RECOMMENDED CASH OFFERS
by
HAWKPOINT PARTNERS LIMITED
on behalf of
WOOSTER INVESTMENTS PTY LIMITED
for
THE HARTSTONE GROUP PLC
1. Introduction
The boards of Wooster Investments Pty Limited ('Wooster') and The HartstoneGroup PLC ('Hartstone') announce that they have reached agreement on the termsof recommended cash offers (the 'Offers'), to be made by Hawkpoint on behalf of
Wooster, for the entire issued and to be issued ordinary share capital (the
'Ordinary Offer') and preference share capital (the 'Preference Offer') of
Hartstone not already held or controlled by Wooster.
2. The Offers
On behalf of Wooster, Hawkpoint will offer to acquire, on the terms and subject
to the conditions set out below and in Appendix I to this announcement, and to
be set out in the Offer Document and the Forms of Acceptance, the entire issued
and to be issued ordinary and preference share capital of Hartstone.
The Offers will be made on the following basis:
for each Ordinary Share 2 pence in cash
for each Preference Share 95 pence in cash
The Ordinary Offer values the existing issued ordinary share capital of
Hartstone at approximately £3.2 million and represents:
- a premium of approximately 13.0 per cent. over the closing middle market
price of 1.77 pence per Ordinary Share on 29 April 2004, the last business
day prior to this announcement;
- a premium of approximately 25.0 per cent. over the closing middle market
price of 1.60 pence per Ordinary Share on 17 March 2004, the last business
day prior to Hartstone's announcement that it had received an approach that
may or may not lead to an offer for Hartstone; and
- a premium of approximately 58.7 per cent. over the average closing middle
market price of 1.26 pence per Ordinary Share for the three month period to
17 March 2004.
The Preference Offer values the existing issued preference share capital of
Hartstone at approximately £9.5 million and represents:
- a premium of approximately 27.5 per cent. over the closing middle market
price of 74.50 pence per Preference Share on 29 April 2004, the last
business day prior to this announcement;
- a premium of approximately 53.2 per cent. over the closing middle market
price of 62.00 pence per Preference Share on 17 March 2004, the last
business day prior to Hartstone's announcement that it had received an
approach that may or may not lead to an offer for Hartstone; and
- a premium of approximately 72.3 per cent. over the average closing middle
market price of 55.13 pence per Preference Share for the three month period
to 17 March 2004.
In aggregate, the Offers value the existing issued ordinary and preference share
capital of Hartstone at approximately £12.7 million.
The Hartstone Shares will be acquired pursuant to the Offers by, or on behalf
of, Wooster fully paid and free from all liens, equities, mortgages, charges,
encumbrances and other third party rights and interests and together with all
rights now or hereafter attaching thereto, including all voting rights and the
right to receive and retain in full all dividends and other distributions
accrued, announced, declared, made or paid on or after the date of this
announcement, together with all interest accrued thereon, including the accrued
but unpaid fixed cumulative preferential dividend (and interest thereon) payable
on the Preference Shares. On 11 December 2003, Hartstone announced that it would
not be in a position to pay the most recent preference dividend due on 2 January
2004. Hartstone has not paid the preference dividend since the payment made on 2
July 2002. As at 30 April 2004, the amount of preference dividend accrued but
unpaid is approximately 14.6 pence per Preference Share plus accrued interest.
The Offers will be subject to the conditions and further terms set out below and
in Appendix I to this announcement and to be set out in the Offer Document and
Forms of Acceptance. In particular, the Ordinary Offer will be conditional on
the receipt of acceptances in respect of at least 90 per cent. (or such lesser
percentage as Wooster may decide) of the Preference Shares to which the
Preference Offer relates.
The Preference Offer is conditional only upon the Ordinary Offer having become
or being declared unconditional in all respects.
3. Background on Hartstone
Hartstone's shares are traded on AIM. For the year ended 31 March 2003, the
Group had total turnover of £75.08 million (2002: £99.58 million), a loss on
ordinary activities before taxation of £7.04 million (2002: profit before
taxation of £1.12 million) and a loss per Ordinary Share of 4.9 pence (2002:
earnings per Ordinary Share of 0.6 pence). As at 31 March 2003, the consolidated
net assets of Hartstone were £12.98 million (2002: £23.55 million).
