TIDMCRE
RNS Number : 3053O
Creston PLC
28 June 2010
28 June 2010
CRESTON PLC
Proposed Disposal of DLKW
The Board of Creston is pleased to announce that it has entered into a
conditional agreement with Lowe, a wholly-owned subsidiary of The IPG Group of
Companies Inc., to dispose of the DLKW Group, the Company's advertising
business, for a cash consideration of GBP28 million, subject to certain
adjustments. The Disposal is conditional upon the approval of Creston
Shareholders.
HIGHLIGHTS
· Proposed sale of the DLKW Group for a cash consideration of GBP28 million
· The DLKW Group is comprised of three trading brands: DLKW (an advertising
agency); Dialogue DLKW (a promotional agency); and The Composing Room (a
pre-press production company). These companies provide advertising, in-store
marketing and design and promotional marketing services to clients in a variety
of industries ranging from financial services to retail campaigns
· Lowe is an international creative advertising and marketing solutions
agency, offering television, digital, print, brand and experiential advertising
across a variety of sectors
· The estimated net cash proceeds of GBP27.6 million will significantly
reduce Creston's current level of indebtedness and will provide a strong
platform for developing and investing in the Continuing Group going forward
· The Board unanimously recommends the Disposal and the Directors have
irrevocably undertaken to vote in favour of the Disposal Resolution in respect
of their own beneficial holdings, which amount in aggregate to 2,277,821
Ordinary Shares and represent approximately 3.71 per cent. of Creston's issued
share capital as at 27 June 2010 (the latest practicable date prior to
publication of this document)
David Grigson, Chairman, commented:
"The Board believes the disposal of the DLKW Group to be in the best interests
of the Company and its shareholders. It represents an opportunity to obtain
greater exposure to the growth areas within insight and communications, and
provides management with the opportunity to shape a group that will capture
maximum shareholder value in the medium- to long-term."
Don Elgie, CEO, commented:
"This disposal will accelerate our development as a 21st century insight and
communications group, able to advise on all the communications challenges
clients face across the fast-changing marketing landscape. The rich combination
of our practice areas positions us perfectly, and their more complementary
nature will help us realise more of the benefits of working together to the
advantage of our clients.
"We will seek to use our strong financial position to achieve optimal growth by
continuing to develop our own capabilities, including the launch of start-ups
and by selective international expansion when driven by client demand."
Enquiries:
Creston plc Tel:
+44 (0) 20 7930 9757
David Grigson Chairman
Don Elgie, CEO
Barrie Brien, COO/CFO
Investec Tel:
+44 (0) 20 7597 5120
Erik Anderson
David Flin
Carlton Nelson
M:Communications Tel:
+44 (0) 20 7920 2330
Elly Williamson
Investec, which is authorised and regulated in the United Kingdom by the
Financial Services Authority, is acting exclusively for Creston and no one else
in connection with the Disposal and this announcement and will not be
responsible to anyone other than Creston for providing the protections afforded
to clients of Investec nor for providing advice in connection with the Disposal
or this announcement or any matter referred to herein.
CRESTON PLC
Proposed Disposal of DLKW
1. Introduction
The Board of Creston is pleased to announce that the Company has entered into a
conditional agreement with Lowe to sell the entire issued share capital of the
DLKW Group, its advertising business, for a consideration of GBP28 million. The
consideration is payable in cash on completion.
The Disposal is of sufficient size relative to that of the Group to constitute a
Class 1 transaction under the Listing Rules and is therefore conditional upon,
inter alia, the approval of Shareholders. Approval of the Disposal is being
sought at a General Meeting of the Company to be held at 9.30 a.m. on 13 July
2010 at the offices of Olswang LLP, 90 High Holborn, London, WC1V 6XX. If the
Disposal Resolution is passed at the General Meeting on 13 July 2010, then
Closing is expected to take place on the following business day.
