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Kingfisher announces that it has initiated the process of acquiring the outstanding minority interests in Castorama Dubois Investissements.
Kingfisher obtained its 55% economic stake in Castorama in return for merging its B&Q business into the Castorama group in 1998. Under the articles created in this merger, Castorama is co-controlled by a governing board which now comprises five partners (Commandités) who were in place at the time of the 1998 agreement (the “Commandités A”) and five who were appointed by Kingfisher.
The articles of Castorama also set out a process for Kingfisher to obtain a casting vote on the governing board by making a cash offer for the minority interests. This mechanism was approved by the Castorama shareholders as part of the 1998 agreement. In compliance with this, Kingfisher has lodged a formal notice with the Commandités initiating the process.
Kingfisher has since held extensive discussions with the Commandités A with a view to agreeing implementation steps for the cash offer process. To date, Kingfisher and the Commandités A have not been able to reach any agreement on this. The Commandités A are seeking legal clarification on the interpretation of Article 21 and are also requesting the appointment by a French Court of a mediator (mandataire ad hoc) to assist with its implementation.
Article 21 includes a requirement for an independent bank to provide an opinion on whether the proposed offer price of €67 per share is fair. Accordingly, Kingfisher is continuing to seek the immediate appointment of an independent bank to prepare this opinion.
Assuming timely delivery of a satisfactory fairness opinion, the filing of the offer with the French market authorities is conditional on approval by Kingfisher’s shareholders, and clearance by the relevant competition authorities. As stipulated in Article 21, acquisition of the casting vote follows upon publication of approval of the offer (avis de recevabilité) by the Conseil des Marchés Financiers (“CMF”).
To avoid further delay to the process, however, Kingfisher has concluded that it is now in the best interests of the businesses and shareholders of both Kingfisher and Castorama to announce the initiation of the offer process and to seek the approval of its shareholders.
A circular will be posted shortly to Kingfisher’s shareholders convening an Extraordinary General Meeting to approve the proposed offer and the increase in Kingfisher’s authorised share capital to enable the associated rights issue to go ahead.--nextpage--
Equity Funding
Kingfisher intends to raise approximately £2.0 billion through a deeply discounted rights issue. The size of the rights issue reflects the need to maintain a strong balance sheet position for the future. The rights issue will be launched after a satisfactory fairness opinion relating to the offer has been received from an independent bank.
The rights issue has been fully underwritten on a standby basis by UBS Warburg, Credit Suisse First Boston and Goldman Sachs International at a subscription price to be agreed but in any event no less than £1.00 for each new Kingfisher share to be issued. This underwriting ensures that Kingfisher has the necessary equity funding in place to proceed with the offer.
Kingfisher intends to have the rights issue re-underwritten on terms that reflect prevailing market conditions after the receipt of a satisfactory fairness opinion. At that time, it will despatch the formal rights issue prospectus to shareholders.
Separation of Electricals Business
The Electricals business of Kingfisher is the second most profitable in the European electricals retailing sector and, in the Board’s view, has significant future growth potential. The Board firmly believes that, with its experienced management team in place, the business can achieve this potential as a stand-alone entity.
The Board intends to explore all possible options that might help create additional value for shareholders, including a separate listing for the Electricals business that might result in a fuller valuation by the market. It is anticipated that the separation will be undertaken within 12 months, following the completion of the offer for the minority interests of Castorama.
Current Trading
Kingfisher will present its first quarter results on 12 June 2002, which is expected to be before the launch of the rights issue. During the period, while results for individual businesses have varied, the Group’s overall performance has been good. Although economic conditions remain difficult, especially in Continental Europe, the Board considers that the prospects for the Group as a whole for the current financial year are satisfactory.
Advisers to Kingfisher
Goldman Sachs International is acting as strategic and financial adviser to Kingfisher on the group transformation. Goldman Sachs International and BNP Paribas are acting as principal financial advisers to Kingfisher in relation to the transaction. Additional financial advice is being provided by UBS Warburg and CSFB, in relation to the UK aspects of the transaction, and by Lazard Frères, in relation to specific French aspects of the transaction.
BNP Paribas, Deutsche Bank AG London and UBS Warburg are acting as mandated lead arrangers for the proposed debt financing.
