Proposed Disposal & Notice of EGM

 

TIDMMKM 
 
RNS Number : 1809B 
MKM Group PLC 
21 October 2009 
 

MKM Group Plc 
 
 
Proposed disposal of The Leapfrog Group Limited and Concepts for Travel Limited 
 
 
Proposed cancellation of admission to trading on AIM 
 
 
Notice of EGM 
 
 
MKM Group Plc ("MKM" or the "Company") is pleased to announce that it has 
entered into a conditional agreement for the sale of its UK Business to CPP 
Holdings for a consideration of up to GBP4,660,000, including deferred 
consideration of up to GBP1,600,000 calculated by reference to the performance 
of the UK Business during the 12 months ending 31 December 2010. 
 
 
In view of the size of the UK Business and the fundamental change to the 
Company's business following the Disposal, it is a requirement of the AIM Rules 
that the Disposal be approved by Shareholders at an EGM. 
 
 
MKM is also seeking Shareholders' approval for the cancellation of admission of 
the Ordinary Shares to trading on AIM. 
 
 
A circular containing further details of the Disposal and the Cancellation is 
expected to be posted to Shareholders today and will be available on the 
Company's website at www.mkmgroupplc.com. 
 
 
Brian Smillie, Chief Executive, commented: 
 
 
"We are pleased to announce this transaction which we believe can deliver good 
value for shareholders against a backdrop of where our share price stands today 
and offers shareholders further potential upside based on future business 
prospects." 
 
 
Enquiries: 
 
 
+--------------------------------------+--------------------------------------+ 
| MKM Group Plc                        | T: 0161 877 1112                     | 
| Brian Smillie, Chief Executive       |                                      | 
| Matthew Toynton, Finance Director    |                                      | 
|                                      |                                      | 
+--------------------------------------+--------------------------------------+ 
| WH Ireland Limited                   | T: 0161 832 2174                     | 
| Robin Gwyn                           |                                      | 
+--------------------------------------+--------------------------------------+ 
 
 
Introduction 
 
 
The Company announces that it has entered into a conditional agreement to 
dispose of its UK Business to CPP Holdings for a consideration of up to 
GBP4,660,000. Of this amount, GBP200,000 has been paid on exchange of the 
Disposal Agreement and GBP2,410,000 is payable on Completion, subject to 
adjustment based on the actual working capital and net debt assumed by the 
Purchaser. A further amount of GBP450,000 will be paid into a retention account 
and released to the Company in stages during the period to 1 January 2012. The 
aggregate consideration of up to GBP4,660,000 includes additional consideration 
of up to GBP1,600,000 calculated by reference to the performance of the UK 
Business during the 12 months ending 31 December 2010, payable from the second 
quarter of 2011, subject to the agreement and determination of the performance 
of the UK Business in the relevant period. 
 
 
In view of the size and the fundamental nature of the UK Business (being the 
entire UK based operations of the Group) to the Company, it is a requirement of 
the AIM Rules that the Disposal be approved by Shareholders at an extraordinary 
general meeting of the Company. The Disposal is therefore conditional on, inter 
alia, the passing of Resolution 1 in the Notice as an ordinary resolution of the 
Company. 
 
 
The Company also announces that it is seeking Shareholders' approval for the 
cancellation of admission of the Ordinary Shares to trading on AIM. Resolution 2 
set out in the Notice is proposed for this purpose. Resolution 2 is conditional 
upon: 
 
 
  *  the passing of Resolution 1; and 
  *  Completion. 
 
 
 
Information on the UK Business 
 
 
The UK Business consists of the Leapfrog Group and Concepts for Travel. 
 
 
The Leapfrog Group designs, develops and delivers loyalty and sales promotion 
programmes for large blue chip clients to help them acquire, develop and retain 
customers. Its business falls into three main categories: long term partnership 
and loyalty programmes designed to support clients seeking to reward their 
customers for their loyalty; shorter term promotional programmes to help clients 
achieve objectives such as the launch of a new product; and the Airport Angel 
business. The Leapfrog Group specialises in delivering programmes based around 
travel, leisure and lifestyle promotions utilising a product range that includes 
holiday and flight vouchers, experience days, pamper treats and restaurant and 
hotel offers.  Most recently it has developed and launched an airport lounge 
access membership product, Airport Angel, that has an international offering and 
appeal.  The Leapfrog Group's clients are primarily major branded companies, 
particularly in the financial services and fast moving consumer goods sectors. 
Since launch, the Airport Angel business has grown rapidly and now includes 
almost 400 lounges with nearly 80,000 members. 
 