2. Information on the DLKW Group
Formed in 2000 and based in London, UK, the DLKW Group was acquired by Creston
in 2005 and represents the Group's advertising agency. The group is comprised of
three trading brands: DLKW (an advertising agency); Dialogue DLKW (a promotional
agency); and The Composing Room (a pre-press production company). These
companies provide advertising, in-store marketing and design and promotional
marketing services to clients in a variety of industries ranging from financial
services to retail. For the year ended March 2010 the DLKW Group recorded
revenue of GBP19.2 million, profit before tax of GBP3.1 million and had net
assets of GBP1.1 million and gross assets of GBP11.8 million at the period end.
Of the GBP19.2 million of revenue recorded by the DLKW Group, 26 per cent. was
generated from the food and beverage sector, 18 per cent. from the financial
services sector and 10 per cent. from consumer products retail.
3. Background to and reasons for the Disposal
The landscape for the off-line advertising market has gone through major
upheaval in the last five years. The evolution and growth of the internet plus
the proliferation of digital channels and communication technologies have
caused, and are likely to continue to cause, major structural shifts in the
marketing services industry.
The Directors believe that structural change driven by media fragmentation and
the impact of the internet and digital channels on media consumption has caused
a decline in mainstream mass audience advertising spend. In addition to this,
the internet and digital channels have also allowed much greater opportunity for
clients to track actual consumer behaviour and to target consumers with personal
and relevant marketing messages, compared to the traditional advertising methods
of mass communication. This targeting of messages in turn allows greater
efficiency in marketing budgets plus more exact measurement of the return on
investment for a client. An additional structural change to the industry is that
consumers now have greater power over the reputation of a brand or company via
channels such as social media, and can also decide when, where and how they want
to consume marketing messages.
Due to these fundamental changes, the Board believes that conventional off-line
advertising will continue to face significant challenges, regardless of how the
economy performs.
In addition to the structural changes affecting the advertising sector, the
Board has also considered the investment needs of the DLKW Group together with
those of the Insight and Health divisions and of the remaining companies within
the Communications division.
The DLKW Group has a largely domestic client base. The Board believes that the
next stage of the DLKW Group's growth would be to seek to grow its international
operations and client base. It is envisaged that to achieve this desired
international growth the business would need offices in several geographies
worldwide, requiring a disproportionate amount of investment by Creston. The
Board believe that without this further investment in developing the DLKW
Group's international operations outlined above, the DLKW Group will face
challenges in competing effectively against large advertising agencies which can
offer a global service.
The Directors believe that any investment made by Creston in growing the DLKW
Group's international operations could be better utilised by the Continuing
Group investing in the higher growth areas of market research, healthcare
marketing and the remaining communication agencies, where there already is an
international client base with a demand for an international footprint.
The consideration of GBP28 million represents a multiple of 9.0 times the DLKW
Group's PBIT for the year to 31 March 2010.
4. Information on the Continuing Group
The Disposal of the DLKW Group is in line with the Group's previously
established focus on "Insight and Communications for the 21st century". Upon
completion of the Disposal, there will be no material change in the vision and
strategy of Creston, and the Continuing Group will still be structured around
the three divisions of Insight, Communications and Health. The Disposal will
allow Creston to accelerate its investment in strengthening the Continuing Group
and shaping it to allow it to more appropriately meet the needs of the
fast-changing 21st century marketplace. The DLKW Group currently sits within the
Communications division and post the disposal, neither the division nor Creston
will have any communications businesses focused on traditional off-line
advertising. The Communications division will still offer communications both
within the UK and internationally, but it will not be exposed to the decline in
mainstream audiences and the reducing effectiveness of mass-audience
advertising. On the contrary, the Directors believe that the division will be
exposed to the growth of targeted personalised marketing, which has a greater
measurable return on investment.
The estimated net cash proceeds of GBP27.6 million will significantly reduce
Creston's current level of indebtedness and will provide a strong platform for
developing and investing in the Continuing Group going forward. As at 31 March
2010 the Group had net debt of GBP24.9 million. The Continuing Group's
development is expected to be through a mixture of acquisitive and organic
growth and will be managed over a period of time to ensure appropriate levels of
gearing for the Continuing Group.
