Proposed Acquisition

RNS Number : 3892E

Trinity Mirror PLC

09 February 2018

 

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO ANY JURISDICTION IN WHICH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL. PLEASE SEE THE IMPORTANT NOTICE AT THE END OF THIS ANNOUNCEMENT.

9 February 2018

Trinity Mirror plc

Proposed acquisition of Northern & Shell's publishing assets

Trinity Mirror plc ("Trinity Mirror" or the "Company") is pleased to announce the proposed acquisition of Northern & Shell's publishing assets for a total purchase price of £126.7 million. These comprise Northern & Shell Network Limited ("NSNL"), a subsidiary of Northern & Shell Media Group Limited containing the publishing assets of Northern & Shell and its subsidiaries, International Distribution 2018 Limited and a 50% equity interest in Independent Star Limited (the "Acquisition").

The purchase consideration of £126.7 million will be satisfied by the payment to the Northern & Shell Media Group Limited (the "Seller") of, in aggregate, an initial cash consideration of £47.7 million; deferred cash consideration of £59.0 million payable over 2020 - 2023; and the balance of £20.0 million by the issue to the Seller of 25,826,746 new ordinary shares of 10p each ("Consideration Shares"). Trinity Mirror will also make a one-off cash payment of £41.2 million to the Northern & Shell Pension Schemes and a recovery plan through to 2027 has been agreed with total payments of £29.2 million.

Strong strategic rationale

The Board believes the Acquisition creates a media business of scale to better serve our readers and advertisers, enabling the Enlarged Group to:

o  Improve its print and digital editorial propositions by reducing duplication, sharing content and widening the breadth of editorial coverage with larger combined teams;

o  Provide advertisers and agencies with a large, high quality audience, including a combined digital audience of 234 million monthly unique browsers (excluding apps); and

o  Improve its digital products through shared investment and best practice.

Strong financial rationale

The Board believes the Acquisition is financially compelling and will deliver attractive returns to shareholders as the Enlarged Group will:

o  Have a more robust revenue mix with circulation revenue representing nearly half of the Enlarged Group's revenue and placing less reliance on print advertising;

o  Deliver £20 million in annualised cost synergies by 2020, with a significant amount of these savings achieved in 2019;

o  Generate strong cash flows providing financial flexibility for investment, continued support for the Enlarged Group's historic pension scheme liabilities and potential return of capital to shareholders; and

o  Be materially earnings enhancing in the first full year of ownership¹.

Commenting on the Acquisition, Simon Fox, Chief Executive, Trinity Mirror plc, said:

"This deal is a really exciting moment in Trinity Mirror's history, combining some of the most iconic titles in the UK media industry. It is good for our readers, good for our customers and good for our shareholders. Northern and Shell's titles have a large and loyal readership, a growing digital presence and a stable revenue mix and offer an excellent fit with Trinity Mirror."

Richard Desmond, Chairman of Northern & Shell, said:

"The Express Newspapers and our celebrity magazine titles have been a key part of the Northern & Shell portfolio for many years, and I am immensely proud of building them into one of the largest newspaper and magazine groups in the UK. Today's transformational transaction is a logical and natural next step in the evolution and consolidation of the media sector and will create a larger and stronger platform serving all stakeholders. In Trinity Mirror we have a great partner, who will be an excellent steward of the business going forward and I am delighted to be able to retain an ongoing interest in the combined group."

About Northern & Shell's publishing assets

Northern & Shell's publishing assets are a significant force in the UK media sector, with a portfolio of newspapers and magazines which comprise four national newspaper titles (the Daily Express, Sunday Express, Daily Star and Daily Star Sunday) and three celebrity magazines (OK!, New!, and Star) together with a 50% joint venture interest in the Irish Daily Star, outside the UK. Northern & Shell operates a print plant in Luton, serving its portfolio of newspapers and magazines as well as providing third-party printing services

The Express.co.uk and Dailystar.co.uk websites achieved 280 million page views in December 2017 compared to 649 million for the Trinity Mirror websites (excluding apps and galleries).

Northern & Shell's publishing assets performed well in 2017 despite continued pressure on its print advertising revenues. Total revenues (after separation adjustments) are estimated to have marginally increased in 2017, with growth in newspaper circulation revenues (arising from the partial reversal of cover price discounting) and digital revenues offsetting declines in print advertising revenues. Adjusted EBITDA (after separation adjustments) is estimated to be circa. £34 million, benefiting from operational and strategic reductions in printing and production, marketing and other operating costs.

Consideration and financing

The consideration for the acquisition of Northern & Shell's publishing assets will be a total of £126.7 million payable through:

·      A cash payment of £42.7 million on completion of NSNL ("NSNL Completion");

·      £20.0 million satisfied by the issue of 25,826,746 Consideration Shares at a price of 77.4p per share;

·      Deferred consideration of £18.9 million, £16.0 million, £17.1 million and £7.0 million payable on the second, third, fourth and fifth anniversaries, respectively, of NSNL Completion;

·      The consideration payable for the acquisition of the 50% equity interest in the issued ordinary share capital of Independent Star Limited will be cash of £4.5 million payable on completion of such acquisition; and

·      The consideration payable for the acquisition of the issued ordinary share capital of International Distribution 2018 Limited will be cash of £0.5 million payable on completion of such acquisition.

In addition, an upfront payment of £41.2 million will also be made on NSNL Completion to the Northern & Shell Pension Schemes and a recovery plan through to 2027 has been agreed with total payments of £29.2 million.

Trinity Mirror will fund the cash element of the purchase price, the contributions to the Northern & Shell Pension Schemes and transaction costs by the utilisation of a new £75 million amortising term loan facility, which will be fully drawn, with the balance being drawn down from its existing debt facility and cash balances.

