RNS Number:7168A
Atlantic Telecom Group PLC
12 November 1999
PART 1
Not for release, publication or distribution in whole or in part in or into
the United States, Canada, Japan, Australia or the Republic of Ireland
ATLANTIC TELECOM GROUP PLC
STRATEGIC PARTNERSHIP WITH MARCONI
PLACING AND OPEN OFFER BY CLOSE BROTHERS OF UP TO 22,416,170
NEW ORDINARY SHARES AT 440P PER SHARE
ANNOUNCEMENT OF INTERIM RESULTS FOR THE SIX MONTHS ENDED
30 SEPTEMBER 1999
HIGHLIGHTS
The Board of Atlantic is pleased to announce a conditional agreement for the
formation of the Strategic Partnership with Marconi, together with proposals
to raise approximately #93.8 million (net of expenses) by way of a Placing and
Open Offer at 440p per share. The Placing and Open Offer has been fully
underwritten by Close Brothers and Hoare Govett.
Atlantic is also announcing today its interim results for the six months ended
30 September 1999.
STRATEGIC PARTNERSHIP WITH MARCONI
The Strategic Partnership with Marconi comprises the following:
- the provision to Atlantic of a 20 year agreement for the exclusive use
and maintenance of dedicated fibre over a broadband fibre optic network,
together with associated equipment and software to enable the fibre to be
"lit". The Directors expect the fibre to be activated in stages, with
final activation expected towards the end of 2000. At that stage it will
provide over 40 points of presence and connect most of the major
conurbations in England and Scotland;
- the subscription by Marconi of #50 million in cash;
- Marconi will receive 39,100,000 New Ordinary Shares (valued at #172.0
million at the Offer Price);
- Marconi will have the right to subscribe at the Offer Price, up to 24
hours prior to Admission, for up to an additional 2,354,561 New Ordinary
Shares, taking its holding to 27.0 per cent. of the enlarged share
capital of Atlantic. Marconi has agreed to restrictions on its ability
to sell any New Ordinary Shares and to acquire any further Ordinary
Shares in Atlantic;
- the provision by Marconi of a vendor finance facility to Atlantic in
relation to purchases of #50 million worth of equipment from Marconi
under a separate Equipment and Software Supply Agreement over the next
three years;
- the contracting of maintenance services in relation to the Network
equipment and software to Marconi on arm's length commercial terms; and
- the appointment of a Marconi representative to the Atlantic Board.
The Directors believe that the Strategic Partnership will provide Atlantic
with:
- a national broadband fibre optic network which will reduce Atlantic's
costs and enable it to offer a broader range of services to a wider
target market at an earlier stage;
- considerably enhanced financial capability, both directly, by means of
the #50 million cash subscription and vendor financing, and indirectly,
by the positive impact the Directors believe that Marconi's presence will
have on Atlantic's ability to access the equity and debt markets; and
- access to Marconi's extensive range of leading edge products supported by
the vendor finance arrangements.
The Strategic Partnership and the Placing and Open Offer are interconditional
and conditional, inter alia, upon the approval of Atlantic's Shareholders at
the EGM, upon Admission and upon certain third party consents.
Placing and Open Offer and development of the Company's FRA networks
In addition to the Company's existing vendor finance and leasing facilities,
the #50 million cash subscription and the vendor finance to be provided by
Marconi, the Company proposes to raise approximately #93.8 million (net of
expenses) by means of the Placing and Open Offer. These aggregate funds will
be used principally to finance:
- approximately three-quarters of the planned buildout of FRA networks into
the City of Manchester and certain areas of Greater Manchester;
- the commercial deployment of high-speed data and other broadband services
across the majority of the Company's FRA operational licence areas; and
- the installation of city-centre fibre networks in Aberdeen, Dundee,
Edinburgh, Glasgow and Manchester.
The Company's senior debt facility will also be repaid and ongoing working
capital funded.
The Placing and Open Offer of up to 22,416,170 New Ordinary Shares at 440p per
share represents a discount of 8.8 per cent. to the mid-market price of 482.5p
on 11 November 1999 (the day before the date of this announcement). As agent
for the Company, Close Brothers will invite applications from Qualifying
Shareholders to subscribe for any number of Offer Shares up to their maximum
entitlement calculated on the basis of:
1 Offer Share for every 4 existing Ordinary Shares
and so in proportion for any Ordinary Shares held by them on the Record Date
on the terms and conditions that will be set out in the Circular and the
Application Form. It is expected that dealings in the New Ordinary Shares
will commence on 10 December 1999.
