TIDMRTHM
RNS Number : 8234P
RhythmOne PLC
05 September 2017
RHYTHMONE PLC TO ACQUIRE YUME, INC. AND CONSOLIDATION OF SHARE
CAPITAL
London, England and San Francisco, USA - 5 September 2017 -
RhythmOne plc (LSE AIM: RTHM, "Company" or "RhythmOne") today
announces that it has entered into a definitive agreement with
YuMe, Inc. ("YuMe"), a publicly-traded company listed on the New
York Stock Exchange, to acquire all of its issued and to be issued
share capital for a total consideration of approximately US$185m
based on current exchange rates (the "Acquisition"), with
consideration provided approximately one-third in cash and
approximately two-thirds in shares. The approximately US$185m total
consideration is based on 34.7m shares in YuMe in issue as at 31
August 2017 (being the latest practicable date prior to the
publication of this announcement). The Acquisition is expected to
close in the first calendar quarter of 2018.
Strategically, the Company believes the Acquisition will result
in a combined entity with a complete end-to-end platform in one of
the fastest growing segments of the industry, with the resources,
relationships and talent to drive earnings growth both organically
and through other potential acquisitions.
The Company will hold a general meeting on 25 September 2017 at
10.00 a.m., amongst other things to: (i) approve a consolidation of
its share capital; and (ii) grant the directors of the Company (the
"Directors") authority to issue shares as part consideration for
the Acquisition (the "General Meeting"). A circular (containing a
notice convening the General Meeting) is expected to be posted to
the shareholders of the Company (the "Shareholders") on 7 September
2017 (the "Circular").
Commenting on the Acquisition, Raj Chellaraj, Chairman of
RhythmOne, said:
"The acquisition of YuMe perfectly aligns with the Company's
mission to create a unified marketplace that is efficient and
effective for advertisers. YuMe's demand-side strengths and
innovation in video advertising complement the programmatic
platform that RhythmOne has built over the last three years. The
combined offering and the scale it will bring, both commercial and
financial, will offer real differentiation in the marketplace. I am
confident that this transaction will serve to drive value for
shareholders and partners alike, and represents a strong strategic
move for the Company."
Commenting on the Acquisition, Ted Hastings, CEO of RhythmOne,
said:
"Acquiring YuMe accelerates RhythmOne's strategy to build a
unified programmatic platform with unique audiences of
differentiated quality at scale. Through YuMe, RhythmOne gains
access to premium video supply including emerging, high-value
connected TV inventory, unique customer insights, cross-screen
targeting technology and established demand relationships. We
believe this combination will give RhythmOne the resources,
relationships and talent to drive value for its shareholders, and a
true return on investment."
Commenting on the Acquisition, Paul Porrini, CEO of YuMe,
said:
"The future of brand advertising is connected; connecting buyers
to premium inventory, connecting screens to deliver unified
cross-screen campaigns, connecting campaigns to brand objectives
and most importantly, connecting the best technologies to each
other to deliver a sum that is greater than its parts. We are proud
of the business we have built at YuMe, and our success in
delivering innovative technologies that have helped our clients
achieve their marketing goals. Together, RhythmOne and YuMe have an
opportunity to transform digital advertising with an adaptive
platform that connects premium demand and supply with efficiency
and performance at its core."
Background to and reasons for the Acquisition
The board of Directors (the "Board") believes that the online
advertising industry is likely to consolidate to keep up with the
ever changing and demanding requirements of both the
supply-and-demand sides of the industry, which have led to a
contraction in market valuations of public and private companies.
The Directors have identified a window of opportunity to lead such
a consolidation and build a platform with the relevant marketplace
capabilities that would provide advertisers with a credible, scaled
and sustainable alternative to entrenched players in the industry.
The combination of RhythmOne and YuMe will bring together
demand-side and supply-side strengths in the fast growing segments
of mobile, video, connected TV and programmatic trading.
