Proposed Disposal and Notice of General Meeting
September 10 2010 - 11:36AM
UK Regulatory
TIDMLNG
RNS Number : 5254S
Leisure & Gaming plc
10 September 2010
Leisure & Gaming plc
("the Company")
Proposed disposal of Betshop Group (Europe) Limited and Notice of General
Meeting
As announced on 30 July 2010, since suspension of trading on AIM, the Company
has undertaken a further review of its operations, outlook and cash flows.
Having solicited and entertained a number of approaches, it became apparent that
the Company could not secure sufficient funds that would ensure it could
continue to trade in its existing form.
The Board concluded that without a significant injection of funds, the best
course available would be to sell its operating business for the highest price
achievable. Without a level of assurance as to funding in place, the Board has
determined that the Proposals detailed below are the most deliverable option
available to the Board to meet the Company's current creditors and potentially
deliver returns to Shareholders. The Company is now seeking Shareholder approval
to:
(1) dispose of Betshop Group (Europe) Limited, its main trading subsidiary
for up to EUR5.3m (GBP4.4m); and
(2) adopt an Investment Policy as following the Disposal, the Company will be
classified as an Investing Company pursuant to the AIM Rules;
As detailed below, Betshop is being sold to Newco, a company established and
backed by Grupo Pefaco SL, which is a well established private operator of
online betting and gaming sites based in Spain. The shareholders of Newco will
include Gabriel Chaleplis who is also a director of Betshop. Accordingly, the
Disposal constitutes a related party transaction for the purposes of the AIM
Rules.
The Company signed conditional heads of terms to sell Betshop to Pefaco on 28
July 2010. Details of the heads of terms are set out below. The heads of terms
are conditional, inter alia, on the signing and delivery of a definitive share
purchase agreement for Pefaco to purchase the entire issued share capital of
Betshop and the completion of satisfactory due diligence. These processes are
ongoing and are expected to take place during the notice period for the General
Meeting.
Under the heads of terms, the Company will receive a minimum of EUR3.4m, being the
initial consideration and the repayment of intercompany debt. The Company has
liabilities and termination costs of EUR2.0m. Further deferred consideration of up
to EUR3m is dependent on performance criteria set out below.
The parties are using their reasonable endeavours to complete the Disposal as
soon as practicable following the General Meeting, subject to shareholders
approving the resolutions to be put to that meeting. It is anticipated that this
will occur on 29 September 2010.
The Company's only asset following the Disposal will be approximately EUR0.9m of
cash plus a further EUR0.6m due on 31 December 2011. In addition, the Company will
have a contingent right to receive the Deferred Consideration of up to EUR3.0m.
A circular will today be sent to shareholders setting out the background and
reasons for the Proposals and seeking Shareholder consent for them in
anticipation that the Sale and Purchase agreement can be concluded.
In the event that the Proposals are not approved by Shareholders, the Company
will have insufficient working capital to allow it to continue to trade.
Accordingly, the Board have been advised that without the proceeds of the
Disposal the Company will need to cease trading by no later than 6 October 2010
and they would expect to appoint administrators. In the event that the Disposal
does not result in a Sale and Purchase Agreement being signed, notwithstanding
the approval of Shareholders, the Company will in that situation also have
insufficient working capital to allow it to continue to trade and would expect
to appoint administrators.
Accordingly, the Board have been advised that without the approval of
Shareholders and the proceeds of the Disposal the Company will need to cease
trading and they would expect to appoint administrators.
Background and Reasons for the Disposal
Leisure & Gaming Plc is a London based holding company which was created for the
purpose of identifying and acquiring businesses in the leisure and gaming
sectors particularly those involved with online and land-based betting and
gaming services.
The Betshop business provides opportunities to customers in emerging, regulated
European markets under the brand name "Betshop". The business was acquired from
Gabriel Chaleplis on 23 June 2006, with the aim of integrating services such as
IT, payment processing, financial and marketing, with the Company's existing
gaming offerings which predominantly focused on US customers. The Betshop
business was also bought as a platform from which to expand and acquire other
European businesses.
