UBC Media Group PLC - Proposed Acquisition of 7digital Group, Inc
Proposed Acquisition of 7digital
Proposed Placing and Subscription to raise
Proposed Change of Name to 7digital
Restoration of Dealings
In June last year,
The listing of Audioboo will become effective this morning via the re-admission to trading of
The Acquisition creates a powerful business to business supplier at the heart of the fast developing global business in digital music and radio.
· Significant experience in both digital music and radio as the two industries come together to address a mainstream and under-served market of music consumers
· A number of new products and services: on-demand music and radio streaming, music downloads, personalised radio, playlisting and curated content
· An open and scalable platform which currently serves 95 customers in 42 countries
· Matching rights agreements with record companies, content creators and publishers as well as a full management system including ingestion, secure file storage and reporting
· Leading global technology and media industry customers including Samsung, the
· A significantly strengthened Board of Directors with: Sir
The Acquisition will be undertaken by the Company's
Placing and Subscription
In order to fund the
The Directors of
The Acquisition constitutes a reverse takeover under Rule 14 of the AIM Rules for Companies and is therefore subject to shareholder approval. Accordingly, the Company has today published an AIM Admission Document containing detailed information about
"This transaction will create a world leading digital music and radio platform that is ideally positioned to exploit the convergence of radio and digital music services. The new business will also be well-placed to drive consolidation of the fragmented B2B digital music industry. As we have been putting this transaction together, our joint management teams have already started winning business together and I am confident that the combination of our combined global networks in technology and media will create an opportunity on the
"Digital music has come a long way since the invention of MP3 in the nineties but it is only now that the majority of consumers are beginning to embrace music streaming and download services. The 7digital open platform simplifies access to the world's music and the combination with
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020 7453 1600
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finnCap (nominated adviser and broker)
020 7220 0500
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Investec (joint broker on conditional placing)
020 7597 5970
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020 7250 1446
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Below are extracts from the Admission Document which will be sent to shareholders today. The full Admission Document is available on the Company's website: www.ubcmedia.com
Definitions in this announcement are the same as those included in the Admission Document.
At the same time as the Acquisition and the Placing, the Directors are now making other consequential proposals, comprising a share consolidation, the adoption of new articles of association, the change of the Company's name to 7digital
The Proposals and the Consequential Proposals are conditional, inter alia, upon the passing of the Resolutions at a General Meeting to be held at the offices of
The Admission Document contains information about 7digital, the Acquisition, the Placing, the Subscription and the Consequential Proposals, explains why the Board considers the Proposals to be in the best interests of the Company and its Shareholders as a whole, and recommends that you vote in favour of the Resolutions to be proposed at the General Meeting, notice of which is set out at the end of the Admission Document.
BACKGROUND ON UBC
Despite the changes in technology, the vision itself was not embraced by the broader radio industry, which for the most part has continued to pursue its traditional broadcasting and revenue models. The radio industry went through a period of decline, led by a decline in advertising revenues in 2006/7 and the lack of uptake of digital radio by the general public. In 2009,
After a major strategic review, the Board decided that the production businesses, whilst reliable, were likely to continue to be low-growth. The Directors believed that if there were to be a successful future for
As the radio industry started to move online,
As Audioboo continued to show promising development and at the same time required further funding,
BACKGROUND TO THE ACQUISITION
As detailed above,
At the same time,
BACKGROUND ON 7DIGITAL
7digital operates B2B technology and music services and B2C music services under the 7digital brand.
7digital's core business is to provide an API for third parties who want to create digital music services, either standalone or bundled within their own device or product offering. 7digital's platform simplifies access to music by offering a combination of a licenced music catalogue alongside the cloud-based technology platform and client-side software, being software hosted by 7digital's clients. These are needed to create on-demand music streaming and download services, radio-style services and other services. The 7digital platform is open, with open-source code wrappers to reduce complexity and time to market for its potential customers and can be used for building products on any type of connected device.
