Proposed acquisition of Imagine Publishing

RNS Number : 0456C

Future PLC

23 June 2016

 

23 June 2016

Future plc

Proposed acquisition of Imagine to strengthen magazine portfolio

Future plc (LSE: FUTR, "the Group" or "Future"), the international media group and leading digital business, has agreed terms to acquire Miura (Holdings) Ltd, the holding company and ultimate parent company of Imagine Publishing Limited ('Imagine Publishing') (the 'Acquisition') for a total consideration of 179,567,841 new Future shares (the 'Consideration Shares'), which at Future's closing share price on 22 June 2016 represents a consideration of £14.2m.

The Acquisition of Imagine is a further substantial step in Future's strategy of creating content that connects, increasing scale and improving operational efficiency.

Highlights:

·      Imagine's portfolio includes 19 periodical magazines and significant presence in bookazines as well as a growing complementary web presence

o  In 2015, Imagine issued 265 magazines and 257 bookazines, delivering 2.4 million and 1.0 million copy sales respectively

·      The addition of a market leading portfolio in the knowledge & science vertical adding new high quality genres to the Future business

·      Imagine is expected to report revenue of £16.4m for year to 31 March 2016, with EBITA of £3.1m, margin of 19% and cash generated from operations of £3.4m

·      The Acquisition is expected to be materially earnings enhancing and will:

o  Generate significant cost synergies

o  Increase the enlarged Group's profit margins

o  Increase the cash generation of the enlarged Group

·      Upon completion of the Acquisition, the vendors of Imagine will own, in aggregate, c.32.8% of Future's enlarged issued share capital

·      Letters of intent & irrevocable undertakings  to vote in favour of the issue of Consideration Shares received, representing, in aggregate, 30.3% of Future's issued share capital

Zillah Byng-Thorne, Future plc Chief Executive said;

"This is a unique opportunity to acquire a market leading knowledge, science and technology content business which will complement and expand our capabilities.

"Imagine has an impressive reputation with 19 periodical magazines and is a world leader in bookazines.  The acquisition will enable us to scale significantly our market position in bookazines and will see us enter the knowledge vertical, broadening our reach.

"The addition of Imagine with its strong management team and quality staff enables us to take a further substantial step towards our strategy of creating content that connects,  increasing scale and improving operational efficiency."

Analyst call

Future will be hosting a conference call for analysts and institutional investors at 8.30 a.m. today. Please contact Chris Birt at Instinctif Partners on 020 7866 7921 or email [e-mail].

Enquiries:

Future plc	01225 442 244
Zillah Byng-Thorne, Chief Executive Officer
Penny Ladkin-Brand, Chief Financial Officer
Numis	020 7260 1000
Nick Westlake/Mark Lander
Instinctif Partners	020 7457 2020
Adrian Duffield/Kay Larsen

The issue of the Consideration Shares is subject to the approval of Future's shareholders at a general meeting. Certain Future shareholders holding, in aggregate, 30.3% of Future's issued share capital, have irrevocably undertaken or provided letters of intent to vote in favour of the issue of Consideration Shares. The issue of Consideration Shares is also subject to the publication of a Prospectus by Future, which is expected to occur in September 2016, and completion of the Acquisition is conditional upon CMA clearance.

A Shareholder Circular has today been published and sent to all holders of ordinary shares in the capital of Future together with a related Form of Proxy in relation to the proposed acquisition.

The Circular contains a notice convening a general meeting (the "General Meeting") of the Company which is to be held at the offices of Future plc, 1-10 Praed Mews Paddington London W2 1QY at 10.30a.m. (London time) on 11 July 2016.

Notes to editors

Future plc is an international media group and leading digital publisher, listed on the London Stock Exchange (symbol: FUTR). The Group operates two separately managed brand-led divisions: Media and Magazine. The Group has a reach of 70m globally, including 47m online users and 22m social media followers.

