Possible Offer for The Capital Pub Company PLC

RNS Number : 8660I

Fuller,Smith&Turner PLC

22 June 2011

 

EMBARGOED UNTIL 7.00AM

22 June 2011

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN  WHOLE OR IN PART IN, INTO  OR FROM ANY  JURISDICTION WHERE  TO DO  SO WOULD  CONSTITUTE A  VIOLATION OF  THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION

This is an announcement falling under Rule 2.4 of the City Code on Takeovers and Mergers (the "Code") and does not constitute an announcement of a firm intention to make an offer under Rule 2.5 of the Code.  Accordingly, shareholders in The Capital Pub Company PLC are advised that there can be no certainty that any formal offer for The Capital Pub Company PLC will be forthcoming, even in the event that the pre-conditions in the announcement dated 17 June 2011 are satisfied or waived.

FULLER, SMITH & TURNER P.L.C. ("Fuller's")

Possible Offer for The Capital Pub Company PLC ("Capital")

This is an announcement falling under Rule 2.4 of the City Code on Takeovers and Mergers (the "Code") and does not constitute an announcement of a firm intention to make an offer under Rule 2.5 of the Code.  Accordingly, shareholders in The Capital Pub Company PLC are advised that there can be no certainty that any formal offer for The Capital Pub Company PLC will be forthcoming, even in the event that the pre-conditions in the announcement dated 17 June 2011 are satisfied or waived.

Fuller's notes the announcement made yesterday by Capital regarding its final results for the year ended 26 March 2011, its current trading and prospects and the possible offer of 200 pence per share¹ (including the proposed final dividend of 2.25 pence per share announced yesterday) announced by Fuller's on 17 June 2011.

Fuller's notes, in particular, that:

Trading performance

·    Capital reported adjusted EBITDA for the year ended 26 March 2011 of £6.8 million which is approximately £0.3 million below Panmure Gordon & Co's (Capital's broker) recent forecast of £7.1 million².

·   Adjusted EBITDA as disclosed by Capital includes an adjustment for 'exceptional operating charges' of £388,000 but these charges do not appear to be classified as exceptional items in the consolidated income statement.  The consolidated income statement discloses EBITDA before exceptional items and share options charge of £6.4 million in contrast to the adjusted EBITDA of £6.8 million.

·   Capital will surrender in July the lease on The Hog in the Pound, which also houses Capital's Head Office and which Fuller's believes was a material contributor to house EBITDA for the year ended 26 March 2011.

Growth strategy

·    It has taken Capital over 10 years to grow its estate to 34 pubs and Fuller's believes that the strategy to grow the estate by a further 11 to 16 pubs (which represents a 32 to 47 per cent. increase in the estate) over the next two years has considerable risks associated with its execution which could dilute the overall quality and attractiveness of the estate and which could have a negative impact on valuation over time.

·    Fuller's believes that the announcement yesterday of the acquisition of The Priory, a smaller leasehold site, reaffirms its concerns that in seeking to acquire sites quickly, Capital risks compromising the overall quality of its estate and diluting the freehold/ leasehold mix.

Funding of growth strategy

·    Since 27 March 2010, Capital has issued approximately 6.3 million shares.  Notwithstanding the disclosed agreement in principle with its bankers to increase its banking facilities by £5 million, Fuller's believes that Capital will most likely be required to issue further equity to fund its growth strategy should it wish to continue acquiring freehold assets in London.

·    Fuller's believes that this will result in Capital's existing shareholders either having to invest additional equity or be diluted further by new equity investors going forward. 

Acquisition multiples and comparable transactions

·    Capital has chosen not to include liabilities associated with derivative financial instruments of £3.2 million in its calculation of the enterprise value implied by Fuller's possible offer.

·    Including these derivative liabilities within the calculation of enterprise value gives an enterprise value of £83.1 million³. 

·    Using Capital's reported EBITDA before exceptional items and share option charge of £6.4 million, Fuller's possible offer would value Capital at 12.9x FY11 EBITDA³.  Fuller's possible offer values Capital at 9.3x FY11 house EBITDA³.

·    This compares favourably to the implied forward multiple paid by Greene King PLC ("Greene King") for Realpubs Ltd, where freehold assets comprised 93 per cent. of its estate, of 8.4x next year's house EBITDA (Source: Greene King acquisition announcement, 27 April 2011).

