Shares in issue as at the date of this announcement"Extraordinary General Meeting" or "EGM" the extraordinary general meeting of the Company expected to be held on 11 October 2007"FSMA" the Financial Services and Markets Act 2000, as amended"FSA" Financial Services Authority"IFRS" International Financial Reporting Standards"Group" or "MCG Group" the Company and its subsidiary undertakings"Ineum" Ineum Conseils et Associes S.A."KSA" KSA Associates, Inc."KSA Group" KSA and its subsidiary undertakings"KSA Options" subsisting options under the Kurt Salmon Associates, Inc.2002 Stock Option and Incentive Plan"KSA Optionholders" those individuals who hold KSA Options"KSA Shares'' all of the outstanding share capital and voting rights of KSA"KSA Vendors" the holders of the shares in KSA immediately prior to Completion"Listing Rules" the listing rules issued by the UK Listing Authority under section 73A of FSMA"London Stock Exchange" London Stock Exchange plc"New Ordinary Shares" the up to 53,643,103 new Ordinary Shares to be issued pursuant to the Acquisition"Official List" the Official List of the UK Listing Authority pursuant to Part VI of the FSMA"Ordinary Shares" ordinary shares of 25 pence each in the capital of the Company"Rothschild" N M Rothschild & Sons Limited"Share Consideration Agreement" the adjustment, pursuant to the terms of the Agreement and Plan of Merger, of up to ten per cent. up or down of the number of New Ordinary Shares to be issued to reflect whether the mid- market price of an Ordinary Share on the trading day(converted at the average US Dollar/Sterling exchange rate on such trading day into US Dollars) immediately prior to Completion is greater or less than 48.84 pence, being the average of the closing mid-market price of an Ordinary Share for the 30 trading days immediately prior to 18 September 2007 (being the date on which the Agreement and Plan of Merger was executed), converted at the average US Dollar/ Sterling exchange rate for such period into US Dollars"Share Escrow Agreement" the share escrow agreement to be entered into on Completion between the KSA Vendors, MCG and JPMorgan Chase Bank, National Association"Share Option Scheme" the Company's existing share option schemes"Shareholders" holders of Ordinary Shares"Sterling" or "£" the lawful currency for the time being of the United Kingdom"Stockholders Agreement" the stockholders agreement to be entered into prior to or on Completion between the KSA Vendors, MCG and KSA Subco Corporation (as defined therein)"UK Listing Authority" the FSA, in its capacity as the competent authority for the purposes of Part VI of FSMA"United Kingdom" or "UK" the United Kingdom of Great Britain and Northern Ireland"United States" or the "US" United States of America, its territories and possessions, any state of the United States and the District of Columbia"US$" US Dollars, the lawful currency of the United States Save where otherwise provided, the exchange rate used to convert amounts in thisdocument denominated in US Dollars into amounts denominated in UK poundssterling is as follows: US$1.995 to £1. ENDS --------------------------(1) This statement is not intended to constitute a profit forecast and shouldnot be interpreted to mean that the actual earnings of the Enlarged Groupfollowing the Acquisition will necessarily match or exceed the historicpublished earnings.(2) This statement is not intended to constitute a profit forecast and shouldnot be interpreted to mean that the actual earnings of the Enlarged Groupfollowing the Acquisition will necessarily match or exceed the historicpublished earnings.(3) This statement is not intended to constitute a profit forecast and shouldnot be interpreted to mean that the actual earnings of the Enlarged Groupfollowing the Acquisition will necessarily match or exceed the historicpublished earnings. This information is provided by RNS The company news service from the London Stock Exchange