Recommended proposal to acquire the minority units of Vendôme Luxury Group
22 Dec 1997
Further to the announcement made by Compagnie Financière Richemont AG ("Richemont") on 28th November, 1997, the Boards of Richemont and Vendôme Luxury Group ("Vendôme") announce a recommended proposal ("the proposal") under which a wholly owned subsidiary of Richemont, New VLG SA ("New VLG"), will acquire the interests of all the minority unitholders of Vendôme for 495p per unit in cash.
In addition, Richemont has agreed that Vendôme will pay a special interim dividend (the "Special Dividend") of 5p (net) per Vendôme unit to all Vendôme unitholders, payable on implementation of the proposal. Richemont has also agreed to provide a loan note alternative for the minority unitholders and modified the condition in Richemont's announcement dated 28th November, 1997 relating to material adverse change.
New VLG owns 488,371,453 Vendôme units, representing 70 per cent. of Vendôme. The directors of Richemont, Richemont SA and New VLG own or control 225,000 Vendôme units and have options to subscribe for 330,000 Vendôme units pursuant to the Vendôme Executive Share Option Scheme.
The price of 495p per unit represents a premium of 26 per cent. over the closing middle market Vendôme unit price of 393.5p on 27th November, 1997, the day prior to the announcement that Richemont had approached the Board of Vendôme to seek its support for the proposal, and a premium of 40.4 per cent. over the closing middle market Vendôme unit price of 352.5p on 25th November, 1997, the day prior to the announcement of Vendôme's interim results for the 6 months to 30th September, 1997. The price of 495p represents an exit multiple of 18.7 times Vendôme's earnings per unit for the year ended 31st March, 1997. It values the whole of Vendôme at £3,454 million and the 30 per cent. minority holdings at £1,036 million.
Because of the involvement of a number of members of the Board of Vendôme with Richemont, the Board of Vendôme appointed a committee of Independent Directors consisting of Lord Duoro (Chairman), Christopher Balfour, Michael Wilson, Donald Parr and Leo Deschuyteneer to consider Richemont's proposal on behalf of the minority unitholders. The Independent Directors appointed Schroders and Hambros as financial advisers and SBC Warburg Dillon Read and Panmure Gordon as brokers.
Background to the proposalVendôme was created as a separately listed luxury goods company when Richemont reorganised its tobacco and luxury goods interests in 1993. Richemont has owned its 70 per cent. interest since that date.
In forming their conclusions on the underlying value of Vendôme, the Independent Directors have taken into account the individual performance of, and prospects for, each of the businesses within Vendôme. They have also taken into account the uncertainties arising from the large part of Vendôme's business which depends on Far Eastern, and in particular Japanese, consumers. Notwithstanding the views expressed on current trading at the time of the interim results, the Independent Directors recognise that there is continuing uncertainty in the region and Vendôme may, as a consequence, suffer some deterioration in trading conditions, the extent of which it is not possible to predict with certainty at this time.
The Independent Directors also considered a number of other factors, including: Richemont's position as the majority, long-term unitholder of Vendôme; that, at the time of its original announcement, Richemont stated that it would only proceed with the recommendation of the Independent Directors; the improvements made to the terms of the proposal (see above) since Richemont's original announcement on 28th November, 1997; and the possible implications for Vendôme's unit price in the absence of the proposal.
In formulating its proposal, Richemont also took account of the increasingly uncertain environment in which Vendôme operates and the fact that many of the brands within Vendôme's portfolio would require significant investment over the next few years. Richemont believes that its investment plans for Vendôme can be implemented more effectively, and the interests of all Vendôme's unitholders would be better served, if Vendôme ceases to be publicly quoted.
RecommendationThe Independent Directors, who have been so advised by Schroders, having taken into account the factors referred to above, consider that the terms of the proposal are fair and reasonable so far as the minority unitholders are concerned. Accordingly, the Independent Directors recommend minority unitholders to approve the necessary resolutions to implement the proposal. In providing its advice to the Independent Directors, Schroders has taken into account the commercial assessments of the Independent Directors.
The proposalImplementation of the proposal will involve the following principal steps, which will be interconditional:
- the shares of Vendôme Luxury Group PLC ("Vendôme PLC") and Vendôme Luxury Group SA ("Vendôme SA"), which are twinned and trade as a unit, will be de-twinned through appropriate amendments to the constitutions of Vendôme PLC and Vendôme SA;
- through a UK Scheme of Arrangement, Vendôme PLC will become wholly owned by New VLG in consideration of cash payments to the minority unitholders (the "UK Scheme");
- Vendôme SA will sell its entire undertaking to New VLG for cash and the cash proceeds will be returned to Vendôme's unitholders through a liquidation of Vendôme SA.
