REG - Tesco PLC Booker Group PLC - Tesco & Booker announce merger <Origin Href="QuoteRef">BOK.L</Origin> <Origin Href="QuoteRef">TSCO.L</Origin> - Part 4
27/01/2017 07:06
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such holding statement
contains an express statement that such recommendation is not withdrawn or
adversely modified and does not contain a statement that the Tesco Directors
intend to withdraw or adversely modify such recommendation) shall not
constitute a withdrawal or adverse modification of such recommendation for
purposes of this paragraph); or
· the Scheme or Offer has not become effective by the Longstop Date.
B. Irrevocable undertakings from Tesco Directors
1. Irrevocable undertakings in respect of Tesco Shares
The following Tesco Directors have given irrevocable undertakings to vote (or
procure the vote) in favour of the resolutions to be proposed at the Tesco
General Meeting in relation to the following Tesco Shares currently held by
them as well as any further Tesco Shares they may acquire:
Name Number of Tesco Shares Percentage of issued ordinary share capital of Tesco (%)
Dave Lewis 99,950 0.0012
Alan Stewart 50,000 0.0006
John Allan 221,020 0.0027
Mark Armour 25,000 0.0003
Mikael Olsson 5,000 0.0001
TOTAL 400,970 0.0049
2. Irrevocable undertakings in respect of ADRs
Two of the Tesco Directors, Deanna Oppenheimer and Byron Grote, hold their
Tesco Shares in the form of ADRs (each ADR represents three Tesco Shares). As
a result, they have each irrevocably undertaken to vote in favour of the
resolutions to be proposed at the Tesco General Meeting in the event that
their holding converts from the form of ADRs to Tesco Shares (and they
therefore become entitled to vote at the Tesco General Meeting).
Name Number of ADRs Number of Tesco Shares Percentage of issued ordinary share capital of Tesco (%)
Deanna Oppenheimer 34,500 103,500 0.0013
Byron Grote 57,900 173,700 0.0021
TOTAL 92,400 277,200 0.0034
The obligations of the Tesco Directors under the irrevocable undertakings
shall lapse and cease to have effect on and from the earlier of the following
occurrences:
· Booker announces that it does not intend to proceed with the Merger and no
new, revised or replacement Scheme or Offer is announced in accordance with
Rule 2.7 of the Code at the same time;
· the Scheme or Offer lapses or is withdrawn and no new, revised or
replacement Scheme or Offer has been announced, in accordance with Rule 2.7 of
the Code, in its place or is announced, in accordance with Rule 2.7 of the
Code, at the same time;
· the Scheme Document does not include a unanimous and unconditional
recommendation made by the Booker Board to Booker Shareholders to vote in
favour of the Scheme at the Scheme Court Meeting and in favour of the Merger
at the Booker General Meeting (the "Booker Board Recommendation"), or Booker
makes an announcement prior to the publication of the Scheme Document that:
(i) the Booker Board no longer intends to make such recommendation or intends
adversely to modify or qualify such recommendation; or (ii) it will not
convene the necessary Booker General Meeting and/ or the Scheme Court
Meeting;
· the Booker Board withdraws, adversely modifies or adversely qualifies the
Booker Board Recommendation or fails to publicly reaffirm or re-issue such
unanimous and unqualified recommendation before the earlier of (A) 5.30 p.m.
on the fifth Business Day following Tesco's reasonable request to do so; or
(B) the time of the start of the Tesco General Meeting (it being understood
that the issue of any holding statement(s) issued to Booker Shareholders
following a change of circumstances (so long as any such holding statement
contains an express statement that such recommendation is not withdrawn or
adversely modified and does not contain a statement that the Booker Directors
intend to withdraw or adversely modify such recommendation) shall not
constitute a withdrawal or adverse modification of such recommendation for
purposes of this paragraph); or
· the Scheme or Offer has not become effective by the Longstop Date.
Appendix 5
Tesco Quantified Financial Benefits Statement
A. Tesco Quantified Financial Benefits Statement
Paragraph 4 of this Announcement (Financial benefits and effects of the
Merger) contains statements of estimated cost savings and synergies arising
from the Merger (together, the "Tesco Quantified Financial Benefits
Statement").
A copy of the Tesco Quantified Financial Benefits Statement is set out below.
The Merger is expected to enable significant opportunity for revenue
synergies. The Merger is also expected to enable significant opportunity for
cost synergies across areas including procurement, distribution, central
functions and other costs. The Tesco Directors expect pre-tax synergies for
the Combined Group to reach a run-rate of at least £200 million per annum by
the end of the third year following completion of the Merger. These
anticipated synergies will accrue as a direct result of the Merger and would
not be achieved on a standalone basis.
Significant revenue growth potential
The Tesco Board anticipates significant revenue growth opportunities, many of
which have not been fully quantified for reporting under the Code at this
stage.
The Tesco Board is able to anticipate incremental operating profit of at least
£25 million per annum by the end of the third year following completion of the
Merger, primarily through additional revenue generated from an extended
catering offering within Tesco's stores, as well as Booker's symbol stores
being able to offer an enhanced product range and customer proposition.