Following the Acquisition, the Enlarged Group will have a robust balance sheet and leverage not increasing beyond one times EBITDA.

Circular to Shareholders and Notice of General Meeting

Further details of the Acquisition, together with a notice convening a General Meeting on 27 February 2018 to approve the Acquisition, will be contained in a circular that will be sent to shareholders today (the "Circular"). The Circular will include a recommendation from the Board of Trinity Mirror that shareholders vote in favour of the Acquisition. If approved by the shareholders, NSNL Completion is expected to take place on 28 February 2018

 A call for analysts and shareholders will be held today at 8.30am (telephone number: [phone] or 0800 279 7204; confirmation code: 7209297). The webex can be accessed at the URL: https://edge.media-server.com/m6/p/nbwzgfpg.

¹Based on adjusted earnings per share

Enquiries:

Trinity Mirror plc	020 7293 3553
Simon Fox, Chief Executive
Vijay Vaghela, Group Finance Director

Numis	020 7260 1000
Financial Adviser, Sponsor and Broker
Nick Westlake, Mark Lander, Michael Wharton, Hugo Rubinstein

Brunswick	020 7404 5959
Nick Cosgrove, William Medvei

Trinity Mirror plc

Proposed acquisition of Northern & Shell's publishing assets

Trinity Mirror's strategy

Trinity Mirror is one of UK's largest commercial news publishers with national and regional news brands across the UK, including influential and iconic brands such as the Daily Mirror, Sunday Mirror, Sunday People, Daily Record, Sunday Mail and market leading regional titles in key metropolitan markets across the country. Trinity Mirror's brands have a long heritage of being trusted sources of news and information, with our editorial conviction and high standards of journalism providing audiences with timely information and opinion across multiple platforms.

Trinity Mirror's vision is "to be an essential part of people's daily lives by delivering quality content and services that inform, enlighten and enrich". To deliver this vision it is clear that quality content is and will remain at the heart of Trinity Mirror's business. At the same time, Trinity Mirror's businesses operate in the rapidly evolving media sector and face a challenging trading environment, which continues to place structural pressure on its print-related revenue while at the same time presenting opportunities to grow its digital revenue.

In this regard, Trinity Mirror's strategy is to grow, build, protect and consolidate its strong position in the communities it serves through four key areas of strategic focus:

·           Grow: grow digital audience and revenue through deepening relationships with readers and optimising response for advertisers;

·           Build: build a diversified product portfolio and sustainable mix of new revenue;

·           Protect: protect our print brands by efficiently delivering quality products; and

·           Consolidate: seek out strategic opportunities that drive value.

Trinity Mirror's financial objective in the short term is to support profits and cash flows through revenue and efficiency initiatives and to deliver sustainable growth in revenue, profit and cash flow over the medium term.

The Board believes that growth from the continued focus on digital audience and revenue from Trinity Mirror's core news sites coupled with new revenue streams by building new products and services will begin to outstrip print declines on an aggregate basis, leading to a stabilisation of Trinity Mirror's revenues and then a return to top-line growth.  This, combined with Trinity Mirror's focus on efficiencies, makes the Board confident that the delivery of sustainable growth in revenue, profit and cash flow is achievable in the future, for the benefit of all stakeholders.

Background to, and strategic and financial rationale for, the Acquisition

Northern & Shell's publishing assets are also a significant force in the UK media sector, with a portfolio of newspapers and magazines which comprise four national newspaper titles (the Daily Express, Sunday Express, Daily Star and Daily Star Sunday) and three celebrity magazines (OK!, New! and Star) together with a 50% joint venture interest in the Irish Daily Star, outside the UK. Northern & Shell's publishing assets operate a print plant in Luton, serving its portfolio of newspapers as well as providing third-party printing services.

The Board believes Trinity Mirror is well positioned to drive value from acquiring Northern & Shell's publishing assets and that the Acquisition will create value for all stakeholders. The Acquisition is an attractive opportunity, which is consistent with Trinity Mirror's strategic objectives and goals and firmly fits into the fourth area of strategic focus - "Consolidate: seek out strategic opportunities that drive value".

As well as driving value for Shareholders, the increased scale of the Enlarged Group is anticipated to provide increased financial flexibility in the medium term for investment and meeting the Enlarged Group's pension obligations.

Key rationales for the Acquisition are to create a media business of scale to better serve our readers and advertisers and that is financially compelling and will deliver attractive returns to shareholders.

The following sections explain each reason in greater detail.

The Acquisition will create a media business of scale to better serve our readers and advertisers, enabling the Enlarged Group to:

i)              Improve its print and editorial propositions

The news industry continues to face significant structural changes which are threatening the long-term economic viability of smaller print publishers. By bringing the publishing assets of Trinity Mirror and Northern & Shell together, we will be better placed to serve our readers, both in print and in digital.

The Enlarged Group will be able to improve its editorial propositions by reducing duplication, sharing content across the Enlarged Group and widening the breadth of our coverage with larger combined teams.

ii)             Provide advertisers and agencies with a large, high quality audience

The Acquisition will add another four national newspapers (two dailies and two Sundays) and three paid-for weekly magazines to our five national newspapers.

The Enlarged Group's digital portfolio will comprise a network of publishing websites delivering 234 million monthly unique browsers (excluding apps) and 963 million monthly page views (excluding apps and galleries)² as at December 2017 with over 50 per cent. of its online audience based in the UK.  The Acquisition will therefore lend considerable strength to Trinity Mirror's digital portfolio, enabling Trinity Mirror to provide a more compelling offering for digital advertisers and therefore to compete more effectively with the global scale of the digital platforms.

The Express.co.uk and Dailystar.co.uk websites achieved 280 million page views in December 2017 compared to 649 million for the Trinity Mirror websites (excluding apps and galleries). 

