Acquisition of Music Box Leisure Strengthens Entertainment Business
Air Music (AIM: AMU), a leading UK producer, manufacturer and wholesale distributor of low priced entertainment products to the international market, announces that the acquisition of Redworth Limited, which is more commonly known by its trading name, Music Box Leisure ("MBL"), for a maximum consideration of £37.15 million, was approved at its AGM yesterday. The acquisition, which constitutes a reverse takeover under the AIM Rules, considerably strengthens Air Music's position at the forefront of the low-priced entertainment sector in the UK. Music Box Leisure MBL, an existing customer of Air Music, is one of the UK's leading independent distributors of CDs, videos, DVDs and video games. It supplies a range of retailers and supermarkets, including Morrisons, Co-op and Safeway, as well as motorway service stations and ferries. MBL specialises in providing a mixed range of audio, visual, gaming and multi-media titles to retailers for whom this type of product is not their main sales offering. It sources products from major audio and visual companies including Sony, Warner Brothers, Disney and Universal and creates multi-buy ranges of products, which are tailored to the retailers requirements and do not follow exclusively either the chart or budget route. Benefits of the acquisition Based on last year's results, the financial implications of the acquisition for the Company will be significant. In the year to 31st March 2004, MBL, which has achieved all its growth organically, made a profit after tax of £2.38 million on a turnover of £37.1 million. Further growth in revenues is anticipated for the current year and the Directors believe that financial benefits and synergies will be derived from the acquisition. Over the same period, Air Music reported a profit before tax, interest and goodwill amortisation of £1.91 million, on a turnover of £15.76 million. Air Music believes that the combination of the two businesses will afford the enlarged group numerous benefits which include: a direct route to market for Air Music's products via MBL's blue-chip retail customer base, allowing Air Music and MBL to develop proprietary ranges of products from its existing owned or licensed product, thus retaining third party profit costs in-house; a good opportunity to leverage the complementary product ranges and different customer bases of each company to create new sales opportunities and channels to market; an opportunity of increasing sales turnover through the combined sales team; a further sales opportunity exists for the Company's international sales team to offer MBL products through the existing network of wholesalers currently selling Air Music's products in 55 countries worldwide; and an increase in efficiency and cost savings by utilising MBL's warehousing and distribution resources, thereby reducing the requirement of outsourcing. Air Music also intends to approach its DVD licensors and appraise their top market ranges. This would allow the enlarged group to license additional products, providing a greater range of DVD products beyond those currently offered, with the intention of keeping third party royalties in-house. The consideration of the acquisition The acquisition is for an initial consideration of £27,150,000, satisfied by a cash payment of £15,534,703, the issue of £1,615,297 of loan notes and the issue of 100,000,000 consideration shares. An additional £10 million of deferred consideration may be payable to the vendors in deferred consideration shares, subject to a maximum aggregate vendor shareholding of 49.99% of the then enlarged share capital, and thereafter in cash, subject to the achievement of financial performance targets by Redworth for the year ended 31 March 2005. To satisfy the cash consideration for Redworth, Air Music & Media raised £5,126,000 (before expenses) from the placing of 64,075,000 new ordinary shares at 8p per share and agreed a £10 million loan facility with Barclays Bank PLC. Admission of the placing shares will occur on 7 October 2004. Board changes Effective yesterday, Trevor Allan, founder and managing director of MBL, Janice Beer, its sales director, and Alexander Sorrell, its finance director, will join the Air Music Board, whilst Ivan Taylor steps down from the Board of the Company to concentrate on his operational responsibilities as a director of Air Music & Media Limited (the Group's rights holding subsidiary). Mark Frey, the chief executive and Michael Infante, commercial and marketing director, joint co-founders of
Air Music, remain in their respective executive roles with Ruth Salsbury as Group Finance Director. Chairman, John French and Roger Putnam (chairman of Ford Britain) remain as the Non-executive Directors. At the AGM, John French, Air Music's Chairman, commented: "The acquisition of Music Box represents a step change in the growth of Air Music. It adds considerably to our own revenues and earnings and provides significant opportunities for growth through cross-selling, logistical efficiencies and new channels to market. We welcome the Music Box team onto the Board and look forward to working together to deliver shareholder value going forward." Mark Frey, Air Music's Chief Executive, added: "Music Box is a superb fit and great opportunity for Air Music. As well as all the efficiencies which can be derived by combining the two companies, this transaction also facilitates control of shelf space in-store, with guaranteed presence of more Group products for the first time. In addition, we now have a more diversified range of products and will build a stronger catalogue of rights to sell in the UK and to our network of wholesale customers in 55 countries around the world." All of the resolutions put to shareholders at the Annual General Meeting of the Company held yesterday were duly passed.