TNG.L Regulatory News (TNG)

26 Feb 2007 08:06

Tangent Communications PLC26 February 2007 Date: 26 February 2007 On behalf of: Tangent Communications PLC ("Tangent" or the "Company") For immediate release Tangent Communications PLC Acquisition of Ravensworth Digital Services Limited - a specialist directmarketing business for £5.85m Placing of 46,615,385 Placing Shares at 13 pence per share raising £6.06m Tangent Communications PLC, the direct marketing business, today announces thatit has conditionally reached an agreement to acquire Ravensworth for a totalconsideration of £5.85 million. The highlights of the Acquisition are: • Tangent is a direct marketing business which utilises proprietary technology to create direct marketing programmes for clients including Sainsbury plc, Lane Fox, SAP and Greene King; • Ravensworth is a digital marketing business based in Newcastle. Ravensworth was founded in 1989 and has approximately 60 employees. It is a leading provider of outsourced digital services for estate agents in the UK and clients of Ravensworth represent 20 per cent. of the UK market. As of December 2006 Ravensworth has 2500 live clients; • Ravensworth had profits of £1.1m1 on sales of £6.9m in 2006, an increase of 17% on 2005. The Directors believe that the Acquisition will be earnings enhancing in its first year(2) ; • Ravensworth is a highly complementary fit with Tangent's existing business, and the potential exists to extract sizeable operational and revenue synergies from the combination of the two businesses; • The Directors believe that the Acquisition will provide the following benefits: - access to a lower cost production centre through Ravensworth's modern facilities based in Newcastle, which has substantial capacity for further growth; - the opportunity to supply Tangent's direct mail service expertise to Ravensworth's customer base; and - a customer base for Tangent Labs to cross-sell into, with 20 potential clients already identified; • Following completion, the Enlarged Group will benefit from a growing commercial and web technology team in London with work flowing to a modern digital production facility in the lower cost environment of Newcastle. In addition, Tangent will be able to provide a broader service offering to existing clients; • Piers Caldecote, Nicholas Green, Timothy Green, Paul Murray and Michael Green shall invest a total of £690K in the Placing in support of the Acquisition; • The Ravensworth management has agreed to receive 31% of their total consideration under the Acquisition in Ordinary Shares; • Paul Murray, currently a senior non-executive director of Taylor Nelson Sofres PLC and a non executive director of Thomson, will join Tangent as a non-executive director following Completion; • Current trading for Tangent is in line with management expectations; • The maximum consideration of £5.85 million is payable in cash and shares and Tangent will assume a maximum of £850K of Ravensworth debt. The cash consideration is to be funded by way of a Placing for cash to institutional and other investors of 46,615,385 Placing Shares at the Placing Price of 13 pence per Placing Share raising gross proceeds of approximately £6.06 million. Commenting on the Acquisition, Nicholas Green, CEO of Tangent said: "We are delighted by this opportunity to acquire this market leading business.Our acquisition of Ravensworth is an important step in our progressiveacquisition strategy. By combining our technical expertise with Ravensworth'smodern digital plant with significant capacity in Newcastle, we will createconsiderable revenue and operational synergies. "I am equally delighted to be welcoming Paul Murray to the Board. Paul bringswith him tremendous experience. I look forward to working closely together withPaul and the rest of the team as we deliver our strategy." Commenting, Suzie Pattison, Sales Director of Ravensworth, said: "Combining Tangent's expertise in data and technology with our establishedclient base will result in significant opportunities for our clients andcommercial team. We are confident that as part of the Tangent group, we will beable to achieve great things together and look forward to an exciting period ofgrowth." Notice of Extraordinary General Meeting A circular will be posted today to Shareholders giving notice of anextraordinary general meeting of the Company to be held on 23 March 2007 toincrease the authorised share capital of the Company, approve inter alia theallotment of the Placing Shares and to disapply statutory