TIDMPNN
RNS Number : 6703G
Pennon Group PLC
18 March 2020
18 March 2020
PENNON GROUP PLC
Proposed Sale of Viridor for GBP4.2 billion to KKR
Realising significant strategic value for shareholders
Pennon Group Plc ("Pennon", or the "Group") is pleased to
announce that it has entered into an agreement for the sale of
Viridor Limited ("Viridor"), one of the UK's leading recycling and
residual waste businesses, to Planets UK Bidco Limited ("Bidco"), a
newly formed company established by funds advised by Kohlberg
Kravis Roberts & Co. L.P. ("KKR"), for an Enterprise Value of
GBP4.2 billion (the "Transaction").
Transaction Highlights
-- Sale of Viridor for an Enterprise Value ("EV") of GBP4.2
billion on a cash-free, debt-free basis representing an EV/EBITDA
multiple of 18.5x([1])
-- Recognises the strategic value of Viridor's strong,
diversified and complementary UK recycling and residual waste
management platform and expected growth opportunities
-- Net cash proceeds expected to be approximately GBP3.7([2])
billion at completion, after taking into account debt and debt-like
items that will remain with Viridor, and customary costs. There is
also the potential for additional consideration of up to GBP0.2
billion contingent on future events and outcomes
-- The Pennon Board intends to use the net cash proceeds to
reduce Pennon's company borrowings and make a return to
shareholders, whilst retaining some funds for future
opportunities
-- The Transaction is conditional on approval from Pennon
shareholders, merger control clearance from the European Commission
and certain other conditions, and is expected to complete in summer
2020
-- The Transaction was unanimously agreed by the Pennon Board to
be in the best interests of shareholders
-- Pennon will continue to pursue operational excellence and
growth within the UK water industry.
Commenting on the Transaction, Chris Loughlin, Pennon Chief
Executive said:
"Following a detailed review of the Group's strategic options,
we are pleased to announce the proposed sale of Viridor for an
Enterprise Value of GBP4.2 billion. The transaction is great news
for shareholders as it recognises the strategic value that Pennon
has developed and nurtured in Viridor over many years and
accelerates the realisation of that value for shareholders. On
completion of the transaction, Pennon will continue to focus on its
sector-leading water and wastewater businesses and will consider
further growth opportunities that create value for customers,
employees and shareholders."
Dividend Policy
Pennon's dividend policy of 4% growth above RPI inflation will
remain unchanged for this financial year (2019/20). Pennon intends
to announce its new dividend policy for the K7 (2020-25) period at
the Full Year Results on 4 June 2020.
Analyst & Investor Briefing
Pennon will be hosting a briefing on 18 March 2020 commencing at
16:00 GMT to discuss this announcement. The webcast can be accessed
directly at http://view-w.tv/892-1187-23659/en . A conference call
facility is also available (Dial-in: +44 20 3936 2999 | PIN:
697537). The webcast can also be accessed via the Investor
Relations section of Pennon's website (
https://www.pennon-group.co.uk/investor-information ), with an
on-demand replay available following the briefing.
This summary should be read in conjunction with the full text of
this announcement. The Transaction constitutes a Class 1
transaction for the purposes of the Listing Rules. A circular
containing details of the Transaction and a notice convening a
general meeting will be posted to shareholders as soon as is
practicable.
This announcement contains inside information. The individual
responsible for releasing this announcement is Simon Pugsley, Group
General Counsel and Company Secretary.
For further information, please contact:
Pennon Group Plc +44 (0)1392 443 168
Susan Davy Chief Financial Officer
Sarah Moody Director of Corporate Affairs & Investor Relations
Jennifer Cooke Investor Relations Manager
Media Enquiries +44 (0)207 251 3801
James Murgatroyd Finsbury
Harry Worthington
Barclays Bank PLC, acting through its Investment Bank - Joint
financial adviser and joint sponsor to Pennon
Iain Smedley / Osman Akkaya / Vera Kaufmann +44 (0) 20 7623 2323
Morgan Stanley & Co. International plc - Joint financial
adviser, corporate broker and joint sponsor to Pennon
Andrew Foster / Francesco Puletti / Matthew Jarman + 44 (0) 20 7425 8000
ADDITIONAL INFORMATION
Introduction
Pennon is pleased to announce that it has entered into a
conditional agreement to sell Viridor Limited ("Viridor"), its
sector leading recycling and residual waste business, to Planets UK
Bidco Limited ("Bidco"), a newly formed private limited company
incorporated in England and Wales, established by funds advised by
Kohlberg Kravis Roberts & Co. L.P. ("KKR") for the purpose of
undertaking the Transaction.
