LONDON, July 27, 2001 (PRIMEZONE) - Scoot.com plc, strategic review.
The Company today announces the following developments concerning the strategic review, as outlined in the recent announcement of June 27, 2001:
-- Elimination of the Company's significant funding requirement and
other obligations with respect to the Scoot Europe Joint Venture
by the disposal to Vivendi of the Company's 50% shareholding in
Scoot Europe
-- Discussions in progress in relation to a heads of agreement for a
bridge-financing facility of up to 15 million pounds.
Scoot Europe Joint Venture
The Company has today sold its 50% stake in the Scoot Europe NV ("Scoot Europe") joint venture to its 50% partner, Vivendi Universal S.A. ("Vivendi"), for the nominal cash consideration of Euro 1. Scoot and Vivendi formed the 50:50 joint venture in January 2000 to launch, fund and operate Scoot's service across continental Europe. As a result of this sale, Vivendi now wholly owns the operating entities in France, Belgium and the Netherlands, which fall within the Scoot Europe joint venture. Accordingly, Scoot's future obligations under the joint venture agreement with respect to Scoot Europe cease as of today's date.
Scoot Europe
Scoot Europe, and its associated entities, operate the Scoot infomediary service in France, the Netherlands and Belgium. Scoot Europe comprises all Scoot's operations in France, Belgium and the Netherlands. The consolidated net liabilities of Scoot Europe were Euro 92.5 million (including Euro 0.3 million relating to net intangible assets) as at March 31, 2001, being the date of Q1 2001 results and the publication of the most recent unaudited balance sheet. Scoot Europe's consolidated revenue and operating loss for the 15-month period ended December 31, 2000, the date of Scoot.com plc's most recent audited accounts, were, respectively, Euro 14.4 million and Euro 37.8 million. Revenue and operating losses for the six-month period ended June 30, 2001 were, respectively, Euro 3.5 million and Euro 33.4 million, based on unaudited management accounts.
Background to the Sale
The termination of the Scoot Europe joint venture is the result of recent discussions between Vivendi and Scoot regarding the future of Scoot Europe.
As previously stated by the Company on June 27, 2001, due to Scoot's current financial position the Company wished to realign the Scoot Europe Joint Venture, as the Company was unable to continue its funding obligations. Additionally, Vivendi gave notice to Scoot that, as a result of alleged breaches by Scoot of its obligations under the Scoot Europe Joint Venture agreement, it would not put its shares in Scoot Europe for consideration and would cease to fund Scoot Europe. Alternatively, Vivendi offered to purchase Scoot's shares in Scoot Europe for the nominal cash consideration of Euro1 and assume all ongoing funding and other costs.
In the absence of continued funding, at the required levels, from its shareholders, Scoot Europe has stated that it would be forced to initiate bankruptcy proceedings. Given Scoot's current financial position, it is unable to purchase the remaining shares from Vivendi and thereafter take on the total funding requirement for the joint venture. Had the sale not taken place, Scoot Europe would have run out of funds on Friday, July 27, as a result of Scoot Belgium (a subsidiary of Scoot Europe) not having sufficient funds to meet its salary obligations. Any bankruptcy of Scoot Europe would give rise to claims against Scoot under guarantees given by the Company in favor of Vivendi and Scoot Europe. The bankruptcy of Scoot Europe, and claims under the guarantees, would in turn result in the Company being forced to pursue insolvency procedures.
The Directors have considered the options available to the Company and, given the position set out above, believe that, faced with the choice of either protracted litigation with Vivendi regarding the joint venture or acquiring the whole of Scoot Europe, neither of which options the Company is in a position to fund, divesting Scoot Europe and avoiding the associated liabilities of further funding requirements, other obligations and/or closure costs is the only viable alternative to initiating insolvency procedures for the Company. Accordingly, the Directors believe that the sale of its share of Scoot Europe on the terms outlined above is in the best interests of the Company and its shareholders as a whole.
Since Vivendi is a 19.2% shareholder in the Company, this transaction constitutes a transaction with a related party, as defined in the Listing Rules of the UK Listing Authority, and would normally require the prior approval of Scoot shareholders (bar Vivendi, as a related party) in a general meeting of the Company. The offer from Vivendi to purchase the shares in the joint venture was conditional on acceptance by the Company, within a very short period of time, which has thus precluded Scoot from having the opportunity to seek shareholder approval. Therefore, at the request of the Directors, the UK Listing Authority has permitted the Company to enter into the sale agreement without shareholder approval, as the Company has advised the UK Listing Authority that, for the reasons stated above, without such a waiver, the Company would have had to cease trading, and seek the appointment of an administrator or pursue other insolvency procedures, before such approval could be sought. The Directors, who have been so advised by Broadview International Limited ("Broadview"), the independent financial advisors to the Company, consider that the terms of the transaction are fair and reasonable so far as the shareholders of the Company are concerned. Broadview has also provided this same opinion to the UK Listing Authority.
