Trinity Mirror PLC Proposed Acquisition of Local World (6665D)

TIDMTNI

RNS Number : 6665D

Trinity Mirror PLC

28 October 2015

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL. PLEASE SEE THE IMPORTANT NOTICE AT THE END OF THIS ANNOUNCEMENT.

28 October 2015

Trinity Mirror plc

Trinity Mirror to take full ownership of Local World in transformative deal

Trinity Mirror plc ("Trinity Mirror" or the "Company") today announces the proposed acquisition of all of the shares in Local World Holdings Limited ("Local World") not already owned by the Company. The acquisition values Local World on a debt-free cash-free basis at GBP220 million. The purchase price for the 80.02 per cent. shareholding not already owned by Trinity Mirror is GBP154.4 million, being the Sellers' total share of the equity value of GBP193 million. Trinity Mirror will also assume debt, working capital and debt-like items of circa GBP27 million and will incur some GBP6 million of transaction costs at completion which together with the equity consideration represents total consideration of GBP187.4 million.

Strategic rationale

The Board believes that the Acquisition will:

   --      Transform Trinity Mirror into the UK's largest regional news publisher; 

-- Create a stronger and more resilient organisation enabling the Group to accelerate its strategic transformation;

-- Further enhance Trinity Mirror's digital reach. The Enlarged Group's digital portfolio would comprise a network of publishing websites delivering 120 million monthly unique browsers and 790 million monthly page views; and

-- Deliver cost synergies - c. GBP10 million to GBP12 million in the second full year of ownership.

The Board expects the Acquisition to be earnings enhancing in the first full year following the Acquisition.

Commenting on the Acquisition, Simon Fox, Chief Executive, Trinity Mirror plc, said:

"This is a good day for local media. Local World is a business we know and respect and by combining it with Trinity Mirror we will create an organisation of scale, with the talent and financial capacity to invest and adapt to the rapidly changing media landscape. It is a vote of confidence in local press and its future."

David Montgomery, Group CEO, Local World, said:

"Local World was founded three years ago with a clear vision to reinvigorate regional media with an unrelenting focus on our content, audience and advertisers. I am proud of what we have achieved. Local World is full of energy and talent and Trinity Mirror is acquiring a vibrant business with a strong future. I want to take this opportunity to thank everyone who has made Local World the success it is today."

Consideration and financing

The consideration for the Local World Shares to be acquired by Trinity Mirror will be payable as a combination of cash and Consideration Shares issued to the Sellers. Trinity Mirror will fund the total consideration for the Acquisition, including related transaction costs of the Company, by:

   --      Utilising GBP67.3 million of existing cash resources; 
   --      Entering into a new GBP80 million five-year amortising debt facility; 

-- Satisfying GBP5.3 million of consideration through the issue of 3,371,010 new ordinary shares, representing 1.3 per cent. of Trinity Mirror's existing issued ordinary share capital; and

-- Undertaking a placing of 22,398,041 new ordinary shares, representing 8.7 per cent. of Trinity Mirror's existing issued ordinary share capital to raise net proceeds of GBP34.8 million, announced separately today (the "Placing").

Following the Acquisition, Trinity Mirror will continue to benefit from strong cash generation providing financial flexibility for ongoing investment, potential return of capital to shareholders and continued support for Trinity Mirror's historic defined benefit pension scheme liabilities.

About Local World

Local World is one of the largest regional news publishers in the UK and was established at the end of 2012 through the acquisition of the regional publishing assets of Northcliffe Media Limited and Iliffe News & Media Limited.

Local World's print portfolio:

-- Comprises 83 print publications: 16 daily print titles, 2 Metro franchises, 36 paid weekly titles and 29 free weekly titles;

-- Has its main footprint in the South West and Wales, London and the South East, and the Midlands and the North; and

-- Includes 7 of the top 20 regional paid daily titles (by circulation) in England and Wales, which alongside Trinity Mirror's regional titles, would result in the Enlarged Group having 13 of the top 20.

Local World's digital portfolio attracts a growing digital audience with 24 million monthly unique browsers and approximately 167 million monthly page views at June 2015.