Future funding intentions and further network development
The Directors believe that the combination of the relationship with Marconi as
well as the equity raised from Marconi and under the Placing and Open Offer
will greatly enhance Atlantic's ability to access the debt capital markets on
acceptable terms to finance:
- the remaining capital costs of the planned Manchester network buildout and
the commercial deployment of high-speed data and other broadband services;
and
- further network buildout in other English regional licence areas.
The Directors intend to approach the debt capital markets early in 2000 if
market conditions are attractive but will remain opportunistic as to timing.
Interim results
Atlantic announces its unaudited interim results for the six months ended 30
September, 1999 which are summarised below and set out in full in Appendix I
to this announcement.
For the six months ended 30 September, 1999, Atlantic recorded turnover of
#10.2 million (1998: #6.9 million), loss before tax of #13.7 million (1998:
#6.9 million) and a loss per share of 16.2p (1998: 11.5p). In line with its
previously stated policy, the Board has not declared an interim dividend.
Executive Chairman's statement regarding the Strategic Partnership with
Marconi
Graham Duncan, Executive Chairman of Atlantic, said:
"We are delighted to be entering into this Strategic Partnership with Marconi,
one of the world's foremost communications and technology groups. Atlantic is
now well placed to roll out its successful business model into its target UK
market, significantly enhanced by the added benefits generated by the new UK
national broadband fibre optic network."
PRESS AND ANALYST MEETINGS
Meetings will take place at Citigate Dewe Rogerson, 3 London Wall Buildings,
as follows:
Analysts 9.30 a.m.
Press 11.30 a.m.
Enquiries:
Graham Duncan Atlantic Telecom 020 7638 9571 (on Friday
Executive Chairman 12 November)
01224 454 000 (thereafter)
Stephen Aulsebrook Close Brothers 020 7655 3100
Managing Director
David Arch
Director
Bob Pringle Hoare Govett 020 7678 8000
Senior Director
Jim Wight
Director
Patrick Toyne-Sewell Citigate Dewe Rogerson 020 7638 9571
Director
Alasdair Jeffrey Marconi 020 7306 1330
Peter Thompson Warburg Dillon Read 020 7567 8000
Managing Director
Daren Morris
Associate Director
This announcement has been approved solely for the purposes of section 57 of
the Financial Services Act 1986 by Close Brothers Corporate Finance Limited.
Close Brothers Corporate Finance Limited and Hoare Govett Limited, which are
regulated in the United Kingdom by The Securities and Futures Authority
Limited, are acting for Atlantic Telecom Group PLC and no one else in relation
to the matters described in this announcement and will not be responsible to
any other person for providing protections afforded to customers of Close
Brothers Corporate Finance Limited and Hoare Govett Limited or for providing
advice in relation to the matters referred to herein.
Warburg Dillon Read, which is regulated in the United Kingdom by The
Securities and Futures Authority Limited, is acting for GEC and Marconi in
connection with the Strategic Partnership and for no one else and will not be
responsible to any other person for providing protections afforded to
customers of Warburg Dillon Read or for providing advice in relation to the
Strategic Partnership.
This announcement does not constitute or form any part of any offer to the
public or invitation to sell or issue or any solicitation of any offer to the
public to purchase or subscribe for any securities of Atlantic. Any such
offer may be made only pursuant to the posting of definitive offering
documents (which would include detailed financial information regarding
Atlantic and its management) and only in such jurisdictions in which such
offerings may be permitted. The New Ordinary Shares have not been and will
not be registered under the US Securities Act of 1933 (as amended) or under
the securities laws of any state of the United States or under the applicable
securities laws of Canada, Japan, Australia or the Republic of Ireland.
Subject to certain limited exceptions the New Ordinary Shares may not be
offered, sold, taken up, renounced or delivered within the United States,
Canada, Japan, Australia or the Republic of Ireland or to or by any national,
resident or citizen of such countries.
Not for release, publication or distribution in whole or in part in or into
the United States, Canada, Japan, Australia or the Republic of Ireland
ATLANTIC TELECOM GROUP PLC
STRATEGIC PARTNERSHIP WITH MARCONI
PLACING AND OPEN OFFER BY CLOSE BROTHERS OF UP TO 22,416,170
NEW ORDINARY SHARES AT 440P PER SHARE
ANNOUNCEMENT OF INTERIM RESULTS FOR THE SIX MONTHS ENDED
30 SEPTEMBER 1999
INTRODUCTION
The Board of Atlantic is pleased to announce a conditional agreement for the
formation of the Strategic Partnership with Marconi, together with proposals
to raise approximately #93.8 million (net of expenses) by way of a Placing and
Open Offer at 440p per share. The Placing and Open Offer has been fully
underwritten by Close Brothers and Hoare Govett.
