RNS Number:8713N
Entertainment Rights PLC
14 December 2006
Entertainment Rights PLC
14 December 2006
Not for release, publication or distribution in whole or in part, directly or
indirectly, in or into the United States, Canada, Australia or Japan or their
respective territories or possessions nor in or into any other jurisdiction
where such release, publication or distribution would be unlawful.
Certain definitions apply throughout this announcement and your attention is
drawn to the Appendix at the end of this announcement where those definitions
are set out.
ENTERTAINMENT RIGHTS PLC
("Entertainment Rights", "ER" or the "Company")
Proposed Acquisition of Classic Media Holdings, Inc.
Proposed Placing and Open Offer to raise #71.0 million (gross)
The Board of Entertainment Rights, the largest specialist supplier of children's
and family programming to UK broadcasters by distribution turnover, is pleased
to announce that the Company has conditionally agreed to acquire the entire
issued share capital of Classic Media Holdings, Inc. for a total consideration
of US$210.0 million (#106.9 million).
Classic Media Holdings, Inc. ("Classic") is the US-based owner of an extensive
portfolio of intellectual properties focused on children's and family characters
and brands.
HIGHLIGHTS
*The Acquisition will create a leading force in the independent global
children's and family entertainment market - combining key children's and
family brands such as 'Postman Pat', 'Basil Brush', 'Rudolph the Red-Nosed
Reindeer', 'Lassie', 'Casper the Friendly Ghost', 'Dick Tracy', 'George of
the Jungle', 'Jim Jam & Sunny', 'Gerald McBoing Boing', 'Lone Ranger',
'Underdog', 'Pat the Bunny', 'Felix the Cat', 'Rupert Bear', 'He-Man',
'She-Ra', 'Jess the Cat' and 'Ghostbusters' and the award winning 'Veggie
Tales'
*Significant opportunities for cross-selling Classic's existing properties
and programming into Europe and other key international markets
*The Directors also believe Classic's strong relationships with
broadcasters and key retailers in the US will present significant
opportunities to exploit Entertainment Rights' extensive library of
programming and brands in the US market
*In 2005 Classic derived 96% of revenues from the US while ER derived 92%
of revenues from non-US markets
*The Enlarged Group will own a library of approximately 8,700 episodes of
programming
*Classic's existing portfolio is to be exploited to create new revenue
streams, including expanding Classic's licensing, music and new technology
opportunities
*The Acquisition is believed by the Directors to be earnings enhancing in
the full financial year ending 31 December 2008
*The consideration for the Acquisition is to be satisfied by way of
US$170.0 million (#86.5 million) in cash and the issue to the Vendors of
Consideration Shares to the value of up to US$40.0 million (#20.4 million)
*Cash consideration to be funded through a fully underwritten (save for
the Committed Shares) Placing and Open Offer of 249,033,056 New Ordinary
Shares at an issue price of 28.5p per share, together with the New BoS
Facilities
*Irrevocable undertakings received from six Directors and Ashby Manor
Limited, a Shareholder, to take up Open Offer Entitlements for, in
aggregate, 19,140,342 Open Offer Shares under the Open Offer
*The Acquisition is subject to Shareholder approval at an Extraordinary
General Meeting scheduled for 10:00 a.m. on 8 January 2007
*Altium Capital Limited acted as Sponsor, Joint Broker and Joint
Underwriter. Collins Stewart Europe Limited acted as Joint Broker and Joint
Underwriter. Banc of America Securities Limited acted as Financial Adviser
in relation to the Acquisition
Mike Heap, CEO, Entertainment Rights plc, commented:
"This Acquisition results in the creation of a major global force in children's
and family content, characters and brands. It will unite the characters and
brands of ER and Classic, creating one of the strongest portfolios of
contemporary classic and new children's brands in the world.
The Acquisition transforms ER's presence in the world's largest media market -
the US - and offers an unprecedented opportunity to air ER's programming on US
television and to sell its merchandise through American retail outlets.
Similarly we will be exploiting Classic's high level content for non-US markets.
There are strong cross-selling opportunities and synergies across the two
portfolios.
The Enlarged Group's portfolio will cover a broad demographic from pre-school to
teens, providing a library of approximately 8,700 episodes of high quality
programming that will delight children around the globe, and provide enhanced
sales and distribution opportunities across the world creating a compelling
offering for existing and new broadcasters, retailers and licensees."
Note: An exchange rate of #1=US$1.96464 has been used throughout this
announcement unless otherwise stated.
Enquiries:
Entertainment Rights plc
Mike Heap, Chief Executive Officer
Elizabeth Gaines, Group Finance Director 020 8762 6200
Altium Capital Limited
Garry Levin / Tim Richardson 020 7484 4040
Collins Stewart Europe Limited
Chris Wells / Adam Cowen 020 7523 8000
Bell Pottinger Corporate & Financial
David Rydell / Sarah Hilyer 020 7861 3232
This summary should be read in conjunction with the full text of this
announcement.
This announcement does not constitute, or form any part of, an offer or an
invitation to purchase any securities.
This announcement does not constitute an offer of, or the solicitation of any
offer to buy, any Ordinary Shares to any person in any jurisdiction to whom or
in which such offer or solicitation is unlawful. The distribution of this
announcement in certain jurisdictions may be restricted by law and therefore
persons into whose possession this announcement comes should inform themselves
about and observe any such restrictions. Any failure to comply with these
restrictions may constitute a violation of the securities laws of such
jurisdiction. The Ordinary Shares have not been, nor will they be, registered
under the United States Securities Act of 1933 (as amended) (the "Securities
Act") and may not be offered or sold, directly or indirectly, in or into the
United States absent registration or an exemption from registration. There will
be no public offer of securities in the United States or any other jurisdiction
outside of the United Kingdom.
