Proposed acquisition of Carli

RNS Number : 0731S

Stobart Group Limited

12 May 2009

 



STOBART GROUP LIMITED 

('Stobart Group' or 'the Group')

Proposed acquisition of Carlisle Airport

HIGHLIGHTS

• Proposed acquisition of Carlisle Airport for a consideration of £14.0 million

• Transaction expected to complete on 30 May 2009

• Land to be used to develop a new cross-dock facility, resulting in significant operational efficiencies and the creation of a Northern logistics hub

• Strengthens multi-modal logistics offering

• Potential to develop Carlisle Airport

Today, the Board of Stobart announces its intention to exercise the Carlisle Airport Option, through which it proposes to acquire Carlisle Airport from Stobart Air Holdings, a company controlled by Andrew Tinkler and William Stobart. This was first announced on 10 March 2008 and disclosed more fully in the prospectus to shareholders of that date. 

The acquisition is a related party transaction under the Listing Rules and, accordingly, requires approval of Shareholders at an Extraordinary Meeting. A circular and notice convening an Extraordinary General Meeting, expected to be held at Second Floor, Albert House, South Esplanade, Guernsey, GY1 3TX at 10.00 a.m. on 30 May 2009, is expected to be sent to Shareholders today.

12 May 2009

ENQUIRIES:

Stobart Group	Tel: [phone]
Julie Gaskell, Head of Communications	Tel: [phone]
Cenkos Securities	Tel: [phone]
Stephen Keys
College Hill	Tel: [phone]
Gareth David

Background to and reasons for the Proposal

Currently, the Group has five separate storage, cross-dock and administrative facilities within Carlisle. As well as suffering from inefficiencies as a result of operating from multiple locations, the current sites have inadequate storage capabilities for the Group's current requirements, including height restrictions, and are on short term and, therefore, uncertain lease arrangements. 

Following consultation with existing customers, it is clear to the Board that an alternative to the existing arrangements is required and one of the Group's most significant customers has requested specifically that its operations are conducted from one consolidated warehousing facility.

The Board has been seeking a solution to these issues for some time and explored a number of alternative proposals as well as investigating the potential of upgrading the Group's existing facilities. Having considered these alternatives, the Board believes that the acquisition and development of a 460 acre site, which includes Carlisle Airport, provides the best solution for the Group to expand its operations to meet its customers' requirements and to consolidate its operations in the region.

The Directors believe that the proposed new purpose built 360,000 square foot facility at Carlisle Airport would significantly improve both throughput and capacity utilisation for the Group. The proposed site is adjacent to the A69, the main route between Newcastle and Carlisle, and approximately three miles from the M6, the major gateway to Scotland. 

Following its construction, the facility would offer both the Group, as well as third parties, the ability to cross-dock which would improve trailer pallet loads both to and from Scottish destinations and, the Directors believe, increase levels of activity for the Group. In addition, the proposed location and facilities would be ideal for the significant long term customer of the Group which has made the Board aware of its requirements.

The Board expects that the new facility would provide ongoing savings as a result of more efficient working practices, high bay stacking, improved turnaround times and reduced labour and other costs, as well as providing the Northern hub which Stobart and its customers have been seeking. In addition, following the acquisition of Innovate (now Stobart Chilled) in July 2008, the Group would have the opportunity to incorporate both ambient and chilled storage in one location, which the Directors believe would be attractive to existing and potential new customers.

The Board also believes that the acquisition of Carlisle Airport, although not the primary purpose, offers the Group the opportunity to provide air freight solutions as well as the potential to develop passenger aviation. The experienced airport management team available to the Group following the recent acquisition of Southend Airport would take management responsibility for this. 

In addition, the Board believes that the acquisition of Carlisle Airport would further strengthen the Group's position as a multimodal logistics provider, given its existing operations in road and rail and its planned water based operations at the Mersey Gateway Port.

Terms of the Carlisle Airport Acquisition Agreement

Under the terms of the Carlisle Airport Option, the Directors may elect to exercise the option and enter into the Carlisle Airport Acquisition Agreement, provided that the conditions to the Carlisle Airport Option have been satisfied including, inter alia, the passing of a resolution approving the acquisition by Shareholders at the EGM. Under the proposed terms of the Carlisle Airport Acquisition Agreement, the total consideration for Carlisle Airport is £14.0 million. 

This total consideration is split as to (i) the Company funding an amount of £3.2 million, being outstanding loans due by Carlisle Airport to WADI and/or Stobart Air Holdings; (ii) 9,041,957 New Ordinary Shares (valued at £8.8 million, based on the closing mid-market price of Ordinary Shares as at 11 May 2009) payable to Stobart Air Holdings on Completion; and (iii) the Company refunding the payment of any general running costs of Carlisle Airport from 7 March 2008 and the expenditure incurred by WADI or Stobart Air Holdings to develop a terminal building at Carlisle Airport, which is currently anticipated by the Independent Board to amount to £2.0 million. From this, £0.6 million will be deducted, being a sum owed by Stobart Air Limited and WADI to the Group. The aggregate amount to be transferred to Stobart Air Holdings is, therefore, £13.4 million.

