Ruling Issued in Midas-MESA/Mobivia Group Arbitration
March 03 2011 - 7:24PM
Business Wire
A ruling has been issued today by the arbitral tribunal based in
Geneva, Switzerland, in the arbitration between Midas, Inc. (NYSE:
MDS) and its European licensee MESA S.p.A. and Mobivia Group S.A.
(formerly known as Norauto Groupe).
MESA had filed a request for arbitration on June 12, 2009,
seeking damages of up to € 256 million from Midas, claiming breach
of a 1998 agreement of strategic alliance (ASA) agreement and
requesting termination of the license agreement under which royalty
payments are paid to Midas. Under terms of ASA, disputes are to be
settled by binding arbitration in Geneva, Switzerland, under the
UNCITRAL Arbitration Rules.
In the ruling announced today, Midas prevailed in its defense of
the vast majority of claims that MESA and Mobivia had asserted as
to Midas’ obligation to invest under the ASA in Midas Europe.
The tribunal has awarded MESA € 17.45 million (approximately US
$23.4 million) plus interest of five percent from June 12, 2009, in
connection with MESA’s claim that Midas failed to cooperate in the
improvement of IT systems in the European operations.
Because MESA failed to prevail in the majority of its claims,
the tribunal ordered MESA to pay 85 percent of Midas’ legal and
other arbitration expenses and Midas to pay 15 percent of MESA’s
expenses, resulting in MESA being required to pay Midas
approximately € 1.6 million (approximately US $2.3 million).
The damages payable to MESA will be offset by € 1.5 million (US
$2.1 million) in Midas Europe license fee payments due to Midas
that have been held in escrow pending the outcome of the
arbitration.
Under the ruling, the license agreement between Midas and MESA
continues in full force and the license fee royalty stream will
continue uninterrupted.
“While Midas is disappointed in the awards to MESA, we are
pleased to have successfully defended the vast majority of claims
we had faced and to have resolved this arbitration issue with the
license agreement in full force. Now, we can devote all of our
efforts and resources on managing our ongoing business,” said Alan
D. Feldman, Midas’ chairman and chief executive officer.
Feldman said Midas is evaluating if there is any basis to
challenge the awards in the Swiss Court system.
Under U.S. GAAP accounting standards, Midas will be required to
reflect the damages award as a charge in fiscal 2010. The earnings
release issued on March 3, 2011 should therefore not be relied
upon, as it does not include the impact of the damage award.
The company expects that the accrual of this award will have an
approximate $23.0 million negative impact on operating income, an
approximate $12.0 million negative impact on net income, and an
approximate $0.85 negative impact on earnings per share for both
the fourth quarter and full-year 2010 results.
At the end of fiscal 2010, the company had $62.7 million
outstanding under its $125 million revolving line of credit. While
sufficient availability would otherwise exist to fund the award,
the recording of this loss will cause the company to violate
certain financial covenants under the credit agreement which would
cause a default, thereby preventing Midas from drawing on its
revolver. The company has notified all of its lenders that it will
need a waiver of this violation. The company believes it has a
favorable relationship with its lenders, and believes that the
lenders will accommodate this request, although there can be no
guarantee that Midas will receive the requested waivers.
Midas is one of the world’s largest providers of automotive
service, offering brake, maintenance, tires, exhaust, steering and
suspension services at more than 2,300 franchised, licensed and
company-owned Midas shops in 15 countries, including more than
1,500 in the United States and Canada. Midas also owns the SpeeDee
Oil Change business, with 171 auto service centers in the United
States and Mexico.
FORWARD LOOKING STATEMENTS AND RISK FACTORS
This news release contains certain forward-looking statements
that are based on management’s beliefs as well as assumptions made
by and information currently available to management. Such
statements are subject to risks and uncertainties, both known and
unknown, that could cause actual results, performance or
achievement to vary materially from those expressed or implied in
the forward-looking statements. The company may experience
significant fluctuations in future results, performance or
achievements due to a number of economic, competitive,
governmental, technological or other factors. Additional
information with respect to these and other factors, which could
materially affect the company and its operations, is included in
the company’s filings with the Securities and Exchange Commission,
including the company’s 2009 annual report on Form 10-K and
subsequent filings.
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