The aggregate cash payments will result in 495p per unit being paid to the minority unitholders. In addition, Vendôme unitholders will be entitled to receive the interim dividend of 3.7p (net) per unit declared by the Vendôme Board on 26th November, 1997 and payable on 30th January, 1998 and, on implementation of the proposal, the Special Dividend.
The Special Dividend will be paid by Vendôme, as soon as reasonably practicable after implementation of the proposal, to unitholders registered at the close of business on a date (to be specified in the formal documentation) shortly before implementation of the proposal. Unitholders will be entitled to elect to receive the Special Dividend from Vendôme PLC or from Vendôme SA, but not from both. The Special Dividend to be paid by Vendôme PLC will be 5p per share (excluding any associated UK tax benefits) and the Special Dividend to be paid by Vendôme SA will be the Swiss Franc equivalent of 5p per share (together with the associated UK tax benefit). The formula for calculating the exchange rate to be used for this purpose and the date by which dividend elections are to be received will be set out in the formal documentation.
Implementation of the proposal will require, inter alia, the passing of special resolutions at Extraordinary General Meetings of both Vendôme PLC and Vendôme SA; the approval of the minority unitholders at a meeting of Vendôme PLC convened by the Court1 ; and the sanction by the Court of the UK Scheme.
In view of Richemont's controlling interest in Vendôme and its interest in the proposal, it will not vote at the Vendôme PLC Court meeting nor the Vendôme PLC Extraordinary General Meeting. The resolution to be proposed at the Extraordinary General Meeting of Vendôme SA will not become effective unless approved by a seventy-five per cent. majority by value of those minority unitholders who vote.
Further terms and conditions of the proposal are set out in the Appendix.
Loan note alternativeUnitholders will be able to elect to receive loan notes as an alternative to some or all of the cash which they would otherwise be entitled to receive under the proposal, on the basis of £4.95 nominal of loan notes for each Vendôme unit.
The loan notes, which will be governed by English law, will be unsecured obligations of New VLG, guaranteed by Richemont and Richemont SA, and will bear interest, payable in arrears on 31st March and 30th September in each year, at a rate of 6 month LIBOR less 0.75 per cent. The first interest payment will be on 30th September, 1998 in respect of the period from the date of issue. Loan notes will be redeemable at par at the option of the holder on 31st March, 1999 and on any interest payment date thereafter. Any loan notes outstanding on 31st March, 2004 will be redeemed at par (together with any accrued interest) on that date. The loan notes will be issued in integral multiples of £1 nominal. No fractional entitlements will be issued. The loan notes will be freely transferable but will not be listed or dealt in on any stock exchange.
FinancingNew VLG has entered into loan agreements with Deutsche Bank for the full amount of the cash consideration.
Illustrative financial effects of the proposalImplementation of the proposal, ignoring the effect of the Special Dividend, would have the following illustrative effects on capital value and income:
|Value of 100 units under the proposal||£495.00|
|Market value of 100 units||(1)||£393.50|
|A premium of||£101.50|
|This represents an increase of:||26%|
|Gross interest income on £495 in cash||(2)||£33.00|
|Increase in income||(3)||£13.00|
|This represents an increase of:||154%|
- The market value of units is based on the middle market quotation for units on the London Stock Exchange of 393_p per unit, derived from the London Stock Exchange Daily Official List as at the close of business on 27th November 1997, being the date immediately prior to the announcement that Richemont had approached the Board of Vendôme to seek its support for possible proposals.
- The cash consideration is assumed to be reinvested to yield, on an annualised basis, 6.67 per cent., being the gross redemption yield for UK Gilts redeemable in November 2004 as derived from the Financial Times published on 27th November, 1997, being the date immediately prior to the announcement that Richemont had approached the Board of Vendôme to seek its support for possible proposals.
- The gross dividend income on units is based on the gross dividend of 13.0p per unit paid in respect of the year ended 31st March, 1997, assuming a UK dividend election.
- The above information takes no account of the effect of any taxation.
