Carillion PLC Update on UK healthcare facilities business (1898Z)

TIDMCLLN

RNS Number : 1898Z

Carillion PLC

13 December 2017

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR IMMEDIATE RELEASE

13(th) December 2017

Carillion plc ("Carillion" or the "Group")

Update on proposed disposal of UK healthcare facilities management business

On 24(th) October 2017, Carillion announced that it had signed heads of terms with Serco Group plc ("Serco") for the disposal of a large part of its UK healthcare facilities management business (the "Disposal"). Further to this, the Board of Carillion today announces that it has entered into a definitive Business Purchase Agreement (the "BPA") with Serco.

Highlights

-- A portfolio of UK healthcare facilities management contracts and associated ancillary contracts and assets (the "FM Arrangements") which relate to fifteen sites will be transferred to Serco on a phased basis pursuant to the Disposal

-- As the Disposal is a Class 1 transaction for Carillion under the UK Listing Rules, the Disposal is conditional upon the approval of Carillion's shareholders. The transfers of the FM Arrangements are also conditional on, among other things, receipt of all required third party consents

-- An agreed proportion of the total consideration of approximately GBP47.7 million (subject to a limited working capital adjustment, and a limited adjustment in the event that the FM Arrangements are transferred ahead of or behind an assumed schedule) will be payable in instalments on the transfer of each FM arrangement to Serco, with the aim of receiving the bulk of the proceeds in the second and third quarters of 2018

-- After taking account of fees, costs and taxes, the net Disposal proceeds are expected to be GBP41.4 million and, when received, will be applied in prepayment and cancellation of an equivalent amount of the Group's GBP140 million committed credit facilities (the "New Money Facilities") announced on 24(th) October 2017

-- The Disposal forms part of the Group's GBP300 million non-core disposals target announced as part of its strategic review in order to reduce net debt and refocus the Group on its core strengths and markets

Keith Cochrane, Carillion's Interim Chief Executive, said:

"I am pleased we have been able to successfully conclude this transaction which will contribute to our efforts to reduce net debt."

Lazard & Co., Limited is acting as lead financial adviser and sponsor to Carillion in relation to the Disposal.

Enquiries:

Investors/ Analysts:

Carillion plc

Kellie McAvoy, Head of Investor Relations [phone]

John Denning, Director Group Corporate Affairs

Media:

Teneo Blue Rubicon [phone]

Charles Armitstead / Haya Herbert-Burns

This and other Carillion news releases can be found at www.Carillionplc.com

Cautionary statement

This announcement may contain indications of likely future developments and other forward-looking statements that are subject to risk factors associated with, amongst other things, the economic and business circumstances occurring from time to time in the countries, sectors and business segments in which the Group operates. These and other factors could adversely affect the Group's results, strategy and prospects. Forward-looking statements involve risks, uncertainties and assumptions. They relate to events and/or depend on circumstances in the future which could cause actual results and outcomes to differ materially from those currently anticipated. No obligation is assumed to update any forward-looking statements, whether as a result of new information, future events or otherwise.

   1.   Introduction 

The Board of Carillion today announces that it has entered into a definitive Business Purchase Agreement for the disposal of a large part of the Group's UK healthcare facilities management business to Serco for a total cash consideration of approximately GBP47.7 million, subject to the limited adjustments referred to below. The consideration will be payable in instalments in agreed proportions upon the transfer of each FM Arrangement to Serco.

The Disposal is a Class 1 transaction for Carillion under the UK Listing Rules and is therefore conditional, amongst other things, upon the approval of Carillion's shareholders.

A circular containing further details of the Disposal and the notice convening a general meeting will be posted to shareholders of Carillion in due course (the "Circular"). It is currently intended for the Circular to be posted in the first quarter of 2018.

   2.   Background to and reasons for the Disposal 

On 10(th) July 2017 Carillion announced that it was undertaking a comprehensive review of its business and capital structure in order to evaluate a range of options to optimise value for its shareholders. Alongside this, Carillion announced further actions to reduce net borrowing, including an intention to raise up to GBP125 million from non-core disposals in the twelve months to July 2018.

On 29(th) September 2017 Carillion provided an update on its strategic and operational review, outlining the further actions being taken to strengthen the business and reduce net debt. As part of this update, the Group raised its target for non-core disposals to over GBP300 million by the end of 2018 and the Board announced that it was in discussions regarding the sale of the UK healthcare business.

On 24(th) October 2017 Carillion updated the market on the signing of heads of terms with Serco for the disposal of a large part of its UK healthcare facilities management business for GBP50.1 million, subject to a limited working capital adjustment. The consideration has been revised to approximately GBP47.7 million (subject to the limited adjustments referred to below) as a result of further discussions and an agreement between Carillion and Serco to exclude the contracts and assets relating to one of the sites at which Carillion provides healthcare facilities management services from the Disposal.

Carillion entered the public healthcare market two decades ago in response to the Public Private Partnership ("PPP") acute hospital redevelopment programme. Since entering this market, Carillion has offered an integrated proposition that encompasses equity investment, construction and the provision of both hard and soft facilities management services. The Group's strategy in the healthcare segment has not typically included pursuing traditionally outsourced facilities management contracts.

