RNS No 6879x
HODDER HEADLINE PLC
24 May 1999
Part 1
Not for release, distribution or publication
in or into the USA, Canada, Australia or Japan
WH Smith Group PLC ("WH Smith")
Recommended cash offer for Hodder Headline PLC ("Hodder Headline")
WH Smith today (24 May 1999) announced a recommended cash offer for Hodder
Headline, a leading UK consumer and educational publisher.
The Offer values each Hodder Headline Share at 525p payable in cash and there
is a Loan Note Alternative. The Offer represents a premium of 43 per cent.
to the Hodder Headline share price of 367.5p at the close of business on 21
May 1999, the last dealing day prior to this announcement, and values Hodder
Headline's issued ordinary share capital at #185 million.
Hodder Headline has an 8.5 per cent. market share in UK consumer publishing
and 6.4 per cent. of the total UK market. It is currently the third largest
UK consumer publisher and the second largest UK mass-market paperback
publisher. Hodder Headline also operates in the educational publishing
market producing textbook series, as well as home learning guides including
the world famous "Teach Yourself" brand.
Hodder Headline has produced compound annual growth in profit before tax of
19 per cent. over the past three years. In the year ended 31 December 1998,
Hodder Headline increased sales by 10 per cent. to #102 million and generated
profit on ordinary activities before taxation of #9.4 million, an increase of
15 per cent. In the first four months of 1999, Hodder Headline achieved
turnover growth of 9.4 per cent. At the end of April, unaudited results
indicated that Hodder Headline's trading continued to move ahead of internal
expectations. Performance in the second half of the year will be helped by
the strength of publishing lists for that period.
Reasons for the Offer
The management of WH Smith believes that the future of the Company will be in
strengthening and leveraging the WHSmith brand by creating and providing core
products to meet its customer needs. Ownership and control of product and of
the gateways to the consumer will enable WH Smith to achieve increased
competitive advantage through differentiation of its customer offer and
reduced reliance on commodity product.
Investing in and developing the best and most innovative publishing and other
content provision will be key to WH Smith's future. By acquiring one of
Britain's largest and most successful book publishers, with a strong position
in both consumer and educational publishing, WH Smith is taking an important
step in that direction.
This acquisition is expected to achieve the following benefits:
1. A high quality management team to manage and develop further WH Smith's
important objectives in the fields of education, reference and consumer
publishing;
2. The addition to the Group of a successful, innovative and growing
publishing business in its own right;
3. The capacity to strengthen and accelerate WH Smith's own brand
development programme, with an emphasis on educational, reference and
children's product;
4. Provide additional creative capability and product content for
developing online' products;
5. Ownership of a number of widely respected publishing imprints including:
Hodder & Stoughton, Sceptre, Coronet, New English Library, Flame, Lir,
Headline, Review, Hodder Children's Books, Hodder Headline Audiobooks,
Arnold, Hodder & Stoughton Educational and Teach Yourself;
6. Opportunities to enhance and support Hodder Headline's consumer
publishing business in a number of positive ways including the provision
of market research information and direct access to WH Smith's club card
holders and online customers;
7. Opportunities for significant supply chain and related cost savings; and
8. A new revenue stream for the future growth of the Group.
Hodder Headline will operate as a separate business with Tim Hely Hutchinson
as its Chief Executive and Richard Handover as its Chairman. WH Smith will
apply its financial control systems, while Hodder Headline will maintain high
levels of operating autonomy including having independent publishing
divisions.
Hodder Headline will continue in its policy of striving for excellence and
seeking to offer its authors and customers unrivalled editorial, marketing
and distribution expertise.
Management
WH Smith attaches considerable importance to retaining the skills and
expertise of the management and employees of the Hodder Headline Group. The
Hodder Headline executive directors have confirmed that they intend to remain
with the business. Tim Hely Hutchinson will be joining the main board and
executive committee of WH Smith, reporting directly to Richard Handover.
Financial effects
The management of the two companies have identified annualised cost savings
of at least #2 million, including the elimination of duplicated supply chain
and related costs and the elimination of the expenses of maintaining a
separately listed company.
It is expected that the acquisition will be earnings positive before the
future trading benefits that will arise (note 2). The Board of WH Smith is
confident that the acquisition will enhance the value of the Group.