For the six months ended 30 September 2003, the Group had total turnover of
£33.12 million (2002: £40.08 million), a loss on ordinary activities before
taxation of £1.85 million (2002: loss of £2.2 million) and a loss per Ordinary
Share of 1.6 pence (2002: loss of 1.7 pence). As at 30 September 2003, the
consolidated net assets of Hartstone were £10.32 million (2002: £18.35 million).
Hartstone started business in 1989 and grew through a series of acquisitions.
However, deteriorating sales and lack of effective management controls led to
serious financial difficulties, which resulted in the Group's borrowing
facilities being suspended by its bankers in 1993.
Since that time, Hartstone has had to raise additional capital via an ordinary
share rights issue in 1994 and an issue of preference shares in 1996, while
disposing of several of its leathergoods and hosiery businesses outside the US,
enabling it to reduce the Group's borrowings and to continue trading.
By 1999, the Company's only remaining significant operating subsidiary company
was Aigner Group, Inc. ('Aigner'), a US-based company whose principal activityis the design, marketing, distribution and retailing of branded leathergoods.
Aigner's principal brand is Etienne Aigner, which includes a wide range of high
quality women's shoes, handbags and other fashion accessories. Efforts were made
to effect an orderly disposal of Aigner in order to return cash to shareholders
but, although negotiations were entered into with several potential purchasers,
satisfactory arrangements for the disposal were never concluded.
From the second half of 2001, the market for leathergoods in the US became
increasingly competitive with Hartstone's largest customers, the department
stores, losing business to lower priced chains, resulting in price cutting and
heavy discounts across the industry. As a result of these prolonged trading
difficulties Aigner breached a number of its banking covenants, and all
significant cash remittances to Hartstone were suspended as from December 2001.
Poor trading conditions subsequently continued and Aigner sustained an operating
loss of US$9.1 million for the year ended 31 March 2003. This meant that
Hartstone was unable to pay a dividend on the Preference Shares for the first
time in January 2003 and has been unable to make any dividend payments since
that time.
In September 2003, Aigner entered into a licence agreement with Bennett Footwear
Holdings LLC ('Bennett') pursuant to which Bennett took over the operation ofits footwear business. Having sold its footwear stock to Bennett and collected
outstanding footwear debtors, Aigner has substantially eliminated its bank
borrowings and certain remittances to Hartstone are now permitted.
4. Hartstone's current trading and prospects
Although Aigner's trading has improved modestly since last year, the Company is
faced with significant potential liabilities which may not be met in the
foreseeable future. Payments of dividends due to Preference Shareholders in
respect of the three half year periods ended 2 January 2004, which amount in
aggregate to £1.2 million plus accrued interest, have not been made. Further, by
31 July 2005, an additional sum of approximately £10 million will be required by
the Group to redeem the Preference Shares, excluding accruals of dividends. On
the basis of current forecasts, the Directors do not believe that the Company
would be able to pay these redemption amounts and the arrears and accruals of
preference dividends before 31 July 2005, which by then could amount to
approximately £12.5 million in aggregate plus accrued interest.
5. Changes to Preference Share rights
The Offers are conditional, inter alia, on Hartstone Shareholders approving
resolutions to amend the rights of the Preference Shares so that conditionally
upon the Offers becoming or being declared unconditional in all respects (save
for the condition relating to the passing of the relevant resolutions):
(a) the Preference Shares shall cease to be entitled to a fixed dividend and
interest shall cease to accrue on dividend arrears as from the date of
passing of the Resolutions;
(b) the amount payable on redemption or on a return of capital shall be 95pence
for each Preference Share (including all arrears and accruals of the
Preference Dividend and interest thereon); and
(c) the holders of Preference Shares shall cease to have the right to elect to
convert or redeem their Preference Shares in the event of an offer.
The Resolutions will be put to shareholders at an extraordinary general meeting
which will be formally convened in due course, and to separate class meetings of
holders of the Ordinary Shares and the Preference Shares, also to be formally
convened in due course.