Altium Capital Limited is authorised and regulated in the United Kingdom by the
Financial Services Authority and is acting exclusively for Entertainment Rights
in relation to the Proposals. Altium is not acting for, nor will it be
responsible to, any person other than Entertainment Rights for providing the
protections afforded to its customers or for advising any other person on the
contents of this announcement or any transaction or arrangement referred to
herein.
Collins Stewart Europe Limited is authorised and regulated in the United Kingdom
by the Financial Services Authority and is acting exclusively for Entertainment
Rights in relation to the Proposals. Collins Stewart is not acting for, nor will
it be responsible to, any person other than Entertainment Rights for providing
the protections afforded to its customers or for advising any other person on
the contents of this announcement or any transaction or arrangement referred to
herein.
Banc of America Securities Limited, which is authorised and regulated in the
United Kingdom by the Financial Services Authority, is acting exclusively for
Entertainment Rights in relation to the Acquisition. Banc of America Securities
Limited is not acting for, nor will it be responsible to, any person other than
Entertainment Rights for providing the protections afforded to its customers or
for advising any other person on the contents of this announcement or any
transaction or arrangement referred to herein.
ENTERTAINMENT RIGHTS PLC
Proposed Acquisition of Classic Media Holdings, Inc.
Placing and Open Offer of 249,033,056 New Ordinary Shares of 5p each
all at a price of 28.5p per Share
1. Introduction
The Board of Entertainment Rights plc announces that the Company has
conditionally agreed to acquire the entire issued share capital of Classic Media
Holdings, Inc., a US-based owner of an extensive portfolio of intellectual
properties focused on children's and family characters and brands, for a
consideration of US$210.0 million (#106.9 million). On Completion, the
consideration for the Acquisition is to be satisfied as up to US$40.0 million
(#20.4 million) by the issue to the Vendors of the Consideration Shares, and as
to US$170.0 million (#86.5 million) in cash. The consideration is subject to
adjustments in relation to the actual working capital and net debt position of
the Classic Group at Completion.
The Board also announces that the Company proposes to raise approximately #71.0
million (approximately #68.4 million net of expenses) by way of the Placing and
Open Offer of 249,033,056 New Ordinary Shares at an issue price of 28.5p per
share. The Issue Price represents a discount of approximately 5.79 per cent. to
the Closing Price of an Existing Ordinary Share on 13 December 2006 (being the
latest practicable date prior to the announcement of the Proposals). The net
proceeds of the Placing and Open Offer, together with new debt facilities to be
provided by Bank of Scotland will be utilised to fund the cash consideration for
the Acquisition, to refinance the Enlarged Group's debt (including the net
indebtedness of the Classic Group (which itself includes the Vendor's Note) and
is expected to be US$95.0 million (#48.4 million) at Completion) and to provide
the ongoing working capital and capital expenditure requirements of the Enlarged
Group. The Placing and Open Offer has been fully underwritten by Altium and
Collins Stewart, save in respect of the Committed Shares.
In view of the size of Classic in relation to the Company, the Acquisition is
conditional, inter alia, upon the approval of Shareholders which is to be sought
at the EGM to be held on 8 January 2007. If the Resolution to be put to
Shareholders at the EGM seeking, inter alia, approval of the Acquisition and the
Placing and Open Offer is passed, it is expected that Admission will take place
and dealings in the New Ordinary Shares will commence on 11 January 2007 and
that Completion will occur on the same date.
2. Rationale for the Acquisition
The Directors regard the Acquisition as a profitable and highly complementary
addition to the Entertainment Rights Group's business activities and believe
that the combination of the two businesses will create a leading force in the
independent global children's and family entertainment market, consolidating
Entertainment Rights' position as one of the leading independent owners of
intellectual properties in the children's entertainment field. The Directors
believe the Acquisition will enhance shareholder value and is a significant step
in the development of the Enlarged Group. The Directors believe that the rarity
of such opportunities in Entertainment Rights' industry underpins the compelling
rationale for the Acquisition.
The Directors believe that the combination of Entertainment Rights and Classic
will create one of the world's strongest portfolios of classic and contemporary
children's brands, covering a broad demographic from pre-school to teens, as
well as the evergreen classic brands with broader appeal. The portfolio will
include 'Lassie', 'Casper the Friendly Ghost', 'Dick Tracy', 'Rudolph the
Red-Nosed Reindeer', 'George of the Jungle', 'Lone Ranger', 'Underdog', 'Pat the
Bunny', 'Felix the Cat', 'Rupert Bear', 'Postman Pat', 'Basil Brush', 'He-Man',
'She-Ra', 'Jess the Cat' and 'Ghostbusters'. Classic has an extensive library of
approximately 3,500 episodes of programming. The combination of this library
with Entertainment Rights' 5,200 episodes will create a more diverse and
complementary library of animation and brands and will provide enhanced sales
and distribution opportunities across the world creating a compelling offering
for existing and new broadcasters, retailers and licensees.
In particular, the Directors believe that the addition of Classic will greatly
enhance the Group's presence in the world's largest media market, the US. In the
financial year ended 31 December 2005, Entertainment Rights generated
approximately 8 per cent. of its total revenues from North and South America. In
the same year, Classic generated approximately 96 per cent. of its revenue from
the United States. Classic has strong established relationships with US
broadcasters and key US retailers. The Directors believe that these existing
relationships will present significant opportunities to exploit Entertainment
Rights' extensive library of programming and brands across broadcasters,
publishers, consumer product partners and retailers, particularly in the US
market.
