Disposal of North American Business

RNS Number : 9851D

Taylor Wimpey PLC

31 March 2011

 



31 March 2011

FOR IMMEDIATE RELEASE

Taylor Wimpey plc (the "Company") announces the sale of its North American Business for $955m¹ (£595m²) (the "Disposal").

The Company has agreed to sell the entire issued share capital of Taylor Woodrow Holdings (USA), Inc. and Taylor Wimpey Holdings of Canada, Corporation ("the North American Business") to TMM Holdings Limited Partnership, a partnership controlled by certain investment funds affiliated with TPG Capital, certain investment funds affiliated with Oaktree Capital Management, L.P., as well as JH Investments Inc., and its subsidiaries (the "Buyers") for a base consideration of $955m¹ (£595m at the current exchange rate²) payable on Completion. The Company will also receive additional proceeds for cash balances in the North American Business as at 31 December 2010 and net capital invested by the Company in the North American Business from 1 January 2011 to Completion.

Highlights of the Disposal:

-     The Disposal is a significant step towards achieving the Group's strategic objective of focusing on its core UK housing business, creating a strong financial base for future investment;

-    The base consideration of $955m¹ (£595m at the current exchange rate²) represents a premium of 3.4% to adjusted net assets of $923m³ (as at 31 December 2010); and

-     The net cash proceeds of the Disposal will be applied to reduce the Group's borrowings and its pension deficit, resulting in an overall increase in its financial flexibility.

Following the Disposal, the Group will build on the significant performance improvement in the UK. The Group will continue to focus on delivering margin improvement from the existing land portfolio and adding new sites where good opportunities are identified.

Pete Redfern, Group Chief Executive, said:

"We are delighted to announce the sale of our North American Business, which is a significant step towards our goal of becoming a UK focused homebuilder. The sale will provide us with a strengthened balance sheet and increased financial capacity to invest in the UK and to pursue our strategic aims of focusing on margin growth.

"Following a competitive process, we are pleased to have achieved a price that reflects an attractive valuation for this business. I have been hugely impressed by our North American employees and would like to take this opportunity to thank them for their hard work, loyalty and commitment over many years and in relation to this transaction."

The Company's financial advisers in connection with the Disposal are J. P. Morgan Cazenove and HSBC Securities (Canada) Inc.

¹ Pre transaction expenses

² Translated at the prevailing exchange rate of USD:GBP of 1.60 as at 30 March 2011

³ Represents £699.5m of net assets, less cash of £111.9m, converted to US Dollars at a 31 December 2010 USD:GBP exchange rate of 1.57

Conference call:

There will be a conference call for analysts and investors to discuss the Disposal at 10.00am (BST) today. The dial in number is [phone] (title: Taylor Wimpey). A recording of the call will be available on www.taylorwimpeyplc.com later today.

Enquiries:

Taylor Wimpey plc

Pete Redfern, Group Chief Executive

Ryan Mangold, Group Finance Director

Jonathan Drake, Investor Relations Manager

Tel: [phone]

J.P. Morgan Cazenove (Sponsor, Financial Adviser and Corporate Broker)

Mark Breuer

Andrew Truscott

Guy Marks

Tel: [phone]

RBS Hoare Govett (Corporate Broker)

Antonia Rowan

Sara Hale

Tel: [phone]

Finsbury (Financial public relations adviser)

Andrew Dowler

Clare Hunt

Tel: [phone]

Notes to editors

Taylor Wimpey plc

The Company develops communities in the UK, North America and Spain. The Company aims to be the developer of choice for its customers, employees, shareholders and communities.

Further information is available at www.taylorwimpeyplc.com.

Taylor Wimpey's North American Business

Taylor Wimpey is the ninth largest homebuilder in the US by revenue. In North America, its main markets are Arizona (US), California (US), Florida (US), Texas (US), and Ontario (Canada).

