BAE.L Regulatory News (BAE)

BEALE PLC

("Beale" or the "Company")

Proposed acquisition of 19 department stores from Anglia Regional Co-operative Society Limited ("ARCS")

Proposed readmission of the Ordinary Shares to listing on the Official List of the UK Listing Authority and to trading on the London Stock Exchange

Proposed subscription by ARCS for new redeemable preference shares

and

Suspension of trading

The board of directors of Beale (the "Board") is pleased to announce that JE Beale plc (the principal trading subsidiary of the Company) ("JEB") has entered into a conditional agreement to acquire the trade and assets of 19 of the 23 department stores currently owned and operated by ARCS, a UK regional department store operator and co-operative society, for a total initial consideration of £7.5 million payable wholly in cash on completion of the Acquisition Agreement.

The consideration payable in respect of the Proposed Acquisition will be financed entirely by ARCS through the provision by it to JEB of a £2.5 million unsecured five year term loan and ARCS' subscription for £8.5 million principal of unlisted redeemable preference shares to be issued by the Company.

Due to its size in relation to Beale, the Proposed Acquisition constitutes a "reverse takeover" for the purposes of the Listing Rules. At the request of the Company, trading in Beale's ordinary shares on the Main Market of the London Stock Exchange has been suspended pending approval by the UK Listing Authority and publication of a combined circular and prospectus. Shareholder approval of the Proposed Acquisition will be sought at an extraordinary general meeting to be convened in due course, after which the Company will seek readmission of the Ordinary Shares to listing on the Official List of the UK Listing Authority and to trading on the London Stock Exchange. 

Further announcements will be made as appropriate.

Commenting on the Proposed Acquisition, Tony Brown, CEO said:

"We are very pleased that we have been able to reach conditional agreement with ARCS for the acquisition of these 19 stores. This transaction is in line with our strategy to grow the Group, secures the future of the acquired stores and marks a step change in the development of Beales".

For further information

Beale PLC

Tony Brown, Chief Executive

Ken Owst, Finance Director

Tel: 01202 552022

Shore Capital

Andrew Raca

Anita Ghanekar

Tel 0207 408 4090

Proposed acquisition of 19 department stores from ARCS

Proposed readmission of the Ordinary Shares to listing on the Official List of the UK Listing Authority and to trading on the London Stock Exchange

Proposed subscription by ARCS for new redeemable preference shares

and

Suspension of trading

1. INTRODUCTION

The Company has (through JEB) entered into a conditional agreement to acquire the trade and assets of 19 of the 23 department stores currently owned and operated across the UK by ARCS, a UK regional department store operator and co-operative society, for a total initial consideration of £7.5 million payable wholly in cash on completion of the Acquisition Agreement. Completion of the Proposed Acquisition is conditional upon the obtaining of various Shareholder approvals at an extraordinary general meeting of the Company to be convened in due course.

The consideration payable in respect of the Proposed Acquisition will be financed entirely by ARCS through the provision by it to JEB of a £2.5 million five year unsecured term loan and ARCS' subscription for £8.5 million principal of unlisted redeemable preference shares to be issued by the Company.

On Completion, ARCS will also pay a cash inducement to JEB of £2.3 million, £1.2 million of which must, within 12 months of Completion, be spent or be contractually committed to be spent on improvements to some or all of the Stores. Further financial contributions to assist trading performance will also be made by ARCS. Following Completion, ARCS will continue to own and operate various in-store concessions relating to the sale of furniture, beds and floorcoverings and the provision of travel agency, optician and hairdressing services at certain of the Stores.

Further information regarding the Stores and the terms of the Proposed Acquisition are set out in paragraphs 3 and 4 below.

Due to its size in relation to Beale, the Proposed Acquisition constitutes a reverse takeover under the Listing Rules and therefore requires the publication of a circular and prospectus on the Enlarged Group and the approval of Shareholders prior to Completion and Readmission. Given the need for Shareholder approval of the Proposed Acquisition and the related allotment and issue of the Preference Shares to ARCS, it is proposed that the approval of Shareholders also be sought for the adoption of new articles of association and a new performance share plan, further details of which will be set out in the combined circular and prospectus to be sent to Shareholders. It is anticipated that Completion should occur by the end of May 2011, conditional on Shareholder approval.