 
Concepts for Travel is the Group's in-house travel agency business. Its primary 
operations are to fulfil the travel-based sales promotional campaigns of the 
Leapfrog Group. 
 
 
The UK Business is based in Timperley, South Manchester and operates from 
leasehold offices. The UK Business employs 45 people. 
 
 
In the year ended 31 March 2009, the UK Business recorded turnover of GBP3.163m 
and a loss after taxation of GBP314,000 (including an exceptional expense of 
GBP219,000 in respect of the write-off of an inter-company debt due to the 
cessation of trade in Australia). The net liabilities of the UK Business at 31 
March 2009 were GBP454,000. 
 
 
The Directors expect to report a profit on the Disposal of approximately GBP4.9m 
(after expenses of the transaction) assuming receipt of the Consideration in 
full, including the Deferred Consideration and the release of the retention 
monies of GBP450,000. 
 
 
Reasons for the Disposal 
 
 
In a strategic review carried out in early 2009, the Board concluded that the 
interests of Shareholders would best be served by focusing on its core business, 
the provision of tactical and loyalty programmes, including the Airport Angel 
business. In the light of this conclusion, on 2 September 2009, the Company 
announced the disposal of its majority shareholding in Promodus Limited, the 
Group's marketing and communications subsidiary based in London, which was felt 
not to be part of the core business of the Group. In addition, the Board has 
responded to adverse trading conditions in Australia by rationalising the 
Group's interests in that country. The future of the Australian business remains 
under review. 
 
 
The Directors believe that the UK Business and, in particular, the Airport Angel 
business, has good prospects but it is felt these prospects can best be 
developed within a larger group which has the necessary resources and global 
client distribution to fully support and take advantage of its growth potential. 
The Directors believe that the consideration receivable for the Disposal, 
comprising an immediate amount payable in cash plus deferred consideration 
calculated on the basis of EBITDA generated in 2010, fairly reflects the value 
of the UK Business and will enable Shareholders to participate in the expected 
growth of the Airport Angel business and that, accordingly, the Disposal is in 
the best interests of Shareholders. 
 
 
Following the Disposal, the Group will not have any material UK based 
operations. 
 
 
Terms of the Disposal Agreement 
 
 
A summary of the material terms of the Disposal Agreement will be set out in the 
Circular. 
 
 
Arrangements relating to the Disposal 
 
 
It is proposed that, following Completion, management of the Company's cash 
resources attributable to the net proceeds of the Disposal will be delegated to 
Mark Koch and Richard Tenser who will be authorised as signatories jointly 
responsible for all monies paid out by the Group following Completion. Following 
expiry of the notice periods referred to below, the Company will run a skeleton 
operation in order to meet its contractual, regulatory and statutory 
obligations, including, without limitation, in relation to the calculation of 
the Deferred Consideration. Professional advisers will be retained, where 
appropriate, to assist with these matters. 
 
 
At Completion, the Company shall serve notice on each of Mark Koch and Brian 
Smillie in accordance with their service contracts, and Richard Tenser in 
accordance with his letter of appointment. Mark Koch and Brian Smillie will also 
enter into compromise agreements in relation to the termination of their 
employment with the Group. 
 
 
Mark Koch will receive the sum of GBP45,000 on Completion and a further sum of 
GBP45,000 upon the agreement or determination of the completion accounts 
referred to in the Circular. Mark Koch will not be entering into any restrictive 
covenants but will make himself available on reasonable notice to assist the 
Company for a period of 12 months from Completion. 
 
 
Brian Smillie will be entitled to the sum of GBP80,000 payable at the rate of 
GBP10,000 per month in advance following Completion. Upon agreement or 
determination of the completion accounts referred to in the Circular, the 
balance of the GBP80,000 payable (being GBP80,000 less the sum of any monthly 
payments made as referred to above) shall be paid. In addition, Brian Smillie 
will be paid the sum of GBP5,000 per month for a period of 12 months following 
Completion. At the end of this 12 month period, Brian Smillie will become a 
non-executive director and will be paid directors' fees of GBP8,000 per annum 
payable monthly in arrears.  Following the final distribution to Shareholders of 
the proceeds of the Disposal, Brian Smillie will resign as a director without 
notice or compensation.In the event that Brian Smillie undertakes any 
consultancy work for CPP Holdings during the term of his appointment as a 
Director, the fees for such work will be paid to the Company. 
 
 
Following the expiration of the six month notice period set out in his letter of 
appointment, Richard Tenser will be paid directors' fees of GBP8,000 per annum 
payable monthly in arrears. Following the final distribution to Shareholders of 
the proceeds of the Disposal, Richard Tenser will resign as a Director without 
notice or compensation. 
 
