Mbl Share Discussion Threads

[fft] 07/10/2010 06:28

DD,

nice write up. Used to hold AMU many years ago but got fed up of no share price progress.

Someone wrote that they thought there might be no progress on the mbo/takeover/whatever until next july or so. I would have to differ on that, as the longer they leave it before making a move, the more the value in MUBL will be on display.

Of course, that value could be lower (if morrisons did pull out), but it appears that the value will increase with any renewal, not forgetting all the other business they have. The better the company is seen to be doing, the higher the price that will be demanded, so it would appear that whoever is making a move has an incentive to do something quickly.

As the management seem to have gone into their bunkers for the last 6 months or so, it could be that this could come out sooner rather than later. Obviously a big problem is that without the support of TA, a bid cannot be succesful, so a hostile offer (unless it is enough to persuade TA to sell - in which case it is not hostile...) is unlikely to succeed.

For TA, is the difference between a private company where he owns maybe 60% or so and a public company where he has 40%+, a big enough difference to spend all this time and effort ? i do find it slightly odd.

[davidosh] 07/10/2010 02:08

So how do you value MBL Group and decide at what price it can be sold ?

Well it depends of course who is selling it and how keen they are to do a deal and who the buyer is referred to by the early stage discussions ??

We know that MBL has already been sold once before and it was actually US (or at least our predecessors as owners of the Air Music & Media company who actually paid for it !! It was no small pittance nor chickenfeed deal either and Trevor Allan was the main beneficiary.



Air Music (AIM: AMU), a leading UK producer, manufacturer and wholesale distributor of low priced entertainment
products to the international market, announces that the acquisition of Redworth Limited, which is more commonly known
by its trading name, Music Box Leisure ("MBL"), for a maximum consideration of £37.15 million, was approved at its AGM
yesterday. The acquisition, which constitutes a reverse takeover under the AIM Rules, considerably strengthens Air Music's
position at the forefront of the low-priced entertainment sector in the UK.
Music.

With maximum earnout that would equate to a current share price of £2.18 just to get our money back BUT that was done six years ago and we have only had a paltry 6p dividend payout in all that time whereas TA has been doing rather nicely in the remuneration stakes !! Now just to be fair I am not knocking Trevor as he is an excellent entrepreneur who knows how to seal a deal and it was his business to sell. Here is how it was structured....


The acquisition is for an initial consideration of £27,150,000, satisfied by a cash payment of £15,534,703, the issue of
£1,615,297 of loan notes and the issue of 100,000,000 consideration shares. An additional £10 million of deferred
consideration may be payable to the vendors in deferred consideration shares, subject to a maximum aggregate vendor
shareholding of 49.99% of the then enlarged share capital, and thereafter in cash, subject to the achievement of financial
performance targets by Redworth for the year ended 31 March 2005. To satisfy the cash consideration for Redworth, Air
Music & Media raised £5,126,000 (before expenses) from the placing of 64,075,000 new ordinary shares at 8p per share
and agreed a £10 million loan facility with Barclays Bank PLC.


However six years ago what were the buyers actually getting for all that cash ?

Benefits of the acquisition (as per acquisition RNS)

Based on last year's results, the financial implications of the acquisition for the Company will be significant. In the year to
31st March 2004, MBL, which has achieved all its growth organically, made a profit after tax of £2.38 million on a turnover
of £37.1 million. Further growth in revenues is anticipated for the current year and the Directors believe that financial
benefits and synergies will be derived from the acquisition. Over the same period, Air Music reported a profit before tax,
interest and goodwill amortisation of £1.91 million, on a turnover of £15.76 million.

So... (Year ending March..) Turnover and PBT

2004 £37.1m & £2.38m (MBL)
2005 £49.8m & £3.85m (MBL plus old AMU)
2006 £72.3m & £4.82m (MBL plus minimal AMU)
2007 £64.6m & £5.40m (MBL)
2008 £81.1m & £5.70m (MBL)
2009 £143.6m & £8.1m (MBL)
2010 £194.9m & £9.9m (MBL)

The business is now more than four times larger and making about five times the profit especially if you allow for the £2m board and listing costs that MBL did not and will not have as a private company ? FACT

Furthermore Morrisons was in just the same position then as the major customer and it seems has been for the last twelve years so nothing new there then ??

I do hope there is an external buyer that values MBL in just the same way and using the same valuation method as used in 2004 and Trevor can squeeze out the same multiple on exit as each share would now have a value of over £10...Just the initial consideration was over 11 times pre tax profits. The company has never been rated at half that level by the market ever since.

We also know from that acquisition document why the Allan family have such a large holding in shares. I have certainly never seen any market purchases so one can assume that their holdings are pretty much from that original transaction.

In my view the strategic review is immaterial and this business is all about its continuing relationships with customers and most importantly Morrisons. MBL are a distributor and by all accounts a very good one. There will be new products to supply every year and a new deal with Morrisons would confirm that the share price is totally ridiculous and could easily be £2.50 without any other business added whatsoever. Cash will continue to be generated to a level where the company can pay for itself in three years and yet there are new income streams already in the making.