Commenting on the offer, Richard Handover, Group Chief Executive of WH Smith,
said:
"Hodder Headline is an excellent company with a first class management team
and a superb range of authors and titles. We have a lot of confidence in its
future. This transaction will strengthen both WH Smith and Hodder Headline.
"Our main retailing businesses are being driven forward vigorously. Hodder
Headline gives us the opportunity to accelerate this by allowing us to
develop and offer our customers more differentiated products and market them
more creatively both through the WHSmith retailing stores and our on-line
capability.
"For us, the transaction is a step in securing the position of WH Smith for
the long term. We appreciate that it is a major change. Successfully
establishing the future of WH Smith is about our continuing ability to drive
change."
Tim Hely Hutchinson, Group Chief Executive of Hodder Headline, said:
"My Board colleagues and I are delighted to be able to recommend this offer to
our shareholders.
"By joining the WH Smith Group, with its substantial resources, we have
established a way forward for the Company which will give us the opportunity
to develop as a leading international publisher of consumer and educational
titles. Hodder Headline will be able to join forces with WH Smith to operate
in the fast-developing area of electronic publishing and online selling of
books to consumers."
24 May 1999
_____________________________________________________________________________
PRESS ENQUIRIES
WH Smith 0171 514 9622/3/4
Richard Handover, Group Chief Executive
Keith Hamill, Finance Director
Tim Blythe, Corporate Affairs Director
Schroders 0171 658 6000
Robert Swannell
Cazenove 0171 588 2828
David Mayhew
Brunswick 0171 404 5959
Alan Parker
Hodder Headline 0171 873 6000
Tim Hely Hutchinson, Group Chief Executive
Rothschild 0171 280 5000
Tim Hancock
Brunswick 0171 404 5959
John Sunnucks
A presentation to analysts will take place this morning at 10.15 a.m. at The
Brewery, Chiswell Street, London EC2.
Notes
1. The full text of the conditions and certain further terms of the Offer
form part of, and should be read with, this announcement.
2. This statement is not intended to be a profit forecast for WH Smith and
should not be interpreted to mean that future earnings per share of WH
Smith following the Offer will necessarily be greater than the historic
published earnings per share of WH Smith. It is currently anticipated
that the quality of Hodder Headline's assets will result in annual
impairment test goodwill writedowns, if any, under FRS 10 not being
significant.
The Offer, including the Loan Note Alternative, will not be made, directly or
indirectly, in or into, or by use of the mails or any other means or
instrumentality (including, without limitation, facsimile transmission, telex
or telephone) of interstate or foreign commerce of, or any facilities of a
national securities exchange of, the USA, Canada, Australia or Japan and will
not be capable of acceptance by any such use, means, instrumentality or
facilities or from within the USA, Canada, Australia or Japan. Accordingly,
copies of this announcement are not being, and must not be, mailed or
otherwise distributed or sent in or into or from the USA, Canada, Australia
or Japan.
Schroders, which is regulated by The Securities and Futures Authority
Limited, is acting for WH Smith and no one else in connection with the Offer
and will not be responsible to anyone other than WH Smith for providing the
protections afforded to the customers of Schroders or for providing advice in
relation to the Offer or any matter referred to herein or in the Offer
Document.
Rothschild, which is regulated by The Securities and Futures Authority
Limited, is acting for Hodder Headline and no one else in connection with the
Offer and will not be responsible to anyone other than Hodder Headline for
providing the protections afforded to the customers of Rothschild or for
providing advice in relation to the Offer or any matter referred to herein or
in the Offer Document.
Not for release, distribution or publication
in or into the USA, Canada, Australia or Japan
WH Smith Group PLC ("WH Smith")
Recommended cash offer for Hodder Headline PLC ("Hodder Headline")
1. The Offer
WH Smith and Hodder Headline have agreed terms for a recommended cash offer
to be made by Schroders on behalf of WH Smith for the entire issued and to be
issued share capital of Hodder Headline.
The Offer values each Hodder Headline Share at 525p payable in cash and there
is a Loan Note Alternative. The Offer represents a premium of 43 per cent.
to the Hodder Headline share price of 367.5p at the close of business on 21
May 1999, the last dealing day prior to this announcement, and values Hodder
Headline's issued ordinary share capital at #185 million.