The Transaction realises an Enterprise Value of GBP4.2 billion
on a cash-free, debt-free basis representing an EV/EBITDA multiple
of 18.5x([3]) . Debt and debt-like items remaining with Viridor
amount to GBP0.5 billion. Accordingly, net cash proceeds on
completion of the transaction ("Completion") receivable by Pennon
will be GBP3.7([4]) billion.
An explanatory circular containing further details of the
Transaction, the Pennon Board's recommendation to vote in favour of
the Transaction and the resolution to approve the Transaction will
be sent to shareholders with a notice to convene a general meeting
in due course.
Background to and reasons for the Transaction
Given the strong financial performance and operational progress
of the Group, coupled with the imminent start of the new K7
regulatory delivery period for South West Water and the near and
medium-term growth opportunities for Viridor, the Pennon Board
announced in September 2019 that it was conducting a review of the
Group's strategic focus, growth options and capital allocation (the
"Review").
Over a number of years Pennon has supported the strategic
development of Viridor with its operationally diversified and
complementary portfolio across the waste hierarchy. Significant
investment in the development of its Energy Recovery Facility
("ERF") portfolio has positioned Viridor as a leader in the
recycling and residual waste management sector.
It is from this strengthened position that the Board has,
through the Review, considered a range of options for the Group and
has unanimously agreed that the Transaction is in the best
interests of shareholders and other stakeholders for the following
reasons:
-- Recognises the strategic value of Viridor's strong
diversified and complementary UK recycling and residual waste
management platform and expected growth opportunities
-- Provides an attractive value for Viridor with an Enterprise
Value of GBP4.2 billion (representing an EV/EBITDA multiple of
18.5x([5]) )
-- Accelerates the realisation of value in cash.
Principal terms and conditions of the Transaction
Pursuant to the terms of the sale agreement, Bidco has agreed to
acquire Pennon's 100% shareholding in Viridor for a cash
consideration of GBP3.7([6]) billion after taking into account debt
and debt-like items that will remain with Viridor, and customary
costs.
Net debt and debt-like items include lease instruments of GBP0.3
billion and liabilities including provisions primarily relating to
the landfill operations of GBP0.2 billion.
Pennon may also receive additional consideration of up to GBP0.2
billion within the next six years in the event that amounts are
received by Viridor in respect of certain contingent matters. The
amount of any such additional consideration is dependent on future
events and outcomes.
Completion of the Transaction is expected to occur in summer
2020 and is conditional on the satisfaction of the following
conditions:
-- Approval from Pennon's shareholders (the Transaction is a
Class 1 transaction for the purposes of the Listing Rules for which
Pennon shareholder approval is required)
-- Merger control clearance from the European Commission
-- The release of certain parent company guarantees and other
similar commitments given by Pennon in respect of certain of
Viridor's obligations to third parties (provided that this
condition may be waived by Pennon at any time before
completion).
As is usual in transactions of this nature, the sale agreement
contains obligations on both sides to cooperate to obtain the
required approvals, as well as certain warranties and
indemnities([7]) .
Pennon and Bidco have agreed in principle to enter into a
transitional services arrangement under which Pennon will provide
various services to Viridor.
The Board considers the Transaction to be in the best interests
of shareholders. Accordingly, the Directors intend unanimously to
recommend that Pennon shareholders vote in favour of the resolution
at the general meeting to be convened to consider the
Transaction.
Discussions with shareholders and other relevant stakeholders,
including pension trustees, will be conducted in due course.
Use of Proceeds
The Pennon Board intends to use the GBP3.7([8]) billion net cash
proceeds to reduce Pennon's Company borrowings and make a return to
shareholders, whilst retaining some funds for future
opportunities.
Given current market uncertainty, further details will be
provided in due course and will take into account prevailing market
conditions and the investment needs of the business in line with
the appropriate capital allocation policy of the Group.