Atlantic is also announcing today its interim results for the six months ended
30 September 1999.
The Strategic Partnership with Marconi comprises the following:
- the provision to Atlantic of a 20 year agreement for the exclusive use and
maintenance of dedicated fibre over a broadband fibre optic network
together with the benefit of contractual arrangements for the provision of
the associated equipment and software to enable the fibre to be "lit".
The Directors expect the fibre to be activated in stages, with final
activation expected before the end of 2000. At that stage it will provide
over 40 points of presence and connect most of the major conurbations in
England and Scotland;
- the subscription by Marconi of #50 million in cash;
- the issue to Marconi of 39,100,000 New Ordinary Shares (valued at #172.0
million at the Offer Price);
- the provision by Marconi of a vendor finance facility in relation to
purchases by Atlantic of #50 million worth of equipment from Marconi under
a separate Equipment and Software Supply Agreement over the next three
years;
- the contracting of maintenance services in relation to the Network
equipment and software to Marconi on arm's length commercial terms; and
- the appointment of a Marconi representative to the Atlantic Board.
Marconi will also have the right to subscribe, up to 24 hours prior to
Admission, for up to an additional 2,354,561 New Ordinary Shares at the Offer
Price. Marconi's resultant holding, assuming the exercise of such Additional
Subscription rights, would be 41,454,561 Ordinary Shares, representing
approximately 27.0 per cent. of Atlantic's enlarged share capital following
the implementation of the Proposals. Should Marconi not exercise such right,
its resultant holding would be 39,100,000 Ordinary Shares, representing
approximately 25.9 per cent. of Atlantic's enlarged share capital following
the implementation of the Proposals.
The Directors believe that the Strategic Partnership will provide Atlantic
with:
- a national fibre optic network which will reduce Atlantic's costs and
enable it to offer a broader range of services to a wider target market at
an earlier stage;
- considerably enhanced financial capability, both directly, by means of the
#50 million cash subscription and vendor financing, and indirectly, by the
positive impact the Directors believe that Marconi's presence will have on
Atlantic's ability to access the equity and debt markets; and
- access to Marconi's extensive range of leading edge products supported by
the vendor finance arrangements.
The net assets being transferred by Marconi comprise the 20 year exclusive use
of the dedicated fibres over the Network (valued at #24.0 million), the
benefit of contractual arrangements for the agreement to supply equipment,
software and services to light the Network (to an amount of #22.3 million), a
credit note to acquire further equipment, software and services from Marconi
(to an amount of #4.1 million) and cash of #50 million.
Based on the Offer Price, the 39,100,000 New Ordinary Shares being issued as
consideration value the Strategic Partnership at #172.0 million, which the
Directors believe to represent the fair value of the overall transaction to
Atlantic. The premium of #71.6 million over the aggregate of the separate
amounts set out above reflects, in the Directors' opinion, only part of the
additional value that Atlantic expects to generate from the Strategic
Partnership.
In addition to the #50 million cash subscription and the vendor finance
facility to be provided by Marconi, Atlantic proposes to raise approximately
#93.8 million (net of expenses) by way of a Placing and Open Offer. These
funds, together with the Company's existing vendor finance and leasing
facilities, will be used to finance the buildout of Atlantic's FRA networks in
Greater Manchester, the deployment of high-speed data services and the
installation of city-centre fibre networks in both Manchester and Scotland, as
well as to repay the Senior Debt Facility and to fund the Company's ongoing
working capital requirements.
BACKGROUND AND ACHIEVEMENTS TO DATE
Atlantic is a competitive local exchange carrier, concentrating on building
local loop telecommunications access networks in heavily populated urban
areas. The Company is focused on providing advanced, reliable, high quality
and attractively priced telecommunications services directly to small and
medium-sized businesses and higher spending residential customers. To
accomplish this, the Company's networks use a cost-effective combination of
fibre and fixed wireless based access solutions, which provide broadband
backbone and direct "first-mile" connection to customers in the local loop.
In addition, Atlantic provides indirect telecommunications services, offering
managed services to medium-sized businesses and brand name services to smaller
businesses and residential customers.
The Company continues to develop its business in a number of areas and has
made considerable progress towards achieving its aims:
- Using the capital raised in 1998, Atlantic commenced buildout in the
remaining target conurbations in Scotland. The network is now operational
in the City of Glasgow, Greater Glasgow, Edinburgh, Dundee and Aberdeen
and the Scottish buildout is scheduled for completion by the end of
Atlantic's current financial year.