The Magazine division is brand-led. It has over 100 market-leading publications, with 10 key titles, and is seen as the number one digital consumer magazine publisher in the UK.

The Media division focuses on being at the forefront of digital innovation, in particular the high growth technology and games markets, with three complementary revenue streams: e-commerce, events and digital advertising. It has a number of leading brands including Techradar, PC Gamer, GamesRadar+, The Photography Show, Generate and Golden Joysticks.

Further details on the proposed Acquisition

Information on Imagine Publishing

Imagine Publishing is a market leading multimedia publisher focused on specialist technology, knowledge and science content with enduring worldwide appeal. It has key brands in print, online and digital formats.

Established in 2005, Imagine Publishing has grown over this period by bringing new titles to market as well as through the successful execution of acquisitions. Imagine Publishing currently has a portfolio of 19 periodical magazines, significant market presence in bookazines, and has a growing, complementary web presence.

In 2015, Imagine Publishing issued 265 magazines and 257 bookazines, delivering 2.4 million and 1.0 million copy sales respectively. The business has approximately 40 digital editions and 30 brands in its website portfolio, with monthly digital impressions of 2.5 million.

Over the last 10 years Imagine Publishing has delivered strong levels of profit and cash conversion. Imagine Publishing's business model is complementary to Future's with a focus on operational efficiency and content distribution.

Based in Bournemouth, Imagine Publishing has around 140 employees and a strong management team.

The Acquisition will incorporate the other companies in the Imagine Group (Miura (Holdings) Ltd being the ultimate parent). Shares in Miura (Holdings) Ltd are held by a number of parties (Disruptive Capital Investments Limited being the largest).

The summarised financial information below relating to the Imagine Group for the years ended 31 March 2014 and 31 March 2015 has been extracted without material adjustment from its audited consolidated financial statements. The financial information relating to the Imagine Group for the year ended 31 March 2016 has been taken from its internal management accounts as the audit has yet to be completed.

The EBITDAE of the Imagine Group from continuing, trading operations is also shown below. Although EBITDAE is not an audited financial metric, it has been included below since it is a key measure of operational profitability and performance for the Imagine Group.

	Year ended 31 March 2016 (Unaudited)	Year ended 31 March 2015 (Audited)	Year ended 31 March 2014 (Audited)*
Continuing Operations	£'000	£'000	£'000
Revenue	16,428	16,124	17,471
EBITDAE	3,328	2,442	3,774
EBITA	3,120	2,191	2,360
EBITA Margin	19%	14%	14%
Cash generated from operations	3,400	2,985	2,300**

Notes:

*Audited financials adjusted to show impact of full year trading

**2014 cash generated from operations has been adjusted to remove the impact of cash acquired upon completion of group reorganization and represents 11 months of cashflows

The Imagine Group had net debt of £5.3 million at 31 March 2016 (based on its unaudited management accounts). This debt will be refinanced by Future immediately prior to completion of the Acquisition with committed total facilities of £14.0 million, comprising a committed acquisition loan of £8.5 million plus a working capital facility of £3.5 million and a £2 million overdraft facility, all with HSBC. Such commitments are contingent on completion of the Acquisition taking place on or before 21 October 2016.

Background to and reasons for the Acquisition

The Board believes there is a strong strategic rationale for acquiring Imagine, and it will make a major contribution to Future's strategy of providing content that connects, sharing knowledge and expertise with others to make it easier and more fun for them to do what they want.

Future's strategy for its Magazine division is to increase product on sale through new low cost innovations and launches, whilst tightly managing the cost base through efficiency and excellence of operations. The Enlarged Group aims to deliver improved financial performance through optimising its business model, thus managing the underlying structural decline in the magazine industry.

A key component of this entails improving operational efficiency, increasing Future's scale and diversifying the Enlarged Group's revenues to enhance margins. The magazine market is currently fragmented and the acquisition of Imagine will provide the opportunity to acquire a business which operates in both existing and new verticals. The Directors believe that the Imagine Group will strengthen the portfolio of the Enlarged Group and offer synergistic benefits.

