Acquisition

11 Jan 2007 07:00

CEPS PLC Proposed Acquisition of Sunline Direct Mail Limited ("Sunline") Placing to raise ‚£2.375 million, before expenses Share Consolidation and Waiver of Obligations under Rule 9 of the Code Key Points: * Acquisition of Sunline for an initial consideration of ‚£3.8 million. Deferred consideration of up to a maximum of ‚£500,000 payable dependent on future trading performance. * Placing to raise ‚£2.375 million, before expenses * Share Consolidation with every Existing Ordinary Share of 0.1p each on the Record Date being consolidated into 1 New Ordinary Share of 5p * Waiver from the requirements of Rule 9 of the Code * Admission of the Enlarged Issued Ordinary Share Capital and Warrants to trading on AIM.

Commenting on the Proposals Richard Organ, Chairman of, CEPS PLC, said:

"Sunline fits our acquisition profile well, in that it is profitable, cash generative with an excellent management team where the shareholders wish to realise part of their investment in the company.

We are finding that the funding gap for companies valued in the ‚£2-‚£5 million range is as wide as ever. There are plenty of quality businesses that need help to fill that gap and CEPS is one of the few investors willing and able to do so".

Contact Details:CEPS PLCPeter CookNon-executive DirectorTel: 01225 483030

City Financial Associates Limited

Ross AndrewsDirectorTel: 020 7090 7800KEY STATISTICSPlacing price 50p Number of Existing Ordinary Shares 178,191,426 Number of Placing Shares 4,750,000 Total number of New Ordinary Shares in issue on 8,313,828Admission Number of Warrants in issue on Admission 1,437,769 Percentage of Enlarged Issued Share Capital the subject 57.13%of the Placing Market Capitalisation of the Company following ‚£4.16 millionAdmission at the Placing Price Estimated gross proceeds of the Placing ‚£2.375 million Estimated net proceeds of the Placing ‚£1.725 million

Introduction

The Company announces that it has today, through Sunline Direct Mail (Holdings) Limited (SDMH), conditionally agreed to acquire the entire issued share capital of Sunline Direct Mail Limited, a supplier of poly wrapping and associated services to the direct mail market, for an initial consideration of ‚£3.8 million. The Company will own 80 per cent. of SDMH and the remaining 20 per cent. will be owned by the managing director of Sunline Direct Mail Limited.

The initial consideration will be satisfied by a cash payment of ‚£3.45 million and the issue of shares and loan notes in SDMH to the value of ‚£350,000. Deferred consideration, of up to a maximum of ‚£500,000 will be payable dependent upon the future trading performance of Sunline.

The Acquisition is a "reverse takeover" as defined in Rule 14 of the AIM Rules and is therefore conditional, inter alia, upon Shareholders' approval.

The Company also announces a share consolidation on the ratio of 50 Existing Ordinary Shares of 0.1p each for 1 New Ordinary Share of 5p each, the Placing to raise ‚£2.375 million before expenses of ‚£650,000 by the issue of 4,750,000 Placing Shares at 50p per share (equivalent to 1p per share prior to the Share Consolidation) and amendments to the terms of the Warrants.

In order to implement the Placing, the Board is seeking additional authorities from Shareholders to allot the Placing Shares for cash. Certain Directors have agreed to subscribe directly, or through entities associated with them, for a total of 1,110,000 Placing Shares at the Placing Price.

The Directors are proposing the Share Consolidation as they believe that it is in the best interests of Shareholders to improve the marketability of the Company's Ordinary Shares by increasing their nominal value and consequently the share price. The Directors are therefore proposing to consolidate the share capital of the Company on the ratio of 50 Existing Ordinary Shares of 0.1p each for 1 New Ordinary Share of 5p.

The shareholding of the Concert Party in the Company following implementation of the Proposals, would normally require an offer for the balance of the Ordinary Shares to be made under the Code unless a Waiver is approved by Independent Shareholders.

Accordingly an EGM of the Company is being convened for 11.00 a.m. on 5 February 2007 at which approval will be sought for the Proposals. If the Resolutions are passed at the EGM, the Company's existing trading facility on AIM will be cancelled and the Company will apply for the New Ordinary Shares, together with the issued Warrants, to be admitted to trading on AIM.

An admission document, containing full details of the Proposals is expected to be posted to shareholders later today. Copies of the Admission Document will be available free of charge to the public during normal business hours on any weekday (except Saturdays, Sundays and public holidays) at the offices of City Financial Associates Limited, Pountney Hill House, 6 Laurence Pountney Hill, London EC4R 0BL, from today and for a period of one month.

