Response to Offer by Enigmatic Investments Limited

RNS Number : 0515Q

Clarity Commerce Solutions PLC

12 October 2011

 



Not for release, publication or distribution, in whole or in part, in or into or from any jurisdiction where to do so would constitute a violation of the relevant laws or regulations of such jurisdiction

Clarity Commerce Solutions plc

("Clarity", the "Company", or the "Group")

Response to Offer by Enigmatic Investments Limited

The Board of directors of Clarity (the "Clarity Board") announces that it is today posting a response document to Clarity shareholders setting out the Clarity Board's opinion on the offer announced by Enigmatic Investments Limited for the entire issued and to be issued share capital of the Company and the reasons why the Clarity Board recommends that Clarity shareholders reject the Offer and take no action in respect of their shareholdings.

Your Board unanimously recommends that Shareholders reject Enigmatic's Offer

·      Your Board believes that the Offer is highly opportunistic and undervalues the Company and its prospects.

·      The Offer Price represents a discount of approximately 14.5 per cent. to the average Closing Price of 26.9 pence per Clarity Share over the last 12 months prior to 26 September 2011.

·      Your Board's recommendation is supported by Arbuthnot Securities, its independent financial adviser.

·      The Company has restructured operations in recent months and has achieved significant cost reductions.

·      The Board believes that the Offer fails to reflect the strengths of the Company or take account of the Company's future prospects in its addressable markets.

·      The Board believes that Enigmatic's principal interest in acquiring the Company is its operations in the retail market; however, it is possible that a different strategic buyer(s) with interest across a wider set of products and end markets would ascribe a higher value to the other divisions of Clarity including its strong position in the entertainment market.

·      The Company has appointed Arbuthnot Securities and The McLean Group to explore strategic opportunities for the business in order to ensure that Shareholder value is maximised. 

·      The Company has received several indicative expressions of interest from relevant potential offerors. This interest offers the potential of a significantly better overall return to Shareholders than they would receive through acceptance of Enigmatic's opportunistic Offer.

Chairman's Letter

Dear Shareholder,

On 27 September 2011 Enigmatic made an offer for the Company of 23.0 pence per Clarity Share in cash. For the reasons set out below, your Board believes that the Offer, which was unsolicited, is highly opportunistic and undervalues the Company and its prospects.

Your Board unanimously rejects the Offer and urges all Shareholders to do the same and to take no action in respect of your shareholdings.

The Directors, who in aggregate own 1,222,098 Clarity Shares representing approximately 3 per cent. of the Company's issued share capital, intend to reject the Offer in respect of their own beneficial holdings. Set out below are the principal reasons why we believe you should also reject the Offer:

Current trading

While the results to 31 March 2011 showed a loss, principally due to reduced demand in the retail sector, the Company has restructured operations in recent months and has achieved significant cost reductions resulting in a much more sustainable business.

The UK and New Zealand Hotels businesses have been divested and group sales and operations are now focused on Clarity's core markets. The Company's cost reduction programme is progressing to plan and the UK redundancy programme, which completed last month, has removed a further £1m from the cost base.

At the Annual General Meeting of Shareholders held on 28 September 2011, I made the following statement:

"In line with our revised strategy we continue to focus sales on additional business from existing customers with several of these customers placing new business in recent months. In the Entertainment space Merlin continues to roll out our systems with Legoland Florida going live in October and Legoland California implementing ClarityLive across all retail outlets in January. Our business with Parques Reunidos continues to increase with Bobbejaanland extending its use of ClarityLive to cover retail, food & beverage and on-line season passes and with Movie Park Germany also adding on-line season passes. Clarity is exhibiting at the annual European Attractions Show currently taking place at Kensington Olympia in London.

In the Retail market the major Dutch grocery retailer C1000 has successfully deployed ClarityLive POS into its 400th store and continues to place orders for new stores. C1000 has also extended its installations of the ClarityLive self scan solution. In addition, Debenhams has extended the ClarityLive personal shopper booking solution to include analytics.

In the Hospitality sector Sodexo continues to deploy the ClarityLive cashless solution with South Tyneside College becoming the latest implementation.

Our cost reduction programme is progressing to plan. The UK redundancy programme, which is expected to complete this month, will remove a further £1m from the cost base.

We continue to operate with limited cash resources and are taking all possible actions to minimise cash consumption."