² Note: on an aggregated non de-duplicated basis

iii)            Improve its digital products through shared investment and best practice

The Acquisition will enable the sharing of best practices, content and resources across both businesses.  We will retain the distinct editorial propositions of each of the four national newspaper sites to ensure that each has its own editorial and audience focus thereby enabling us to minimise editorial duplication and maximise digital revenue.

As Trinity Mirror has demonstrated with the Local World acquisition, by sharing digital and other technology there is an opportunity to deliver improved digital products for all brands and benefit from efficiencies when doing so through shared investment.

The Acquisition is financially compelling and will deliver attractive returns to shareholders as the Enlarged Group will:

(i)            Have a more robust revenue mix

The Enlarged Group will have a more robust revenue mix, placing less reliance on the most structurally challenged revenue stream, print advertising, and having a greater proportion of circulation revenue where volume declines are partially mitigated by cover price increases. Enders Analysis has forecast national print advertising revenue to decline by 13 per cent. in 2018, whilst circulation revenues have proven to be more resilient historically even though volumes remain under pressure.

Following the Acquisition, circulation revenue will represent nearly half of the Enlarged Group's revenue.  In 2016, circulation revenue for Trinity Mirror and Northern & Shell's publishing assets represented 43.6 per cent. and 61.2 per cent. respectively of total revenue of each group.

In addition to the higher proportion of revenue arising from circulation, Northern & Shell's publishing assets have a significantly lower proportion of total advertising revenue accruing from print and digital classified advertising (5.4 per cent. in 2016 compared to 19.5 per cent. of total revenue for Trinity Mirror in 2016). 

(ii)           Deliver cost synergies

Trinity Mirror has a proven track record of successful, efficient and value accretive acquisitions.  Most recently this has been demonstrated by the Local World acquisition in November 2015 where Trinity Mirror delivered synergies of £15 million, £3 million ahead of the £12 million target set out in the circular to shareholders on 28 October 2015, and has been able to significantly de-leverage within two years of the acquisition.  These synergies have been delivered by sharing best practice between Trinity Mirror and Local World and building on our experience of tightly managing the cost base over a number of years.   

The Enlarged Group will benefit from Trinity Mirror's track record of delivering synergies and successful cost management, creating scope for cost synergies.  Cost synergies are expected to arise through deploying know-how learnt during the delivery of historic structural costs savings in Trinity Mirror's own businesses, through the integration and future operation of certain activities on a group-wide basis across the Enlarged Group, and through the implementation of Trinity Mirror's tight management of the cost base.

Trinity Mirror management has experience of operating a large stable of different news brands under a single combined management structure. There will be no reduction in media plurality following the Acquisition as each newspaper brand will continue with its current editorial positioning, ensuring that it continues to present the editorial content to which its readers and advertisers are accustomed. Trinity Mirror currently operates over 100 news brands and Trinity Mirror's policy is that each is free to take its own editorial position on politics and current affairs, bearing in mind the opinions of their readers. Trinity Mirror does not interfere in the editorial positions of its titles, which remain firmly the responsibility of the individual titles' editors and their senior editorial teams.

It is anticipated that cost savings will be achieved following the Acquisition, and that a full run rate of £20 million before tax per annum will be achieved by 2020, with a significant amount of these savings achieved in 2019.  The synergy savings are expected to accrue in the areas of content generation (£9.3 million), cost of advertising sales (£4.3 million), digital and technology costs (£2.1 million), printing and distribution (£3.3 million) and management and central costs (£1.0 million).

It is anticipated that total restructuring costs of £16 million and capital expenditure of £4 million will be incurred across the first and second years of ownership in order to deliver these cost savings.

The synergies identified above reflect both the beneficial elements and the relevant costs that will arise as a result of the Acquisition.  The synergies are contingent on the Acquisition and could not be achieved by Trinity Mirror and Northern & Shell's publishing assets operating independently.

The synergies represent circa 3 per cent. of the Northern & Shell's publishing assets and Trinity Mirror estimated combined adjusted 2017 cost base (after separation adjustments).

(iii)          Generate strong cash flows and be materially earnings enhancing

The purchase consideration of £126.7 million, plus the contributions agreed to be paid to the Northern & Shell Pension Schemes, implies an enterprise value of £184.2 million and an EBITDA multiple pre anticipated synergies of 5.4 times on the estimated 2017 adjusted performance (after separation adjustments). Post anticipated synergies, this implies a multiple of 3.4 times on the estimated 2017 adjusted performance (after separation adjustments). It is anticipated that the Acquisition will be materially earnings enhancing in the first full year following the acquisition of Northern & Shell Network Limited and will strengthen the strong cash generative nature of the Enlarged Group for investment, continued support for the Enlarged Group's historic defined benefit pension scheme liabilities and potential return of capital to shareholders. For the purposes of earnings enhancement, the Company regards the relevant metric as Adjusted EPS.

Information on Northern & Shell's publishing assets

Portfolio

The Northern & Shell publishing portfolio comprises the following titles:

·           Daily Express and Sunday Express;

·           Daily Star and Daily Star Sunday;

·           Express.co.uk and Dailystar.co.uk websites;

·           paid for celebrity magazines OK!, New! and Star;

·           ok.co.uk, new-magazine.co.uk and star-magazine.co.uk websites; and

·           the Irish Daily Star (through a 50% equity interest in Independent Star Limited).

Latest reported circulation and audience for the portfolio are shown below:

		Average volumes			Cover price
Print portfolio		thousands			GBp
Newspapers		Dec-17			Dec-17
Daily Express		365			55 (Mon-Fri), 80 (Sat)
Sunday Express		318			140
Daily Star		392			30 (Mon-Fri), 50 (Sat)
Daily Star Sunday		240			90
Magazines		Jun-17			Jun-17
OK! UK		168			200
New ! Magazine		183			135
Star Magazine		108			130
		Unique browsers			Page views
Digital portfolio		millions			millions
		Dec-17			Dec-17
express.co.uk		71			205
dailystar.co.uk		26			75
ok.co.uk, new-magazine.co.uk, star-magazine.co.uk			8		34
Source: ABC (Print), Google Analytics (Digital)
Note: Figures for unique browsers are excluding apps and figures for page views are excluding apps and galleries.

