RNS Number : 3125Y

Fayrewood PLC

04 July 2008

Fayrewood Plc

('Fayrewood' or the 'Company')

Disposal of Interface Solutions International Limited ('Interface') and System Loans Services Limited ('SLS')

Confirmation of investing strategy

Notice of Extraordinary General Meeting

Fayrewood (AIM: FWY) the computer distributor, announces the proposed disposal of its wholly owned subsidiaries, Interface and SLS, the last remaining trading subsidiaries, to Prime Properties Development Limited ('PPD'), a wholly owned subsidiary of Specialist Computer Holdings Limited ('SCH'), for an aggregate cash consideration of approximately £2 million (the 'Disposal')

Key Financials 

·             The aggregate cash consideration to be paid to Fayrewood is approximately £1,976,000 spread as follows over the 12 months following the completion of the Disposal:

o        £976,000 on completion;

o        £500,000 6 months after completion, subject to potential warranty claims; and

o        £500,000 12 month after completion, subject to potential warranty claims.

Reasons for Disposal

·             During 2005 the Board agreed that the aggregate net worth of the businesses of Fayrewood and its subsidiaries (the 'Group') significantly exceeded Fayrewood's then market capitalisation. 

·             To enable this value to be obtained for the holders of issued ordinary shares of 5 pence each in the capital of the Company ('Ordinary Shares') ('Shareholders') the Board's strategy was to commence a disposal programme of the key parts of the Group, including ComputerLinks AG, UMD SA and Banque Magnetique SA.

o        These disposals allowed Fayrewood to return approximately £35m cash to Shareholders and to reduce the Group's indebtedness by approximately £30 million.

·         The Board is unanimously in favour of the Disposal as it represents: 

o        the final stage of the Board's strategy of breaking up the Group and selling component parts in order to maximise Shareholder value; and

o        an essential step in being able to return cash to Shareholders in a tax efficient, timely and cost effective manner.

Board 

·         The Board will remain in its current form apart from Keith Negal, currently Chief Operating Officer, who will move to a non-executive capacity.

  EGM Details : To Approve the Disposal and Investing Strategy

·         The Disposal will result in there being a fundamental change of Fayrewood's business under the AIM rules and therefore Shareholder approval is required.

·         Shareholder approval is also required of the Board's proposed investing strategy for the Company going forward, details of which are set out below in the section headed 'Investing Strategy'.

·         Fayrewood has received irrevocable undertakings to vote in favour of both the resolutions to be proposed from the Directors and a major Shareholder equating to approximately 44.5% of the Ordinary Share capital.

·         The extraordinary general meeting of the Company will be held at the offices of Buchanan Communications, 45 Moorfields, London EC2Y 9AE at 10.00 a.m. on 24 July 2008 (the 'EGM').

Commenting on the proposed disposal, David Kleeman, Non-Executive Chairman said: 

'Fayrewood floated in July 1996. Altogether, over the following few years as a listed company, it raised a little in excess of £34 million by the issue of shares, of which less than £10 million was used for working capital purposes and the balance was used to pay vendors during our active acquisition period. On the other side of the equation, we have received in excess of £82.5 million from the sale of our businesses since 2005. In addition, approximately £30 million of bank debt was assumed by the purchasers of those businesses.

'I believe we have demonstrated an ability to bring value to shareholders, a large part of which is due to the very judicious deal-making skills of both our former and current management team when the underlying businesses were bought. As important, was the decision to take action two years ago when we realised that the increasingly testing market conditions Europe-wide and Fayrewood's market rating were not conducive to remaining as a quoted entity, particularly as investors were demonstrating a limited appetite to fund a long-term acquisition strategy. Accordingly the Board of Fayrewood unanimously recommend approving the disposal.'

Enquiries:

Disposal of Interface and SLS

Confirmation of investing strategy

Notice of EGM

Introduction

Fayrewood announces the proposed disposal of its wholly owned subsidiaries Interface and SLS to PPD, a wholly owned subsidiary of SCH, for an aggregate cash consideration of approximately £2 million. Further details of the Disposal are set out below.

A circular containing information of the proposed Disposal is being posted today to Shareholders (the 'Circular'). Interface and SLS are Fayrewood's last remaining trading subsidiaries and their sale represents the final stage of the Board's strategy of breaking up the Group and selling the component parts in order to maximise Shareholder value. The Disposal will result in there being a fundamental change in Fayrewood's business under the AIM Rules and therefore requires Shareholder approval. The Circular contains a notice convening the EGM at which a resolution will be proposed seeking Shareholder approval of the Disposal; the notice of EGM also includes a resolution seeking Shareholder approval of the Board's proposed investing strategy for the Company going forward, details of which are set out below in the section headed 'Investing Strategy' (together the 'Resolutions'). 

The Board believes that the sale of Interface and SLS is an essential step in being able to return cash to Shareholders in a tax efficient manner and intend to vote in favour of the Resolutions to be proposed at the EGM.

Irrevocable undertakings to vote in favour of the Resolutions to be proposed at the EGM have been received in respect of 10,349,069 Ordinary Shares, representing 44.5 per cent. of the Company's issued share capital.

Background to the Disposal

During the course of 2005, the Board formed the view that the aggregate net worth of the Group's businesses significantly exceeded the Group's then market capitalisation. To enable that difference in value to be obtained for Shareholders, the Board embarked on a strategy of selling the component parts of the Group. This strategy commenced with the disposal of part of Fayrewood's stake in ComputerLinks AG, by then a fully listed company in Germany. This was followed by the disposal of its Spanish subsidiary UMD SA in December 2006 and the sale of Fayrewood's remaining shares in ComputerLinks AG in March 2007. These disposals netted, in aggregate, substantial profits for Fayrewood relative to the sums originally invested and left Fayrewood with significant cash reserves enabling the Company to return approximately £35 million cash to its Shareholders via a tender offer in June 2007.