Customers of the 7digital platform include Samsung, BlackBerry,
(b) Devices and operating systems
In addition to providing an open API-based platform from which third parties can build their own services, 7digital also provides client-side software applications for the leading OS and device platforms, including Android, iOS, BlackBerry, Windows 8 and Windows Phone, Tizen, Firefox OS, HTML5 and
(c) Music licences
7digital has obtained music licences in 42 countries in
7digital.com is a licenced digital music store, one of the
FINANCIAL INFORMATION ON 7digital
The following financial information relating to 7digital has been extracted from the Accountants' Report set out in Part IV of the Admission Document:
Year ended Year ended Year ended
2011 2012 2013
£'000 £'000 £'000
Loss before tax
MARKET OPPORTUNITY AND REASONS FOR THE ACQUISITION
Since 2008 the global recorded music industry has experienced year-on-year declines in the value of sales of music in physical formats. In the same period the value of sales of digital music in the form of downloaded data files or streamed content has grown year-on-year. Currently, 39 per cent. of sales globally come from digital formats and it is forecast that in 2015 global sales of digital music will exceed sales of physical music. The streaming of digital music content is now a significant part of digital music consumption and it is estimated that 35 per cent. of consumers globally now access streamed digital music content in the form of both premium and free content services. This can be attributed in part to the fact that smartphone proliferation, 4G networks with increased data access speeds and high broadband penetration have enabled better quality streaming services particularly in Western economies. App-based delivery via smartphones is driving changes in music consumption patterns as individuals move increasingly to mobile services that stream content rather than traditional download-to-own services like iTunes.
The markets for online music and streamed radio have converged significantly in recent years, with services like Pandora and iTunes Radio creating 'radio-like' music services where consumers are presented with 'curated' or 'playlisted' music rather than having to build their own collections. In the meantime, online and mobile streaming has become the fastest growing segment of the radio industry, with 25 per cent. of all listeners now saying that they listen at some time to radio on their mobile phones and nearly six per cent. of all radio being listened to either online or on mobile: a 20 per cent. increase in the twelve months to
The Directors and Proposed Directors believe that digital music services, including radio and radio-like streaming, and hybrid services, which contain both streamed radio and music services, are growth areas. Services from B2C providers such as Apple, Pandora and Spotify are likely to lead the market. However, it is the view of the Directors and the Proposed Directors that the customer base of both
It is believed by the Directors and Proposed Directors that as global sales of digital music have grown in recent years an increasing number of consumers are willing and able to access and purchase digital music and this trend can be expected to continue. In addition, it is estimated that 90 per cent. of mobile users have access to one or more music apps on their mobile device and one in three consumers has a preference for listening to music on their mobile device. It is also forecast by Cisco that there will continue to be significant growth in the total number of devices able to access digital content, increasing from 12.5 billion units globally in 2010 to a forecast 25.0 billion units in 2015 and 50.0 billion units in 2020.
The global radio industry has experienced significant growth in online revenues in recent years, increasing from
The Acquisition will create a global digital music and radio services business operating in 42 countries with at least 95 B2B customers. The Directors and Proposed Directors believe that the Acquisition brings together two companies with complementary assets in the digital music and radio sector, combining 7digital's existing music technology and global music rights with
The Directors and Proposed Directors believe the Acquisition and Placing will enable the combined businesses of 7digital and
In addition, the Directors and Proposed Directors believe the B2B music services market is fragmented and opportunities exist to consolidate a number of small-scale competitors with complementary technology and service offerings.
As well as the revenue opportunities noted above, the Directors and Proposed Directors believe that cost synergies will be gained from joining the two businesses. These are expected to result from merging the administrative functions and co-locating both businesses.
STRATEGY OF THE NEW BOARD & ENLARGED GROUP'S PROPOSITION
The online audio market is changing fast and the Directors and Proposed Directors believe it is reaching an inflexion point. The early adopters of digital music have been those for whom music is a passion and who have also been reasonably technically aware. At present, whilst digital sales of music are expected in the next twelve months to overtake physical sales, it is still the case that a significant majority of music is listened to either on broadcast radio or via CD. As those consumers who listen to music on broadcast radio or via CD embrace digital listening, the Directors and Proposed Directors expect the pattern of usage to change, driven by radio-like services.