pre-emption rights inconnection with the Placing. Copies of the circular will be available from theoffices of the Company at Truscott House, 32-42 East Road, London N1 6AD. • The Acquisition and Placing are conditional on, inter alia, thepassing of the Resolutions at the EGM and Admission occurring; and • Collins Stewart Europe Limited is nominated adviser and broker toTangent Communications PLC. (1)operating profit before intra-group write off and excluding remuneration ofretiring directors. (2) this statement should not be interpreted to mean the future earnings pershare of Tangent, following completion of the Acquisition and the Placing, wouldnecessarily match or exceed the historical earnings per share of Tangent. The above summary should be read in conjunction with the full text of thisannouncement For further information please contact: Redleaf Communications Emma Kane/Duncan McCormick 0207 822 0200 Collins Stewart Chris Wells/Stewart Wallace 0207 523 8350 Background Tangent has identified Ravensworth as being of a highly complementary fit withTangent's existing business. The Directors believe that the potential exists toextract sizeable operational and revenue synergies from the combination of thetwo businesses. The Directors believe that the Acquisition will provide the following ongoingstrategic benefits to the Group: • access to a lower cost production centre through Ravensworth's modernfacilities based in Newcastle, which has capacity for further growth; • the opportunity to supply Tangent's direct mail service expertise toRavensworth's customer base; and • a customer base for Tangent Labs to cross-sell into, with 20potential clients already identified; The Directors believe that the Acquisition will be earnings enhancing in itsfirst year (1). Piers Caldecote, Nicholas Green, Timothy Green Paul Murray and Michael Greenshall invest a total of £690K in the Placing in support of the Acquisition. Note (1) This statement should not be interpreted to mean the future earnings pershare of Tangent, following completion of the Acquisition and the Placing wouldnecessarily match or exceed the historical earnings per share of Tangent. Information on Ravensworth Ravensworth is a leading digital marketing business based in Newcastle, servingthe property sector. Ravensworth was founded in 1989, and has approximately 60employees. Ravensworth is a leading provider of outsourced digital services for estateagents in the UK, with clients of Ravensworth representing 20 per cent of UKestate agency branches. Ravensworth has a track record of generating profits,and has approximately 2,500 clients who utilise a web based ordering system togenerate bespoke marketing material which is dispatched within 24 hours ofordering. Clients include larger national networks, including Halifax andCountrywide, as well as independent agents. Ravensworth has a broad client baseand no single client represents more than 5 per cent. of turnover. In 2006 Ravensworth won the British Print Industry Federation's excellence awardfor 'Best Use of Digital Print.' Summary financials for Ravensworth areincluded below; Financial year ended 31 December Audited Audited Unaudited 2004 2005 2006 £000 £000 £000 Turnover 5,861 5,924 6,936Operating profit (1) 808 484 1,129Operating margin 14% 8% 16%Net assets 164 154 657 Note (1) before intra-group write off and excluding remuneration of retiringdirectors Source: Ravensworth audited and management accounts In the financial year ended 31 December 2005, Ravensworth's profitability wasreduced, following increased costs and disruption, resulting from the businessmoving its premises during the year. The financial year ended 31 December 2006,Ravensworth increased turnover by 17 per cent. and an increase in operatingmargins to 16 per cent. In recent years, the Ravensworth Management, which comprises Kevin Cameron(Finance and Commercial Director), Ian Gordon (Operations Director) and SuzannePattison (Sales Director), has had effective day to day control of the business. They have all worked together for over ten years, were appointed toRavensworth's board in January 2003 and are remaining with the businessfollowing the Acquisition. They each currently own 5 per cent. of the issuedshare capital of Ravensworth and, pursuant to the Acquisition Agreement, theyhave agreed to receive 31 per cent of their total consideration in OrdinaryShares. The decision to receive a significant proportion of the consideration inOrdinary Shares reflects the Ravensworth Management's commitment to