Scrip Dividend
On 20 March 2002, the Board announced a proposed final dividend for the year ended 2 February 2002 of 7.655p per share and offered a scrip dividend alternative. In view of the uncertainty of the timing of the proposed rights issue, the Board has decided to withdraw the current offer of the scrip dividend alternative. Shareholders who have elected to receive the scrip dividend on this occasion will receive their dividend in cash; mandates electing to receive future scrip dividends will not be affected. The final dividend will be paid on 14 June 2002, subject to shareholder approval at the annual general meeting to be held on 12 June 2002.--nextpage--
Notes
Castorama is incorporated in France as a Société en Commandite par Actions (“SCA”). It is quoted on the Premier Marché of Euronext Paris with a fully diluted market capitalisation as of 14 May 2002 of approximately €10.7 billion (£6.7 billion). Castorama’s SCA structure differs from the more conventional Société Anonyme (“SA”) structure typically found in France by materially restricting the influence of shareholders, as a result of most of the decision-making power lying in the hands of the Commandités and management. Subsidiaries of Kingfisher comprise half of the Commandités and Kingfisher holds approximately 55% of the share capital of Castorama.
The process which the Board has initiated is set out in Article 21 of the articles of association of Castorama. Broadly, this allows Kingfisher to take full control of Castorama through one of its subsidiaries, SOCODI SARL, acquiring a casting vote at meetings of the Commandités from the time the French securities regulators approve a cash offer for Castorama at a price which an independent bank has approved as fair. The Article provides for an independent bank to be appointed within two weeks of the start of the process (which actually began on 18 April) and for the bank to give its certificate of fairness within a further one month.
The closing share price of Castorama on 8 March 2002, the day prior to the start of recent speculation on 9 March 2002, was €55.7. The statement relating to the impact of the transaction on Kingfisher’s earnings per share is based on the closing Kingfisher share price on 14 May 2002 of £3.85.
Kingfisher is Europe’s leading Home Improvement retailer and is ranked number three in the world. The Company (through Castorama) operates more than 570 Home Improvement stores in 12 countries and enjoys strong market positions in France, the UK, Poland and Taiwan. Sales for the sector for the year ending 2 February 2002 were over £5.8 billion, with retail profit of over £430 million.
Paris-based Kingfisher Electricals operates more than 800 stores in nine countries. It is Europe’s second most profitable electrical retailing business, with more sales of white goods than any of its competition. Its sales for the year ending 2 February 2002 were nearly £3.8 billion with retail profit of over £180 million. As well as holding the leading position in France with Darty and the number two position in the UK through Comet, Kingfisher is also the market leader in Belgium through Vanden Borre. Furniture and Electrical chain BUT strengthens Kingfisher Electricals in France.
The articles of Castorama also set out a process for Kingfisher to obtain a casting vote on the governing board by making a cash offer for the minority interests. This mechanism was approved by the Castorama shareholders as part of the 1998 agreement. In compliance with this, Kingfisher has lodged a formal notice with the Commandités initiating the process.
Kingfisher has since held extensive discussions with the Commandités A with a view to agreeing implementation steps for the cash offer process. To date, Kingfisher and the Commandités A have not been able to reach any agreement on this. The Commandités A are seeking legal clarification on the interpretation of Article 21 and are also requesting the appointment by a French Court of a mediator (mandataire ad hoc) to assist with its implementation.
Article 21 includes a requirement for an independent bank to provide an opinion on whether the proposed offer price of €67 per share is fair. Accordingly, Kingfisher is continuing to seek the immediate appointment of an independent bank to prepare this opinion.
Assuming timely delivery of a satisfactory fairness opinion, the filing of the offer with the French market authorities is conditional on approval by Kingfisher’s shareholders, and clearance by the relevant competition authorities. As stipulated in Article 21, acquisition of the casting vote follows upon publication of approval of the offer (avis de recevabilité) by the Conseil des Marchés Financiers (“CMF”).
To avoid further delay to the process, however, Kingfisher has concluded that it is now in the best interests of the businesses and shareholders of both Kingfisher and Castorama to announce the initiation of the offer process and to seek the approval of its shareholders.
A circular will be posted shortly to Kingfisher’s shareholders convening an Extraordinary General Meeting to approve the proposed offer and the increase in Kingfisher’s authorised share capital to enable the associated rights issue to go ahead.--nextpage--
Equity Funding
Kingfisher intends to raise approximately £2.0 billion through a deeply discounted rights issue. The size of the rights issue reflects the need to maintain a strong balance sheet position for the future. The rights issue will be launched after a satisfactory fairness opinion relating to the offer has been received from an independent bank.
