RNS Number:7868Z
Brightview PLC
06 July 2007
Date: Embargoed until 07.00 hrs, 6 July 2007
Contact: Charles Fairbairn (Chairman)
David Laurie (Chief Executive)
Brightview
Tel: 020 7665 3000
Corporate Website: www.brightview.com
Alistair Mackinnon-Musson Mark Williams
Nicola Savage Canaccord Adams Limited
Hudson Sandler Nominated Adviser
Tel: 020 7796 4133 Tel: 020 7050 6500
Email: brightview@hspr.com
Photographs: Available from Hudson Sandler, as above
Brightview plc
Proposed Disposal of Entire Business to British Telecommunications Plc
HIGHLIGHTS
Brightview plc is a leading UK Internet Service Provider ("ISP"), with
approximately 62,000 broadband subscribers.
Brightview provides broadband access services through its owned brands
'Madasafish' and 'Global Internet'. It also provides a virtual ISP ("vISP")
service for Waitrose and will be providing a vISP service for The John Lewis
Partnership (via JLP's online home services division, "Greenbee").
On 4 July 2007 we announced that we had sold our DM plc shares and that a
trading update would be issued on 9 July. This is included in this
announcement.
Proposed Disposal
The Board of Brightview plc announces the proposed disposal of Brightview Group
Limited and its subsidiaries, to British Telecommunications Plc, for an
aggregate consideration of #15.8 million in cash. Brightview Group Limited is
the main operating company of Brightview plc and contains its ISP activities.
The proposed disposal therefore comprises substantially all of the trading
assets of Brightview plc.
Consequently, upon successful completion, Brightview plc will no longer having a
trading business. The proposed disposal represents a fundamental change of
business under the AIM rules, and therefore requires approval by shareholders at
an Extraordinary General Meeting to be held at 2.30 p.m. on 25 July 2007 at the
offices of Brightview plc.
A circular convening the EGM to approve the Disposal will be issued today,
extracts of which are set out below.
Reasons for the Disposal
Brightview enjoys a reputation for excellent service, as evidenced by its many
prestigious awards. It has sought to position itself at the 'high end' of the
marketplace, as a provider of top quality Internet and telephony services,
describing its packages transparently to consumers.
Brightview's current broadband offer includes low-cost access to help-lines, a
free UK domain name, a free static IP address, virus protection, and a full
suite of security products. It also provides broadband customers with a single
bill for their home communications.
Brightview has achieved its success in spite of an increasingly fierce
competitive environment in broadband service provision. The sector has
consolidated substantially and is now seeing the emergence of a small number of
large service providers, who are able to deploy substantial resource to develop
new products and services that can be bundled in with their core access
products. Against this background, the Board believes that shareholder value can
best be maximised through the proposed disposal and the aggregate consideration
of #15.8 million reflects a good value today for the business.
The Future
If shareholders approve the disposal and immediately upon completion, the Board
of Brightview plc intends to use #3.7 million of the proceeds to repay
outstanding loan obligations and #1.6 million to settle other expenses.
Following the transaction it is expected that Brightview plc will have cash
resources of approximately #13.5 million.
The Directors are therefore considering ways to maximise shareholder value,
including a potential return of cash to shareholders, for which the Board
intends to appoint Deloitte and Touche LLP to examine tax-efficient distribution
mechanisms.
The Board also intends to identify and acquire a UK company or business in the
marketing and support services, media or telecoms sectors - areas in which the
current business already operates (although certain activities are specifically
excluded as a result of the disposal). The intention is that such a company or
business would benefit from the additional managerial and capital input which
Brightview will be able to provide and will be able to achieve rapid growth as a
result.
In considering a potential acquisition target, the Board will take account of
the following:
* the experience of the target's management team
* the size of the projected market for the target's products and/or
services
* the potential for growth of that market
* the stage of development of the target
* the target's intellectual property rights
* the target's competitive position within its market
* the ease of market entry for the target's products and/or services
Charles Fairbairn, Chairman, said:
"In providing our customers with excellent service, as evidenced by the number
of awards won, we have achieved success despite an increasingly competitive
environment. Without doubt, the marketplace has now consolidated substantially
with the emergence of a small number of very large providers - so now is the
right time to do this deal with BT, for both our shareholders and our customers
alike. The price reflects good value today and it will enable us to identify
further opportunities to maximise shareholder value".
