Smith (Ds) Plc Acquisition -3-

7th Jul 2010 07:00

synergies which the Board envisage can be extracted from the combination of the two businesses. Increased manufacturing competitiveness The Board believes that combining DS Smith's and Otor's corrugated packaging operations in France will enable the Enlarged Group to be highly competitive through increased efficiency and implementation of envisaged synergies. The locations of DS Smith and Otor's manufacturing sites complement each other well, enabling the Enlarged Group to derive material benefit from optimising the geographic regions and customers served. Experienced management team Otor has high quality employees and a very experienced management team who will contribute further to the success of the Enlarged Group in France. The Board's current intention is that the management teams of Otor and DS Smith's French corrugated operations will be merged to form a strong team to implement the integration of the businesses and to take the combined French corrugated packaging operations forward. Reduced reliance on the UK business Following the consummation of the Proposed Acquisition, DS Smith will be materially less reliant on its business in the UK, the largest contributor to DS Smith's profits. Financial Impact of the Proposed Acquisition The Board estimates that the total pre-tax cost synergies from the Proposed Acquisition will be around EUR9.3 million (approximately GBP7.7 million) per annum (before integration costs as detailed below) fully achieved within the second full year of ownership. All synergies are expected to be reflected in the cash flow. These synergies are expected to arise from cost reduction principally through the elimination of duplicate head office costs and other functions, purchasing optimisation and bringing out-sourced services in house. The estimated integration and rationalisation costs of GBP3.0 million will be incurred between completion and the end of the first full financial year. The Board believes that the Proposed Acquisition will be financially beneficial to the Company, particularly in relation to the following key measures: · The Proposed Acquisition and Placing, taken together and before exceptional items, are expected to be modestly accretive to earnings in the financial year ending 30 April 2011 and earnings enhancing in the year ending 30 April 2012 being the first full year following completion; and · The Directors believe that the Proposed Acquisition will deliver a return on capital in the year ending 30 April 2012 (being the first full year following completion) greater than DS Smith's cost of capital. The Enlarged Group is expected to maintain strong operating cash flows. Nothing in this announcement should be construed as a profit forecast or interpreted to mean that the future earnings per share, profits, margins or cashflows of DS Smith will necessarily be greater than the historic published figures. Details of the Proposed Acquisition DS Smith has submitted a binding offer to acquire 94.99 per cent. of the share capital of Otor. The total consideration for the Proposed Acquisition, including the Minority Offer, of EUR247 million (approximately GBP206 million), will be in cash and the assumption of existing debt, equivalent to an all cash offer of EUR8.97 per Otor S.A. share. The acquisition agreement is conditional, inter alia, upon obtaining the approval of DS Smith shareholders at a General Meeting and relevant anti-trust clearances having been received. It is expected that the transaction will complete in Q4 2010. Carlyle together with LCL currently owns 94.75 per cent. of the share capital of Otor S.A. through three holding companies, Otor Finance, Packaging Investment I SARL and Packaging Investment II SARL (Packaging Investment I SARL and Packaging Investment II SARL together "Packaging Investment"). Otor Finance is wholly-owned by Packaging Investment and LCL; in addition, it holds directly 80.14 per cent. of the share capital of Otor and Packaging Investment owns directly 14.61 per cent. of the share capital of Otor. In addition, shares held by the chairman of Otor S.A. will also be sold to DS Smith. After closing the Proposed Acquisition DS Smith will control more than 95 per cent. of the Otor S.A. share capital, taking into account shares of Otor S.A. held in treasury. It is intended that DS Smith acquire 100 per cent. of Otor Finance from LCL and Packaging Investment, and all of Otor's share capital held by Packaging Investment and the chairman of Otor S.A.. DS Smith will also make a mandatory offer for the remaining shares of Otor listed on NYSE Alternext Paris in accordance with French stock exchange regulations. Under French regulations, a minority squeeze out can be achieved with a 95 per cent. shareholding. Exclusivity and Sellers' break fee Packaging Investment and LCL have committed to a period of exclusivity pending execution of the sale documentation by them. Should they fail to execute the documentation in accordance with DS Smith's binding offer or breach their exclusivity commitment, a break fee of EUR4,880,000 will be due to DS Smith. A further break fee of EUR20 million will be payable by Packaging Investment if the sellers enter into a binding agreement for the sale of all or part of the shares held by them or all or part of the Otor business with a third party before the expiry of the exclusivity period. DS Smith's break fee Under the sale documentation, DS Smith will commit to pay a break fee equal to 1 per cent. of the market capitalisation of DS Smith on the business day immediately before the date on which the sale documentation is signed, in the event that the Proposed Acquisition does not complete because approval is not given by shareholders or regulatory clearances are not obtained. Current trading and prospects DS Smith DS Smith announced its Preliminary Results for the financial year ended 30 April 2010 on 24 June 2010. Since the end of April 2010, trading performance continues to be in line with expectations, underpinned by continued FMCG demand from DS Smith's customers. The Board believes that DS Smith's visibility on contracted revenues continue to be of high-quality and in-line with previous guidance, underpinning the Board's confidence in the prospects of DS Smith and the Directors anticipate DS Smith making good progress throughout 2010 and 2011. The Enlarged Group The Board believes that, following completion of the Proposed Acquisition, the Enlarged Group will be well placed to continue to develop its strong French FMCG business. The Proposed Acquisition will enable DS Smith to meet the increasing requirements of European retailers for enhanced packaging products. The Board has confidence in the financial and trading prospects of the Enlarged Group for the current year and beyond. Shareholder circular and outline timetable DS Smith intends to despatch a circular to DS Smith shareholders giving full details of the Proposed Acquisition, and including notice of a General Meeting, as soon as practicable. The Board expects the General Meeting to take place in August 2010 with completion of the Proposed Acquisition, subject to the satisfaction of the conditions outlined above, expected in Q4 2010. DS Smith will also make a mandatory offer in accordance with French stock exchange regulations for the remaining shares of Otor held by minority shareholders as soon as the Proposed Acquisition completes. Enquiries +------------------------------+------------------------------+ | DS Smith Plc | +44 (0)1628 583 400 | | Miles Roberts, Group Chief | | | Executive | | | Steve Dryden, Group Finance | | | Director | | | Liz Christie, Head of | | | Investor Relations | | | | | +------------------------------+------------------------------+ | J.P. Morgan Cazenove | +44 (0)20 7742 4000 | | Malcolm Moir | | | Mark Breuer | | | Niklas Kloepfer | | | | | +------------------------------+------------------------------+ | Tulchan | +44 (0)20 7353 4200 | | John Sunnucks | | | David Allchurch | | +------------------------------+------------------------------+ This announcement has been issued by, and is the sole responsibility of, DS Smith. 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 plc or by any of its 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 DS Smith and for no one else in connection with the matters set out in this announcement and the Proposal and will not be responsible to anyone other than DS Smith for providing the (MORE TO FOLLOW) Dow Jones Newswires July 07, 2010 02:00 ET (06:00 GMT)