Proposed acquisitions and pla

RNS Number : 8593O

eXpansys Plc

06 July 2010

 

Embargoed for release at 07.01 hours, 6 July 2010

eXpansys plc

("eXpansys" or the "Company")

Proposed acquisitions and placing

Re-admission to AIM

Notice of General Meeting

The Board of eXpansys is pleased to announce that it has conditionally agreed to acquire the entire issued share capital of Data Select Network Solutions Limited ("DSNS") and PJ Media Limited ("PJ Media") for a combined consideration of £38 million and the placing of 535,714,286 new ordinary shares at 5.6 pence per share to raise £30 million before expenses.

An Admission Document containing details of these proposals is being posted to shareholders today and will be available on the Company's website: www.expansys.com.

Highlights

·     The Acquisitions of DSNS and PJ Media are the first stage in the strategy to become a global online technology superstore and provide the Company with strong relationships with network operators enabling the Company to offer both SIM-only and connected handset propositions.

·     The total combined consideration for the Acquisitions of £38 million is to be satisfied by an aggregate cash payment of approximately £13.4 million and by the issue of up to 442,364,707 Consideration Shares to the relevant Vendors, together with an obligation to pay approximately £10.8 million of debt owed by DSNS.

·     In order to satisfy the cash component of the consideration for the Acquisitions and to enable the Company to implement its strategy, the Board is also proposing to raise £30 million (before expenses) by way of a Placing of 535,714,286 Ordinary Shares at 5.6 pence per share.

·     The Board has been strengthened by the appointment of Bob Wigley, currently Chairman of Yell Group plc and former Chairman of Merrill Lynch EMEA as Non-Executive Chairman and Peter Jones CBE as Non-Executive Deputy Chairman.

·     By reason of the size and relative value of DSNS in relation to eXpansys, the acquisition constitutes a reverse takeover under the AIM Rules for Companies and will, therefore, require the approval of Existing Shareholders at a General Meeting to be held at 11.00 a. m. on 23 July 2010.

·     The Company will apply for re-admission of the existing ordinary shares and admission of the Consideration Shares and Placing Shares to trading on the AIM market of the London Stock Exchange.  It is expected that dealings will commence in the Enlarged Share Capital of the Company at 8 am on 26 July 2010.

Related Party Transaction

Peter Jones (a Director and substantial Shareholder) is a party to each of the Acquisition Agreements with the Company in his capacity as a shareholder of both DSNS and PJ Media. In addition, Stephen Vincent (a Director and has a beneficial interest in Ordinary Shares) is party to the PJ Media Acquisition Agreement as a result of his shareholding in PJ Media. He is also a director of, and has an interest in, DSNS.

Each of the Acquisitions constitutes a related party transaction for the purposes of AIM Rule 13. The Independent Directors, having consulted with Cenkos, the Company's Nominated Adviser, consider the terms of the Acquisitions to be fair and reasonable in so far as Shareholders are concerned.

Action to be Taken

Whether or not they intend to be present at the General Meeting, Shareholders are requested to complete and return the Form of Proxy which accompanies the Admission Document which is being sent to Shareholders today as soon as possible and in any event so as to be received by the Company's registrars, Computershare Investor Services plc, not later than 11:00 a.m. on 21 July 2010. Completion and return of the Form of Proxy will not prevent Shareholders, from attending the General Meeting and voting in person should they wish to do so.

Recommendation

The Independent Directors, having consulted with Cenkos, consider the terms of the Acquisitions to be fair and reasonable in so far as Shareholders as a whole are concerned.

The Directors, having consulted with Cenkos, consider the terms of the Placing to be in the best interests of the Company in so far as Shareholders as a whole are concerned. Accordingly, the Independent Directors unanimously recommend that Shareholders vote in favour of Resolution 2, and the Directors unanimously recommend that Shareholders vote in favour of Resolutions 1, 3 and 4.