Financial performance

The performance of Northern & Shell's publishing assets over 2014 to 2016 has been affected by cover price discounting for its newspapers which has adversely impacted its circulation revenue and profitability. The cover prices of the Daily Star Monday to Friday, Daily Star Saturday and Daily Star Sunday were halved to 20 pence, 30 pence and 50 pence respectively during October 2015. The cover prices of the Daily Express Monday to Friday (in Scotland only) and Daily Express on Saturday were reduced to 30 pence and 45 pence respectively in December 2015 and January 2016. There were marginal increases in cover prices during July and August 2016 but not to the levels prior to the 2015 cover price discounting. The reduction in cover prices has increased circulation volumes through an increase in the frequency of purchase. There were no cover price changes in 2017 and no further cover price changes have been implemented up to the date of this announcement.

Revenue declined by 11.8 per cent. in 2015 and by 12.0 per cent. in 2016 reflecting both a fall in circulation revenue as a result of cover price discounting and a fall in print advertising revenue.  Circulation revenue has increased in 2017 as a result of the partial reversal of cover price discounts during 2016. Strong growth in digital revenue has been supported by strong audience growth.

To facilitate the separation of Northern & Shell's publishing assets from the wider Seller group, Trinity Mirror and the Seller will enter into commercial agreements at NSNL Completion in relation to advertising and production services. The Seller has committed to purchase advertising services from Northern & Shell and/or Trinity Mirror for a period of five years to December 2022 to the value of approximately £32 million. Trinity Mirror has committed to purchase TV advertising and production services through the Seller during 2018 to the value of approximately £4 million.

To further facilitate the separation of Northern & Shell's publishing assets from the wider Seller group, Northern & Shell and the Seller will enter agreements at or prior to NSNL Completion including:

·           a new 10 year lease with a five year break for the premises currently occupied by Northern & Shell at 10 Lower Thames Street, London, a property owned and managed by Badger Property Partners LLP (of which Mr R.C. Desmond is a member); and

·           the transfer of staff and resources currently employed by Northern & Shell who work on non-publishing and/or corporate head-office activities for the Seller group, which are being retained by the Seller.

The impact of these separation arrangements on actual and estimated revenue figures for Northern & Shell's publishing assets for the financial years ended 31 December 2016 and 31 December 2017 is £0.4 million and £1.8 million respectively. The impact of these separation arrangements on the adjusted EBITDA actual and estimated figures for Northern & Shell's publishing assets for the financial years ended 31 December 2016 and 31 December 2017 is £18.2 million and £16.7 million respectively.

The results for 2016 were revenue and adjusted EBITDA (after separation adjustments) of £190.3 million and £31.2 million, respectively. The Directors estimate that for 2017 Northern & Shell's publishing assets generated revenue marginally ahead of 2016 and adjusted EBITDA of circa. £34 million (after separation adjustments). These estimates demonstrate a significant improvement in performance since the partial reversal in 2016 of the cover price reductions.

The revenue and adjusted EBITDA (after separation adjustments) estimated for the financial year ended 31 December 2017 are based on the unaudited management accounts of Northern & Shell's publishing assets for that period. The estimates for 2017 have been compiled on the basis used to prepare the audited statutory accounts and adjusted results for 2016. The basis of accounting used is consistent with the accounting policies of Trinity Mirror. The Directors have assumed for this purpose that the audit of Northern & Shell financial information for the financial year ended 31 December 2017 will not require any material adjustments or reveal any unforeseen matters that would have a material impact on the estimated revenue and adjusted EBITDA. This assumption is, however, outside the control of the Directors.

As part of the Acquisition, Trinity Mirror will also assume the historical liabilities relating to the Northern & Shell Pension Schemes. These schemes had a total deficit of £31.3 million on an IAS19 basis at 31 December 2016 and had a valuation deficit of £63.6 million at their last actuarial valuations.

New deficit contribution recovery plans have been agreed with the trustees of the Northern & Shell Pension Schemes as part of the Acquisition and, in aggregate, these require an upfront contribution of £41.2 million and annual contributions of £1.9 million each year from 2018 to 2020, £4.1 million per annum from 2021 to 2023, £3.3 million per annum from 2024 to 2026 and £1.3 million in 2027. Post tax, these contributions equate to £57.5 million in total.

Summary of the key terms of the Acquisition

Under the terms of the Share Purchase Agreement, Trinity Mirror will (subject to the satisfaction of certain Conditions) acquire Northern & Shell's publishing assets from the Seller for a total purchase price of £126.7 million.

The purchase consideration of £126.7 million will be satisfied by the payment to the Seller of, in aggregate, £106.7 million in cash and the balance of £20.0 million by the allotment and issue to the Seller of 25,826,746 Consideration Shares.

Northern & Shell comprises three separate businesses: Northern & Shell Network Limited and its subsidiaries, International Distribution 2018 Limited and the 50% equity interest in the issued ordinary share capital of Independent Star Limited. Independent Star Limited is a 50:50 joint venture between Express Newspapers and Independent News and Media Plc which publishes and sells the Irish Daily Star newspaper (Monday to Saturday) in the Republic of Ireland. International Distribution 2018 Limited sells the Daily Express, the Sunday Express, the Daily Star Sunday and celebrity magazines OK!, New! and Star in the Republic of Ireland.