Following the Acquisition, the Enlarged Group will have a greater presence in,
and share of, the worldwide market for children's characters with some 3,500
hours of significant exploitation opportunities. The Directors believe that this
should improve existing partnerships and develop new relationships with key
partners which should result in increased margins across the Enlarged Group
through improved volume discounts from the sale of home entertainment products
and enhanced purchasing power for manufacturing, distribution and advertising.
The Directors believe that there will be additional opportunities for
Entertainment Rights to exploit Classic's existing portfolio to create new reve
nue streams, including expanding Classic's licensing, music and new technology
opportunities, to align Classic's properties with the Entertainment Rights
business model for developing brands and maximising their exploitation across
all media platforms. Entertainment Rights has a proven track record for
reinvigorating classic brands and international distribution and the Directors
believe there to be significant opportunities to extract from Classic's existing
properties and to develop and invest in new programming and formats. In
particular, Entertainment Rights has identified significant opportunities for
cross-selling Classic's existing properties and programming into Europe and
other key international markets. In the year ended 31 December 2005, only four
per cent. of Classic's revenues were generated from international sales.
3. Terms of the Acquisition
Under the terms of the Acquisition Agreement the Company has conditionally
agreed to acquire, and the Vendors have agreed to sell, the entire issued share
capital of Classic for a consideration of US$210.0 million (#106.9 million) to
be satisfied as up to US$40.0 million (#20.4 million) by way of the issue to the
Vendors of the Consideration Shares, and US$170.0 million (#86.5 million) in
cash. The consideration is subject to adjustment in relation to the actual
working capital and net indebtedness positions of the Classic Group at
Completion.
The cash consideration of US$170.0 million (#86.5 million) will be funded from
the net proceeds of the Placing and Open Offer and as to US$35.7 million (#18.2
million) from the New BoS Facilities.
Completion of the Acquisition Agreement is conditional, inter alia, upon the
following conditions being satisfied:
(i) the approval of its terms by the Shareholders;
(ii) completion of the Classic Reorganisation;
(iii) all conditions to drawdown under the New BoS Facilities Agreement having
been satisfied, such that the Company can, inter alia, satisfy the cash element
of the consideration for the Acquisition and refinance the Enlarged Group's
indebtedness at Completion (including the net indebtedness of the Classic Group
(which itself includes the Vendor's Note) and is estimated to be approximately
US$95.0 million (#48.4 million));
(iv) the Placing and Open Offer Agreement becoming unconditional, subject to
Admission and completion of the Acquisition Agreement (save for Admission), and
not being terminated prior to Admission; and
v) Admission becoming effective.
Immediately prior to Completion, the Vendors will effect a reorganisation of
Classic and their interests in Classic involving the formation by Classic of
Delaware LLC, the establishment by Delaware LLC of Delaware Newco and the
completion of a merger (in accordance with laws of the state of Delaware) of the
company currently called 'Classic Media Holdings, Inc.' and Delaware Newco, with
Classic surviving such merger. The result of such reorganisation and merger will
be that Delaware LLC will hold 100 per cent. of the issued share capital of
Classic.
4. Financial effects of the Acquisition
The Directors believe that the Acquisition will have a transforming impact on
the financial status of the Group and that, taking into account the impact of
the Placing and Open Offer, the Acquisition will be earnings enhancing in the
full financial year ending 31 December 2008. This statement should not be
interpreted to mean that the future earnings of the Enlarged Group will
necessarily match or exceed Entertainment Rights' historical published earnings.
On a pro forma basis and assuming the Acquisition had completed on 1 January
2005, the Enlarged Group's adjusted earnings before interest and tax (before
taking into account transaction costs or accounting for fair value adjustments)
for the year ended 31 December 2005 would have increased compared to
Entertainment Rights' equivalent reported result for that year.
5. Principal terms of the Placing and Open Offer
The Company is proposing to raise approximately #71.0 million (approximately
#68.4 million net of expenses) through the Placing and Open Offer, which has
been fully underwritten by Altium and Collins Stewart (save for the Committed
Shares). The Issue Price of 28.5p per New Ordinary Share represents a discount
of approximately 5.79 per cent. to the Closing Price of an Existing Ordinary
Share of 30.25p on 13 December 2006 (being the latest practicable date prior to
this announcement).
Altium and Collins Stewart have, as agents for the Company, conditionally placed
229,892,714 New Ordinary Shares at the Issue Price with institutional investors
subject to recall to satisfy valid applications made by Qualifying Shareholders
pursuant to the Open Offer.
Irrevocable undertakings have been received from six Directors and Ashby Manor
Limited, a Shareholder, to take up Open Offer Entitlements for, in aggregate,
19,140,342 Open Offer Shares under the Open Offer.
Qualifying Shareholders are being given the opportunity to subscribe under the
Open Offer for the Open Offer Shares at the Issue Price, free of expenses, on
the basis of:
3 Open Offer Shares for every 5 Existing Ordinary Shares
held at the close of business at the Record Date and so on in proportion for any
greater number of Existing Ordinary Shares then held. The amount due in respect
of each application for Open Offer Shares is payable in full on application.
Open Offer Entitlements will be rounded down to the nearest whole number and any
fractional entitlements to Open Offer Shares will be disregarded in calculating
Qualifying Shareholders' pro rata entitlements and will be aggregated and placed
for the benefit of the Company. Applications for Open Offer Shares in excess of
such maximum entitlement will be treated as applications for the maximum
entitlement. Any Open Offer Shares not taken up under the Open Offer will be
subscribed for pursuant to the terms of the Placing and otherwise in accordance
with the Placing and Open Offer Agreement.
