600m return, dividends up
October 05 2005 - 4:10AM
UK Regulatory
RNS Number:2222S
BPB PLC
05 October 2005
BPB plc ("BPB")
The Panel Announces Timetable Freeze
BPB announces #600 Million Return of Capital and Substantially Increased
Dividends
Timetable Freeze
The Board of BPB notes the statement earlier today from The Panel on Takeovers
and Mergers that the offer timetable has been frozen. The effect of such
announcement is to delay Day 39 (the date by which BPB must publish any new
material information in the context of the hostile offer from Saint-Gobain)
until at the latest, 25 November 2005.
BPB will make good use of the extra time to continue to demonstrate its
compelling case for a premium rating as an independent company.
The Board of BPB strongly advises shareholders to continue to reject
Saint-Gobain's offer because it fails to value the unique position of BPB, its
outstanding track record and its exceptional growth prospects.
Confidence in the Future
The Board believes that BPB has the potential to generate outstanding
shareholder value.
On 14 September, BPB announced that it expects 2005/06 to be another year of
record results with sales up 9.4% and underlying PBT (before the effect of the
capital return) up 24% to not less than #350 million.
The Board is confident that 2006/07 and future years will continue to show
strong performance, and accordingly announces the following:
* Dividend Proposals
Reflecting the Board's confidence in BPB's growth prospects it intends to
recommend total annual dividends for 2005/06, 2006/07 and 2007/08 of 23p, 27p
and 30p per share respectively. This equates to an 88% increase over three
years, an average growth rate of 23% p.a.
BPB intends that dividends after 2007/08 would be based on 30p per share and
would be broadly progressive.
Applying BPB's cost of equity to the proposed dividends, BPB's dividends
thereafter would need to grow at a continuing rate of only 4.9% in order for
BPB's dividend stream to exceed the value of Saint-Gobain's 720p offer. By
comparison, BPB's dividends over the 10 years to 2004/05 grew at an average
annual rate of 5.9%.
* Increased Capital Return
On 3 August, the BPB Board brought forward the announcement of its existing
plans to return capital to shareholders. Since then, the Board has reviewed
further BPB's medium-term business plans and capital investment strategy.
As a result, the BPB Board has decided to increase by over 70% the amount of the
capital return from just over #350 million (equivalent to 70p per share) to
#600 million (equivalent to 120p per share). This capital return will be effected
by way of share buy-back tender offer as soon as practicable should Saint-Gobain's
offer fail and will advance BPB's underlying proforma earnings for 2005/06 from
51p to 53p per share. Further details of the capital return are set out in
Appendix 1 to this announcement.
This increased return of capital will not affect BPB's plans to increase
substantially its capacity in both plasterboard and building plasters in the
five years to 2010, with total investment at a rate in excess of twice the level
of depreciation. BPB's proforma interest cover for 2005/06 would be 7.4x.
BPB has also identified certain proposed disposals and is targeting net proceeds
of at least #100 million from the disposal of Rawlplug and the sale of part of
its European distribution business and certain other assets. The net proceeds
will be applied in reducing indebtedness.
Reject Saint-Gobain's Offer
BPB's superior growth prospects, plans for performance improvement and delivery
of shareholder value underpin the compelling case for a premium rating for BPB.
As stated above, the Board believes that BPB has the potential to generate
outstanding shareholder value and that any takeover offer for BPB should include
an appropriate premium for control over BPB's fair trading value. Saint-Gobain's
offer does not contain such a premium.
Saint-Gobain's offer is neither full nor fair; on the contrary, it substantially
undervalues BPB.
BPB's Board unanimously recommends that shareholders take no action in relation
to Saint-Gobain's offer.
Sir Ian Gibson, Chairman of BPB said "BPB will make good use of the extension to
the offer timetable to continue to demonstrate its compelling case for a premium
rating as an independent company. The enhanced dividend payout and increased
capital return are significant steps in this process."
Enquiries
James Murgatroyd / Faeth Birch, Finsbury
Tel: +44 (0)20 7251 3801
N M Rothschild & Sons Limited ("Rothschild"), which is authorised and regulated
in the United Kingdom by the Financial Services Authority, is acting as the
financial adviser to BPB and no-one else in connection with the matters referred
to herein and will not be responsible to anyone other than BPB for providing the
protections afforded to clients of Rothschild or for giving advice in relation
to such matters.