The rights issue has been fully underwritten on a standby basis by UBS Warburg, Credit Suisse First Boston and Goldman Sachs International at a subscription price to be agreed but in any event no less than £1.00 for each new Kingfisher share to be issued. This underwriting ensures that Kingfisher has the necessary equity funding in place to proceed with the offer.
Kingfisher intends to have the rights issue re-underwritten on terms that reflect prevailing market conditions after the receipt of a satisfactory fairness opinion. At that time, it will despatch the formal rights issue prospectus to shareholders.
Separation of Electricals Business
The Electricals business of Kingfisher is the second most profitable in the European electricals retailing sector and, in the Board’s view, has significant future growth potential. The Board firmly believes that, with its experienced management team in place, the business can achieve this potential as a stand-alone entity.
The Board intends to explore all possible options that might help create additional value for shareholders, including a separate listing for the Electricals business that might result in a fuller valuation by the market. It is anticipated that the separation will be undertaken within 12 months, following the completion of the offer for the minority interests of Castorama.
Current Trading
Kingfisher will present its first quarter results on 12 June 2002, which is expected to be before the launch of the rights issue. During the period, while results for individual businesses have varied, the Group’s overall performance has been good. Although economic conditions remain difficult, especially in Continental Europe, the Board considers that the prospects for the Group as a whole for the current financial year are satisfactory.
Advisers to Kingfisher
Goldman Sachs International is acting as strategic and financial adviser to Kingfisher on the group transformation. Goldman Sachs International and BNP Paribas are acting as principal financial advisers to Kingfisher in relation to the transaction. Additional financial advice is being provided by UBS Warburg and CSFB, in relation to the UK aspects of the transaction, and by Lazard Frères, in relation to specific French aspects of the transaction.
BNP Paribas, Deutsche Bank AG London and UBS Warburg are acting as mandated lead arrangers for the proposed debt financing.
Scrip Dividend
On 20 March 2002, the Board announced a proposed final dividend for the year ended 2 February 2002 of 7.655p per share and offered a scrip dividend alternative. In view of the uncertainty of the timing of the proposed rights issue, the Board has decided to withdraw the current offer of the scrip dividend alternative. Shareholders who have elected to receive the scrip dividend on this occasion will receive their dividend in cash; mandates electing to receive future scrip dividends will not be affected. The final dividend will be paid on 14 June 2002, subject to shareholder approval at the annual general meeting to be held on 12 June 2002.--nextpage--
Notes
Castorama is incorporated in France as a Société en Commandite par Actions (“SCA”). It is quoted on the Premier Marché of Euronext Paris with a fully diluted market capitalisation as of 14 May 2002 of approximately €10.7 billion (£6.7 billion). Castorama’s SCA structure differs from the more conventional Société Anonyme (“SA”) structure typically found in France by materially restricting the influence of shareholders, as a result of most of the decision-making power lying in the hands of the Commandités and management. Subsidiaries of Kingfisher comprise half of the Commandités and Kingfisher holds approximately 55% of the share capital of Castorama.
The process which the Board has initiated is set out in Article 21 of the articles of association of Castorama. Broadly, this allows Kingfisher to take full control of Castorama through one of its subsidiaries, SOCODI SARL, acquiring a casting vote at meetings of the Commandités from the time the French securities regulators approve a cash offer for Castorama at a price which an independent bank has approved as fair. The Article provides for an independent bank to be appointed within two weeks of the start of the process (which actually began on 18 April) and for the bank to give its certificate of fairness within a further one month.
The closing share price of Castorama on 8 March 2002, the day prior to the start of recent speculation on 9 March 2002, was €55.7. The statement relating to the impact of the transaction on Kingfisher’s earnings per share is based on the closing Kingfisher share price on 14 May 2002 of £3.85.
Kingfisher is Europe’s leading Home Improvement retailer and is ranked number three in the world. The Company (through Castorama) operates more than 570 Home Improvement stores in 12 countries and enjoys strong market positions in France, the UK, Poland and Taiwan. Sales for the sector for the year ending 2 February 2002 were over £5.8 billion, with retail profit of over £430 million.
Paris-based Kingfisher Electricals operates more than 800 stores in nine countries. It is Europe’s second most profitable electrical retailing business, with more sales of white goods than any of its competition. Its sales for the year ending 2 February 2002 were nearly £3.8 billion with retail profit of over £180 million. As well as holding the leading position in France with Darty and the number two position in the UK through Comet, Kingfisher is also the market leader in Belgium through Vanden Borre. Furniture and Electrical chain BUT strengthens Kingfisher Electricals in France.