·    Regarding the comparison to the Geronimo Inns Ltd ("Geronimo") acquisition by Young & Co. Brewery PLC ("Young's"), the acquisition was announced in December, almost six months following Geronimo's year end.  Whilst the implied historical multiple for the year ended June 2010 was 9.8x house EBITDA, the implied multiple for the year ended June 2011 was 7.3x house EBITDA (Source: Young's acquisition announcement, 16 December 2010).

·    Capital has disclosed that freehold assets represent 85 per cent. of its estate.  Fuller's believes that this includes two sites where Capital has the option to acquire the freeholds rather than owning the freeholds.  As such, Fuller's calculates that owned freehold assets account for 79 per cent. of Capital's estate.

Certainty for Capital shareholders

·    The possible offer of 200 pence per share¹ represents a very attractive price for Capital's shareholders, being a 53% premium to the share price immediately prior to Fuller's initial approach.

·    The proposal by Fuller's would provide Capital shareholders with the certainty of a cash exit in the near term.

Fuller's reiterates that it would like to work towards a recommended transaction and establish a constructive dialogue with Capital and continues to believe that it is in the interests of Capital's shareholders for the Board of Capital to engage with Fuller's in order to deliver an attractive cash offer in a timely manner.

There can be no guarantee that a formal offer of 200 pence per Capital share¹ will be announced by Fuller's even if the pre-conditions to announcing such offer, as stated in Fuller's announcement of 17 June 2011, are satisfied or waived.

Fuller's reserves the right to make an offer on less favourable terms than those set out in this announcement in the circumstances referred to in its announcement of 17 June 2011.

Notes:

1.  Including any dividend paid post 17 June 2011, including the proposed final dividend of 2.25 pence per Capital share announced yesterday and subject to the price reservations announced on 17 June 2011.

2.  Source: Panmure Gordon & Co., May 2011.

3. The enterprise value of Capital of £83.14 million is calculated as enterprise value per the Capital final results announcement of £79.93 million plus liabilities associated with derivative financial instruments of £3.21 million⁴ as at 26 March 2011.  House EBITDA for the year ended 26 March 2011 is £8.95 million as disclosed by Capital.  EBITDA before exceptional items and share options charge for the year ended 26 March 2011 is £6.41 million as per the Capital final results announcement, which together with share of profit of associates of £0.03 million gives FY11 EBITDA of £6.44 million.

4.  Capital figures as at 26 March 2011 and for the year ended 26 March 2011 are sourced from Capital's final results announcement.

For enquiries please contact:

Merlin                                                  0207 726 8400

Paul Downes

Toby Bates

Del Jones

McQueen Limited                             0207 484 8800

George Fleet

Simon Croft-Baker

Numis Securities Limited                 0207 260 1000

Chris Wilkinson

Mark Lander

This announcement is not intended to, and does not, constitute or form part of any offer, invitation or solicitation of any offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of any securities.  This announcement has been prepared in accordance with English law and the Code, and information disclosed may not be the same as that which would have been prepared in accordance with laws outside of the United Kingdom.

The distribution of this announcement in jurisdictions outside of the United Kingdom 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 the restrictions may constitute a violation of the securities law of any such jurisdiction.

McQueen Limited, which is authorised and regulated by the Financial Services Authority in the United Kingdom, is acting exclusively for Fuller's and no-one else in connection with the matters described in this announcement, and will not be responsible to anyone other than Fuller's for providing the protections afforded to clients of McQueen Limited nor for providing advice in relation to the matters described in this announcement.

This announcement will be made available on Fuller's website (www.fullers.co.uk) by no later than 12 noon (London time) on Thursday 23rd June.

Dealing Disclosure Requirements

Under Rule 8.3(a) of the Code, any person who is interested in 1 per cent. or more of any class of relevant securities of an offeree company or of any paper offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period.

An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any paper offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 pm (London time) on the 10^th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 pm (London time) on the 10th business day following the announcement in which any paper offeror is first identified. Relevant persons who deal in the relevant securities of the offeree company or of a paper offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.

Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1 per cent. or more of any class of relevant securities of the offeree company or of any paper offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any paper offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any paper offeror, save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 pm (London time) on the business day following the date of the relevant dealing.

If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a paper offeror, they will be deemed to be a single person for the purpose of Rule 8.3.

Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4).

Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel's website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. If you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure, you should contact the Panel's Market Surveillance Unit on [phone].

 

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