workingwithin the Enlarged Group in order to help grow the business. Each member of theRavensworth Management has agreed to a two year lock up. Details of the lock uparrangements are set below. Two directors of Ravensworth, Paul McKie (non-executive chairman) and JosephPercy (managing director), who together hold 85% of the issued share capital ofRavensworth, will retire from the business at Completion. Ongoing Strategy Following Completion, the Enlarged Group will benefit from a growing commercialand web technology team in London with work flowing to a modern digitalproduction facility in the lower cost environment in Newcastle. In addition,the Enlarged Group will be able to provide a broader service offering toexisting clients. Ravensworth will benefit from the increased product offering which Tangentpossesses (direct mail and technology via Tangent Labs) and the Directors aim tocontinue to build on the momentum of 2006 which saw a 17 per cent. increase insales over the financial year ended 31 December 2005. In addition significantoperational synergies to the Enlarged Group should arise from the acquisition ofRavensworth over the first twelve months together with broader opportunities,such as the provision of home information packs. The Directors believe that the Acquisition will position the Enlarged Group toimplement Tangent's progressive acquisition strategy. Current Trading Current trading for Tangent is in line with management expectations. Theintegration of Tangent Labs was achieved quickly and it continues to make apositive contribution to the Group. Tangent has announced recent new businesswins with the Wolseley Group and increased revenue from new products with GreeneKing. The Acquisition The principal terms of the Acquisition Agreement are as follows: Under the Acquisition Agreement, the Company has conditionally agreed to pay theSelling Shareholders an aggregate consideration of £5.85m to be satisfied by thepayment of approximately £5.41 million in cash and the allotment and issue tothe Selling Shareholders of approximately £0.44 million Consideration Shares atthe Placing Price. No deferred or contingent consideration is to be paid aspart of the Acquisition. The Acquisition is conditional on, among other things, the approval of theResolutions by the Shareholders at the EGM and Admission occurring in respect ofthe Placing Shares and the Consideration Shares. The Company has a right toterminate the Acquisition Agreement, inter alia, if a material adverse changeoccurs in respect of Ravensworth prior to completion. Lock up arrangements The Selling Shareholders have each undertaken to the Company that they will not,without the prior written consent of the Company (save in limitedcircumstances), dispose or agree to dispose of the Consideration Shares for aperiod of one year following the Acquisition, in respect of Paul McKie andJoseph Percy, and two years following the Acquisition, in respect of the otherSelling Shareholders. In addition, each Selling Shareholder has agreed for aperiod of three years following Completion that the Company will, in order toensure an orderly market in the Ordinary Shares, be entitled to require anydisposal of any of the Consideration Shares or interest therein to be carriedout by the then broker of the Company. Use of proceeds of the Placing The Company intends to use the approximately £6.06 million gross proceeds of thePlacing to satisfy the cash part of the consideration for the Acquisition ofapproximately £5.41 million and cover fees and expenses incurred in connectionwith the Acquisition and to provide for general working capital requirements forthe Enlarged Group. Details of the Placing The Company proposes to raise approximately £5.61 million (net of expenses)through the issue of the Placing Shares at the Placing Price by way of a placingto institutional and other shareholders. The Placing Price represents a discountof 2 per cent. to the closing middle market price of 13.25 pence on 23 February2007, being the last practicable date prior to this announcement. The PlacingShares will represent 28.8 per cent. of the Company's issued share capitalimmediately following Admission. In order to fall within the requirements of VCT and EIS, the Placing will be intwo tranches. The First Placing Shares will be offered to those investors whomay seek relief under the VCT and EIS legislation and the Second Placing Shareswill be offered to non-EIS investors and VCTs investing funds raised prior to 6April 2006 and to other investors who will not