The Directors and Proposed Directors expect the
· Radio aggregation and search
· Curated and programmed channels
· HD audio
· Personalised radio
· Music and radio streaming
· Music download services
These services will be delivered using the
· Time-to-market - the
· Quality of product - the
· Access to rights - the
· Flexibility - the
· Multiple revenue models - customers can adapt their monetization method based on different models (including pay per download, subscription service or advertising-funded).
· Subscription revenues, principally in the form of up front and monthly recurring revenues from software and rights licensing and software licensing revenues from radio broadcasting clients;
· Digital content revenues, principally derived from sales of digital content in the form of a digital download sale or a subscription from a streaming service; and
· Production revenues, for example those resulting from radio or television commissions.
The revenue model for the combined business is based on expected strong growth from the B2B service offerings. The Directors and Proposed Directors believe that growth in monthly recurring B2B revenues will be principally driven by:
(i) growth in connected devices;
(ii) new customers coming to market;
(iii) continued product innovation; and
(iv) international expansion.
The digital music market has a number of significant B2C services such as iTunes, Google Play Music, Amazon MP3 and Spotify which have captured a large market share of the digital music market and represent indirect competition to 7digital's offering.
7digital's primary business is the provision of B2B music and radio platform-as-a-service and direct competitors include 247 Entertainment (based in
The Directors and Proposed Directors believe that the
(i) Open API - 7digital's B2B music platform is differentiated in the market as it offers an open API with
open-source code wrappers to reduce complexity and time to market for its potential customers. 7digital also provides a mobile SDK that helps App developers create services using the 7digital platform quickly and easily. The Directors and Proposed Directors believe that this combination of services is unique in the market.
(ii) Experienced senior management - the operational senior management team draws its experience from the music and technology industries including companies like
CURRENT TRADING AND PROSPECTS UBC
The results for the second half of the year were below the Directors' expectations as a result of one-off factors which affected the underlying operations of the business, such as the bankruptcy of
7digital's unaudited management accounts for the quarter ended
At the end of
The Directors and Proposed Directors expect that the combined sales, technical and operational resources available to the
Accounting Reference Date
The Directors have resolved, conditional upon Admission, to change
DIRECTORS AND PROPOSED DIRECTORS
Details of the current Directors of
On Completion, it is proposed that
On Completion, it is proposed that the following will be appointed to the Board of the
Sir Donald has extensive experience in a number of areas, including European regulation and telecommunications. Sir Donald's career has included assignments at McKinsey & Co. Inc.,
Sir Donald holds an M.A. degree in Law and an honorary L.L.D. degree from the
Ben graduated from
After joining Imagination Technologies in 1992 as Technical Director, Sir Hossein refocused the business on advanced technology development and created Imagination's successful silicon IP business model. Sir Hossein is a Non-Executive Director of Toumaz Limited.
Eric previously worked for 30 years in investment banking, where he gained diverse experience advising clients in strategic transactions and financings across a broad range of industries. Eric was formerly a Managing Director and senior member of the technology investment banking team at
Eric holds a BS degree from
Following Admission it is intended to appoint two additional independent directors of suitable calibre to strengthen the composition of the New Board.
PRINCIPAL TERMS AND CONDITIONS OF THE ACQUISITION
On 20 May 2014, the Company entered into the Merger Agreement with, among others the Indemnitors' Representative, as detailed in paragraph 14.3 of Part VI, pursuant to which the Company's wholly owned
Completion of the Merger Agreement, as detailed in paragraph 14.3 of Part VI, is conditional, amongst other things, upon:
· Shareholder approval of the Resolutions; and
Additional information relating to the Merger Agreement is set out in paragraph 14.3 of Part VI of the Admission Document.
To secure the obligations of 7digital under the Merger Agreement, the Main Vendors have agreed, pursuant to the Escrow Agreement, to put 20,445,095 Vendor Consideration Shares into escrow with
Additional information relating to the Escrow Agreement is set out in paragraph 14.4 of Part VI of the Admission Document.