On 13 October 2006, ahead of the signing of the Unlawful Internet Gambling
Enforcement Act ("UIGEA") in the US, the Company sold all of its US facing
businesses without any integration with Betshop. This left the Company with
US$4.7m of debt and the Betshop business.
At the time of its acquisition, the Betshop operating subsidiary, with its
territory and product specific experience in Italy, was largely dependent on the
outcome of soccer results in the Italian leagues. It was clear that
diversification was necessary to reduce the business risk.
In 2008, Cyprus land based and Greek online operations were established and
tournament poker was permitted in Italy. However, with limited resources, the
diversification process has been slow as limited funds were available after the
repayment of historic creditors and bank debt. The threat of litigation from the
US in connection with the historic activities involving US customers has
precluded the Company from pursuing corporate deals and hampered fund raising.
In 2008 and 2009, the Company was profitable, though increasing competition, the
need for diversification and the constant delays by the Italian regulators in
allowing further products has meant the Company was particularly susceptible to
bad results in its core business. In the first half of 2010 football results
were unfavourable and sports margins have remained below expectations. Together
with significant withdrawals of cash held by customers, this had a
consequential impact on the Company's profitability and cash position.
The Company had significant withdrawals of cash held by customers in April 2010.
In addition, on 14 May 2010, Betshop received details of significant penalties
being issued by AAMS, the Italian regulator following a request to sell one of
Betshop's licenses. This penalty was eventually materially reduced and settled
on 4 August 2010. In total, penalties amounting to EUR0.3m have been paid since 1
January 2010.
Given the size of the threatened penalties against the background of uncertainty
over the Company's then current financial position which was emerging, your
Board requested a suspension in the trading of the Company's shares on AIM on 21
May 2010.
Since suspension, the Company has undertaken a detailed review of its
operations, outlook and cash flows. The Board concluded that without a
significant injection of funds to enable the Company to trade through the next
12 months, further investment in products and geographic expansion and the
ability to incentivise management, the Company would continue to be materially
reliant on the outcome of Italian sports results. The Board solicited and
entertained a number of approaches to generate funds or otherwise seek an offer
for the Company or Betshop. The Directors believe that the proposed Disposal
represents the best opportunity to maintain the Company as a going concern,
albeit as an investing company. In view of the urgency of the requirement for
funds against the timetable to conclude a Share Purchase Agreement, it was not
possible to conclude definitive agreements prior to the despatch of the Circular
convening the General Meeting to be held on 28 September 2010. Having regard to
the resources both parties would need to devote to concluding the Disposal, the
Company agreed to grant Pefaco exclusivity until 6 October 2010 in order that
they may commence due diligence while the Company sought Shareholders consent.
Current trading and prospects
The Company published its unaudited preliminary results for the year ended 31
December 2009 on 22 April 2010. It is proposed that the report and accounts for
the year ended 31 December 2009 will be posted to Shareholders on 29 October
2010, following completion of the Disposal. Accordingly the Ordinary Shares are
expected to be readmitted for trading on 1 November 2010.
The Company has continued trading but has had to limit exposure to betting
losses during the World Cup and at the start of the new soccer season. As a
result of this policy, the net win from sports betting was smaller than would
have otherwise been anticipated during the World Cup and subsequently.