Local World generated revenue and Adjusted Operating Profit* of GBP221 million and GBP39 million in 2014.

*Adjusted Operating Profit means operating profit excluding non-recurring items, restructuring charges in respect of cost reduction measures, pension administrative expenses and the amortisation of intangible assets.

Proposed Management changes

On completion, with the exception of Simon Fox and Vijay Vaghela, all Executive and Non Executive directors will resign as directors of Local World. David Montgomery and Lisa Gordon will also leave the business shortly after completion. Rachel Addison, the Chief Operating Officer of Local World, will be promoted to the role of Managing Director, Local World, reporting to Simon Fox.

Proposed On-Sale

The Company has signed Heads of Terms with Edward Richard Iliffe ("ERI") to sell the businesses and assets of certain Local World newspaper titles located around Cambridge and Hertfordshire for a cash consideration of GBP15.8 million. These titles contributed GBP3.1 million to the Adjusted EBITDA of Local World in 2014. In the event that the Proposed On-Sale is not completed, Trinity Mirror has agreed, in certain circumstances, to pay, or procure the payment of, a break fee of GBP2 million to Iliffe Print Cambridge Limited (an Iliffe family company). The break fee will not be payable if the Acquisition is not completed.

Circular to Shareholders and Notice of General Meeting

Further details of the Acquisition, together with a notice convening a General Meeting on 13 November to approve the Transaction, will be contained in a circular that will be sent to shareholders today (the "Circular"). The Circular will include a recommendation from the Board of Trinity Mirror that shareholders vote in favour of the Acquisition.

Terms not defined herein shall have the same meaning as set out in the Circular.

A call and webex for analysts and shareholders will be held today at 9.30am. Conference call details are as follows: telephone number: [phone] or 0800 279 5736; confirmation code: 3041611. The webex can be accessed at the URL: http://edge.media-server.com/m/p/j78px7zj

 
Enquiries: 
Trinity Mirror plc 
 
 Simon Fox, Chief Executive 
 Vijay Vaghela, Group Finance Director                020 7293 3553 
Numis 
 Financial Adviser, Sponsor, Joint Bookrunner 
 and Corporate Broker 
 
 Nick Westlake, Lorna Tilbian, Mark Lander, Michael 
 Wharton                                              020 7260 1000 
Barclays 
 Joint Bookrunner and Corporate Broker 
 
 Nicola Tennent, Stuart Jempson                       020 3134 9801 
Brunswick 
 Mike Smith                                           020 7404 5959 
 

Trinity Mirror plc

Proposed acquisition of all of the Local World Shares not already owned by the Company

Background to, and reasons for, the Acquisition

Trinity Mirror's strategic objective is to deliver sustainable growth in revenue and profit. Our aim is to do so by driving the profitability and cash flow of our core publishing and printing operations whilst building our digital publishing revenues and seeking out appropriate investment opportunities, both organically and through acquisition.

Trinity Mirror's businesses operate in the rapidly evolving media sector and face a challenging trading environment which continues to place structural pressure on Trinity Mirror's print-related revenue while at the same time presenting opportunities to grow Trinity Mirror's digital revenue. The print segment continues to face challenges with paid-for newspaper sales declining and the share of print advertising declining while total advertising spend is growing. As the majority of Trinity Mirror's revenue is currently generated from print circulation and print advertising, our strategy is to ensure that declines in print revenue are minimised and ultimately offset by growth in digital revenue over the longer term.

Our goals will be delivered through four key areas of strategic focus:

1. protecting and revitalising our core brands in print;

2. growing our existing brands onto digital delivery channels;

3. continuing our relentless focus on efficiency and cost management; and

4. launching, developing, investing in or acquiring new businesses built around distinctive content or audience.

The Acquisition is an attractive opportunity which is consistent with our strategic objective and goals and firmly fits into our fourth area of strategic focus, above.