YuMe's strengths lie in demand-side software and services used
by brands, agencies and trading platforms, a robust, first-party
data management and targeting platform and global programmatic
capabilities. The Company's strengths are primarily focused on the
supply-side, as well as programmatic platform capabilities
represented by its multi-channel, multi-format ad exchange, whereby
advertisers and agencies can reach targeted, engaged audiences at
scale. The Directors believe that YuMe's strong relationships with
agencies and brands and its demand side platform complement the
Company's robust, unified programmatic platform and demonstrated
successful history of growth through strategic acquisitions.
Broader platform
The Acquisition accelerates the Company's strategy to build a
unified programmatic platform with unique audiences of
differentiated quality at scale. With the acquisition of YuMe, the
Company gains access to a leading data driven marketing platform,
premium inventory, unique consumer insights, cross-screen targeting
technology and established demand relationships.
Greater volume, controlled inventory and premium demand
From a volume standpoint, the Acquisition will increase the
Company's access to mobile, desktop and connected TV video
inventory, augmenting the relative attractiveness of its platform
to brand advertisers. Through its video supply footprint, YuMe
currently sees over 150m unique US viewers and over 250m unique
viewers globally. The majority of ad impressions are served via
YuMe's audience-aware software development kit.
In addition to high-quality video inventory, YuMe provides
premium demand on connected TV as a supply channel, which will be a
new supply category for the Company. YuMe has been a connected TV
leader with almost six years of experience in connected TV that
includes over 500 campaigns run to date through this medium.
Both video and connected TV inventory are expected to improve
scale and reach benefiting the overall economic effects realised
through the Company's platform. Global brands have shown a
particular appetite for advertising campaigns, such as connected
TV, which can supplement the flagging effectiveness of broadcast
television. In addition, the Acquisition will add premium brand
advertising demand, generated through established, long-term
relationships with agencies and brands, which the Directors believe
will have a positive effect on fill rate achieved by the Company's
platform.
The Directors believe that, as a result of the Acquisition, the
Company will be a more attractive alternative to the largest
networks and exchanges, represented by companies such as Google and
Facebook.
Proven team and R&D capability
YuMe has an experienced executive team, and is expected to add
significant sales, engineering, product and operational expertise
to the combined enterprise. Moreover, YuMe has an India-based
technology development and ad operations centre, which adds a
significant competitive advantage in terms of product innovation
and a streamlined operational expenditure structure.
Critical and financial scale
The Company's strategy is to build a unified programmatic
platform with unique audiences of differentiated quality at scale.
The Acquisition directly advances this objective through the
addition of premium mobile, video and connected TV inventory onto
the platform, and further builds on the increased scale of supply
that resulted from the acquisitions of Perk Inc. in January 2017
and RadiumOne, Inc. in June 2017.
The Directors believe that the industry will consolidate and the
Acquisition allows the Company to stay ahead of the industry trend
and to build critical and financial scale.
The Acquisition will deliver cost synergies
The enlarged group is envisaged to benefit from a strong balance
sheet, revenue growth and demonstrated EBITDA generation.
The Company believes that the Acquisition represents an
attractive opportunity to achieve savings of approximately
US$10-12m per annum (before tax) across the combined businesses
from, inter alia; functional redundancies as a combined entity,
duplicative vendor relationships and public company costs, with
associated one-off costs of no greater than US$1m. There may also
be potential for revenue synergies.
Following the Acquisition, the consolidated shares, being
ordinary shares of GBP0.10 each in the capital of the Company (the
"Consolidated Shares"), will need to be registered with the US
Securities and Exchange Commission ("SEC") and the Company will be
subject to some new costs associated with its SEC reporting
obligations. Further details are set out below under the heading
'Registration of Consolidated Shares with the SEC'.
Information on YuMe
YuMe is a proven partner for video advertising leadership and
innovation. YuMe provides programmatic brand solutions with
data-driven audience insights that empower brand advertisers to
engage and influence their most promising audiences and increase
engagement and sales. YuMe extends data-driven audiences to any TV
or digital screen. Programmatic, audience-based technologies
combine with unrelenting service to help brand advertisers engage
audiences wherever they interact with content that matches their
needs and interests. Established in 2004, YuMe is headquartered in
Redwood City, California, with over 450 employees worldwide.