EXTRACTS FROM THE CIRCULAR TO SHAREHOLDERS FOLLOW:
Introduction
Brightview plc has today announced the proposed disposal of Brightview Group
Limited and its subsidiaries, which comprise substantially all of the trading
assets of the Company, to British Telecommunications plc for an aggregate
consideration of #15.8 million in cash. Further details of the Disposal are set
out below under the heading ''Principal Terms of the Disposal''.
The Disposal will, on Completion, result in the Company no longer having a
trading business and therefore represents a fundamental change of business under
the AIM Rules.
Background and reasons for the Disposal
Having disposed of its Home Gaming Division in October 2006, the Company has
focused solely on its UK Internet Service Provider (''ISP'') operations. This
market has been characterised by rapidly increasing demand for broadband
internet access and services, and the Company has enjoyed strong growth both in
the number of broadband subscribers it serves and in its revenues. Management
believes that this growth has been achieved through the quality of customer
service and technical support the Company provides, as evidenced by its many
prestigious awards.
Brightview has achieved its success in spite of an increasingly fierce
competitive environment in broadband service provision. The sector has
consolidated substantially and is now seeing the emergence of a small number of
large service providers, who are able to deploy substantial resource to develop
new products and services that can be bundled in with their core access
products. Against this background, the Directors believe that shareholder value
can be maximised through the proposed Disposal and that the aggregate
consideration of #15.8 million reflects a good value today for the business.
Financial performance
The following financial information on the Disposal Business has been extracted,
without material adjustment, from schedules to the audited accounts of the
Company for the 14 months ended 30 June 2005 and the 12 months ended 30 June
2006, and the unaudited management accounts for the six months ended 31 December
2006.
6 months ended 31 12 months ended 14 months ended
December 2006 30 June 2006 30 June 2005
#'000 #'000 #'000
Sales
Broadband 4,440 5,777 2,338
Dial up 1,396 4,031 7,591
Other 579 1,224 1,825
6,415 11,032 11,754
EBITDA
Broadband continuing 1,390 1,845 514
Dial up contribution 1,254 3,582 6,593
Other net expenses (1,374) (2,440) (2,860)
1,270 2,987 4,247
Broadband amortisation1 (649) (911) (189)
Depreciation (84) (171) (1,765)
EBITA 537 1,905 2,293
Broadband investment2 676 1,499 896
Broadband subscribers 50,500 40,500 17,000
1. The cost of provisioning a new broadband customer is spread over 24 months
and is shown as broadband amortisation
2. The amount spent on provisioning in the period is shown as broadband
investment
The net book value of the Disposal Business as at 31 December 2006 was #(5.8)
million, including a loan from the Company of #14.9 million.
Current trading and prospects
Brightview's key product is the provision of broadband access, through its owned
and operated brands 'Madasafish' and 'Global Internet' and through the operation
of Waitrose.com as a virtual Internet Service Provider (''vISP''). The Company
has continued to trade well over the last six months, with the broadband
subscriber base having grown from 40,500 at 30 June 2006 to 61,200 at 30 June
2007, representing an increase of 51 per cent.
Brightview's pricing in the 'paid-for' broadband sector is competitive, but it
does not seek to compete with the 'free' broadband sector. The Directors believe
that Brightview has been able to show significant growth in subscribers through
the quality of the customer service and technical support it provides, which is
appealing to those consumers that are prepared to pay for their internet
services.
On 27 June 2007 Waitrose.com, the Company's vISP service, was awarded the status
of Which? Best Broadband Provider, and Brightview has won other prestigious
awards this year reflecting its service standards. In March, the Company
announced that it would be providing a further vISP service to the John Lewis
Partnership, through the supply of telephony, broadband and bundled packages to
Greenbee.com, its online home services division.