Significant cost synergy potential
One of the key drivers of the identified synergies is the efficiencies that
the Merger enables given the complementary nature of the businesses. The Tesco
Directors expect pre-tax cost synergies for the Combined Group to reach a
run-rate of at least £175 million per annum by the end of the third year
following completion of the Merger.
The constituent elements of quantified cost synergies are in addition to
savings initiatives already underway at Tesco and comprise:
• Procurement: approximately 55 per cent. of the identified cost
synergies are expected to be generated from improved purchasing cost
efficiencies and sharing best practice across each of the three main types of
supplier: fresh, own label and branded. These opportunities comprise
end-to-end cost reduction, lower waste, new opportunities for shared
innovation and better optimisation of supply terms for the Combined Group.
• Distribution and fulfilment: approximately 35 per cent. of the
identified cost synergies are expected to be generated from opportunities in
logistics and delivery, and improved efficiency and service standards.
Optimising a joint national distribution system of Tesco and Booker is
expected to lead to material benefits, including sharing parts of the fleet
and expanding click and collect services. Tesco also anticipates savings in
relation to final mile delivery to customers.
• Central functions and other: less than 10 per cent. of the
identified cost synergies are expected to be generated from the reduction of
duplicate costs and improved purchase of goods not for resale.
Realisation costs and dis-synergies
The Tesco Directors expect the realisation of the quantified synergies will
require estimated one-off cash costs of approximately £145 million incurred in
the first three years after the Effective Date.
Aside from the one-off costs referred to above, the Tesco Directors do not
expect any material dis-synergies to arise in connection with the Merger.
These statements of identified synergies and estimated savings relate to
future actions and circumstances which by their nature involve risks,
uncertainties and contingencies. As a consequence, the identified synergies
and estimated savings referred to may not be achieved, may be achieved later
or sooner than estimated, or those achieved could be materially different from
those estimated.
Further information on the bases of belief supporting the Tesco Quantified
Financial Benefits Statement including the principal assumptions and sources
of information, is set out below.
Bases of Belief for the Tesco Quantified Financial Benefits Statement
(a) Following initial discussions regarding the Merger, a synergy
development team was established to evaluate and assess the potential
synergies available for the integration and undertake an initial planning
exercise (the "Synergy Team"). The Synergy Team comprises senior personnel
representing both Tesco and Booker. Collectively, the Synergy Team brings
significant experience of operations, distribution, commercial, procurement
and central/other activities across both organisations. The Synergy Team has
worked collaboratively to identify and quantify potential synergies as well as
estimate any associated costs on behalf of the Tesco Directors.
(b) In preparing a detailed synergy plan, the Synergy Team has worked
alongside and with the support of external consultants engaged by Tesco.
(c) In supporting this exercise, Booker and Tesco have shared certain
operating and financial information with each other, in order to facilitate a
detailed analysis of the potential synergies available from the combination of
the Tesco and Booker businesses. This has included the use of a clean team
process, where each of Tesco and Booker has shared detailed operating and
financial metrics, visibility of which is limited to specific clean team
personnel within the Synergy Team.
(d) As is typical of these exercises, confidentiality considerations
and legal restrictions have limited the scale of the Synergy Team to being
formed of a small number of specialists and experts from each of Tesco and
Booker. Nevertheless, the Synergy Team has, to the extent allowed by such
confidentiality considerations, engaged with relevant Tesco and Booker
functional heads and other personnel to provide input into the development
process and to agree on the nature and quantum of the identified synergy
initiatives. Specifically this has included the input of the Chief Executive
Officer of Booker, as well as the Tesco executive leadership team.
(e) In circumstances where data has been limited due to lack of access
to the relevant Tesco or Booker experts or data, the Synergy Team has made
estimates and assumptions to aid its development of individual synergy
initiatives. The assessment and quantification of the potential synergies have
in turn been informed by Tesco and Booker management's industry experience and
knowledge of the existing businesses.
(f) The cost and revenue bases used as the basis for the quantified
exercise are those contained in Tesco's 2016 Annual Report and Financial
Statements and Booker's 2016 Annual Report and Accounts, supported where
relevant by Tesco's and Booker's forecast current year cost bases.
(g) The cost synergies are within the influence of Tesco's management,
albeit the procurement synergies are dependent upon negotiations with
suppliers. Delivery of the revenue synergies is more complex and to some
extent outside the full control of Tesco's management.
(h) The merger is subject to CMA approval. It is not possible to predict
with certainty the outcome of the CMA approval process and therefore any
potential impact has not been quantified.
In general, the synergy assumptions have in turn been risk adjusted,
exercising a degree of prudence in the calculation of the estimated synergy
benefit set out above.
Reports
As required by Rule 28.1(a) of the Code, Deloitte, as reporting accountants to
Tesco, and Greenhill, lead financial adviser to Tesco, have provided the
reports required under that Rule. Each of Deloitte and Greenhill has given and
has not withdrawn its consent to the publication of its report in the form and
context in which it is included.
Notes
(a) The statements of estimated synergies relate to future actions and
circumstances which, by their nature, involve risks, uncertainties and
contingencies. As a result, the synergies referred to may not be achieved, or
may be achieved later or sooner than estimated or those achieved could be
materially different from those estimated.
(b) In future, there may be additional changes to the Combined Group's
operations. As a result, and given the fact that the changes relate to the
future, the resulting synergies may be materially greater or less than those
estimated.