As per YuMe's US GAAP consolidated financial statements for the
year ended 31 December 2016, YuMe generated revenues of US$160.4m,
adjusted EBITDA* of US$10.9m and a net loss of US$7.7m.
Through the three-month period ended 30 June 2017, YuMe
generated US$42.8m in revenue and US$7.6m in adjusted EBITDA*, and
net income of US$4.4m, while in the three-month period ended March
2017 YuMe generated revenue of US$36.5m and adjusted EBITDA* of
US$4.3m and net income of US$1.2m.
As at 30 June 2017, YuMe reported total assets of US$143m.
Financial and other effects of the Acquisition
The Acquisition is anticipated to be materially accretive to the
Company in the financial year ending 31 March 2019, being the first
full year of ownership.
Increased scale is likely to improve gross margin as a result of
operational gearing.
Summary of key terms of the Acquisition
Pursuant to the terms of the Agreement each YuMe stockholder
(the"YuMe Stockholder") will be entitled to receive US$5.25 per
share held by them on the following basis:
-- US$1.70 (approximately GBP1.32) in cash; and
-- 0.7325 Consolidated Shares, representing US$3.55
(approximately GBP2.75). In calculating the number of Consolidated
Shares to be issued, a figure of 37.5 pence per Existing Share (as
defined below) has been used.
Following the closing of the Acquisition (which is expected to
be in the first calendar quarter of 2018) (the "Closing"), two
representatives appointed by the YuMe Stockholders (the "YuMe
Nominees"), will be appointed to the Board. The YuMe Nominees will
be subject to prior approval and acceptance by the Board acting
reasonably. It is anticipated that Eric Singer, current chairman of
YuMe, will assume the role of chairman of the combined entity. Raj
Chellaraj, current chairman of RhythmOne has announced his
intention to step down from the Board immediately after Closing.
Commenting on Raj Chellaraj's intention to step down from the
Board, Ted Hastings, CEO of the Company, said: "the Board would
like to thank Raj for his leadership during the last three years
and wish him the best". Further announcements will be made as
appropriate
Certain YuMe Stockholders (including each director and senior
officer of YuMe) and each of their respective affiliates (the
"Locked-up Stockholders"), who between them hold approximately
31.6% of the issued YuMe shares (the "YuMe Shares"), have each
signed a tender and support agreement agreeing to tender the YuMe
Shares held by such Locked-up Stockholders in the exchange offer to
be made to effect the Acquisition (the "Exchange Offer"). In
addition, each such Locked-up Stockholder has agreed that from
Closing until the date that is six months thereafter, he, she or it
will not offer, sell, grant any option to purchase or otherwise
dispose of any Consolidated Shares received by such Locked-up
Stockholder pursuant to the Acquisition.
Vested or unvested options to acquire YuMe Shares that are
outstanding immediately prior to Closing and not exercised and are
in the money, and unvested restricted stock units that are
outstanding immediately prior to Closing, will be cancelled and the
Company will grant replacement awards on substantially the same
terms and conditions as were applicable immediately prior to
Closing.
The Acquisition is conditional on YuMe Stockholders tendering at
least a majority of the issued and outstanding YuMe Shares and YuMe
having at least US$32m in cash and cash equivalents at the closing
of the Exchange Offer. The Acquisition is also subject to other
conditions customary for transactions of this nature and requires
clearance by the relevant competition authority, including the
expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976. Given that
the Consolidated Shares to be issued by the Company will be issued
primarily to YuMe Stockholders resident in the US, the Company will
file a registration statement on Form F-4 (the "Registration
Statement") with the SEC. Further details of this are set out
below. The Company and YuMe expect to close the Acquisition in the
first calendar quarter of 2018.
The Agreement contains provisions whereby a termination fee of
US$5,536,790 (equating to approximately 3% of the of the
transaction value) would be payable by YuMe to the Company if the
Agreement is terminated under certain circumstances.
The boards of directors of RhythmOne and YuMe have each
unanimously approved the Acquisition. YuMe's board of directors has
also recommended that YuMe Stockholders vote in favour of the
Acquisition. The Company will call a General Meeting, at which the
Company will seek approval (amongst other things) to: (i)
consolidate every 10 ordinary shares of GBP0.01 each into one
Consolidated Share; and (ii) allow the Directors to issue up to
30,000,000 Consolidated Shares to close the Acquisition. A further
announcement will be made when the notice of General Meeting is
dispatched, which is expected to be on 7 September 2017.