The Board of Trinity Mirror therefore believe that the Transaction will provide the following benefits to shareholders for the following reasons:

Strength of the regional publishing market

The UK has one of the most avid local newspaper readerships in the world. According to Kantar Media TGI analysis for the period April 2014 to March 2015, 44 per cent. (23 million) of the adult population in Great Britain reads a regional newspaper (source: Kantar Media UK report, 13 August 2015).

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Whilst structural pressures have seen circulation volume declines for regional newspapers, the industry is still distributing an estimated 24 million copies a week, of which 15 million are paid for and 9 million are free to readers (source: Enders Analysis report 2015-032, 16 April 2015). At the same time, regional publishers are continuing to make significant traction in growing their digital news platforms - ABC figures for January to June 2015 reported a 44 per cent. year on year growth in daily unique browsers (source: ABC, June 2015). Media research firm Enders Analysis forecasts regional digital advertising revenue in aggregate to grow on a double digit basis year on year over the next four years (source: Enders Analysis report 2015-071, 13 August 2015).

Taking into account the attractions of the regional publishing industry and Trinity Mirror's efficient operating model and track record, the Directors believe that a larger regional business (in terms of audience reach, mix of print and digital media, titles and geographic footprint) combined with our national news brands represents a highly attractive platform for value generation for customers (both advertisers and readers) and shareholders alike. The Acquisition reinforces Trinity Mirror's commitment to news media and enables us to participate in a compelling business opportunity with the consolidation of strong local media brands.

The Acquisition will transform Trinity Mirror into the UK's largest regional news publisher

The Board believes that the Acquisition represents a unique opportunity to transform the scale of the Trinity Mirror Group's regional news business and is an important step towards Trinity Mirror's strategic goal of creating a multi-media business of scale by:

-- creating the largest newspaper publishing business in the UK combining both regional and national titles;

   --      extending Trinity Mirror's regional business into new geographic areas; 

-- incorporating a portfolio of titles and websites with strong brands and which represent a strong strategic and a complementary geographic fit with Trinity Mirror's existing portfolio of titles and websites; and

-- providing advertisers with greater reach and a more efficient footprint of regions from which to advertise to their target audiences.

Trinity Mirror believes that the combination of the two businesses to create a regional and local multimedia business of scale will provide national advertisers with access to a larger footprint of key metropolitan areas. The combined regional businesses will also be more resilient in responding to the structural challenges faced by the industry and will thereby assist in safeguarding the future of independent local news and plurality of voices. As of July 2015, Trinity Mirror's regional titles accounted for 19 per cent. of the total weekly circulation of regional and local newspapers in the UK and Ireland; collectively, after the Acquisition, the combined regional businesses will account for close to 30 per cent. of total regional and local newspapers weekly circulation in the UK and Ireland (source: Local Media Works July 2015; ABC/independently audited figures).

The Enlarged Group will have an average weekly circulation of 9 million regional newspapers comprising 36 daily newspapers, including 8 Metros outside London, 88 weekly paid for newspapers, including 5 Sunday newspapers, and 43 weekly free newspapers.

The Acquisition will further enhance our digital reach

Trinity Mirror is currently the largest regional publisher online, attracting 30 million unique browsers in June 2015. Local World has been making good progress with their digital transformation and experimenting with new revenue formats online. It reported 24 million unique browsers in June 2015, and is ranked third largest of the reported ABC regional publishers.

The Acquisition will lend considerable strength to Trinity Mirror's digital portfolio, enabling Trinity Mirror to compete more effectively with digital competitors. The Enlarged Group's digital portfolio would comprise a network of publishing websites (including national titles) delivering 120 million monthly unique browsers and 790 million monthly page views as at June 2015 with 62 per cent. of its online audience based in the UK.

The Acquisition will create a digital network of scale to sell to advertisers, enable the sharing of best practices, content and resources, across both businesses.

Local World has delivered strong financial performance

Local World was established at the end of 2012 and the business has delivered a strong financial performance over the last two years. The business delivered revenue of GBP231 million and GBP221 million in 2013 and 2014 respectively. In these two years a decline in print revenue was partly mitigated by growth in digital revenue. Further economies of scale enabled the business to reduce its cost base and as a result Adjusted Operating Profit grew from GBP36 million in 2013 to GBP39 million in 2014 despite the revenue decline. This strong performance is anticipated to continue in 2015.