- In February 1999 five new regional licences were awarded for Atlantic to
expand its FRA services into some of the more densely populated English
regions, subject to the appropriate routine technical testing requirements
being met. On 15 October 1999 Atlantic was awarded a sixth licence
covering West Yorkshire (excluding the Greater Hull area), subject to
similar routine technical testing requirements being met.
- Buildout of the network has continued and customer numbers have increased.
In the quarter ended 30 September 1999 15 further base stations were
installed taking the total to 118 and lines installed and pending
installation increased by 22 per cent. to 81,799.
- The number of direct lines in the Group's networks reached 39,221 at 30
September 1999 compared to 26,004 at 31 March 1999 with a record increase
in the quarter ended 30 September 1999 of 7,020.
- The churn rate has remained at levels which the Board considers to be more
than satisfactory. Business churn was 14.94 per cent. for the twelve
months ended 30 September 1999, a slight improvement on the churn for the
twelve-month period ended 31 March 1999. Churn in the residential market
has continued at levels considered to be low by the Directors and was
13.19 per cent. in the twelve-month period to 30 September 1999, an
improvement of 0.31 per cent. on the churn for the twelve-month period to
31 March 1999.
- The "Crest" indirect service has expanded substantially, with lines
increasing from 8,545 at 31 March 1999 to 23,476 at 30 September 1999.
- Lines managed by Atlantic Logicall have increased from 17,663 at 31 March
1999 to 19,102 at 30 September 1999.
THE STRATEGIC PARTNERSHIP WITH MARCONI
Marconi
The Marconi group is a major international group focused on high growth
communications markets and selective markets for high technology products in
which it has strong positions.
The Marconi group consists of three businesses:
Communications
The Communications businesses are focused on the supply of communications and
data networking equipment and solutions internationally. Marconi's strategy
is to combine its expertise in public networks with its experience with
internet service providers and in private corporate networks to deliver
solutions for the development of broadband networks which offer internet,
voice, video, multimedia and private data services.
Systems
The Systems businesses apply advanced electronic and information technology
solutions in a range of industries with good growth prospects around the
world. Marconi intends to bring new technologies to market quickly and
effectively by drawing upon the resources, knowledge and proprietary
intellectual property available to it throughout the Marconi group.
Capital
Capital will be used as a vehicle for the development of innovative high
technology start-up and early stage investments to support the Marconi growth
objectives for the future. It also includes a number of businesses with
attractive returns on capital that do not necessarily fit the high technology
and high growth models that have been established in Communications and
Systems.
Provision and maintenance of the Network
An objective of the Strategic Partnership is for Marconi to provide Atlantic
with a 20 year right to use dedicated fibre over a broadband fibre optic
network, together with associated equipment and software to enable the fibre
to be "lit". This will connect most of the major conurbations of England and
Scotland covered by Atlantic's licences.
The principal advantages to Atlantic of the Network will be:
- enhanced margin due to lower interconnect costs for Atlantic's direct
access, indirect access and Logicall services;
- the ability to market Atlantic's indirect access product, Crest, and
forthcoming ISP offering to customers in the major English urban areas far
earlier and at far higher margins than would otherwise be possible; and
- the ability to deliver advanced network services to a wider market using
state-of-the-art technology.
The Network will be supplied to Telco (a newly incorporated company which will
be a wholly owned subsidiary of Atlantic following Admission) through the
Fibre Agreement (which will provide 20 year rights of use over a network of
dark fibres) and the arrangements for the provision of the equipment and
services necessary to light the fibres as contemplated by the Network
Framework Agreement.
The dark fibres provided by the Fibre Agreement will consist of:
- a pair of fibres over Fibreway's (a subsidiary of Marconi) owned "figure
of eight" network connecting the major conurbations in England and a pair
of fibres between Glasgow and Edinburgh;
- a pair of fibres over the network leased by Fibreway, being the links
between (i) Manchester and Glasgow and (ii) Leeds and Edinburgh; and
- two pairs of fibres linking Edinburgh and Dundee, which Fibreway will
lease from a third party.
Marconi will carry out the work and supply the equipment necessary to "light"
the fibres under the arrangements contemplated by the Network Framework
Agreement. Under this agreement Marconi and Atlantic will develop and agree a
Project Implementation Plan in respect of the network architecture and the
work and equipment necessary to carry out this work. While the Project
Implementation Plan is being negotiated the parties will conclude an
appropriate network turnkey agreement which will comprise both the supply and
implementation of this equipment and the civil works necessary for the
provision by Marconi of the Network as contemplated by the Project
Implementation Plan. This process is expected to take between 4 and 12 weeks.