The unaudited results for the period from 1 January to 31 August 2010 were:
+----------------------------+------------+---------+-----------+----------+
| Amounts wagered and played | Q1 EURm | Q2 EURm | July and | Year to |
| | | | August | date |
| | | | EURm | EURm |
+----------------------------+------------+---------+-----------+----------+
| Sports | 20.6 | 1 7.2 | 6.8 | 44.6 |
+----------------------------+------------+---------+-----------+----------+
| Casino and lotto | 5.3 | 4.7 | 2.4 | 12.4 |
+----------------------------+------------+---------+-----------+----------+
| Poker | 16.0 | 12.8 | 6.6 | 35.4 |
+----------------------------+------------+---------+-----------+----------+
| Total | 41.9 | 34.7 | 15.8 | 92.4 |
+----------------------------+------------+---------+-----------+----------+
| Net win | | | | |
+----------------------------+------------+---------+-----------+----------+
| Sports | 3.3 | 2.3 | 1.9 | 7.5 |
+----------------------------+------------+---------+-----------+----------+
| Casino and lotto | 0.4 | 0.4 | 0.1 | 0.9 |
+----------------------------+------------+---------+-----------+----------+
| Poker | 2.1 | 1.7 | 0.9 | 4.7 |
+----------------------------+------------+---------+-----------+----------+
| Total | 5.8 | 4.4 | 2.9 | 13.1 |
+----------------------------+------------+---------+-----------+----------+
| Cost of sales | (4.6) | (3.8) | (2.3) | (10.7) |
+----------------------------+------------+---------+-----------+----------+
| Gross profit | 1 .2 | 0.6 | 0.6 | 2.4 |
+----------------------------+------------+---------+-----------+----------+
| Overheads | (1.0) | (1.1) | (0.7) | (2.8) |
+----------------------------+------------+---------+-----------+----------+
| EBITDA | 0.2 | (0.5) | (0.1) | (0.4) |
+----------------------------+------------+---------+-----------+----------+
In the eight months to 31 August, the Company has incurred further exceptional
costs being AAMS penalties of EUR0.3m and legal fees of EUR0.2m.
In terms of cashflow, changes to rules in Italy have caused client funds to
reduce by EUR0.4m since March 2010 and bank repayments and interest of EUR0.3m were
paid in the first half of the year. In addition, further software development
costs of EUR0.2m were paid in the period.
Unfortunately, the trading as detailed above is insufficient to allow the
Company to continue to trade without a significant injection of new funds.
The Company's unaudited balance sheet as at the end of August 2010, which
includes termination costs for all suppliers except those suppliers required to
continue as a public company is:-
EURm
Current Assets
Amount due from Betshop1 .1
Liabilities
Bank Borrowings
(0.7)
Bank costs
(0.3)
Loan note
(0.3)
Creditors and termination costs(0.7)
Total liabilities(2.0)
Net liabilities(0.9)
The Disposal
The Disposal comprises the sale of the entire issued share capital of Betshop
Group (Europe) Limited, to the Purchaser.
The consideration to be paid by the Purchaser under the Sale and Purchase
Agreement is all payable in cash. It comprises the initial consideration of
EUR2.3m payable on the signing of the Sale and Purchase Agreement, with the
balance being payable as follows:
+------------------------------+----------------------------------+
| Sports Turnover (EURm) | Additional consideration payable |
| (defined as turnover of | (EUR) |
| Betshop attributable to | |
| sports betting for the | |
| period 1 August | |
| 2010 to 31 December 2010) | |
+------------------------------+----------------------------------+
| 32.4m-34.1 99m 34.2m-35.99m | 0.9m |
| 36m or above | 1 .35m (in substitution of |
| | further consideration set out in |
| | the row above) |
| | 1 .8m (in substitution of |
| | further consideration set out in |
| | the row above) |
+------------------------------+----------------------------------+
| Poker Turnover (EURm) | Additional consideration payable |
| (defined as turnover of | (EUR) |
| Betshop attributable to | |
| online poker betting for the | |
| period 1 August 2010 to 31 | |
| December 2010) | |
+------------------------------+----------------------------------+
| 21 .6m - 22.799m 22.8m - | 0.6m |
| 23.99m | 0.9m (in substitution of further |
| 24m or above | consideration set out in the row |
| | above) |
| | 1 .2m (in substitution of |
| | further consideration set out in |
| | the row above) |
+------------------------------+----------------------------------+
For comparison purposes, the turnover achieved in similar 5 month periods were:-
1 August to 1 January to
31 December 2009 31 May 2010
Sports betting
EUR33.0m EUR32.6m
Poker
EUR20.7m EUR25.0m
Thus in aggregate, the Deferred Consideration totals up to EUR3m. Any further
consideration is payable as follows:
· 50 per cent. payable within 14 days of the date on which turnover tests
are agreed or determined in accordance with the Sale and Purchase Agreement; and
· The balance payable 12 months thereafter.