be seeking relief under the VCTand EIS legislation. It should be noted that the First Placing is not conditional upon the SecondPlacing and it is therefore possible that the First Placing may occur but theSecond Placing and Completion do not. Proposed addition to the Board Following Completion, Paul Murray will join Tangent as a non-executive director.Paul Murray currently owns 2,155,767 Ordinary Shares and shall subscribe for afurther 769,231 Ordinary Shares in the Placing. Paul Murray is currently asenior non-executive director of Taylor Nelson Sofres PLC and a non-executivedirector of Thomson S.A., a CAC 40 company in France. It is not envisaged that any further changes will be made to the Board at thistime. Majority Shareholders Prior to the Placing Following the Placing Current Ordinary Percentage of Ordinary Shares Percentage of Shares held current issued share subscribed in the enlarged issued capital Placing share capital Michael Green 50,000,000 44.7% 3,076,924 32.8Nicholas Green 2,500,000 2.2% 230,770 1.7Timothy Green 2,500,000 2.2% 230,770 1.7Piers Caldecote - - 1,000,000 0.6Paul Murray 2,155,767 1.9% 769,231 1.8 (1) Participation will be through Tangent Industries Limited, a vehicleindirectly held and wholly owned by Michael Green and his dependents (2) assuming subscription in the Placing Admission and dealings Application will be made to the London Stock Exchange for the Placing Shares andthe Consideration Shares to be admitted to trading on AIM. The Placing Sharesand the Consideration Shares will, when issued, rank pari passu in all respectswith the Existing Shares, including the right to receive dividends and otherdistributions declared following Admission. It is expected that Admission ofthe First Placing Shares will become effective and that dealings will commenceon 26 March 2007 and Admission of the Second Placing Shares and theConsideration Shares will become effective and that dealings will commence on 27March 2007. Extraordinary General Meeting An EGM will be held at 10:00a.m. on 23 March 2007 at the offices of RosenblattSolicitors, 9-13 St Andrew Street, London EC4A 3AF at which Resolutions will beproposed for implementing the Placing. These Resolutions, if approved, will (i)increase the authorised share capital of the Company; (ii) authorise theDirectors to allot the relevant securities; and (iii) disapply statutorypre-emption rights pursuant to section 89(1) of the Act. The Placing is being made on a non pre-emptive basis as the time and costsassociated with a pre-emptive offer resulting from the introduction of the EUProspectus Rules (which came into force on 1 July 2005) are considered by theDirectors to be excessive. The making of a pre-emptive offer would require theproduction of a prospectus which would have to comply with the Prospectus Rulesand be pre-vetted and approved by the Financial Services Authority. Long Term Incentive Plan The Company proposes to put in place a performance based Long Term IncentivePlan "LTIP" in order to further align management and Shareholder intereststhrough long term value creation. Any such grant under this proposed LTIP willbe conditional on prior approval of independent Shareholders at a generalmeeting and the grant of a waiver under Rule 9 of the City Code on Takeovers andMergers from the Panel on Takeovers and Mergers. Pursuant to the proposed LTIP, option grants to the executive Directors areproposed at an intrinsic value equal to 50 per cent. of each executiveDirector's basic annual salary, subject to performance criteria based on totalshareholder return performance of the Ordinary Shares. It is expected that thiswill be repeated annually. Recommendation The Directors consider that the Acquisition and the Placing are in the bestinterests of the Company and the Shareholders as a whole. Consequently, theDirectors unanimously recommend that you vote in favour of all of theResolutions to be proposed at the Extraordinary General Meeting as they intendto do in respect of their own beneficial holdings which in aggregate amount to5,500,000 Ordinary Shares, representing 4.9 per cent. of the Company's currentissued ordinary share capital. Expected timetable of events 2007 Latest time and date for receipt of Forms of Proxy 10:00 a.m. on 21 March Extraordinary General Meeting 10:00 a.m. on 23 March Admission and dealings of the First Placing Shares expected to commence on AIM 8:00 a.m. on 26 March Admission and dealings of the Second Placing Shares and the ConsiderationShares expected to commence on AIM 8:00 