The terms of the Proposal are, the Directors believe, supported by the conclusions of an independent valuation report, prepared by Drivers Jonas for the Company. The Drivers Jonas report was commissioned by the Company after it entered into the Carlisle Airport Option and has been updated to take account of current market conditions.

Further details of the Carlisle Airport Acquisition Agreement and the proposed terms of the consideration will be set out in the Circular.

The cash element of the purchase consideration will be funded through the Group's existing cash resources and the Group is in advanced discussions with its banks to secure the additional facilities required to complete the development. Following the Extraordinary General Meeting, the Group intends to commence provisional work on the site as soon as practicable.

Timing of the proposed development

Assuming the Board proceeds to Completion, work on development of the new facility will commence as soon as practicable. The Board is aware of two matters, which may delay the commencement of development at the Carlisle Airport site. Having been advised of Counsel's opinion that has been obtained by Carlisle Airport and consulted with its own advisers, however, the Board considers the risk of such delays occurring to be less significant than the potential commercial risk of not completing the acquisition of Carlisle Airport at this time. The matters which may delay the commencement of the development are:

• the first available date for the determination of the agricultural tenancies at the site; and

• a Judicial Review of the planning permission granted by Carlisle City Council to develop the freight storage cross-dock distribution facility at the site of Carlisle Airport (the 'Planning Permission').

  Recommendation

The Board believes that the Proposal is in the best interests of the Shareholders as a whole. The Board believes, having been so advised by Cenkos Securities plc, an independent adviser acceptable to the FSA, that the Carlisle Airport Acquisition is fair and reasonable insofar as the Shareholders as a whole are concerned. Andrew Tinkler and William Stobart have not taken part in the Board's consideration of the Proposal. 

Accordingly, the Board unanimously recommends that Shareholders vote in favour of the Resolution to be proposed at the EGM, as the Independent Directors intend to do in respect of their own holdings totalling 3,123,032 existing Ordinary Shares (representing approximately 1.29 per cent. of issued share capital of the Company as at the date of this document). 

At the EGM, Andrew Tinkler and William Stobart, who hold 45,936,466 Ordinary Shares in aggregate, will not vote in relation to the Resolution and have undertaken to take all reasonable steps to ensure that their associates (within the meaning set out in the Listing Rules) will not vote in relation to the Resolution. In providing advice to the Board, Cenkos Securities plc has taken into account the Independent Directors' commercial assessments.

Enquiries:

Stobart Group	Tel: [phone]
Julie Gaskell, Head of Communications	Tel: [phone]
Cenkos Securities	Tel: [phone]
Stephen Keys
College Hill	Tel: [phone]
Gareth David

Appendix: Definitions

Board or Directors	the directors of the Company
Carlisle Airport	Stobart Air Limited, incorporated in England and Wales (company number 04185647)
Carlisle Airport Acquisition Agreement	the acquisition agreement proposed to be entered into on Completion between (1) Stobart Air Holdings Limited (2) the Company and (3) the Related Parties in the agreed form subject to amendments agreed by the Independent Board and in accordance with the Carlisle Airport Option
Carlisle Airport Option	the option agreement entered into on 10 March 2008 between (1) Stobart Air Holdings; (2) the Company and (3) the Related Parties, which was subsequently extended on, 4 July 2008, 5 January 2009, 2 April 2009 and 30 April 2009.
Completion	completion of the Carlisle Airport  Acquisition Agreement in accordance with its terms following exercise of the option in the Carlisle Airport Option
Company or Stobart	Stobart Group Limited, a non-cellular limited liability company incorporated in Guernsey (company number 39117)
Extraordinary General Meeting or EGM	the extraordinary general meeting of the Company convened for 30 May 2009 (or any adjournment thereof), notice of which is set out at the end of this document
FSA	the Financial Services Authority
Group or Stobart Group	the Company, its subsidiaries and its subsidiary undertakings from time to time
Independent Board or Independent Directors	the Directors, excluding Andrew Tinkler and William Stobart
Ordinary Shares	ordinary shares of 10p each in the capital of the Company
New Ordinary Shares	the 9,041,957 Ordinary Shares, which will rank pari passu with the existing Ordinary Shares to be issued pursuant to the Carlisle Airport Acquisition Agreement
Related Parties	Andrew Tinkler and William Stobart and companies controlled by these individuals, including WADI and Stobart Air Holdings
Shareholders	holders of Shares
Shares	Ordinary Shares and Income Shares
Stobart Air Holdings	Stobart Air Holdings Limited, registered in England and Wales (company number 06179950)
United Kingdom or UK	the United Kingdom of Great Britain and Northern Ireland
WADI	WA Developments International Limited, registered in England and Wales (company number 04163442)

 

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