(c) No statement should be construed as a profit forecast or interpreted
to mean that the Combined Group's earnings in the first full financial year
following completion of the Merger, or in any subsequent period. would
necessarily match or be greater than or less than those of Tesco and/or Booker
for the relevant preceding financial period or any other period.
(d) In arriving at the estimate of synergies set out in this
Announcement, the Synergy Team has assumed that:
(i) there will be no significant impact on the underlying operations of
either business;
(ii) there will be no material change to macroeconomic, political or
legal conditions in the markets or regions in which in the Combined Group
operates which will materially impact on the implementation of or costs to
achieve the proposed cost savings; and
(iii) there will be no material change in exchange rates.
B. Report from Deloitte
The Board of Directors on behalf of Tesco PLC
Tesco House, Shire Park, Kestrel Way
Welwyn Garden City
United Kingdom
AL7 1GA
Greenhill & Co. International LLP
Lansdowne House
57 Berkeley Square
London
W1J 6ER
27 January 2017
Dear Sirs
OFFER FOR BOOKER GROUP PLC ("BOOKER") BY TESCO PLC ("TESCO")
We report on the statement made by the directors of Tesco (the "Directors") of
synergy benefits set out in Appendix 5, Part A of the Rule 2.7 Announcement
dated 27 January 2017 (the "Announcement") issued by Tesco ("the Quantified
Financial Benefits Statement" or "the Statement"). The Statement has been made
in the context of the disclosures within Part A of Appendix 5 setting out,
inter alia, the basis of the Directors' belief (identifying the principal
assumptions and sources of information) supporting the Statement and their
analysis, explanation and quantification of the constituent elements.
Responsibilities
It is the responsibility of the Directors to prepare the Statement in
accordance with Rule 28 of the City Code on Takeovers and Mergers (the
"Code").
It is our responsibility to form our opinion, as required by Rule 28.1(a) of
the Code, as to whether the Statement has been properly compiled on the basis
stated and to report that opinion to you.
This report is given solely for the purposes of complying with Rule 28.1(a)(i)
of the Code and for no other purpose. Therefore, to the fullest extent
permitted by law we do not assume any other responsibility to any person for
any loss suffered by any such person as a result of, arising out of, or in
connection with this report or our statement, required by and given solely for
the purposes of complying with Rule 23.2 of the Code, consenting to its
inclusion in the Announcement.
Basis of opinion
We conducted our work in accordance with the Standards for Investment
Reporting issued by the Auditing Practices Board in the United Kingdom.
Our work included considering whether the Statement has been accurately
computed based upon the disclosed bases of belief (including the principal
assumptions). Whilst the bases of belief (and the principal assumptions) upon
which the Statement is based are solely the responsibility of the Directors,
we considered whether anything came to our attention to indicate that any of
the bases of belief (or principal assumptions) adopted by the Directors which,
in our opinion, are necessary for a proper understanding of the Statement have
not been disclosed or if any basis of belief (or principal assumption) made by
the Directors appears to us to be unrealistic. Our work did not involve any
independent examination of any of the financial or other information
underlying the Statement.
We planned and performed our work so as to obtain the information and
explanations we considered necessary in order to provide us with reasonable
assurance that the Quantified Financial Benefits Statement has been properly
compiled on the basis stated.
Since the Statement (and the principal assumptions on which it is based)
relates to the future, the actual synergy benefits achieved are likely to be
different from those anticipated in the Statement and the differences may be
material. Accordingly, we can express no opinion as to the achievability of
the synergy benefits identified by the Directors in the Statement.
Our work has not been carried out in accordance with auditing or other
standards and practices generally accepted in jurisdictions outside the United
Kingdom, including the United States of America, and accordingly should not be
relied upon as if it had been carried out in accordance with those standards
and practices. We have not consented to the inclusion of this report and our
opinion in any registration statement filed with the SEC under the US
Securities Act of 1933 (either directly or by incorporation by reference) or
in any offering document enabling an offering of securities in the United
States (whether under Rule 144A or otherwise). We therefore accept no
responsibility to, and deny any liability to, any person using this report and
opinion in connection with any offering of securities inside the United States
of America or who makes a claim on the basis they had acted in reliance on the
protections afforded by United States of America law and regulation.
Opinion
In our opinion, based on the foregoing, the Quantified Financial Benefits
Statement has been properly compiled on the basis stated.
Yours faithfully
Deloitte LLP
Chartered Accountants
Deloitte LLP is a limited liability partnership registered in England and
Wales with registered number OC303675 and its registered office at 2 New
Street Square, London EC4A 3BZ, United Kingdom. Deloitte LLP is the United
Kingdom member firm of Deloitte Touche Tohmatsu Limited ("DTTL"), a UK private
company limited by guarantee, whose member firms are legally separate and
independent entities. Please see www.deloitte.co.uk/about for a detailed
description of the legal structure of DTTL and its member firms.
