Not for release, publication or distribution in or into Canada,
Australia or Japan.
GANNETT U.K. LIMITED
Cash Offer
For
NEWSQUEST PLC
1 Introduction
The Board of Gannett Co., Inc. ("Gannett") announces the
terms of a cash offer to be made for the entire issued and
to be issued share capital of Newsquest plc ("Newsquest") by
Gannett U.K. Limited ("Gannett UK"), a wholly owned
subsidiary of Gannett.
The Board of Newsquest is of the unanimous view that it is
in the best interests of Newsquest and its Shareholders for
the Offer to be put forward to Newsquest Shareholders for
consideration.
The Offer:
- will be 460p in cash for each Newsquest Share;
- values the existing issued share capital of Newsquest
at approximately L904 million;
- represents a multiple of 21.7x Newsquest's basic
earnings per share, and a multiple of 11.3x Newsquest's
earnings before interest, tax, depreciation and
amortisation for the 53 weeks ended 3 January 1999;
- represents a premium of approximately 25 per cent to
the average Closing Price of a Newsquest Share in the
six months to 23 June 1999 of 367.5p;
- represents a premium of approximately 9 per cent to the
Closing Price of a Newsquest Share of 423p on 23 June
1999; and
- includes a Loan Note Alternative. Gannett has received
irrevocable undertakings to accept the Offer
The financial effects of acceptance of the Offer and the
bases of and sources of information for the above
calculations are set out in Appendices II and III
respectively.
2 The Offer
The Offer will be made on the following basis:
for each Newsquest Share 460p in cash
The Offer will be subject to the conditions and further
terms set out below and in Appendix I to this announcement
and will be set out in full in the Offer Document and Form
of Acceptance.
The Newsquest Shares will be acquired under the Offer fully
paid and free from all liens, charges, equitable interests,
encumbrances, rights of pre-emption and other interests and
together with all rights now or hereafter attaching thereto.
The Offer is to be financed from Gannett's own resources and
existing facilities or from the US public debt markets.
3 Loan Note Alternative
Accepting Newsquest Shareholders (other than to certain
family members and family trusts) will be entitled to elect
to receive Loan Notes to be issued by Gannett UK instead of
some or all of the cash consideration which would otherwise
be receivable under the Offer on the following basis:
for every L1 of L1 nominal of Loan Notes
cash consideration
The Loan Notes, which will be governed by English law, will
be issued, credited as fully paid, in multiples of L1
nominal amount. Fractional entitlements to Loan Notes will
be disregarded. The obligations of Gannett UK as the issuer
of the Loan Notes will be guaranteed as to principal only by
Gansat, a member of the Gannett Group.
The Loan Notes will bear interest from the date of issue to
the relevant holder of Loan Notes at a rate of 0.5 per cent
per annum below LIBOR for six month sterling deposits
(subject to a cap of 6.5 per cent), payable six monthly in
arrears on 30 June and 31 December except that the first
interest payment date will be 31 December 1999.
The Loan Notes will not be transferable (other than to
certain family members and family trusts) and no application
will be made for the Loan Notes to be listed or dealt in on
any stock exchange. The Loan Notes will be redeemable at
the holder's option, in part or in whole, on 30 June 2000
and on each interest payment date thereafter, and any Loan
Notes not previously repaid, redeemed or purchased will be
repaid at par (together with any accrued interest) on 31
December 2006. The Loan Notes can be redeemed by the issuer
on any interest payment date prior to 31 December 2006 if
the aggregate value of Loan Notes in issue is less than
L100,000.
Hoare Govett has advised that, based on current market
conditions, its estimate of the value of the Loan Notes, if
they had been in issue on 23 June 1999, would have been
approximately 98p per L1 nominal value.
If valid elections for the Loan Note Alternative do not
require the issue of Loan Notes exceeding L10 million in
nominal value in aggregate, no Loan Notes will be issued
unless Gannett determines otherwise, and Newsquest
Shareholders who have elected for the Loan Note Alternative
will then receive cash in accordance with the terms of the
Offer.
The total amount of Loan Notes to be issued will not exceed
L50 million in nominal value, unless Gannett otherwise
determines. To the extent that elections for Loan Notes
exceed L50 million in nominal value in aggregate and Gannett
does not determine to increase the total amount to be
issued, elections will be scaled back pro-rata such that
elections are accepted in respect of Loan Notes that have
nominal aggregate value of L50 million, with the balance of
the consideration being settled in cash.