5. Principal terms of the Disposal
· The DLKW Group will be sold to the Purchaser for a total
consideration, payable in cash on Closing, of GBP28 million.
· The Seller will ensure that the DLKW Group has a minimum aggregate
cash balance of GBP750,000 on Closing.
· The estimated net cash proceeds are GBP27.6 million (having deducted
advisor fees).
· The Disposal Agreement contains customary representations and
warranties of the Seller and Purchaser.
· The Disposal is conditional upon the passing of the Disposal
Resolution by Shareholders at the General Meeting.
· A break fee of GBP280,000 is payable to the Purchaser if Crestondoes
not comply with the undertakings given by it in relation to this Circular and
the calling of the General Meeting and the Disposal Resolution is not passed.
· The Directors who are interested in shares have given irrevocable
undertakings to the Purchaser to vote in favour of the Disposal Resolution at
the General Meeting in respect of their beneficial holdings of Ordinary Shares.
6. Information on the Purchaser
Lowe is an international creative advertising and marketing solutions agency,
headquartered in London, UK with 80 further offices worldwide. Lowe's offering
includes television, digital, print, brand and experiential advertising across a
variety of sectors such as the automobile industry and the beverage industry.
Lowe provides a resource network that enables its customers to work with a
number of specialist and communications companies. The company also monitors
emerging trends analyses, category specific behaviour and attitudes, consumer
behaviour and consumer insights.
The IPG Group of Companies Inc., the ultimate holding company of Lowe, is quoted
on the New York Stock Exchange with a market capitalisation of GBP2.6 billion
($3.9 billion) as at 24 June 2010.
The IPG Group of Companies Inc. is one of the world's largest advertising and
marketing services holding companies, comprised of communication agencies around
the world that deliver custom marketing solutions on behalf of their clients.
These agencies cover the spectrum of marketing disciplines and specialties, from
traditional services such as consumer advertising and direct marketing, to
emerging services such as mobile and search engine marketing. With offices in
over 100 countries and approximately 40,000 employees, these agencies develop
marketing programs that build brands, influence consumer behaviour and sell
products. Revenues are primarily derived from the planning and execution of
advertising, marketing and communications programs in various media around the
world.
7. Use of proceeds and financial effects of the Disposal on the Group
The estimated net cash proceeds arising from the Disposal are expected to be
approximately GBP27.6 million.
In June 2008 Creston agreed a GBP40 million banking facility, which is made up
of an amortising GBP15 million term loan and a GBP25 million revolving credit
facility. At 31 March 2010 Creston had drawn balances against the term loan and
revolving credit facility of GBP11.6 million and GBP13.0 million respectively
(the GBP15 million term loan had amortised to GBP11.6 million by 31 March 2010).
In addition, Creston had outstanding acquisition loan note commitments (secured
against the revolving credit facility) of GBP3.1 million and a positive cash
balance of GBP2.8 million.
The cash proceeds from the Disposal of GBP28.0 million will be used to repay the
GBP11.6 million term loan and repay the balance drawn against the revolving
credit facility which, as per the Company's management accounts for 31 May 2010,
amounted to GBP11.0 million. The Directors' intention is to hold the remaining
balance of the Disposal proceeds on deposit. An accrual in respect of the
advisor fees associated with the Disposal of GBP0.4 million will be recognised
and settled from available cash reserves post Disposal.
Following the Disposal, Creston's pro-forma debt will be reduced from GBP24.9
million as at 31 March 2010 to approximately GBP0.6 million.
The GBP11.6 million term loan will be cancelled leaving the Group with the GBP25
million revolving credit facility which will remain available until 31 March
2012.
Under the terms of the revolving credit facility, if the balance of the Disposal
proceeds after repaying the term loan are not reinvested within six months from
the date of the Disposal, then the revolving credit facility will be reduced by
the Disposal proceeds received and not already applied to the term loan.