Commenting on the Acquisitions, Anthony Catterson, CEO of eXpansys said: "This is a transformational moment for eXpansys.   I am delighted that we have been able to attract such high calibre individuals onto the Board, and have also received the support of blue-chip institutions who have joined the share register. This deal opens up a number of significant strategic opportunities for the Company that we fully intend to exploit."

For further information please contact:

eXpansys plc Anthony Catterson, CEO	Tel: [phone] [e-mail]
Tim Eltze, COO and Company Secretary	Tel: [phone] [e-mail]
Cenkos Securities plc Stephen Keys/Camilla Hume	Tel: [phone] [e-mail]
M:Communications Nick Miles/Ben Simons	Tel  [phone] [e-mail]
Investor relations website	www.expansys.plc.uk

About eXpansys

eXpansys are a leading online global consumer electronics superstore, operating directly in 50 countries with a vast range of products, a focused approach to service and value for its customers, and a fundamental belief that technology can change peoples lives.

Expected timetable of principal events:

Date of Admission Document	6 July 2010
Dispatch of Admission Document	6 July 2010
Latest time and date for receipt of Forms of Proxy for the General Meeting	11 a.m. on 21 July 2010
General Meeting	11 a.m. on 23 July 2010
Admission and commencement of dealings in Ordinary Shares on AIM	8 a.m. on 26 July 2010
Delivery of Ordinary Shares into CREST accounts in uncertificated form	26 July 2010
Dispatch of definitive share certificates (where appropriate)	by 2 August 2010

Definitions

The same definitions apply throughout this announcement as are applied in the Admission Document.  The Admission Document will be sent to shareholders today and is available on the Company's website:  www.expansys.com

Introduction

The Company is pleased to announce that it has conditionally agreed, subject, inter alia, to Shareholder approval at the General Meeting, to acquire the entire issued share capital of DSNS and PJ Media. DSNS is a privately owned, profitable UK based company focused on the sale of network airtime solutions, whilst PJ Media is a profitable company providing e commerce and web publishing solutions to a variety of corporate businesses. Following the Acquisitions, the Directors intend to capitalise upon the prospective opportunities available to the Enlarged Group and aim to develop the Enlarged Group into an international on-line consumer technology superstore. The total combined consideration for the Acquisitions is approximately £38 million to be satisfied by an aggregate cash payment of approximately £13.4 million and by the issue of up to 442,364,707 Consideration Shares to the relevant Vendors, together with an obligation to pay approximately £ 10.8 million of debt owed by DSNS.

In order to satisfy the cash component of the consideration for the Acquisitions and to enable the Company to implement its strategy, the Board is proposing to raise £30 million (approximately £28 million net of expenses) by way of a Placing of 535,714,286 Ordinary Shares at 5.6 pence per share. The acquisition of DSNS constitutes a reverse takeover under the AIM Rules by virtue of the size of the transaction and is, therefore, subject to the approval of the Shareholders. Such approval is being sought at the General Meeting, which has been convened for 23 July 2010.

If the Resolutions are duly passed at the General Meeting, and the other conditions set out in the Placing Agreement and Acquisition Agreements are met, application will be made for the Enlarged Share Capital to be admitted to trading on AIM. It is expected that the Enlarged Share Capital will be admitted to trading on AIM on 26 July 2010.

Background to and reasons for the Acquisitions

Since eXpansys' flotation in April 2007, the Company has encountered mixed fortunes, with the Company's progress being impacted by unsuccessful acquisitions and investments that were made by the Company's previous management. Despite this, however, eXpansys delivered over 720,000 products to over 150,000 customers in over 130 different countries through its global infrastructure in the year to 30 April 2010.

In March 2008, VPS, a company ultimately controlled and owned by Peter Jones, acquired a 22.1 per cent. stake in the Company. This was increased further following a placing to raise approximately £2 million in June 2009. Pursuant to subsequent transfers and a further acquisition of Ordinary Shares in January 2010, Peter Jones now has an interest in approximately 75 per cent. of the issued share capital of the Company.