Registration of Consolidated Shares with the SEC
Registration statement
Due to the number of YuMe Stockholders who will receive
Consolidated Shares on Closing, the Company is required to register
the Consolidated Shares under the US Securities Act of 1933, as
amended, by filing, once available, a registration statement on
Form F-4 with the SEC.
Ongoing obligations
Upon Closing, the Company will be subject to certain disclosure
obligations under US securities laws. The following is a
description of the general disclosure obligations of public
companies under US securities laws as such laws and rules exist as
of the date of this announcement.
Under the US Securities Exchange Act of 1934, as amended (the
"Exchange Act"), for so long as the Company continues to qualify as
a "foreign private issuer," it will be required to file publicly,
with the SEC, annual reports on Form 20-F within four months of the
end of the Company's fiscal year covered by the report. As a
foreign private issuer, the Company will also be required to file
publicly with the SEC on Form 6-K material information that it
makes or is required to make public pursuant to English law, files
or is required to file by the AIM Rules or is otherwise distributed
or required to be distributed to the Shareholders.
Following Closing, the Company may cease to be a reporting
company under the Exchange Act, and to the extent not required in
connection with any other debt or equity securities of the Company
registered or required to be registered under the Exchange Act, the
Company would no longer be required to file annual reports or other
information with the SEC. The ability to cease being a reporting
company under US securities laws will depend on a number of factors
including, amongst other things, the number of US record holders of
the Company after the Acquisition and trading volumes of the
Consolidated Shares in the United States. Conversely, if 50% or
more of the Consolidated Shares are held in the US the Company will
no longer qualify as a 'foreign private issuer' and will be subject
to reporting requirements prescribed for a domestic US company.
Share consolidation
The Company is proposing that every 10 issued ordinary shares of
GBP0.01 each in the capital of the Company (the "Existing Shares")
held at 6.00 p.m. on the date of the General Meeting be
consolidated into one Consolidated Share in order to reduce the
number of shares in issue and to ensure that the Company's shares
are traded at a figure that is reasonable.
The Consolidated Shares will continue to carry the same rights
and benefits as those attached to the Existing Shares and the
proportion of ordinary shares of the Company held by each
Shareholder immediately before the Consolidation will, save for
fractional entitlements (which are discussed further below), be the
same as the proportion of Consolidated Shares held by each
Shareholder immediately thereafter.
Application will be made for the Consolidated Shares to be
admitted to trading on AIM. Dealings in the Existing Shares will
cease at 4.30 p.m. on the date of the General Meeting and dealings
in the Consolidated Shares are expected to commence the following
day.
If the consolidation is approved, the Consolidated Shares will
have a new SEDOL code which will be BYW0RC6 and a new ISIN which
will be GB00BYW0RC64. The new SEDOL and new ISIN will become
effective only if the resolution to consolidate the Existing Shares
is passed. The Company's TIDM (or 'Ticker', as it is generally
known), 'RTHM', will remain unchanged.
In the event that the number of Existing Shares attributable to
a Shareholder is not exactly divisible by 10, the Consolidation
will generate an entitlement to a fraction of a Consolidated
Share.
In order to deal with the fractional entitlement, the Board
proposes to amend the articles of association of the Company to
allow it to sell the shares representing the fractions on behalf of
the selling Shareholder for the best price reasonably obtained to
any person (including the Company) and distribute the proceeds of
sale, in due proportion, among those selling Shareholders. In the
event that the net proceeds of sale attributable to a selling
Shareholder amount to GBP5.00 or less, the Directors are of the
view that, as a result of the disproportionate costs involved in
distributing small sums to Shareholders, it would not be in the
best interests of the Company to distribute such proceeds of sale,
which instead will be retained for the benefit of the Company.