As a consequence of the reduced volume of primary PPP transactions in the sector and the scope of facilities management services becoming more limited to hard facilities management services, the Board determined that the facilities management proposition of Carillion's hospitals contracts no longer forms part of the Group's core strategy. Accordingly, and consistent with the Group's commitment to reducing net debt from non-core disposals, the Board decided that Carillion should seek to sell the majority of its portfolio of UK healthcare facilities management contracts.

Subject to identifying an appropriate purchaser prepared to offer a satisfactory purchase price, Carillion intends to seek to dispose of the remaining contracts in its UK healthcare facilities management portfolio during 2018.

   3.   Principal terms and conditions of the Disposal 

Carillion is proposing to sell, through certain of its wholly-owned subsidiaries, a portfolio of FM Arrangements to a wholly-owned subsidiary of Serco (the "Purchaser"), pursuant to the terms of the BPA and associated ancillary agreements. The FM Arrangements, which relate to fifteen sites, will be novated to the Purchaser on an FM Arrangement-by-FM Arrangement basis.

As the Disposal is a Class 1 transaction for Carillion under the UK Listing Rules, the Disposal is conditional upon the approval of Carillion's shareholders. In respect of each FM Arrangement, completion is also conditional on, among other things, receipt or waiver of all third party consents required to transfer that particular FM Arrangement.

The total consideration for the Disposal is approximately GBP47.7 million (subject to a limited working capital adjustment and a limited adjustment in the event that the FM Arrangements are transferred ahead of or behind an assumed schedule). The consideration attributable to each FM Arrangement will be paid to Carillion upon the successful transfer of the relevant FM Arrangement.

The Purchaser has rights to terminate the BPA if Carillion has not posted the Circular to the shareholders of Carillion, such right to terminate being exercisable within a period of 2 business days of each of 28(th) February 2018, 30(th) March 2018 or 27(th) April 2018 only. If the Circular is posted to the shareholders of Carillion, and the shareholders do not approve the terms of the Disposal, the BPA will terminate automatically. If the Purchaser terminates the BPA or the BPA is terminated automatically in the circumstances described above, a termination fee of GBP752,945, which is equal to 1% of the market capitalisation of Carillion as at close of business on the date immediately before the date of the BPA (inclusive of VAT), will become payable by the Sellers to the Purchaser.

In addition, the Purchaser has certain rights to terminate the BPA in respect of a particular FM Arrangement in the event that a material breach (as described in the BPA) in relation to that FM Arrangement has occurred.

The first FM Arrangement is expected to transfer to Serco in Q2 2018. Unless otherwise agreed between Carillion and Serco, any FM Arrangements that have not been transferred to Serco by 13(th) December 2018, will not transfer to Serco and Carillion will not receive the consideration allocated to those FM Arrangements, unless otherwise agreed.

   4.   Information on the UK healthcare facilities management business being disposed 

Carillion is a leading provider of healthcare facilities management services to the National Health Service, having developed a significant presence in the UK healthcare market over the previous fifteen years. Carillion provides a wide range of services essential to creating and managing healthcare facilities and infrastructure, including lifetime maintenance, integrated facilities management, and energy efficiency.

The FM Arrangements comprise facilities management contracts and their associated ancillary agreements, which relate to fifteen sites. Typically, each site is covered by a principal FM agreement, pursuant to which a wholly-owned subsidiary of Carillion provides facilities management services to the site, as well as certain ancillary agreements such as supply agreements or secondary services agreements. The FM Arrangements include both the FM agreement and any associated ancillary agreements required for the provision of healthcare facilities management services to each site. In some instances, one FM Arrangement covers multiple sites.

   5.   Use of Proceeds and financial effects of the Disposal 

The net cash proceeds arising from the Disposal are expected to be GBP41.4 million after taking account of fees, costs and taxes of approximately GBP6.3 million. The Disposal proceeds will also be subject to a limited working capital adjustment and a limited adjustment in the event that the FM Arrangements are transferred ahead of or behind an assumed schedule. The net cash proceeds will be applied in prepayment and cancellation of an equivalent amount of the New Money Facilities announced on 24(th) October 2017.

In the financial year ended 31(st) December 2016, the FM Arrangements contributed operating profit of GBP11.6 million to the Group. As at 30(th) June 2017, the FM Arrangements had total assets of GBP16.4 million and total liabilities of GBP17.1 million.

Lazard & Co., Limited (" Lazard "), which is authorised and regulated by the Financial Conduct Authority, is acting for Carillion and for no one else in connection with the Disposal and will not be responsible to anyone other than Carillion for providing the protections afforded to clients of Lazard or for providing advice in relation to the Disposal, the contents of this announcement or any matter referred to in this announcement. Neither Lazard nor any of its affiliates owes or accepts any duty, liability or responsibility whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) to any person who is not a client of Lazard in connection with this announcement, any statement contained herein, the Disposal or otherwise.

This information is provided by RNS

The company news service from the London Stock Exchange

END

DISGLBDDLSBBGRX

(END) Dow Jones Newswires

December 13, 2017 02:00 ET (07:00 GMT)