Following the completion of the placing in June 2009, Stephen Vincent joined the Board as a Non-Executive Director and, more recently, the business has been substantially re-organised with new executive management having been appointed. These changes commenced in January 2010 with the appointment of Anthony Catterson as Chief Executive Officer and continued with Tim Eltze joining the board in May this year, as Chief Operating Officer and currently also as acting Chief Financial Officer.

Following Anthony Catterson's appointment, the Board undertook an internal review of the business with the aim of creating a more focused vision and strategy for the Group. The Board has concluded that, in order for the business to progress, it should pursue strategic acquisitions that are appropriate to create scale, develop the Group's product range and competence, customer base and commercial relationships to support the vision of developing eXpansys into a leading global on-line consumer technology superstore. As a first step to achieving this, the Board has been reviewing potential acquisition opportunities and has identified two target businesses in DSNS and PJ Media as being complimentary to the core eXpansys offering and a compelling strategic fit with the Group.

DSNS is a privately owned profitable business with relationships with a large number of the UK's major mobile telecommunication network operators, and MVNOs, and focuses on the sale and distribution of SIM cards and retail solutions. PJ Media is another privately owned profitable business with the principal activities of web design, website implementation and on-line marketing services to enterprises seeking to enhance their web-based offerings.

In order to assist the Board in implementing the benefits of the Acquisitions and in preparation for the next phase of the Group's development, Bob Wigley has joined the Board as Non-Executive Chairman, along with Peter Jones who will further strengthen the Board as Non-Executive Deputy Chairman.

The Directors believe that the Enlarged Group will have the following attractive properties:

·     Strong relationships with network operators - the Directors believe that DSNS is one of the UK's leading providers of mobile phone SIM cards and has contracts with the majority of the UK's mobile telecommunication network operators and four MVNOs. The Directors intend to extend DSNS's existing relationships with the operators and to transition the eXpansys business into offering both SIM-only and connected handset propositions through its websites, initially in the UK;

·     Robust on-line platform - the on-line technology supporting the Enlarged Group will be the existing eXpansys on-line platform which the Directors believe is secure, stable, scaleable and flexible. The Directors believe this platform will be key to the Enlarged Group's success;

·     Ability to access a wider market - historically, the Group has been unable to supply connected handsets directly and its customers have included the more sophisticated "early adopters" of new equipment, who may acquire additional handsets on a SIM-free basis. The Directors estimate that SIM-free handset sales represent a small proportion of the UK mobile phone market place. Following the Acquisitions, the Enlarged Group will have relationships with a number of network operators and MVNOs and intends to use these relationships to service the wider market and the Directors expect the Enlarged Group to benefit as a result. In addition, the Directors believe that the Enlarged Group will have the platform and technical skills to launch products for OEMs on a global basis simultaneously. As the eXpansys brand develops, the Directors expect this capability to be attractive to manufacturers and for this to be a focus for the Group;

·     Ability to expand its product offering - the Directors intend to enhance the Enlarged Group's product offering organically or, where appropriate, through acquisition so as to develop credibility in additional product categories such as laptops, tablet computing and other wireless technologies, which are complementary to the Group's existing strengths and provide a more complete solution for customers;

·     Development of its website - the Directors believe that the integration of PJ Media will enable the Enlarged Group to further develop its website and enhance the eXpansys proposition for the mass consumer retail market and drive more web-traffic to eXpansys.com. By improving the website offering, the Directors also believe that there is an opportunity to extend DSNS's relationships and create further revenue streams through business to business transactions and online retailing from partner websites;

·     Operating in a market place with favourable characteristics - the Directors believe that (i) the trend for consumers to buy wireless technology on-line will increase, (ii) consumers should increasingly pursue improved value through separating the purchase of handsets from better value SIM cards, and (iii) the penetration of smartphones will increase; and

·     Experienced board of directors to lead growth - the new Board of eXpansys is to be chaired by Bob Wigley, currently Chairman of Yell Group and a former chairman of Merrill Lynch EMEA. Anthony Catterson, CEO, joined in January 2010 and is the former managing director of the UK retail business of Carphone Warehouse and prior to that was managing director at Phones 4U. Peter Jones, a well known and respected entrepreneur, has owned and managed a number of successful businesses, including having founded Phones International Group and DSNS.

The Directors believe that the Enlarged Group will be well placed to benefit from each of these characteristics.

Information on DSNS and PJ Media

DSNS

The DSNS business specialises in the sale of SIM cards from the majority of UK mobile telecommunication network operators and MVNOs. The company's products are sold directly to retailers, via wholesalers and into niche markets such as vending machines, with revenues being generated through the sale of the product and by the receipt of connection commissions from the network operators and MVNOs once an end user activates the SIM card. As a result, DSNS has either established direct relationships with, or access to, a wide range of sales channels, including major retail outlets and national retail chains, as well as other smaller retailers.

Primary Business Activity

DSNS's main role as an approved partner of the mobile telecommunication network operators and MVNOs is to provide access to customers. The networks create a range of propositions and DSNS provides access to channels, with a sales outlet providing availability and visibility of the product to the eventual customer. DSNS specialises in tailoring the operators' products for specific outlets, taking into account demographics such as affluence, ethnicity and age. For example, for a discount store in an ethnically diverse area, DSNS may tailor an operator's product so as to offer reduced call rates to a limited number of overseas countries. DSNS then works with the retailer so as to maximise sales and returns for the operator. Over the past five years DSNS has sold more than 10 million SIM cards providing network connections for over five million customers.

Sales Channels and Partners

DSNS operates through four main channels:

Major Retail: Over the last few years, DSNS has focused on increasing the number of major retail accounts that sell pre pay SIM cards and currently sells through a range of retailers. In order to achieve sales through this channel the products need to be placed and promoted within the stores and the business has been developing this sales channel by working with the retailers to increase network brand awareness through targeted campaigns.

Direct Sales Team: DSNS has a direct sales team enabling promotion of network propositions directly into a large number of independent stores and the ability to target, incentivise and provide rewards at an individual store level. The approach also provides an insight into distribution at store (or location) level in the independent sector, as well as providing the ability to target stores or locations for specific promotions and real time reporting of EPOS data. Importantly, the Directors believe that DSNS's approach enables enhanced revenue for the networks through targeted marketing campaigns.

Wholesale: This sales channel provides DSNS with reach to over 5,000 retailers within the independent sector across the UK. DSNS works closely with specific wholesale partners to facilitate supply to newsagents, convenience stores, small multiple retail groups and mobile phone dealers.

Vending Solutions: It is expected that DSNS's 60 per cent. owned subsidiary, M-Vend Limited, will soon have 22 machines situated in strategic locations such as railway stations and airports selling SIM cards and other mobile technology products. Whilst this is a relatively new offering from DSNS, the Directors believe that this will be an increasingly important sales channel.

DSNS monitors all of its sales channels and customers enabling it to target and reward better quality customers and partners that deliver higher quality end users for the network operators.

The Directors believe the "SIM only" connection to be a flexible option for customers, especially for more price sensitive customers in the current economic conditions. The Directors, therefore, expect the growth in the "SIM only" model to continue for the foreseeable future. The Directors believe DSNS to be a compelling acquisition because, as well being profitable and cash generative, DSNS has established relationships and a track record with the mobile telecommunication network operators which the Enlarged Group intends to use to provide a network connected handset.

For the year ended 30 April 2010 the trade, as now operated by DSNS, reported a turnover of £15.4 million (2009: £12.5 million). The revenue generated gross profit of £7.3 million and profit before tax of £6.8 million.