Information on Vendôme
Companies in the Vendôme group design, manufacture, market and distribute a range of luxury products including jewellery, watches, writing instruments, leather goods, menswear and accessories, fragrances, lighters and ladies' fashions and accessories. The principal brand names owned by Vendôme are Cartier, Alfred Dunhill, Montblanc, Piaget, Baume & Mercier, Vacheron Constantin, Lancel and Chloé.
On 26th November, 1997 Vendôme published its interim results for the six months ended 30th September 1997. For this period, Vendôme had net turnover of £693.1 million (1996: £703.6 million), operating profit of £114.1 million (1996: £109.8 million) and profit attributable to unitholders of £84.3 million (1996: £83.5 million). Earnings per unit were 12.1p (1996: 12.0p).
An interim dividend of 3.70p (net) per unit (1996: 3.62p) was declared on 26 November, 1997 and will be paid on 30th January, 1998.
Each Vendôme unit comprises one share in Vendôme PLC twinned with one share in Vendôme SA. The units are listed on the London and Luxembourg Stock Exchanges.
Information on Richemont
Richemont is an industrial holding company based in Switzerland and is quoted on the Swiss Stock Exchange. Richemont depository receipts are traded on the Johannesburg Stock Exchange and over the counter in New York and London. Richemont has a market capitalisation of SF8,300 million (£3,512 million).
In addition to its 70 per cent. interest in Vendôme, Richemont's principal business interests are:
- Rothmans International, in which it has a two-thirds interest. Companies in the Rothmans International group manufacture, distribute and sell a wide range of well-known brands of cigarettes, cigars and smoking tobaccos throughout the world. Principal trade marks owned or controlled by Rothmans International include Rothmans, Peter Stuyvesant, Dunhill, Craven "A" and Winfield. The remaining one-third of Rothmans International is owned by Rembrandt Group Limited.
- Sigma Canal+, a company in which Richemont has a 15 per cent. interest. Canal+ is Europe's leading pay television group, broadcasting via a combination of terrestrial, cable and satellite methods. Canal+ has a market capitalisation of FF31,874 million (£3,217 million).
Richemont's interim results for the six months ended 30th September, 1997 were announced on 1st December, 1997. For this period, Richemont had net turnover of £2,316.3 million (1996: £2,343.6 million), operating profit of £564.2 million (1996: £466.2 million) and profit attributable to shareholders of £200.6 million (1996: £143.3 million). Earnings per share were £34.94 (1996: £24.96). The above figures are stated before amortisation of goodwill and exceptional items.
Intentions for Vendôme and its employees
The Board of Vendôme has been informed by Richemont that, following the implementation of the proposal, Richemont intends that the businesses of Vendôme would continue to remain a principal investment of the Richemont group through New VLG. The existing rights, including pension rights, of all employees of Vendôme will be fully safeguarded.
Vendôme's Executive Share Option Scheme
Options granted under Vendôme's Executive Share Option Scheme will, to the extent not exercised, lapse on implementation of the proposal. Following implementation of the proposal, Richemont intends to introduce appropriate new long-term executive incentive arrangements for Vendôme.
It is expected that formal documentation will be sent to Vendôme's unitholders by the end of January. On this basis, unitholder meetings of Vendôme PLC and Vendôme SA are expected to take place in February followed by the Court hearing in March. Implementation of the proposal is expected to take place by the end of March with consideration posted to unitholders in April.
A detailed timetable will be included in the formal documentation to be posted to unitholders.
In respect of this transaction, Cazenove & Co. are acting as brokers to Richemont.
|Johann Rupert||Chief Executive||+44 171 491 0836|
|Jan du Plessis||Finance Director||+44 171 499 2539|
|Eloy Michotte||Executive Director||+44 171 499 2539|
|Nigel MeekPhilip Mastriforte||Deutsche Morgan Grenfell||+44 171 545 8000|
|Lowe Bell Financial||+34 7 1362 357 or +44 836 298811
+44 171 353 9203
|Lord Douro||Deputy Chairman||+44 171 838 8500|
|Robert SwannellTessa Bamford||Schroders||+44 171 658 6000|
|Michael Sorkin||Hambros||+44 171 480 5000|
|Alan Parker||Brunswick Public Relations||+44 171 404 5959|
This announcement has been approved for the purposes of Section 57 of the Financial Services Act 1986 by Morgan Grenfell & Co. Limited ("Deutsche Morgan Grenfell"), J. Henry Schroder & Co. Limited ("Schroders") and Hambros Bank Limited ("Hambros") which are regulated by The Securities and Futures Authority Limited. Deutsche Morgan Grenfell is acting for Richemont in relation to this matter and is not advising any other person. Accordingly, Deutsche Morgan Grenfell will not be responsible to anyone other than Richemont for providing the protections afforded to customers of Deutsche Morgan Grenfell. Schroders and Hambros are acting for Vendôme in relation to this matter and are not advising any other person. Accordingly, Schroders and Hambros will not be responsible to anyone other than Vendôme for providing the protections afforded to customers of Schroders and Hambros.