There is a strong fit between the Imagine Publishing and Future magazine portfolios. Imagine Publishing has well established titles in the knowledge & science sector, one of the print sectors which has seen market growth in recent years. The Acquisition will also provide Future with greater reach in the bookazine market and will enhance Future's online presence.

Adding portfolio enhancing brands will mean Future can achieve economies of scale through its core UK publishing operations and enhance operational profitability.

The Directors see the key benefits of the deal as being:

·    Significant potential cost synergies as the Imagine Group is integrated into Future's Magazine Division;

·    Significant cash generation which can be deployed into the core growth areas of the business; and

·    Material earnings enhancement for Future shareholders.

The Acquisition will also complement and strengthen Future's Media division. Imagine Publishing has a strong website portfolio focused on the technology, games, photography and knowledge & science sectors which deliver over 2.5 million impressions per month. This will complement Future's current online media operations, and the Directors believe economies of scale can be leveraged to drive improved performance.

Financial effects of the Acquisition

The Imagine Group has delivered strong cash generation and profit margin performance as a stand-alone business, and the Directors believe this can be further improved upon by combining the business with Future's current operations.

The financial evaluation of the Acquisition has focused on delivering tangible cost synergies through combined production teams and back office. On this basis, the Acquisition will be earnings accretive and the Directors believe that the Acquisition will deliver shareholder value.

Accordingly the synergistic benefits of the Acquisition will result in a strengthened balance sheet of the Enlarged Group through greater scale to its operations and improved cash generation.

Integration plan

The Imagine Group will be merged into Future's Magazine Division in a staged process, with Imagine senior management playing key leadership roles within the Enlarged Group and single teams being created for production and corporate functions. This will allow Future to focus on delivering economies of scale and efficiencies across the business as rapidly as is possible which are expected to produce cost savings in the region of £3 million. It is anticipated that the Imagine Group will be fully integrated within 12 months of completion of the Acquisition.

The Acquisition

The Company has entered into the Acquisition Agreement, pursuant to which it has conditionally agreed to acquire the whole of the issued share capital of Imagine in consideration for the issue to the Sellers of the Consideration Shares.

The Consideration Shares will represent 32.8 per cent. of the Enlarged Share Capital and will be issued and credited as fully paid and will rank pari passu in all respects with the Existing Ordinary Shares, including rights to Future dividends. The number of Consideration Shares is subject to upward or downward adjustment, depending on the performance of the Future Group and the Imagine Group in the six month period prior to Completion, as described in further detail in Part II of this document.

Completion of the Acquisition Agreement is conditional, amongst other things, on, the passing of Resolution 1 in the Notice of General Meeting, the publication of a prospectus, CMA Clearance and Admission of the Consideration Shares.

Subject to satisfaction, or where applicable waiver, of the Conditions, it is expected that the Acquisition will complete in September 2016. The Long Stop Date is 2 January 2017.

In the period prior to Completion, the Company will 1) seek to obtain CMA Clearance as expeditiously as reasonably possible and 2) issue and dispatch to Shareholders a prospectus relating to the Company as the number of Consideration Shares exceeds 10 per cent. of the number of Existing Ordinary Shares. The Prospectus will be prepared in accordance with the Prospectus Rules. It is expected that the Prospectus will be issued shortly after CMA Clearance has been obtained and the application has been made to the UK Listing Authority and the London Stock Exchange for the Consideration Shares to be admitted to the standard segment of the Official List and to trading on the London Stock Exchange's main market for listed securities, so that, on Admission, Completion will take place automatically.

Lock-in and orderly market arrangements

Disruptive and certain other 3rd party investors have separately undertaken to the Company that they will not, subject to certain limited exceptions (such as in the event of a takeover offer for the Company), dispose of (i) any of the Consideration Shares held by them for a period of six months following Admission (the "initial period") and (ii) 50 per cent. of the Consideration Shares held by them for a further period of six months after the initial period.