C. Report from Greenhill
The Board of Directors
Tesco PLC
Tesco House, Shire Park, Kestrel Way
Welwyn Garden City
United Kingdom
AL7 1GA
27 January 2017
Merger of Tesco PLC ( "Tesco") and Booker Group plc ("Booker")
We refer to the Tesco Quantified Financial Benefits Statement (the
"Statement") set out in Part A of Appendix 5 of the rule 2.7 announcement
dated 27 January 2017 (the "Announcement") for which the Board of Directors of
Tesco (the "Tesco Directors") are solely responsible under Rule 28.3 of the UK
City Code on Takeovers and Mergers (the "Code").
We have discussed the Statement (including the assumptions and sources of
information referred to therein) with the Tesco Directors and those officers
and employees of Tesco who developed the underlying plans. The Statement is
subject to uncertainty as described in the Announcement and our work did not
involve an independent examination of any of the financial or other
information underlying the Statement.
We have relied upon the accuracy and completeness of all the financial and
other information provided to us by or on behalf of Tesco, or otherwise
discussed with or reviewed by us, and we have assumed such accuracy and
completeness for the purposes of providing this letter.
We do not express any view as to the achievability of the quantified financial
benefits identified by the Tesco Directors.
We have also reviewed the work carried out by Deloitte LLP and have discussed
with them the opinion set out in Part B of Appendix 5 of the Announcement
addressed to yourselves and ourselves.
This letter is provided to you solely in connection with Rule 28.1(a)(ii) of
the Code and for no other purpose. We accept no responsibility to Tesco or its
shareholders or any person other than the Tesco Directors in respect of the
contents of this letter; no person other than the Tesco Directors can rely on
the contents of this letter, and to the fullest extent permitted by law, we
exclude all liability (whether in contract, tort or otherwise) to any other
person, in respect of this letter, its contents or the work undertaken in
connection with this letter or any of the results that can be derived from
this letter or any written or oral information provided in connection with
this letter, and any such liability is expressly disclaimed except to the
extent that such liability cannot be excluded by law.
On the basis of the foregoing, we consider that the Statement, for which you
as the Tesco Directors are solely responsible, has been prepared with due care
and consideration.
Yours faithfully,
Greenhill & Co. International LLP
Appendix 6
Tesco Outlook Statement
A. Tesco Outlook Statement
On 12 January 2017, Tesco released its Q3 and Christmas trading announcement.
Included in this announcement was the following statement, which Tesco has
elected to repeat in this Announcement and which for the purposes of Rule 28
of the Code constitutes a profit forecast for the financial year ending 25
February 2017:
"We are well-placed against the medium-term aspirations we outlined in October
2016 and we are on track to deliver at least £1.2 bn Group operating profit
before exceptional items for the full year."
Further information on the bases of belief supporting the Tesco Outlook
Statement, including the principal assumptions and sources of information, is
set out below.
Reconfirmation and basis of preparation
The Tesco Directors hereby confirm that the Tesco Outlook Statement remains
valid and has been properly compiled on the basis stated below and that the
basis of accounting used is consistent with Tesco's accounting policies, which
are in accordance with IFRS and are those that Tesco will apply in preparing
its financial statements for the financial year to 25 February 2017.
In confirming the Outlook Statement, the Tesco Directors made the following
assumptions:
Factors outside the influence or control of the Tesco Directors
· no change to current prevailing global macroeconomic and political
conditions during FY2017 which is material in the context of the Tesco Outlook
Statement;
· no change in legislation or regulation impacting on the Group's operations
or its accounting policies and standards to which it is subject which is
material in the context of the Tesco Outlook Statement;
· no change in inflation, interest or tax rates in Tesco's principal
markets compared with Tesco's budgeted estimates which is material in the
context of the Tesco Outlook Statement;
· no change in market conditions within the retail or financial services
industry in relation to either demand or competitive environment which is
material in the context of the Tesco Outlook Statement;
· no change in the exchange rates compared with Tesco's budgeted estimates
which is material in the context of the Tesco Outlook Statement;
· no change in labour costs, including pension and other post-retirement
benefits; and
· there will be no adverse event that will have an impact on Tesco's
financial performance which is material in the context of the Tesco Outlook
Statement.
Factors within the influence or control of the Tesco Directors
· no material acquisitions, joint venture agreements or disposals will be
made by Tesco prior to 25 February 2017;
· the level of loan related provisions within Tesco Bank appropriately
covers future losses under the relevant loans and there are no events or
circumstances arising which would cause a change in the level of loan related
provisions in Tesco bank that would be material to the Tesco Outlook
Statement; and
· no change in Tesco's strategy.
Reports
As required by Rule 28.1(a) of the Code, Deloitte, as reporting accountants to
Tesco, and Greenhill, lead financial adviser to Tesco, have provided the
reports required under that Rule. Each of Deloitte and Greenhill has given and
has not withdrawn its consent to the publication of its report in the form and
context in which it is included.
B. Report from Deloitte
The Board of Directors on behalf of Tesco PLC
Tesco House, Shire Park, Kestrel Way
Welwyn Garden City
United Kingdom
AL7 1GA
Greenhill & Co. International LLP
Lansdowne House
57 Berkeley Square
London
W1J 6ER
27 January 2017
Dear Sirs
OFFER FOR BOOKER GROUP PLC ("BOOKER") BY TESCO PLC ("TESCO")
We report on the profit forecast comprising a forecast of group operating
profit before exceptional items of Tesco plc (the "Company") and its
subsidiaries (together the "Group") for the 12 months ending 25 February 2017
(the "Profit Forecast"). The Profit Forecast, and the material assumptions
upon which it is based are set out in Part A of Appendix 6 to the Rule 2.7
Announcement dated 27 January 2017 (the "Announcement")).
