Response to Offer
22 Gennaio 2007 - 1:39PM
UK Regulatory
RNS Number:9174P
Punch Graphix PLC
22 January 2007
22 January 2007
Punch Graphix plc
Posting of response to the unsolicited offer from Punch International N.V.
Profit estimate for the year ended 31 December 2006
The Independent Committee (the "Committee") of the directors of Punch Graphix
plc ("Punch Graphix" or the "Company") announces that a document (the "Response
Document") will be posted to Shareholders later today setting out its detailed
response to the unsolicited offer (the "Offer") from Punch International N.V.
("Punch International"). For these purposes, the Committee comprises all of the
directors of Punch Graphix with the exception of Guido Dumarey and Jan Smits.
In the view of the Committee, the arguments deployed in order to justify the
Offer are without foundation, the Offer fails to reflect the full value and
prospects of Punch Graphix and is an attempt to gain majority control of the
Company without paying full value. The Committee is therefore unwilling to
recommend that Shareholders accept the Offer.
Geoff White, Chairman of Punch Graphix and a member of the Committee, said:
"Punch Graphix has performed strongly since its admission to AIM in May 2005 and
the Board's recently agreed strategy has the potential to deliver an exciting
future. The Offer substantially undervalues the Company and its prospects, and
offers no premium for majority control.
"It is very clear that the Offer is no more than an attempt to regain control of
Punch Graphix on the cheap and with complete disregard for other Shareholders."
KEY POINTS
Punch Graphix's trading during 2006
The Response Document includes estimates by the Directors of Punch Graphix
(excluding Guido Dumarey) for the year ended 31 December 2006 (the "Profit
Estimate"). The Profit Estimate is reproduced at appendix II to this
announcement. All references in this announcement to Punch Graphix's financial
results for the year ended 31 December 2006 are based on the Profit Estimate.
The Directors of Punch Graphix (excluding Guido Dumarey) estimate that the
Company will report strong full year results for 2006, including:
- Revenues of Euro172.0 million, 8.7% above 2005.
- Operating result of Euro24.6 million, 14.4% above 2005.
- Result before tax of Euro23.5 million, 27.0% above 2005.
- Net result - equity interest of Euro15.7 million, 26.6% above 2005
- Earnings per Share (basic) of 15.35 eurocents, 15.2% above 2005.
Level of the Offer
* The Offer takes inadequate account of Punch Graphix's historic operating
and financial performance and of its future strategic potential;
* The Offer represents no premium to the last mid-market closing price
prior to the announcement of the Offer, contrasting starkly with an average
bid premium for completed UK hostile offers of 28.4% in the two years ended
31 December 2006;
* The Offer equates to a multiple of 12.7 times estimated basic earnings
per share for the year ended 31 December 2006, compared to a market multiple
of 14.3 times;
* The Offer allows Shareholders no benefit from any final dividend which
could be expected to become payable in respect of the year to 31 December
2006.
Punch International's criticisms
Punch International's criticisms of the performance and strategic direction of
Punch Graphix are simply not supported by the facts and, in many instances, are
contrary to Punch International's previous stance. Specifically:
Criticism: "...the performance of Punch Graphix has been unsatisfactory..."
Fact: Since Admission in May 2005, Punch Graphix has delivered strong
growth.
Criticism: "...Profits have not grown in line with revenue..."
Fact: In both 2005 and 2006 (based on the above estimate), growth in the
operating result outstripped growth in revenues, resulting in growing
operating result margins.
Criticism: "...the price performance of Punch Graphix Shares has been poor..."
Fact: Punch Graphix's shares have risen by 30.6% between Admission and 22
December 2006, which compares very favourably to the AIM All Share
Index (up 9.7%) and the AIM 100 Index (up 0.8%) over the same period.
Criticism: "...Punch Graphix has failed to apply the net proceeds of Euro28.1m
raised at Admission to any sort of growth strategy..."
Fact: All the elements of the growth strategy set out at Admission have
been successfully progressed.
Furthermore Punch International has, through Guido Dumarey's role as
managing director and chairman of the board of Punch International
and as a non-executive Director, been fully involved in all key
strategic decisions made since Admission.