Background to the Proposals and information on Sunline

The Company (previously known as Dinkie Heel plc) was founded in the UK to manufacture footwear components. Since a refinancing in April 2004, the Company has adopted a strategy to invest and acquire majority shareholdings in private industrial services companies with a history of profitability, cash generation and with an overall value of up to ‚£5 million. The first acquisition was Friedman's which was completed in January 2005 and the acquisition of Sunline is an important development in its strategy.

Sunline is a private company, operating in the direct mail market, whose core service is the polythene wrapping of mail packs through two divisions, the Polywrap Division and the Lettershop Division.

The Polywrap Division, based in Loughborough, provides collation, personalisation, wrapping and mailing of predominately paper based direct mail. In addition to its core services it offers complementary data processing, enclosing of letter and other insertions and personalisation of printed materials and polywarp.

The core service of the Lettershop Division, based in Redditch, is laser printing with several added value services which include:

* Data processing management; * Dynamic inline stitching; and * Guillotine and folding and envelope enclosing.

The Lettershop Division undertakes work predominately for clients involved in transactional work, direct mail and niche print work.

Sunline differentiates itself from its competitors by having strong customer relationships and providing a quality service, demonstrated by good customer retention. It has an established base of sales income, which covers a significant portion of its operating expenses.

Summarised financial information on Sunline, extracted from an accountant's report undertaken by PricewaterhouseCoopers LLP, is as follows:

8 Months to Year ended Year Ended Year ended 30 June 2006 31 October 2005 31 October 2004 31 October 2003 ‚£'000 ‚£'000 ‚£'000 ‚£'000 Turnover 4,345 6,346 6,149 4,550 Cost of sales (2,738) (3,911) (3,449) (2,585) Gross profit 1,607 2,453 2,700 1,965 Profit before 305 520 818 783tax Profit after tax 169 319 535 539

Strategy for the Enlarged Group

The existing businesses will be managed to develop and invest in new products and markets and where appropriate consider complementary acquisitions.

The Company is continuing to review acquisition opportunities in private service companies with a history of profitability, cash generation and with an overall value of up to ‚£5 million. The Company is unlikely to consider opportunities unless the management is committed to the business and is prepared to be incentivised by a retained equity interest in the business.

Share Consolidation

The Directors believe that it is in the best interests of Shareholders to improve the marketability of the Company's Ordinary Shares by consolidating the Existing Ordinary Shares and consequently increasing the share price. Therefore, the Directors are proposing a Share Consolidation, the effect of which will be to consolidate every 50 Existing Ordinary Shares of 0.1p into 1 New Ordinary Share of 5p. Fractional entitlements will be aggregated and sold in the market for the benefit of the Company. Shareholders will own the same proportion of the Company's issued share capital after the share consolidation as they did previously, subject to fractional entitlements. The Record Date for the Share Consolidation will be the close of business on 5 February 2007.

Shareholders will be issued with new share certificates and existing share certificates can be destroyed.

Placing and Related Party Transaction

The Company is proposing to issue 4,750,000 New Ordinary Shares at 50p per share to raise ‚£2.375 million before expenses estimated at ‚£650,000. Of the net proceeds of the Placing, ‚£1.45 million will be used to part fund the Acquisition and the balance will be used for working capital. The New Ordinary Shares to be issued pursuant to the Placing will rank pari passu in all respects with the other Ordinary Shares then in issue, including the right to receive dividends and other distributions thereafter declared, made or paid.

The Placing is a Related Party Transaction under the AIM Rules as the Directors, other than Geoff Martin, have agreed to subscribe for, in aggregate, 1,110,000 Placing Shares at 50 p per share. Where a company whose shares are traded on AIM enters into a Related Party Transaction, then the requirement is for the Directors, who are independent of the transaction, to consider, after consultation with the nominated adviser, whether the terms of the transaction are fair and reasonable so far as shareholders are concerned. Geoff Martin, who is not participating in the Placing, having consulted with City Financial Associates Limited, considers the terms of the Placing to be fair and reasonable as far as Shareholders are concerned.

Amendments to the Warrants

On 26 March 2004, the Company issued Warrants to subscribe for 72,253,028 Existing Ordinary Shares at an exercise price of 2p per share, equivalent to an exercise price of 100p per New Ordinary Share. The Warrants are exercisable at any time up to 19 April 2007.

It is proposed, subject to shareholders' approval and Admission to change the terms of the Warrants as follows:

* The exercise price be reduced to 1.25p per Existing Ordinary Share, which will correspond to 62.5p per New Ordinary Share; * The exercise date be extended from 20 April 2007 to 20 April 2010; and * The Warrants be made freely transferable.

It is also proposed that the Warrants, which will rank pari passu in all respects with each other, will be admitted to trading on AIM.

Profit Estimate

On 28 September 2006 the Company announced its interim results for the 6 month period ended 30 June 2006 and stated "¢â‚¬¦. that the Board expected to see a significant improvement in operating profitability in the second half of 2006".