Responsibilities
It is the responsibility of the directors of the Company (the "Directors") to
prepare the Profit Forecast in accordance with the requirements of Rule 28 of
the City Code on Takeovers and Mergers (the "Code").
It is our responsibility to form an opinion as required by Rule 28.1(a) of the
Code as to whether the Profit Forecast has been properly compiled on the basis
stated and to report that opinion to you.
This report is given solely for the purposes of complying with Rule 28.1(a)(i)
of the Code and for no other purpose. Therefore, to the fullest extent
permitted by law we do not assume any other responsibility to any person for
any loss suffered by any such person as a result of, arising out of, or in
connection with this report or our statement, required by and given solely for
the purposes of complying with Rule 23.2 of the Code, consenting to its
inclusion in the Announcement.
Basis of Preparation of the Profit Forecast
The Profit Forecast has been prepared on the basis stated in Part A of
Appendix 6 to the Announcement and is based on the unaudited interim financial
results for the six months ended 27 August 2016, the unaudited management
accounts for the four months ended 31 December 2016 and a forecast for the two
months to 25 February 2017. The Profit Forecast is required to be presented on
a basis consistent with the accounting policies of the Group.
Basis of opinion
We conducted our work in accordance with the Standards for Investment
Reporting issued by the Auditing Practices Board in the United Kingdom. Our
work included evaluating the basis on which the historical financial
information included in the Profit Forecast has been prepared and considering
whether the Profit Forecast has been accurately computed based upon the
disclosed assumptions and the accounting policies of the Group.
Whilst the assumptions upon which the Profit Forecast are based are solely the
responsibility of the Directors, we considered whether anything came to our
attention to indicate that any of the assumptions adopted by the Directors
which, in our opinion, are necessary for a proper understanding of the Profit
Forecast have not been disclosed or if any material assumption made by the
Directors appears to us to be unrealistic.
We planned and performed our work so as to obtain the information and
explanations we considered necessary in order to provide us with reasonable
assurance that the Profit Forecast has been properly compiled on the basis
stated.
Since the Profit Forecast and the assumptions on which it is based relate to
the future and may therefore be affected by unforeseen events, we can express
no opinion as to whether the actual results reported will correspond to those
shown in the Profit Forecast and differences may be material.
Our work has not been carried out in accordance with auditing or other
standards and practices generally accepted in jurisdictions outside the United
Kingdom, including the United States of America, and accordingly should not be
relied upon as if it had been carried out in accordance with those standards
and practices. We have not consented to the inclusion of this report and our
opinion in any registration statement filed with the SEC under the US
Securities Act of 1933 (either directly or by incorporation by reference) or
in any offering document enabling an offering of securities in the United
States (whether under Rule 144A or otherwise). We therefore accept no
responsibility to, and deny any liability to, any person using this report and
opinion in connection with any offering of securities inside the United States
of America or who makes a claim on the basis they had acted in reliance on the
protections afforded by United States of America law and regulation.
Opinion
In our opinion, the Profit Forecast has been properly compiled on the basis
stated and the basis of accounting used is consistent with the accounting
policies of the Group.
Yours faithfully
Deloitte LLP
Chartered Accountants
Deloitte LLP is a limited liability partnership registered in England and
Wales with registered number OC303675 and its registered office at 2 New
Street Square, London EC4A 3BZ, United Kingdom. Deloitte LLP is the United
Kingdom member firm of Deloitte Touche Tohmatsu Limited ("DTTL"), a UK private
company limited by guarantee, whose member firms are legally separate and
independent entities. Please see www.deloitte.co.uk/about for a detailed
description of the legal structure of DTTL and its member firms.
C. Report from Greenhill
The Board of Directors
Tesco PLC
Tesco House, Shire Park, Kestrel Way
Welwyn Garden City
United Kingdom
AL7 1GA
27 January 2017
Merger of Tesco PLC and Booker Group plc
We report on the Tesco Outlook Statement (the "Statement") made by Tesco PLC
("Tesco") and set out in Appendix 6 of the Rule 2.7 announcement dated 27
January 2017 (the "Announcement") for which the Board of Directors of Tesco
(the "Tesco Directors") are solely responsible under Rule 28.3 of the City
Code on Takeovers and Mergers (the "Code").
We have discussed the Statement with the Tesco Directors. The Statement is
subject to uncertainty as described in the Announcement and our work did not
involve an independent examination of any of the financial or other
information underlying the Statement.
We have relied upon the accuracy and completeness of all the financial and
other information provided to us by or on behalf of Tesco, or otherwise
discussed with or reviewed by us, and we have assumed such accuracy and
completeness for the purposes of providing this letter.
We do not express any view as to the achievability of the Statement.
We have also reviewed the work carried out by Deloitte LLP and have discussed
with them the opinion set out in Appendix 6 of the Announcement.