The Hartstone Directors believe that the certainty of the Preference Offer,
which provides immediate cash to Preference Shareholders at a premium to the
current market value, outweighs the potential reduction in the rights attaching
to the Preference Shares inherent in the Resolutions. Preference Shareholders
should bear in mind that, should the Offers not be successful, there could be no
guarantee that the Company would be able to redeem in full all of the Preference
Shares in the foreseeable future or pay the accrued but unpaid dividends and
interest thereon.
6. Recommendation
The Hartstone Directors, who have been so advised by Strand Partners, consider
that the Offers are fair and reasonable and that the passing of the Resolutions
is in the best interests of the Ordinary Shareholders as a class and the
Preference Shareholders as a class and in the best interests of the Company and
its shareholders as a whole. In providing its advice to the Hartstone Directors,
Strand Partners has taken into account the Hartstone Directors' commercial
assessment of the Offers and the other proposals set out in this announcement.
Accordingly, the Hartstone Directors will unanimously recommend that
Shareholders accept the Offers and vote in favour of the Resolutions. The
Hartstone Directors have irrevocably undertaken to vote in favour of the
Resolutions and to accept the Offers in each case in respect of their own
shareholdings, amounting to, in aggregate, 11,550,034 Ordinary Shares and
375,026 Preference Shares (representing approximately 7.3 per cent. of the
issued ordinary share capital of the Company and approximately 3.8 per cent. of
the issued preference share capital of the Company, respectively).
7. Share purchases, irrevocable undertakings and voting intentions
Wooster has today acquired 32,622,613 Ordinary Shares and consequently now holds
approximately 20.6 per cent. of Hartstone's existing issued ordinary share
capital.
In addition, Wooster has obtained irrevocable undertakings to accept the
Preference Offer from institutional investors in respect of 4,541,000 Preference
Shares, representing approximately 45.4 per cent. of Hartstone's existing issued
preference share capital. Of these, undertakings in respect of 4,150,000
Preference Shares would cease to be binding only if the Offers lapse or are
withdrawn, while undertakings over 391,000 Preference Shares would cease to be
binding in the event of an improved Preference Offer. A holder of a further
831,496 Preference Shares has indicated its intention to accept the Preference
Offer.
The Hartstone Directors have also irrevocably undertaken to accept or procure
acceptance of the Offers in respect of their own and their immediate families'
entire beneficial holdings amounting to 11,550,034 Ordinary Shares and 375,026
Preference Shares, representing approximately 7.3 per cent. and 3.8 per cent. of
Hartstone's existing issued ordinary and preference share capital, respectively.
Wooster, therefore, owns, has irrevocable undertakings over or indications of
intent to accept in aggregate:
- 44,172,647 Ordinary Shares, representing approximately 27.9 per cent. of
Hartstone's existing issued ordinary share capital; and
- 5,747,522 Preference Shares, representing approximately 57.5 per cent. of
Hartstone's existing issued preference share capital.
Of the above, holders of 44,172,647 Ordinary Shares and 4,916,026 Preference
Shares (representing approximately 27.9 per cent. and 49.2 per cent. of the
issued ordinary and preference share capital, respectively) have committed to
vote in favour of the Resolutions at the relevant Shareholder Meetings.
8. Information on Wooster
Wooster was incorporated in Australia on 8 April 2004 for the purpose of making
the Offers. It is wholly-owned by Michael and Mary Cheng and directed by Michael
and Tony Cheng. Michael, Mary and Tony Cheng are siblings. Wooster's only assets
comprise its holding of 32,622,613 Ordinary Shares acquired today (as described
in paragraph 7) and a cash balance of approximately £12.6 million.
The Cheng family is active in the handbags and footwear sectors. Michael and
Mary Cheng own or control companies involved in the production of handbags and
footwear in China. Its factories produce 12 million handbags and 3 million pairs
of shoes per year, principally for sale in the US market with further sales to
Australia, Canada and Japan.
Tony Cheng is involved in the wholesale distribution of handbags in the US. He
controls a company which focuses on the sale of handbags to US retailers
including Dillard's, May Company, Federated, Kohls, JC Penney, Target and
Wal-Mart.
9. Financing of the Offers
The cash consideration payable under the Offers will be funded using Wooster's
existing cash resources.
10. Management and employees
The Board of Wooster confirms that, following the Offers becoming or being
declared unconditional in all respects, the existing employment rights,
including pension rights, of all employees of Hartstone will be fully
safeguarded.
11. Hartstone Share Option Schemes
The Ordinary Offer will extend to any Ordinary Shares issued upon exercise of
options under the Hartstone Share Option Schemes while the Ordinary Offer
remains open for acceptance. In the event that the Offers become or are declared
unconditional in all respects, Wooster will write to the participants in the
Hartstone Share Option Schemes to inform them of the effect of the Offers on
their rights under the Hartstone Share Option Schemes and to set out any
proposals to be made in respect of their options, if appropriate.
12. Compulsory acquisition, de-listing and re-registration
If Wooster receives acceptances under the Ordinary Offer in respect of, and/or
otherwise acquires, 90 per cent. or more of the shares to which the Ordinary
Offer relates and assuming that all of the other conditions of the Ordinary
Offer have been satisfied or waived (if capable of being waived), Wooster
intends to exercise its rights pursuant to the provisions of sections 428 to
430F (inclusive) of the Companies Act to acquire compulsorily the remaining
Ordinary Shares on the same terms as the Ordinary Offer.
If Wooster receives acceptances under the Preference Offer in respect of, and/or
otherwise acquires, 90 per cent. or more of the shares to which the Preference
Offer relates and assuming that the Preference Offer becomes unconditional in
all respects, Wooster intends to exercise its rights pursuant to the provisions
of sections 428 to 430F (inclusive) of the Companies Act to acquire compulsorily
the remaining Preference Shares on the same terms as the Preference Offer.
Assuming the Ordinary Offer becomes or is declared unconditional in all
respects, Wooster intends to procure the making of an application by Hartstone
to the London Stock Exchange for the cancellation of the admission to trading of
its Ordinary Shares and Preference Shares on AIM. The cancellation of trading of
the Ordinary Shares and the Preference Shares will require the consent of the
Ordinary Shareholders and the Preference Shareholders, respectively. This may be
provided by a resolution passed at the relevant time by a 75 per cent. majority
of those voting at a meeting of the relevant class or, without the need for such
a meeting, if Wooster has acquired the relevant number of Hartstone Shares in
the Offers. If this cancellation occurs, this will significantly reduce the
liquidity and marketability of Ordinary Shares and Preference Shares not
assented to the Offers. It is anticipated that the cancellation of the admission
to trading of Ordinary Shares and Preference Shares on AIM will take effect no
earlier than the expiry of 20 business days after the Ordinary Offer becomes or
is declared unconditional in all respects.
It is also proposed that following the Offers becoming or being declared
unconditional in all respects and after the cancellation of the admission to
trading of Hartstone Shares on AIM, Hartstone will be re-registered as a private
company.
13. Disclosure of interests in Hartstone
Save for 32,622,613 Ordinary Shares acquired and 11,550,034 Ordinary Shares and
4,916,026 Preference Shares in respect of which Wooster has received irrevocable
undertakings to accept the Offers as set out in paragraph 7 above, neither
Wooster, nor any of the directors of Wooster, nor, so far as Wooster is aware,
any person acting in concert with Wooster for the purposes of the Offers, owns,
controls or holds any Hartstone Shares or any securities convertible or
exchangeable into, or rights to subscribe for Hartstone Shares, or holds any
options to purchase any Hartstone Shares or has entered into any derivative
referenced to Hartstone Shares which remains outstanding.
14. Other
The Offers will be made on the terms and subject to the conditions set out
herein and in Appendix I to this announcement, and to be set out in the Offer
Document and the accompanying Forms of Acceptance. These will be despatched to
Hartstone Shareholders (other than those with addresses in the United States,
Australia, Canada or Japan) and, for information only, to holders of options
granted under the Hartstone Share Option Schemes, as soon as reasonably
practicable. The Offers and acceptances thereof will be governed by English law.
The Offers will be subject to the applicable requirements of the Code, the Panel
and the London Stock Exchange.
Appendix II contains source notes relating to certain information contained in
this announcement. Certain terms used in this announcement are defined in
Appendix III to this announcement.
This announcement does not constitute, or form any part of, any offer for, or
solicitation of, any offer for securities. Any acceptance or other response to
the Offers should be made only on the basis of the information contained in the
Offer Document.