Accordingly, an extraordinary general meeting of the Company will be convened in due course for the purposes of considering and, if thought fit, approving the Proposed Acquisition, the allotment and issue of the Preference Shares and the adoption by the Company of new articles of association and performance share plan. The subscription proposed to be made by ARCS for the Preference Shares and the making by it of the Term Loan are inter-conditional. If the necessary Shareholder approvals are not obtained when the extraordinary general meeting is convened the Proposed Acquisition will not be completed, no investment will be made by ARCS in the Group and the Ordinary Shares will recommence trading on the London Stock Exchange.

2. BACKGROUND TO AND REASONS FOR THE PROPOSED ACQUISITION

The Group is engaged in the operation of a department store network, predominantly in provincial towns across the UK and currently operates 13 stores offering an assortment of merchandise, including womenswear, menswear, cosmetics, gifts, homewares, furniture, toys, electrical products and accessories.

ARCS is a large co-operative society in the UK and, following a management change three years ago, is currently following a strategy of focusing on its foods businesses and divesting certain non-food operations. The Proposed Acquisition follows the purchase by JEB in September 2010 of the Rochdale store previously owned and operated by ARCS. Discussions commenced with ARCS last year with a view to the Group acquiring the majority of its department store operations. Following Completion, ARCS will continue to own and operate just four department stores as well as its core furniture, food, travel and funeral operations.

One of the Group's main objectives is to become a leading regional department store retailer. It is the Board's belief that this objective will principally be achieved through acquisition with the aim of returning the Group to profitability and by ensuring, as far as possible, that new acquisitions make a positive contribution, whilst maintaining control of the Group's cost base.

The Board believes that the Proposed Acquisition represents a logical platform from which to further develop its existing businesses. It is both strategically and financially attractive for the following reasons:

·; the Proposed Acquisition will add a further 19 stores and approximately 450,000 square feet of trading space, excluding concessions (current Group total: approximately 555,000 square feet) and in the financial year ended 4 September 2010, the Business generated approximately £61.0 million of gross sales (including concessions and VAT);

·; the current performance of the Stores is below the Group average in terms of sales and profit per square foot, providing potential upside;

·; the consideration payable for the Proposed Acquisition is to be entirely financed by ARCS;

·; the Group will receive a £2.3 million one-off cash inducement from ARCS, some of which will provide funding for the immediate expected capital expenditure requirements of certain of the Stores;

·; the Group will also receive on-going financial contributions from ARCS which aim to mitigate anticipated trading risks at certain of the Stores and assist trading performance; and

·; combining the Stores with the existing Group offers scope for certain cost savings and revenue synergies to be implemented in the Enlarged Group.

Costs savings and revenue synergies

The Board believes that cost synergies may be achieved principally by optimising purchasing arrangements, improving the efficiency of the Enlarged Group and by reducing duplication of functions where appropriate. It also believes that optimising the sourcing of merchandise will yield improved margins for both the Stores and the Group's existing stores. It is anticipated that increases in sales may be achieved by the introduction of new departments and by adding already proven brands and products to the Stores. The Directors believe that these benefits can be delivered and the Stores successfully integrated without significant disruption to the underlying operations of the Enlarged Group.

The Directors believe that the Proposed Acquisition will be earnings enhancing.

3. INFORMATION ON THE STORES

The Group proposes to acquire leasehold interests in 19 of the 23 department stores currently owned and operated by ARCS across the UK and trading under the "Westgate" brand together with an associated warehouse property.

The range of departments traded in the Stores is similar to that already traded within the Group. The smaller Stores are more focused on fashion with the larger stores carrying a full department store offering. As with the Beale Group, merchandise is both sourced directly by ARCS and provided by suppliers operating in-store concessions. The sales mix of the Stores by category includes: fashion, home and gift ware, electrical, furniture and a range of ancillary services such as restaurants, opticians and hairdressing. The particular mix of categories varies from store to store depending on store size and the nature of the competition in each catchment area. The precise range and size of each department is targeted to the individual needs of each locality. In those Stores that currently have established furniture, beds, floorcoverings, travel, optician and hairdressing businesses, the relevant departments will continue to be operated by ARCS on a concession basis.

4. TERMS OF THE PROPOSED ACQUISITION

Under the terms of the Acquisition Agreement, JEB will acquire the fixed assets, contracts and goodwill associated with the Stores (including the "Westgate", "Contact Electrical Homestores" and "Comfortmaker" brands) for a nominal consideration and stock, forward orders and cash floats at valuation. In addition, JEB will be required within six months following Completion (or by 27 December 2011 if earlier) to purchase for sale through the Stores further stocks held at ARCS' distribution centre in Peterborough.