Conditions and further terms of the proposal
The proposal will include the de-twinning of the shares of Vendôme PLC and Vendôme SA. The proposal will also include:
- in respect of Vendôme PLC, a scheme of arrangement pursuant to section 425 of the Companies Act 1985 (the "UK Scheme") under which the shares of Vendôme PLC held by the minority will be cancelled or transferred in consideration of cash paid or, as the case may be, loan notes issued by New VLG; and
- in respect of Vendôme SA, the sale of its whole undertaking to New VLG for cash and the simultaneous liquidation of Vendôme SA resulting in the return of the cash proceeds of the sale to the shareholders of Vendôme SA,
on the basis that the total of the above cash payments will be 495p per unit.
The Vendôme PLC shares and the Vendôme SA shares will be acquired free from all liens, charges and encumbrances and together with all rights attached thereto including the right to receive all dividends and other distributions (if any) declared, made or paid hereafter, but excluding the interim dividend of 3.7p (net) per unit announced on 26th November 1997 and the Special Dividend payable on implementation of the proposal.
The proposal will comply, so far as applicable, with the rules and regulations of the London and Luxembourg Stock Exchanges and the provisions of the City Code on Takeovers and Mergers.
The UK Scheme will only by implemented if the following conditions (the "UK Scheme Conditions") are satisfied or, in the case of conditions (v) and (vi), waived:
- the passing at an Extraordinary General Meeting of Vendôme PLC of such resolutions as may be necessary to approve, implement and effect the UK Scheme and appropriate amendments to the Articles of Association of Vendôme PLC to effect de-twinning of the Vendôme PLC shares and of the Vendôme SA shares comprised in each unit;
- approval of the UK Scheme by a majority in number representing three-quarters in value of those holders of Vendôme PLC shares who vote at a meeting of Vendôme PLC convened by the Court;
- the sanction of the Court to the UK Scheme;
- the resolution required to approve, implement and effect the appropriate amendments to the Articles of Association of Vendôme SA to effect the de-twinning of the Vendôme SA shares and of the Vendôme PLC shares comprised in each unit, the sale of Vendôme SA's undertaking and the liquidation of Vendôme SA (the "Luxembourg Resolution") being passed at an Extraordinary General Meeting of Vendôme SA and becoming effective (other than in relation to the UK Scheme Conditions);
- no government or governmental, supra-national or trade agency or regulatory body or court having instituted or threatened any action, suit or investigation or enacted or made any statute or regulation or order that might:
- restrain, prohibit or otherwise challenge the UK Scheme or implementation of the Luxembourg Resolution;
- result in a material delay in the ability of New VLG, or render it impossible or unduly onerous for New VLG, to implement the UK Scheme or, as the case may be, the Luxembourg Resolution;
- require the divestiture by Vendôme PLC or Vendôme SA or any material subsidiary of either of them of all or any material portion of its business, assets or property or impose any material limitation on the ability of any such company to conduct its business and own its assets or properties; or
- impose any material limitations on the ability of New VLG to acquire or hold or exercise effectively all rights of ownership of the shares of Vendôme PLC or, as the case may be, of the undertaking of Vendôme SA; and
- save as disclosed to Richemont on or prior to 19th December, 1997, since 30th September, 1997, being the date to which the latest unaudited interim results of Vendôme, as released on 26th November, 1997, were made up, there having been no material adverse change or deterioration in the business, financial or trading position or assets, profits or prospects of Vendôme.
New VLG will reserve the right to waive conditions (v) and (vi) in whole or in part.
The Luxembourg Resolution will only become effective if:
- the UK Scheme becomes effective; and
- it is approved by a seventy-five per cent. majority by value of the minority shareholders of Vendôme SA who vote on the resolution.
The proposal will not proceed unless the UK Scheme becomes effective by 30 April, 1998 or such later date as New VLG and Vendôme may agree.