31 March 2011

FOR IMMEDIATE RELEASE

Taylor Wimpey plc (the "Company") announces the sale of its North American Business for $955m¹ (£595m²) (the "Disposal").

1.   Introduction

The Company has agreed to sell the entire issued share capital of Taylor Woodrow Holdings (USA), Inc. and Taylor Wimpey Holdings of Canada, Corporation ("the North American Business") to TMM Holdings Limited Partnership, a partnership controlled by certain investment funds affiliated with TPG Capital, certain investment funds affiliated with Oaktree Capital Management, L.P., as well as JH Investments Inc., and its subsidiaries (the "Buyers") for a base consideration of $955m¹ (£595m at the current exchange rate²) payable on Completion. The Company will also receive additional proceeds for cash balances in the North American Business as at 31 December 2010 and net capital invested by the Company in the North American Business from 1 January 2011 to Completion³.

In what has been an extremely challenging period for the industry, the Company has greatly benefited from the commitment of its highly skilled management team and employees in North America, who together have been instrumental in creating a stronger North American Business.   The Board would like to take this opportunity to thank all employees of the North American Business for their hard work, loyalty and commitment, particularly over the last few years and in connection with this transaction.

The Disposal is of sufficient size relative to the size of the Company to constitute a Class 1 transaction under the Listing Rules and is, therefore, conditional upon the approval of Ordinary Shareholders. A Circular will be sent to shareholders shortly containing further details of the Disposal and a notice convening a General Meeting of the Company to consider and, if appropriate, approve the Disposal. An announcement will be made to notify shareholders of the Circular's posting in due course.

2.   Background to and reasons for the Disposal

The Disposal is a significant step towards completing the Company's previously announced strategic objective to become a UK focused homebuilder, and releases management resources and capital to focus on the Company's core UK operations. 

Increasingly, the Board has come to the view that, in the longer term, the focus of the Group should be only in the UK and that focusing the Group's efforts on local markets is the best route to create long-term value. This decision also reflects the Board's view of the relative attractiveness of the UK housing market, which is driven by: the structural undersupply of new housing in the UK; the constrained supply of land within the UK; and the low stock levels within the UK housebuilding industry. Historically, the combined UK business and North American Business have not had a material overlap nor shared significant synergies. The Board believes that, historically, the UK equity markets have not fully reflected the value and contribution of its North American Business.  

The Board also believes that the current climate presents an opportune time to realise the value of its North American Business based on current market conditions, forecast growth in the North American market and the investment in the business required to achieve this. The Company has spent many months assessing the best method of sale and the best time to maximise the value of the North American Business. Both a public listing and an outright sale have been explored, with the latter being pursued via an extensive auction process. The Board believes that this competitive auction process has achieved an attractive valuation for its North American Business, which fairly reflects market conditions and its future growth potential as a standalone entity.

3. Group Strategy

Following the Disposal, the Group will continue to focus on maximising the value achieved from each home completion.  We view our landbank as an investment portfolio that we manage actively.  We aim to add value to this portfolio through our consistent, disciplined approach to land acquisition, through optimising the planning consents on our existing holdings and designing places to live that meet the local demand.  We look to deliver this value through safe, efficient and considerate development of these communities and helping our customers to buy and move into their new homes. 

4. Financial Effects and Use of Proceeds

At Completion, the net cash proceeds arising from the Disposal are expected to be approximately $923m (£575m at the current exchange rate²), after estimated transaction costs of approximately £20m.

It is intended that the net cash proceeds of the Disposal will be applied to reduce the Group's borrowings, resulting in an overall increase in its financial flexibility. The net cash proceeds will strengthen the Group's financial position and capacity to invest in its UK homebuilding business, enabling it to benefit from future opportunities, especially in the land market. In addition, it has been agreed with the Group's pension fund trustees that £32.5m of the proceeds of the Disposal will be paid into the Group's UK pension funds.

