USA - related party transaction
May 14 2009 - 2:00AM
UK Regulatory
TIDMMUL
RNS Number : 2167S
Mulberry Group PLC
14 May 2009
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Mulberry Group plc
USA - related party transaction
Mulberry Group plc ("Mulberry"), the luxury British fashion brand, announces
that it has reached agreement in principle with its US partner to terminate the
existing joint venture arrangements allowing Mulberry to take full control of
the wholesale and retail sales of Mulberry products in the key US market.
This will enable Mulberry's increasingly important online retail business to be
consolidated with the wholesale and retail operations in the US, creating a
simpler and more effective operation.
Background
During September 2000, the rights to retail and wholesale Mulberry products in
the US were granted to Mulberry USA LLC ("MUSA"), a limited liability
partnership between Mulberry and a company under the control of the owners of
Challice Limited ("Challice"). Challice is the owner of approximately 60% of the
issued share capital of Mulberry. The rights to sell online in the US were
retained by Mulberry.
Since establishing MUSA, five shops were opened in the US in East and West Coast
locations and the wholesale business was developed. The significant capital
outlay and start up trading losses were borne by MUSA and financed by Challice
with Mulberry's contribution to the joint venture being limited to $1 million
plus the commitment to support strategic marketing initiatives. MUSA sales grew
steadily up to September 2008 but have been hit by the economic downturn.
Since 2000, the growing importance of an effective online retail presence as
both a sales and a marketing channel has become increasingly apparent.
Mulberry's online sales have grown significantly over this period and this trend
is expected to continue.
It is also clear that marketing and particularly celebrity endorsement in the US
benefits the sales of the brand globally.
It was concluded that MUSA should close three shops and that Mulberry should
acquire the remaining two shops in New York and take back the retail and
wholesale rights to the US. This will allow a coordinated marketing and sales
approach for the whole US market (including online retail) and enable a simpler
and more cost effective structure.
The transaction
It is anticipated that the transaction, which has been agreed in principle
subject to the execution of binding legal documentation by the parties, will
complete when the transfer of the two New York leases to a wholly owned
subsidiary of Mulberry has been executed.
In the interim, Mulberry has assumed management control of the US operation from
the 1st April 2009 and on completion will acquire from MUSA its inventories and
the leases and related assets of the two shops in New York (Madison Avenue and
Bleecker Street). In addition, as an integral part of the transaction, Challice
will simultaneously acquire Mulberry's 50% stake in MUSA for nominal
consideration.
Consideration
It is anticipated that Mulberry will pay the following amounts for the various
assets to be acquired:
- Inventories will be purchased at cost for approximately $0.5 million.
- The leases and fixed assets within the two shops will be acquired for $1.
- Other assets associated with the business transferred will be acquired at
market value.
- Deferred consideration of up to GBP1 million will become payable to
Challice on a stepped basis if
sales generated from the US market
during the third year post completion exceed certain
agreed
thresholds. The consideration will be payable in cash or, at Mulberry's option,
new
Mulberry shares, the number of shares being calculated at the then
prevailing share price.
In addition, Mulberry will pay to Challice any premium it receives from a
disposal of the two shop leases during the period of three years from
completion.
Financial projections
The financial projections prepared for the US operation show that the annual
cost of taking over the two shops and the wholesale business as well as
continuing to support strategic marketing will be in the region of $2.0 million
for the year to 31st March 2010, reducing in subsequent years. During the year
ended 31 March 2009, operations in the US cost Mulberry approximately $1.6
million, being the cost of strategic brand marketing incurred directly by
Mulberry, less the margin on goods supplied to MUSA.
It is the opinion of the Board that at these levels, the business can be
supported by Mulberry without material detriment to the reported results or cash
position. Furthermore, the US represents a significant growth opportunity for
Mulberry and the Board believes that the new business structure being put in
place is the most appropriate for Mulberry and its shareholders going forward.
In accordance with the AIM rules, the Mulberry directors Steve Grapstein,
Godfrey Davis and Bernard Heng as directors of MUSA are considered to be related
parties for the purposes of this transaction. In accordance with AIM Rule 13,
the Mulberry Board (excluding Steve Grapstein, Godfrey Davis and Bernard Heng),
having consulted with Mulberry's nominated adviser, considers that the terms of
the transaction are fair and reasonable insofar as Mulberry's shareholders are
concerned.
For further details please contact:
+------------------------------------+------------------------------------+
| Pelham PR | Tel: +44 (0) 20 7337 1503 |
| David Wynne-Morgan | Tel: +44 (0) 20 7337 1515 |
| Gavin Davis | |
+------------------------------------+------------------------------------+
| Altium Capital | Tel: +44 (0) 20 7484 4076 |
| Ben Thorne | |
+------------------------------------+------------------------------------+
This information is provided by RNS
The company news service from the London Stock Exchange
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