The Placing and Open Offer are conditional, inter alia, upon:
(a) the passing of the Resolution;
(b) the Acquisition Agreement becoming unconditional (subject only to Admission)
and not being terminated prior to Admission;
(c) all conditions to drawdown under the New BoS Facilities Agreement having
been satisfied;
(d) the Placing and Open Offer Agreement becoming unconditional, subject to
Admission and completion of the Acquisition Agreement (save for Admission), and
not being terminated prior to Admission; and
(e) Admission taking place by no later than 11 January 2007 (or such later date,
being no later than 31 January 2007 as the Company, Altium and Collins Stewart
may agree).
6. Summary of the New BoS Facilities
In order to provide part of the cash consideration payable by the Company for
the Acquisition, refinance the Enlarged Group's existing facilities and provide
ongoing working capital for the Enlarged Group, on 14 December 2006, the Company
has entered into the New BoS Facilities Agreement with Bank of Scotland pursuant
to which Bank of Scotland has made available to the Company term loan facilities
of #118 million in aggregate for the purposes of the Acquisition and the
refinancing of the Enlarged Group's debt and a #20 million revolving credit
facility for the working capital and capital investment requirements of the
Enlarged Group.
The New BoS Facilities are or are to be fully secured on the Enlarged Group's
assets and certain companies in the Enlarged Group have or are to enter into
cross-guarantees in favour of Bank of Scotland.
Following Completion, Bank of Scotland has the right to syndicate up to 49 per
cent. of the new facilities to a group of no more than four banks, as determined
by Bank of Scotland. However, Bank of Scotland is to retain 51 per cent. of the
total commitments under the New BoS Facilities Agreement unless otherwise agreed
with the Company.
7. Summary Financial Information
A summary of the Classic Group's audited financial information for the three
years ended 31 December 2005 and six months ended 30 June 2006 as well as a
summary of the Entertainment Rights Group's audited financial information for
the three financial years ended 31 December 2005 and the Entertainment Rights
Group's unaudited financial information for the six months ended 30 June 2005
and 30 June 2006 is set out below.
Summary financial information on the Classic Group
6 month
period
ended 30 June Year ended 31 December
----------------------------------------
2006 2005 2004 2003
Audited Audited Audited Audited
IFRS IFRS IFRS IFRS
($'000) ($'000) ($'000) ($'000)
----------------------------------------
Turnover 18,975 69,371 64,981 32,485
Cost of sales (12,316) (36,814) (31,986) (15,349)
----------------------------------------
Gross profit 6,659 32,557 32,995 17,136
Selling, marketing and distribution (3,574) (6,198) (4,139) (447)
costs
Administrative expenses (7,719) (15,438) (15,137) (10,433)
EBITDA 441 20,456 20,239 10,244
Operating (loss)/profit (4,634) 10,921 13,719 6,256
Net financing costs (4,909) (8,054) (1,980) (1,497)
---------------------------------------
(Loss)/profit before tax (9,543) 2,867 11,739 4,759
=======================================
Net assets 2,418 8,012 73,761 67,230
=======================================
The value of the gross assets of the Classic Group as at 30 June 2006 was
US$124.4 million.
Summary financial information on the Entertainment Rights Group
6 month period ended
30 June
2006 2005
Unaudited Unaudited
IFRS (#'000) IFRS (#'000)
---------------------------------
Turnover 5,867 12,442
Cost of sales (4,797) (7,768)
---------------------------------
Gross profit 1,070 4,674
Administrative expenses (3,607) (3,448)
EBITDA (121) 3,261
Operating (loss)/profit (2,537) 1,226
Net financing costs (2) (915) (868)
---------------------------------
(Loss)/profit before tax (3,452) 358
================================
Net assets 56,674 53,192
=================================
Summary financial information on the Entertainment Rights Group (cont.)
Year ended 31 December
2005 2004 2004 2003
Audited Audited Audited Audited
IFRS IFRS UK GAAP UK GAAP
(#'000) (#'000) (#'000) (#'000)
-----------------------------------------
Turnover 30,735 25,467 25,467 29,453
Cost of sales (16,465) (15,500) (15,500) (20,626)
-----------------------------------------
Gross profit 14,270 9,967 9,967 8,827
Administrative expenses (1) (6,768) (6,764) (7,790) (8,222)
EBITDA 13,272 7,666 7,810 6,002
Operating (loss)/profit 7,502 3,203 2,177 605
Net financing cost (2) (1,546) (1,017) (1,033) (1,022)
---------------------------------------
(Loss)/profit before tax 5,956 2,186 1,144 (417)
=========================================
Net assets 58,702 52,190 52,826 35,396
==========================================
Notes:
(1) Administrative expenses for the year ended 31 December 2003 prepared in
accordance with UK GAAP include other operating income. For the six months ended
30 June 2006 and 30 June 2005 and the years ended 31 December 2005 and 31
December 2004 prepared in accordance with IFRS, such other operating income is
nil.
(2) Net financing costs for the years ended 31 December 2004 and 31 December
2003 prepared in accordance with UK GAAP include (loss)/profit on disposal of
fixed assets. For the six months ended 30 June 2006 and 30 June 2005 and the
years ended 31 December 2005 and 31 December 2004 prepared in accordance with
IFRS, such profits and losses are presented within operating profit/loss.
8. Enlarged Group Strategy
The Board believes that the businesses of both the Entertainment Rights Group
and the Classic Group will be complementary both in terms of strategy and
infrastructure. The Board has already identified revenue benefits and
significant cost saving potential.
Entertainment Rights established an office in New York in 2005 with the goal of
furthering its business activities in the US market. Following Completion, the
Enlarged Group intends to consolidate its operations and infrastructure in the
US and combine and centralise its back office systems and operations in the UK.
Other savings are anticipated by combining marketing initiatives such as trade
fair attendance e.g. MIPCOM.