Local World is pursuing a strategy to transform its business model and has continued to invest in its digital strategy. This is evident in its digital audience growth from 9 million monthly unique browsers in June 2013 to 24 million in June 2015.

Local World has strong cash flows and from Adjusted EBITDA of GBP39 million and GBP42 million in 2013 and 2014 respectively generated net operating cash flows of GBP34 million and GBP37 million, respectively. It has no historic pension deficit and has low levels of capital expenditure as the business does not own any print sites.

Local World's business is well known to Trinity Mirror and the Acquisition will enable Trinity Mirror to take full ownership of a successful investment

Trinity Mirror already holds a 19.98 per cent. holding in Local World, which was acquired for cash consideration of GBP14.2 million in January 2013. That initial investment has been successful, with total dividends of GBP15.1 million having been received from Local World over the past two years. As a consequence of our continued investment in Local World, and representation on the board of directors of Local World, Trinity Mirror is already very familiar with the Local World business. In addition, Trinity Mirror already provides printing and national advertising services to Local World.

The Acquisition will deliver cost synergies

The Enlarged Group will benefit from Trinity Mirror's track record of successful cost management, creating scope for cost synergies. Cost synergies are expected to arise through the implementation of Trinity Mirror's tight management of the cost base, by deploying know-how learned during the delivering of historic structural costs savings in Trinity Mirror's own regional businesses and through the integration and future operation of certain activities on a group-wide basis across the Enlarged Group. It is anticipated that cost savings will be achieved following the Acquisition, amounting to an annual recurring GBP12 million before tax from the second full year after the Acquisition (assuming the Proposed On-Sale referred to below does not complete, or GBP10 million per annum if it does). The cost savings are expected to accrue in the areas of content generation (GBP3.2 million), advertising cost of sale (GBP2.3 million), digital costs (GBP1.6 million), printing and distribution (GBP1.4 million), and management and central costs (GBP3.5 million).

It is anticipated that total non-recurring costs of GBP11 million will be incurred during the first and second year of ownership in order to deliver these cost savings.

The synergies identified above reflect both beneficial elements and relevant costs that will arise as a result of the Acquisition. These synergies are contingent on the Acquisition and could not be achieved by Trinity Mirror and Local World operating independently.

Information on Local World

Local World is one of the largest regional news publishers in the UK. Local World was established at the end of 2012 through the acquisition of the regional publishing assets of Northcliffe Media Limited and Iliffe News & Media Limited. These acquisitions brought strong publishing brands, efficient operations and experienced management and staff from each of Northcliffe and Iliffe together into one business of greater scale from which further efficiencies could be achieved. The assets were acquired free of historic pension deficits or obligations and without any print sites, all printing having been secured under outsourced contracts, providing Local World the opportunity to invest in digital growth and retain a high proportion of its operating cash flows.

Local World's print portfolio:

-- comprises 83 print publications: 16 daily paid titles, 2 Metro franchises, 36 paid weekly titles and 29 free weekly titles;

-- has its main footprint in the South West and Wales, London and the South East, and the Midlands and the North; and

-- Includes 7 of the top 20 regional paid daily titles (by circulation) in England and Wales, which alongside Trinity Mirror's regional titles, would result in the Enlarged Group having 13 of the top 20.

Local World's digital portfolio:

   --      attracts a growing digital audience with 24 million monthly unique browsers; 
   --      generates approximately 167 million monthly page views; and 
   --      has approximately 87 per cent. of its online audience based in the UK, as at June 2015. 

Local World generated GBP221 million of revenues and GBP42 million of Adjusted EBITDA in 2014. Of the total revenues, 11 per cent. are digital and these grew by 21 per cent. year on year in 2014.