Should the price of the equipment and services to be provided under the
network turnkey agreement exceed #22.3 million, Atlantic will pay any excess
to Marconi. In the event that such prices are less than #22.3 million,
Marconi will provide Atlantic with a credit note for the difference to be
utilised in the purchase by Atlantic of equipment from Marconi pursuant to the
Equipment and Software Supply Agreement described below.
Under the Network Framework Agreement, Marconi will provide Atlantic with a
credit note for equipment or services to be procured by Marconi up to an
amount in aggregate of #4.1 million.
In addition, Marconi will enter into the Support Agreement with Telco for the
maintenance of the installed network equipment and software, including the
payment of arm's length fees by Telco.
Equipment and Software Supply Agreement (including vendor finance)
The Equipment and Software Supply Agreement sets out the basis on which
Atlantic will acquire up to #100 million of certain types of
telecommunications equipment from Marconi on arm's length commercial terms.
Atlantic has agreed that the aggregate value of such purchases over the next
three years will be no less than #50 million. Atlantic is committed to
delivering telecommunications and data services to its customers using
whichever are the most appropriate technologies for its customer base. The
Directors believe that this agreement will provide Atlantic with the
opportunity to gain access to Marconi's extensive range of leading edge
products.
This obligation will be subject to Marconi being able to provide equipment
which complies with the Company's reasonable technical requirements and is
reasonably commercially suitable in terms of both functionality and price.
Atlantic will acquire the equipment at list price less the average discount
granted by Marconi in relation to such (or similar) equipment over the
preceding twelve months, taking into account volume discounts in the ordinary
course of business. Atlantic has already been trialling high-speed data
products supplied by Marconi and, subject to the successful completion of
these trials, expects to place an initial order for this equipment within the
next few months.
In addition to the high-speed data equipment needs in Scotland, the Directors
envisage that in early 2000, equipment will be ordered from Marconi to be
utilised in the initial phase of the Greater Manchester buildout as follows:
- point to multipoint radio equipment will be purchased as the network is
built. The level of purchases will be dependent on the speed of the
rollout of the network and on the increase in customer levels. This
equipment will account for much of the Company's customer connection
costs;
- backhaul network equipment and SDH equipment are required during the
buildout of the Network, but the requirements will slow as the network
nears completion, which is expected to be during 2001. This is core
equipment used to build the network infrastructure; and
- ATM and other switches which will be incorporated in the network next
year.
The construction of city centre fibre networks will also utilise SDH equipment
and multiplexing equipment (which is used to connect customers to the
Company's network and to other operators). The Directors expect that these
city centre networks will be complete during calendar 2000.
The Directors' longer term strategy is to complete the buildout of the most
attractive parts of the North West licence area and to expand the network into
the other English licence areas. Although the profile of capital spend will
depend on the future funding of the Company, the Directors envisage that
further purchases similar to those set out above will be made.
Marconi has agreed to support this agreement by agreeing to work with Atlantic
to arrange export credit facilities for non-UK sourced equipment or other
structured finance facilities for equipment up to a cost (excluding VAT) of
#50 million. To the extent that such facilities are not arranged or Marconi
and Atlantic agree not to seek such facilities, Marconi will make available
vendor finance, in the form of deferred payment terms, on the balance of the
#50 million of purchases (but no more than #25 million of equipment financed
in this way may be installed in customer premises). The deferred payment
terms will be 364 days credit with interest at commercial rates accruing after
30 days, in line with supplier terms currently available to Atlantic. To the
extent that Atlantic elects to take up any export credit or structured finance
facilities, the net present value of any benefit over the deferred payment
terms will be shared equally by Atlantic and Marconi.
Marconi shareholding
Following completion of the Strategic Partnership and the Placing and Open
Offer, and assuming that Marconi exercises its rights under the Additional
Subscription, Marconi will hold 41,454,561 Ordinary Shares, representing
approximately 27.0 per cent. of Atlantic's enlarged share capital. Marconi
has undertaken not to dispose of any Ordinary Shares prior to 31 December 2001
and not to sell any Ordinary Shares prior to 31 December 2003 without prior
consultation with Atlantic. In addition, Marconi has agreed not to purchase
or offer to purchase any Ordinary Shares that would result in it holding in
excess of 27.0 per cent. of Atlantic's issued share capital whilst it has the
right to appoint a Director. These undertakings are subject to certain
limited exceptions.