Terms and Conditions of the Sale
Under the terms of the agreement, Scoot retains the exclusive right to operate the Scoot service in the United Kingdom and the Republic of Ireland and, in addition, retains the right to expand into one new European market of its choice (excluding France, Belgium and the Netherlands), which it must nominate within six months ("Nominated Market"). Accordingly, Scoot retains the Scoot trade marks for the United Kingdom and Republic of Ireland and will also benefit from an exclusive license for the Nominated Market, subject to termination of Scoot does not expand into that market.
Vivendi has acquired the right to operate the Scoot service in all remaining European markets, including France, Belgium and the Netherlands. All Scoot trademarks and trademark applications for Europe (excluding those for the United Kingdom and Republic of Ireland) have been transferred to Scoot Europe.
As a result of the transaction, the www.scoot.com domain name is now held by Scoot for joint use by both Scoot and Vivendi, and it will continue to be the Internet access point for all Scoot and Scoot Europe services.
A reconciliation of outstanding invoices between Scoot Europe and the Company will be undertaken and any sums owing to Scoot Europe will be made within an agreed time scale. In addition, the Company will make a payment of Euro1 million to Vivendi by way of agreed refund of payments for services in relation to the Scoot Europe joint venture. This payment will be payable in two equal payments on December 31, 2001 and on May 1, 2002 or earlier if the Company raises more than a certain level of funds or on the sale of all or substantially all of Loot. There is a mutual release of all other outstanding liabilities arising under the joint venture arrangement generally with the exception of specific liabilities in relation to agreements entered into as part of this transaction.
Current Trading and Prospects
As outlined in the Company's Q1 results announcement of July 5, 2001, the cost reduction process as part of Project Genesis is continuing - Project Genesis being the Company's current operating model, details of which were set out in the announcement of June 27, 2001. The reduction in headcount and infrastructure streamlining is progressing as planned.
The new charging structure of an up-front payment of the annual publishing fee for sellers was introduced on July 9, 2001. This has led to a higher than expected reduction in the acquisition rates of new sellers. In addition, following the delay in loading many contracted sellers (those sellers who are under paying contract, as opposed to sellers on trial offers) on to the Scoot exchange, there is a greater churn of contracted sellers than the Company had anticipated. The Directors believe that the effects of these two issues have been amplified by the uncertainty over the Company's future trading prospects amongst the Company's sellers and target sellers.
The Directors believe that as the Company progresses the strategic review and restores confidence in the Company's trading prospects, the level of seller churn rates will reduce and acquisition rates will improve.
Working Capital
As stated in the listing particulars sent to shareholders on June 27, 2001, the Directors are of the opinion that the Group currently does not have sufficient working capital for its present requirements, that is for at least the next 12 months from June 27, 2001. Since June 27, 2001, the Company has not raised any capital from external sources and accordingly the Directors opinion has not changed.
The Company currently has net cash, which, on the Directors' current projections, which have been revised since the listing particulars of June 27, 2001, based on the Directors' view of the Group's current position, as set out in the section above entitled Current Trading and Prospects, will only be sufficient to satisfy the Company's working capital requirements until August 27, 2001.
The Company's ability to trade beyond August 27, 2001 will be dependent upon its success in raising capital from external sources. As outlined below, the Directors are currently actively pursuing a number of such initiatives.
On the Directors' revised projections, the Directors continue to believe that the Company's working capital requirement could be as high as approximately 22 million pounds by the end of June 2002. Furthermore, given the uncertainties inherent in the implementation of Project Genesis (details of which were set out both in the listing particulars sent to shareholders on June 27, 2001 and in the announcement of June 27, 2001), there can be no assurance that any such shortfall at June 2002 will not be greater than this amount (although it is still the Directors' belief, that despite the Company's current trading experience described above, this is unlikely to be the case). Furthermore there can be no assurance that there will not be further working capital absorption after June 2002.
The Directors are currently pursuing the following possible means to raise further funding:
(1) the securitization, or similar financing, of the positive
cashflows generated by the Loot print business;
(2) the disposal of Loot UK;
(3) the disposal of non-core assets of the Company; and
(4) bridging financing secured against the assets of the Company of
up to 15 million pounds.
Of these only item (2) would be potentially capable, taken in isolation, of addressing fully the potential 22 million pounds working capital shortfall, subject to the terms of the Convertible Debentures. To address this potential shortfall in full, it is probable that the Board would need to institute a combination of these steps.
A further announcement detailing the bridge financing facility will be made in due course, subject to the signing of the heads of agreement and their conversion into binding terms.
The Directors are not pursuing the utilization of the equity line financing as, due to the Company's current share price, the availability of financing thereunder has become subject to the consent of the equity line investors.
The Directors' primary concern continues to be the maximization of shareholder value. Accordingly the Directors will continue to closely monitor the performance of the Company's businesses and will consider all appropriate action(s) to be taken should any of those businesses significantly under-perform the Directors' expectations which underlie this working capital statement. Shareholders will be made aware of any significant changes in the funding position of the Company, should such change arise.