The Enlarged Group will continue to develop its intellectual property rights
through the exploitation of its enlarged programme library of approximately
8,700 episodes of programming throughout the world, as well as developing its
brand portfolio both through investment in programming and by applying
Entertainment Rights' expertise in brand management to Classic's portfolio.
The Directors believe that revenue synergies will arise from the distribution of
Classic's extensive library of programming to international broadcast partners,
utilising Entertainment Rights' existing television distribution infrastructure.
Currently Entertainment Rights has one key brand licensed to a US broadcaster
('Postman Pat', licensed to HBO Family) and the Directors believe that the
Acquisition will also create further opportunities to increase its presence
across key business activities in the US market.
The Acquisition signals the Board's commitment to expand the Company's business
and presence in the world's biggest media market. Following Completion, the
Board will continue to develop the Enlarged Group's business both organically,
through the development of new and existing children's characters, and through
further acquisitions where suitable opportunities arise.
9. Current Trading and Future Prospects
The announcement of the Group's results for the six months ended 30 June 2006,
released on 26 September 2006, included the following statements:
''ER's balanced business model of television distribution, licensing and
merchandising, home entertainment and new media allows ER to focus on the
building of children's characters and brands, maximising traditional
distribution platforms and new media opportunities. The response from
broadcasters, licensees, retailers and new media partners to ER's new
programming and brands gives us great confidence for the future, in particular
the second half of the year.
We continue to extend our global presence as a leading owner and creator of
renowned contemporary and classic brands. With a library of over 4,700 episodes
of high quality digital content coupled with the development of exciting new
brands, ER will deliver benefits to shareholders for the future. Trading remains
as anticipated and the Board remains confident in the prospects for the full
year and for the future of the Group.''
On 22 November 2006, Entertainment Rights announced a further update on trading
covering the delivery of new programming and a number of new sales following key
trade fairs.
Of particular note was the announcement that Entertainment Rights delivered, on
schedule, the following new, owned programming:
*'The Basil Brush Show' (Series V) to the BBC;
*'Postman Pat' (Series VIII) to the BBC;
*'Rupert Bear - Follow the Magic' to Five; and
*'Jim Jam & Sunny' to ITV.
The delivery of these programmes, the concentration of which accentuated the
historical second half weighting of the Group's financial performance in 2006,
has enabled Entertainment Rights to recognise the associated contracted revenue
in accordance with its accounting policies.
The Entertainment Rights Group also announced the acquisition of the rights to
additional third party programming namely 78 x 11 minute episodes of 'Finley the
Fire Engine' with worldwide television, home entertainment, licensing, and
merchandising rights, excluding certain territories, for a period of ten years
and the release of the latest film in the 'Barbie' series, 'The Twelve Dancing
Princesses' in the UK on 16 October 2006. The Entertainment Rights Group has
secured further agreements worldwide across the 'Barbie' film franchise
including with VISAT Channels for the Latin American broadcast rights to nine
'Barbie' titles.
Entertainment Rights is currently engaged in negotiations with multiple
broadcasters in key international markets.
Entertainment Rights' brands were well received at MIPCOM in October 2006 where
'Rupert Bear' made its international debut and the new episodes of 'Postman Pat'
were screened for the first time.
Following the Brand Licensing Show in October 2006, a number of sales were also
closed across Entertainment Rights' brand portfolio including 'Rupert Bear',
'Postman Pat', 'Jim Jam & Sunny' and 'Guess with Jess'.
Entertainment Rights has also sold worldwide rights for 'She-Ra Princess of
Power' and 'Bravestarr' short form programming to UK-based mobile content
aggregator, Player X Limited, demonstrating its ability to maximise new digital
opportunities and the value of its fully digitised catalogue.
Traditionally, fourth quarter Christmas trading has been an important factor in
the overall performance of the Group's home entertainment and consumer products
businesses and the Board expects a similar situation in the current year. The
Board remains confident that Entertainment Rights is on course to meet market
expectations for 2006.
Following Completion, the Directors are confident that the Enlarged Group's
combined library and production slate and the implementation of the Enlarged
Group's strategy (referred to in section 8 above) will generate value for
existing and new Shareholders.
10. Listing and Admission
Applications will be made to the UK Listing Authority for the New Ordinary
Shares to be admitted to the Official List and to the London Stock Exchange for
the New Ordinary Shares to be admitted to trading on the London Stock Exchange's
market for listed securities. It is expected that, subject to the Acquisition
being unconditional in all respects, Admission will become effective and that
dealings in the New Ordinary Shares will commence at 8.00 a.m. on 11 January
2007.
The New Ordinary Shares will be in registered form, issued credited as fully
paid and will rank pari passu in all respects with the Existing Ordinary Shares.
11. Information on the Entertainment Rights Group
The Company was established in 1989 and admitted to the Official List in 1996.
The current management team joined the Group between 1999 and October 2002 and,
since that time, the Group has developed rapidly to become the largest
specialist supplier of children's and family programming to UK broadcasters by
distribution turnover (source: Broadcast Distributors Survey, September 2006),
with 49 shows currently licensed to both terrestrial and digital channels in the
UK.
In order to capitalise upon the growing market place in children's and family
intellectual property rights exploitation, the Entertainment Rights Group has
evolved a strategy focused upon both the ownership of characters and brands, and
the representation of third party characters and brands, creating a large and
diverse portfolio of intellectual property rights.
The Group owns or controls distribution and exploitation rights to a broad
ranging catalogue of children's and family programming including 'Basil Brush',
'Postman Pat', 'Rupert Bear', 'Jim Jam & Sunny', 'He-Man', 'She-Ra',
'Transformers', 'Duel Masters', 'Barbie', 'The Archies' and 'Fat Albert' as part
of its library of over 5,200 episodes of digital content.