Punch International is silent on certain important matters
* Punch International intends to replace all the existing Non-Executive
Directors (except Guido Dumarey, Chairman of Punch International), whether
or not the Offer is successful, yet has provided no explanation to
Shareholders as to the suitability or qualifications of the proposed
replacements;
* Punch International has not indicated who would be Chairman of Punch
Graphix, should its proposed Board changes be implemented, which is of
particular concern given the Chairman's role in safeguarding shareholders'
interests;
* Punch International has provided little detail as to how it intends to
improve Punch Graphix's performance; the limited information provided, in
the opinion of the Committee, arouses suspicions that the Company would be
managed on a short term basis with a reduction in investment in research and
development, which the Committee believes would be to the serious detriment
of its longer term prospects;
* Punch International has not indicated whether it intends to honour the
Board's commitment at the time of the Company's Admission with regard to the
level of aggregate annual dividends.
Concerns over ongoing corporate governance
The Committee believes that Punch International's proposed removal of the three
independent non-executive directors of Punch Graphix, and its stated intention
to achieve greater control over the Company and greater synergies between the
two companies, have the potential to significantly weaken the corporate
governance safeguards envisaged in the Relationship Agreement between Punch
International and Punch Graphix.
Conclusion
The Committee firmly believes that Punch Graphix has exciting growth prospects,
that it has an appropriate strategy in place to deliver short and long term
value to all Shareholders, and that the Offer does not adequately reflect the
Company's full value and prospects.
The Committee is therefore unwilling to recommend that Shareholders accept the
Offer.
However, the Response Document draws Shareholders' attention to certain factors
which the Committee believes Shareholders should consider carefully before
deciding whether or not to accept the Offer.
These include:
* the fact that the Offer represents an opportunity for Shareholders to
sell their entire shareholding for a certain cash sum, free of dealing
costs;
* depending on the size of Punch International's ultimate shareholding and
its actions in relation to the Offer, the potentially limited liquidity in
the market for the remaining Punch Graphix shares;
* the fact that, even if the Offer is unsuccessful, Punch International
will remain at least a 49% shareholder and will retain the ability to put
its proposed board changes to a Shareholder vote;
* the fact that Shareholders could end up as minority shareholders in a
company controlled by Punch International which could have a negative effect
on the share price;
* the fact that, if Punch Graphix shares cease to be admitted to AIM, the
Relationship Agreement will automatically terminate;
* the fact that, subject to Punch International holding 75% of Punch
Graphix, Punch Graphix may be required to provide security to service Punch
International's obligations under facilities it has entered into to finance
the Offer which could weaken Punch Graphix's financial position.
The members of the Committee will not accept the Offer in respect of their own
beneficial shareholdings unless and until the Offer is declared unconditional as
to acceptances.
Shareholders will be kept informed of any material new developments with regards
the Offer.
A copy of the Response Document will be available on the Company's website:
http://www.punchgraphix.com
- Ends -
For further information, please contact:
Punch Graphix plc Tel: +32 (0) 3 443 19 26
Geoff White (Chairman)
Ben Van Assche (Chief Executive Officer)
Altium Capital Limited Tel: +44 (0) 20 7484 4040
David Hart
Tim Richardson
The Hogarth Partnership Tel: +44 (0) 20 7357 9477
John Olsen
Barnaby Fry
The directors of Punch Graphix, other than Guido Dumarey, accept responsibility
for the information contained in this announcement (other than the opinions of
the Committee contained in this announcement, for which the independent
directors comprising the Committee alone accept responsibility). To the best of
the knowledge and belief of the directors of Punch Graphix other than Guido
Dumarey (who have taken all reasonable care to ensure that such is the case),
the information contained herein for which they accept responsibility is in
accordance with the facts and does not omit anything likely to affect the import
of such information.
The independent directors comprising the Committee accept responsibility for
their opinions contained in this announcement. To the best of the knowledge and
belief of the independent directors (who have taken all reasonable care to
ensure that such is the case), the information contained herein for which they
accept responsibility is in accordance with the facts and does not omit anything
likely to affect the import of such information.
Neither Guido Dumarey (Non-executive Director) nor Jan Smits (Chief Financial
Officer) are members of the Committee and are, therefore, not party to the
conclusions it has reached with regards to the Offer. Mr Dumarey is not a member
of the Committee by virtue of his position as managing director and president
of the board of directors of Punch International. Mr Smits is not a member of
the Committee as he has recently had discussions with Punch International in
relation to his potential future employment.
Altium Capital Limited, which is authorised and regulated in the United Kingdom
by the Financial Services Authority, is acting exclusively for Punch Graphix
plc and for no one else in connection with the proposed offer and is not
advising any other person or treating any other person as its client in
relation thereto and will not be responsible to anyone other than Punch Graphix
plc for providing the protections afforded to clients of Altium Capital Limited,
or for giving advice to any other person in relation to the proposed offer, the
contents of this announcement or any other matter referred to herein.