Since the interim results the Group's performance in the second half of the year is expected to be not less than 10 percent. above the operating profit, before exceptional items achieved in the first half of the year.

For the year ended 31 December 2006, the Board believes that the Company's operating profit before exceptional items will show an improvement on the previous year.

During the year the Board reviewed potential acquisition opportunities and in doing so it accrued professional costs. In the event that the Board decides not to pursue any acquisition opportunities it will give rise to a one-off exceptional charge. The Board believes that current exposure to exceptional charges is less than ‚£100,000.

The Takeover Code

Under Rule 9 of the Takeover Code, when any person acquires, whether by a series of transactions over a period of time or not, an interest in shares which (taken together with shares in which he is already interested and in which persons acting in concert with him are interested) carry 30 per cent. or more of the voting rights of a company which is subject to the Takeover Code, that person is normally required to make a general offer to all remaining shareholders to acquire their shares.

Similarly, where any person, together with persons acting in concert with him, is interested in shares which in aggregate carry not less than 30 per cent. of the voting rights of a company, but does not hold shares carrying more than 50 per cent. of the voting rights of the company, a general offer is required if any further interests in shares are acquired by any such person, or any persons acting in concert with him, within the preceding 12 months.

An offer under Rule 9 must be in cash and at the highest price paid by the person required to make the offer, or any person acting in concert with him, for any interest in shares acquired during the 12 months prior to the announcement of the offer.

The Concert Party's interests following the implementation of the proposals will amount in aggregate to 3,567,803 New Ordinary Shares, representing 42.91 per cent. of the Enlarged Issued Share Capital. Assuming the Concert Party exercise all their Warrants and Options (and no other Warrants or Options are exercised) then the Concert Party's interest would amount to 4,368,341 New Ordinary Shares, representing 47.93 per cent. of the issued Share Capital as further enlarged by the exercise of the Warrants and Options.

The Panel has agreed, subject to the passing of a resolution at the EGM on a poll by independent shareholders, to waive the obligation of the Concert Party to make a general offer to shareholders under Rule 9 of the Takeover Code that would otherwise arise as a result of the implementation of the Proposals.

Following the Proposals and on full exercise of the Warrants and Options by the Concert Party only, the Concert Party will be interested in shares carrying more than 30 per cent. or more of the Company's voting share capital but will not hold shares carrying more than 50 per cent. of the voting rights of the Com pany. Accordingly, the Concert Party, for so long as its members continue to be treated as acting in concert, will not be able to increase its aggregate interests in Ordinary Shares without incurring any obligation under Rule 9 to make a general offer.

DEFINITIONS

The following terms apply in this announcement unless the context requiresotherwise:"Acquisition" the proposed acquisition by SDMH of the entire issued share capital of Sunline Direct Mail Limited "Admission" admission of the Placing Shares and Warrants to trading on AIM and the readmission of the New Ordinary Shares other than the Placing Shares to trading on AIM becoming effective in accordance with the AIM Rules "AIM" the market of that name operated by the London Stock Exchange plc "AIM Rules" the rules published by the London Stock Exchange plc relating to AIM "Board" or "Directors" the directors of the Company from time to time "Code" The UK City Code on Takeovers and Mergers "Concert Party" the members of the concert party "EGM" the extraordinary general meeting of the Company convened for 5 February 2007, or any adjournment thereof "Enlarged Group" the Company and its subsidiaries following Completion "Enlarged Issued Share the issued ordinary share capital of the Capital" Company following Admission "Existing Ordinary Shares" the existing ordinary shares of 0.1p each in the capital of the Company "Friedman's" Friedman's Limited "Independent Shareholders" Shareholders other than members of the Concert Party "New Ordinary Shares" the new ordinary shares of 5p each in the capital of the Company following the Share Consolidation "Panel" the Panel on Takeovers and Mergers "Placing" the conditional placing by CFA of the Placing Shares at the Placing Price "Placing Agreement" the conditional agreement dated 11 January 2007 between the Company (1), the Directors (2) and CFA (3) relating to the Placing, "Placing Price" 50 pence per Placing Share "Placing Shares" the 4,750,000 New Ordinary Shares to be issued by the Company pursuant to the Placing "Proposals" the Acquisition, the Placing, the Waiver, the Share Consolidation and amendment to the Warrant Instrument "Share Consolidation" the proposed consolidation of the issued and unissued Existing Ordinary Shares into New Ordinary Shares of 5 pence each "Shareholder" a holder of Ordinary Shares from time to time "Sunline" Sunline Direct Mail Limited, a company registered in England and Wales with registered no. 03341560 "Waiver" the waiver by the Panel of Rule 9 of the Code "Warrants" warrants exerciseable over Ordinary Shares on the terms of the warrant instrument or following Admission