The Loan Note Alternative will be conditional upon the Offer
becoming or being declared unconditional in all respects and
will remain open for so long as the Offer remains open for
acceptance. Full particulars of the Loan Notes are contained
in the Offer Document which will be posted to Newsquest
Shareholders today.
4 Arrangements with Newsquest Shareholders
(a) Irrevocable undertakings to accept the Offer
Gannett has received irrevocable undertakings to accept the
Offer from certain Newsquest Shareholders as set out below:
Newsquest Shares Percentage
of issued
share capital
KKR 72,330,628 36.81
Shareholdings managed by Cinven Limited:
Coal Pension Venture Nominees Limited 10,177,410 5.18
Cinven Fund No 1 Limited Partnership 5,215,592 2.66
Railway Pension Venture Capital Limited 3,820,574 1.95
Barclays Venture Nominees Limited 3,820,574 1.95
Cinven Fund US No 1 Limited Partnership 2,425,555 1.23
Cinven Nominees Limited 16,171 0.01
---------- -----
25,475,876 12.97
Executive directors of Newsquest:
James Brown 1,423,475 0.72
Paul Davidson 1,190,243 0.61
John Pfeil 1,189,943 0.61
--------- ----
3,803,661 1.94
----------- -----
Total 101,610,165 51.73
These irrevocable undertakings will lapse if a competing
offer in excess of 495p per Newsquest Share is announced
prior to midnight on the seventh day after posting of the
Offer Document.
In addition, the executive directors of Newsquest have
agreed, conditional only on the Offer being declared or
becoming unconditional in all respects, to accept the Offer
in respect of Newsquest Shares issued upon the exercise of
options under the Newsquest Share Option Schemes.
(b) Sharing and exclusivity agreement
Gannett has entered into an agreement with KKR and Cinven
under which KKR and Cinven will, at the time of any disposal
of all or part of their holdings of Newsquest Shares in
circumstances where a competing offer in excess of 495p is
made and such shareholders do not accept the Gannett Offer,
pay Gannett a fee on the following basis:-
(i) if the disposal price per Share is more than 400p,
but less than 495p, an amount per Share equal to
22.6 per cent of the excess over 400p; or
(ii) if the disposal price per Share is 495p or more, but
less than 600p, an amount per Share of 21.5p plus an
amount equal to 20.4 per cent of the excess over
495p; or
(iii) if the disposal price per Share is 600p or more, an
amount per Share of 42.9p.
KKR and Cinven have also agreed, inter alia, not to solicit
offers for the Company whilst the Gannett Offer is open for
acceptance.
5 Background to the Offer
Introduction
As described in a letter from the Directors of Newsquest to
Shareholders contained in the Offer Document to be sent to
Shareholders today, Gannett submitted a conditional offer of
460p per Share to the Board of Newsquest in May 1999. This
followed an examination by the Board of Newsquest of various
strategic opportunities to maximise shareholder value which
resulted in the subsequent decision to seek a possible
purchaser for the Company. Merrill Lynch was retained to act
as the Company's financial advisor in relation to this
process.
Issues for consideration
Set out below are the issues that the Board of Newsquest, as
advised by Merrill Lynch, examined when considering their
response to the conditional Gannett offer and to which the
Board believes Shareholders should have regard when making
their decision whether or not to accept the Offer:
(a) Gannett's proposal of an offer of 460p per Newsquest
Share would only proceed on the basis of, inter alia:
(i) the Board permitting the offer to be made to
Shareholders;
(ii) KKR, Cinven and the executive directors of Newsquest
providing irrevocable undertakings to accept the
offer; and
(iii) certain management and employees committing to
remain with the Company after the offer had been
completed.
(b) The Board's recognition that the process, undertaken by
Merrill Lynch, represented a comprehensive examination
of the universe of those trade buyers most likely to be
interested in acquiring Newsquest, and that Gannett's
Offer represents the highest price offered from this
universe of potential buyers as part of this process.
Neither the Board, nor Merrill Lynch, has been
approached by any person, other than those approached
as part of this process, on behalf of a bona fide
potential offeror wishing to instigate discussions with
a view to any offer being made for Newsquest.