a.m. on 27 March --Ends- APPENDIX IMPORTANT INFORMATION ON THE PLACING DEFINITIONS The following definitions apply throughout this announcement unless the contextrequires otherwise: "Acquisition" the proposed acquisition by Tangent of the entire issued share capital of Ravensworth, pursuant to the Acquisition Agreement "Acquisition Agreement" the conditional agreement dated 26 February 2007 between Tangent and the Selling Shareholders relating to the Acquisition "Act" the Companies Act 1985, as amended "Admission" where the context requires, (i) in the case of the First Placing Shares, the First Admission and (ii) in the case of the Second Placing Shares, the Second Admission "AIM" the AIM market of the London Stock Exchange "Board" or "Directors" the board of directors of Tangent, namely Piers Caldecote, Nicholas Green, Timothy Green and Graeme Harris "CAC" Cotation Assistee en Continu "Collins Stewart" Collins Stewart Europe Limited, the Company's nominated adviser, broker and placing agent "Completion" completion of the Acquisition "Consideration Shares" 3,384,616 new Ordinary Shares which are to be issued to the Selling Shareholders in connection with the Acquisition Agreement "EIS" the Enterprise Investment Scheme pursuant to the provisions of Chapter III Part VII ICTA "Enlarged Group" the Group as enlarged by the Acquisition "Existing Shares" the 111,780,007 Ordinary Shares in existence prior to the Placing "Extraordinary General Meeting" or "EGM" the extraordinary general meeting of the Company convened for 10: 00 a.m. on 23 March 2007 (or any adjournment thereof) notice of which is set out at the end of this document "First Admission" admission of the First Placing Shares to AIM becoming effective in accordance with the AIM rules "First Placing" the placing of the First Placing Shares by Collins Stewart on behalf of the Company, at the Placing Price as described in this document "First Placing Shares" 26,769,236 new Ordinary Shares which are to be conditionally placed for cash in accordance with the terms of the Placing Agreement and whose allotment and issue is conditional, inter alia, on the approval of Shareholders at the EGM "Form of Proxy" the form of proxy for use by Shareholders in relation to the EGM "Group" Tangent and its subsidiary undertakings "ICTA" the Income and Corporation Taxes Act 1988 "London Stock Exchange" London Stock Exchange plc "Ordinary Shares" ordinary shares in the capital of Tangent having a nominal value of 1 pence each "Placing" the proposed placing of the Placing Shares pursuant to the Placing Agreement "Placing Agreement" the agreement dated 26 February 2007 made between the Company (1) and Collins Stewart (2) pursuant to which the Placing Shares will be conditionally placed at the Placing Price "Placing Price" 13 pence per Placing Share "Placing Shares" the First Placing Shares and the Second Placing Shares "Ravensworth" Ravensworth Digital Services Limited "Ravensworth Management" Kevin Cameron, Ian Gordon and Suzanne Pattison "Resolutions" the resolutions numbered 1 to 3 approving an increase in the authorised share capital of the Company, authorising the Directors to allot the relevant securities and to disapply statutory pre-emption rights pursuant to section 89(1) of the Act "Second Admission" admission of the Second Placing Shares and the Consideration Shares to AIM becoming effective in accordance with the AIM rules "Second Placing" the placing of the Second Placing Shares by Collins Stewart on behalf of the Company, at the Placing Price as described in this document "Second Placing Shares" 19,846,149 new Ordinary Shares which are to be conditionally placed for cash in accordance with the terms of the Placing Agreement and whose allotment and issue is conditional, inter alia, on the approval of Shareholders at the EGM "Selling Shareholders" the shareholders of Ravensworth, namely Paul McKie, Joseph Percy, Kevin Cameron, Ian Gordon, Suzanne Pattison and the Trustee Sellers "Shareholder" a holder of Ordinary Shares "Tangent" or "the Company" Tangent Communications Plc "Tangent Labs" Tangent Labs Limited, formerly C360 UK Limited, a fully owned subsidiary of Tangent "Trustee Sellers" Joseph Percy, Kevin Cameron and Robert Phillips (as trustees for the Joseph Percy 1997 discretionary settlement the beneficiaries of which are Daniel Percy and Dean Brian Percy) "VCT" a Venture Capital Trust pursuant to the provisions of section 842AA ICTA This information is provided by RNS The company news service from the London Stock Exchange