IMAGINATION BRIDGE LOAN
THE PLACING AND SUBSCRIPTION
In order to fund the transaction costs of the Acquisition and the Proposals as well as provide working capital for the
The Placing and the Subscription are not being underwritten. Following Admission the Placing Shares and the Subscription Shares will rank pari passu with the New Ordinary Shares. Application will be made for the admission of the Enlarged Issued Share Capital to trading on AIM which is expected to take place on
The proceeds of the Placing and the Subscription will be used to fund the
DETAILS OF THE CONSEQUENTIAL PROPOSALS Proposed New Articles of Association
At the same time as approving the Acquisition the Company is taking advantage of this opportunity to adopt the New Articles. The Directors believe that the Company's Existing Articles should be updated to reflect and take full benefit of some of the new provisions of the Act which have now been brought into full effect. Accordingly, the Board considers it prudent to replace the Company's Existing Articles with the New Articles which take account of those developments and to reflect the Share Consolidation. A summary of the New Articles and the principal changes arising from the adoption of the New Articles, other than changes which are of a minor, technical or clarifying nature, are set out in paragraph 5 of Part VI of the Admission Document and the Existing Articles and the New Articles are available for review at the Company's website at www.ubcmedia.com.
Proposed Share Consolidation
As part of the Proposals, the Company is seeking Shareholder approval for the Share Consolidation, whereby the Ordinary Shares are consolidated into New Ordinary Shares on the basis of one New Ordinary Share for every 10 Ordinary Shares held at the record date.
The purpose of the Share Consolidation is to reduce the total number of shares in issue following completion of the Proposals. The Directors believe that this may reduce the volatility in the price of the Company's shares, may avoid large dealing spreads in the shares and may ensure that the price of the shares is more appropriate for a company of the
It is proposed that the Share Consolidation will consist of the following steps:
(i) every 10 Ordinary Shares held at the record date will be consolidated into one New Ordinary Share;
(ii) fractional entitlements arising out of the consolidation under sub-paragraph (i) above by reason of there being either less than 10 Ordinary Shares or a number not divisible by 10 shall be rounded down to the nearest whole number. All such fractional entitlements shall be aggregated into New Ordinary Shares and the whole number of New Ordinary Shares so arising shall be sold in the market and the net proceeds of sale (less expenses) distributed proportionately among the relevant Shareholders entitled to them (unless the sums due are less than
The Existing Articles require that Shareholder consent is sought for the Share Consolidation and approval will be sought at the General Meeting which has been convened at the offices of
The record date in respect of the Share Consolidation is
The resolution to effect the Share Consolidation is set out in the Notice which can be found at the end of the Admission Document.
Proposed Incentivisation Arrangements
The Directors and Proposed Directors believe that the success of the
Further details of the Employee Share Scheme are set out in paragraph 25 of Part VI of the Admission Document. Approval of the Employee Share Scheme will be sought at the General Meeting. It is intended that shortly after Admission, subject to Shareholder approval of the Employee Share Scheme at the General Meeting, initial awards thereunder will be made to certain members of the New Board and other members of staff.
LOCK-INS AND ORDERLY MARKET ARRANGEMENTS
The Locked In Parties have entered into a lock-in agreement with the Company, finnCap and Investec pursuant to which, they have agreed, conditional upon Admission, not to sell, transfer or dispose of any interest in New Ordinary Shares held by them or any related parties (as defined in the AIM Rules for Companies) for a period of 12 months following Admission save for certain exceptions. In addition, each of the Locked In Parties has agreed that, for a further 12 months, save for certain exceptions, he/it will not sell, transfer or dispose of any interest in New Ordinary Shares without the prior written consent of each of the Company, finnCap and Investec and any such sale or disposal of New Ordinary Shares will generally be effected through finnCap, Investec or the Company's incumbent corporate broker (with a view to ensuring an orderly market in such securities), subject to certain exceptions. In addition, to certain exceptions to lock-in and orderly market arrangements which apply to the Locked In Parties, Goodmans is also permitted to transfer its interests in New Ordinary Shares to
As at Admission the Locked In Parties will hold 59,445,655 New Ordinary Shares in total, representing 54.9 per cent. of the Enlarged Issued Share Capital.
Further details of the lock-in and orderly market arrangements relating to the Vendors and the Directors are set out in paragraph 14.21 of Part VI of the Admission Document.