Discussions with other potential offerors approached as
part of this process have ceased.
(c) KKR, Cinven, and the executive directors of Newsquest
indicating that they were prepared to enter into
irrevocable undertakings to accept the Offer in respect
of their holdings, representing approximately 51.7 per
cent of Newsquest's issued ordinary share capital. It
should be noted that each of KKR, Cinven and the
executive board members have held substantially all of
their stakes since the initial public offering of the
Company in October 1997.
(d) The Board's recognition that both the sector's and
Newsquest's recent performance has contributed to the
current level of the Newsquest Share price.
(e) The Board's recognition that the Offer is above the
highest Closing Price of Newsquest Shares (447.5p on 7
May 1999).
(f) Gannett's offer was not expected to have any UK, EU or
US competition clearance issues.
(g) The Board's belief, supported by Merrill Lynch's
analysis, that at the current share price of 423p, on
an earnings before interest, tax, depreciation and
amortisation (EBITDA), earnings before interest and tax
(EBIT) and earnings per share (EPS) multiple basis,
Newsquest, for the first time, is trading broadly in
line with its peer group.
(h) The prospects for the Company as an independent public
company. Set out in paragraph 8 below is a summary of
the Company's recent AGM statement, as released on the
Regulatory News Service on 5 May 1999, which set out
the Board's view of the Company's performance and
prospects.
Additionally, in assessing whether to accept the Offer, the
Board believes that Shareholders should consider the
following:
(a) If the Offer is declared unconditional in all respects,
a Shareholder who does not tender his Shares into the
Offer whilst the Offer is open for acceptances after it
has gone unconditional may, if the compulsory purchase
and sale procedures in the Companies Act are not
operated or applicable, be in a minority position and
therefore may be exposed to certain risks. In
particular:
(i) the possibility that Gannett as the majority
shareholder may terminate or reduce dividend
payments; and
(ii) the possibility that Newsquest may be delisted from
the London Stock Exchange.
(b) Furthermore, if the Offer is declared unconditional in
all respects, the liquidity of Newsquest Shares is
likely to be substantially reduced and there would be
no guarantee that a subsequent offer would be made in
the future for the outstanding minority position, by
either Gannett or another offeror.
Board's conclusion
Having taken each of these issues into consideration, it is
the view of the Board that the Offer represents a serious
and fair proposal worthy of consideration by Shareholders.
However, the Board's view is that the Offer is not such a
compelling proposal that the Board could give an outright
recommendation to Shareholders that it was absolutely in
their best interests to accept.
The Board similarly was of the view that, particularly as
the Company's two largest shareholders, both represented on
the Newsquest Board, and the executive directors, were all
minded to accept the Offer, it was appropriate for the Board
to agree to Gannett making the Offer to all Shareholders.
Therefore, the Board has waived the relevant sections of the
confidentiality and standstill agreement that Gannett had
entered into at the start of this process, and has agreed
under Rule 5.2 of the City Code to allow Gannett to obtain
irrevocable undertakings from Shareholders representing 51.7
per cent of Newsquest's issued ordinary share capital, and
has agreed to permit Gannett to purchase shares in
Newsquest.
In conclusion, the Directors, who have been so advised by
Merrill Lynch, believe that it is in the best interests of
Newsquest and its Shareholders to put the Offer forward for
consideration by all Shareholders.
The executive directors (Messrs James Brown, John Pfeil and
Paul Davidson), who together hold 1.9 per cent of
Newsquest's issued ordinary share capital have, as
Shareholders, irrevocably committed, in terms set out in
paragraph 4 above, to accept the Offer.
In providing advice to the Directors, Merrill Lynch has
relied on the Board's commercial assessment.
6 Reasons for the Offer
Gannett's core operations include publishing newspapers and
the provision of newspaper Internet sites. Gannett's
strategy is to create and expand its quality portfolio of
titles, products and services through innovation, and to
make acquisitions in news, information and communications
and related fields in support of this strategy. As the
largest publisher of local and regional newspapers in
England, and a leader in using Internet technology to
deliver local news and information, Newsquest represents an
attractive opportunity for Gannett to enhance shareholder
value through acquisition. In particular the acquisition:
- permits Gannett and Newsquest to exchange best
practices in gathering news and information;
- creates the ability to exploit the combined
marketing and Internet expertise of both companies to
further develop innovative quality products and
services for both regional advertisers and
readers/users;
- means that Gannett and Newsquest will be better
positioned to serve the needs of international
advertisers;
- enables Gannett to diversify outside the USA
through a sizeable presence in the UK, which
represents one of the major European markets for
regional newspapers; and
- provides Gannett and Newsquest with further
economies of scale, including purchasing newsprint and
capital equipment.
