Source - RNS
RNS Number : 5314K
Management Consulting Group PLC
22 September 2016
 

22 September 2016

 

This announcement contains inside information

 

Management Consulting Group PLC

Disposal of the remaining Kurt Salmon business

Management Consulting Group PLC ("MCG" or the "Company") today announces that it has entered into an agreement with Accenture for the sale of Kurt Salmon (the "Target Business"), comprising the Kurt Salmon retail and consumer goods consulting businesses in the United States, Canada, the United Kingdom, Germany, China, Hong Kong and Japan, for a total gross cash consideration of approximately $165 million (equivalent to approximately £127 million) payable on completion of the sale (the "Disposal").

Highlights

·      The Disposal is expected to realise gross cash proceeds of approximately £127 million, allowing MCG to seek to use part of the net proceeds of the Disposal to fund a proposed payment of capital to shareholders (the "Return of Capital")

 

·      The Disposal represents an attractive value for shareholders with the proposed gross consideration representing approximately 148% of the MCG Group's (the "Group") current market capitalisation

 

·      The net proceeds of the Disposal will strengthen the financial position of the Group by increasing the level of cash resources available to the remaining business and eliminating the requirement for the existing working capital facility

 

The Disposal, because of its size relative to the Group, is a Class 1 transaction for MCG under the Listing Rules and is therefore conditional, inter alia, on the approval of MCG shareholders. MCG shareholders representing approximately 52% of the Company's issued Ordinary Share Capital, excluding shares held in treasury, have given irrevocable undertakings to vote in favour of the resolution to be proposed at the general meeting to approve the Disposal.

A circular containing further information on the Disposal and the Return of Capital along with a notice convening a general meeting will be sent to MCG shareholders in due course.

Alan Barber, Chairman of MCG, commented:

"The proposed disposal of the Kurt Salmon retail and consumer goods consulting business follows the recent disposals of the healthcare and French and related operations of Kurt Salmon.  We believe the business will be in excellent hands as part of Accenture.  In aggregate these disposals are expected to realise total net proceeds (after transaction expenses) for the Kurt Salmon businesses of approximately £180 million.  We expect to return part of the proceeds from the Disposal to shareholders in due course and are highly focused on driving a recovery to profitable growth in the Alexander Proudfoot business."

 

Enquiries

For further information please contact:

MCG

Tel: +44 20 7710 5000

Nick Stagg, Chief Executive


Chris Povey, Group Finance Director




FTI Consulting

Tel: +44 20 3727 1000

Ben Atwell


 

Management Consulting Group PLC

Disposal of the remaining Kurt Salmon business

1.         Introduction

Management Consulting Group PLC ("MCG" or the "Company") today announces that it has entered into an agreement with Accenture for the sale of Kurt Salmon (the "Target Business"), comprising the Kurt Salmon retail and consumer goods consulting businesses in the United States, Canada, the United Kingdom, Germany, China, Hong Kong and Japan, (the "Disposal") for a total gross cash consideration of approximately $165 million (equivalent to approximately £1271 million) payable on completion of the sale ("Completion").

The Disposal is of sufficient size relative to the MCG group (the "Group") to constitute a Class 1 transaction for MCG under the Listing Rules and is therefore conditional upon, inter alia, the passing of a resolution approving the Disposal by shareholders of MCG (the "Shareholders") at a general meeting (the "General Meeting").

The Disposal is also conditional upon:

(i)         there having been no material adverse change in staff retention rates in the Target Business since the signing of the Disposal agreement to the Completion date; and

 

(ii)         the competition authorities in the United States, Austria and Germany approving the Disposal.

MCG is expected to receive from the Disposal net cash proceeds of approximately $157 million (equivalent to approximately £121 million) after the deduction of estimated transaction costs of $8 million (equivalent to £6 million). The Company intends to use part of the net proceeds of the Disposal to fund a proposed payment of capital to Shareholders (the "Return of Capital"). The board of directors of MCG (the "Board") will seek flexibility to consider further returns of value where it determines this to be in the best interests of the Company and Shareholders as a whole.

