Further re Offer for Newbury
Guinness Peat Group PLC
14 January 2008
Not for release, publication or distribution, in whole or in part, in, into or
from the US, Canada or Australia or any jurisdiction where to do so would
constitute a violation of the laws of such jurisdiction.
GPG Acquisitions No. 5 Limited
(a wholly owned subsidiary of Guinness Peat Group plc)
FURTHER RE: CASH OFFER FOR NEWBURY RACECOURSE PLC
14 January 2008
Set out below is the extracted text of the letter from Blake Nixon, the Chairman
of GPG Acquisitions, which was posted to Newbury Racecourse Shareholders on 11
January 2007:
"Dear Shareholder
Introduction
GPG's formal Offer Document was posted to Shareholders on 7 December 2007.
Following an extension announced on 31 December 2007 the Offer remains open to
acceptances until 14 January 2008. This letter expands on the reasons for our
making of the Offer and why you should accept for all or at least part of your
holding.
Background to the Offer
GPG's 13 year involvement in Newbury Racecourse has been predicated on the two
key elements of the Company's business, namely the operation of its prestigious
racecourse and its large holding of property surplus to racecourse requirements.
In July 2006, the Newbury Board announced a strategy to spend £45 million
transforming the Company into a leisure, hospitality, entertainment and events
business, financed by the sale of its surplus land to the north of the
racecourse. GPG was initially, in principle, receptive to the divestment of
surplus property and, also, the concept of further investment in the racecourse
to improve returns.
However, subsequent to this, as the Newbury Board's development proposal has
evolved, GPG has come to have a number of fundamental concerns regarding it: the
critical one being whether - as currently contemplated - it would prove
beneficial to shareholder value. In consequence, GPG indicated to the Newbury
Board that it could not support the project unless it could meet the criterion
of generating cash inflows to the Company, net of tax and necessary expenditure
(in particular in respect of essential racing infrastructure), equivalent, in
today's monetary terms, to at least £7 per Share (approximately £21.31 million
in aggregate). The Newbury Board has been unable to confirm that such a minimum
net inflow would be achieved.
Furthermore, the Newbury Board's ill-considered plans, amongst other things, are
likely to involve Newbury Racecourse, notwithstanding its paucity of relevant
management experience, being locked into a development partnership for some 10
years.
It is the unsatisfactory nature of the final development proposal that has
obliged GPG to make the Offer.
Unsatisfactory Project Returns
Rather than a straightforward divestment of the Company's surplus land, the
Newbury Board intends to enter into a development partnership with a property
developer. Under the terms of the proposed contract Newbury Racecourse would be
entitled to minimum gross cash receipts of £44.5 million over the life of the
project. The timing of these payments is uncertain and is likely to depend upon
future home sales by the partnership. Based on conservative assumptions GPG
estimates these payments have a minimum value, in today's monetary terms, of
£29.86 million (or £0.60 million per acre, given the proposed sale of some 50
acres).
By way of comparison, a transaction highly relevant to that being proposed by
the Newbury Board was the 2002 sale of a smaller plot of land. In that instance
Newbury Racecourse sold 8.56 acres of surplus land, to the south of the
racecourse, for £8.7 million, equivalent to £1.02 million per acre. The buyer
was responsible for obtaining planning permission and settlement was made within
seven months of receiving planning permission.
Newbury Racecourse Surplus Land Sales
August 2002 - South of Racecourse
---------------------------------
Sale proceeds £8.70m
Land area (acres) 8.56
Average price £1.02m per acre
Proposed 2008 - North of Racecourse
-----------------------------------
Estimated present value of sale proceeds £29.86m
Land area (acres) 49.42
Average price £0.60m per acre
Although GPG freely acknowledges the two land deals are not entirely comparable,
it is striking that the price of £1.02 million per acre achieved back in 2002 is
70 per cent. greater than the estimated minimum present value of £0.60 million
per acre that would be achieved from the Newbury Board's proposed sale of
surplus land. This disparity is even starker if allowance is made for the 56.41%
increase since 2002 in average residential land prices in the South West of
England.
While GPG does not have access to information sufficient to undertake an asset
valuation of the Company's land which would meet the formal requirements of the
City Code, it is apparent that the estimated proceeds, in today's monetary
terms, of the Newbury Board's proposed property partnership will be a mere
fraction of the price achieved for the land disposed of in 2002.
Equally as crucial as the underwhelming gross receipts, the cash received by
Newbury Racecourse will be further diminished by necessary expenditure (in
particular in respect of essential racing infrastructure), payment of taxation,
and payment to Network Rail, which granted the Company the right to build a
bridge over its tracks, of an undisclosed proportion of Newbury Racecourse's
sale proceeds.
The net result is that the Newbury Board has been unable to confirm that the
project would meet GPG's minimum criterion of net cash inflows of £21.31
million, equivalent to a mere £0.43 million per acre.
GPG's Premium Offer
In a glaring omission, the Newbury Board in its document to Shareholders of 18
December 2007 completely neglected to address the most fundamental issue for
Shareholders - the ongoing valuation of the Company. Furthermore, it also failed
to provide any indication of when the Newbury Board expects the racecourse to
return to profitability.