The turnover for the period 1 August 2010 to 31 December 2010 will be assessed
on the basis of the audited accounts for the period to 31 December 2010. NewCo
will procure that such audited accounts will be available by no later than 30
June 2011.
The Sale and Purchase Agreement will provide for the repayment of the
intercompany account between the Company and Betshop where the Company is owed
EUR1 .1 m, as detailed on the unaudited balance sheet above. This is to be repaid
in two instalments of EUR0.5m on 29 October 2010 and EUR0.6m on 31 December 2011.
The Sale and Purchase Agreement is expected to contain limited warranties and
indemnities from the Company in favour of the Purchaser. All obligations of
Betshop will be taken over by the Purchaser.
The heads of terms and proposed Disposal are conditional upon, inter alia:
(a) the conclusion of due diligence by Pefaco ;
(b) the passing of the Resolution at the General Meeting; and
(c) the entering into and completion of the definitive Sale and Purchase
Agreement by not later
than 6 October 2010.
As at the date of this announcement, the Company has not received any other
offer to acquire Betshop. The Company's bankers have stated that they are
unwilling to continue to support the Company and are demanding full repayment of
all borrowings. Betshop is still in a position to trade. However in the opinion
of the Directors, this status, without additional funding, may only continue for
another six weeks at most. Should Betshop or the Company become insolvent, the
Board has been advised that it would have no reasonable alternative to the
appointment of administrators in those circumstances.
The Disposal must therefore be considered in the context of the current position
of the Company and the alternative of insolvency proceedings.
Implications of being an Investment Company
The Disposal will result in a fundamental change of business pursuant to AIM
Rule 15 as the Company's only assets following the Disposal will be
approximately EUR0.9m of cash plus a further EUR0.6m due on 31 December 2011. In
addition, the Company will have a contingent right to receive the Deferred
Consideration of up to EUR3.0m.
Subsequent to the Disposal, the Company will be treated as an investing company.
AIM Rule 15 states that, as an investing company, the Company will have to make
an acquisition or acquisitions which constitute a reverse takeover under AIM
Rule 14 or otherwise implement the investment policy approved at the General
Meeting to the satisfaction of the London Stock Exchange within twelve months of
becoming an investing company. In the event that the Company does not undertake
a reverse takeover within the twelve month period, the Company's shares will be
suspended from trading for up to 6 months pursuant to the AIM Rules. The London
Stock Exchange will cancel the admission of the Company's shares where these
have been suspended from trading for six months.
Investment Policy
The Company intends to undertake a transaction or a series of transaction that
will constitute a reverse takeover in accordance with the AIM Rules. In the
current economic climate, with Banks being selective on lending and fewer
private investors, opportunities exist for profitable businesses seeking funding
and access to capital markets to reverse their businesses into quoted companies
such as the Company.
In association with shareholders, the Directors believe that their collective
experience together with their network of contacts will assist them in the
identification, evaluation and funding of suitable investment opportunities.
When necessary, other external professionals will be engaged to assist in the
due diligence of prospective opportunities. The Directors will also consider
appointing additional directors with relevant experience if the need arises.
The Company may be either a passive or active investor and will typically seek
to acquire majority interests in businesses. The Directors anticipate that the
management of any investment will have the expertise necessary to operate and
develop the business. The Company may provide strategic direction to businesses.
The Directors intend to pursue a conservative borrowing strategy.
The objective of the Directors is to generate normal appreciation of assets and
any income generated by the Company will be applied to cover costs or will be
added to the funds available to further implement the Investment Policy. In view
of this, it is unlikely that the Directors will recommend a dividend in the
early years were it to be able to do so. However, they may recommend or declare
dividends at some future date depending on the financial position of the
Company.
The Directors confirm that, as required by the AIM Rules, they will at each
annual general meeting of the Company seek shareholder approval of its
Investment Policy.
Recommendation
The Directors consider the Proposals to be in the best interests of the Company,
its creditors and its Shareholders as a whole and accordingly unanimously
recommend Shareholders vote in favour of all the Resolutions to be proposed at
the General Meeting as they intend to do so in respect of their beneficial
holdings amounting, in aggregate, to 2,917,509 Ordinary Shares, representing
3.3% of the existing issued share capital of the Company.
The Directors consider, having consulted with the Company's nominated adviser,
that the terms of the Disposal are fair and reasonable insofar as Shareholders
are concerned.
For further information, please contact:
Richard Creed,
Leisure & Gaming plc
Tel 020 8545 2190
Geoff Nash, Charlotte Stranner (Corporate Finance)
FinnCap
Tel 020 7600 1658
EXPECTED TIMETABLE OF KEY EVENTS
Latest time for receipt of Forms of Proxy for the General Meeting
10 a.m. on 26 September 2010
General Meeting
10 a.m. on 28 September 2010
Anticipated date of completion of the Disposal
29 September 2010
Posting of report and accounts for year ended 31 December 2009
29 October 2010
Anticipated date for restoration of trading on AIM in the Ordinary Shares 8.00
a.m. on 1 November 2010
DEFINITIONS
The following definitions apply throughout this announcement unless the context
requires otherwise:
"Act"the Companies Act 2006
"AIM"the market of that name operated by the London Stock Exchange
"AIM Rules"the AIM rules for companies whose securities are admitted to trading
on AIM as published by the London Stock Exchange from time to time
"Articles"the articles of association of the Company for the time being
"Betshop"Betshop Group (Europe) Limited
"Board" or "Directors"Neil Craven and Richard Creed
"Circular"the circular to be sent to Shareholders dated 10 September 2010
"Company" or "L&G"Leisure & Gaming Plc, a company registered in England with the
registered number 5202461
"Deferred Consideration"an amount up to EUR3.0m (GBP2.5m)
"Disposal"the proposed disposal of Betshop Group (Europe) Limited
"Exchange rate"the exchange rate assumed in this announcement is GBP1 = EUR1.20
"Form of Proxy"the form of proxy for use at the General Meeting
"General Meeting" the general meeting
of the Company to be held at 10 a.m.
on 28 September 2010 at the offices finnCap
"Initial Consideration"EUR2.3m (GBP1 .9m)
"Intercompany account"this is the account between the Company and Betshop
"Investment Policy"the proposed investment policy of the Company as required
pursuant to AIM Rule 15 and as set out in this announcement
"London Stock Exchange"London Stock Exchange Plc
"NewCo" or "Purchaser"a company registered in England. This company will be
established by Pefaco prior to completion of the Disposal
"NewCo shareholders" Grupo Pefaco S.L. and
Gabriel Chaleplis, a director of
Betshop Group (Europe) Limited
"Ordinary Shares"ordinary shares of 5p each in the Company
"Pefaco"Grupo Pefaco S.L.
"Proposals"the proposals set out in this announcement, comprising of the
approval of the Disposal and the approval of the Investment Policy
"Resolutions" the
resolutions numbered 1 and 2 as set out in the Notice of General Meeting sent to
Shareholders
"Sale and Purchase Agreement" a sale agreement that is to be
agreed and entered into
between NewCo and the Company in relation to the Disposal
"Shareholders" holders of
Ordinary Shares
This information is provided by RNS
The company news service from the London Stock Exchange
END
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