A circular containing further information on the Disposal, and including further details on the Return of Capital, along with a notice convening the General Meeting will be sent to Shareholders in due course.

Irrevocable undertakings to vote in favour of the resolution to approve the Disposal at the General Meeting have been received from Shareholders representing approximately 52% of the Company's issued Ordinary Share capital (as defined below2) as at 21 September 2016 (the latest practicable date prior to the publication of this announcement).

2.         Description of the Target Business and background to and reasons for the Disposal

MCG currently comprises two independently managed practices: Alexander Proudfoot and Kurt Salmon.  Alexander Proudfoot develops and implements operational improvements to its clients to increase productivity and is not affected by the Disposal.

As previously announced in January 2016, MCG completed the sale of the French and related operations of Kurt Salmon and in July 2016 it completed the sale of the US healthcare business of Kurt Salmon.  Following these disposals, the Kurt Salmon business retained by the Group comprises the Target Business which is now subject to the Disposal. Kurt Salmon is an established international brand and a leading management consulting firm addressing clients in the retail and consumer goods sector.

The Target Business generated profit before tax of £5.3 million (Group: £3.7 million loss from continuing operations) and revenues of £71.4 million (Group: £138.9 million from continuing operations), in each case for the year ended 31 December 2015.  The Target Business had total assets of £118.4 million including goodwill attributable to the Target Business (Group: £303.0 million) as at 31 December 2015.

The Board has concluded that the terms of the Disposal provide an opportunity to exit from the Kurt Salmon business at an attractive price for Shareholders. The Target Business is a successful consulting business, but as part of the Group its potential for investment and growth is limited.

Following the Disposal, the trading operations of the Group will solely comprise Alexander Proudfoot.  Alexander Proudfoot is a long established business which has been successful over many decades.  It operates globally and is organised on the basis of two regional centres, one focused on the Americas and one on Europe, Africa and Asia. The recent performance of Alexander Proudfoot has been adversely affected by weakness in the natural resources market which has typically provided a substantial proportion of its revenues.  The Board remains committed to improving the performance of Alexander Proudfoot and restoring the business to profitable growth.

3.         Key benefits of the Disposal

·      Achieves an attractive value for Shareholders

The agreed gross cash proceeds of approximately $165 million (equivalent to approximately £127 million) (which is subject to post-closing adjustments relating to amounts of debt, debt like items, cash and working capital in the Target Business at Completion) represents approximately 148% of the Group's market capitalisation as at 21 September 20163

·      Strengthens the Group's balance sheet

The net proceeds from the Disposal will strengthen the financial position of the Group by increasing the level of cash resources available to the remaining business and eliminating the requirement for a working capital facility.

·      Provides an opportunity to return cash to Shareholders

The Disposal will allow the Group to seek to return part of the net cash proceeds from the Disposal to Shareholders.

4.   Principal terms and conditions of the Disposal

The Disposal will be effected by way of a sale of the entire issued share capital of the legal entities which comprise the Target Business. The gross cash proceeds payable by Accenture are expected to be approximately $165 million (equivalent to approximately £127 million) (subject to post-closing adjustments relating to amounts of debt, debt like items, cash and working capital in the Target Business at Completion).

The Disposal is expected to complete in October or November 2016. The Disposal is conditional upon:

(i)         the approval by Shareholders of the Disposal resolution at the General Meeting;

 

(ii)         there having been no material adverse change in staff retention rates in the Target Business since the signing of the Disposal agreement to the Completion date; and

 

(iii)        the competition authorities in the United States, Germany and Austria approving the Disposal.

In the event that the conditions referred to above have not been satisfied by 20 December 2016, the Disposal agreement will terminate, unless this date is extended by Accenture.  If the Board changes its recommendation that Shareholders vote in favour of the Disposal prior to the General Meeting, then Accenture can terminate the Disposal agreement and the Company shall pay a fee of £860,000.

