Tomkins PLC Proposed Sale of Its European Food Manufacturing Businesses and Share Buy Back
21 July 2000
Tomkins PLC Proposed Sale of Its European Food Manufacturing Businesses and Share Buy Back
LONDON--July 21, 2000--The board of Tomkins PLC ("Tomkins") announces that it has entered into an agreement to sell Tomkins' European food manufacturing businesses ("RHM Europe") to Doughty Hanson & Co ("DH") for (pound)1,139 million. Total proceeds from the sale of Tomkins' food activities will be approximately (pound)1,227 million. This includes US$132.5 million (equivalent to (pound)88.3 million at an exchange rate of (pound)1=US$1.50) from the sale of Red Wing in the USA, which was completed on July 14, 2000. An Extraordinary General Meeting will be convened to approve the sale of RHM Europe.Tomkins acquired the majority of its food businesses through the purchase of Ranks Hovis McDougall plc ("RHM plc") in December 1992. In its 53 week financial year ended September 5, 1992, RHM plc made operating profits of (pound)93.0 million. Under Tomkins' control it has developed strongly into a substantial food manufacturing business with a portfolio of well-known brands. The operating profits for Tomkins' food manufacturing businesses, for the financial year ended April 29, 2000 were (pound)152.8 million, down from a record figure of (pound)166.5 million in the previous financial year. Over Tomkins' period of ownership, profit growth and cash flows have been significant such that the internal rate of return has been approximately 11% per annum.
In the financial year ended April 29, 2000 RHM Europe made operating profits of (pound)143.7 million on sales of (pound)1,682.8 million. Consolidated net assets on a debt free basis attributable to RHM Europe on April 29, 2000 were (pound)454.7 million. The transaction is expected to result in a goodwill impairment provision of (pound)171.4 million which is reflected as an exceptional item in Tomkins' accounts for the financial year ended April 29, 2000.
Tomkins' strategy
Notwithstanding the strength of RHM Europe, Tomkins believes that the challenges and opportunities in the group's markets make it appropriate for Tomkins to dispose of RHM Europe. It will concentrate on its engineering businesses, focusing on the continuing development of their value-added systems and components and capitalizing on industry consolidation and globalization of the supply base. The engineering businesses have leadership positions in the automotive, industrial and construction markets in which they operate. In the financial year ended April 29, 2000, Tomkins' engineering businesses generated operating profits of (pound)353.0 million on turnover of (pound)3,138.9 million. After adjusting for acquisitions and disposals this represents organic growth in operating profits of 11.0% and sales of 4.4% over the previous financial year.
Share buy back
Tomkins intends to return up to (pound)700 million of the proceeds of the disposal of RHM Europe to shareholders by means of a share buy back program, which may include convertible preference shares. The balance of the proceeds will be used to reduce borrowings.
Tomkins currently has authority to buy back up to 10% of its ordinary shares (approximately 95 million ordinary shares), and is recommencing its ordinary share buy back program. The Directors are also seeking a general authority at the Extraordinary General Meeting to make further purchases of up to 14.99% of the ordinary shares then in issue. Further authorities in relation to the share buy back program will be sought thereafter as appropriate.
Details of disposal
Under the disposal agreement DH has agreed to purchase the share capital of RHM Europe for a consideration of (pound)666 million payable in cash. In addition DH will repay outstanding intercompany debt owing to Tomkins of (pound)473 million and assume any outstanding external indebtedness or cash balances at completion.
The disposal agreement is conditional upon the approval of Tomkins' shareholders and on obtaining clearance from the European Commission. Completion is to take place two business days after the conditions have been satisfied.
The RHM pension fund, which is in surplus, benefits from certain contractual arrangements providing protections for the scheme. These result from arrangements in place before Tomkins acquired RHM plc. In order to facilitate the transfer of the fund and its protections Tomkins will make a payment to the fund of (pound)25 million which, in addition to (pound)18.6 million of costs of the sale transaction, is also being taken as an exceptional charge in Tomkins' accounts for the financial year ended April 29, 2000.
Current trading
Important structural changes are taking place in Tomkins and the Board is confident that Tomkins has the right platform from which to deliver further profitable growth for shareholders.
Conditions overall in our core markets remain competitive and while sales in the first two months are somewhat ahead of the comparable period last year, it is too early in the year to draw conclusions from this. The Professional, Garden & Leisure sector is being impacted by a number of factors. The food manufacturing operations are continuing to experience intense competition.
Further information
A circular will be sent to shareholders shortly containing further information on the sale of RHM Europe and containing a notice convening the Extraordinary General Meeting at which the resolutions to approve the disposal and to seek authority for market purchases of ordinary shares will be proposed.
Tomkins is a global engineering group of businesses with market and technical leadership positions, manufacturing value added systems and components for the automotive, industrial and construction industries.
Tomkins shares trade in the US in ADR form (each equal to four ordinary shares) on the New York Stock Exchange under the symbol TKS; its ordinary shares are listed on the London Stock Exchange.