The average revenue per user (''ARPU'') for each broadband subscriber has risen
during the year from #15.18 in June 2006 to #15.87 in June 2007. Broadband
turnover is expected to have grown by over 70 per cent. since last year,
reflecting the growth in both ARPU and the number of subscribers. Dial up
revenue is expected to have fallen by almost 40 per cent. in the year. Other
revenues are expected to have risen during the year, helped by the introduction
of a voice package that has now attracted over 4,000 customers. Overall,
turnover for the ISP operations is expected to have been in excess of #13.6
million for the year.
In the second half of the year broadband continuing margins improved compared to
the first half of the year despite the competitive environment, and since 1 May
2007 wholesale charges from British Telecommunications Group PLC have decreased
by approximately #1 per subscriber per month. High margin dial-up volumes
continued to fall as broadband penetration increased. Other income declined as
legacy subscription revenues fell. Expenses were kept at similar levels of
turnover to the previous six months.
The net debt of the group was #1.5 million as at 30 June 2007. On 4 July 2007,
the Company announced the disposal of its shareholding in DM plc for #0.8
million.
Principal terms of the Disposal
Under the terms of the SPA, the Sellers have agreed to sell, subject to
Shareholders' approval, the entire issued share capital of Brightview Group
Limited to BT for an aggregate consideration of approximately #15.8 million (the
majority of which will be used to repay Inter-Company Debt, with the remainder
paid to the Sellers in consideration for the sale of their shares). The
consideration will be payable in cash on Completion, and has been determined
based on the estimated number of broadband subscribers and target levels of net
working capital and net funds within the Disposal Business at Completion.
Accordingly subsequent payments will be made, either by the Sellers to BT or by
BT to the Sellers, after Completion if the actual number of broadband
subscribers differs from the estimated number of subscribers at Completion, if
the actual net working capital at Completion differs from the target net working
capital at Completion and if the actual net funds at Completion differs from
target net funds at Completion. The Sellers will also receive an additional
payment of #375,000 at Completion if certain other intellectual property related
matters have been resolved to the Buyer's reasonable satisfaction by then.
As part of the Disposal, the Company has given certain warranties to BT in
respect of Brightview Group Limited and its assets and employees, subject to
certain limitations, and has undertaken not to engage in the provision of
internet access services, fixed voice telephony or VoIP telephony services, for
a period of 3 years from Completion. In addition, the SPA contains indemnities
against inter alia (i) any former employees of either of the Sellers or persons
supplied to the Sellers by an employment agency or consultancy being or being
alleged to have become an employee of BT or any member of its group by operation
of law; (ii) certain domain name and trademark issues; and (iii) certain
customary tax matters (the ''tax covenant'').
The Company shall cease to have any liability under the warranties or
indemnities eighteen months after Completion unless BT gives notice to the
Company of a claim before such date. BT has no right to recover for any breach
of the warranties or the tax covenant until the aggregate value of all claims
under the warranties and the tax covenant exceeds #100,000, in which case the
Company will be liable for the whole amount of such claims. The maximum
liability of the Company under the warranties and tax covenant is 50 per cent.
of the Aggregate Consideration. The maximum liability of the Company under the
warranties and tax covenant for any claim notified in the period commencing 6
months after the date of Completion and ending 18 months after Completion is 10
per cent. of the Aggregate Consideration.
The Company has agreed in the period of 6 months following Completion not to
make distributions of its assets (including monies and assets to its
shareholders) other than by way of a distribution to shareholders or certain
other agreed categories of distribution in aggregate not exceeding a value equal
to 50 per cent. of the Aggregate Consideration. In the period of six months
following the date falling six months after Completion, the Company has agreed
not to make distributions of its assets (including distributions of monies and
assets to its shareholders) that would leave it with less than the sum of 10 per
cent. of the Aggregate Consideration plus #400,000 plus the amount of any
warranty or tax covenant claims still then outstanding. In the period commencing
12 months after the date of Completion and ending 18 months after Completion the
Company has agreed not to make such distributions that would leave it with less
than the sum of 10 per cent. of the Aggregate Consideration plus the amount of
any warranty or tax covenant claims still then outstanding.