The cash component of the consideration for the acquisition of Northern & Shell Network Limited will be paid as to £42.7 million on NSNL Completion and as to £59.0 million in four tranches of £18.9 million, £16.0 million, £17.1 million and £7.0 million on the second, third, fourth and fifth anniversaries, respectively, of NSNL Completion. 

The Consideration Shares will be allotted and issued to the Seller at NSNL Completion based on a reference price of 77.4 pence per share.  The Consideration Shares represent 9.4 per cent. of Trinity Mirror's existing issued ordinary share capital.

The consideration payable for the acquisition of Northern & Shell Network Limited will be subject to an adjustment following NSNL Completion once the completion accounts, which will be prepared by Trinity Mirror, have been finalised in accordance with the Share Purchase Agreement. 

The Seller has entered into a Standstill and Lock-up Agreement which means that, for a period of 12 months following NSNL Completion, the Seller's group will (subject to certain exceptions) be restricted from acquiring, or causing another to acquire, an interest of any kind whatsoever in any Ordinary Shares or other securities of the Company. The Seller's group will also be subject to a lock-in in respect of any disposal of Ordinary Shares or any securities convertible into or exchangeable for Ordinary Shares for a period of 6 months following NSNL Completion, subject to certain exceptions including accepting a general offer to all holders of Ordinary Shares made in accordance with the City Code, making a disposal of Ordinary Shares to an affiliate (provided certain conditions are satisfied), and with the consent of the Company, including to enable the Seller to satisfy liabilities under the Share Purchase Agreement. The Seller's group has undertaken that for the period of 6 months following the expiry of such lock-in period it shall only affect disposals of the Consideration Shares through the Company's brokers and in accordance with the requirements of the Company's brokers so as to maintain an orderly market in the Company's publicly traded securities.

The consideration payable for the acquisition of the 50% equity interest in the issued ordinary share capital of Independent Star Limited will be an amount in cash of £4.5 million payable on completion of such acquisition.

The consideration payable for the acquisition of the issued ordinary share capital of International Distribution 2018 Limited will be an amount in cash of £0.5 million payable on completion of such acquisition.

Completion of the acquisition of Northern & Shell Network Limited is conditional upon satisfaction of certain Conditions, including shareholder approval and admission of the Consideration Shares of the Official List. Completion of the acquisitions of International Distribution 2018 Limited and the 50% equity interest in Independent Star Limited are both conditional on the completion of the acquisition of Northern & Shell Network Limited and additionally receipt of necessary competition clearances in the Republic of Ireland. Completion of the acquisition of Northern & Shell Network Limited, which does not have operations in the Republic of Ireland, is not conditional on Republic of Ireland competition clearance being obtained.

Transaction costs of some £7 million will be incurred by Trinity Mirror in relation to the Acquisition.

The Share Purchase Agreement contains customary warranties, covenants, undertakings and conditions for a transaction of this nature.

Financial effects of the Acquisition

The Board believes that the Acquisition will generate considerable value for shareholders, with increased financial flexibility in the medium term, increased scale and cost synergies.

The key financial implications of the Acquisition are as follows:

·           following the Acquisition, the Enlarged Group will have a robust balance sheet with pro forma net assets of £635.3 million and leverage not increasing beyond one times;

·           materially earnings-enhancing in the first full year following the Acquisition;

·           strong cash generation, which provides financial flexibility for investment, continued support for the Enlarged Group's historic defined benefit pension scheme liabilities and potential return of capital to shareholders; and

·           recurring cost synergies, which will further enhance the financial strength of the Trinity Mirror Group.

Financing of the Acquisition

Trinity Mirror will fund the cash element of the purchase price, the contributions to the Northern & Shell Pension Schemes and transaction costs by utilisation of a new £75 million amortising term loan facility, which will be fully drawn, with the balance being drawn down under its existing debt facility and cash balances.

Current Trading and Prospects

Trinity Mirror

On 9 February 2018 Trinity Mirror released the following trading update:

"Trinity Mirror is today issuing a trading update in respect of the unaudited results for the 52 weeks ended 31 December 2017 ahead of announcing the audited results for 2017 on 5 March 2018.

The figures quoted in this announcement are unaudited and are subject to final approval by the Board and completion of the audit.

2017 results

The Board anticipates adjusted* results for 2017 to be marginally ahead of consensus** forecasts.

Group revenue*** for 2017 on a like for like basis is expected to fall by 9% year on year, broadly in line with the 9% decline in the first half.

	H1	Q3	Q4	H2	FY
Publishing	(10)%	(8)%	(8)%	(8)%	(9)%
Print	(12)%	(10)%	(11)%	(11)%	(11)%
Digital	6%	4%	12%	8%	7%
Total Group Revenue	(9)%	(8)%	(9)%	(8)%	(9)%

Publishing revenue is expected to fall by 9% with an improvement in the rate of decline in the second half to 8% compared to a decline of 10% in the first half. Publishing digital revenue growth of 7% reflects improved growth of 8% in the second half compared to 6% growth in the first half. The improvement in the rate of growth in Publishing digital is driven by a strong fourth quarter growth of 12% with display and transactional growth of 22%.

Net debt

Strong cash generation continued throughout the year which enabled net debt to fall to circa £10 million at the end of 2017.

Pensions

The IAS 19 pension deficit at 31 December 2017 is expected to be £378 million, a reduction of £88 million from the 2016 year end. The fall in the deficit has been driven by strong asset returns and a change in mortality assumptions which has been partially offset by a further reduction in discount rates.

Dividends

The Board expects to propose a final dividend of 3.55 pence per share for 2017, which together with the interim dividend of 2.25 pence per share represents a full year dividend of 5.80 pence per share, a year on year increase of 6.4%.