CHANGE OF NAME
To reflect the proposed changes to the Company, its management and its operations as a result of the Acquisition, it is proposed that, conditional on Completion, the Company will change its name to 7digital
RELATED PARTY TRANSACTIONS
The issue of New Ordinary Shares to Imagination, pursuant to the terms of the Merger Agreement, the Imagination Bridge Loan and the Imagination Convertible Loan, as a substantial shareholder in the Company, constitutes a related party transaction for the purposes of AIM Rule 13. Furthermore, the participation by Imagination and DC Thomson, also a substantial shareholder in the Company in the Placing, constitutes a related party transaction for the purposes of AIM Rule 13 (together, "the Related Party Transactions").
The independent directors, being
The Directors and Proposed Directors intend to commence the payment of dividends only when it becomes commercially prudent to do so, having regard to the availability of the
Insofar as they are interested in Ordinary Shares, the Directors and persons connected with them have given irrevocable undertakings to the Company to vote in favour of the Resolutions (and, where relevant, to procure that such action is taken by the relevant registered holders if that is not them), in respect of their entire beneficial holdings totaling, in aggregate, 51,155,958 Ordinary Shares, representing approximately 25.9 per cent. of the Existing Total Voting Rights.
In addition, certain other Shareholders have given irrevocable undertakings to the Company to vote in favour of the Resolutions to be proposed at the General Meeting (and, where relevant, to procure that such action is taken by the relevant registered holders if that is not one of them) in respect of their holdings totaling, in aggregate, 61,065,211 Ordinary Shares, representing approximately 30.9 per cent. of the Existing Total Voting Rights.
In total, therefore, the Company has received irrevocable undertakings to vote in favour of the Resolutions in respect of holdings totaling in aggregate 112,221,169 Ordinary Shares, representing approximately 56.8 per cent. of the Existing Total Voting Rights. Further details of the irrevocable undertakings received by the Company are set out in paragraph 16 of Part VI of the Admission Document.
The Directors consider, for the reasons set out above, that the Proposals are in the best interests of the Company and Shareholders as a whole. Accordingly, the Directors recommend that you vote in favour of the Resolutions at the General Meeting as they intend to do in respect of their own beneficial holdings amounting, in aggregate, to 51,032,840 Ordinary Shares, representing 25.8 per cent. of the Existing Total Voting Rights.
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
Publication date of the Admission Document
Latest time and date for receipt of Forms of Proxy
Record date for Share Consolidation
Completion of the Acquisition
Admission effective and dealings in the Enlarged Issued Share Capital
expected to commence on AIM
CREST accounts expected to be credited with the New Ordinary Shares,
Placing Shares and Vendor Consideration Shares
Definitive share certificates for the New Ordinary Shares, Placing Shares,
Subscription Shares and Vendor Consideration Shares to be dispatched by
Each of the times and dates above is subject to change. Any such change will be notified by an announcement on a
ADMISSION AND ACQUISITION STATISTICS
Number of Ordinary Shares in issue at the date of the Admission Document 206,619,545
Basis of Share Consolidation 1 New Ordinary Share for every 10 Ordinary Shares
New Ordinary Shares in issue following the Share Consolidation and 20,661,954
immediately prior to Admission
Number of Placing Shares and Subscription Shares 22,255,027
Placing Shares and Subscription Shares expressed as a percentage of the Enlarged Total 20.7 per cent.
Number of Escrow Shares 20,445,095
Escrow Shares expressed as percentage of the Enlarged Total Voting Rights 19.0 per cent.
Number of Vendor Consideration Shares 61,335,286
Vendor Consideration Shares expressed as a percentage of the Enlarged Total 57.1 per cent.
Number of Imagination Shares 4,074,073
Placing Price per New Ordinary Share (before consolidation/after consolidation) 2.7/
Gross proceeds receivable by the Company pursuant to the Placing and Subscription
Market capitalisation of the Company at Admission at the Placing Price
Current ISIN GB0009021063
ISIN on Admission GB00BMH46555
TIDM on Admission 7DIG
This information is provided by RNS
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