Effects of the Transaction
As a result of the Transaction, Pennon will change the way it
accounts for Viridor, including in the Group's Full Year Results to
31 March 2020, which will be announced on 4 June 2020. Until
completion occurs, Viridor will be accounted for as an asset held
for sale and presented in the Group's accounts as a discontinued
operation.
During the current and following financial years, Pennon may
incur restructuring and incremental costs relating to the
separation of Viridor. Pennon will also benefit from cost
efficiencies as it transitions over time to a simpler overall
structure.
Following the Transaction, Pennon will focus on its
sector-leading water and wastewater businesses and will continue to
pursue growth within the UK water industry.
Information on Viridor
Viridor is at the forefront of the resource sector in the UK,
transforming waste into energy, high-quality recyclates and raw
materials. It provides services to around 150 local authorities and
major corporate clients as well as around 32,000 customers (by
account) across the UK. Viridor has operated in the waste sector
since the early 1990s and has developed complementary activities
that deliver efficient and sustainable waste solutions with unique
competitive advantages. Viridor is a partner of choice for waste
management in the UK, with strong brand recognition and a
reputation for operational excellence and innovation. Viridor's
market-leading position ensures that it is given priority from
suppliers across the entire waste value chain.
Viridor has operations across the waste value chain through
ERFs, recycling, landfill and landfill gas, and a focused
collections activity supporting the broader Viridor operations.
Viridor operates across England, Wales and Scotland with a
workforce of c.3,000 people and is headquartered in Taunton,
Somerset.
Summary financial information of Viridor:
GBP million 2016/17 2017/18 2018/19
------------- ------------- -------------
Revenue 793.5 785.7 852.7
Adjusted EBITDA 198.5 202.9 225.4
Profit Before Tax 60.4 70.8 88.5
Gross Assets 2,117.6 2,246.7 2,502.6
Information on Bidco and KKR
Bidco is a newly formed private limited company incorporated in
England and Wales, established by funds advised by KKR for the
purpose of undertaking the Transaction.
KKR is a leading global investment firm that manages multiple
alternative asset classes, including private equity, energy,
infrastructure, real estate and credit, with strategic partners
that manage hedge funds. KKR aims to generate attractive investment
returns for its fund investors by following a patient and
disciplined investment approach, employing world-class people, and
driving growth and value creation with KKR portfolio companies. KKR
invests its own capital alongside the capital it manages for fund
investors and provides financing solutions and investment
opportunities through its capital markets business. References to
KKR's investments may include the activities of its sponsored
funds. As at 31 December 2019, KKR had $218.4 billion in assets
under management.
Information on Pennon
Following Completion, Pennon will be a UK-focused water
infrastructure group, comprising South West Water and Pennon Water
Services.
South West Water is focused on providing services in the most
efficient and sustainable way possible. Innovation, new
technologies and a holistic approach underpins our commitment to
delivering service improvement and long-term value.
South West Water (incorporating Bournemouth Water) provides
water and wastewater services to a population of c.1.7 million in
Cornwall, Devon and parts of Dorset and Somerset and water only
services to c.0.5 million in parts of Dorset, Hampshire and
Wiltshire.
Entering the new regulatory period (2020-25), South West Water
is the only water and wastewater company to have achieved
fast-track status for two consecutive price reviews. South West
Water is focused on delivering for our customers and communities
and continues to be committed to the highest standards of
environmental performance. Work is already underway to deliver the
commitments in the Business Plan focusing on cost base efficiency,
operational performance, customer service and sustainable
growth.
Pennon Water Services (an 80:20 venture with South Staffordshire
Plc) provides retail water, wastewater and value-added services to
over 160,000 non-household customer accounts across England and
Scotland, and is focused on achieving long-term, sustainable
growth.
The Pennon Board continues to progress the wider strategic
review and will consider value-creating growth opportunities, in
line with the appropriate capital allocation policy of the Group,
as they arise. A further update will be provided at the Full Year
Results on 4 June 2020.
IMPORTANT NOTICES
Information regarding forward-looking statements
This announcement includes statements that are, or may be deemed
to be, forward-looking statements. These forward-looking statements
can be identified by the use of forward-looking terminology,
including the terms anticipates, believes, could, estimates,
expects, intends, may, plans, projects, should or will, or, in each
case, their negative or other variations or comparable terminology,
or by discussions of strategy, plans, objectives, goals, future
events or intentions.
