London (IFN) Mecom Group said Tuesday that it has agreed, subject to shareholder approval, to acquire Nordic media group Orkla Media for NOK7.55 billion (EUR949 million, GBP647 million) from Norwegian parent Orkla Group.

After taking into account cash, indebtedness, working capital and certain other assets within Orkla Media, the dal equates to an enterprise value of NOK6.97 billion (EUR876 million, GBP597 million).

Icelandic media group Dagsbrun, which is listed on the Icelandic Stock Exchange, lost the bidding war for Orkla Media to Mecom.

The consideration payable by Mecom comprises NOK5,609 million (EUR705 million, GBP481 million) in cash, the issue of 146 million Mecom shares to Orkla representing GBP73 million (NOK852 million, EUR107 million) and a vendor loan note of GBP93 million (NOK1,090 million, EUR137 million) designed to be repaid at or before the second anniversary of the closing of the acquisition, part of which, if not repaid, will be converted into Mecom shares two years after the closing of the acquisition.

Following completion of the acquisition and the placing, Orkla will own 19.97% of Mecom's issued share capital (before taking into account any conversion of the vendor loan note).

The company also announces an equity funding of GBP243 million through the placing of 339 million shares at 50 pence each with institutional investors and one million shares to Mecom's directors, and the issue of 146 million Mecom shares to Orkla as part of the consideration for the acquisition.

Orkla Media is a multinational newspaper group that publishes national and local newspapers principally in Norway, Denmark and Poland.

In addition, Orkla Media has smaller newspaper activities in Sweden, Lithuania and Ukraine as well as a direct marketing business in Norway and Sweden, which accounted for 6% of revenues in 2005.

In the year ended Dec. 31, 2005, Orkla Media generated EBITDA of NOK580 million on revenue of NOK8,001 million. In 2005, revenues increased by 4.6% from NOK7,646 million in 2004 and EBITDA increased by 9.8% from NOK528 million in 2004. As a result, the EBITDA margin increased from 6.9% in 2004 to 7.2% in 2005.

In addition to the existing cost saving initiatives within Orkla Media, Mecom has identified significant potential additional efficiency programmes.

The savings will be based on the centralisation of operating functions and infrastructure, the introduction of more efficient work practices and the realisation of economies of scale.

Mecom said it is targeting a significantly improved EBITDA margin for Orkla Media over the next two years. Other Mecom investment companies average EBITDA margins of 13%, leading newspaper companies in Scandinavia average 18% and in the U.K. average 26%.

In 2005, circulation revenues accounted for 31% of total revenues compared to 43% for advertising revenues. Many of Orkla Media's newspapers have sizeable subscriber bases which provide stable revenue streams and offer the opportunity to generate additional revenues by selling other products and services to subscribers.

Orkla Media operates in competitive and dynamic markets. Currently, new launches are expected or have been made by competitors in Denmark and Poland.

Mecom said it will continue to build on the present organisation and publishing principles of Orkla Media and to grow the business by working with Orkla Media's current local management teams.

Bjorn M. Wiggen, the current CEO of Orkla Media, will stay with the business as CEO of Mecom Europe. As a result of Orkla Media becoming a core element of Mecom's strategy and business, Mecom Europe's head office will be located in Oslo.

The implied acquisition multiple of 12.0x 2005 EBITDA is within the range of multiples paid by Mecom in previous acquisitions and reflects the expected growth potential of Orkla Media.

The acquisition multiple is also at the lower end of multiples paid for recent newspaper transactions in Europe, consistent with Mecom's acquisition strategy.

The acquisition of Orkla Media will create a balanced, pan-European regional publishing business with proforma 2005 revenues for the combination of Mecom and Orkla Media (the Enlarged Group) of EUR1.1bn and proforma 2005 EBITDA of EUR94 million for 20055.

On a proforma basis, Norway, Denmark, the Netherlands and Poland contribute to the 2005 EBITDA for Enlarged Group 36%, 27%, 22% and 15%, respectively.

The total consideration of NOK7,550 million (EUR949 million, GBP647 million) will be financed through new debt facilities of EUR532 million (NOK4,231 million, GBP363 million), a vendor loan note of GBP93 million (NOK1,090 million, EUR137 million) and through issuing 486 million new ordinary shares at 50 pence per share.

Of these shares 340 million are to be placed with institutional shareholders and certain directors to raise GBP170 million (NOK1,984 million, EUR249 million) before expenses (the Placing) and the remainder of 146 million shares, representing GBP73 million (NOK852 million, EUR107 million), is to be taken by Orkla as part of the consideration for the acquisition.

As a result, Orkla will become a significant shareholder in Mecom with a stake of 19.97% of the enlarged equity prior to any conversion of the vendor loan note.

In addition, Orkla has been offered a seat on the company's board.

The vendor loan note, provided by Orkla, is a 10 year loan note issued by Mecom designed to be repaid, at the option of Mecom, at or before the second anniversary of the closing of the acquisition (the Repayment Date).

If not repaid, the vendor loan note has a mandatory conversion into Mecom shares at the repayment date at the lower of the prevailing share price and 65 pence per share, subject to a maximum total holding by Orkla and any parties acting together in concert with Orkla in Mecom of 29.99%.

If this maximum would otherwise be exceeded, the remaining loan note will remain outstanding until it is repaid by Mecom, with a final maturity date of the tenth anniversary of the closing of the acquisition.

Until the repayment date, the vendor loan note will pay interest of LIBOR plus 5% per annum increasing to LIBOR plus 10% on any amount still outstanding after the repayment date.

The issuer will have the right, but not the obligation, to pay interest in cash. If not paid, interest will be capitalised and accrued, unpaid interest will be paid at maturity.

The note is repayable at Mecom's option at any time without penalty or premium and may only be transferred after the repayment date.

Mecom is funding part of the acquisition of Orkla Media through new EUR532 million debt facilities with Bank of Ireland, CIBC and Societe Generale. In addition, Mecom has arranged working capital, acquisition and restructuring facilities for EUR125 million with the same banks.

The SPA contains a provision under which Mecom may be obliged to pay a break fee to Orkla of GBP1.25 million.

The transaction constitutes a reverse takeover under the AIM rules of the London Stock Exchange.

Trading in Mecom's ordinary shares was suspended on Jan. 19, since which time Mecom has been in negotiations regarding a number of potential acquisitions. The existing ordinary shares are expected to be re-admitted to trading immediately following the publication of the admission document.

On June 16, , Mecom completed the acquisition of the Limburg Media Group for EUR200 million financed by a combination of new debt and a placing of ordinary shares to institutional investors.

Mecom has established a strong management team that it expects to achieve the targeted margin expansion at the leading broadsheet titles in the Dutch Province of Limburg. Mecom's investments in Berlin and Hamburg show strong current trading as revenue and cost savings targets are met and in some cases exceeded.

The company has been informed by Orkla that in the first six months of 2006, Orkla Media generated revenues of NOK4,181 million and EBITDA of NOK304 million representing an EBITDA margin of 7.3%. Compared to the same period in 2005, revenues grew by 5.0% and EBITDA by 6.1%.

Orkla Media has performed well in the first half of 2006 compared to the same period last year and expects underlying market conditions in Denmark to remain broadly favourable.

In Poland, advertising conditions remain challenging in light of increased competition from new launches. In Norway, recent significant investments in new launches in free media in the Oslo region have yet to flow through to the financial results, the company said.

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Source: Dow Jones Newswires

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