TIDMSTOB
RNS Number : 9489K
Stobart Group Limited
27 April 2020
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES
OF ARTICLE 7 OF THE MARKET ABUSE REGULATION (EU) NO. 596/2014
27 April 2020
STOBART GROUP LIMITED
('Stobart Group' or 'the Company')
Acquisition of Stobart Air and Propius
Stobart Group, the aviation and energy group, has reached
agreement with EY, the administrators of Connect Airways Limited
("Connect"), to acquire Stobart Air and Propius (the
"Transaction"), the terms of which are set out below.
Background to the Transaction
Propius is an aircraft leasing business that leases its eight
ATR aircraft to Stobart Air. Stobart Air operates regional flights
under a franchise agreement for Aer Lingus along with the provision
of charter and wet lease operations. The businesses were owned
previously by Stobart Group and were sold to Connect in February
2019 (the "Connect Sale"). Connect is a joint venture between the
Company, Virgin Atlantic and Cyrus Capital Partners that was formed
to acquire Flybe in February 2019 alongside the Connect Sale.
The Stobart Air and Propius businesses had continued to operate
independently within Connect and were therefore unaffected by the
Flybe administration.
Rationale for the Transaction
Stobart Group is a guarantor for various obligations of Propius
following a sale and leaseback of aircraft arrangement which was
entered into by Propius in April 2017, including maintenance
commitments under the aircraft leases. Guarantees were also granted
by Stobart Group with respect to the obligations owed by Stobart
Air arising under the franchise agreement with Aer Lingus and
certain fuel and currency hedging arrangements entered into when
the businesses were under Stobart Group ownership. These guarantees
were required to remain with Stobart Group following the completion
of the Connect Sale, as the holders of the guarantees were not
prepared to see them released in view of the perceived covenant
quality of Connect. As part of the Connect Sale, it was also agreed
that Stobart Group would continue to make repayments of the
maintenance reserve loan advanced by Propius over time rather than
in a single payment at completion.
The Board of Stobart Group has reviewed all options available to
the Company in relation to the future of Stobart Air and Propius
during this unprecedented time. This included allowing the
businesses to enter some form of insolvency process and a range of
ways to support them going forward particularly in light of the
strong relationship which exists between Stobart Group and Aer
Lingus. The Board has concluded that the best course of action
financially for the Company and its shareholders is for it to buy
back Stobart Air and Propius. This action will give Stobart Group
effective control over the pre-existing obligations it has in
respect of those businesses. The intention is that Stobart Group
will continue its current positive dialogue with Aer Lingus to
conclude a long-term franchise extension and ensure that the
businesses are put on a sound financial footing.
Stobart Group's Aviation Strategy has not changed as a result of
this transaction and the Company will work with Aer Lingus to
identify a new financial partner to support the business for the
future with Stobart Group exiting its involvement in a controlled
way at the appropriate time.
Terms of the Transaction
The consideration for the Transaction is a payment of up to
GBP8.55 million on the following basis:
-- An initial consideration of GBP300,000 payable in cash at completion;
-- A deferred consideration of GBP2 million to be paid no later than 15 December 2020.
-- A contingent deferred consideration up to a maximum of
GBP6.25 million based on the equity value achieved (after disposal
costs) on a realisation of value in respect of one or both of the
businesses by Stobart Group prior to 31 December 2023, by reference
to:
- 75% of the first GBP5 million of equity value being a payment of up to
GBP3.75 million;
- 50% of the next GBP5 million of equity value being a payment of up to
GBP2.5 million; and
- Any equity value above GBP10 million is retained by Stobart Group.
Stobart Group expects to fund the operations of Stobart Air and
Propius over the period through to achieving positive cash flow.
The businesses have actively sought to reduce their cash
requirements during the COVID-19 period and Stobart Group expects
to fund in the order of EUR25 million (GBP21.88 million) over the
next 12 months, including the lease payments referred to below.
The Transaction, which has now been completed, will result in
Stobart Group acquiring:
-- a 40% voting interest and 75% economic interest in the
ultimate holding company of both Stobart Air and Propius (known as
Everdeal 2019 Limited) ; and
-- a 15% shareholding in the company that holds the remaining
60% voting interest and 25% economic interest in such holding
company, with the Stobart Air Employee Benefit Trust retaining the
balance.
This will provide the Company with an effective indirect
economic interest of 78.75% in Stobart Air and Propius. This
structure was in place prior to the Connect Sale and is required to
ensure that Stobart Air meets the requirements of its Air Operator
Certificate to operate out of Ireland.
As part of the Transaction, a EUR20 million loan by the Stobart
Group to the holding company of Stobart Air and Propius, and
subsequently novated from the Stobart Group to Connect in
connection with the Connect Sale, will be novated back to the
Stobart Group. This is included within the overall consideration
referred to above and the loan then becomes an intra-group matter
following the Transaction.
The Transaction constitutes a Class 2 transaction for the
purposes of the Financial Conduct Authority's Listing Rules.
The value of the combined gross assets of Stobart Air and
Propius as at 31 August 2019 was GBP91.2 million. Propius has
annual commitments under aircraft leases totalling $15.4 million
per annum (GBP12.45million at closing rate at date of announcement)
until April 2027 with a break clause in April 2023 if the Aer
Lingus franchise is not extended in December 2022, on payment of a
break fee of $21.2 million (GBP17.14 million). The lease payments
falling due within the next 12 months are reflected in the funding
requirement for Stobart Air and Propius of EUR25 million referred
to above. The combined profits before tax for Stobart Air and
Propius for the year ended 28 February 2019 were GBP5.5
million.
Warwick Brady, CEO of Stobart Group, said:
"This transaction allows Stobart Group to take control of the
outstanding legacy issues which date back to 2017 when Stobart Air
and Propius became subsidiaries of the Company. The original
strategy to mitigate these issues over time through the combination
of the businesses with Connect was impacted by the failure of Flybe
and resulting administration of Connect in March 2020. We believe
that Stobart Air has a viable future after COVID-19 and are working
with Aer Lingus as our franchise partner to place the business on a
secure footing and manage the impact of the legacy obligations in a
controlled manner."
The person responsible for arranging the release of this
announcement on behalf of Stobart Group is Louise Brace, Company
Secretary.
Enquiries:
Stobart Group Limited C/o Newgate Communications
Charlie Geller, Communications Director
Newgate Communications +44 203 757 3406
+44 203 757 6884
Giles Croot stobart@newgatecomms.com
Ian Silvera
Megan Kovach
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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