The Board of Hodder Headline, which has been so advised by Rothschild,
considers the terms of the Offer to be fair and reasonable and in the best
interests of Hodder Headline Shareholders as a whole and unanimously
recommends Hodder Headline Shareholders to accept the Offer. In providing
advice to the Board of Hodder Headline, Rothschild has taken into account the
Hodder Headline Directors' commercial assessments.
WH Smith has received binding irrevocable undertakings to accept the Offer
from those Hodder Headline Directors holding (or whose immediate family
members hold) Hodder Headline Shares representing, in aggregate, 2.8 per
cent. of Hodder Headline's issued share capital.
WH Smith attaches considerable importance to retaining the skills and
expertise of the management and employees of the Hodder Headline Group. The
Hodder Headline executive directors have confirmed that they intend to remain
with the business. Tim Hely Hutchinson will be joining the main board and
executive committee of WH Smith, reporting directly to Richard Handover.
Cazenove & Co. are acting as brokers to the Offer.
Appendix II contains the definitions used in this announcement.
2. Terms of the Offer
(a) The Offer
The Offer will be made on the following basis:
for each Hodder Headline Share 525p in cash
The Offer represents a premium of 43 per cent. to the Hodder Headline share
price of 367.5p at the close of business on 21 May 1999, the last dealing day
prior to this announcement, and values Hodder Headline's issued ordinary
share capital at approximately #185 million.
(b) The Loan Note Alternative
A Hodder Headline Shareholder who validly accepts the Offer may elect to
receive Loan Notes instead of some or all of the cash consideration to which
he would otherwise be entitled under the basic terms of the Offer on the
following basis:
for every #1 of cash consideration #1 nominal of Loan Notes
The principal terms of the Loan Notes are set out in Part C of Appendix I.
3. Background to the Offer
In October 1997, WH Smith set out a strategy of focusing on the WHSmith
business and core products. This strategy involved the disposal of
diversified retailing businesses including Waterstones, Virgin Our Price and
The Wall, which were sold for proceeds of #465 million. The Company has
subsequently returned capital of #191 million to its shareholders. In the 12
months ended 31 August 1998, WH Smith achieved an 8 per cent. increase in
retailing sales, record profit on ordinary activities of #142 million and 15
per cent. growth in earnings per share.
In May 1998, in order to significantly strengthen its core retailing
activities, WH Smith acquired the John Menzies retail chain, which had sales
in the year ended 30 April 1998 of #280 million, for #70 million.
In July 1998, WH Smith acquired The Internet Bookshop for approximately #10
million. This represented an important step in developing new routes to
market. Subsequently, in January 1999, WH Smith acquired Helicon for
approximately #6 million. Helicon is a specialist publisher of consumer and
educational reference material in the UK, including the Hutchinson
Encyclopedia. Helicon has also developed leading technology in converting
reference and educational material into digital form for use in on-line
applications.
WH Smith has also been developing the next stages of its online activities.
In April 1999, it announced the launch of WHSmith Online, a service offering
a living library of educational and entertainment material, a virtual
shopping mall of retail activities and free access to the Internet. In
addition, WH Smith also announced in April 1999 that it had reached an
agreement with British Interactive Broadcasting to sell core products through
"Open", an interactive digital TV service.
4. Information on the WH Smith Group
In the 12 months ended 31 August 1998, WH Smith reported profits before tax
and exceptional items of #142 million (1997: #129 million) and sales from
continuing operations of #2,095 million (1997: #2,021 million). Earnings per
share before exceptional items were 35.5p (1997: 31.0p).
The results for the six months to 28 February 1999 were sales of #1,276
million, profit before tax of #105 million and earnings per share of 30.1p.
Since the announcement of its results for the six months to 28 February 1999,
there has been no material change in the financial or trading position of WH
Smith.
WH Smith's UK market shares are approximately 17.5 per cent. for books, over
20 per cent. for retail stationery and 18 per cent. for magazines. It also
has approximately a 12 per cent. share of the UK video market and an 8 per
cent. share of the UK music market.