APPENDIX 1
THE RETURN OF CAPITAL
1. Share Buy-Back Tender Offer
The Board intends to purchase for cancellation existing BPB Shares with a
maximum value of #600 million by way of a tender offer (the "Tender Offer"). In
the Tender Offer all eligible BPB Shareholders on the register at 5.00pm on the
relevant record date will be invited to tender the number of BPB Shares they are
willing to sell, either at a single price or at different prices within a
specified price range (which will be set in light of prevailing market
conditions) or at the "strike price" (which will be fixed after the Tender Offer
period has closed). The strike price will be the lowest price per BPB Share
within the specified price range which will allow the purchase of the maximum
number of BPB Shares having a total cost not exceeding the maximum value of #600
million (or such lesser number of BPB Shares as are validly tendered).
The Tender Offer is to be effected by JPMorgan Cazenove and Hoare Govett
acquiring BPB Shares from BPB Shareholders at the strike price and then selling
such shares to BPB at the same price for cancellation.
Eligible BPB Shareholders will be invited to tender some or all of their BPB
Shares. For legal reasons, it is not currently intended to extend the Tender
Offer to BPB Shareholders in the United States, Canada, Australia, Japan and
South Africa. BPB Shareholders will not be obliged to tender any of their shares
if they do not wish to do so.
BPB Shareholder approval is required to authorise the Tender Offer. An
Extraordinary General Meeting to obtain such approval is expected to be convened
for as soon as practicable should Saint-Gobain's Offer lapse.
The Tender Offer described above is conditional, inter alia, on:
(a) the Offer Period ending without any offer for BPB becoming or being declared
unconditional as to acceptances;
(b) any necessary BPB Shareholder approval and any other applicable legal or
regulatory requirements;
(c) the receipt of valid tenders in respect of shares at least 1% of BPB's
issued share capital;
(d) the payment up to BPB by way of dividend of such amount of the reserves
created further to completion of the recent capital reorganisation of the
BPB Group as is appropriate to facilitate the Return of Capital; and
(e) a new credit facility, described in paragraph 2.1 of Appendix 2 to this
announcement, (the "Facility") having been entered into and not having been
terminated in accordance with its terms
Subject, inter alia, to Saint-Gobain's Offer lapsing, a circular containing full
details of the Tender Offer, together with a tender form and proxy card, will be
sent to BPB Shareholders as soon as practicable thereafter.
2. Benefits of the Tender Offer
The Tender Offer ensures that all BPB Shareholders derive a benefit from the
Return of Capital proposed by BPB. However, BPB Shareholders will have the
choice of tendering some or all of their BPB Shares under the Tender Offer or of
retaining their BPB Shares. BPB Shareholders who do not tender any BPB Shares
will not receive any cash proceeds for their BPB Shares under the Tender Offer
but will benefit from owning a greater percentage of the ordinary shares of BPB,
as there will be fewer ordinary shares in issue after completion of the Tender
Offer than prior to its completion.
The Board believes that the Tender Offer is in the best interests of BPB and BPB
Shareholders as a whole and will allow BPB both to deliver an enhanced rate of
EPS growth and to reduce its cost of capital by increasing the proportion of its
debt finance to equity capital. The Board, however, reserves the right to change
the Tender Offer proposal if its implementation is no longer in the best
interests of BPB and/or BPB Shareholders as a whole. In this event, the Board
would intend to implement the Return of Capital by an appropriate alternative
method, such as a special dividend of approximately 120p per share together with
a share consolidation.
The Directors of BPB do not intend to tender any of their BPB Shares in the
Tender Offer.
3. Financing
The Tender Offer will be funded from BPB's existing cash resources and
additional borrowings under existing bank facilities and under the Facility.
Taking account of the Return of Capital, BPB's proforma 31 March 2006 underlying
operating profit/net interest cover is expected (based on the Profit Forecast)
to be 7.4x.