As a result of the Disposal, the Company will retire the £350m "Facility A" of its £950m syndicated revolving credit facility. The reduction in net borrowings will result in a reduction in the margin of 50 basis points on the syndicated revolving credit facility due to lower gearing. The margin on its £100m Prudential/M&G Fund Facility will also reduce by 50 basis points.

Although the net cash proceeds arising from the Disposal will strengthen the Group's financial position and reduce borrowings, the Disposal is expected to be earnings dilutive initially.

5. Information on the Company

The Company is a UK and North American homebuilder with smaller operations in Spain. It is the second largest homebuilder in the UK, and the ninth largest homebuilder in the US by completions and revenue respectively.

The Company acquires and develops land for a variety of uses. It also designs and constructs residential property developments. It builds homes through the use of contractors and sub-contractors, and sells through agents and its own staff. The Company employs approximately 4,300 people in total in the UK, North America and Spain.

6. Information on Taylor Wimpey's North American Business

The Company has had a longstanding presence in North America, dating back more than 70 years through predecessor companies.  It has operations in both the US, where it operates under the Taylor Morrison brand, and in Ontario, Canada, where it operates as Monarch Homes.  Taylor Wimpey's North American Business has its headquarters in Scottsdale, Arizona and is the ninth largest homebuilder in the US by revenue. As at 31 December 2010, it owned or controlled an equivalent of 7.3 years of land supply at current completion rates.

The Company's main markets in the US are in Arizona, California, Florida and Texas. The Company operates in nine of the thirty largest housing markets in the US by number of permits.  During 2010, the Company completed 2,570 homes in the US, at an average selling price of $274,000.

In Canada, the Company's main markets are the Greater Toronto Area, Ottawa and Kitchener-Waterloo, which are the top three housing markets in Ontario by value of permits.  As well as low-rise housing, the Company has a high-rise operation which is focused exclusively on the Greater Toronto Area.  During 2010, the Company completed 1,570 homes in Canada at an average selling price of CAD 374,000. 

At 31 December 2010, the North American Business had net assets of £699.5m and gross assets of £1.02bn.  

Summary trading results for and as at the three years ended 31 December 2010 (on an IFRS basis):

	For and as at 31 December 2010	For and as at 31 December 2009	For and as at 31 December  2008
£'m
Revenue	835.6	824.3	981.6
Operating Profit4	93.8	48.1	59.9
Net Operating Assets5	612.7	558.1	677.8
4 'Operating Profit' is defined as profit on ordinary activities before finance costs and exceptional items, after share of results of joint ventures 5 'Net Operating Assets' are defined as net assets excluding goodwill, current and deferred tax and net debt

 

7.  Current trading

On 3 March 2011, we updated the market on the Group's current trading in our full year results announcement. The Group has seen a continuation of these trends over recent weeks, and whilst current economic circumstances create some continued uncertainty, we expect these trends to continue in 2011.

In the UK, we have been encouraged by the enhanced sales rates, sales prices and margins that we are achieving on recent outlet openings, whether from new acquisitions or from the existing land portfolio.  We remain on track to achieve our target of double-digit operating margins in 2012, subject to continuing stable market conditions.

In the US, markets appear to have stabilised and there are signs of increasing consumer confidence. Affordability remains at excellent levels and this, combined with gradually reducing foreclosure levels, provides the potential for a strong recovery as confidence grows.

We expect market conditions in Canada to remain robust for the foreseeable future.

8. Principal terms of the disposal

The principal terms of the Disposal Agreement are:

 

Consideration

The base consideration for Taylor Wimpey's North American Business is $955m¹ (£595m at current exchange rates²). The Company will also receive additional proceeds for cash balances in Taylor Wimpey's North American Business as at 31 December 2010 and net capital invested by the Company in Taylor Wimpey's North American Business from 1 January 2011 to Completion. The purchase price will also be reduced by the amount of certain transaction expenses incurred by Taylor Wimpey's North American Business and by certain restricted payments if made by Taylor Wimpey's North American Business after 1 January 2011.