In order to deal with any final fractions, the Company will
enter into an off-market buyback agreement (the "Off-market Buyback
Agreement"). The Off-market Buyback Agreement will also deal with
the buyback by the Company of the deferred share created when the
Company reduced its capital earlier this year. A pro-forma copy of
this agreement will be available for inspection at the Company's
registered office from the date of the dispatch of the Circular up
to and including the date of the General Meeting, and will be
available for inspection at the General Meeting.
In respect of a Shareholder who holds less than 10 Existing
Shares, the Company is only responsible for dealing with fractional
entitlements of registered holdings. Shareholders whose ordinary
shares in the Company are held via nominee accounts will have any
fractional entitlements administered by the stockbroker or nominee
in whose account the relevant Existing Shares of the Company are
held.
Assuming approval of the Consolidation, the issued share capital
of the Company following the passing of the resolution to
consolidate the 495,654,349 Existing Shares outstanding as at 4
September 2017 (being the latest practicable date prior to the
publication of this announcement) is expected to comprise
approximately 49,565,430 Consolidated Shares.
The entitlements to Existing Shares of share options or other
instruments convertible into Existing Shares will be adjusted in
accordance with their terms to reflect the consolidation.
Application will be made for the simultaneous cancellation of
the Existing Shares from CREST and admission of the Consolidated
Shares to CREST and trading on AIM. The Consolidated Shares may
thereafter be held and transferred by means of CREST. It is
expected that Consolidated Shares which are held in uncertificated
form will be credited to the relevant CREST accounts on 26
September 2017 and admitted to trading on AIM on the same day.
Definitive share certificates in respect of those Consolidated
Shares which will be held by Shareholders who currently hold their
Existing Shares in certificated form are expected to be dispatched
to relevant Shareholders on or around 3 October 2017. Share
certificates in respect of Existing Shares will cease to be valid
on 26 September 2017 and, pending delivery of share certificates in
respect of Consolidated Shares, transfers will be certified against
the register.
If the resolution to consolidate the Existing Shares is not
passed, the Shareholders will retain their existing shareholding in
the Company and the number of shares proposed to be allotted for
the Acquisition will increase (although the nominal amount will
remain the same).
Letter of intent
The Company has received a non-binding letter of intent from
Toscafund Asset Management LLP relating to 145,246,051 Existing
Shares representing approximately 29 per cent. of the issued share
capital of the Company on 4 September 2017 (being the latest
practicable date prior to this announcement) stating its intention
to exercise, or procure the exercise, of all of the voting rights
attaching to such Existing Shares in favour of the resolutions at
the General Meeting.
Certain information contained in this announcement would have
constituted inside information (as defined by Article 7 of
Regulation (EU) No 596/2014) prior to its release as part of this
announcement.
Adjusted EBITDA
*adjusted EBITDA is a non-GAAP financial measure which is not
necessarily comparable to non-GAAP information of other
companies.
The Company calculates its adjusted EBITDA as statutory
profit/(loss), adjusted to exclude income taxes, net finance income
and expense, depreciation and amortisation, share based payments
expense and exceptional costs. The Company believes that this
measure is a useful supplemental metric as it provides an
indication of the results generated by the Company's principal
business activities prior to consideration of how the results are
impacted by non-recurring costs, how the results are taxed in
various jurisdictions, or how the results are affected by the
accounting standards associated with the group's share based
payment expense.
YuMe calculates its adjusted EBITDA as net income (loss),
adjusted to exclude income taxes, interest expense, depreciation
and amortisation, stock-based compensation and non-recurring proxy
contest, asset impairment and restructuring expenses. YuMe believes
that adjusted EBITDA provides useful information to investors in
understanding and evaluating its operating results in the same
manner as management.
Non-GAAP information should not be viewed as a substitute for,
or superior to, profit (loss)/net income prepared in accordance
with GAAP as a measure of profitability or liquidity. Users of this
financial information should consider the types of events and
transactions for which adjustments have been made.
About RhythmOne
RhythmOne is a technology-enabled digital media company that
connects online audiences with brands through premium content
across devices. Founded in 2004 in the UK, the Company pioneered
Internet video search and works with digital advertisers,
publishers and content providers to offer fully integrated,
cross-screen solutions that span desktop and mobile video, rich
media, display, social and native advertising, and content formats.