12. Information on the Classic Group
The Classic Group was founded in 2000 and is a US-based owner and distributor of
a collection of children's and family programming and related character-based
intellectual properties rights. Classic exploits its rights through a range of
sales channels including home video sales, TV licensing and merchandising. In
the year ended 31 December 2005, a significant proportion of Classic revenue was
generated through home video sales. Classic has offices in New York, Nashville
and Los Angeles and, as at 30 September 2006, employed 80 staff.
Classic has an extensive library of approximately 3,500 episodes of animation
programming across in excess of 210 programme titles, and includes well known
brands such as 'Casper the Friendly Ghost', 'Mr. Magoo', 'Richie Rich', 'Rudolph
the Red-Nosed Reindeer', 'The Lone Ranger', 'Lassie', 'Underdog', 'Little Lulu',
'Pat the Bunny', 'Lamb Chop', 'Rocky & Bullwinkle', 'Dick Tracy', 'Gerald
McBoing Boing', 'Roger Ramjet' and 'George of the Jungle'.
In December 2003, Classic entered the faith-based children's entertainment
market with the acquisition of certain assets of Big Idea Productions Inc., a
producer and creator of values-based family entertainment programming. Amongst
the assets purchased were the intellectual property and distribution rights to
'Larry boy', '3-2-1- Penguins!' and the award-winning 'VeggieTales' series of
programming which, to date, has sold over 45 million home entertainment units in
the US.
In August 2006, Classic entered into an operating agreement with ION Media
Networks Inc., NBC Universal Inc., Scholastic Entertainment Inc. and a
subsidiary of Corus Entertainment Inc. to form Children's Network Venture LLC
for the purposes of developing, managing and owning a branded children's
multi-platform programming service distributed broadly and free to the American
public. Classic's initial investment was US$2.4 million. As a result of this
agreement the branded block entitled 'Qubo' launched in the US on 9 September
2006 on NBC and Telemundo and is broadcast in English and Spanish with access to
approximately 80 million households in the US. Future 'Qubo' multi-platform
offerings will include a dedicated 24/7 digital television kids network that
will launch across ION Media Networks' nationwide television station group, a
branded website and video-on-demand services.
Classic actively exploits the motion picture rights of a number of its brands,
including 'Lassie' (released in the UK in 2005 and in the US in 2006),
'Underdog' (due for release by Spyglass/Disney in 2007) and 'VeggieTales' (due
for release by Universal in 2008), and its rights across licensing and
merchandising video games and e-commerce.
Included within Classic's library are a number of classic Christmas titles,
including 'Frosty the Snowman', 'Rudolph the Red-Nosed Reindeer', 'Santa Claus
is coming to Town' and 'Little Drummer Boy'. As a result, Christmas has proven
to be a lucrative seasonal market for Classic and the exploitation of its
Christmas titles, combined with sales of its faith-based home entertainment
units, represents a significant proportion of Classic's annual revenues. In the
year ended 31 December 2005, a significant proportion of the Classic Group's r
evenues were booked in the final quarter of the year. The Directors expect a
similar weighting to Classic's 2006 revenues.
13. Extraordinary General Meeting
In view of the relative size of Classic in relation to the Company, the Company
is required to obtain Shareholder approval for the Acquisition. Shareholder
approval is also required in order to create sufficient Ordinary Shares (and to
give the Directors the necessary authorities and powers in respect of such
Ordinary Shares) for the purposes of the Acquisition and the Placing and Open
Offer.
The approval of Shareholders will therefore be sought at the EGM which is being
convened for 10.00 a.m. on 8 January 2007, at which the Resolution will be
proposed. The EGM is scheduled to be held at the offices of Lawrence Graham LLP,
190 Strand, London WC2R 1JN.
14. General
A copy of the Prospectus in respect of the Acquisition and the Placing and Open
Offer and containing notice of the EGM is expected to be posted to Shareholders
later today.
15. Expected Timetable of Principal Events
2006
Record Date for entitlement under the Open Offer 12 December
Announcement of the Acquisition and the Placing 14 December
and Open Offer
15 December
Open Offer Entitlements credited to stock
accounts in CREST of Qualifying CREST
Shareholders
2007
Recommended latest time for requesting 4.30 p.m. on 2 January
withdrawal of Open Offer Entitlements from CREST
Latest time for depositing Open Offer 3.00 p.m. on 4 January
Entitlements into CREST
Last time and date for splitting Application 3.00 p.m. on 5 January
Forms (to satisfy bona fide market claims only)
Latest time for receipt of Forms of Proxy 10.00 a.m. on 6 January
Extraordinary General Meeting 10.00 a.m. on 8 January
Latest time and date for acceptance of the Open 11.00 a.m. on 9 January
Offer and receipt of completed Application Forms
and payment in full under the Open Offer or
settlement of relevant CREST instruction
Completion of the Acquisition 11 January
Admission and commencement of dealings in the 11 January
New Ordinary Shares
CREST members' accounts credited 11 January
Definitive share certificates despatched by 16 January
Notes:
1. References to times in this announcement are to London time (unless otherwise
stated).
2. If any of the above times or dates should change, the revised times and/or
dates will be notified by an announcement to an RIS. In particular, pursuant to
the Placing and Open Offer Agreement, Entertainment Rights, Altium and Collins
Stewart have agreed that if a supplementary prospectus is issued by
Entertainment Rights two business days or fewer prior to the date specified in
the expected timetable above as the latest time and date for acceptance of the
Open Offer, such date shall be extended to the date which is three business days
after the date of issue of the supplementary prospectus.