 
Matthew Toynton will resign as a director and his employment with MKM will cease 
upon Completion. Matthew Toynton will be employed by the Leapfrog Group as 
Managing Director with effect from Completion. Matthew Toynton will enter into a 
compromise agreement in relation to the termination of his employment with the 
Group pursuant to which MKM will pay to Matthew Toynton the sum of GBP25,000 
upon Completion and a further sum of GBP25,000 upon the agreement or 
determination of the completion accounts referred to in the Circular. No other 
payment will be made by MKM to Matthew Toynton. 
 
 
It is intended that Mark Koch, Brian Smillie and Richard Tenser will remain as 
Directors until the distribution of all the proceeds of the Disposal to the 
Shareholders. 
 
 
Use of proceeds of the Disposal 
 
 
MKM has received GBP200,000 on exchange of contracts and will receive a cash sum 
of GBP2,410,000 on Completion, subject to any adjustment in respect of net debt 
and working capital. The Directors intend that the cash received on Completion 
will initially be used to satisfy the remaining liabilities of the Company, 
including the bank overdraft, outstanding loans, amounts due to employees and 
professional fees, amounting in aggregate to an estimated GBP1.1m. A further 
amount of GBP300,000 will be retained by the Company to meet overhead costs 
(including the Directors' remuneration referred to above) expected to be 
incurred during the period until all retention monies have been released and any 
claims under the Disposal Agreement have been settled or otherwise determined. 
Any remaining balance would be available for distribution to Shareholders. The 
Directors would seek to effect any such distribution as a return of capital to 
shareholders subject to tax advice to be obtained at the relevant time. The 
Directors intend to make a preliminary distribution as soon as practicable 
following the agreement or determination of completion accounts. 
 
 
Pursuant to the release of retention monies, further amounts are expected to be 
received of GBP200,000 on 1 January 2011, GBP150,000 on 1 May 2011 and 
GBP100,000 on 1 January 2012, subject to any warranty claims that may be brought 
by CPP Holdings under the terms of the Disposal Agreement. The Directors intend 
to return additional monies to Shareholders out of any surplus funds available 
following the release of the retention monies and the receipt of any Deferred 
Consideration. The Directors would seek to effect any such distribution as a 
return of capital to shareholders subject to tax advice to be obtained at the 
relevant time. The Directors are aware of their fiduciary duties and will have 
regard to these in the application of the proceeds of the Disposal when 
received. 
 
 
Current trading and prospects 
 
 
In the announcement of its final results for the year ended 31 March 2009, dated 
1 October 2009, the Company made the following statement regarding current 
trading and prospects: 
 
 
"The Group entered the current financial year with a good platform on which to 
build with Airport Angel, and Tactical and Partnership programmes in the UK and 
internationally. 
 
 
Our entire product offering appeals to clients in the challenging current 
economic environment where customer retention, acquisition and loyalty are 
vitally important. We have strong international client relationships that are 
leading to cross-referrals and new business opportunities. 
 
 
We view prospects for the Group positively despite the difficult economic 
environment." 
 
 
However, as mentioned under "Reasons for the Disposal" above, the Directors 
believe that the UK business and, in particular, the Airport Angel business, can 
best be developed within a larger group which has the necessary resources and 
global client distribution to fully support and take advantage of its growth 
potential. 
 
 
Cancellation of admission to AIM 
 
 
If the Disposal completes, MKM's business will consist of the remaining trading 
activities in Australia carried out through Salad Marketing PTY Limited and 
minority shareholdings in Promodus Limited and Stripe Marketing Limited. The 
future of the Australian business remains under review. 
 
 
It is a requirement of the AIM Rules that, as the UK Business represents 
substantially all of its trading assets, following the Disposal the Company 
should adopt an investing policy which outlines the nature of the investments it 
intends to make over the next 12 months. A failure to make such an investment 
within 12 months of the Disposal would result in the London Stock Exchange 
suspending the trading of the Ordinary Shares on AIM. 
 
 
However, the Directors believe that, following the disposal of the UK Business, 
the Company's strategy should be to close or sell the remaining business in 
Australia and to distribute any surplus cash to Shareholders after the 
settlement of liabilities. Accordingly, the Directors do not intend to adopt an 
investing policy within the meaning of the AIM Rules or to acquire any 
additional trading assets. The Directors are, therefore, seeking shareholder 
approval at the Extraordinary General Meeting for the cancellation of admission 
of the Ordinary Shares to trading on AIM. In accordance with Rule 41 of the AIM 
Rules, the Company has notified the London Stock Exchange of the proposed 
cancellation which is conditional upon the consent of not less than 75 per cent. 
of votes cast by Shareholders in general meeting. 
 