The Company has agreed to use all reasonable endeavours to procure that up to
Completion Brightview Group Limited carries on its business in the ordinary
course and does not do certain things without the prior written consent of BT
and has agreed that it will not sell the Disposal Business to anyone other than
BT or provide information to any other potential acquirer of the Disposal
Business in that period. BT has a right to terminate the SPA if it becomes
aware, prior to Completion, of any breach of warranty or any matter arising
that, if the warranties were to be repeated at Completion, would in the
reasonable opinion of BT, give rise to a breach of warranty, or any other breach
of the SPA which would give rise to a claim of #300,000 or more.
Upon Completion, David Laurie and David Stirling will resign as directors of the
Company and Brightview Group Limited with immediate effect and will enter into
service contracts with BT under which they will provide consultancy services for
a limited period in order to ensure a smooth transition for the Disposal
Business.
As part of the Resolution, it is proposed that the Rules of the Option Plan be
altered to permit the Board the discretion to allow an optionholder under the
Option Plan to have up to twenty-four months (rather than the current maximum of
six months) to exercise his options before they lapse if he is made redundant or
otherwise has his employment terminated. The Board intends to exercise this
discretion to permit David Laurie and David Stirling to make use of the full
twenty-four month period in relation to their options under the Option Plan
after Completion.
Use of proceeds and proposed investing strategy
The Company intends immediately upon Completion to use up to #3.7 million of the
proceeds from the Disposal to repay the Company's outstanding loan obligation
with Barclays and to settle transaction expenses of up to #0.7 million, disposal
bonuses of #0.7 million and redundancy payments of #0.1 million. Following the
transaction, the Company is expected to have cash resources of approximately
#13.5 million. The Directors are considering ways to maximise value for the
Company's shareholders, including a potential return of cash to Shareholders for
which the Company intends to appoint Deloitte and Touche LLP to examine
tax-efficient distribution mechanisms, and opportunistic investments, both being
subject to the cash retention constraints contained in the SPA (described above
under the heading ''Principal terms of the Disposal'').
The Directors are seeking the authority from Shareholders, as part of the
Resolution, to make on-market purchases of up to 10 per cent. of the Company's
issued share capital. The maximum price payable per Ordinary Share, exclusive of
expenses, would be 5 per cent. above the average of the middle market quotations
for the Company's Ordinary Shares as derived from the AIM Appendix to the Daily
Official List for the five business days preceding the date of the contract to
purchase. The minimum price payable per Ordinary Share, exclusive of expenses,
would be 1p (being the nominal value of each Ordinary Share). This authority
will expire on 25 January 2009 or, if earlier, at the conclusion of the
Company's next Annual General Meeting. However, it is the Directors' present
intention to seek renewal of the authority at the next Annual General meeting
and to seek further renewals at subsequent Annual General Meetings. Shareholders
are assured that the Directors would purchase Ordinary Shares only on the basis
that it would be expected to result in an increase in anticipated earnings per
share, after taking account of other investment opportunities and the overall
financial position of the Company.
Subject to the extent of any return of cash to Shareholders, the Company intends
to identify and acquire a company or business in the marketing and support
services, media or telecoms sectors in the United Kingdom. These are areas that
the current business has been engaged in, although as noted above the Company is
restricted from undertaking certain activities in the telecoms sector by the
SPA.
The intention is that such company or business would benefit from the additional
managerial and capital input which the Company will be able to provide and will
be able to achieve rapid growth following such input. The Directors believe
that, collectively, the Board possesses the expertise necessary to identify an
investment opportunity which has the potential to achieve significant and
sustainable growth, and which satisfies the investment criteria detailed below.
The Board intends to examine, inter alia, the following matters in assessing
whether or not a potential target company or business is suitable as an
acquisition for the Company:
* the experience of the company's management team;
* the size of the projected market for the company's products and/or
services;
* the potential for growth of that market;
* the stage of development of the company;
* the company's intellectual property rights;
* the company's competitive position within its market; and
* the ease of market entry for the company's products and/or services.
The Board will use professional advisers in their due diligence processes.
If the Company has not made substantial investments by 30 June 2008, the
Directors intend to give Shareholders the opportunity to vote at an EGM to
return any remaining cash to Shareholders.