In December 2007, Fayrewood completed the sale of the Paris-based Banque Magnetique SA, following which the Group's only remaining trading businesses were Interface and SLS. Since December 2007, the Board has had discussions with a limited number of purchasers that had a serious interest in acquiring Interface and SLS and the offer received from PPD represented best value for Shareholders.

The Board believes that the sale of Interface and SLS is an essential step in being able to return cash to Shareholders in a tax efficient manner.

Information on Interface and SLS

Interface is a distributor of computer servers and storage equipment, personal computers and laptops. Interface employs approximately 130 people, of which the majority are based at its head office near Birmingham International Airport. The remaining staff are based in Warrington.

SLS was established in order to manage the loan of IBM 'X-series' servers and other products on behalf of IBM to potential customers during product trials and commenced trading in September 2007. SLS operates out of Interface's offices in Birmingham and also uses the same warehousing facilities. SLS employs two full time and one part time employee.

The financial information in relation to Interface, as set out below, has been extracted from the company's audited annual financial statements for the three years ended 31 December 2007.    

The financial information in relation to SLS, as set out below, has been extracted from the company's audited financial statements for the period ended 31 December 2007.

Terms of Disposal

Under the terms of the sale and purchase agreement entered into between (1) the Company, (2) PPD and (3) SCH on 3 July 2008 for the sale of Interface and SLS (the 'SPA'), Fayrewood has agreed to sell, subject to Shareholder approval, the entire issued share capital of Interface and SLS to PPD for a cash consideration of £1,976,000. SCH have provided a full guarantee of PPD's obligations under the SPA and Fayrewood has given warranties and a tax covenant appropriate to a transaction of this type.

At completion, £1,000,000 of the purchase price will be paid into a retention account to be applied in discharging any liability under any warranty claims and will be held jointly by the solicitors acting for PPD and for Fayrewood. After 6 months, the sum of £500,000 (less any amounts deducted for claims under the warranties) will be released to Fayrewood. On the first anniversary of completion, the balance left in the retention account will be released to Fayrewood.

Completion is due to take place as soon as reasonably practicable after Shareholders have approved the Disposal.

Effect on Fayrewood

Following the Disposal, Fayrewood's only trading activity will be the provision of consultancy services to PPD under a six month contract at a rate of £4,000 per month. The Board estimates, after taking into consideration professional fees and other transaction expenses of approximately £450,000, the net proceeds in relation to the Disposal will be approximately £1,526,000 - which is approximately £732,000 lower than the combined net assets of Interface and SLS of £2,258,000 as at 31 December 2007.

The Group's net assets were £36,428,000 as per its audited balance sheet at 31 December 2007. Following completion of the Disposal, the Group's net assets will be represented almost entirely by cash balances. Of these cash balances, £1,000,000 will be held in a retention account in relation to the Disposal. A further €6,000,000 will continue to be held by Barclays Bank plc as security for a bank guarantee they have provided to Esprinet SpA, the purchaser of UMD SA, to cover certain warranties and indemnities provided by Fayrewood in relation to the sale of that business. All other Group cash balances will be unencumbered.

Investing Strategy

Following the Disposal, the Company will have no significant trading business and therefore under the AIM rules it must seek the consent of Shareholders for the investment strategy.

The Board proposes to adopt the following investing strategy: to explore methods of returning the maximum amount of capital to Shareholders in the most tax efficient, timely and cost effective manner that is practical. Such methods include a wide range of transactions including an offer for some or all of the Company's share capital, a further tender offer, or a reverse takeover (as defined by the AIM Rules).

Although the Company will not actively seek any acquisition or investment opportunities going forward, it may consider active investments in distribution businesses in Europe in order to assist in part or in full in effecting its investing strategy. Acquisition targets will be subject to the relevant legal and financial due diligence being first made, and where necessary, the Company will appoint suitably qualified consultants and market researchers to advise the Directors on the feasibility and risks associated with any potential acquisition or investment.

The members of the Board and its management team are made up of experienced individuals with diverse backgrounds covering company turnarounds, finance, investment banking and fund management with experience in corporate transactions over a variety of sectors. The Directors will be guided by their experiences in their respective fields of expertise and management skills in implementing the investing strategy.

If Shareholder approval in respect of the investing strategy is obtained at the EGM and the Company does not complete a reverse takeover during the twelve months following the EGM, trading in Fayrewood's Ordinary Shares on AIM will be suspended by London Stock Exchange plc. In such an event the Company would remain suspended for six months, after which its listing on AIM would be cancelled. However, the Directors intend to be able to return cash to Shareholders in some form prior to this date.

Board changes

Following completion of the Disposal, the Board will remain in its current form apart from Keith Negal, currently Chief Operating Officer, who will move to a non-executive capacity

Irrevocable undertakings

Fayrewood has received irrevocable undertakings from certain Shareholders (including all of the Directors) to vote in favour of the Resolutions in respect of, in aggregate, 10,349,069 Ordinary Shares representing in aggregate approximately 44.5 per cent. of the issued ordinary share capital of the Company, as follows:

                                                  Number of
Shareholder                     Ordinary Shares

Directors

David Kleeman                              828,681

Sir Tim Chessells                              7,259

Mario Legorburu                          3,268,020

Keith Negal                                       30,245

Richard Templeton                            9,000

Other Shareholders

North Atlantic Value LLP             6,205,864

This information is provided by RNS

The company news service from the London Stock Exchange

Oliver Scott