The Offer Price of £11 per share, or £33.49 million in aggregate, represents a
generous price for Newbury Racecourse. Given the Newbury Board's inability to
confirm a minimum return of £7 per Share, or £21.31 million, from the proposed
sale of surplus land, GPG's Offer implicitly values the residual racing
operations, net of debt and other liabilities of £13.33 million , at in excess
of £4 per Share, or £12.18 million. This is broadly equivalent to the Company's
entire consolidated shareholders funds, as at 30 June 2007, of £12.14 million.
This is a very full price in light of the fact that the racecourse has not
generated an operating profit (before exceptional items) for four years.
GPG Offer for Newbury Racecouse PLC
£ per share £m
Offer price 11.00 33.49
Target value of surplus land* 7.00 21.31
Implied minimum valuation of racecourse operations** 4.00 12.18
----- -----
Total 11.00 33.49
* See prior discussion of criterion put to the Newbury Board by GPG
** Net of debt and other liabilities of £13.33m as at 30 June 2007
The Offer is being made at a demonstrably premium price and exceeds the highest
Closing Price of Newbury Racecourse Shares since dealings commenced on the PLUS
market in 1995. As at 28 December 2007, 7.66 per cent. of Newbury Racecourse
Shareholders had accepted the Offer in respect of part or all of their
respective holdings, representing 4.07 per cent. of the Company's issued share
capital.
GPG continues to believe that its Offer, which provides the certainty of cash at
a premium to both the Company's proposed surplus land disposal and it's racing
operations, merits serious and immediate consideration by Shareholders. The
Offer also provides Shareholders with a further alternative: to accept the Offer
for part of their shareholding - thereby assisting GPG to gain control of the
business with a view to maximising the value of the racecourse and surplus land
for the benefit of all remaining Shareholders.
Lowering of acceptance condition
GPG has today lowered the level of acceptances required pursuant to the Offer
from 75 per cent. to over 50 per cent. (when taken together with Shares acquired
or agreed to be acquired by GPG and its concert parties).
All other terms and conditions remain unchanged.
Action to be taken to accept the Offer
The procedure for acceptance of the Offer is set out on pages 12 to 15 of the
Offer Document sent to Shareholders on 7 December 2007 and in the accompanying
Form of Acceptance.
Yours sincerely
Blake Nixon
Chairman
GPG Acquisitions No. 5 Limited"
ENQUIRIES
GPG Acquisitions No. 5 Limited Tel: (020) 7484 3370
Blake Nixon, Director
Strand Partners Limited Tel: (020) 7409 3494
Simon Raggett
Citigate Dewe Rogerson Tel: (020) 7638 9571
Kevin Smith
OTHER INFORMATION
Terms defined in the document posted to Shareholders on 7 December 2007
containing the formal Offer for Newbury Racecourse have the same meaning in this
announcement.
Copies of the Offer Document, the further circular and the Form of Acceptance
remain available (during normal business hours) from Strand Partners at 26 Mount
Row, London W1K 3SQ and from the offices of Computershare Investor Services PLC,
The Pavilions, Bridgwater Road, Bristol BS99 7NH throughout the period during
which the Offer remains open for acceptance.
Strand Partners, which is authorised and regulated in the United Kingdom by the
Financial Services Authority, is acting exclusively for GPG Acquisitions and no
one else in connection with the Offer and Strand Partners will not regard any
other person as a client in relation to the Offer and will not be responsible to
anyone other than GPG Acquisitions for providing the protections afforded
exclusively to its clients or for providing advice in relation to the Offer, the
contents of this announcement or any transaction or arrangement referred to
herein.
The availability of the Offer to persons not resident in and citizens of the
United Kingdom may be affected by laws of the relevant jurisdictions in which
they are citizens or in which they are resident. Such Overseas Shareholders
should inform themselves about, and observe, any applicable legal or regulatory
requirements of any such relevant jurisdiction. In particular, the Offer is not
being made, directly or indirectly, in, into or from or by the use of the mails
of or any means or instrumentality (including, without limitation, by means of
facsimile transmission, telex, telephone, internet or other forms of electronic
communication) of interstate or foreign commerce of, or by any facility of a
national, state or other securities exchange of, the United States, or in, into
or from Canada or Australia or any other jurisdiction if to do so would
constitute a violation of the relevant laws of such jurisdiction, and the Offer
will not be capable of acceptance by any such use, means, instrumentality or
facility from or within the United States, Canada or Australia or any other
jurisdiction where to do so would constitute a breach of any relevant securities
laws of that jurisdiction. Accordingly, copies of this announcement and the
Offer Document are not being, and must not be, mailed or otherwise distributed
or sent in or into or from the United States, Canada or Australia.
This announcement does not constitute, or form part of, an offer to sell or
purchase or an invitation to purchase or subscribe for any securities or the
solicitation of an offer to sell, purchase or subscribe for any securities,
pursuant to the Offer or otherwise. The Offer will be made solely by way of the
Offer Document and the related Form of Acceptance, contain the full terms and
conditions of the Offer.
This information is provided by RNS
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