I do not know what is going on behind closed doors but the windows and doors feel like they have been tight shut for the last nine months or so and no communication and poor communication at best has seen share price decimation that I simply do not think should have happened if the management and directors really value their shareholders ?

Are they looking to exit the market ? Is this an attempt to put the company in the shop window for sale ? Do we really want to sell it before knowing how strong we are likely to be going forwards...? That earnings growth does necessarily need to stop just yet and I do not want to give up cash generation on this scale lightly...

You decide but check the past and question the future ?

David

[yump] 07/10/2010 00:09

"The Directors remain committed to delivering value back to shareholders"

Bloody show it then.
I'll have a bit of your salaries for starters, as a gesture of goodwill shall we say.

To be fair on the strategic review side though, that could just mean strategic review of whether its worth buying out and/or what price to sell it for if someone else is interested.

It doesn't necessarily mean strategic review of trading.

Q: How many external consultants does it take to conduct a strategic review ?
A: It depends how many you know well.

[jeffian] 07/10/2010 00:00

"I have doubta about Jeffian saying at post 1438 that the company is now in a close period and there will be no trading update at the forthcoming AGM on 18 Oct"

I didn't say there WILL be no trading update, I said "In my experience of Public Company life, this puts them into a 'close period' which they can use to stonewall any questions at the AGM other than those about the historic accounts. I hope this isn't going to be the case". Admittedly, my experience related to a case where we were in receipt of a hostile bid and the Nomad insisted we took no questions beyond the basic accounts, but my point is it will be interesting to see if MUBL hide behind the "may result in an offer being made for the Group as one of the possible outcomes" as an excuse to avoid the questions to which we all want answers. To do so would speak volumes IMHO. I'm not saying they will, I'm saying they could. My post was querying the necessity for the RNS at all; looking at the chart, the bounce off the bottom is no worthier of comment than the fall which immediately preceded it and, as previously commented, the need for further 'strategic review' before the ink is even dry on the last one looks odd too.

[campbed] 06/10/2010 23:17

Miamisteve #2479

Davidosh - From your experience how long could this drag on for?

Although I'm sure I'm not as knowledgeable as Davidosh, I'll offer my view as I have some experience of strategic reviews (SR) which may or may not lead to an offer (by management).

The RNS said they are at an early stage of the SR assisted by KPMG Corporate Finance (KPMG are the auditors as they are of JD Sports) so that to maintain that storyline any future RNS that says the SR has been completed cannot follow too quickly. But, as I said yesterday at post 2452, the company will thus pay for (at least a large part of) the due diligence required by any private equity or debt backer of an MBO. That could take up to 3 months at a guess. By then it'll be Christmas and if Morrisons were wanting to terminate their contract before March 2012 (which is the major concern of any current or prospective shareholder/lender) the RNS issued on 27 July 2010 says they must do so by March 2011 which is MBL's financial year end. Therefore it is easy to speculate that nothing will be announced until the preliminary results in July next year by which time boredom and uncertainty will have set in amongst shareholders, the share price will have drifted lower as a result and any offer will be gratefully received and possibly final dividend avoided.

I'm laid low by "man flu" with a fuzzy head (wife calls it a minor cold) and don't feel much like reading AIM listing regulations regarding interim statements but I have doubta about Jeffian saying at post 1438 that the company is now in a close period and there will be no trading update at the forthcoming AGM on 18 Oct at the unfriendly time of 09:30. Having set the precedent last year I'd expect an AGM statement containing a trading update. But as the company executive directors have never appeared to court dialogue with shareholders, I can foresee that little additional information will be forthcoming and discussion/Q&A will be brief.

It's an odd board structure as I said at post 2452. Cowgill seems to do all of the investor facing role as non executive chairman, rather than Allen as CEO, and unusually (for a non exec) received a £300k bonus on top of £30k fees (footnote 5 to accounts for y/e 31/3/2010 ) though he may not have retained it as JD Sports (where is Executive Chairman ) reported in its directors remuneration report for y/e that Cowgill also served as Non-Executive Chairman of United Carpets Group Plc and MBL Group Plc and has retained earnings of £72,500 in respect of these offices. (presumably £30k from MUBL and £42.5k from United Carpets). At least one more truly independent non-executive director would be welcome.

I see Brewers only became NOMAD in May and so there should be no long term cosiness there. There was a previous early stage offer announced in Feb 2008 whose ending was announced 4 months later in June.

Time to give in to "man flu".