Since the Annual General Meeting we have had some significant and encouraging developments in our two key business sectors.

Entertainment business

In our entertainment business, Merlin's brand-new themed attraction, LEGOLAND Florida will be deploying ClarityLive for Entertainment.   Planning and development of the system is nearing completion as the park approaches its scheduled opening on 15 October 2011.   This 150-acre interactive theme park dedicated to families with children between the ages of 2 and 12 has more than 50 rides, shows and attractions. 

Merlin Entertainments Group is also committed to the replacement of their Retail EPOS at LEGOLAND Carlsbad.  This park, located in California, will rollout ClarityLive for Entertainment early in the new year.

Clarity Entertainments experienced a very strong showing at the European Attractions Show in Olympia, London at the end of September.  At this well-attended show, executives and decision makers from across Europe, and beyond, were treated to a showcase of ClarityLive for Entertainment, our complete EPOS solution set for the Amusement and Attractions industry.  The public launch of our new Mobile Engagement Platform, featuring interactive games and social-network loyalty components was particularly well received.

Retail business

In our retail business progress has also been encouraging with new pilot deployments at hmv and Iceland stores. hmv has started a trial of a mobile iPod solution from Clarity which will improve its ability to capture information about its customers and attract new members to its Pure loyalty scheme.

The supermarket chain, Iceland has begun a pilot using Clarity's loyalty software as the next stage in its major initiative for close customer engagement with its bonus card holders.

These developments give your Board confidence that the ClarityLive product suite continues to be able to compete successfully in the global marketplace.

Current Share Price

The Offer is highly opportunistic.  Whilst it is acknowledged that the 23.0 pence per Clarity Share being offered by Enigmatic represents a premium of 50.8 per cent. to the Closing Price of 15.25 pence per Clarity Share on 26 September 2011, being the last dealing day prior to the announcement by Enigmatic of its intention of making the Offer, Shareholders should note that the Offer Price represents:

-     a discount of approximately 41.8 per cent. to the Closing Price of 39.5 pence per Clarity Share on 27 September 2010;

-     a discount of approximately 16.7 per cent. to the Closing Price of 27.5 pence per Clarity Share on 25 March 2011; and

-     a discount of approximately 14.5 per cent. to the average Closing Price of 26.9 pence per Clarity Share over the 12 months prior to 26 September 2011.

Enigmatic's Offer Document

The Directors have noted the statements made in the Offer Document as to Enigmatic's intention to build a larger business in the EPOS marketplace, but note that Enigmatic's intentions in relation to the entertainment division and Cyntergy Limited are unclear.

The board of Enigmatic has stated in the Offer Document that it believes that the acquisition of Clarity by Enigmatic would offer an accelerated and lower risk means for DigiPoS Store Solutions Holdings Limited (DigiPoS), a company which like Enigmatic is controlled by BECAP Fund LP and which in turn owns and controls the DigiPoS trading group, a provider of electronic point of sale systems, to achieve its strategic aim of improving its software offering and complementing its existing hardware products and services.

However, your Directors believe that neither the inherent value in the quality of the Company's software offering and its client base, nor the expected synergistic gains in the combination between Clarity and DigiPoS, are adequately reflected in the value of Enigmatic's Offer. 

Enigmatic has stated that currently it has no specific plans to make personnel changes but adds that it intends to carry out a strategic review of Clarity's business and operations and that it is likely that some changes might be made, stating that, until such a review is completed, Enigmatic cannot be certain as to what, if any, repercussions there will be on employment, the locations of Clarity's or DigiPoS' places of business or any redeployment of their fixed assets. Furthermore, Enigmatic states that it is possible that an alliance between, or combination of, DigiPoS and Clarity could lead to a rationalisation of the premises the businesses are conducted from and the employees retained by the enlarged group. Whilst Enigmatic states that the existing employment rights of all Clarity Group employees will continue to be fully safeguarded and their accrued rights to pensions benefits protected, such a statement is typical in this type of transaction and is the minimum legal requirement in relation to employment and therefore should not be interpreted to mean jobs themselves would be protected.

Contact between Enigmatic and the Company

Despite the fact that the Offer was unsolicited the Company invited representatives of Enigmatic to the Company's offices with a view to understanding their intentions in relation to plans for the Company post the acquisition and their attitudes towards staff and Shareholder interests. The Company did not receive any indication during these meetings that Enigmatic appreciated the strategic value of Clarity's product range in its addressable markets.