Certain other Sellers have separately undertaken to the Company and Numis that they will not dispose of any interest in Ordinary Shares for a period of six months following Admission unless such disposal is effected through Numis.

Proposed addition to the Board

It is a term of the Acquisition that Disruptive Capital Investments Limited together with its chairman, Edmund Truell, and his connected persons will have the right to appoint a non-executive director for as long as between them they own at least 10 per cent. of the share capital of Future.

On Completion, James Hanbury will join the Board as Deputy Chairman and will serve as the Disruptive appointee.

In the event of the shareholding of Disruptive falling below 10 per cent. of Future's issued share capital, Disruptive shall have the right to preserve their appointee on the Board for a period of 12 months following the date on which its shareholding falls below such percentage.

Irrevocable undertakings and voting intentions

Each of Zillah Byng-Thorne, Penny Ladkin-Brand, Peter Allen and Manjit Wolstenholme, who hold 2,594,258 Ordinary Shares in aggregate (representing 0.71 per cent. of the Company's issued share capital) have irrevocably undertaken to vote in favour of the issue of the Consideration Shares at the General Meeting. They have also undertaken not to sell any of such Ordinary Shares prior to the General Meeting.

Clients of Aberforth Partners LLP who hold 88,250,128 Ordinary Shares (representing 23.99 per cent. of the Company's issued share capital) and Herald Investment Management, which holds 20,765,000 Ordinary Shares (representing 5.64 per cent. of the Company's issued share capital) have executed letters of intent to vote in favour of the issue of the Consideration Shares at the General Meeting.

Therefore, letters of intent and irrevocable undertakings to vote in favour of the issue of the Consideration Shares representing, in aggregate, 30.34 per cent. of the Company's issued share capital have been received.

IMPORTANT NOTICES

This announcement contains "forward-looking" statements, beliefs or opinions. These forward-looking statements involve known and unknown risks and uncertainties, many of which are beyond the control of the Company and all of which are based on its directors' current beliefs and expectations about future events. Forward-looking statements are sometimes identified by the use of forward-looking terminology such as "believes", "expects", "may", "will", "could", "should", "shall", "risk", "intends", "estimates", "aims", "plans", "predicts", "projects", "continues", "assumes", "positioned" or "anticipates" or the negative thereof, other variations thereon or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events, assumptions or intentions. These forward-looking statements include all matters that are not historical facts. Forward-looking statements may and often do differ materially from actual results. They appear in a number of places throughout this announcement and include statements regarding the intentions, beliefs or current expectations of the Board or the Company with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Company's business concerning, amongst other things, the financial performance, liquidity, prospects, growth and strategies of the Company. These forward-looking statements and other statements contained in this announcement regarding matters that are not historical facts involve predictions. No assurance can be given that such future results will be achieved; actual events or results may differ materially as a result of risks and uncertainties facing the Company. Such risks and uncertainties could cause actual results to vary materially from the future results indicated, expressed or implied in such forward-looking statements. The forward-looking statements contained in this announcement speak only as of the date of this announcement. Nothing in this announcement is, or should be relied on as, a promise or representation as to the future. The Company disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this announcement to reflect any change in its expectations or any change in events, conditions or circumstances on which such statements are based unless required to do so by applicable law, the Prospectus Rules, the Listing Rules or the Disclosure Rules and Transparency Rules of the FCA. No statement in this announcement is intended as a forecast or profit estimate.

Apart from the responsibilities and liabilities, if any, which may be imposed under a regulatory regime of any jurisdiction and where exclusion of liability under the relevant regulatory regime would be illegal, void or unenforceable, no responsibility is taken whatsoever for the contents of this announcement and no representation or warranty, express or implied is made as to the contents of this announcement or for any other statement made or purported to be made by it in connection with the Company and nothing in this announcement will be relied upon as a promise or representation in this respect, whether or not to the past or future.

 

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