Proposed disposal of Culver Insurance Brokers Ltd.
16 Juni 2008 - 8:01AM
UK Regulatory
RNS Number : 7376W
Culver Holdings PLC
16 June 2008
13 June 2008
Culver Holdings plc
Proposed disposal of Culver Insurance Brokers Limited
The Board of Culver Holdings plc announces that the Company has entered into a conditional agreement for the sale of its retail
insurance broking subsidiary, Culver Insurance Brokers Limited, to Protectagroup Acquisitions Limited, a subsidiary of Cullum Capital
Ventures Limited.
Highlights
* Cash consideration on Completion of �4 million plus adjusted net assets when finally determined, less estimated intra-Group
balance of �1.75 million
* Deferred consideration of up to �2 million dependent on CIB's net brokerage in the year following Completion
* Proceeds from the Disposal to repay short term borrowings of approaching �2 million and for continuing development of Culver's
specialist insurance broking and Employee Benefits businesses
* Disposal conditional solely on shareholders' approval
Commenting on the Disposal, Chairman Richard Read said,
"This disposal continues our policy of realising value for shareholders when attractive offers are received and where a change of
ownership could enhance the growth prospects of a business in a way Culver could not. The sale will also refresh the Group's balance sheet
at a time when the continuing, developing businesses are still absorbing cash."
Enquiries
Culver Holdings Plc
John Biles - Director 020 7456 1350
This announcement is for information purposes only and does not constitute an offer or invitation to acquire or dispose of any
securities or investment advice in any jurisdiction.
Introduction
The Board of Culver Holdings plc announces that the Company has entered into a conditional agreement for the sale of its retail
insurance broking subsidiary, Culver Insurance Brokers Limited, to Protectagroup Acquisitions Limited, a subsidiary of Cullum Capital
Ventures Limited. The basic consideration for the sale is a cash payment of �4 million and additional payments may be received in respect of
CIB's tangible net assets at Completion and in respect of CIB's net brokerage over the year following Completion. Out of the initial
proceeds from the Disposal the Company will repay a balance due to CIB of approximately �1.75 million.
As a result of the size of the transaction relative to the Company, completion of the Disposal has been made subject to approval by
shareholders. The Board intends to dispatch a circular to shareholders setting out complete details of the Disposal as soon as is
practicable.
Background to and reasons for the Disposal
The Company has over many years aimed to generate shareholder value by developing businesses and realising them (or allowing
shareholders opportunities to realise interests in them) at an appropriate time.
The Directors believe that for CIB to achieve its potential in the retail insurance broking market place, it would have to substantially
increase the size of the business to justify the fixed overheads of running CIB's three offices and to have the critical mass to enable it
to benefit from the volume of business presented to underwriters.
Over the last year, the Directors have considered the possibility of making a number of acquisitions in the retail insurance broking
market (as well as in specialist fields such as Lloyd's broking and professional risks) in addition to recruiting new production staff. It
has become clear to the Directors that acquisitions in the retail insurance broking market generally were being concluded at prices which
the Directors could not justify paying, given CIB's size and operating model. The Directors therefore decided to focus on recruiting
individual brokers in the retail field with an established book of business. In the specialist areas the Directors decided to continue to
consider acquisitions of whole businesses where this could be justified by the benefits to the Group.
The Company then received an unsolicited approach from CCV indicating that it was prepared to acquire CIB on terms which reflected a
value which the Company could not justify with its current business model. The Directors also considered that changing CIB's business model
would give rise to a significant degree of execution risk which would be unacceptable to the Group.
In the recent statement accompanying the Group's preliminary announcement of results for the year ended 31 December 2007, it was noted
that the Group's retail insurance broking operations were enduring a difficult insurance market while facing increased competition. While
the opening months of the current year have produced results broadly in line with the plan set by the Board, the Directors believe that CIB
will come under increasing profit pressures unless it has the benefits available to the companies leading the industry's consolidation such
as CCV.
The Directors also considered that there were opportunities to develop the specialist and wholesale businesses of the Group as well as
the Group's Employee Benefits business from a stronger balance sheet.
Accordingly the Directors pursued negotiations for the Disposal and are pleased to have reached agreement for the Disposal on terms
which are acceptable to the Board.
Information relating to CIB
CIB is the Company's subsidiary (authorised and regulated by the Financial Services Authority) which provides retail insurance broking
services. It arranges general insurance cover for both commercial clients and personal clients.
CIB operates from three offices, in Cardiff, Bracknell and London and most of the administrative support for the business (including
claims handling and accounting) is based in the Cardiff office.
In the year to 31 December 2007 and based on the audited financial statements of CIB for the year then ended, CIB made a profit before
tax of �52,000 on income of �2,140,000, compared with �101,000 on income of �2,632,000 in 2006. At 31 December 2007, CIB had gross assets
of �5,675,000 and net assets of �1,379,000, of which �323,000 represented net current assets less non-current liabilities, �1,016,000
goodwill and �40,000 other fixed assets.
Terms of the Disposal Agreement
The consideration for the Disposal comprises three elements. A cash payment on Completion of �4 million, a cash sum payable on agreement
of the balance sheet of CIB at Completion equivalent to net assets excluding goodwill and fixed assets (estimated to amount to �300,000) and
a cash payment of up to �2 million in 2009 based on the net brokerage earned by CIB in the year following Completion.
Deferred consideration of �1 million will be payable if the net brokerage as defined in the Disposal Agreement is �2,071,582 and will be
increased or decreased by �2.40 for every �1 by which net brokerage for the year exceeds or is less than �2,071,582. Net brokerage as
defined by the Disposal Agreement assumes, inter alia, that the same commission rates apply to premiums broked next year as this year on a
class by class basis and that profit commissions and similar payments are �150,000 regardless, in either case, of the actual amounts earned
by CIB during the period.
Under the agreement, the Group has undertaken not to compete with CIB in respect of business currently undertaken by CIB for a period of
three years and CCV has given certain undertakings about the way the business will be managed over the next year. The Company has also given
normal warranties and indemnities in connection with the Disposal.
The Disposal Agreement is conditional only on approval of the necessary resolution to be proposed at a general meeting.
Use of proceeds
It is estimated that, net of the costs of the Disposal and after repaying the amount due by the Company to CIB, the Group will receive
net cash proceeds (ignoring any deferred consideration) of approximately �2.25 million. Approaching �2 million of this will be applied in
eliminating the Group's bank and other short term borrowings.
As certain of the Group's specialist insurance broking teams have joined recently and are still building up their income streams, the
balance will be available to fund the working capital requirements of the business and enable the Group to take on further specialist teams
as they become available. The Group also aims to develop its Employee Benefits business which may require some modest amounts of short term
working capital while new producers start producing fees.
The Group will also explore the acquisition of other specialist insurance broking businesses which would complement the Group's existing
businesses where the expectations of the vendors are realistic in the context of the Group's objectives. In the Employee Benefits business,
if opportunities for the acquisition of income streams arise and if these can be acquired on a basis which is viable and enhances the
business, these will be pursued. It is, however, likely that any acquisitions of this sort will be separately and specifically funded.
Financial effects of the Disposal
The main effects of the Disposal on the Company's financial position have been summarised under "Use of Proceeds" above. The Disposal
also will remove a significant proportion of the Group's income and trading profits and will enable elements of the Group's cost base to be
removed.
The Board consider that, with CIB under the Group's continued management, there would be a reasonable prospect that at least a part of
the deferred consideration would be achieved. As, however, the Board have no positive control over the way the business will be managed in
the year post Completion, no account has been taken of any deferred consideration in considering the transaction although the Board will
clearly take such steps as it reasonably can to maximise the amount received. Shareholders should be aware that, as part of the terms of
short term financing taken on by the Group in recent months and as a result of incentives offered to certain employees of the Group, it is
likely that up to half of any deferred consideration achieved will be paid out.
Current trading and prospects
Further to the Chairman's statement accompanying the Group's preliminary announcement of results for the year ended 31 December 2007,
CIB's income for the half year is expected to come close to the Board's expectations. The development of the income of the wholesale and
specialist businesses continues to be slower than the Board's expectations and whilst the income of the Employee Benefits segment continues
to exceed that of last year although not by as much as had been planned, this segment is currently loss making at a slightly higher level
than for the same period last year
Enquiries
Culver Holdings Plc
John Biles - Director 020 7456 1350
This announcement is for information purposes only and does not constitute an offer or invitation to acquire or dispose of any
securities or investment advice in any jurisdiction.
SOURCES AND BASES
In this announcement, the following sources and bases of information have been used unless otherwise stated or the context otherwise
requires:
* Information on Culver has been extracted from its preliminary results for the 12 months ended 31 December 2007 announced on 30
April 2008; and
* Information on CIB has been extracted from its audited accounts for the 12 months ended 31 December 2007.
DEFINITIONS
"CCV" Cullum Capital Ventures Limited
"CIB" Culver Insurance Brokers Limited
"Completion" Completion of the Disposal
"Culver" or "Company" Culver Holdings plc
"Directors" or "Board" Directors of the Company
"Disposal" Company's proposed disposal of the whole of the issued
share capital of CIB
"Disposal Agreement" conditional agreement dated 13 June 2008 between
Protectagroup
Acquisitions Limited, CCV and the Company
"General Meeting" A general meeting of the Company convened to approve the
Disposal
"Group" The Company and its subsidiaries
"Protectagroup Acquisitions" Protectagroup Acquisitions Limited
or the "Purchaser"
End
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The company news service from the London Stock Exchange
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