Summary of the key terms of the Acquisition and the Heads of Terms

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Under the terms of the Share Purchase Agreement, Trinity Mirror will (subject to the satisfaction of certain conditions) acquire all of the Local World Shares that it does not already own from the selling shareholders, who are Daily Mail and General Holdings Limited; the Honourable Edward Richard Iliffe ("ERI"); the Trustees of the 1997 A&M Funds of Lord Iliffe's Settlement Dated 1 April 1969; Torchlight Fund LP; David Montgomery; Rowanmoor Trustees Limited, re DM; Odey European Inc.; OEI MAC Inc. and Glenrinnes Farms Limited (the "Sellers") - for a purchase price based on a total indicative equity value for Local World of GBP193 million (which in turn has been derived from an enterprise value for Local World of GBP220 million, implying an Adjusted EBITDA multiple of five-times 2014 Adjusted EBITDA, less adjustments for net debt, working capital and debt like items).

Local World is of sufficient size relative to Trinity Mirror to constitute a Class 1 transaction under the Listing Rules of the Financial Conduct Authority and the Acquisition is therefore both subject to and conditional upon the approval of Trinity Mirror's shareholders. In addition, the Acquisition is conditional upon Admission of new ordinary shares under the Placing. Transaction costs of some GBP6 million will be incurred by Trinity Mirror in relation to the Acquisition and Placing.

Further details of the Acquisition, together with a notice convening a General Meeting on 13 November to approve the Transaction, will be contained in the Circular. The Circular will include a recommendation from the Board of Trinity Mirror that shareholders vote in favour of the Acquisition.

In connection with the Acquisition, Trinity Mirror has signed Heads of Terms with ERI, one of the Sellers, which set out the principal terms and conditions on which ERI is willing to purchase the businesses and assets of certain of the local newspaper titles currently in the Local World portfolio to be acquired by the Company pursuant to the Acquisition (the "Proposed On-Sale").

In the 52 weeks ended 28 December 2014, these businesses contributed approximately GBP3.1 million to the Adjusted EBITDA of Local World (approximately 7.3 per cent of the total Adjusted EBITDA of Local World in such period). As at 28 December 2014, the value of the gross assets attributable to these titles was GBP10.6 million (approximately 6.8 per cent. of the total gross assets of Local World as at such date).

In the event that the Proposed On-Sale is completed, it is anticipated that:

-- As a result of dis-synergies, the level of total cost synergies that will arise from the Acquisition will be reduced from an annual GBP12 million before tax to an annual GBP10 million before tax from the second full year after the Acquisition; and

-- the net sale proceeds will be used by the Company to repay drawings on the New Debt Facility.

In the event that the Proposed On-Sale is not completed, the Company has agreed to, in certain circumstances, pay, or procure the payment of, a break fee of GBP2 million to Iliffe Print Cambridge Limited (an Iliffe family company).

The detailed terms of the Acquisition and further details of the assets which may be acquired by ERI will be set out in the Circular.

Financial effects of the Acquisition

The Board believes that the Acquisition will generate considerable value for shareholders, with increased scale and cost synergies.

The key financial implications of the Acquisition are as follows:

-- following the Acquisition, the Enlarged Group will have a robust balance sheet with pro forma net assets of GBP667 million and leverage not increasing beyond one times on a pro forma basis;

   --      earnings enhancing in the first full year following the Acquisition; 
   --      strong cash generation; and 

-- recurring cost synergies will further enhance the financial strength of the Trinity Mirror Group.

Financing of the Acquisition

The consideration for the Local World Shares to be acquired by Trinity Mirror will be payable as a combination of cash and Consideration Shares issued to the Sellers. Trinity Mirror will fund the total consideration of the purchase price by utilisation of the New Debt Facility which will be fully drawn, from GBP61.3 million of existing cash resources and from the proceeds of the Placing, announced on 28 October 2015 and which is expected to raise net proceeds of GBP34.8 million.

The Company entered into a placing agreement with Numis and Barclays on 28 October 2015 (the "Placing Agreement"), pursuant to which Numis and Barclays have agreed on a reasonable endeavours basis to procure institutional placees for the Placing Shares or failing which, to take up themselves the Placing Shares, at the Placing Price (each such term as defined in the Placing Agreement). The Placing is not conditional on the Acquisition. Should the Acquisition not proceed, the Board will consider the appropriate application of the net proceeds of the Placing, but it is anticipated that they may be used to support the Trinity Mirror Group's strategic objectives, to reduce net debt or for general corporate purposes.