This letter is provided to you solely in connection with Rule 28.1(a)(ii) of
the Code and for no other purpose. We accept no responsibility to Tesco, its
shareholders or any person other than the Tesco Directors in respect of the
contents of this letter. No person other than the Tesco Directors can rely on
the contents of this letter, and to the fullest extent permitted by law, we
exclude all liability (whether in contract, tort or otherwise) to any other
person, in respect of this letter, its contents or the work undertaken in
connection with this letter or any of the results that can be derived from
this letter or any written or oral information provided in connection with
this letter, and any such liability is expressly disclaimed except to the
extent that such liability cannot be excluded by law.
On the basis of the foregoing, we consider that the Statement, for which you
as the Tesco Directors are solely responsible, has been prepared with due care
and consideration.
Yours faithfully,
Greenhill & Co. International LLP
Appendix 7
Booker Dividends
Under the terms of the Merger, Tesco and Booker have agreed that Booker
Shareholders on the relevant record date will be entitled to receive, subject
to Booker having sufficient distributable reserves at the relevant time, the
following dividends (each a "Permitted Booker Dividend", and together, the
"Permitted Booker Dividends"):
· subject to approval by the Booker Shareholders, a final dividend in
respect of the 52 weeks ending 24 March 2017 of up to 65 per cent. of Booker's
profits after tax, calculated and determined in accordance with and consistent
with Booker's past practice ("Earnings") for that 52 week period less the
aggregate amount of the interim dividend of 0.63 pence per Booker Share
already paid by Booker on 25 November 2016 (the "2016/17 Final Dividend"). If
the Effective Date is expected to occur prior to Booker's annual general
meeting for the 52 weeks ending 24 March 2017, the 2016/17 Final Dividend may
be approved by the Booker Board, and paid, as an interim dividend. The record
date for the 2016/17 Final Dividend shall be in June 2017, or if the Effective
Date is expected to fall on or prior to such date, the record date will be
brought forward to a time and date which falls prior to the Scheme Record
Time;
· a further special dividend in respect of the 52 weeks ending 24 March
2017 of up to 100 per cent. of Booker's Earnings for that 52 week period less
the aggregate amount of the interim dividend of 0.63 pence per Booker Share
already paid by Booker on 25 November 2016 and the 2016/17 Final Dividend (the
"2016/17 Special Dividend"). The record date for the 2016/17 Special Dividend
shall be in June 2017, or if the Effective Date is expected to fall on or
prior to such date, the record date will be brought forward to a time and date
which falls prior to the Scheme Record Time;
· if the Effective Date is after the record date for the 2017/18 Interim
Dividend (as defined below) (but not otherwise), an interim dividend of up to
0.69 pence per Booker Share in respect of the 24 weeks ending 8 September 2017
(the "2017/18 Interim Dividend"). If the 2017/18 Interim Dividend is
announced or declared, the record date for it shall be in October 2017;
· if the Effective Date is after the record date for the 2017/18 Final
Dividend (as defined below) (but not otherwise), subject to approval by the
Booker Shareholders, a final dividend of up to 65 per cent. of Booker's
Earnings for the 53 weeks ending 30 March 2018 less the aggregate amount of
the 2017/18 Interim Dividend (the "2017/18 Final Dividend"). If the Effective
Date is expected to occur prior to Booker's annual general meeting for the 53
weeks ending 30 March 2018, the 2017/18 Final Dividend may be approved by the
Booker Board, and paid, as an interim dividend). If the 2017/18 Final
Dividend is announced or declared, the record date for it shall be in June
2018 and any general meeting to approve the 2017/18 Final Dividend shall be
after such record date;
· if the Effective Date is after the record date for the 2018/19 Interim
Dividend (as defined below) (but not otherwise), an interim dividend of up to
0.76 pence per Booker Share in respect of the 24 weeks ending 14 September
2018 (the "2018/19 Interim Dividend"). If the 2018/19 Interim Dividend is
announced or declared, the record date for it shall be in October 2018; and
· subject to the Scheme becoming effective, an aggregate closing dividend
(the "Closing Dividend"), to be agreed by Tesco and Booker (or, in the absence
of agreement, determined as set out below) to reflect the principle that
Booker Shareholders should receive a dividend payment equal to the accrued but
unpaid ordinary dividends that they would otherwise have expected to receive
as Booker Shareholders in respect of the period from the end of the last
financial period for which a dividend was made, declared or paid until the
Effective Date, such payment to be reduced by any dividends that Booker
Shareholders would be expected to become entitled to receive as holders of New
Tesco Shares after the Effective Date in relation to the same period. The
Closing Dividend shall be announced on the Posting Date and set out in the
Scheme Document, with the record date and time falling prior to the Scheme
Record Time and the payment date within 14 days of the Effective Date. Unless
otherwise agreed between Tesco and Booker and announced on the Posting Date
and set out in the Scheme Document, the Closing Dividend shall be an aggregate
amount that is calculated by deducting the aggregate Accrued Tesco Dividend
from the aggregate Accrued Booker Dividend (provided that the Closing Dividend
shall not be a negative number), where:
o the Accrued Booker Dividend is equal to the aggregate amount of unpaid
ordinary dividends that will have accrued as ordinary dividends on the Booker
Shares on or prior to the Effective Date, calculated as:
(A x 1.1 x B) - C
where:
§ A equals the sum of the aggregate amounts of the last interim dividend and
last final (or second interim) dividend of Booker (but, for the avoidance of