 

Conditions precedent to Completion

Completion of the Disposal is subject to the satisfaction or waiver by the Sellers and the Buyers of the following customary principal conditions:

(i) approvals under the Canadian Competition Act and the Investment Canada Act having been obtained;

 

(ii) approval of Ordinary Shareholders of the transactions contemplated by the Disposal Agreement as required by the Listing Rules;

 

(iii) the Buyers and the Sellers having performed, in all material respects, their obligations under the Disposal Agreement to be performed at or prior to the Completion Date;

 

(iv)  the representations and warranties of the Buyers and the Sellers being true at and as of Completion, except as would not have a material adverse effect on Taylor Wimpey's North American Business in the case of the representations and warranties of the Sellers, or as would not materially impair the Buyers' ability to complete the Disposal in the case of the representations and warranties given by the Buyers; and

 

(v) since the Disposal Agreement was signed, the absence of a material adverse effect on Taylor Wimpey's North American Business.

Canadian anti-trust, and certain other government and regulatory approvals are expected to take 8 weeks from 30 March 2011 to complete. An announcement will be made to notify shareholders of completion of the Disposal in due course.

9. Key individuals

Sheryl Palmer, President and Chief Executive Officer, is deemed by the Company to be key to the operations of Taylor Wimpey's North American Business.  Conditional on Completion of the Disposal, it is intended that Sheryl Palmer will stand down from the Board of Taylor Wimpey plc with effect from the Completion Date.

10. Notification of Circular posting

The Disposal is of sufficient size relative to the size of the Company to constitute a Class 1 transaction under the Listing Rules and is, therefore, conditional upon the approval of Ordinary Shareholders. Shareholders will be notified of the posting of the Circular in due course.

Cautionary Statement

This announcement has been issued by, and is the sole responsibility of, Taylor Wimpey plc. No representation or warranty express or implied, is or will be made as to or in relation to, and no responsibility or liability is or will be accepted by J.P. Morgan Cazenove or RBS Hoare Govett or by any of their respective affiliates or agents as to or in relation to, the accuracy or completeness of this announcement or any other written or oral information made available to or publicly available to any interested party or its advisers and any liability therefore is expressly disclaimed.

J.P. Morgan plc, which conducts its UK investment banking business as J.P. Morgan Cazenove and is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting for Taylor Wimpey plc and for no one else in connection with the matters set out in this announcement and the Disposal, and will not be responsible to anyone other than Taylor Wimpey plc for providing the protections afforded to clients of J.P. Morgan plc nor for providing advice in relation to the Disposal or any matters set out in this announcement.

RBS Hoare Govett Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting for Taylor Wimpey plc and for no one else in connection with the matters set out in this announcement and the Disposal, and will not be responsible to anyone other than Taylor Wimpey plc for providing the protections afforded to clients of RBS Hoare Govett Limited nor for providing advice in relation to the Disposal or any matters set out in this announcement.

This announcement contains (or may contain) certain forward-looking statements with respect to Taylor Wimpey plc's current expectations and projections about future events. These statements, which sometimes use, but are not limited to, words such as "anticipate", "believe", "intend", "estimate", "expect" and words of similar meaning, reflect the directors' beliefs and expectations and involve a number of risks, uncertainties and assumptions that could cause actual results and performance to differ materially from any expected future results or performance expressed or implied by the forward-looking statement. 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. The information contained in this announcement is subject to change without notice and, except as required by applicable law, neither Taylor Wimpey plc, J.P. Morgan Cazenove nor RBS Hoare Govett assume any responsibility or obligation to update publicly or review any of the forward-looking statements contained herein. You should not place undue reliance on forward-looking statements, which speak only as of the date of this announcement.

Nothing in this document should be construed as a profit forecast or be interpreted to mean that the future earnings per share, profits, margins or cash flows of Taylor Wimpey plc will necessarily be greater than the historic or published figures of Taylor Wimpey plc.

 

END

 

 

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