Bss Group Plc Recommended Cash And Shares -6-

5th Jul 2010 07:00

| * | the desire to reduce carbon emissions; | +----+-----------------------------------------------------------+ | | | +----+-----------------------------------------------------------+ | * | an increasing need to manage and conserve water | | | resources; and | +----+-----------------------------------------------------------+ | | | +----+-----------------------------------------------------------+ | * | more frequent bathroom upgrade cycles, and 'aspirational' | | | makeovers for bathrooms. | +----+-----------------------------------------------------------+ Purchasing power The Enlarged Group would have operational and financial size and scale to purchase products more competitively and secure the benefits of the trend towards global sourcing. The combined purchasing of plumbing and heating products through BSS and Travis Perkins' plumbing and heating activities (largely City Plumbing Supplies and Wickes) should provide the Enlarged Group with the opportunity to achieve material procurement gains. Both Travis Perkins and BSS have recently started to expand their global sourcing activities. Plumbing and heating products offer considerable scope for sourcing gains from global sourcing due to their favourable value to freight cost ratio and the establishment and development of low cost manufacturing facilities capable of producing high quality products. Supply chain The Enlarged Group should be able to service customers more efficiently both locally and nationally using Travis Perkins' low cost, layered 'route to market' supply chain. Travis Perkins' merchanting division has continued to focus on building relationships with its key branded suppliers and has worked closely with them and Travis Perkins' internal supply chain division to improve product availability within its branch network. Information technology The BSS business should benefit from being integrated into Travis Perkins' information technology platform, thereby reducing the reliance on external vendors. Amongst many beneficial software applications, Travis Perkins' information technology platform provides managers with real-time access to valuable information, including data on customer and supplier performance and an array of key performance indicators. Property Travis Perkins' medium and long term property strategy should give both businesses access, at a lower cost, to attractive trading locations. Travis Perkins has successfully deployed a strategy of actively managing its property assets to extract maximum value and protect its market position in each catchment. This has included co-locating a number of complementary trade brands onto single 'trade park' sites, which provide attractive single destinations for tradesmen to visit to source materials. This critical mass of differing trade brands, operated by Travis Perkins, provides the opportunity to access attractive property resources and enjoy lower property costs. Synergies Having successfully integrated a number of merchanting and retailing businesses into the Travis Perkins Group, Travis Perkins believes that similar success can be achieved through a combination with BSS and that it should be well placed to realise synergies arising from purchasing efficiencies and the removal of central costs. Travis Perkins believes it can achieve annual pre-tax cost savings in the Enlarged Group of at least GBP25 million in 2013 (see Note 8, Appendix II). The synergies of GBP25 million comprise approximately GBP19 million from purchasing benefits and GBP6 million from overhead savings. The one-off costs of delivering those savings are expected to be approximately GBP5 million, the majority of which will be incurred in 2010. In addition, total integration costs of approximately GBP6 million are expected to be incurred over 2010 and 2011. In addition to the above cost savings, Travis Perkins believes that the Acquisition will create a number of cross-selling opportunities within the Enlarged Group and generate revenue synergies in areas such as providing heavy side building products to some of BSS's customers, providing specialist plumbing and heating products handled by BSS to some Travis Perkins customers, and providing a wider distribution of plumbing and heating spares from BSS's specialist business in that market to customers of City Plumbing Supplies. Travis Perkins' integration plan, which will be led by Travis Perkins COO John Carter, has been developed on the basis of previous successful projects, and will involve four phases designed to secure synergies as a priority. Travis Perkins and BSS's plumbing and heating activities will be combined to form a new plumbing and heating division, using the best aspects of both businesses, while BSS's Specialist businesses will be added to Travis Perkins' Specialist division. +----+-----------------------------------------------------------+ | 5. | Background to, and reasons for, recommending the | | | Acquisition | +----+-----------------------------------------------------------+ Over the past five years BSS has become one of the leading businesses in the UK building materials distribution sector. BSS has successfully consolidated and grown its position in the UK plumbing and heating market, becoming one of the leading companies in the sector. Over the same period, BSS has also diversified to become a distributor of specialist products, including tools and accessories, to industrial contractors and industrial end users. Since 2005, revenues have increased by over GBP600 million from GBP747 million in the year ended 31 March 2005 to GBP1,352 million in the year ended 31 March 2010. The BSS Board believes a combination with Travis Perkins gives its shareholders the opportunity to share in scale benefits and the opportunities presented by the Enlarged Group. While the BSS Board remains confident in the stand-alone prospects for BSS, given the current volatility in the equity markets and the support of major shareholders for the transaction, the BSS Board intends to recommend unanimously that shareholders vote in favour of the Acquisition. +----+-----------------------------------------------------------+ | 6. | Irrevocable undertakings and letters of intent | +----+-----------------------------------------------------------+ BSS Directors who hold Scheme Shares have irrevocably undertaken to vote such Scheme Shares (in aggregate, 283,648 BSS Shares, representing approximately 0.23 per cent. of the existing issued share capital of BSS) in favour of the Acquisition and the Scheme at the Scheme Meeting and in favour of the resolution to be proposed at the BSS General Meeting. Such BSS Directors have also undertaken that, if following this announcement, Travis Perkins decides to implement the Acquisition by means of an Offer instead of by way of the Scheme, they will accept such Offer in respect of their Scheme Shares. These irrevocable undertakings will lapse if the Scheme has not been implemented by 31 December 2010. These undertakings will also cease to be binding if the Scheme is withdrawn or lapses, unless Travis Perkins exercises its right to announce an Offer for the entire issued and to be issued share capital of BSS. In addition, Travis Perkins has received non-binding letters of intent over, in aggregate, 43,215,554 BSS Shares, representing approximately 34.7 per cent. of BSS's existing issued share capital from Schroder Investment Management Limited, Blackrock Investment Management (UK) Limited, Blackrock International Limited, and AXA Investment Managers UK Limited to vote in favour of the Acquisition and the Scheme at the Scheme Meeting and in favour of the resolution to be proposed at the BSS General Meeting. Accordingly, Travis Perkins has received irrevocable undertakings and letters of intent on the terms set out above in respect of 283,648 BSS Shares and 43,215,554 BSS Shares respectively, representing, in aggregate, approximately 35.0 per cent. of BSS's existing issued share capital. +----+-----------------------------------------------------------+ | 7. | Information on Travis Perkins | +----+-----------------------------------------------------------+ Travis Perkins is one of the UK's largest builders' merchants and home improvement retailers in terms of revenue and number of branches, operating through seven key brands. The principal activities of the Travis Perkins Group are the distribution and sale of a wide range of general building materials, timber, plumbing and heating products and the hiring of tools to professional builders and contractors and to the general public within the UK. The Travis Perkins Group's operations are almost entirely based in the UK, with 1,238 branches of its various brands across the country as at 31 December 2009. In 2009, the Travis Perkins Group had an average headcount of 14,528. The Travis Perkins Group's revenue for the year ended 31 December 2009 was GBP2.93 billion and it had an operating profit of GBP257 million with an adjusted operating profit of GBP225 million. The adjusted profit of the Travis Perkins Group before tax was GBP180 million and the adjusted earnings per share was 75 pence. +----+-----------------------------------------------------------+ | 8. | Current trading | +----+-----------------------------------------------------------+ (MORE TO FOLLOW) Dow Jones Newswires July 05, 2010 02:00 ET (06:00 GMT)