APPENDIX 2
ADDITIONAL INFORMATION
1. Bases of Calculation and Sources of Information
1.1 Unless otherwise stated and subject to paragraph 1.2 below, the financial
and other information relating to the BPB Group is derived from BPB's annual
report and accounts for the year ended 31 March 2005, the Profit Forecast, other
published annual reports and accounts of BPB for the relevant periods and other
information made publicly available by the BPB Group.
1.2 Financial information relating to the BPB Group for the periods prior to
31 March 2004 was prepared on the basis of UK GAAP. The financial information for
the year ended 31 March 2005 was originally prepared on the basis of UK GAAP and
was restated on a basis consistent with IFRS (as published and explained by BPB
in a public announcement on 8 July 2005 (the "IFRS Announcement")). Unless
otherwise stated, the financial information in this announcement for the
financial year ended 31 March 2005 is as restated under IFRS and, unless
otherwise stated, is derived from the IFRS Announcement. Financial information
relating to the BPB Group for each year contained in this announcement is based
on its financial year end of 31 March.
1.3 Unless otherwise stated, any information contained in this announcement
regarding market share, sector analysis, capacity, and the size of, position and
growth in, the global plasterboard and building plasters markets in relation to
the BPB Group, its competitors and to these markets generally, is based on BPB's
management estimates and calculations sourced from BPB's internal market
databases and, where applicable, is presented by reference to calendar years
rather than financial years.
1.4 Values stated throughout this announcement have been rounded to the nearest
whole number and are given to the stated number of decimal places.
1.5 All references in this announcement to EPS figures relating to the Profit
Forecast should be read as being not less than the figure stated.
1.6 The reference to BPB's proposed dividends increasing by over 88% over the
next three years (implying a CAGR of 23%) is based on a dividend of 16p per
share for 2004/05 compared to the proposed dividend of 30p per share for 2007/08.
1.7 BPB's cost of equity is derived from (i) a risk free rate (UK 10-year
government bond yield); (ii) BPB's equity beta (relative to the FTSE 100) based
on historic 5-year weekly data, adjusted to reflect the impact on BPB's gearing
of the Return of Capital; and (iii) an equity risk premium of 4.3%. The
reference to BPB's dividend growth rate from 2007/08 of 4.9% is calculated using
a dividend discount model which applies BPB's cost of equity to BPB's proposed
dividends for 2005/06, 2006/07 and 2007/08 and thereafter.
1.8 The references to the Return of Capital of #600 million being equivalent to
120p per share, and the initial proposed return of capital of #350 million being
equivalent to 70p per share, are based on approximately 502 million BPB Shares
being in issue.
1.9 The reference to underlying proforma EPS for 2005/06 of (i) 51p, is based on
the Profit Forecast, as adjusted for the proforma effect of the initial proposed
return of capital of just over #350 million and (ii) 53p, is based on the
following calculation (which is sourced from the Profit Forecast, as adjusted
for the proforma effect of the Return of Capital):
The underlying proforma earnings per share (undiluted) calculation is based on
underlying earnings of #240 million (as set out in Appendix 1 to the Defence
Document) less the additional net of tax interest charge that would have arisen
had the proposed Return of Capital been performed on 1 April 2005 and on the
proforma weighted average of 420 million ordinary shares.
The underlying proforma earnings per share (diluted) calculation is based on the
same profit as the underlying proforma earnings per share (undiluted)
calculation and on 427 million proforma potential ordinary shares being the
total of the proforma weighted average of 420 million ordinary shares plus
7 million dilutive potential ordinary shares arising from share options and awards.
--------------------------------------------------------------------------------
Earnings EPS
Year ending 31 March 2006 #m p
--------------------------------------------------------------------------------
Underlying earnings and EPS (undiluted) 240 48
Proforma impact assuming
Return of Capital on 1 April 2005
Additional interest (24) (5)
Tax effect of additional interest 7 1
Lower number of average shares - 9
--------------------------------------------------------------------------------
Underlying proforma earnings and EPS (undiluted) 223 53
Higher number of average shares - (1)
--------------------------------------------------------------------------------
Underlying proforma earnings and EPS (diluted) 223 52
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Weighted average number of shares m
--------------------------------------------------------------------------------
Basic and underlying 501
Proforma impact assuming
Return of Capital on 1 April 2005 (81)
--------------------------------------------------------------------------------
Proforma 420
--------------------------------------------------------------------------------
1.10 It is not expected that the proposed disposals referred to in this
announcement will materially affect the Profit Forecast.
