USA - related party transacti

RNS Number : 2167S

Mulberry Group PLC

14 May 2009

 



Mulberry Group plc

USA - related party transaction

Mulberry Group plc ('Mulberry'), the luxury British fashion brand, announces that it has reached agreement in principle with its US partner to terminate the existing joint venture arrangements allowing Mulberry to take full control of the wholesale and retail sales of Mulberry products in the key US market. 

This will enable Mulberry's increasingly important online retail business to be consolidated with the wholesale and retail operations in the US, creating a simpler and more effective operation. 

Background

During September 2000, the rights to retail and wholesale Mulberry products in the US were granted to Mulberry USA LLC ('MUSA'), a limited liability partnership between Mulberry and a company under the control of the owners of Challice Limited ('Challice'). Challice is the owner of approximately 60% of the issued share capital of Mulberry. The rights to sell online in the US were retained by Mulberry.

Since establishing MUSA, five shops were opened in the US in East and West Coast locations and the wholesale business was developed. The significant capital outlay and start up trading losses were borne by MUSA and financed by Challice with Mulberry's contribution to the joint venture being limited to $1 million plus the commitment to support strategic marketing initiatives. MUSA sales grew steadily up to September 2008 but have been hit by the economic downturn.

Since 2000, the growing importance of an effective online retail presence as both a sales and a marketing channel has become increasingly apparent. Mulberry's online sales have grown significantly over this period and this trend is expected to continue. 

It is also clear that marketing and particularly celebrity endorsement in the US benefits the sales of the brand globally. 

It was concluded that MUSA should close three shops and that Mulberry should acquire the remaining two shops in New York and take back the retail and wholesale rights to the US. This will allow a coordinated marketing and sales approach for the whole US market (including online retail) and enable a simpler and more cost effective structure.

The transaction

It is anticipated that the transaction, which has been agreed in principle subject to the execution of binding legal documentation by the parties, will complete when the transfer of the two New York leases to a wholly owned subsidiary of Mulberry has been executed.  

In the interim, Mulberry has assumed management control of the US operation from the 1st April 2009 and on completion will acquire from MUSA its inventories and the leases and related assets of the two shops in New York (Madison Avenue and Bleecker Street). In addition, as an integral part of the transaction, Challice will simultaneously acquire Mulberry's 50% stake in MUSA for nominal consideration.

Consideration

It is anticipated that Mulberry will pay the following amounts for the various assets to be acquired:

•    Inventories will be purchased at cost for approximately $0.5 million.

•    The leases and fixed assets within the two shops will be acquired for $1.

•    Other assets associated with the business transferred will be acquired at market value.

•    Deferred consideration of up to £1 million will become payable to Challice on a stepped basis if 
     sales generated from the US market during the third year post completion exceed certain 
     agreed thresholds. The consideration will be payable in cash or, at Mulberry's option, new 
     Mulberry shares, the number of shares being calculated at the then prevailing share price.

In addition, Mulberry will pay to Challice any premium it receives from a disposal of the two shop leases during the period of three years from completion.

Financial projections

The financial projections prepared for the US operation show that the annual cost of taking over the two shops and the wholesale business as well as continuing to support strategic marketing will be in the region of $2.0 million for the year to 31st March 2010, reducing in subsequent years. During the year ended 31 March 2009, operations in the US cost Mulberry approximately $1.6 million, being the cost of strategic brand marketing incurred directly by Mulberry, less the margin on goods supplied to MUSA.

It is the opinion of the Board that at these levels, the business can be supported by Mulberry without material detriment to the reported results or cash position. Furthermore, the US represents a significant growth opportunity for Mulberry and the Board believes that the new business structure being put in place is the most appropriate for Mulberry and its shareholders going forward.

In accordance with the AIM rules, the Mulberry directors Steve Grapstein, Godfrey Davis and Bernard Heng as directors of MUSA are considered to be related parties for the purposes of this transaction. In accordance with AIM Rule 13, the Mulberry Board (excluding Steve Grapstein, Godfrey Davis and Bernard Heng), having consulted with Mulberry's nominated adviser, considers that the terms of the transaction are fair and reasonable insofar as Mulberry's shareholders are concerned.

For further details please contact:

Pelham PR David Wynne-Morgan  Gavin Davis	Tel: [phone] Tel: [phone]
Altium Capital  Ben Thorne	Tel: [phone]

 

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