 
Subject to Resolution 2 being passed at the Extraordinary General Meeting, it is 
anticipated that trading in the Ordinary Shares on AIM will cease at close of 
business on 20 November 2009 with Cancellation taking effect at 7.00 am on 23 
November 2009. 
 
 
Upon Cancellation becoming effective, WH Ireland will cease to be nominated 
adviser and broker to the Company and the Company will no longer be required to 
comply with the AIM Rules. Shareholders should note, however, that the Company 
will remain subject to the provisions of the City Code on Takeovers and Mergers 
for a period of 10 years from Cancellation. Following Cancellation, there will 
be no market facility for dealing in the Ordinary Shares and no price will be 
publicly quoted. As a result, it will be more difficult for Shareholders to buy 
and sell Ordinary Shares should they wish to do so. 
 
 
The Group intends to make available a matched bargain facility to enable 
Shareholders to trade in their Ordinary Shares after Cancellation. Further 
details of this facility will be announced in due course. 
 
 
 
 
 
 
Extraordinary General Meeting 
 
 
The Disposal Agreement is conditional upon approval of Resolution 1 by 
Shareholders at the Extraordinary General Meeting convened for 11 a.m. on 13 
November 2009 and to be held at the offices of Halliwells LLP, 3 Hardman Square, 
Spinningfields, Manchester M3 3EB. 
 
 
Resolution 1 requires approval by a simple majority of those Shareholders 
attending and entitled to vote in person or by proxy at the EGM. 
 
 
Resolution 2 proposes the cancellation of admission of the Ordinary Shares to 
trading on AIM. Resolution 2 requires approval by holders of 75% of the Ordinary 
Shares attending and entitled to vote in person or by proxy at the EGM. 
Resolution 2 is conditional upon: 
 
 
  *  the passing of Resolution 1; and 
  *  Completion 
 
 
 
Recommendation 
 
 
The Directors, who have been so advised by WH Ireland, consider that the 
Disposal is in the best interests of the Company. In providing advice to the 
Directors, WH Ireland has relied upon information supplied by the Directors and 
their commercial assessments. Accordingly, the Directors unanimously recommend 
that Shareholders vote in favour of Resolution 1 at the Extraordinary General 
Meeting as they intend to do in respect of their own beneficial holdings of 
48,179,852 Ordinary Shares representing 51.65 per cent. of the issued Ordinary 
Shares as at the date of this announcement. 
 
 
The Directors believe that the Cancellation is in the best interests of the 
Company and unanimously recommend that Shareholders vote in favour of Resolution 
2 at the Extraordinary General Meeting as they intend to do in respect of their 
own beneficial holdings of 48,179,852 Ordinary Shares representing 51.65 per 
cent. of the issued Ordinary Shares as at the date of this announcement. 
 
 
The Directors and those connected with them have themselves irrevocably 
undertaken to vote in favour of the Resolutions in respect of a total of 
48,179,852 Ordinary Shares, representing approximately 51.65 per cent. of the 
issued Ordinary Shares as at the date of this announcement. 
 