5.         Financial effects of the Disposal and the use of proceeds

MCG is expected to receive net cash proceeds of approximately $157 million (equivalent to approximately £121 million) after the deduction of estimated transaction costs of approximately $8 million (equivalent to £6 million).  There will also be non-recurring expenses and cash outflows associated with the Disposal, principally relating to share awards and employee remuneration and  tax expenses arising on the Disposal.  After deduction of non-recurring costs and tax expenses the net cash proceeds are expected to be approximately £116 million.

The Board intends to seek to return part of the net cash proceeds to Shareholders and the forthcoming circular will contain further information on the proposed Return of Capital.  It is intended that MCG will use the balance of net cash proceeds of the Disposal after non-recurring costs and tax expenses, and after the Return of Capital, for general corporate purposes, including the matters referred to below, and will in due course consider returning cash not required for these purposes to Shareholders by way of a dividend or other means.

Following Completion, the Group will retain certain assets, obligations and liabilities of the existing Kurt Salmon business, relating principally to back office functions in the United States.  Some of these are required to support the transitional services agreements in place with Wavestone (formerly Solucom) and ECG Management Consultants, the acquirers of the French and related operations and the healthcare operations of Kurt Salmon respectively, and the transitional services agreement with Accenture.  Following the Disposal, and as these transitional services arrangements with acquirers fall away over time, the Group will need to make changes to the existing back office functions to reduce costs, in the United States in particular. The Group is also likely to make other changes to its cost base to reflect the reduced scale of the continuing operations of the Group following the Disposal. The Group intends to retain sufficient cash resources to support the ongoing costs of these obligations and liabilities and any related restructuring requirements following the Disposal. 

Following the Disposal, Alexander Proudfoot will comprise the sole trading operations of the Group.  The Board will continue to take action to restore Alexander Proudfoot to profitable growth.  The Group will retain sufficient cash resources to support the working capital requirements and obligations of this business as necessary.

The Group will continue to monitor its balance sheet, including the appropriate level of capital, liquidity and cash, taking into account opportunities to further invest in and grow the Group's remaining business, or to seek value for Shareholders through further disposals should appropriate opportunities arise.

The Disposal is expected to generate a one-off IFRS profit on sale of approximately £30 million, taking into account goodwill held in the consolidated balance sheet of the Group which is allocated to the Target Business (but excluding the impact of the recycling of currency translation reserves).  The Group profit and loss account will also reflect the non-recurring expenses relating to the Disposal. 

6.         Board, Management and Employees

There will be no changes to the Board as a result of the Disposal.

7.         Directors' recommendation

The Board considers the Disposal to be in the best interests of MCG and the Shareholders as a whole. Accordingly, the Board unanimously recommends that Shareholders vote in favour of the resolution relating to the Disposal to be proposed at the General Meeting, as the Directors intend to in respect of their own beneficial holdings of Ordinary Shares representing approximately 0.8% of the Company's issued Ordinary Share capital as at 21 September 2016 (the latest practicable date prior to the publication of this announcement).

 

References

1.   All US Dollar amounts in this announcement are translated to Sterling at an exchange rate of 1.30

2.   Based on 506,085,179 Ordinary Shares in issue, excluding treasury shares

3.   The Group's market capitalisation is calculated at £86.0 million, being 506,085,179 shares in issue, excluding treasury shares, at £0.17 per share.

 

Notes to editors

MCG (MMC.L) provides professional services across a wide range of industries and sectors. For further information, visit www.mcgplc.com.

Accenture is a leading global professional services company, providing a broad range of services and solutions in strategy, consulting, digital, technology and operations. Combining unmatched experience and specialized skills across more than 40 industries and all business functions-underpinned by the world's largest delivery network- Accenture works at the intersection of business and technology to help clients improve their performance and create sustainable value for their stakeholders. With more than 375,000 people serving clients in more than 120 countries, Accenture drives innovation to improve the way the world works and lives. For further information, visit www.accenture.com.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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