PJ Media

PJ Media is an e-commerce and web publishing business with a number of clients in the telecoms sector. The company commenced trading in 2008 and offers a comprehensive range of web design, development and professional services to major enterprises seeking to establish or enhance their web-based outlets.

As well as providing the technology to support a major mobile telecommunication network operator's online service offering in the UK, PJ Media has an overseas presence and the company has supplied internet and distribution solutions to a large global network operator's Qatar operations since early 2009. These solutions are used by the operator to support its mobile network operations in Qatar and are administered by resources in Qatar, Romania and the UK, employed by both the operator and PJ Media. PJ Media is building relationships with a range of other customers in Qatar and also intends to support network operators in other developing markets. PJ Media currently employs approximately 50 people.

The Directors believe that optimising the eXpansys website and brand on a global basis will be key to the success of the Enlarged Group and that the acquisition of PJ Media will help achieve this. In addition, the acquisition of PJ Media will, the Directors believe, provide the Enlarged Group with opportunities for a combined end-to-end web services business which can be offered to OEMs and non-competing retail businesses. Whilst eXpansys currently operates the e-commerce function for an OEM, the Directors believe that there is a significant opportunity for the eXpansys platform to be used by additional OEMs. The Directors believe that in order to attract this new business, eXpansys will need to offer exceptional website optimisation to match its technology expertise and that the acquisition of PJ Media will enable the Enlarged Group to achieve this.

For the year ended 30 April 2010 PJ Media reported a turnover of £2.9 million (2009: £ 1.5 million). The revenue generated gross profit of £1.5 million and profit before tax of £0.7 million.

Strategy for the Enlarged Group

The Directors believe that the Enlarged Group will have an attractive business model, built upon a robust on-line trading platform. The Directors believe that there are a number of strategic initiatives that should be pursued and market trends that will enhance this, including:

·     Developing channel relationships and credibility in additional product categories such as laptops, tablet computing and other wireless technologies, which are complementary to eXpansys's existing strengths and provide a more complete connected solution for customers.

·     Increasing traffic to the Group's website. This will be supported through the services of PJ Media and also through the marketing skills of the Directors which will be focused on raising the profile of the eXpansys brand.

·     Increasing the geographic reach of the customer base. eXpansys has, over the years, developed its ability to operate a generic website which is tailored for the tastes and preferences of consumers in different jurisdictions. The Company has recently launched its dedicated site in India and the Directors intend to launch websites in additional territories as soon as practicable.

·     Increasing margins through additional sales of related products and services, such as accessories and insurance. A move from SIMO sales to network connected sales should also enhance margins through the connection commission received from the network operators.

·     Whilst the existing Group has some direct relationships with smaller OEMs, the Directors believe that the Enlarged Group has a significant opportunity to develop relationships with larger OEMs so as to sell products without the requirement to use distributors. The Directors expect benefits to include enhanced margins and, through better use of the Group's platform and technical skills, the ability to execute the exclusive launch of specific products simultaneously and, potentially, on a global scale. As the eXpansys brand continues to grow, the Directors expect this capability to be attractive to OEMs and for this to be a focus for the Group in the future.

·     In the longer term there are further opportunities for the Enlarged Group to develop and operate the e-commerce activities of OEMs. Through the eXpansys platform and the Group's global infrastructure the Directors believe that the Group is an attractive partner for OEMs. The existing Group currently has such relationships but the Directors believe that there is scope, through existing processes and personnel within eXpansys and PJ Media, for this to be offered to additional partners with benefits for the Enlarged Group.

In addition to the strategic issues referred to above, the Directors expect that the Enlarged Group could benefit from projected changes in consumer trends with (i) there being a shift to buying consumer technology on-line, (ii) customers moving to the more flexible and value oriented, separate purchase of phone and SIM-card and (iii) the increased penetration of smartphones.

 

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