Irrevocable undertakings
Shareholders (including the Directors who hold Ordinary Shares) have undertaken
to the Company to vote in favour of the Resolution in respect of, in aggregate,
23,161,940 Ordinary Shares representing in aggregate approximately 52 per cent.
of the issued share capital of the Company. These undertakings will fall away if
a firm intention to make a takeover offer is announced for the Company that
values the entire issued and to be issued share capital of the Company at #15.5
million or more.
Inducement fee arrangements
Brightview has entered into an exclusivity letter with BT under which Brightview
has agreed to pay BT #175,000 plus any applicable VAT in any of the following
circumstances:
(a) any member of the Brightview Group (or their respective
directors, employees, advisers, agents or representatives) directly or
indirectly:
(i) seeks, solicits, induces, or knowingly encourages any offer or proposal
from, or initiates enquiries;
(ii) enters into or continues any negotiations or discussions with any
person; or
(iii) provides any person (other than BT) with any non-public information
relating to the Brightview Group or its business or any member of it (other than
as required by law or a competent regulatory law),
in relation to or with a view to any person making a takeover offer for all or
the majority of the ordinary share capital of Brightview or the Disposal
Business, or an offer for all, or a substantial part of, the business and/or
assets of Brightview or the Disposal Business (an ''Alternative Offer'')
(b) any member of the Brightview Group accepts, or a public
announcement is made in respect of, an Alternative Offer which is recommended or
approved by the board of directors of Brightview;
(c) any person (other than BT) acquires or agrees to acquire any
shares in the Disposal Business or all, or a substantial part of, the business
and assets of the Disposal Business.
Brightview has agreed to pay BT #250,000 plus any applicable VAT in the event
the Resolution is not passed within two months of signature of the SPA. The
maximum amount payable by Brightview under the exclusivity letter is #250,000
plus any applicable VAT.
DEFINITIONS
"AIM" the AIM market of the London Stock Exchange
"AIM Rules" the AIM Rules for Companies of the London Stock
Exchange governing admission to and operation of AIM
"Board" or "Directors" the directors of Brightview
"Brightview" or the "Company" Brightview plc, whose registered office is at 9-10
Grafton Street, London W1S 4EN (registered in England
and Wales No. 03917504)
"Brightview Group" Brightview and its subsidiary undertakings
"BT" British Telecommunications Plc
"Business Day" a day (other than a Saturday or a Sunday) on which
banks are open for business in London
"Company's Registrars" Neville Registrars Ltd
"Completion" Completion of the Disposal pursuant to the terms of
the SPA
"Continuing Group" Brightview Group (other than the Disposal Business) as
it will exist following Completion
"Disposal" the disposal of the Disposal Business
"Disposal Business" Brightview Group Limited and its subsidiaries as at
Completion
"EGM" or "Extraordinary General Meeting" the extraordinary general meeting of Brightview to be
held at 2.30 p.m. at the offices of Brightview, 9-10
Grafton Street, London W1S 4EN, or any adjournment
thereof
"Inter-Company Debt" the existing inter-company debt at Completion owing
between Brightview Group Limited and the Company
"London Stock Exchange" London Stock Exchange plc
"Notice of EGM" the notice of EGM set out at the end of this document
"Options" options granted under the Brightview Share Option
Schemes
"Option Plan" the Brightview Share Option Plan adopted on 21
December 2006
"Ordinary Shares" ordinary shares of 1p each in the capital of the
Company
"Reedbest" Reedbest Properties Limited, a wholly owned subsidiary
of the Company
"Resolution" the resolution to be proposed at the EGM
"Sellers" Brightview and Reedbest
"Shareholders" holders of Ordinary Shares
"Shareholding" the shareholding in the capital of Brightview of any
Brightview Shareholder from time to time
"SPA" the conditional sale and purchase agreement entered
into between (1) the Company and Reedbest and (2) BT
on 6 July 2007 for the sale of the Disposal Business
"United Kingdom" or "UK" the United Kingdom of Great Britain and Northern
Ireland
This information is provided by RNS
The company news service from the London Stock Exchange
END
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