Historical legal issues

The costs associated with the settlement of civil claims in relation to phone hacking have been higher than expected, in particular the legal fees of the claimants' lawyers and the general court process. Therefore, we have increased the provision for settling these historical claims by a further £3.0 million. This is in addition to the £7.5 million increase in the provision at the half year resulting in a total charge of £10.5 million for the full year.

Although there remains uncertainty as to how these matters will progress, the Board remains confident that the exposures arising from these historical events are manageable and do not undermine the delivery of the Group's strategy.

Outlook for 2018

At this early stage in the year, performance for 2018 is expected to be in line with market expectations.

The statement on future performance is given as at the date of this announcement and is subject to a number of risks and uncertainties and actual results and events could differ materially from those currently being anticipated as reflected in the statement. The Company undertakes no obligation to update this forward-looking statement other than as required by the Prospectus Rules, Listing Rules, MAR and the Disclosure Guidance and Transparency Rules, as appropriate.

*     On an adjusted basis excluding non-recurring items, restructuring charges in respect of cost reduction measures, the amortisation of intangible assets, the pension administrative expenses, the retranslation of foreign currency borrowings, the impact of fair value changes on derivative financial instruments, the pension finance charge and the impact of tax legislation changes.

**    Market expectation for adjusted operating profit and adjusted earnings per share are £121 million and 34.6 pence per share respectively. This profit estimate for 2017 has been compiled on the basis of accounting consistent with the accounting policies of Trinity Mirror. The Directors have assumed for this purpose that the audit of Trinity Mirror's financial information for the 52 weeks ended 31 December 2017 will not require any material adjustments or reveal any unforeseen matters that would have a material impact on adjusted operating profit and adjusted earnings per share. The assumptions used in making this profit estimate are within the control of the Directors.

*** The like for like trends for 2017 exclude from 2017 the portfolio changes made in the year and excludes from the 2016 comparative: the extra week of trading in 2016, the Independent print and distribution contract which ceased in April 2016, Rippleffect which was sold in August 2016, the four Metros handed back to DMGT in December 2016 and other portfolio changes in 2016 and 2017."

Northern & Shell's publishing assets

Northern & Shell's publishing assets performed well in 2017 despite continued pressure on its print advertising revenues.

Total revenues (after separation adjustments) are estimated to have marginally increased in 2017, with growth in newspaper circulation revenues (arising from the partial reversal of cover price discounting) and digital revenues offsetting declines in print advertising revenues. Adjusted EBITDA (after separation adjustments) is estimated to be circa. £34 million, benefiting from operational and strategic reductions in printing and production, marketing and other operating costs.

Pensions

Trinity Mirror

Trinity Mirror has three defined benefit pension schemes which were all closed to future accrual on 31 March 2010.

The deficits of the Trinity Mirror Pension Schemes at the triennial valuation as at 31 December 2016 which were agreed in December 2017 and finalised in January 2018 are set out below:

Triennial Valuation	Assets	Liabilities	Deficit
	£m	£m	£m
MGN Pension Scheme	842.0	(1,318.0)	(476.0)
Trinity Retirement Benefit Scheme	452.5	(530.5)	(78.0)
Midland Independent Newspapers Pension Scheme	200.3	(268.5)	(68.2)
	1,494.8	(2,117.0)	(622.2)

The assets, liabilities, and deficits of the Trinity Mirror Pension Schemes on an IAS19 basis as at 31 December 2017 are as follows:

IAS19 Accounting	Assets	Liabilities	Deficit
	£m	£m	£m
MGN Pension Scheme	914.1	(1,236.7)	(322.6)
Trinity Retirement Benefit Scheme	447.6	(455.1)	(7.5)
Midland Independent Newspapers Pension Scheme	189.9	(237.4)	(47.5)
	1,551.6	(1,929.2)	(377.6)
Representing	Assets	Liabilities	Deficit
	£m	£m	£m
Liabilities matching insurance contracts	182.1	(182.1)	-
Other invested assets	1,369.5	(1,747.1)	(377.6)
	1,551.6	(1,929.2)	(377.6)

The 31 December 2016 triennial valuations for the Trinity Mirror Pension Schemes were agreed during December 2017 and all the relevant documentation was finalised in January 2018. The recovery plans agreed for the valuation require annual contributions of £43.8 million per annum from 2018 to 2027.

On and subject to NSNL Completion, as a result of the transaction, the recovery plans will be revised with contributions increased by £3.2 million per annum for 2018 to 2020 and £8.2 million per annum for 2021 to 2027, bringing total contributions to £47.0 million per annum from 2018 to 2020 and £52.0 million per annum from 2021 to 2027, totalling a post-tax value of £417.0 million. The increased contributions reflect a sharing of the financial benefits arising from the Acquisition.

Northern & Shell

Northern & Shell has three defined benefit pension schemes.  Two schemes were closed to future accrual on 31 December 2008 and one scheme on 28 February 2010.

The deficits of the Northern & Shell Pension Schemes at the last triennial valuation are set out below:

Triennial Valuation			Assets	Liabilities	Deficit
			£m	£m	£m
Express Newspapers 1988 Pension Fund (5/4/15)			456.2	(511.3)	(55.1)
Express Newspapers Senior Management Pension Fund (5/4/15)			21.0	(23.7)	(2.7)
West Ferry Printers Pension Scheme (31/12/14)			294.0	(299.8)	(5.8)
			771.2	(834.8)	(63.6)

The assets, liabilities, surpluses and deficits of the Northern & Shell Pension Schemes at 31 December 2016 are set out below:

IAS19 Accounting		Assets	Liabilities	Surplus/(Deficit)	Balance Sheet
		£m	£m	£m	£m
Express Newspapers 1988 Pension Fund		493.0	(522.8)	(29.8)	(29.8)
Express Newspapers Senior Management Pension Fund		22.7	(21.3)	1.4	1.4
West Ferry Printers Pension Scheme		237.4	(225.0)	12.4	(2.9)
		753.1	(769.1)	(16.0)	(31.3)

