Regus Group PLC said it proposes to buy HQ Global Holdings Inc for 163.5 mln stg in cash. The company also proposes a placing and open offer of up to 196,958,408 new ordinary shares at 62.25 pence each on the basis of one new ordinary share for every four existing ordinary shares to raise around 119 mln stg net.
Of the total of 196,958,408 new ordinary shares under the placing and open offer, 90,332,321 new ordinary shares, representing 45.9 pct of the total number, are to be placed on a firm conditional basis with institutional investors.
Under the open offer, 106,626,087 new ordinary shares, representing 54.1 pct of the total number, are to be conditionally placed with institutional investors, subject to clawback to satisfy valid applications by qualifying shareholders.
Maxon Investments, a company wholly owned by Mark Dixon, has undertaken to take up 1 mln new ordinary shares under the open offer and to waive the remainder of its entitlement under the open offer.
Regus said it has also obtained a commitment from Bear Stearns Corporate Lending Inc to provide new Debt Facilities comprising a term loan of 110 mln usd, a revolving credit facility of 25 mln usd to finance, in part, the consideration for the acquisition and to provide additional working capital and a credit linked deposit facility of 20 mln usd.
The placing and the open offer have been fully underwritten by Dresdner Bank AG and KBC Peel Hunt.
Regus sees the acquisition providing significant scope for synergies through reduction in corporate overheads, economies of scale and operating efficiencies.
Regus Group chairman John Matthews said the deal is expected to be both earnings per share and cashflow per share enhancing.
The board believes that it will be possible to realise overhead synergies of at least 11 mln stg on an annualised basis within an 18 month period from First Closing of the acquisition. It is intended that a streamlined management team from a single head office will manage the combined US business.
The board also believes that there will be opportunities to reduce total staffing levels at the business centres across the enlarged group.
In addition to the identified cost savings, the board expects that the combination of Regus and HQ will also provide opportunities to improve buying terms from major suppliers and to introduce operational efficiencies and cost control programmes into the enlarged group.
The board said it expects that the cost of achieving these synergies will be approximately 8 mln stg, principally incurred over the first nine months following completion, which is expected on Aug 20.
Regus also updated on current trading. It said that since it´s AGM, it has continued to improve overall performance and has seen a consistent improvement in its free cash flow at the operating level. The group´s forward order book remains strong, with 83 pct of budgeted revenues for 2004 already contracted or booked as at June 1 2004.
Global occupancy levels have continued to rise, standing at 74 pct in May 2004, an improvement of 15 pct since May 2003 and of 4 pct since December 2003.
The group also said revenue has steadily grown in the year to date, up 6 pct in May 2004 compared with December 2003 (at constant exchange rates) and REVPAW has risen 8 pct in the period from December 2003 to May 2004 (at constant exchange rates) over the same period.
Revenues in June 2004 have shown a further 600,000 stg improvement over May 2004 (at constant exchange rates). The group has also reduced discounting in 2004 and increased average list prices with the average sales price for new and renewal customers increasing from 347 stg per workstation in December 2003 to 387 stg per workstation in May 2004.
Accordingly, the group said it has experienced improving EBITDA margins across all its geographical regions.
The board believes that the future prospects of the group and following the acquisition, the enlarged group will be driven by the continuing trend in workspace outsourcing and continued economic recovery in its principal m