Gannett believes that in balancing the complementary
strengths of both companies while recognising their
individual markets' uniqueness, the combined companies will
better serve their readers and advertisers and will enhance
profitable development and growth to the substantial benefit
of employees and shareholders.
7 Information on Gannett
Gannett is a diversified news and information company that
publishes 74 daily newspapers including USA TODAY and is the
USA's largest newspaper group in terms of circulation. It
also owns and operates 21 television stations covering 17.3%
of the US, and cable television systems in three US states.
It is also engaged in marketing, commercial printing, a
newswire service, data services and news programming.
Gannett is listed on the New York Stock Exchange and has a
market capitalisation of approximately US$20.5 billion,
(L12.9 billion) and employs approximately 39,400 people
worldwide.
Gannett reported operating revenues of US$5,121 million
(L3,221 million) for the fiscal year ended 27 December 1998
compared with operating revenues of US$4,729 million (L2,974
million) for the fiscal year ended 28 December 1997.
Gannett reported operating profits of US$1,444 million (L908
million) for the fiscal year ended 27 December 1998 (1997:
US$1,316 million (L828 million)). As at 27 December 1998,
Gannett had net assets of US$3,980 million (L2,503 million).
8 Information on Newsquest
Newsquest's principal activities are that of publishing and
printing local newspapers in the UK with a portfolio of 63
paid for daily and weekly newspapers and 120 free weekly
newspapers. Its titles include the Northern Echo and the
Evening Argus.
For the 53 weeks ended 3 January 1999, Newsquest reported
turnover of L305.8 million (52 weeks ended 28 December 1997:
L285.6 million), profit before tax on ordinary activities of
L61.0 million (1997: L31.6 million), and basic earnings per
share of 21.2p (1997: 11.9p). Newsquest had net assets as
at 3 January 1999 of L226.4 million.
At the Annual General Meeting of Newsquest on 5 May 1999,
James Brown, Executive Chairman, made the following remarks
commenting both on Newsquest's quarterly results for the 13
weeks to 4 April 1999 (which were released on 5 May 1999)
and on prospects for the current year:
"The year has started well for Newsquest, with the benefits
of strong advertising revenues resulting in an underlying
revenue growth of 7.5% in the quarter. This, together with
marginally lower newsprint prices, is reflected in an
underlying 19.6% growth in operating profits, as shown in
our first quarter results published this morning. These
figures also benefit from the fact that Easter fell earlier
this year. The threatened economic slowdown has resulted in
a soft landing, and the increase in like-for-like revenue
growth in areas other than recruitment reflects the
Company's initiatives in these areas.
As I said in our Annual Report, we are cautiously optimistic
for the remainder of the year."
9 Management and Employees
Gannett attaches great importance to the skills and
experience of the existing management and employees of
Newsquest. Gannett has given assurances to the board of
Newsquest that the existing employment rights, including
pension rights, of the employees of Newsquest will be fully
safeguarded.
10 Newsquest Share Option Schemes
The Offer will extend to any Newsquest Shares
unconditionally allotted or issued and fully paid before the
Offer closes (or before such earlier date as the directors
of Gannett UK (subject to the City Code) may determine not
being earlier than the date on which the Offer becomes or is
declared unconditional as to acceptances or if later the
first closing date of the Offer) as a result of the exercise
of options granted under the Newsquest Share Option Schemes.
Appropriate proposals will be made in due course to
participants in the Newsquest Share Option Schemes.
11 Cancellation of listing and compulsory acquisition
After the Offer becomes unconditional in all respects,
Gannett UK intends to procure the making of an application
by Newsquest for the cancellation of the listing of the
Newsquest Shares on the London Stock Exchange. It is
anticipated that such cancellation will take effect no
earlier than 20 business days after the Offer becomes
unconditional in all respects.