Current Trading and Prospects - Trinity Mirror

On 5 October 2015 Trinity Mirror released the following trading update:

"The Board continues to expect performance for the year to be in line with expectations.

Whilst the trading environment remains volatile, revenue trends have seen some improvement in the third quarter (13 weeks to 27 September 2015) with revenue falling by 9% against a 13% decline in the second quarter (13 weeks to 28 June 2015). Underlying revenue(1) fell by 7% in the third quarter compared to the 10% decline in the second quarter. On an underlying basis Publishing revenue fell by 6% with print declining by 8% and digital growing by 24%.

We continue to deliver strong growth in our digital audience(2) with average monthly unique users and page views growing by 31% and 48% respectively in the third quarter. Publishing digital revenue grew by 24% with Publishing digital display advertising revenue growing by 33%.

We have seen an improvement in trends with underlying circulation and print advertising revenue for the Publishing division falling by 5% and 16% respectively in the third quarter. This compares to underlying declines in circulation and print advertising revenues of 5% and 23% respectively in the second quarter.

We continue to make good progress against our strategic initiatives and the business continues to deliver strong cash flows and remains on track to deliver structural cost savings of GBP20 million for the year.

On 10 August 2015, our subsidiary MGN Limited was granted permission to appeal the judgment handed down on 21 May 2015 by Mr Justice Mann in relation to civil claims relating to phone hacking.

We can now confirm that the appeal, which has been expedited, will be heard over two days during the week commencing 19 October 2015. At this stage we cannot be specific on the timing of the outcome of the appeal.

(1) Underlying trends exclude revenues for titles closures in the South and the newsprint supply to the Independent and i which ceased at the end of 2014. In 2014 the revenue generated by the titles closed in the South was GBP4.5 million and from newsprint supply to the Independent and i was GBP11.1million.

(2) Average monthly unique users and page views for the Publishing division across web, mobile and apps for July to September 2015 versus July to September 2014."

MGN Limited's appeal of the judgment handed down on 21 May 2015 by Mr Justice Mann in relation to civil claims relating to phone hacking was heard by the Court of Appeal on 20 and 21 October 2015. Judgment is awaited.

Current Trading and Prospects - Local World

Local World continues to generate strong cash flows in 2015 despite continued declines in its print revenues in common with the regional newspaper industry. It has utilised these operating cash flows to continue investing in digital growth and in distributions to shareholders.

In January 2015, Local World repaid its existing loan of GBP10 million and signed a new GBP50 million bank loan, facilitating the distribution of GBP60 million to shareholders, through the payment of a GBP50 million dividend on 28 January 2015 and GBP10 million on 6 February 2015.

Dividend Policy of the Enlarged Group

A final dividend for 2014 of 3 pence per Ordinary Share was paid in June 2015, being the first dividend paid by Trinity Mirror since 2008. The Board has approved an interim dividend for 2015 of 2 pence per share. This will be paid on 30 November 2015 to Shareholders on the register on 2 October 2015. This is in line with the dividend policy aligned to the free cash generation of Trinity Mirror and the investment required to deliver sustainable growth in revenue and profit over the medium term. This policy will not be affected by the Acquisition. The Placing Shares and the Consideration Shares will not rank for the 2015 interim dividend.

Settlement of, and listing and dealing in, the Consideration Shares

The Consideration Shares will be issued at Completion, credited as fully paid and will rank pari passu in all respects with the Ordinary Shares, including the right to receive all dividends, distributions or any return of capital declared, made or paid after Completion, save for the interim dividend payable on 30 November 2015.

Recommendation

The Board considers the terms of the Acquisition and the Acquisition Resolution to be in the best interests of the Company and the Shareholders as a whole. Accordingly, the Board unanimously recommends that Shareholders vote in favour of the Acquisition Resolution as they intend to do in respect of their own beneficial holdings of Ordinary Shares.

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

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