Enquiries:
Entertainment Rights plc
Mike Heap, Chief Executive Officer
Elizabeth Gaines, Group Finance Director 020 8762 6200
Altium Capital Limited
Garry Levin / Tim Richardson 020 7484 4040
Collins Stewart Europe Limited
Chris Wells / Adam Cowen 020 7523 8000
Bell Pottinger Corporate & Financial
David Rydell / Sarah Hilyer 020 7861 3232
The Directors accept responsibility for the information contained in this
announcement. To the best of the knowledge and belief of the Directors (who have
taken all reasonable care to ensure that such is the case) the information
contained in this announcement is in accordance with the facts and does not omit
anything likely to affect the import of such information.
This announcement does not constitute, or form any part of, an offer or an
invitation to purchase any securities.
This announcement does not constitute an offer of, or the solicitation of any
offer to buy, any Ordinary Shares to any person in any jurisdiction to whom or
in which such offer or solicitation is unlawful. The distribution of this
announcement in certain jurisdictions may be restricted by law and therefore
persons into whose possession this announcement comes should inform themselves
about and observe any such restrictions. Any failure to comply with these
restrictions may constitute a violation of the securities laws of such
jurisdiction. The Ordinary Shares have not been, nor will they be, registered
under the United States Securities Act of 1933 (as amended) (the "Securities
Act") and may not be offered or sold, directly or indirectly, in or into the
United States absent registration or an exemption from registration. There will
be no public offer of securities in the United States or any other jurisdiction
outside of the United Kingdom.
Altium Capital Limited is authorised and regulated in the United Kingdom by the
Financial Services Authority and is acting exclusively for Entertainment Rights
in relation to the Proposals. Altium is not acting for, nor will it be
responsible to, any person other than Entertainment Rights for providing the
protections afforded to its customers or for advising any other person on the
contents of this announcement or any transaction or arrangement referred to
herein.
Collins Stewart Europe Limited is authorised and regulated in the United Kingdom
by the Financial Services Authority and is acting exclusively for Entertainment
Rights in relation to the Proposals. Collins Stewart is not acting for, nor will
it be responsible to, any person other than Entertainment Rights for providing
the protections afforded to its customers or for advising any other person on
the contents of this announcement or any transaction or arrangement referred to
herein.
Banc of America Securities Limited, which is authorised and regulated in the
United Kingdom by the Financial Services Authority, is acting exclusively for
Entertainment Rights in relation to the Acquisition. Banc of America Securities
Limited is not acting for, nor will it be responsible to, any person other than
Entertainment Rights for providing the protections afforded to its customers or
for advising any other person on the contents of this announcement or any
transaction or arrangement referred to herein.
APPENDIX
Definitions
The following definitions apply throughout this announcement, unless the context
otherwise requires:
"Acquisition" the proposed acquisition of the whole of the
issued share capital of Classic by the Company;
"Acquisition the conditional stock purchase agreement dated 14
Agreement" December 2006 for the acquisition by the Company
of Classic;
"Act" the Companies Act 1985 (as amended);
"Admission" the admission of the New Ordinary Shares to
listing on the Official List and to trading on the
London Stock Exchange's market for listed
securities becoming effective in accordance with
the Listing Rules;
"Altium" Altium Capital Limited;
"Application Form" the personalised application form on which
Qualifying non-CREST Shareholders (other than
certain Overseas Shareholders) may apply for Open
Offer Shares under the Open Offer;
"Bank of Scotland" the Governor and Company of the Bank of Scotland;
"Board" or the directors of the Company at the date of this
"Directors" announcement;
"business day" a day (excluding Saturdays, Sundays and public
holidays) on which banks are open for business in
the City of London;
"certificated " or not in an uncertificated form;
"certificated form"
"Classic" Classic Media Holdings, Inc., a company
incorporated in the State of Delaware, USA, which
will survive the Classic Merger;
"Classic Group" Classic and its subsidiaries;
''Classic Merger'' the merger (in accordance with the laws of the
State of Delaware) of the company currently called
'Classic Media Holdings, Inc.' and Delaware Newco,
with Classic surviving such merger;
''Classic the establishment by Classic of Delaware LLC, the
Reorganisation'' establishment by Delaware LLC of Delaware Newco
and the completion of the Classic Merger;
"Closing Price" the closing middle market quotation of a share as
derived from the Daily Official List of the London
Stock Exchange;
"Collins Stewart" Collins Stewart Europe Limited;
"Committed Shares" an aggregate of 19,140,342 Open Offer Shares which
the Directors and Ashby Manor Limited have
irrevocably undertaken to take up in respect of
their entitlements under the Open Offer;
"Company" or Entertainment Rights plc;
"Entertainment
Rights" or "ER"
"Completion" completion of the Acquisition;
"Consideration up to 68,867,268 New Ordinary Shares to be
Shares" allotted and issued to the Vendors pursuant to the
Acquisition Agreement;
"CREST" the relevant system (as defined in the
Regulations) in respect of which CRESTCo is the
operator (as defined in the Regulations);
"CRESTCo" CRESTCo Limited, the operator of CREST;
"CREST member" a person who has been admitted by CRESTCo as a
system-member (as defined in the Regulations);
''Delaware LLC'' a new Delaware formed limited liability company to
be established by Classic in connection with the
Classic Reorganisation;
''Delaware Newco'' a new Delaware incorporated subsidiary to be
established as a wholly-owned subsidiary of
Delaware LLC in connection with the Classic
Reorganisation;