2. Additional information
2.1 BPB's wholly owned subsidiary, BPB Group Finance Limited (the "Borrower"),
has agreed terms with Barclays Capital as mandated lead arranger and Barclays
Bank PLC as underwriter for a new credit facility of up to #500 million (the
"Facility") (Barclays Capital and Barclays Bank PLC together "Barclays"). On 30
September 2005, the Borrower and Barclays entered into a term sheet pursuant to
which Barclays agreed to arrange and underwrite the Facility. Barclays'
commitment is subject, inter alia, to final agreement and execution of the
documentation by 30 November 2005.
The Facility will be available for general corporate purposes and to finance the
Return of Capital. Interest will be payable at a margin linked to the external
credit ratings of BPB. The availability of the Facility will be subject to
customary conditions precedent and the documentation will contain customary
representations and warranties, covenants and events of default.
2.2 The Directors of BPB confirm that the unaudited financial information set
out in the trading update for the 3 months ended 30 June 2005, announced by BPB
on 27 July 2005 (the "Trading Update") and a copy of which was sent to BPB
Shareholders on 10 August 2005, remains valid for the purposes of the Offer.
Each of Rothschild and Ernst & Young LLP has confirmed in writing that it has no
objection to its letter of 27 July 2005 relating to the unaudited financial
information as set out in the Trading Update continuing to apply.
2.3 The Directors of BPB confirm that the Profit Forecast remains valid for the
purposes of the Offer. Each of Rothschild and Ernst & Young LLP has confirmed in
writing that it has no objection to its letter of 14 September 2005 relating to
the Profit Forecast continuing to apply. The increase in the proposed Return of
Capital has, however, resulted in changes to certain of the earnings per share
calculations and other figures set out in note 5 to the Profit Forecast and
details of the relevant adjustments and underlying calculations are set out in
paragraph 1 of Appendix 2 to this announcement.
2.4 Save as disclosed in this announcement, the Directors of BPB are not aware
of any material change in the information contained in the Defence Document as
at 4 October 2005 (being the latest practicable date prior to the date of this
announcement).
APPENDIX 3
DEFINITIONS
In addition to those set out in the Defence Document, the following definitions
apply throughout this announcement unless the context otherwise requires:
"Board" - the board of directors of BPB
"BPB" - BPB Public Limited Company
"BPB Group" - BPB and its subsidiary undertakings or, where the context permits,
each of them
"BPB Shareholder(s)" - holder(s) of BPB Shares
"BPB Shares" - ordinary shares of 50p each in the capital of BPB
"Defence Document" - the circular to BPB Shareholders dated 14 September 2005
"EPS" - earnings per share
"Hoare Govett" - Hoare Govett Limited
"JPMorgan Cazenove" - JPMorgan Cazenove Limited
"Offer" or "Saint-Gobain Offer" - the cash offer made jointly by BNP Paribas and
UBS outside the USA on behalf of Saint-Gobain Aldwych Limited and in the USA by
Saint-Gobain Aldwych Limited to acquire all the issued and to be issued BPB
Shares as set out in the offer document
"PBT" - profit before tax
"Profit Forecast" - means the profit forecast as set out in
Appendix 1 to the Defence Document
"Rawlplug" - BPB's specialist fixing systems business
"Return of Capital" - the proposed return of capital of #600 million to BPB
Shareholders by way of the Tender Offer
"Rothschild" - N M Rothschild & Sons Limited
"Saint-Gobain" - Compagnie de Saint-Gobain SA
"Tender Offer" - the proposed tender offer to BPB Shareholders as described in
Appendix 1 to this announcement
"underlying earnings" - has the meaning attributed in Appendix 1 to the Defence
Document
"underlying earnings per share", - have the meanings attributed in Appendix
"underlying proforma EPS" - 1 to the Defence Document
"underlying operating profit" - has the meaning attributed in Appendix 1 to the
Defence Document
This information is provided by RNS
The company news service from the London Stock Exchange
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