The business of WH Smith consists of:
WHSmith High Street
WHSmith High Street operates 546 stores with 3.0 million square feet of sales
space. In the 12 months ended 31 August 1998, the base business generated
sales of #840 million (up 5 per cent. like for like) and profits of #51
million.
Stores acquired as part of the acquisition of John Menzies Retail achieved
sales of #188 million and profits of #3 million on a pro forma basis for the
12 months ended 31 August 1998.
WHSmith Europe Travel Retail
WHSmith Europe Travel Retail operates 184 stores, mainly in airports and
railway stations in the UK, with 195,000 square feet of selling space. In
the 12 months ended 31 August 1998, the base business generated sales of #147
million (up 11 per cent. like for like) and profits of #8 million.
Stores acquired as part of the acquisition of John Menzies Retail achieved
sales of #88 million and profits of #2 million on a pro forma basis for the
12 months ended 31 August 1998.
WHSmith USA Travel Retail
The business operates 416 stores in the USA within airports and hotels, with
445,000 square feet of selling space. In the 12 months ended 31 August 1998,
it generated sales of #171 million and profits of #9 million.
WHSmith News Distribution
This business is the UK's leading wholesaler of magazines and newspapers,
operating from 53 depots throughout England and Wales. In the 12 months
ended 31 August 1998, it generated sales of #1,025 million (including sales
to WHSmith retail businesses of #92 million) and profits of #45 million.
WHSmith Direct
On 18 May 1999, WH Smith announced that it had created a new business
division, WHSmith Direct. The division includes WHSmith Online, The Internet
Bookshop and Helicon Publishing as well as the Company's interests in digital
interactive TV through the new British Interactive Broadcasting venture,
"Open".
5. Information on Hodder Headline
Headline Book Publishing was formed in 1986 and was floated in 1991. Hodder
Headline was created following the merger with Hodder & Stoughton in 1993.
Hodder & Stoughton has been established for 130 years and publishes in most of
the key publishing categories. In 1995, Hodder Headline was instrumental in
the campaign to abolish the Net Book Agreement which resulted in a more
dynamic market for book retailing in the UK.
For the year ended 31 December 1998, Hodder Headline reported profit before
interest and taxation of #10 million on turnover of #102 million. As at 31
December 1998, Hodder Headline had net assets of #39 million. Hodder Headline
has produced compound annual growth in profit before tax of 19 per cent. over
the past three years.
Hodder Headline has an 8.5 per cent. market share in UK consumer publishing
and 6.4 per cent. of the total UK market. It is currently the third largest
UK consumer publisher and the second largest UK mass-market paperback
publisher. Hodder Headline also operates in the educational publishing market
producing textbook series, as well as home learning guides including the world
famous "Teach Yourself" brand. Hodder Headline has 37,000 titles under
contract and 13,000 live titles.
The Group operates in three main divisions:
1 UK Consumer Publishing, which generated sales of #63.2 million and
profits of #7.4 million for the 12 months ended 31 December 1998. It
consists principally of:
* Headline Book Publishing;
* Hodder & Stoughton General Publishing;
* Hodder Children's Books; and
* Hodder & Stoughton Religious Publishing.
Important fiction authors include John le Carre, Tom Clancy, Martina
Cole, Josephine Cox, Elizabeth George, Stephen King, Cathy Kelly, Dean
Koontz, James Patterson and Rosamunde Pilcher. Important non-fiction
authors include Dickie Bird, Richard Carlson, Alex Ferguson, Malcolm
Gluck, Sophie Grigson, Ken Hom and Gary Rhodes. Brands include the
Rothmans Football Yearbook and the Playfair Cricket Annual.
Children's authors and projects include the recent Whitbread winner David
Almond, Enid Blyton (Famous Five and Secret Seven series), Lucy Daniels
(Animal Ark Series), Mick Inkpen and the Hodder Home Learning Series.
Religious publishing includes the best selling modern translation of the
Bible, the New International Version.
2 UK Educational, Academic & Professional Publishing, which generated
sales of #22.2 million and profits of #2.7 million for the 12 months
ended 31 December 1998.
Hodder Headline's UK Educational, Academic & Professional publishing
business is the second largest part of the Group, generating high margins
and strong backlist sales. The main divisions are Hodder & Stoughton
Educational and Arnold. The former publishes books, software and other
materials mainly for secondary schools, colleges of Further and Higher
Education and home learning, covering a broad range of subjects. The
majority of the home learning books are published under the world famous
"Teach Yourself" brand. Arnold publishes textbooks, reference books and
journals for professionals and college and university students, mainly in
the fields of Medicine and Health Sciences, the Humanities and Applied
Science and Technology.
3 Overseas Operations, which generated sales of #14.9 million for the 12
months ended 31 December 1998. Hodder Headline's overseas companies
operate with the dual aim of maximising sales of the UK-originated
publishing and creating their own successful local publishing lists.
The principal overseas companies are Hodder Headline Australia, Hodder
Moa Beckett (New Zealand) and Hodder & Stoughton Educational Southern
Africa. Hodder Headline Australia's publishing emphasises practical
consumer non-fiction and children's books mostly for Australia and New
Zealand. Hodder Moa Beckett specialises in sporting and practical non-
fiction, for New Zealand and international markets, and has important
joint publishing arrangements with the internationally renowned
photographer Anne Geddes and the Automobile Association of New Zealand.
Hodder & Stoughton Educational Southern Africa publishes textbooks and
readers for primary and secondary schools mainly in South Africa,
Namibia and Botswana.
Current trading and prospects
At Hodder Headline's Annual General Meeting on 5 May 1999, Tim Hely
Hutchinson, Group Chief Executive, made the following comments on current
trading:
"We are pleased to report that sales in the first four months of the year
have been strong, reflecting our strategy of acquiring and developing high
potential titles and series and backing them with high profile marketing
campaigns. All publishing segments, in the UK and overseas, have made good
progress.
"We have put 18 titles onto The Sunday Times bestseller lists in the first
four months, 9 of which are titles by authors new to our lists. Bestsellers
that have made significant contributions include Single & Single by John le
Carre, Tomorrow the World by Josephine Cox, She's the One by Cathy Kelly, The
Girl Who Loved Tom Gordon by Stephen King and My Legendary Girlfriend by Mike
Gayle.
"We are encouraged by the Government's renewed commitment to literacy and
reading books. Our Hodder & Stoughton Educational division has gained
further market share in the first quarter of 1999 in a better funded
environment.
"Our publishing lists are very strong for the second half of the year. Major
titles include a new collection of stories by Stephen King, Hearts in
Atlantis, and new hardback novels from top bestselling authors such as In
Pursuit of the Proper Sinner by Elizabeth George and Somewhere, Someday by
Josephine Cox. High potential paperbacks include two new Net Force titles by
Tom Clancy, When the Wind Blows by James Patterson and Seize the Night by
Dean Koontz. Non-fiction titles being well supported by booksellers for
later in the year include Dickie Bird's second book White Cap and Bails and
the long-awaited Alex Ferguson autobiography, Managing My Life. There are
also powerful new ranges from our educational, academic, children's,
religious and overseas operations.
"The Board remains confident that 1999 will be another year of good progress
for the Group."
In the first four months of 1999, Hodder Headline achieved turnover growth of
9.4 per cent. At the end of April, unaudited results indicated that Hodder
Headline's trading continued to move ahead of internal expectations.
Performance in the second half of the year will be helped by the strength of
publishing lists for that period.
6. Management and employees
WH Smith attaches considerable importance to retaining the skills and
expertise of the management and employees of the Hodder Headline Group. The
Hodder Headline executive directors, comprising Tim Hely Hutchinson (Group
Chief Executive), Mark Opzoomer (Deputy Chief Executive), Richard Adam (Group
Finance Director), Amanda Ridout (Managing director of Headline), Martin
Neild (Managing director of Hodder & Stoughton General Publishing), Sue
Fletcher (Deputy managing director of Hodder & Stoughton General Publishing),
Mary Tapissier (Managing director of Hodder Children's Books), Philip Walters
(Managing director of Hodder & Stoughton Educational), Richard Stileman
(Managing director of Arnold) and Malcolm Edwards (Managing director of
Hodder Headline Australia), intend to remain with the business.
Tim Hely Hutchinson will be joining the main board and executive committee of
WH Smith, reporting directly to Richard Handover.
The Board of Hodder Headline believes that opportunities for employees at all
levels will be enhanced as a result of joining the WH Smith Group, which has
confirmed that existing terms and conditions, including pension rights, will
be fully safeguarded.
7. Management of Hodder Headline following the acquisition
Hodder Headline will continue to be run by its existing management, retaining
its name and range of imprints. Hodder Headline will operate as a separate
business with Tim Hely Hutchinson as its Chief Executive and Richard Handover
as its Chairman. WH Smith will apply its financial control systems while
Hodder Headline will maintain high levels of operating autonomy including its
independent publishing divisions. The business will continue to operate from
its existing premises.
Hodder Headline will pursue its current policy of striving for excellence in
every department and especially of seeking to offer its authors and customers
unrivalled editorial, marketing and distribution expertise. Hodder Headline
will develop its business with WH Smith in such a way as not to disadvantage
its other customers. By means of Hodder Headline joining the WH Smith Group,
the management of Hodder Headline has established a way forward for the
company that will give it the opportunity to develop as a leading
international publisher of both consumer and educational books, and will
provide it with an opportunity to play a central role in the fast-developing
areas of electronic publishing and online selling of books to consumers.
8. Further details of the Offer
The Hodder Headline Shares will be acquired by WH Smith fully paid and free
from all liens, equities, charges, encumbrances and other interests and
together with all rights now or hereafter attaching thereto, including the
right to receive and retain all dividends and other distributions declared,
made or paid hereafter.
9. Hodder Headline Share Options
The Offer will extend to any Hodder Headline Shares which are unconditionally
allotted or issued while the Offer remains open for acceptance (or by such
earlier date as WH Smith may, subject to the City Code, determine) including
any such shares allotted or issued pursuant to the exercise of Hodder Headline
Options. WH Smith intends to offer holders of Hodder Headline Options the
opportunity, in return for a cash payment, to surrender exercisable options
(through cash cancellation) to the extent that such options have not been
exercised, subject to the Offer becoming or being declared unconditional in
all respects.
10. General
Neither WH Smith nor, so far as WH Smith is aware, any person presumed to be
acting in concert with WH Smith owns or controls any Hodder Headline Shares
or has any option to acquire Hodder Headline Shares.
The Offer will be on the terms and will be subject, inter alia, to the
conditions which are set out in Appendix I hereto, to those terms which will
be set out in the formal Offer Document and to such further terms as may be
required to comply with the rules and regulations of the London Stock
Exchange and the provisions of the City Code.
The formal Offer Document setting out details of the Offer including the Loan
Note Alternative together with the Form of Acceptance will be despatched to
Hodder Headline Shareholders by Schroders as soon as practicable.
The availability of the Offer to Hodder Headline Shareholders not resident in
the UK may be affected by the laws of the relevant jurisdiction. Hodder
Headline Shareholders who are not resident in the UK should inform themselves
about and observe any applicable requirements.
24 May 1999
_____________________________________________________________________________
The Offer, including the Loan Note Alternative, will not be made, directly or
indirectly, in or into, or by use of the mails or by any other means or
instrumentality (including, without limitation, facsimile transmission, telex
or telephone) of interstate or foreign commerce of, or any facilities of a
national securities exchange of, the USA, Canada, Australia or Japan and will
not be capable of acceptance by any such use, means, instrumentality or
facilities or from within the USA, Canada, Australia or Japan. Accordingly,
copies of this announcement are not being and must not be, mailed or
otherwise distributed or sent in or into or from the USA, Canada, Australia
or Japan.
Schroders, which is regulated by The Securities and Futures Authority
Limited, is acting for WH Smith and no one else in connection with the Offer
and will not be responsible to anyone other than WH Smith for providing the
protections afforded to the customers of Schroders or for providing advice in
relation to the Offer or any matter referred to herein or in the Offer
Document.
Rothschild, which is regulated by The Securities and Futures Authority
Limited, is acting for Hodder Headline and no one else in connection with the
Offer and will not be responsible to anyone other than Hodder Headline for
providing the protections afforded to the customers of Rothschild or for
providing advice in relation to the Offer or any matter referred to herein or
in the Offer Document.
MORE TO FOLLOW
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