The Subscription Shares and the Additional Subscription shares are to be
issued on a non pre-emptive basis. The Directors consider that the issue of
these shares is an integral part of the Strategic Partnership which they
believe will substantially enhance Atlantic's ability to deliver the full
benefits of its business plan.
Conditions
The Strategic Partnership and the Placing and Open Offer are interconditional
and are also conditional upon, inter alia, (1) the passing of the Resolutions
set out in the notice of the EGM (which relate to the approval of the Placing
and Open Offer and the Strategic Partnership), (2) the Placing Agreement
having become unconditional in all respects and not, prior to Admission,
having been terminated in accordance with its terms, (3) Admission and (4)
certain third party consents.
Appointment of a director
Atlantic is also proposing to alter its Articles such that Marconi will have
the right to appoint a director whilst its holds in excess of 10 per cent. of
Marconi's issued share capital. Once appointed, such director will not retire
by rotation and may only be removed by Marconi.
Future trading relationship
The Directors expect Marconi to remain a key supplier of equipment to Atlantic
whilst it continues the buildout of its network and, in particular, Atlantic
may in the future wish to purchase equipment from Marconi in excess of the
Equipment and Software Supply Agreement. As a result of Marconi's shareholding
in Atlantic following the implementation of the Proposals, such equipment
purchases may be classified as related party transactions under the rules of
the London Stock Exchange and the prior approval of Shareholders will be
sought as appropriate. Atlantic has undertaken to Marconi to use its
reasonable endeavours to seek Shareholders' approval on an annual basis to
purchases in excess of the amount set out in the Equipment and Software Supply
Agreement.
BUSINESS STRATEGY
It is the intention of the Directors that the Company should continue to be a
premier provider of high quality value added services within targeted sectors
of the UK telecommunications market, using appropriate technologies that are
tailored to its customer base.
Roll out of the FRA network
Having been issued with the licence for the North West of England, the Company
plans to build out this area on a modular basis and will begin construction in
the City of Manchester and certain areas of Greater Manchester in early 2000
with commercial launch scheduled for summer 2000. The Proposals will enable
the Company to finance approximately three quarters of the planned buildout of
the FRA network in the City of Manchester and certain areas of Greater
Manchester. The Board intends to finance the completion of the planned
modular Manchester network buildout by way of a high yield note issue when
market conditions permit an issue on commercially acceptable terms.
HIGH-SPEED DATA AND OTHER BROADBAND SERVICES
The Directors believe that significant opportunities exist in the small to
medium-sized business markets for those telecommunications operators who can
deliver advanced, high quality, cost effective and reliable voice and high
speed data and other broadband services. The Directors expect that the Company
will increasingly provide high-capacity telecommunications services through
direct fibre connections or high bandwidth point to point fixed wireless
connections. Additionally, the Directors have been encouraged by the results
of trials of the technology that will enable Atlantic to provide broadband
point to multipoint services to smaller-sized business customers and higher-
spending residential customers. This technology can use Atlantic's existing
spectrum to deliver speeds of up to 3.2 Mbs to customers.
Following the introduction of high-speed data services, the Directors intend
that Atlantic will become an Internet Service Provider, focusing on high-speed
connection to small to medium-sized businesses and residential customers. As
an ISP, Atlantic will provide a full range of services to residential and
business customers including outsourcing of web hosting, design and management
and the provision of various information and interactive services. This will
be developed under the umbrella brand "atlantic-e.com".
The Directors expect that the Proposals will allow Atlantic to launch high-
speed data services around Easter 2000 and, in due course, to provide these
services across the majority of the Company's FRA operational licence areas.
City-centre fibre networks
Atlantic intends to install more city-centre fibre networks as an integral
part of its network build. The Directors believe this will further enhance
Atlantic's ability to attract the larger customers in the small to medium-
sized business market. The Directors expect that the Proposals will enable
the Company to fund the installation of city-centre fibre networks in
Aberdeen, Dundee, Edinburgh, Glasgow and Manchester.
Fibre optic network
Atlantic intends to utilise the new fibre optic network to carry
telecommunications traffic from its direct and indirect services, thereby
enhancing the margin available to Atlantic through a reduction in interconnect
charges. Atlantic also intends to use the Network to facilitate the earlier
and more profitable introduction of Crest, its indirect service, and its
forthcoming ISP product, to areas outside the regions within which it provides
its direct service. In due course Atlantic expects to use the Network to
facilitate the delivery of more advanced network services to customers.