These forward-looking statements include all matters that are
not historical facts. They appear in a number of places throughout
this document and include, but are not limited to, statements
regarding Pennon and its intentions, beliefs or current
expectations concerning, among other things, the business, results
of operations, prospects, growth and strategies of the Group and
Viridor.
By their nature, forward-looking statements involve risk and
uncertainty because they relate to future events and circumstances.
Forward-looking statements are not guarantees of future performance
and the actual results of operations of the Group or Viridor and
the developments in the industries in which they operate, may
differ materially from those described in, or suggested by, the
forward-looking statements contained in this document. In addition,
even if the results of operations of the Group or Viridor and the
developments in the industries in which they operate are consistent
with the forward-looking statements contained in this document,
those results or developments may not be indicative of results or
developments in subsequent periods. A number of factors could cause
results and developments to differ materially from those expressed
or implied by the forward-looking statements including, without
limitation, general economic and business conditions, industry
trends, competition, changes in law and regulation, currency
fluctuations, changes in business strategy and political and
economic uncertainty.
Forward-looking statements may, and often do, differ materially
from actual results. Any forward looking statements in this
announcement reflect the Group's current view with respect to
future events and are subject to risks relating to future events
and other risks, uncertainties and assumptions relating to the
Group and its operations, results of operations and growth
strategy.
Other than in accordance with its legal or regulatory
obligations (including under the Listing Rules, the Disclosure
Guidance and Transparency Rules and the Prospectus Rules), Pennon
is not under any obligation and Pennon expressly disclaims any
intention or obligation (to the maximum extent permitted by law) to
update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
No profit forecast or estimates
No statement in this announcement is intended as a profit
forecast or estimate for any period and no statement in this
announcement should be interpreted to mean that earnings, earnings
per share or income, cash flow from operations or free cash flow
for the Group or Viridor for the current or future financial years
would necessarily match or exceed the historical published
earnings, earnings per share or income, cash flow from operations
or free cash flow for the Group or Viridor.
Cautionary statement
This announcement is not intended to, and does not constitute,
or form part of, any offer to sell or an invitation to purchase or
subscribe for any securities or a solicitation of any vote or
approval in any jurisdiction. Shareholders are advised to read
carefully the formal documentation in relation to the Transaction
once it has been despatched. Any response to the Transaction should
be made only on the basis of the information in the formal
documentation to follow.
Important information relating to the joint financial advisers
and joint sponsors
Barclays Bank PLC, acting through its Investment Bank
("Barclays"), which is authorised by the Prudential Regulation
Authority and regulated in the United Kingdom by the Financial
Conduct Authority and the Prudential Regulation Authority, is
acting exclusively for Pennon and no one else in connection with
the Transaction and will not be responsible to anyone other than
Pennon for providing the protections afforded to clients of
Barclays nor for providing advice in relation to the Transactions
or any other matter referred to in this announcement.
Morgan Stanley & Co. International plc ("Morgan Stanley"),
which is authorised by the Prudential Regulation Authority and
regulated by the Financial Conduct Authority and the Prudential
Regulation Authority in the United Kingdom, is acting exclusively
as sponsor, financial adviser and corporate broker to Pennon and
for no one else in connection with the Transaction and will not be
responsible to anyone other than Pennon for providing the
protections afforded to clients of Morgan Stanley or for providing
advice in relation to the Transaction, the contents of this
announcement or any transaction, arrangement or other matter
referred to in this announcement.
[1] Based on Viridor's 2018/19 Adjusted EBITDA of GBP225.4
million.
[2] Net cash proceeds shown assuming completion takes place on
31 May 2020.
[3] Based on Viridor's 2018/19 Adjusted EBITDA of GBP225.4
million.
[4] Net cash proceeds shown assuming completion takes place on
31 May 2020.
[5] Based on Viridor's Adjusted 2018/19 EBITDA of GBP225.4
million.
[6] Net cash proceeds shown assuming completion takes place on
31 May 2020.
[7] Bidco is entitled to a payment of GBP42 million if the sale
agreement is terminated where the Pennon Board has withdrawn,
modified, qualified or amended its recommendation to shareholders
to vote in favour of the Transaction
[8] Net cash proceeds shown assuming completion takes place on
31 May 2020.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
DISFLFESVEITLII
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