 
+----------------------------+-------------------------------------------------------+ 
| DEFINITIONS                                                                        | 
| The following definitions apply throughout this announcement, unless the context   | 
| requires otherwise:                                                                | 
+------------------------------------------------------------------------------------+ 
| "Act"                      | the Companies Act 2006                                | 
+----------------------------+-------------------------------------------------------+ 
| "AIM"                      | a market operated by the London Stock Exchange        | 
+----------------------------+-------------------------------------------------------+ 
| "AIM Rules"                | the AIM Rules for Companies governing the admission   | 
|                            | to and operation of AIM published by the London Stock | 
|                            | Exchange from time to time                            | 
+----------------------------+-------------------------------------------------------+ 
| "Airport Angel business"   | a product which provides members with access to       | 
|                            | airport lounges around the world irrespective of      | 
|                            | their airline or class of travel                      | 
+----------------------------+-------------------------------------------------------+ 
| "Articles"                 | the articles of association of the Company as amended | 
|                            | from time to time                                     | 
+----------------------------+-------------------------------------------------------+ 
| "the Board" or "the        | the directors of the Company, as at the date of this  | 
| Directors"                 | announcement                                          | 
+----------------------------+-------------------------------------------------------+ 
| "Cancellation"             | the proposed cancellation of admission to trading on  | 
|                            | AIM of the Ordinary Shares                            | 
+----------------------------+-------------------------------------------------------+ 
| "Circular"                 | the circular to Shareholders to be dated 21 October   | 
|                            | 2009                                                  | 
+----------------------------+-------------------------------------------------------+ 
| "Company" or "MKM"         | MKM Group plc, a company registered in England and    | 
|                            | Wales with company number 4364235                     | 
+----------------------------+-------------------------------------------------------+ 
| "Completion"               | completion of the Disposal on the terms set out in    | 
|                            | the Disposal Agreement                                | 
+----------------------------+-------------------------------------------------------+ 
| "Concepts for Travel"      | Concepts for Travel Limited, a company registered in  | 
|                            | England and Wales with company number 2806377         | 
+----------------------------+-------------------------------------------------------+ 
| "Consideration"            | the consideration payable by CPP Holdings to the      | 
|                            | Company for the Disposal                              | 
+----------------------------+-------------------------------------------------------+ 
| "CPP Holdings" or the      | CPP Holdings Limited, a company registered in England | 
| "Purchaser"                | and Wales with company number 1659493                 | 
+----------------------------+-------------------------------------------------------+ 
| "Deferred Consideration"   | deferred consideration payable to the Company subject | 
|                            | to certain conditions being met in accordance with    | 
|                            | the Disposal Agreement                                | 
+----------------------------+-------------------------------------------------------+ 
| "Disposal"                 | the proposed disposal of the UK Business pursuant to  | 
|                            | the terms of the Disposal Agreement                   | 
+----------------------------+-------------------------------------------------------+ 
| "Disposal Agreement"       | the agreement dated 21 October 2009 and made between  | 
|                            | the Company (1), CPP Holdings (2) and Brian Smillie   | 
|                            | and others (3) relating to the sale and purchase of   | 
|                            | the entire issued share capital of each of Leapfrog   | 
|                            | and Concepts for Travel                               | 
+----------------------------+-------------------------------------------------------+ 
| "EBITDA"                   | earnings before interest, taxation, depreciation and  | 
|                            | amortisation                                          | 
+----------------------------+-------------------------------------------------------+ 
| "EGM" or "Extraordinary    | the extraordinary general meeting of the Company,     | 
| General Meeting"           | convened for 11 a.m. on 13 November 2009, and any     | 
|                            | adjournment thereof                                   | 
+----------------------------+-------------------------------------------------------+ 
| "Form of Proxy"            | the form of proxy which accompanies the Circular for  | 
|                            | use by the Shareholders in connection with the EGM    | 
+----------------------------+-------------------------------------------------------+ 
| "FSMA"                     | the Financial Services and Markets Act 2000           | 
+----------------------------+-------------------------------------------------------+ 
| "Group"                    | the Company and its subsidiaries and subsidiary       | 
|                            | undertakings at the date of this announcement         | 
+----------------------------+-------------------------------------------------------+ 
| "Leapfrog"                 | The Leapfrog Group Limited, a company registered in   | 
|                            | England and Wales with company number 2389644         | 
+----------------------------+-------------------------------------------------------+ 
| "Leapfrog Group"           | Leapfrog and its subsidiary companies                 | 
+----------------------------+-------------------------------------------------------+ 
| "London Stock Exchange"    | London Stock Exchange plc                             | 
+----------------------------+-------------------------------------------------------+ 
| "Notice"                   | the notice of EGM set out in the Circular             | 
+----------------------------+-------------------------------------------------------+ 
| "Ordinary Shares"          | ordinary shares of 0.5p each in the capital of the    | 
|                            | Company, having the rights and being subject to the   | 
|                            | restrictions contained in the Articles                | 
+----------------------------+-------------------------------------------------------+ 
| "Resolutions"              | the resolutions set out in the Notice                 | 
+----------------------------+-------------------------------------------------------+ 
| "Shareholders"             | holders of Ordinary Shares from time to time          | 
+----------------------------+-------------------------------------------------------+ 
| "UK"                       | the United Kingdom of Great Britain and Northern      | 
|                            | Ireland                                               | 
+----------------------------+-------------------------------------------------------+ 
| "UK Business"              | the Leapfrog Group and Concepts for Travel            | 
+----------------------------+-------------------------------------------------------+ 
| "WH Ireland"               | WH Ireland Limited, a company registered in England   | 
|                            | and Wales with company number 2002044                 | 
|                            |                                                       | 
+----------------------------+-------------------------------------------------------+ 
 
 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
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