FUNDING
Use of proceeds arising from the Proposals
In addition to the Company's existing vendor finance and leasing facilities,
the #50 million cash subscription and the vendor finance to be provided by
Marconi, Atlantic proposes to raise approximately #93.8 million (net of
expenses) by way of the Placing and Open Offer.
The Directors' current estimate is that approximately #25 million of these
funds will be used to finance around three quarters of the planned buildout of
FRA networks into the City of Manchester and certain areas of Greater
Manchester; approximately #10 million will be used to fund the commercial
deployment of high speed data and other broadband services across the majority
of the Company's operational licence areas; approximately #20 million will be
used to fund the installation of city centre fibre networks in both Manchester
and Scotland which will be linked to the new fibre optic network;
approximately #10 million will be used to fund the completion of the Scottish
build; and approximately #25 million will be used to fund customer
installation costs and other capital expenditure across all areas.
In addition and as explained below, the drawings of #20 million under the
Company's Senior Debt Facility will be repaid out of the proceeds of the
fundraising. The remainder of these funds will be used to fund the Company's
continuing installation costs, operating losses and other working capital
requirements.
Senior Debt Facility
Following completion of the Proposals, which include a new vendor finance
facility of a similar amount to the Company's Senior Debt Facility, the
Directors believe that this facility will no longer represent an appropriate
form of financing. The drawings of #20 million will therefore be repaid out
of the proceeds of the fundraising. Upon repayment, the Senior Debt Facility
will be cancelled and Atlantic will charge the capitalised expenses associated
with this facility of approximately #1.7 million to its profit and loss
account.
Future funding intentions
The Board intends to finance the remaining capital costs of the planned
Manchester network buildout and the commercial deployment of high speed data
and other broadband services by way of a high yield note issue when market
conditions permit such an issue on commercially acceptable terms. It is
expected that such an issue would also finance further network buildout in the
English regional licence areas. If the Company is unable to, or chooses not
to, access the high yield markets and the Board continues to roll out its
network in accordance with its current business plan, it is likely that the
Company will require additional funding in the second half of 2001.
The Board has undertaken the preparatory work necessary for it to raise funds
by means of a high yield note issue. However, having been advised in Autumn
1999 that market conditions for new issuers such as Atlantic were not
propitious, the Directors concluded that it was inappropriate to approach high
yield investors at this stage.
Following completion of the Proposals, however, the Directors believe that the
combination of the Strategic Partnership with Marconi and the equity raised
under the Proposals will greatly enhance Atlantic's ability to access the debt
capital markets on acceptable terms and the Directors are confident of
Atlantic's ability to raise funds in the high yield market in the near future.
The Directors intend to approach these markets in early 2000 if market
conditions are attractive but will remain opportunistic as to timing.
In the event that the terms of such a high yield offering could be improved by
the issue of warrants to subscribe for new Atlantic Ordinary Shares, the
Directors would expect to use the authority that they have requested be
granted to them at the forthcoming EGM to disapply statutory pre-emption
rights in respect of up to 5 per cent. of the Company's then issued share
capital.
BACKGROUND TO AND REASONS FOR THE PLACING AND OPEN OFFER
The Board believes that the value of the Company will be maximised by rolling
out the FRA network, deploying the high-speed data and other broadband
services (including the ISP product) and installing the fibre networks as soon
as practicable.
In the absence of the Strategic Partnership and the Placing and Open Offer,
the Company would need to raise further funds in the short term to fund the
Group's ongoing operating losses, customer installation costs and other
working capital requirements. The Strategic Partnership is conditional upon
raising a minimum of #75 million (before expenses) by way of the Placing and
Open Offer. Accordingly, the Board considers the Placing and Open Offer in
conjunction with the Strategic Partnership to be in the best interests of the
Company.
DETAILS OF THE PLACING AND OPEN OFFER
The Company is proposing to raise #93.8 million (net of expenses) by the issue
of up to 22,416,170 New Ordinary Shares at 440p per share pursuant to the
Placing and Open Offer. All of these Offer Shares are being made available to
Qualifying Shareholders under the Open Offer. The 3,847,795 Offer Shares for
which the Directors (other than Alisdair McKenzie, Martin Beard and Andrew
Laing) and certain connected parties have irrevocably undertaken not to
subscribe (representing 17.2 per cent. of the Offer Shares) are being placed
firm with institutional investors (the "Firm Placing"). The remaining
18,568,375 Offer Shares are being placed subject to recall to satisfy valid
applications under the Open Offer (the "Clawback Placing").