Through its fully integrated programmatic platform, RhythmMax, the
Company offers digital advertising inventory across owned,
controlled and extended supply sources. The RhythmMax platform
includes unique brand safety technology, RhythmGuard, which
combines leading third-party verification and proprietary filtering
technologies to ensure inventory quality in brand safe
environments. RhythmOne's goal is to maximize the return on
advertising spend and provide the most efficient and effective
marketplace for digital advertising. The Company is headquartered
in San Francisco, United States with offices in the US, UK and
Canada. For more information, please visit www.rhythmone.com.
Analyst and Investor Contact
Dan Slivjanovski
RhythmOne plc
Financial Media Contacts
Edward Bridges / Charles Palmer
FTI Consulting LLP
+44 20 3727 1000
Financial Adviser, Nomad and Broker for RhythmOne
Nick Westlake (Nomad) / Lorna Tilbian /
Michael Wharton / Toby Adcock
Numis +44 20 7260 1000
Numis Securities Limited ("Numis") which is authorised and
regulated in the United Kingdom by the Financial Conduct Authority
is acting for the Company and no one else as nominated advisor and
UK broker and financial advisor only and will not afford the
protections afforded to clients of Numis to any other person. To
the fullest extent permitted by law Numis expressly disclaims any
liability whatsoever arising out its role and/or of the contents of
this announcement to any person other than the Company.
Additional Information and Where to Find It
The Exchange Offer for the outstanding shares of YuMe stock
described in this communication has not yet commenced. This
announcement is for informational purposes only and is neither an
offer to purchase nor a solicitation of an offer to sell shares,
nor is it a substitute for any materials that RhythmOne and its
offering subsidiary, Redwood Merger Sub 1, Inc. (the "Purchaser"),
will file with the SEC.
RhythmOne and the Purchaser plan to file a tender offer
statement on Schedule TO, together with other related Exchange
Offer documents, including a letter of transmittal, in connection
with the offer, YuMe plans to file a Recommendation Statement on
Schedule 14D-9 in connection with the offer and RhythmOne plans to
file a registration statement on Form F-4 that will serve as a
prospectus for RhythmOne shares to be issued as consideration in
the offer and the mergers. These documents will contain important
information about RhythmOne, YuMe, the offer and the mergers. YuMe
Stockholders are urged to read these documents carefully and in
their entirety when they become available before making any
decision regarding exchanging their shares. These documents will be
made available to YuMe Stockholders at no expense to them and will
also be available for free at the SEC's website at www.sec.gov.
Additional copies may be obtained for free by contacting
RhythmOne's investor relations department at Edward Bridges, FTI
Consulting, Inc., Tel: +44 (0)20 3727 1000, Email:
rhythmone@fticonsulting.comor YuMe's investor relations department
at ir@yume.com or +1-650-503-7192. Such documents are not currently
available.
In addition to the SEC filings made in connection with the
transaction, YuMe files annual, quarterly and current reports and
other information with the SEC. You may read and copy any reports
or other such filed information at the SEC public reference room at
100 F Street, N.E., Washington, D.C. 20549, United States of
America. Please call the SEC at +1 800 732 0330 for further
information on the public reference room. YuMe's filings with the
SEC are also available to the public from commercial
document-retrieval services and at http://www.sec.gov. In addition
to the SEC filings made in connection with the transaction,
RhythmOne makes available annual reports and other information free
of charge on its website at www.RhythmOne.com. Such information can
also be obtained from RhythmOne using the contact information
above.
Appendix
EXPECTED TIMETABLE OF EVENTS
Date of the Agreement 5 September 2017
Circulation of notice of 7 September 2017
General Meeting to Shareholders
General Meeting 10.00 a.m. on 25 September
2017
Closing of the Acquisition First calendar quarter
of 2018
Dates included in this timetable may be updated by the Circular
which is expected to be posted to the Shareholders on 7 September
2017.
All references to time in this announcement are to London time
unless otherwise stated.
This information is provided by RNS
The company news service from the London Stock Exchange
END
ACQOKPDPPBKKPCK
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