"EBITDA" earnings before interest, taxation, depreciation
and amortisation;
"EGM" or the extraordinary general meeting of the Company
"Extraordinary to be held at 10.00 a.m. on 8 January 2007 as
convened by the EGM Notice;
General Meeting"
"EGM Notice" the notice convening the EGM;
"Enlarged Group the Company and its subsidiaries following
Completion;
"Existing Ordinary the existing Ordinary Shares in issue at the date
Shares" of this announcement;
"Form of Proxy" the form of proxy, for use by Shareholders in
connection with the EGM;
"FSMA" the Financial Services and Markets Act 2000;
"Group", Entertainment Rights and its existing subsidiary
"Entertainment undertakings (and, where the context permits, each
Rights Group" or of them);
"Existing Group"
"IFRS" International Financial Reporting Standards;
"Issue Price" 28.5p per Open Offer Share;
"Japan" Japan, its cities, prefectures, territories and
possessions;
"Listing Rules" the Listing Rules of the UK Listing Authority made
in accordance with section 73A(2) of FSMA;
"London Stock London Stock Exchange plc;
Exchange"
"New BoS the new #138 million loan facilities to be made
Facilities" available to the Enlarged Group for the purposes
of, inter alia, the Acquisition, refinancing the
Enlarged Group's debt and providing working
capital pursuant to the New BoS Facilities
Agreement;
"New BoS Facilities the facilities agreement dated 14 December 2006
Agreement" entered into between the Company (as parent
company) (1), the Company (as borrower) (2), the
Company and certain other subsidiaries (as
original guarantors) (3), Bank of Scotland (as
arranger) (4), Bank of Scotland (as original
lender) (5), Bank of Scotland (as agent) (6), Bank
of Scotland (as security agent) (7) and Bank of
Scotland (as issuing bank) (8) in respect of the
New BoS Facilities;
"New Ordinary up to 315,900,324 new Ordinary Shares to be
Shares" allotted pursuant to the Acquisition and the
Placing and Open Offer (comprising the
Consideration Shares and the Open Offer Shares);
"Official List" the Official List of the UK Listing Authority;
"Open Offer" the conditional invitation made to Qualifying
Shareholders to apply to subscribe for their
entitlement to Open Offer Shares;
"Open Offer an entitlement to apply to acquire Open Offer
Entitlement" Shares, allocated to a Qualifying Shareholder
pursuant to the Open Offer;
"Open Offer Shares" 249,033,056 New Ordinary Shares the subject of the
Open Offer;
"Ordinary Shares" ordinary shares of 5p each in the capital of
Entertainment Rights;
"Overseas Shareholders with registered addresses in, or who
Shareholders" are citizens, residents or nationals of
jurisdictions outside of the United Kingdom;
"Placing" the conditional placing by Altium and Collins
Stewart, as agents for the Company, of the Open
Offer Shares (other than the Committed Shares)
with institutional and other investors (subject to
the right of Altium and Collins Stewart to recall
all or any of such Open Offer Shares to satisfy
valid applications made by Qualifying Shareholders
under the Open Offer) in accordance with the terms
of the Placing and Open Offer Agreement;
"Placing and Open the conditional agreement dated 14 December 2006
Offer Agreement" entered into between the Company (1) Altium (2)
and Collins Stewart (3) relating to the Placing
and Open Offer;
"Proposals" the Acquisition, the Placing and Open Offer, the
increase in the Company's authorised share
capital, the authority to allot Ordinary Shares
and the authority to allot equity securities for
cash or sell Ordinary Shares out of treasury for
cash (other than pro rata to Shareholders);
"Prospectus" the prospectus, expected to be issued on 14
December 2006 setting out full details of the
Proposals;
"Qualifying CREST Qualifying Shareholders holding Existing Ordinary
Shares in uncertificated form;
Shareholders"
"Qualifying Qualifying Shareholders holding Existing Ordinary
non-CREST Shares in certificated form;
Shareholders"
"Qualifying holders of Existing Ordinary Shares on the
Shareholders" register of members of the Company on the Record
Date (excluding certain Overseas Shareholders who
are not entitled to participate in the Open
Offer);
"Record Date" the close of business on 12 December 2006;
"Regulations" the Uncertificated Securities Regulations 2001 (SI
2001/3755);
"Resolution" the special resolution set out in the EGM Notice
and to be proposed at the EGM;
"RIS" a regulatory information service as defined by the
Listing Rules;
"Shareholders" or holders of Ordinary Shares;
"Entertainment
Rights
Shareholders"
"subsidiary", shall be construed in accordance with the Act (but
"subsidiary for this purpose ignoring paragraph 20(1)(b) of Schedule 4A
undertaking", of the Act);
"associated
undertaking" and
"undertaking"
"UK" or "United the United Kingdom of Great Britain and Northern
Kingdom" Ireland;
"UK GAAP" generally accepted accounting principles in the
UK;
"UK Listing the Financial Services Authority acting in its
Authority" or capacity as the competent authority for the
"UKLA" purposes of Part VI of the Financial Services and
Markets Act 2000;
"uncertificated" or recorded on the relevant register or other record
"in uncertificated of the share or security confirmed as being held
form" in uncertificated form in CREST, and title to
which, by virtue of the Regulations, may be
transferred by means of CREST;
"United States of the United States of America, its possessions and
America", "US" or territories, all areas subject to its jurisdiction
"United States" or any subdivision thereof, any State of the
United States and the District of Columbia;
"US$" United States of America dollars;
"VAT" value added tax;
"Vendors" the shareholders of Classic, including (directly
or indirectly) Pegasus CM Investors LLC, Spectrum
Equity Investors IV L.P., Spectrum Equity
Investors Parallel IV, L.P., Spectrum IV
Investment Managers' Fund, L.P., Eric Ellenbogen
and John Engelman;
"Vendor's Note" the subordinated promissory note for US$45 million
(plus accrued interest) issued by the Classic
Group to Pegasus CM Investors LLC, one of the
Vendors.
This information is provided by RNS
The company news service from the London Stock Exchange
END
ACQUSABRNBRUARA
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