Accordingly, if there was no reinvestment of the Disposal proceeds within this
period, the revolving credit facility would be reduced to approximately GBP9.0
million, which would remain in place until 31 March 2012.
It is Creston's intention to use some or all of the GBP25 million revolving
credit facility to fund further investment in the Continuing Group and further
acquisitions which fit with Creston's future strategy, however, there is no
certainty there will be any reinvestment within the six months.
As a result of the Disposal, a loss on disposal of approximately GBP3.2 million,
plus an adjustment for the net assets of the DLKW Group at Closing, will be
included in Creston's 2011 results. At 31 March 2010 Creston held assets
(goodwill and intangible assets) in respect of the DLKW Group valued at GBP30.8
million. Creston will receive net proceeds of GBP27.6 million which will
generate the loss of GBP3.2 million mentioned above. The Directors expect the
Disposal to be dilutive to earnings per share.
Had the Disposal taken place on 31 March 2010, when the net assets of the DLKW
Group were GBP1.1 million, a total loss on disposal of GBP4.3 million would have
been recognised. Therefore, the Group's Net Assets would have reduced from
GBP95.9 million to GBP91.6 million.
8. Current trading and prospects
On 28 June 2010 Creston announced its preliminary results for the twelve months
ended 31 March 2010. This announcement contained the following statement:
"On a macro level, we believe the economy will show only modest growth over the
coming 12 months. On a micro level, the same advantages that have allowed the
Group to outperform its sector during a challenging year position it well for a
return to growth. The final quarter of the year saw an increase in new business
for the companies in our Communications Division, which had suffered from a
sector-wide decline in new business during the first half of last year. The
spend by our blue chip clients has held up strongly and is likely to continue to
support performance in the year ahead.
We remain well placed to gain further market share as conditions improve, with
our integrated offer and rapidly evolving digital capabilities delivering the
solutions that clients demand. The new financial year has started in line with
management's expectations. We are currently ahead of the same period last year
and have been boosted by a number of high profile new business wins."
9. Recommendation
The Board, having been so advised by Investec, is of the opinion that the
Disposal is in the best interests of the Company and Shareholders as a whole.
In providing advice to the Board, Investec has taken into account the Board's
commercial assessments.
Accordingly, the Board unanimously recommends that Shareholders vote in favour
of the Disposal Resolution to be proposed at the General Meeting, as the
Directors who are interested in shares have irrevocably undertaken to do in
respect of their own beneficial holdings, which amount in aggregate to 2,277,821
Ordinary Shares and represent approximately 3.71 per cent. of Creston's issued
share capital as at 27 June 2010 (the latest practicable date prior to
publication of this document).
Shareholders should read the whole of the circular to be sent to them and not
just rely on the summarised information set out in this announcement.
Definitions
The following definitions apply throughout this document, unless the context
requires otherwise:
Board the board
of directors of Creston
business day any day, other
than a Saturday, Sunday or public or bank holiday, on which banks are generally
open for business in the City of London
Creston or Company Creston plc, a company
incorporated in England and Wales with registered number 210505 whose registered
office is at 30 City Road, London, EC1Y 2AG
Creston Share Schemes the EMI Scheme, the
Sharesave Scheme, the Unapproved
Plan and the LTIP
Closing the
completion of the Disposal in accordance with the
terms of the Disposal
Agreement
Closing Date the date of
completion of the Disposal in accordance with
the terms of the Disposal
Agreement
Companies Act 2006 the Companies Act
2006, as amended
Continuing Group Creston and its
subsidiaries, excluding the DLKW Group
CREST the relevant
system (as defined in the Regulations) in respect of which Euroclear is the
Operator (as defined in the Regulations)
DLKW DLKW
Limited, a company incorporated in England and Wales with registered number
01286253 whose registered office is at 30 City Road, London, EC1Y 2AG
DLKW Group Newincco and its
wholly owned subsidiary, DLKW,
Dialogue DLKW and The Composing Room
Dialogue DLKW Dialogue DLKW
Limited, a company incorporated in
England and Wales with registered number
04973749
Directors the members
of the board of directors of Creston
Disclosure and Transparency Rules the disclosure and transparency
rules made by the Financial Services Authority in its capacity as the UK Listing
Authority under the Financial Services and Markets Act 2000, and contained in
the UK Listing Authority's publication of the same name
Disposal the
proposed disposal of the DLKW Group pursuant to the Disposal Agreement
Disposal Agreement the agreement for the
sale and purchase of the entire issued share capital of Newincco, Dialogue DLKW
and The Composing Room dated 25 June 2010 between (1) the Seller (2) the
Purchaser (3) Creston and (4) The IPG Group of Companies Inc.