doubt, excluding any special dividend of Booker, including the 2016/17 Special
Dividend) that have been announced or declared, and for which the record date
has or will have occurred as at the Effective Date;
§ B equals:
· if the Effective Date is prior to the record date for the 2017/18 Final
Dividend, the number of days from (and including) 25 March 2017 to (and
excluding) the Effective Date divided by 365;
· if the Effective Date is on or after the record date for the 2017/18
Final Dividend, the number of days from (and including) 31 March 2018 to (and
excluding) the Effective Date divided by 365;
§ C equals:
· if the Effective Date is prior to the record date for the 2017/18
Interim Dividend, zero;
· if the Effective Date is on or after the record date for the 2017/18
Interim Dividend but prior to the record date for the 2017/18 Final Dividend,
the aggregate 2017/18 Interim Dividend;
· if the Effective Date is on or after the record date for the 2017/18
Final Dividend but prior to the record date for the 2018/19 Interim Dividend,
zero;
· if the Effective Date is on or after the record date for the 2018/19
Interim Dividend, the aggregate 2018/19 Interim Dividend;
o the Accrued Tesco Dividend is equal to the aggregate amount of unpaid
ordinary dividends that Booker Shareholders are expected to become entitled to
receive as holders of New Tesco Shares after the Effective Date in relation to
the same period as for the Accrued Booker Dividend, calculated as:
((D x E x F) - G) x H
where:
§ D equals the sum of the aggregate amounts of the last interim dividend and
the last final (or second interim) dividend of Tesco (other than any dividend
in respect of any financial period ending on or prior to 25 February 2017)
that have been announced or declared, and for which the record date has or
will have occurred on or prior to the Effective Date, provided that if the
Effective Date is:
· prior to the record date for an interim dividend by Tesco in respect of
the financial year ending 24 February 2018 (the "Tesco 2017 FY") (the "Tesco
2017/18 Interim Dividend"), such amount will be equal to zero (in which case
the Accrued Tesco Dividend will also be zero);
· on or after the record date for the Tesco 2017/18 Interim Dividend but
prior to the record date for a final (or second interim) dividend by Tesco in
respect of the Tesco 2017 FY (the "Tesco 2017/18 Final Dividend"), such amount
will be equal to the aggregate amount of the Tesco 2017/18 Interim Dividend
multiplied by 3;
§ E equals:
· if the Effective Date is prior to the record date for the Tesco 2017/18
Final Dividend, one;
· if the Effective Date is on or after the record date for the Tesco
2017/18 Final Dividend, 1.5;
§ F equals:
· if the Effective Date is prior to the record date for the Tesco 2017/18
Final Dividend, the sum of the number of days from (and including) 26 February
2017 to (and excluding) the Effective Date divided by 365;
· if the Effective Date is on or after the record date for the Tesco
2017/18 Final Dividend, the number of days from (and including) 25 February
2018 to (and excluding) the Effective Date divided by 365;
§ G equals:
· if the Effective Date is prior to the record date for the Tesco 2017/18
Interim Dividend, zero;
· if the Effective Date is on or after the record date for the Tesco
2017/18 Interim Dividend but prior to the record date for the Tesco 2017/18
Final Dividend, the aggregate Tesco 2017/18 Interim Dividend;
· if the Effective Date is on or after the record date for the Tesco
2017/18 Final Dividend but prior to the record date for an interim dividend by
Tesco in respect of the financial year ending 23 February 2019 (the "Tesco
2018/19 Interim Dividend"), zero;
· if the Effective Date is on or after the record date for the Tesco
2018/19 Interim Dividend, the aggregate Tesco 2018/19 Interim Dividend;
§ H equals the number of New Tesco Shares to be issued under the Merger
divided by the number of Tesco Shares in issue immediately prior to the Scheme
becoming effective.
For the avoidance of doubt, if the Effective Date occurs after the
announcement or declaration of any Permitted Booker Dividend, but before its
record date, the relevant Booker Shareholders will not be entitled to receive
such dividend.
Tesco and Booker intend to agree the timetable relating to the Permitted
Booker Dividends with the London Stock Exchange to take into account the
relevant dividend procedure timetable at the relevant time.
If, on or after the date of this Announcement, any dividend and/or other
distribution and/or other return of capital is declared, made or paid or
becomes payable in respect of the Booker Shares, other than a Permitted Booker
Dividend or the 2017 B Share Redemption, Tesco reserves the right (without
prejudice to any right of Tesco to invoke Condition 10(c) in Part A of
Appendix 2 to this Announcement), to reduce the value implied under the terms
of the Merger for the Booker Shares by an amount up to the amount of such
dividend and/or distribution and/or return of capital, in which case any
reference in this Announcement or in the Scheme Document to the Consideration
payable under the terms of the Merger will be deemed to be a reference to the
Consideration as so reduced. In such circumstances, to the extent possible,
the cash component of the Consideration would be reduced by an amount up to
the amount of such dividend and/or distribution and/or return of capital. To
the extent that any such dividend and/or distribution and/or other return of
capital is declared, made or paid or is payable and it is: (i) transferred
pursuant to the Merger on a basis which entitles Tesco to receive the dividend
or distribution and to retain it; or (ii) cancelled, the Consideration payable
under the terms of the Merger will not be subject to change in accordance with
this paragraph. Any exercise by Tesco of its rights referred to in this
paragraph shall be the subject of an announcement and, for the avoidance of
doubt, shall not be regarded as constituting any revision or variation of the
Merger.