The announcement by Enigmatic on 11 October 2011

The Board notes the announcement issued by Enigmatic on 11 October 2011 and highlights the following points:

-     Clarity is an international business and so should be valued with reference to international comparative companies. Furthermore, on acquisition of a controlling stake it is normal to see a control premium paid over and above the standard trading multiple. Technology companies tend to be valued on multiples of turnover or adjusted EBITDA rather than earnings per share;

-     the other expressions of interest received for the Company are from strategic customer engagement software providers who are likely to recognise value in synergies from a potential combination with Clarity; and

-     the management of Clarity has taken action to reduce the cost base and the business is now on a stable footing. As noted above, in the period since the Annual General Meeting the Company's key customers have continued to place business with Clarity.

Why you should reject the Offer

Clarity's software solutions are mission-critical and cover all aspects of their clients' operational and revenue generating activities with their consumers, including point of sale, loyalty, promotions, bookings and membership.

Clarity's business benefits from:

-     leading edge customer engagement software;

-     a global blue chip customer base;

-     a high level of contracted recurring revenues from support and maintenance; and

-     a high proportion of follow-on business from existing customers.

The Board believes that the Offer from Enigmatic fails to reflect these strengths or take account of the Company's future prospects in its addressable markets.

The Board also believes that Enigmatic's principal interest in acquiring the Company is in the retail market; however, it is possible that a different strategic buyer(s), with interest across a wider set of products and end markets, would ascribe a higher value to the other divisions of Clarity including, in particular, its strong position in the entertainment market.

The Board believes that Shareholders are unlikely to receive full value for their Clarity Shares from a single bidder interested purely in furthering its own business aims but would be better served by a thorough strategic review seeking to maximise shareholder value. 

The Company has appointed Arbuthnot Securities and The McLean Group to explore strategic opportunities for the business in order to ensure that shareholder value is maximised. The McLean Group is a US based investment bank with particular experience in the retail, entertainment and hospitality technology sectors. The Board has now received several indicative expressions of interest including from strategic customer engagement software providers in the retail and entertainment sectors. This interest offers the potential of a significantly better overall return to Shareholders than they would receive through acceptance of Enigmatic's opportunistic Offer.

Recommendation

The Directors, who have been so advised by Arbuthnot Securities, their independent financial adviser, unanimously recommend that Shareholders reject the Offer and take no action in respect of your shareholdings. We would recommend that you do not sign any documents which Enigmatic or their advisers send you. In providing advice to the Directors, Arbuthnot Securities has taken into account the commercial assessment of the Directors.

The Directors, who in aggregate own 1,222,098 Clarity Shares, representing approximately 3 per cent. of the Company's issued share capital, intend not to accept the Offer in respect of their own beneficial holdings.

Yours faithfully,

Sir Colin Chandler

Executive Chairman

A copy of the response document will shortly be available from the Company's website at www.claritycommerce.com.

Enquiries:

Clarity Commerce Solutions plc
Stephen Sadler, CFO and COO	T: 01256 365 150
Arbuthnot Securities
Antonio Bossi / Paul Gillam / Jonathan Haines	T: 020 7012 2000
Biddicks Sophie McNulty / Zoe Biddick	T: 020 3178 6378

Definitions

The following definitions apply throughout this announcement unless the context requires otherwise:

"£", "GBP", "pence" and "sterling"	the lawful currency of the United Kingdom;
"2011 Accounts"	the annual report and accounts of the Company for the period ended 31 March 2011;
"Admission"	admission of the Company's ordinary share capital to trading on AIM;
"AIM"	the market of that name operated by the London Stock Exchange;
"Arbuthnot Securities"	Arbuthnot Securities Limited, a company registered in England and Wales with number 762818 and whose registered office is at Arbuthnot House, 20 Ropemaker Street, London EC2Y 9AR;
"City Code" or "Code"	the City Code on Takeovers and Mergers;
"Clarity " or the "Company"	Clarity Commerce Solutions PLC, a company incorporated in England and Wales with registered number 3914814 whose registered office is at Paterson House, Hatch Warren Farm, Hatch Warren Lane, Hatch Warren, Basingstoke, Hampshire, RG22 4RA;
"Clarity Board" or "Board"	the Clarity Directors;
"Clarity Commerce Solutions Group" or the "Group"	the Company and its direct and indirect subsidiaries and subsidiary undertakings from time to time;
"Clarity Shares" or "Shares"	ordinary shares of 25 pence each in the capital of the Company;
"Clarity Shareholders" or  "Shareholders"	the holders, from time to time, of Clarity Shares;
"Closing Price"	the closing mid market quotation of a Share at the close of business on a particular trading day as derived from the AIM section of the Daily Official List on that day;
"Companies Act"	the Companies Act 2006 (as amended);
"Daily Official List"	the Daily Official List of the London Stock Exchange;
"Directors" or "Clarity Directors"	the directors of Clarity referred to in paragraph 2.1 of Part 2 of the response document being posted by Clarity to shareholders today or, where the context requires, the directors of Clarity from time to time;
"EBITDA"	earnings before interest, tax, depreciation and amortisation;
"Enigmatic" or the "Offeror"	Enigmatic Investments Limited a company incorporated in Guernsey with registered number 53730 whose registered office is at Heritage Hall, PO Box 225, Le Marchant Street, St Peter Port, Guernsey, GY1 4HY;
"London Stock Exchange"	London Stock Exchange plc;
"Offer"	the cash offer made by Enigmatic to acquire all of the issued and to be issued Clarity Shares on the terms and subject to the conditions set out in the Offer Document;
"Offer Document"	means Enigmatic's offer document dated 28 September 2011;
"Offer Period"	the offer period (as defined by the Code) relating to Clarity beginning on and including 27 September 2011, being the date of the announcement of the Offer;
"Offer Price"	being 23.0 pence per Clarity Share;
"Overseas Shareholders"	Clarity Commerce Solutions Shareholders who are citizens or residents of, a jurisdiction outside the UK;
"Panel"	the Panel on Takeovers and Mergers;
"Regulatory Information Service"	a service approved by the London Stock Exchange for the distribution to the public of announcements and included within the list maintained on the London Stock Exchange's website;
"subsidiary" or "subsidiary undertaking"	have the meanings given to them by the Companies Act;
"The McLean Group"	The McLean Group LLC, is a US based investment bank whose office is at 7900 Westpark Drive, Suite A320, McLean, VA, 22102 USA;
"U.S. Person(s)"	a citizen or permanent resident of the United States as defined in Regulation S promulgated under the U.S. Securities Act;
"United Kingdom" or "UK"	the United Kingdom of Great Britain and Northern Ireland;
"United States" or "USA"	the United States of America, its territories or possessions, any state of the United States of America and the District of Columbia and all other areas subject to its jurisdiction; and
"VAT"	value added tax.

Further information

Arbuthnot, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting exclusively for Clarity and no one else in connection with the offer and other matters referred to in this announcement and will not be responsible to any person other than Clarity for providing the protections afforded to clients of Arbuthnot nor for giving advice in relation to the offer or any other matter or arrangement referred to in this announcement.

This announcement is not intended to and does not constitute, or form any part of, an offer to sell or an invitation to subscribe for or purchase any securities or the solicitation of an offer to purchase or subscribe for any securities, or the solicitation of any vote or approval in any jurisdiction pursuant to the offer or otherwise. The offer will be made solely through the offer document, which will contain the full terms and conditions of the offer.

Overseas Shareholders

This announcement has been prepared for the purpose of complying with English law and the Code and the information disclosed is not the same as would have been disclosed if this announcement had been prepared in accordance with the laws of jurisdictions outside the UK.

The release, distribution or publication of this announcement in jurisdictions other than the UK may be restricted by law and therefore any persons who are subject to the laws of any jurisdiction other than the UK should inform themselves about and observe any applicable requirements.

Dealing disclosure requirements of the Code

Under Rule 8.3(a) of the Code, any person who is interested in 1% 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 and, if later, following the announcement in which any paper offeror is first identified.  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 10th 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% 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].

Publication on website

A copy of this announcement will be made available free of charge, subject to certain restrictions relating to persons resident in any Restricted Jurisdiction, on Clarity's website at www.claritycommerce.com by no later than 12.00 noon (London time) on 13 October 2011.

 

END

 

 

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