Disposal Resolution the ordinary
resolution to approve the Disposal set out in
the Notice of General Meeting
EMI Scheme the Creston plc
Enterprise Management Incentive Scheme
Euroclear Euroclear UK
& Ireland Limited, the operator of CREST
Executive Creston Director an executive director of
Creston
Form of Proxy the form of proxy
accompanying this document for use by
Shareholders in connection with the
General Meeting
General Meeting the general meeting
of the Company convened by the Notice of General Meeting to be held at 9.30 a.m.
on 13 July 2010 at the offices of Olswang LLP, 90 High Holborn, London WC1V 6XX
or any reconvened meeting following any adjournment thereof
Group Creston
and its subsidiaries, including the DLKW Group
Investec Investec
Bank plc whose registered office is at 2 Gresham Street, London, EC2V 7QP and
registered number is 489604
Listing Rules the rules and
regulations made by the Financial Services Authority in its capacity as the UK
Listing Authority under the Financial Services and Markets Act 2000, and
contained in the UK Listing Authority's publication of the same name
London Stock Exchange London Stock Exchange plc
Long Stop Date 31 July 2010
LTIP the
Creston plc Long Term Incentive Plan
Newincco Newincco 996
Limited, a company incorporated in
England and Wales with registered number
7258457
Non-Executive Creston Director a non-executive director of
Creston
Notice of General Meeting the notice of General
Meeting set out at the end of the circular to Creston shareholders
Ordinary Shares ordinary shares of
10 pence each in the capital of the
Company
PBIT profit
before interest and tax
PwC
PricewaterhouseCoopers LLP, whose registered office is at 1 Embankment Place,
London, WC2N 6RH and registered number is OC303525
Purchaser or LoweLowe & Partners Limited a company incorporated in
England
and Wales with registered number 00680779
Register of Members the register of
members of Creston
Regulations the
Uncertificated Securities Regulations 2001 (SI 2001
No.3755)
Sale Shares the entire
issued share capital of Newincco, Dialogue
DLKW and The Composing Room
Seller DLKW
Holdings Limited, a company incorporated in
England and Wales with
registered number 03904314
Shareholders holders of
Ordinary Shares, and Shareholder shall be
construed accordingly
Sharesave Scheme the Creston plc 2004
Sharesave Scheme
subsidiary and subsidiary undertaking have the meanings given to them in
the Companies Act 2006
The Composing Room The Composing Room Limited,
a company incorporated in
England and Wales with registered number 01828303
UK or United Kingdom the United Kingdom of
Great Britain and Northern Ireland
UK Listing Authority the Financial
Services Authority acting in its capacity as the competent authority for listing
purposes under Part VI of the Financial Services and Markets Act 2000
Unapproved Plan the Creston plc
Unapproved Share Option Plan
References to "GBP" and "p" or "pence" are to pounds sterling and pence being
the lawful currency of the United Kingdom.
Headings are included in this announcement for convenience only and do not
affect its interpretation.
All references to legislation in this document are to English legislation unless
the contrary is indicated. Any reference to any provision of any legislation
shall include any amendment, modification, re-enactment or extension thereof.
Words importing the singular shall include the plural and vice versa, and words
importing the masculine gender shall include the feminine or neutral gender.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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