If you are in any doubt as to how the above will apply, you are recommended to
seek your own financial advice from your stockbroker, bank manager, solicitor,
accountant, fund manager or other appropriate independent financial adviser,
who is authorised under the Financial Services and Markets Act 2000 if you are
resident in the UK or, if not, from another appropriately authorised
independent financial adviser.
Appendix 8
Definitions
The following definitions apply throughout this Announcement unless the
context requires otherwise.
"2016/17 Final Dividend" has the meaning set out in Appendix 7;
"2016/17 Special Dividend" has the meaning set out in Appendix 7;
"2017/18 Interim Dividend" has the meaning set out in Appendix 7;
"2017/18 Final Dividend" has the meaning set out in Appendix 7;
"2017 B Share Redemption" has the meaning set out in paragraph 2 of this Announcement;
"2018/19 Interim Dividend" has the meaning set out in Appendix 7;
"£", "Sterling", "pence" or "p" the lawful currency of the UK;
"Act" the Companies Act 2006, as amended from time to time;
"Accrued Booker Dividend" has the meaning set out in Appendix 7;
"Accrued Tesco Dividend" has the meaning set out in Appendix 7;
"Additional Confidentiality Agreements" has the meaning set out in paragraph 15;
"Admission" admission of the New Tesco Shares to the Official List with a premium listing and to trading on the Main Market;
"ADR" American Depositary Receipt;
"Announcement" this announcement;
"Authorisation" has the meaning set out at the end of Part A in Appendix 2;
"B Share Scheme Circular" the B share scheme circular published by Booker on 2 June 2016;
"B Shares" the unlisted redeemable shares of 3.2 pence each in the capital of Booker;
"Barclays" Barclays Bank Plc, acting through its investment bank;
"Booker" Booker Group plc, incorporated in England and Wales with registered number 05145685;
"Booker's 2016 Annual Report and Accounts" the annual report and audited financial statements of Booker for the year ended 25 March 2016;
"Booker Board" the board of directors of Booker as at the date of this Announcement or, where the context so requires, the board of directors of Booker from time to time;
"Booker Board Recommendation" has the meaning set out in Appendix 4;
"Booker Directors" the directors of Booker as at the date of this Announcement or, where the context so requires, the directors of Booker from time to time;
"Booker General Meeting" the general meeting of Booker to be convened in connection with the Scheme and the Merger, notice of which will be set out in the Scheme Document, including any adjournment thereof;
"Booker Group" Booker, its subsidiaries and its subsidiary undertakings from time to time;
"Booker Meetings" the Scheme Court Meeting and the Booker General Meeting;
"Booker Scheme Shareholders" holders of Booker Scheme Shares;
"Booker Scheme Shares" Booker Shares:(a) in issue as at the date of the Scheme Document;(b) (if any) issued after the date of the Scheme Document and prior to the Scheme Voting Record Time; and(c) (if any) issued on or after the Scheme Voting Record Time and before the
Scheme Record Time, either on terms that the original or any subsequent holders thereof shall be bound by the Scheme or in respect of which the holders thereof shall have agreed in writing to be bound by the Scheme,
but in each case other than the Excluded Shares;
"Booker Shareholders" the registered holders of Booker Shares from time to time;
"Booker Share Schemes" the Booker Performance Share Plan 2008 (including the UK tax-favoured appendix) as amended from time to time and the Booker Savings Related Share Option Plan 2008 as amended from time to time;
"Booker Shares" the ordinary shares of one penny each in the capital of Booker from time to time;
"Business Day" a day, other than a Saturday, Sunday or public or bank holiday, when banks are open for business in London;
"Circular" the circular to be sent by Tesco to Tesco Shareholders summarising the background to and reasons for the Merger which will include a notice convening the Tesco General Meeting;
"Citi" Citigroup Global Markets Limited;
"Clean Team Confidentiality Agreement" the clean team confidentiality agreement between Tesco and Booker dated 12 December 2016;
"Closing Price" the closing middle market quotations of a share derived from the Daily Official List;
"Closing Dividend" has the meaning set out in Appendix 7;
"CMA Pre-Condition" the pre-condition to the Merger as set out in Appendix 1 to this Announcement;
"Code" the UK City Code on Takeovers and Mergers as issued from time to time by or on behalf of the Panel;
"Combined Group" the enlarged group following the Merger comprising the Tesco Group and the Booker Group;
"Combined Group's Board" the directors comprising the Tesco Board as at the date of completion of the Merger, Charles Wilson and Stewart Gilliland;
"Combined Group's Executive Committee" the executive committee of Tesco as at the date of completion of the Merger and Charles Wilson;
"Conditions" the conditions to the implementation of the Merger (including the Scheme) as set out in Part A of Appendix 2 to this Announcement and to be set out in the Scheme Document;
"Confidentiality Agreement" the confidentiality agreement between Tesco and Booker dated 20 June 2016;
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