As agent for the Company, Close Brothers will invite applications from
Qualifying Shareholders to subscribe for any number of Offer Shares up to
their maximum entitlement calculated on the basis of:
1 Offer Share for every 4 existing Ordinary Shares
and so in proportion for any Ordinary Shares held by them on 4 November 1999,
being the Record Date on the terms and conditions that will be set out in the
Circular and the Application Form.
It is expected that the Circular and Application Form will be posted no later
than Tuesday 16 November 1999. On that basis, completed Application Forms and
payment in full under the Open Offer must be made by 3.00 p.m. on 6 December
1999. Application Forms are personal and may not be transferred except to
satisfy bona fide market claims. It is expected that Admission will take
place and dealings in the New Ordinary Shares will commence on 10 December
1999.
Valid applications, up to a Qualifying Shareholder's maximum entitlement, will
be satisfied in full, rounded down to the nearest whole number of New Ordinary
Shares. Fractions of New Ordinary Shares will not be issued but will be
aggregated and allotted as part of the Placing. Qualifying Shareholders
should be aware that any New Ordinary Shares not applied for under the Open
Offer will not be sold in the market or placed for the benefit of Qualifying
Shareholders. The New Ordinary Shares will be issued credited as fully paid
and will rank pari passu in all respects with the existing Ordinary Shares of
the Company including the right to receive any dividend declared after the
date of the Circular. The Directors do not envisage declaring a dividend for
the foreseeable future.
The Placing and Open Offer has been fully underwritten by Close Brothers and
Hoare Govett.
The New Ordinary Shares to be issued pursuant to the Clawback Placing, the
Firm Placing and the Additional Subscription will be issued at the Offer
Price, the price at which Offer Shares will be available to Qualifying
Shareholders under the Open Offer.
The Placing and Open Offer are conditional upon, inter alia, (1) the passing
of the Resolutions set out in the notice of the EGM, (2) completion of the
Strategic Partnership, (3) the Placing Agreement having become unconditional
in all respects and not, prior to Admission, having been terminated in
accordance with its terms and (4) Admission. The Placing and Open Offer and
the Strategic Partnership are interconditional.
Application will be made to the London Stock Exchange for the New Ordinary
Shares to be admitted to the Official List.
CURRENT TRADING AND PROSPECTS
Atlantic announces its unaudited interim results for the six months ended 30
September, 1999 which are summarised below and set out in full in Appendix I
to this announcement.
For the six months ended 30 September, 1999, Atlantic recorded turnover of
#10.2 million (1998: #6.9 million), loss before tax of #13.7 million (1998:
#6.9 million) and a loss per share of 16.2p (1998: 11.5p). In line with its
previously stated policy the Board has not declared an interim dividend.
Following the Proposals, Atlantic will be able to carry traffic on its own
national network, expand its existing operations into new areas and introduce
new services. The Directors are confident that these developments will
significantly enhance the Enlarged Group's prospects.
GENERAL
This announcement has been approved solely for the purposes of section 57 of
the Financial Services Act 1986 by Close Brothers Corporate Finance Limited.
The definitions of terms used in this announcement are contained in Appendix
II.
Close Brothers Corporate Finance Limited and Hoare Govett Limited, which are
regulated in the United Kingdom by The Securities and Futures Authority
Limited, are acting for Atlantic Telecom Group PLC and no one else in relation
to the matters described in this announcement and will not be responsible to
any other person for providing protections afforded to customers of Close
Brothers Corporate Finance Limited and Hoare Govett Limited or for providing
advice in relation to the matters referred to herein.
Warburg Dillon Read, which is regulated in the United Kingdom by The
Securities and Futures Authority Limited, is acting for GEC and Marconi and
for no one else in connection with the Strategic Partnership and will not be
responsible to any other person for providing protections afforded to
customers of Warburg Dillon Read or for providing advice in relation to the
Strategic Partnership.
This announcement does not constitute or form any part of any offer to the
public or invitation to sell or issue or any solicitation of any offer to the
public to purchase or subscribe for any securities of Atlantic. Any such
offer may be made only pursuant to the posting of definitive offering
documents (which would include detailed financial information regarding
Atlantic and its management) and only in such jurisdictions in which such
offerings may be permitted. The New Ordinary Shares have not been and will
not be registered under the US Securities Act of 1933 (as amended) or under
the securities laws of any state of the United States or under the applicable
securities laws of Canada, Japan, Australia or the Republic of Ireland.
Subject to certain limited exceptions the New Ordinary Shares may not be
offered, sold, taken up, renounced or delivered within the United States,
Canada, Japan, Australia or the Republic of Ireland or to or by any
national, resident or citizen of such countries.
MORE TO FOLLOW
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