BDO Stoy Hayward LLP and Altium Capital Limited have each given and not
withdrawn their consent to the inclusion of their respective reports in this
announcement.
Appendix 1
Bases of Calculation and Sources of Information
* Unless otherwise stated in this document, the financial information
concerning Punch Graphix has been extracted from the annual report and
accounts of Punch Graphix for the year ended 31 December 2005, other
published interim and annual reports and accounts of Punch Graphix for the
relevant periods, other information made publicly available by Punch Graphix
and the profit estimate contained in this announcement and in the Response
Document;
* The reference to the average UK bid premium for completed hostile offers
in the two years ended 31 December 2006 was sourced from M&A Monitor which
defined 17 completed hostile offers for UK targets. Premia are based on
closing share prices on the day prior to the announcement of a bid;
* The multiple of 12.7 times estimated earnings per share is calculated by
dividing the Offer Price of 128p by the Company's estimated basic earnings
per share for the year ended 31 December 2006 of 15.35 Eurocents, translated
at an exchange rate of #1=Euro1.5230, as sourced from the Financial Times on 19
January 2007.
* The reference to the FTSE All-Share index trading on a P/E multiple of
14.3 times is sourced from the Financial Times on 19 January 2007.
* The reference to the 30.6 per cent. increase in Punch Graphix's share
price since the date of its admission to trading on AIM is derived from the
Company's closing share price on 22 December 2006 of 128p and the Company's
price at such admission of 98p.
* The increases in the AIM 100 index, AIM All-Share index and Punch
Graphix share price from the Company's admission to trading on AIM to 22
December 2006 are sourced from Perfect Analysis.
Appendix 2
Profit estimate for the year ended 31 December 2006
On the basis set out below, the Directors (excluding Guido Dumarey), having made
due and careful enquiry, estimate that for the year ended 31 December 2006 the
performance of the Group was as follows:
Eurom
Revenues 172.0
---------
Operating result 24.6
---------
Result before tax 23.5
---------
Net result - equity interest 15.7
---------
Earnings per share (note) Eurocents
- basic 15.35
- diluted 15.25
Note:
Basic earnings per share has been calculated as the Group's estimated net result
- equity interest divided by the estimated average number of shares in issue
during the period.
Diluted earnings per share has been calculated on the same basis as basic
earnings per share after increasing the estimated average number of shares in
issue by the shares issued under the Punch Graphix LTIP.
Basis of preparation
The Profit Estimate detailed above includes the unaudited results for the six
months ended 30 June 2006 (as published in on 28 September 2006), the unaudited
management accounts for the five months ended 30 November 2006 and an estimate
for the month ended 31 December 2006. The Profit Estimate has been prepared
under the International Financial Reporting Standards and on a basis consistent
with the accounting policies of the Group.
Since the Profit Estimate has not been audited, the actual results reported may
be affected by revisions required to accounting estimates due to changes in
circumstances, the impact of unforeseen events, the correction of errors in the
interim financial results and management accounts and different judgements made
by the directors of the Company at the time of reporting the audited results for
the year ended 31 December 2006. If Punch International implements its proposals
to change the constitution of the board of directors of the Company, different
individuals would be making the judgements on the actual results for the period,
whether on the basis of the current strategy or any changes in strategy as
suggested by Punch International in the Offer Document or as otherwise
determined by the new board.
The Directors (excluding Guido Dumarey)
Punch Graphix plc
Chestnut House
Hackness Road
Northminster Business Park
Upper Poppleton
York
YO26 6QR
Altium Capital Limited
30 St. James's Square
London
SW1Y 4AL
22 January 2007
Dear Sirs
Punch Graphix plc
We report on the Profit Estimate comprising the estimate of revenues, operating
result, result before tax, net result - equity interest and earnings per share
of Punch Graphix plc (the ''Company'') and its subsidiaries (together the
''Group'') for the year ended 31 December 2006 (the ''Profit Estimate''). The
Profit Estimate and the basis on which it is prepared are set out on page 15 of
the document to be issued by the Company dated 22 January 2007 (the
''Document'').
This report is required by Rule 28.3(b) of the City Code on Takeovers and
Mergers (the ''City Code'') and is given for the purposes of complying with that
rule and for no other purpose. Accordingly, we assume no responsibility in
respect of this report to Punch International N.V. (''Punch International'') or
to any person connected to, or acting in concert with, Punch International or to
any other person who is seeking or may in future seek to acquire control of the
Company (an ''Alternative Offeror'') or to any other person connected to, or
acting in concert with, an Alternative Offeror.
Responsibilities
It is the responsibility of the directors of the Company other than Guido
Dumarey (the ''Directors'') to prepare the Profit Estimate in accordance with
the requirements of the City Code. In preparing the Profit Estimate, the
Directors are responsible for correcting errors that they have identified which
may have arisen in unaudited financial results and unaudited management accounts
used as the basis of preparation for the Profit Estimate.
It is our responsibility to form an opinion as required by the City Code as to
the proper compilation of the Profit Estimate and to report that opinion to you.
Save for any responsibility arising under Rule 28.3(b) of the City Code and to
the extent there provided, to the fullest extent permitted by the law, we do not
assume any responsibility and will not accept any liability to any other person
for any loss suffered by any such person as a result of, arising out of or in
connection with this report or our statement required by and given solely for
the purposes of complying with Rule 28.4 of the City Code consenting to its
inclusion in the Document.
Basis of Preparation of the Profit Estimate
The Profit Estimate has been prepared on the basis stated on page 15 of the
Document and is based on the unaudited interim results for the six months ended
30 June 2006, the unaudited management accounts for the five months ended 30
November 2006 and an estimate for the month ended 31 December 2006. The Profit
Estimate is required to be presented on a basis consistent with the accounting
policies of the Group.
Basis of opinion
We conducted our work in accordance with the Standards for Investment Reporting
issued by the Auditing Practices Board in the United Kingdom. Our work included
evaluating the basis on which the historical financial information included in
the Profit Estimate has been prepared and considering whether the Profit
Estimate has been accurately computed using that information and whether the
basis of accounting used is consistent with the accounting policies of the
Group.
We planned and performed our work so as to obtain the information and
explanations we considered necessary in order to provide us with reasonable
assurance that the Profit Estimate has been properly compiled on the basis
stated.
Since the Profit Estimate has not been audited, the actual results reported may
be affected by revisions required to accounting estimates due to changes in
circumstances, the impact of unforeseen events, the correction of errors in the
interim financial results and management accounts and different judgements made
by the directors of the Company at the time of reporting the audited results for
the year ended 31 December 2006. If Punch International implements its proposals
to change the constitution of the board of directors of the Company, different
individuals could be making the judgements on the actual results for the period
whether on the basis of the current strategy or any changes in strategy as
suggested by Punch International in its offer document dated 8 January 2007.
Consequently we can express no opinion as to whether the actual results achieved
will correspond to those shown in the Profit Estimate and differences may be
material.
We conducted our work in accordance with Standards for Investment Reporting
issued by the Auditing Practices Board in the United Kingdom. Our work has not
been carried out in accordance with auditing or other standards and practices
generally accepted in the United States of America or other jurisdictions, and
accordingly should not be relied upon as if it had been carried out in
accordance with those standards and practices.
Opinion
In our opinion, the Profit Estimate has been properly compiled on the basis
stated and the basis of accounting used is consistent with the accounting
policies of the Group.
Yours faithfully
BDO Stoy Hayward LLP
The Directors (excluding Guido Dumarey)
Punch Graphix plc
Chestnut House
Hackness Road
Northminster Business Park
Upper Poppleton
York
YO26 6QR
22 January 2007
Dear Sirs
We refer to the estimates of revenue, operating result, result before tax, net
result - equity interest and earnings per share of Punch Graphix plc (the
"Company") and its subsidiaries (together the "Group") for the year ended
31 December 2006 (the "Profit Estimate"). The Profit Estimate is set out on page
15 of the document to be issued by the Company dated 22 January 2007 (the
"Document").
We have discussed the Profit Estimate, together with the basis upon which it is
made with you and with BDO Stoy Hayward LLP, the Company's reporting
accountants.
We have also considered a report, dated 22 January 2007, addressed to you and us
from BDO Stoy Hayward LLP regarding the accounting policies and calculations
upon which the Profit Estimate is based and we have discussed such report with
you and BDO Stoy Hayward LLP.
This letter is provided in compliance with Rule 28.3(b) of the City Code on
Takeovers and Mergers and may be included in the Document solely for the
purposes of that Rule.
On the basis of the foregoing, we consider that the Profit Estimate, for which
the Punch Graphix Directors (other than Guido Dumarey) are solely responsible,
has been made after due care and consideration by them.
Yours faithfully
ALTIUM CAPITAL LIMITED
This information is provided by RNS
The company news service from the London Stock Exchange
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