Representing		Assets	Liabilities	Surplus/(Deficit)	Balance Sheet
		£m	£m	£m	£m
Liabilities matching insurance contracts		161.5	(161.5)	-	-
Other invested assets		591.6	(607.6)	(16.0)	(31.3)
		753.1	(769.1)	(16.0)	(31.3)

As a result of the transaction, the recovery plans for the Northern & Shell Pension Schemes have been revised ahead of completing the next valuations in 2018. On and subject to NSNL Completion, an upfront payment of £41.2 million will be made to the Northern & Shell Pension Schemes and contributions of £1.9 million per annum from 2018 to 2020, £4.1 million per annum from 2021 to 2023, £3.3 million per annum from 2024 to 2026 and £1.3 million in 2027 will be payable. Future triennial valuations for Northern & Shell Pension Schemes will be aligned to Trinity Mirror Pension Schemes.

The revised recovery plans reflect agreed mitigation for any potential detrimental impact on the employer covenant as a result of the transaction which is driven by the requirement for all material Northern & Shell subsidiaries to guarantee the financial indebtedness of the Trinity Mirror Group under Trinity Mirror's new and existing debt facilities.

Trinity Mirror had a policy in place with the Trinity Mirror Pension Schemes by which additional contributions are paid to those schemes in respect of a special distribution (a distribution to shareholders that is over and above a normalised dividend) in 2015, 2016 and 2017. Additional contributions would have been paid at 50% of the excess if dividends in 2015 were above 5.00 pence per share. For 2016 and 2017 the threshold increased in line with the increase in dividends capped at 10% per annum. No payments were paid in respect of the dividends paid in 2015, 2016 and 2017. Alongside the £10 million share buyback announced in August 2016, Trinity Mirror agreed to contribute a minimum of £5 million or up to a maximum of 75% of the share buyback as additional funding to the Trinity Mirror Pension Schemes. Trinity Mirror paid £5.0 million in 2016 and paid £2.5 million in 2017.

As part of agreeing the 31 December 2016 triennial valuations for the Trinity Mirror Pension Schemes, Trinity Mirror has a policy in place with the Trinity Mirror Pension Schemes by which additional contributions are paid to those schemes in respect of a special distribution (a distribution to shareholders that is over and above a normalised dividend) in 2018, 2019 and 2020. Additional contributions will be paid at 50% of the excess if dividends in 2018 are above 6.16 pence per share. For 2019 and 2020 the threshold increases in line with the increase in dividends capped at 10% per annum.

The Northern & Shell Group had entered into a profit sharing arrangement with some of the Northern & Shell Pension Schemes by which additional contributions are paid depending on the Northern & Shell Group's free cash flows. No additional contribution was paid in respect of 2016 and none is payable in respect of 2017. 

As a result of the transaction, a revised dividend sharing policy will be adopted by Trinity Mirror which will replace the existing policy for the Trinity Mirror Pension Schemes and the profit sharing arrangements for the Northern & Shell Pension Schemes. Under the revised policy, additional contributions will be paid to the schemes in respect of a special distribution (a distribution to shareholders that is over and above a normalised dividend) in 2018, 2019 and 2020. Additional contributions will be paid at 75% of the excess if dividends in 2018 are above 6.16 pence per share. For 2019 and 2020 the threshold will increase in line with the increase in dividends capped at 10% per annum.

Trinity Mirror has and will continue to commit that the aggregate of dividends and distributions to Shareholders in any calendar year will not exceed the aggregate contributions to the defined benefit pension schemes.

The Pensions Regulator confirmed in a letter dated 16 November 2017 to Frank Field MP that it was aware of the possibility of the transaction and was working with all relevant parties to assess the impact of the potential Acquisition on both the Northern & Shell Pension Schemes and the Trinity Mirror Pension Schemes and, if relevant, what mitigation would be appropriate.  

The Company and Northern & Shell met and corresponded with the Pensions Regulator as part of the negotiation phase of the transaction process. The Company also met and consulted with all six sets of pension scheme trustees who also, separately, interacted with the Pensions Regulator. 

As described above, a package of higher contributions and a revised dividend sharing policy will be put in place for the six schemes as a result of the transaction.   The Company, Northern & Shell and the six sets of pension scheme trustees, following comprehensive engagement with the Pensions Regulator, consider this package to be appropriate.

Dividend Policy of the Enlarged Group

Trinity Mirror paid a final dividend for 2016 of 3.35 pence per Ordinary Share on 9 June 2017, and an interim dividend for 2017 of 2.25 pence per Ordinary Share was paid on 29 September 2017. Total dividend payments in 2017 amounted to £15.3 million.  This is in line with the progressive dividend policy aligned to free cash generation by the business. The free cash generation for the purposes of assessing the dividend is the net cash flow generated by Trinity Mirror before the repayment of debt, dividend payments, other capital returns to Shareholders and additional contributions made to the Trinity Mirror Pension Schemes as a result of any substantial increase in dividends and/or capital returns to Shareholders. When setting the level of dividends the Board will ensure that Trinity Mirror maintains adequate headroom for investment and any unexpected cash flow requirements for historical events or to fund further restructuring.  Based on the Board's expectations of future cash flows, the Board expects dividends to increase by at least five per cent. per annum. Trinity Mirror's dividend policy will not be affected by the Acquisition.

Settlement of, and listing and dealing in, the Consideration Shares

The Consideration Shares will be issued at NSNL Completion, credited as fully paid and will rank pari passu in all respects with the Ordinary Shares, including the right to receive all dividends, distributions or any return of capital declared, made or paid after NSNL Completion.

IMPORTANT NOTICES

This announcement contains inside information as defined under the Market Abuse Regulation (EU) No. 596/2014 ("MAR").