If Gannett UK receives acceptances under the Offer in
respect of, and/or otherwise acquires, 90 per cent or more
of the Newsquest Shares to which the Offer relates, Gannett
UK will exercise its rights pursuant to the provisions of
sections 428 to 430F of the Companies Act 1985 to acquire
compulsorily the remaining Newsquest Shares.
12 Offer Document
The formal Offer Document will be posted by Gannett UK to
Newsquest Shareholders today.
13 General
This announcement does not constitute an offer or an
invitation to purchase any securities and this announcement
and related materials do not constitute an offer of
securities for sale in the United States or to US persons.
The Offer will not be made, directly or indirectly, in or
into Canada, Australia or Japan. Accordingly, copies of
this announcement are not being, and must not be mailed or
otherwise distributed or sent in or into Canada, Australia
or Japan and persons receiving this announcement (including
custodians, nominees and trustees) must not distribute or
send it into or from Canada, Australia or Japan. Doing so
may invalidate any purported acceptance.
The Loan Notes that may be issued pursuant to the Offer will
not be listed on any stock exchange and have not been, and
will not be, registered under the US Securities Act of 1933,
as amended, nor under any relevant securities laws of any
state of the US and the relevant clearances will not be
obtained from the regulatory authority of any province or
territory of Canada. The Loan Notes are not being offered,
sold or delivered, directly or indirectly, to, or for the
account or benefit of, US persons or into the United States,
Canada, Australia or Japan, or into any other jurisdiction
if to do so would constitute a violation of relevant laws in
such jurisdiction.
The Offer will be open for at least 20 US business days from
the date of the Offer Document, which is being posted to
Newsquest Shareholders today.
PricewaterhouseCoopers, which is authorised to carry on
investment business by the Institute of Chartered
Accountants in England and Wales, is acting for Gannett and
Gannett UK and no one else in connection with the Offer and
will not be responsible to anyone other than Gannett and
Gannett UK for providing the protections afforded to
customers of PricewaterhouseCoopers or for giving advice in
relation to the Offer.
Merrill Lynch, which is regulated in the UK by The
Securities and Futures Authority Limited, is acting for
Newsquest and no one else in connection with the Offer and
will not be responsible to anyone other than Newsquest for
providing the protections afforded to its customers or for
providing advice in relation to the Offer.
The directors of Gannett UK and Gannett accept
responsibility for the information contained in this
announcement (other than the information contained in
paragraphs 5 and 8 of this announcement and other
information relating to the Newsquest Group). To the best
of the knowledge and belief of the directors of Gannett UK
and Gannett (who have taken all reasonable care to ensure
that such is the case), such information contained in this
announcement is in accordance with the facts and does not
omit anything likely to affect the import of such
information.
The Directors of Newsquest accept responsibility for the
information contained in paragraphs 5 and 8 of this
announcement and other information in this announcement
relating to the Newsquest Group. To the best of the
knowledge and belief of the Directors of Newsquest (who have
taken all reasonable care to ensure that such is the case),
such information contained in this announcement is in
accordance with the facts and does not omit anything likely
to affect the import of such information.
Save for the arrangements with Newsquest Shareholders
summarised in paragraph 4 above, neither Gannett nor any
person deemed to be acting in concert with Gannett owns or
controls any Newsquest Shares or has any options to acquire
any Newsquest Shares. Save as summarised in paragraph 4
above, neither Gannett nor any person acting in concert with
Gannett for the purposes of the Offer has any arrangement in
relation to Newsquest Shares or any securities convertible
or exchangeable into Newsquest Shares or options (including
traded options) in respect of or derivatives referenced to
any such shares. For these purposes, "arrangement" includes
any indemnity or option arrangement, any agreement or
understanding, formal or informal, of whatever nature,
relating to Newsquest Shares which may be an inducement to
deal or refrain from dealing in such shares.
Gannett and Newsquest entered into an exclusivity agreement
on 17 June 1999 under which Newsquest undertook, inter alia,
not to solicit offers for the Company prior to the
announcement of the Offer and, thereafter, whilst the Offer
is open for acceptance.
Certain sources and bases of assumptions and calculations
are set out in Appendix III.
PricewaterhouseCoopers has approved the contents of this
announcement solely for the purpose of section 57 of the
Financial Services Act 1986.
24 June 1999