The Stores presently employ approximately 830 staff in total whose employment, together with that of certain ARCS head-office employees engaged primarily in the Business, will transfer to JEB on Completion.  

The precise level of consideration payable by JEB will be determined following the preparation and agreement of a completion statement and finalisation of a stock valuation process (which is intended to be achieved within two months of Completion).

Completion of the Proposed Acquisition, drawdown of the Term Loan and the issue by the Company to ARCS of the Preference Shares are each conditional on obtaining the necessary approvals of Shareholders at the extraordinary general meeting. If the necessary approvals of Shareholders are not obtained, the Acquisition Agreement will terminate in its entirety and the Proposed Acquisition will not proceed.

Given the relative size of the Proposed Acquisition and the comparative scale of the Group's existing IT function, JEB and ARCS have agreed that ongoing IT support for the EPOS systems used in the Stores will continue to be provided by ARCS (or its suppliers) at nominal cost to the Enlarged Group for a period of up to four years from Completion.

5. FINANCIAL INFORMATION ON THE BUSINESS

In the year ended 4 September 2010, the Business generated gross sales (including VAT) of approximately £61.0 million, a loss before taxation of approximately £4.9 million and a loss after taxation of approximately £3.5 million. As at the year ended 4 September 2010, the Business had gross assets of approximately £11.6 million and net assets of approximately £5.9 million.

6. FINANCING

As described above, the Group proposes to finance the Proposed Acquisition and fulfil certain of the further ongoing working capital requirements of the Enlarged Group, inter alia, through the provision by ARCS to JEB of an unsecured term loan of £2.5 million and the issue by the Company to ARCS of £8.5 million principal of Preference Shares.

The Term Loan will be repayable over a period of five years in instalments of £250,000 made at six monthly intervals commencing on 31 October 2011. Interest will be charged quarterly in arrears with effect from Completion at the rate of 4 per cent. per annum over the LIBOR rate.

No coupon is payable on the Preference Shares until the date falling five years after Completion but thereafter, ARCS will be entitled to receive in priority to the payment of dividends to the holders of Ordinary Shares a fixed net cash cumulative dividend of 8 per cent. per annum on the capital paid up on the Preference Shares for a period of 48 months and thereafter, until their redemption in full, a dividend of 9 per cent. per annum. In the event of a default which is not remedied within twelve months, the effective dividend accruing on the Preference Shares will increase by 4 per cent. per annum. The Preference Shares will be redeemable by the Company at par in equal instalments of £500,000 made at six monthly intervals commencing on the date falling 5½ years from Completion,or earlier if the Company so elects, without early settlement penalty.

On Completion, the Company will contribute the subscription monies received by it for the Preference Shares to JEB to enable it to satisfy the consideration payable under the Acquisition Agreement. The balance of the amount subscribed for the Preference Shares and the Term Loan remaining after payment of the initial consideration due to ARCS on Completion and settlement of the Group's professional expenses together with the £2.3 million cash inducement payable to JEB will be available for use by JEB in all its businesses.

7. EXTRAORDINARY GENERAL MEETING

As described above, completion of the Proposed Acquisition, the making of the Term Loan and the subscription by ARCS for the Preference Shares is subject to the obtaining of various approvals of Shareholders at an extraordinary general meeting to be convened in due course.

8. SUSPENSION IN TRADING IN THE COMPANY'S SHARES

Due to its size in relation to Beale, the Proposed Acquisition constitutes a reverse takeover under the Listing Rules. At the request of the Company, trading in the Ordinary Shares on the Main Market of the London Stock Exchange has been suspended pending approval of a combined circular and prospectus by the UKLA, Shareholder approval of the Proposed Acquisition and Completion. On the Effective Date the UK Listing Authority will cancel the listing of the Ordinary Shares. Applications will be made by the Company to the UK Listing Authority and the London Stock Exchange at the appropriate time for the Ordinary Shares to be readmitted to listing on the Official List and to trading on the London Stock Exchange's Main Market for listed securities.

A combined circular and prospectus containing notice of an extraordinary general meeting of the Company remains subject to approval by the UKLA but will be posted to Shareholders in due course.

Further announcements will be made as appropriate.

DEFINITIONS

The following definitions apply throughout this announcement unless the context requires otherwise: