REG - SAGA Plc - Saga and Ageas agree new Insurance partnership
16/12/2024 07:00
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RNS Number : 1929Q SAGA PLC 16 December 2024
This announcement contains inside information.
16 December 2024
Saga plc
Saga and Ageas agree new Insurance partnership and sale of Saga's Underwriting
business
Further to the announcement on 11 October 2024, Saga plc (Saga) has entered
into an agreement with wholly-owned subsidiaries in the UK of Ageas SA/NV
(Ageas), to establish a 20-year partnership for motor and home insurance (the
Affinity Partnership).
In addition, Ageas will acquire Saga's Insurance Underwriting business,
Acromas Insurance Company Limited (AICL) (the AICL Sale) (the Affinity
Partnership and the AICL Sale being together, the Transaction).
The Affinity Partnership will combine the strength of the Saga brand, Saga's
marketing skills and customer base and Ageas's extensive and growing UK
insurance operations. The Affinity Partnership will build on the existing
successful relationship between the Saga group of companies (the Group) and
Ageas (UK) Limited (Ageas UK), which is already a member of Saga's panel of
insurers. The new partnership is designed to deliver best-in-class insurance
services to Saga customers, driving growth in Saga's motor and home insurance
business through differentiated products, first rate customer service and
value for money.
Saga, with its specialist role as a leading provider of products and services
for people over 50, is committed to providing best-in-class products and
services to its customers across all its businesses. Against this backdrop,
the board of directors of Saga (the Board) has been exploring opportunities to
optimise, with partners, Saga's strategic position in Insurance. The
Transaction is consistent with Saga's ambition to drive growth, crystallise
value, reduce debt and enhance long-term value for shareholders.
Transaction highlights
Affinity Partnership
· Wholly-owned subsidiaries in the UK of Ageas have entered into
the Affinity Partnership with Saga Services Limited (SSL), Saga's Insurance
Broking business, to operate Saga's motor and home insurance products.
· Ageas will take on price-comparison website distribution, pricing
and underwriting, claims and customer servicing activities, with Saga
retaining responsibility for brand and direct marketing.
· The Affinity Partnership, and therefore the sale of new policies
and the renewal of existing ones, is targeted to commence in Q4 2025 (such
milestone, when achieved, being the Operational Readiness Date).
· The Affinity Partnership will be for a 20-year term from the
Operational Readiness Date.
· Pursuant to a business transfer agreement (BTA), SSL will
transfer certain business assets and grant certain rights relating to its
motor and home insurance business to Ageas.
· Upfront consideration of £80.0m is payable to SSL under the BTA
in two tranches, subject to the satisfaction of certain conditions(1).
· Contingent consideration amounts of between nil and £30.0m in
2026, and the same again in 2032, are payable subject to certain policy volume
and profitability targets being met and the satisfaction of certain
conditions(1).
· SSL will receive commission based on a percentage of the Gross
Written Premiums (GWP) generated over the term of the Affinity Partnership.
· SSL's existing partnerships with Collinson, for travel insurance,
and Bupa, for private medical insurance, are unaffected by the Transaction.
(1) Conditions include the publishing of Saga's interim accounts for the
six-month period ended 31 July 2025 on a going concern basis, without material
uncertainty or an auditor qualification, and the extension or refinancing of
Saga's existing corporate bond maturing in July 2026 and loan facility with
Roger De Haan maturing in April 2026
AICL Sale
· Pursuant to a share purchase agreement (SPA), Ageas UK will
acquire AICL for a base consideration of £65.0m (subject to adjustments)
payable at completion of the AICL Sale (Completion), and an additional
consideration of £2.5m payable following the Operational Readiness Date.
· Completion is expected to occur in Q2 2025 and is subject to the
satisfaction of certain conditions, including receipt of regulatory approvals.
This summary should be read in conjunction with the whole of this
announcement, including its Appendices. Further details of the terms of the
Transaction can be found in the summary of material contracts in Appendix III.
Mike Hazell, Saga's Group Chief Executive Officer, said:
"Today's announcement represents an exciting next step for Saga Insurance.
This is a complementary partnership which leverages the strength of the Saga
brand and customer base, along with Ageas's extensive and growing UK insurance
expertise.
"Together, we represent a winning combination. Our joint scale and unrivalled
knowledge of the over 50s insurance market represents a strong platform from
which we can serve even more customers with relevant, innovative and intuitive
products.
"For Saga more broadly, this agreement is in-line with our stated partnership
strategy. It demonstrates clear progress as we move to pay down debt and
target long-term sustainable growth - for the benefit of all our
stakeholders."
Ant Middle, CEO of Ageas UK said:
"This agreement marks an important milestone in the development of Ageas UK
and we are excited about the opportunities this partnership brings.
"Our combined strengths will enable us to serve the growing over 50s customer
segment even more effectively, and I am confident that this collaboration will
drive increased innovation and competitiveness, benefiting all our
stakeholders.
"In particular, I would like to extend my thanks to the management team at
Saga for their dedication and collaboration throughout this process."
Enquiries
For further information, please contact:
Saga plc
Emily Roalfe, Director of Investor Relations and Treasury Tel: 07732 093
007
Email:
emily.roalfe@saga.co.uk (mailto:emily.roalfe@saga.co.uk)
Headland Consultancy
Susanna
Voyle
Tel: 07980 894 557
Will Smith
Tel: 07872 350 428
Tel: 020 3805 4822
Email: saga@headlandconsultancy.com
(mailto:saga@headlandconsultancy.com)
The person responsible for making this Announcement on behalf of Saga is Emily
Roalfe, Director of Investor Relations and Treasury.
Advisers
Lazard & Co., Limited (Lazard) is acting as financial adviser to Saga.
Herbert Smith Freehills LLP and Addleshaw Goddard LLP are acting as legal
advisers to Saga.
Information on Saga
Saga, created over 70 years ago, is a specialist in the provision of products
and services for people over 50. The Saga brand is one of the most recognised
and trusted in the UK. Saga is known for its high level of customer service
and its high-quality, award-winning products and services including cruises
and travel, insurance, personal finance and media. www.saga.co.uk
(http://www.saga.co.uk)
Information on SSL
SSL is Saga's Insurance Broking business, providing tailored insurance
products and services, principally motor, home, private medical and travel
insurance, to Saga customers. Its role is to price its policies, by sourcing
the lowest risk price, whether through its panel of motor and home
underwriters, which includes AICL, or through solus arrangements for private
medical and travel insurance.
In the twelve months ended 31 January 2024, SSL's motor and home products
generated GWP of £472.0m and earned underlying profit before tax of £14.8m.
SSL had 1,305k motor and home policies in force at that date.
For the six-month period ended 31 July 2024, SSL's motor and home products
generated GWP of £234.2m and SSL had 1,213k motor and home policies in force
at that date.
SSL is regulated by the Financial Conduct Authority.
Information on AICL
AICL is Saga's in-house underwriter, currently sitting on SSL's motor and home
panels, competing for that business with other panel members on equal terms.
For the six-month period ended 31 July 2024, AICL underwrote c.62% of the
motor and c.40% of the home policies sold by SSL and generated £102.0m of
gross insurance underlying revenue.
AICL had a Solvency II net asset value of £83.0m and gross assets of £531.7m
as of 31 January 2024. In the twelve months ended 31 January 2024, AICL made a
loss after tax of £9.6m.
AICL is incorporated in Gibraltar with a branch office in the UK and is
regulated by the Gibraltar Financial Services Commission (GFSC).
Information on Ageas
Ageas is a listed international insurance group with a heritage spanning 200
years. It offers retail and business customers life and non-life insurance
products and is also engaged in reinsurance activities. It has a staff force
of about 50,000 people, and reported annual inflows of more than EUR 17
billion.
IMPORTANT NOTICES
No statement in this announcement is intended as a profit forecast and no
statement in this announcement should be interpreted to mean that the future
earnings per share, profits, margins or cash flows of Saga following the
Transaction will necessarily match or be greater than the historical published
earnings per share, profits, margins or cash flows of Saga.
This announcement may include statements that are, or may be deemed to be,
"forward-looking statements". These forward-looking statements may be
identified by the use of forward-looking terminology, including the terms
"believes", "estimates", "plans", "projects", "anticipates", "expects",
"intends", "may", "will" or "should" or, in each case, their negative or other
variations or comparable terminology, or by discussions of strategy, plans,
objectives, goals, future events or intentions.
Forward-looking statements may and often do differ materially from actual
results. Any forward-looking statements reflect Saga'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 Saga's business,
results of operations, financial position, liquidity, prospects, growth and
strategies. Forward looking statements speak only as of the date they are
made.
You are advised to read this announcement in its entirety for a further
discussion of the factors that could affect the Group's future performance. In
light of these risks, uncertainties and assumptions, the events described in
the forward-looking statements in this announcement may not occur.
This announcement does not constitute and should not be construed as, an offer
to purchase or sell or issue securities, or otherwise constitute an
inducement, invitation, commitment, solicitation or recommendation to any
person to purchase, subscribe for, or otherwise acquire securities in Saga, or
constitute an inducement to enter into any investment activity in any
jurisdiction. Nothing contained in this announcement is intended to, nor shall
it, form the basis of, or be relied on in connection with, any contract or
commitment whatsoever and, in particular, must not be used in making any
investment decision.
The distribution of this announcement in or from certain jurisdictions may be
restricted or prohibited by the laws of any jurisdiction other than the UK.
Recipients of this announcement are required to inform themselves of, and
comply with, all restrictions or prohibitions in such other jurisdictions. Any
failure to comply with applicable requirements may constitute a violation of
the laws and/or regulations of such other jurisdictions.
Lazard, which is authorised and regulated in the United Kingdom by the
Financial Conduct Authority, is acting exclusively as financial adviser to
Saga and no one else in connection with the Transaction and will not be
responsible to anyone other than Saga for providing the protections afforded
to clients of Lazard nor for providing advice in relation to the Transaction
or any other matters referred to in this announcement. Neither Lazard nor any
of its affiliates owes or accepts any duty, liability or responsibility
whatsoever (whether direct or indirect, whether in contract, in tort, under
statute or otherwise) to any person who is not a client of Lazard in
connection with the Transaction, this announcement, any statement contained
herein or otherwise.
Further information
Effects of the Transaction on Saga
Use of proceeds
Proceeds from the Affinity Partnership will principally be used to offset the
working capital impact associated with the transition to the Affinity
Partnership. SSL has historically benefited from a favourable working capital
profile. This arises from customers making largely annual payments at the
start of their insurance policy, which in the case of motor and home are then
remitted to panel underwriters between 30 and 90 days later. From the
Operational Readiness Date, motor and home insurance policies will be written
by Ageas and therefore, customers will pay Ageas their premiums directly and
SSL's favourable working capital balance will unwind. The upfront
consideration of £80.0m payable under the BTA, which will be received prior
to any movement in working capital, is expected to be broadly offset by the
working capital unwind.
For the AICL Sale, approximately £22m of the base consideration of £65.0m
will be used for (i) the transfer from AICL to the Group of the Enbrook Park
property, (ii) a deduction relating to the value of the remaining properties
on AICL's balance sheet, (iii) the deduction of AICL's section 75 (s.75) debt,
and (iv) transaction costs (see Appendix III Material Contracts for further
details). The resulting net proceeds at Completion of approximately £43m will
be used to reduce the Group's leverage and for other general corporate
purposes, with an additional consideration amount of £2.5m payable following
the Operational Readiness Date.
Impact on Group earnings
The Affinity Partnership will see SSL transition to a commission-based model
for the distribution of motor and home insurance, with Ageas assuming
responsibility for price-comparison website distribution, pricing and
underwriting, claims and customer servicing activities. Relative to the
current operating model for motor and home insurance, Saga will incur lower
costs and receive a lower revenue per policy as a result of the Transaction.
From the Operational Readiness Date, SSL's existing revenues from motor and
home insurance will be replaced by a commission from Ageas based on a
percentage of GWP generated over the term of the Affinity Partnership.
Reflecting the transfer of services to Ageas, there will also be a reduction
in SSL's operating expenses which will be phased during the transition years
of 2025/26 and 2026/27 (the Transition Period) to ensure that quality of
service for Saga customers is maintained. SSL's operating expenses are
expected to reduce to approximately half of their level in 2024/25 in the
first full financial year that reflects the run-rate cost base of SSL under
the Affinity Partnership.
As a result of the above changes to revenues and costs during the Transition
Period, SSL's underlying profit before tax is expected to fall in 2025/26 and
then partially recover in 2026/27, before recovering to or exceeding 2024/25
profitability in the first full financial year following achievement of SSL's
run-rate cost base under the Affinity Partnership.
As a result of the AICL Sale, which is expected to occur in Q2 2025, Saga will
forego earnings from AICL.
As a result of the Transaction, the Group expects to incur:
· an estimated £25m of intangible asset write-offs in 2024/25
(which are non-cash in nature) resulting from the transition of certain
services to Ageas's technology platform; and
· one-off transition costs during the Transition Period, estimated
to be around £25m, including redundancy costs.
Risks to Saga as a result of the Transaction
The Transaction may not proceed to Completion
The Transaction is conditional on the satisfaction of certain conditions. For
instance, the AICL Sale is conditional upon approval by the GFSC, as well as
the satisfaction of other conditions including the publishing of Saga's
accounts for the 12-month period ended on 31 January 2025 on a going concern
basis without material uncertainty. In addition, the BTA and, as a result the
Affinity Partnership, is conditional upon the Operational Readiness Date being
reached.
Whilst the expectation of the parties is that the Transaction will complete in
accordance with its terms, there is no guarantee that each of these conditions
will be satisfied and, as such, no certainty that the Transaction will proceed
to Completion.
Ageas also has certain rights to terminate the Transaction in limited
circumstances. For instance, Ageas may terminate the SPA if the conditions to
the AICL Sale are not satisfied by 31 October 2025, and it may terminate the
Transaction as a whole where Saga is in material breach of its obligations
under the transaction agreements. If the Transaction does not complete, the
Group will not receive the consideration from, and will not realise any of the
potential benefits of, the Transaction.
The total consideration payable under the Transaction includes amounts that
are contingent
In addition to the base consideration payable under the SPA and the upfront
consideration payable under the BTA, the proceeds of the Transaction include
both additional and contingent consideration which is only payable on the
occurrence of certain events. For instance, additional consideration of £2.5m
payable under the SPA is conditional upon certain matters occurring, including
the Operational Readiness Date, and contingent consideration amounts payable
under the BTA of between nil and £30.0m in 2026 and between nil and £30.0m
in 2032 are contingent upon certain policy volume and profitability targets
being met. Whilst this contingent and additional consideration provides
potential significant upside for the Group, if such conditions are not
satisfied or targets are not met either in whole or part, the Group will not
receive the maximum proceeds payable under the Transaction.
Following completion of the Transaction, Saga's motor and home insurance
business will be dependent solely on the Affinity Partnership during the term
of the agreement
During the term of the Affinity Partnership, Saga will receive commission on
motor and home insurance GWP generated. If the Affinity Partnership does not
perform as successfully as Saga expects, Saga will receive less commission
than expected and will not be able to sell motor or home products outside the
Affinity Partnership for the 20-year term without the agreement of Ageas.
The Transaction may have a disruptive effect on the Group
The Transaction has required, and will continue to require, substantial
amounts of investment, time and focus from the management teams and colleagues
of the Group which could otherwise be spent operating the Group in the
ordinary course. The preparation for the Operational Readiness Date and the
provision of transitional services for a period following Completion will
continue to utilise some of the Group's resources.
UK Listing Rules
The Transaction, because of its size in relation to Saga, constitutes a
significant transaction for Saga under the UK Listing Rules. This announcement
constitutes a notification pursuant to Chapter 7 of the UK Listing Rules. In
accordance with the UK Listing Rules, the Transaction is not subject to
shareholder approval.
Board recommendation
The Transaction is, in the Board's opinion, in the best interests of Saga and
the Group's shareholders as a whole.
Appendix I
KEY FINANCIAL INFORMATION RELATING TO THE TRANSACTION
Sources of financial information and definitions
Sources of financial information
Unless otherwise stated, all financial information relating to AICL disclosed
in this announcement (including these Appendices) has been extracted from
AICL's audited annual reports and accounts for the 12 months ended 31 January
2023 and 31 January 2024 and unaudited interim report and accounts for the six
months ended 31 July 2024.
AICL's reports and accounts have been prepared based on the same accounting
standards and assumptions as Saga's published and audited annual report and
accounts for the 12 months period ended 31 January 2024.
Differences in Insurance Underwriting insurance service expenses between
Saga's published audited annual reports and accounts for the 12 months ended
31 January 2023 and 31 January 2024 and unaudited interim report and accounts
for the six months ended 31 July 2024 and AICL's reports and accounts for the
same periods reflect certain consolidation adjustments in the Saga reports and
accounts. These consolidation adjustments reflect the removal of the impact of
movements in provisions made by AICL for insurance and reinsurance contracts
entered into with SSL which do not impact Group profitability.
Definitions
Gross profit for AICL is equal to the non-insurance revenue.
The insurance service result for AICL is calculated as the sum of insurance
revenue, insurance services expenses and net expenses from reinsurance
contracts held.
Profit/(loss) before tax is calculated as the sum of gross profit, insurance
service result, impairment of assets, net finance expense from insurance
contracts, net finance income/(expense) from reinsurance contracts and
investment income.
Income statement - AICL
6 months to 12 months to 12 months to
£m 31 July 2024 31 Jan 2024 31 Jan 2023
Non-insurance revenue 4.9 4.8 (2.4)
Insurance revenue 97.1 164.1 160.9
Revenue 102.0 168.9 158.5
Cost of sales (non-insurance underwriting) - - -
Gross profit (non-insurance underwriting) 4.9 4.8 (2.4)
Insurance service expenses (81.2) (227.5) (184.9)
Net expense from reinsurance contracts held (7.9) 40.1 27.4
Insurance service result 8.0 (23.3) 3.4
Impairment of assets - (4.1) (1.2)
Net finance expense from insurance contracts (4.9) (3.5) 8.2
Net finance income/(expense) from reinsurance contracts 3.2 1.9 (3.7)
Investment income 7.2 12.1 (7.5)
Profit/(loss) before tax 18.4 (12.1) (3.2)
Tax (expense)/income (5.0) 2.5 1.4
Profit/(loss) after tax 13.4 (9.6) (1.8)
Balance sheet - AICL
6 months to 12 months to 12 months to
£m 31 July 2024 31 Jan 2024 31 Jan 2023
Assets
Property, plant and equipment 3.3 3.4 -
Financial assets 257.6 251.8 279.9
Current tax assets 0.2 - -
Deferred tax assets 13.5 13.7 6.7
Reinsurance assets 174.0 173.3 112.3
Trade and other receivables 62.4 67.5 57.9
Assets held for sale 20.0 20.0 27.6
Cash and short-term deposits 1.4 2.0 4.9
Total assets 532.4 531.7 489.3
Liabilities
Insurance contract liabilities 413.9 428.9 360.3
Provisions 0.1 0.8 -
Financial liabilities 2.0 1.6 4.1
Current tax liabilities - 0.1 0.3
Deferred tax liabilities 13.4 10.2 6.9
Contract liabilities 0.9 0.9 1.0
Trade and other payables 15.3 15.8 19.7
Total liabilities 445.6 458.3 392.3
Equity
Issued capital 30.0 30.0 30.0
Retained earnings 56.0 42.6 66.2
Capital contribution reserve 0.8 0.8 0.8
Total equity 86.8 73.4 97.0
Total liabilities and equity 532.4 531.7 489.3
Appendix II
SIGNIFICANT CHANGE
AND
LEGAL AND ARBITRATION PROCEEDINGS
AND
RELATED PARTY TRANSACTIONS
1. Significant change
Saga
There has been no significant change in the financial performance or financial
position of Saga since 31 July 2024, the end of the last financial period for
which financial information for Saga was published.
AICL
There has been no significant change in the financial performance or financial
position of AICL since 31 July 2024, the end of the last financial period for
which financial information for AICL was published.
2. Legal and arbitration proceedings
Saga
There are no governmental, legal or arbitration proceedings (including any
such proceedings which are pending or threatened of which Saga is aware)
during the period covering the 12 months preceding the date of this document
which may have, or have had in the recent past, significant effects on the
financial position or profitability of Saga or the Group.
AICL
There are no governmental, legal or arbitration proceedings (including any
such proceedings which are pending or threatened of which Saga is aware)
during the period covering the 12 months preceding the date of this document
which may have, or have had in the recent past, significant effects on the
financial position or profitability of AICL.
3. Related party transactions
Saga's annual reports and accounts for the 12 months ended 31 January 2023 and
31 January 2024 and unaudited interim report and accounts for the six months
ended 31 July 2024 contain details of related party transactions entered into
by Saga and the Group during such periods.
Save as disclosed in Saga's unaudited interim report and accounts for the six
months ended 31 July 2024, there were no related party transactions entered
into by Saga or the Group during the period since 31 July 2024.
Appendix III
MATERIAL CONTRACTS
Part A
Material Contracts of the Group
No contracts have been entered into by the Group (not being contracts entered
into in the ordinary course of business): (i) within the period of two years
immediately preceding the date of this announcement that are, or may be,
material to the Group; or (ii) that contain any provisions under which any
member of the Group has any obligation or entitlement that is, or may be,
material to the Group, save as disclosed below.
Section 1
The Transaction
Affinity Partnership
1. Affinity Partnership Agreement
On 16 December 2024, Saga Leisure Limited (Saga Leisure), Ageas Insurance
Limited (AIL), Ageas Retail Limited (ARL), Saga and SSL entered into an
Affinity Partnership Agreement (the APA), which will operate for a 20-year
term from the Operational Readiness Date.
Term and scope
The APA will cover the manufacture, sale, servicing and support of
Saga-branded motor and home insurance (the In-Scope Products).
Ageas will take on price-comparison website distribution, pricing and
underwriting, claims and customer servicing activities for In-Scope
Products. Saga will retain responsibility for brand and direct marketing.
Exclusivity
SSL will not be permitted to market In-Scope Products other than through the
Partnership.
Commission
SSL will receive a commission based on a percentage of GWP generated over the
term of the Affinity Partnership.
By 1 March 2031, Ageas shall determine an amount of up to £20.0m (the First
Volume Underperformance Amount) which may be withheld from commission
payments, if the number of policies in force for In-Scope Products were to
fall below certain target levels in 2029 and 2030.
By 1 March 2036, Ageas shall determine an amount of up to £20.0m (the Second
Volume Underperformance Amount) which may be withheld from commission
payments, if the number of policies in force for In-Scope Products were to
fall below certain levels in 2034 and 2035.
Brand
Ageas has been granted a royalty-free licence of the Saga brand for use in
relation to In-Scope Products until the end of the 20-year term and any exit
period. AIL will be required to ensure quality control of its use of the Saga
brand, including compliance with Saga brand guidelines.
2. Business Transfer Agreement
On 16 December 2024, SSL, AIL and ARL entered into the BTA, pursuant to which
SSL has agreed to sell certain business assets and grant certain rights to AIL
and ARL, relating to the motor and home insurance business carried on by the
Group.
Upfront consideration of £80.0m is payable to SSL in two tranches:
· £60.0m is payable on the 3(rd) business day following the
Operational Readiness Date or 31 January 2026, whichever comes first; and
· £20.0m is payable on the 3(rd) business day following the
Operational Readiness Date or 31 July 2026, whichever comes first.
SSL will receive contingent consideration of between nil and £30.0m by 30
June 2026 (the First Contingent Consideration Date), subject to certain
conditions, where the amount payable shall be determined based on the number
of policies in force for In-Scope Products at one month prior to the First
Contingent Consideration Date.
Additionally, SSL will receive contingent consideration of between nil and
£30.0m by 1 March 2032, subject to certain profitability targets, where the
amount payable shall be determined based on the average number of policies in
force for In-Scope Products for the Ageas financial years 2027 to 2031.
The payment of the upfront consideration and contingent consideration is
subject to certain conditions regarding, amongst other things, the publishing
of Saga's interim accounts for the six months period ended 31 July 2025 on a
going concern basis, without material uncertainty or an auditor qualification,
and the extension or refinancing of Saga's existing corporate bond maturing in
July 2026 and loan facility with Roger De Haan maturing in April 2026.
3. Transitional Services Agreement
Under the SPA, it is agreed that, at Completion, Saga Group Limited (SGL), and
AICL will enter into a Transitional Services Agreement (TSA), pursuant to
which SGL will provide certain services to AICL on a transitional basis.
4. Employee Transfer Agreement
On 16 December 2024, SSL, AICL, CHMC Limited and ARL entered into an Employee
Transfer Agreement (ETA), which operates to transfer the employment of those
colleagues assigned to the claims handling services for AICL to an Ageas
entity, subject to consultation. The ETA contains the usual
pre-transfer/post-transfer and other market standard Transfer of Undertakings
(Protection of Employment) regulations (TUPE) indemnities.
AICL Sale
5. Share Purchase Agreement
On 16 December 2024, Saga, Saga Mid Co Limited (Saga Mid Co), Saga Leisure and
Ageas UK entered into the SPA, pursuant to which Saga Mid Co agreed to sell to
Ageas UK, and Ageas UK agreed to purchase, the entire issued share capital of
AICL (the Shares).
Consideration
The total consideration to be paid for the Shares is £67.5m, comprising a
base consideration of £65.0m (the Base Consideration) and an additional
consideration of £2.5m (the Additional Consideration).
The Base Consideration payable will reflect certain adjustments (resulting in
the Adjusted Base Consideration) and has been agreed on the basis of a
"completion accounts" closing mechanism which will be based on AICL's balance
sheet immediately prior to Completion.
At Completion, Ageas UK will pay Saga Mid Co an amount equivalent to 90% of
the estimated Adjusted Base Consideration (the Estimated Adjusted Base
Consideration). The difference between the Adjusted Base Consideration and the
Estimated Adjusted Base Consideration, shall be settled following the
finalisation of the completion accounts.
The Adjusted Base Consideration is capped at £85.0m and will include the
following adjustments to the Base Consideration:
· A net asset value (NAV) adjustment reflecting any excess or
shortfall of AICL's Solvency II NAV at Completion.
· A potential Solvency Coverage Ratio (SCR) shortfall adjustment.
· A deduction equivalent to 25% of the Solvency II value of any
real estate properties remaining on AICL's balance sheet at Completion (the
Remaining Properties).
o Following Completion, Saga will have a period of two years to market the
Remaining Properties for sale on arm's length terms. Following the sale of a
property, if the sale price is below 75% of the Solvency II value of the
property (the Property Residual Value), Saga will pay Ageas UK the amount by
which the sale price is less than the Property Residual Value. If following
the sale of a property, the sale price is above the Property Residual Value,
Ageas UK will pay Saga the amount by which the sale price exceeds the Property
Residual Value. Saga will purchase any Remaining Property not sold within the
two-year period at its Property Residual Value.
· The deduction of AICL's s.75 debt which represents debt due to
Saga Pensions Trustee Limited (the Trustee) under, and calculated in
accordance with, s.75 or 75A of the Pensions Act 1995.
The Additional Consideration is payable to Saga subject to the Completion of
the AICL Sale, the Operational Readiness Date having occurred and certain
amounts due to AICL from SSL having been satisfied in full.
Conditions precedent to Completion
Completion of the AICL Sale is expected to occur in Q2 2025 and is conditional
on certain regulatory approvals and Saga's financial statements for the
12-month period ending on 31 January 2025 (the Accounts Date) having been
prepared on a going concern basis, without material uncertainty for the
15-month period following the Accounts Date and without an auditor
qualification.
Prior to Completion, the Enbrook Park property in Folkestone will be
transferred from AICL to SGL at its Solvency II value.
Termination
Saga Mid Co and Ageas UK each have the right to terminate the SPA if:
· the conditions have not been satisfied (or waived, if applicable)
by 31 October 2025;
· there is a material breach by either party of its obligations
under the key transaction documents prior to Completion; or
· the APA terminates in accordance with its terms prior to
Completion.
Ageas UK also has the right to terminate the SPA if:
· an insolvency event occurs in relation to AICL, Saga Mid Co,
Saga, SSL or Saga Leisure; or
· certain specified warranties are breached at signing or would at
Completion be breached and such breach would have a material adverse effect on
AICL or its business.
6. Tax Indemnity
Under the SPA, Saga Mid Co has agreed that, at Completion, it will give a tax
indemnity (the Tax Indemnity) in favour of Ageas UK which covers any taxation
in respect of the period prior to Completion, subject to usual exclusions for
a transaction of this nature.
7. Parent Company Guarantees
Pursuant to the terms of the legal agreements summarised above, Saga has given
to the relevant Ageas entities an irrevocable and unconditional guarantee in
respect of the payment of amounts by the relevant Group companies and
performance of the relevant Group companies' obligations under each of the
APA, BTA, SPA, TSA, ETA, and the Tax Indemnity.
8. Deed of Cessation
Under the SPA, it is agreed that, at Completion, SGL, AICL and the Trustee
will enter into an agreed form of deed of cessation (the Deed of Cessation),
pursuant to which AICL gives notice that it will cease to be involved with
Saga's Defined Benefit Pension Scheme (the Scheme) and hence trigger liability
to pay its share of the Scheme's deficit. Following payment, AICL will have no
further liability to the Scheme. The deed also makes changes to the Scheme's
rules to facilitate this mechanism and to clarify that AICL will have no
further liability to the Scheme.
Section 2
Material financing arrangements entered into within the period of two years
immediately preceding the date of this announcement
1. Revolving Credit Facility
(i) Pursuant to an amendment dated 23 January 2023, the following
amendments to the Group's Revolving Credit Facility between, amongst others,
Saga and Mizuho Bank, Ltd., dated 9 May 2017, as amended (RCF), were agreed,
in addition to smaller, immaterial changes:
- Introduction of a restriction whereby no utilisation of the facility is
permitted either (i) prior to the repayment of the 2024 senior unsecured bonds
or (ii) if both the leverage ratio for the relevant quarter is below 5.5x and
free liquidity is below £170.0m.
- Amendment of the required ratios of adjusted EBITDA to total net cash
interest for all testing periods.
- Amendment of the leverage ratio for all testing periods.
(ii) Pursuant to an amendment dated 26 September 2023, the RCF was amended
to include the £85.0m facility provided by Roger De Haan (see section 2
below) as permitted financial indebtedness, subject to certain conditions
including that such facility is unsecured.
(iii) Pursuant to an amendment dated 21 December 2023, the covenants under the
RCF were amended to increase the leverage ratio (excluding Ocean Cruise)
covenant for 31 January 2024 from 5.5x to 6.25x.
(iv) Pursuant to an amendment dated 5 March 2024, the following amendments
were made to the RCF, in addition to smaller, immaterial changes:
- Increase to the leverage ratio for all remaining testing periods to 6.25x.
- Quarterly covenant testing, irrespective of whether the loan is drawn.
- Introduction of a restriction whereby, post repayment of the 2024 bond, no
utilisation of the facility is permitted if free liquidity is below £40.0m.
- Consent requirement for any early repayment of corporate debt or payment
of shareholder dividends.
(v) Pursuant to an amendment dated 23 September 2024, the following
amendments were agreed, in addition to other smaller changes:
- Extension of the expiry date of the facility from 31 May 2025 to 31 March
2026.
- Leverage ratio test for all remaining testing periods reduced to 6.0x,
based on a revised definition of the calculation, performed on a consolidated
Group basis inclusive of amounts relating to the Ocean Cruise business.
(vi) Pursuant to an amendment dated 26 November 2024, certain amendments
were agreed in order to permit, amongst other things, the guarantees to be
granted in relation to the Transaction.
2. Loan facility with Roger De Haan
(i) On 3 April 2023, Saga Mid Co (as borrower), Saga and SSL (both as
guarantors) entered into a forward starting loan facility agreement with Roger
De Haan (RDH Facility), such facility being provided by him on an arm's-length
basis and commencing on 1 January 2024, under which Saga could draw down up to
£50.0m with 30 days' notice to support the general corporate purposes of the
Group. Per the original terms of agreement, interest will accrue on the drawn
total of the RDH Facility at the rate of 10% and is payable on the last day of
the period of the loan. The RDH Facility was originally due to mature on 30
June 2025, at which point any outstanding amounts, including interest, were
due to be repaid. The RDH Facility is subject to a 2% arrangement fee, payable
upon entry into the arrangement. A drawdown fee of 2% on any amount drawn down
under the RDH Facility is payable on the drawing date. Milestone fees of 2% on
any uncancelled amount of the RDH Facility were payable on 31 March 2024 and
are payable on 31 December 2024 respectively.
(ii) On 23 September 2023, the Group agreed an increase and extension to the
RDH Facility. This increase was for the value of £35.0m, taking the total RDH
Facility to £85.0m, and it was extended to expire on 31 December 2025. The
purpose of the loan was amended to provide that the interest rate paid on
funds drawn under the RDH Facility to finance the repayment of notes issued by
Saga, or to provide cash collateral demanded by providers of bonding
facilities to the Group, remained at 10%, but increased to 18% for any amounts
drawn to support general corporate purposes. In addition, the previous
arrangement fees and milestone fees of 2% remained payable; however, the
drawdown fee of 2% increased to 5% on drawdowns for general corporate purposes
while remaining at 2% for the repayment of notes issued by Saga, or the
provision of cash collateral demanded by providers of bonding facilities to
the Group. The amended RDH Facility was provided on the basis of certain
conditions being met; including that no professional advisers may be appointed
to or retained by Saga without prior approval of the Board.
(iii) On 15 April 2024, a reduction of the notice period required for drawdown
of the loan to 10 business days was agreed, in addition to a further extension
to the termination date of the RDH Facility, from 31 December 2025 to 30 April
2026.
(iv) On 22 September 2024, an increase to the maximum number of permitted
facility utilisation requests was agreed, from three to 10.
(v) On 26 November 2024, certain amendments were agreed in order to
permit, amongst other things, the guarantees to be granted in relation to the
Transaction and the disposals forming part of the Transaction.
3. Cruise Ship Loans
(i) The Group has two debt facilities in place in respect of its Ocean
Cruise ships, Spirit of Discovery and Spirit of Adventure (the Cruise Ship
Loans).
(ii) On 3 April 2023, the Group concluded discussions with its lenders in
respect of the covenant restrictions attaching to the Cruise Ship Loans.
Lenders agreed to a waiver of the EBITDA to debt repayment covenant ratio
for the 31 July 2023 testing date.
(iii) On 26 September 2023, the lenders agreed to amend the covenants on the
Cruise Ship Loans to reduce the EBITDA to debt repayment ratio from 1.2x to
1.0x for period from 31 January 2024 up to, and including, 31 January 2025.
Part B
Material Contracts of AICL
No contracts have been entered into by AICL (not being contracts entered into
in the ordinary course of business): (i) within the period of two years
immediately preceding the date of this announcement that are, or may be,
material; or (ii) that contain any provisions under which AICL has any
obligation or entitlement that is, or may be, material as at the date of this
announcement, save as disclosed below.
1. Employee Transfer Agreement
Please refer to the summary in Part A above.
2. Deed of Cessation
Please refer to the summary in Part A above.
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