[ianguerin] 06/10/2010 23:11

Having already had a strategic review during the year ended 31.3.2010, why is another one needed now? The first review culminated in the £2m U-Explore investment, significant I.T. investment, & plans to move to a single purpose-built distribution facility. The Global Vault purchase may also have emerged from the first strategic review.
The chairman's report of 19 July made no reference to adverse current trading conditions; indeed he indicated that opportunities were available to the company even in the current climate. It's difficult to believe that sales & profits have fallen off the cliff in the subsequent two months, to the extent that a further strategic review is now necessary.
The KPMG-assisted review will not come cheap. If an offer has not been made, why incur the cost? If there is an MBO or something similar, shouldn't the purchasers be footing the bill?
It all sounds fishy to me, & on the back of the poor way in which the annual results were announced, my faith in the directors is evaporating. Yes, they have turned in good trading results, but I don't feel as if my investment in the company is appreciated. Perhaps it's not, & that may be a reason for trying to relieve me of it on the cheap!
"The Directors remain committed to delivering value back to shareholders" - does that apply even-handedly to all shareholders, Mr Cowgill, & is that value based upon the share price during the 4 days prior to the company announcement of 19 July?

[marben100] 06/10/2010 21:28

Interesting disclosure this evening:

Graham Edwards now appears to be a 6.6% holder. Perhaps that's where Gartmore's 750k went?

I suspect that it's this Graham Edwards: [he has "form" with other smallcap investments].

We're not the only investors to see value in MBL group, by the looks of things. ;0)

Cheers,

Mark

[miamisteve] 06/10/2010 16:46

Davidosh - From your experience how long could this drag on for?

What seems to have unsettled the share price was the e-commerce deals. They were terribly presented, with literally no figures given. This created a tremendous amount of uncertainty, but I'm thinking that EUK might have done and paid for all the donkeys work.

If they were actually performing strongly could they conclude the buy-out before this info came out in the results?

[rthak] 06/10/2010 15:51

I wonder where all of Gartmore's shares went - some 750,000 @ 133. I bet they are kicking themselves now!

[pote] 06/10/2010 15:24

I suspect the management will have already taken the chocolate ones before the party begins!

[davidosh] 06/10/2010 15:09

Hangers....Yep but at the new Mello address in Leyland, Lancashire and in a new coffee morning format starting at 9am for coffee and biscuits....LOL

[mr hangman] 06/10/2010 15:02

Could anyone tell me if MBL Group is presenting at Mello on the 18th October ?

[davidosh] 06/10/2010 14:53

I do not think that our overall average exit valuation will make a material difference if it came to a vote as we probably account for less than 10% of the company shareholding even grouped together. However if those who account for nearly 50% held in the hands of institutional investors get a feel for where we stand and we are very vocal and prepared to battle to get what we feel is justified then they may just join the cause and not cave in with our pension money quite so easily !!

At FDM Group (FDMG) Paul and I very vocally and via the help of a similar poll gained growing support for the battle against a cheap MBO with an offer that started at barely over £1. In the end we achieved £1.50 and lots of shareholder attention was focussed on the site as each offer progressed.

At Tandem, Alun played a huge role in joining the thoughts of other shareholders via a similar poll based on the non executive requirements and the rest is history there too. Changes at Tandem and the improvements in communication are for all to see.

I can only suggest that communication and corporate governance here is much the same issue judging by comments on the BB. I have a lot of respect for the directors but there have been too many issues in the last few months that in my opinion have driven the share price lower without real justification and the last results were excellent.

We need to join together and this is an excellent starting point. If we want say £2.60 then we should communicate it. If the institutions see it differently as a co owner maybe they should tell us what messages they have been getting which we have not. We are just individual investors but my honest opinion is that if Trevor Allen was driven to get the best external bid possible and it was timed AFTER a new three year deal with Morrisons then it would have at least £3.50 per share written on the sale documents.

Do we necessarily want an internal bid (If it is to be an MBO) at this weak point in the recent share price is the other question ? I like to sell when my investments are in peak condition. We do not even know the answers to all our questions about U-Xplore, GMV, other potential contracts etc

[britgoneabroad2] 06/10/2010 14:40

Well, the poll is screwed already... Lord Allan.

[kimboy2] 06/10/2010 14:30

Do PIs have a negotiating position ?

[marben100] 06/10/2010 14:24

alun... Thanks, but I'm not so sure that's a good idea. Don't want to disclose too much about any possible negotiating position - especially what price we consider acceptable, should it come to that.

Cheers,

Mark

[microscope] 06/10/2010 14:24

'Shanklin - 15 Sep'10 - 14:21 - 2360 of 2468
BTW, Note 7 is a bit fruity in terms of director's remuneration, which totals £1.715m for 2010'

And you want to pay them more Alun?

Takes all sorts imho! :)

[alunmorris] 06/10/2010 13:51

I have set up a page for PI's to show their holdings and price they would be prepared to accept in a takeover:


It's anonymous unless you want to give your real name.

[tommyjnewton] 06/10/2010 13:29

I think most of us here could do a better job checking RNSs and for three or four grand would be happy to take it on.

[jeffian] 06/10/2010 10:10

"If we paid the Chairman a bit more........"

LOL!

[shanklin] 06/10/2010 06:36

Steve

The following post contains the information you were asking for



Cheers, Martin

P.S. I can't say that I agree about reputational issues being unimportant.

[miamisteve] 05/10/2010 23:28

Anyone know what the shareholder composition is? ie Allen family, sefton, funds, pi's.

Presumably they have to reach 75% to push it through