This announcement has been issued by, and is the sole responsibility of, Trinity Mirror.

This announcement is for information purposes only and is not intended to and does not constitute or form part of any offer or invitation to purchase or subscribe for, or any solicitation to purchase or subscribe for, Ordinary Shares, including the Consideration Shares, in any jurisdiction.

No person has been authorised to give any information or make any representations other than those contained in this announcement and, if given or made, such information or representations must not be relied upon as having been authorised by or on behalf of the Company or Numis Securities Limited ("Numis"). Neither the Company nor Numis take any responsibility or liability for, and can provide no assurance as to the reliability of, other information that you may be given. The contents of this announcement are not to be construed as legal, business or tax advice. Each Shareholder should consult their own legal adviser, financial adviser or tax adviser for legal, financial or tax advice respectively.

This announcement is not an offer of securities for sale in the United States and there will be no public offer of securities in the United States. The securities discussed herein have not been and will not be registered under the US Securities Act of 1933, as amended (the "Securities Act") or under the securities law of any state or other jurisdiction of the United States and may not be offered or sold, directly or indirectly, in or into the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and otherwise in compliance with any applicable securities laws of any state or other jurisdiction of the United States. Neither the Ordinary Shares nor the Consideration Shares have been approved or disapproved by the US Securities and Exchange Commission, any state securities commission or any US regulatory authority, nor have such authorities reviewed or passed upon the adequacy or accuracy of this announcement. Any representation to the contrary is a criminal offence in the United States.

This announcement contains (or may contain) statements that are, or may be deemed to be, "forward-looking statements". Forward-looking statements are based on current expectations and projections about future events and other matters that are not historical fact. These forward-looking statements are sometimes identified by the use of a date in the future or forward-looking terminology, including, but not limited to, the words "aim", "anticipate", "believe", "intend", "plan", "estimate", "expect", "may", "target", "project", "will", "could" or "should" or, in each case, their negative or other variations or words of similar meaning. These forward-looking statements include matters that are not historical facts and include statements that reflect the Directors' intentions, beliefs and current expectations. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future or are beyond Trinity Mirror's control. They are not guarantees of future performance and are based on one or more assumptions.

Forward-looking statements appear in a number of places throughout this Announcement and include statements regarding the intentions, beliefs or current expectations of Trinity Mirror concerning, without limitation: current and future years' outlook; revenue and revenue trends; EBITDA; capital expenditure; shareholder returns including progressive dividends; net debt; credit ratings; Trinity Mirror's investment in print and digital media; enhancing Trinity Mirror's portfolio of print and digital businesses; the performance and growth of, and opportunities available in, print and digital media and Trinity Mirror's positioning to take advantage of those opportunities; expectations regarding competition, market shares, prices and growth; Trinity Mirror's possible or assumed future results of operations and/or those of its associates and joint ventures; investment plans; anticipated financial and other benefits and synergies resulting from the Acquisition, including revenue, operating cost and capital expenditure synergies; and Trinity Mirror's plans and objectives following the Acquisition.

Statements contained in this announcement regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. Any forward-looking statements in this announcement reflect Trinity Mirror's view with respect to future events as at the date of this announcement and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the conditions to the Acquisition being satisfied, increased leverage as a result of the Acquisition, Trinity Mirror's ability to integrate the businesses and retention of key personnel, the successful realisation of the anticipated synergies and strategic benefits and an adequate return on its investment from the Acquisition, consumer behaviour, maintenance of Northern & Shell's performance and momentum in its business throughout integration and Trinity Mirror's operations, result of operations, financial condition, growth, strategy,  the industry in which Trinity Mirror operates, and the other risk factors highlighted in this announcement. No assurances can be given that the forward-looking statements in this announcement will be realised. Trinity Mirror's actual performance, results of operations, internal rate of return, financial condition, distributions to shareholders, the development of its financing strategies and the results or eventual success of the Acquisition may differ materially from the impression created by the forward-looking statements contained in this announcement. In addition, even if Trinity Mirror's actual performance, results of operations, financial condition, distributions to Shareholders and results of the Acquisition are consistent with the forward-looking statements contained in this announcement, those results or developments may not be indicative of results or developments in subsequent periods.

Forward-looking statements contained in this announcement apply only as at the date of this announcement. Subject to any obligations under MAR, the Listing Rules and the Disclosure Guidance and Transparency Rules or any other applicable law or regulation, Trinity Mirror undertakes no obligation publicly to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

Numis, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting exclusively as sole sponsor, financial adviser and joint corporate broker to the Company and no one else in connection with the Acquisition, will not regard any other person (whether or not a recipient of this announcement) as a client in relation to the Acquisition and will not be responsible to anyone other than the Company for providing the protections afforded to its clients or for providing advice in relation to the Acquisition or any other transaction or arrangement referred to or contained in this announcement.

Aside from the responsibilities and liabilities, if any, which may be imposed under the FSMA or the regulatory regime established thereunder, or any other applicable regulatory regime, neither Numis nor any of its affiliates accept any responsibility or liability whatsoever for, and no representation or warranty, express or implied, is made by Numis in relation to the contents of this announcement, including its accuracy, fairness, completeness or verification, or for any other statement made or purported to be made by it, or on its behalf, in connection with the Company, the Acquisition, the Ordinary Shares or the Consideration Shares. Each of Numis and its affiliates accordingly disclaims any and all responsibility or liability, whether arising in tort, contract or otherwise (save as referred to above), in respect of this announcement or any such statement or otherwise.

The contents of Trinity Mirror's website, the website of Northern & Shell, or any website directly or indirectly linked to any of those websites do not form part of this announcement and should not be relied upon, without prejudice to the documents incorporated by reference into this announcement.

 

END

 

 

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