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TORONTO, Oct. 13 /CNW/ - Fluid Music Canada, Inc. (TSX: FMN) and Somerset Entertainment Income Fund (TSX: SOM.UN) announced today that they have entered into an agreement contemplating the acquisition by Fluid of all of the issued and outstanding Somerset trust units, on a fully diluted basis.
Highlights of the Transaction
- Fluid will offer to acquire all of the outstanding Somerset trust
units, on a fully-diluted basis, in consideration for, at the
election of the tendering holder: (a) $2.12 in cash per unit,
representing a premium of approximately 23.5% based on the average
closing price of the units on the TSX for the 20 trading days ended
October 9, 2009; (b) 1.1 common shares of Fluid; or (c) 0.003 of a
$1,000 principal amount 8.0% convertible unsecured debenture due 3
years following the date that such debentures are first issued.
- Unitholders holding approximately 66% of the issued and outstanding
units, on a fully-diluted basis, have entered into lock-up agreements
with Fluid pursuant to which they have agreed to tender their units
to the offer; including each of Mr. Andy Burgess (President and Chief
Executive Officer of Somerset) and Mr. Gordon Gibson (Chief Creative
Officer of Somerset) who collectively own or control approximately
20% of the issued and outstanding units on a fully diluted basis.
- The Somerset Board of Trustees, after consultation with its financial
and legal advisors, has determined that the cash offer is fair and in
the best interests of the Fund and its unitholders and, accordingly,
unanimously recommends that unitholders accept the cash offer and
tender their units to the offer.
- TD Securities Inc., the Fund's financial advisor, has provided an
opinion to the Somerset Board of Trustees that the cash consideration
is fair, from a financial point of view, to Somerset's unitholders.
"The merger of Fluid and Somerset represents a significant strategic step forward for the two of us," said Mr. Lorne Abony, President and Chief Executive Officer of Fluid. "Beyond the synergies we expect from combining Fluid's large and relatively low-royalty music catalogue with Somerset's existing distribution base; together, Fluid and Somerset should be well positioned to take "first mover" advantage of the significant on-line specialty music opportunity."
Somerset is the leading producer and distributor of specialty music sold through non-traditional retailers using interactive displays. Somerset has an extensive network of 24,600 displays in 18,800 locations across 20 countries. In 2008, Somerset recorded revenue of $85.5 million and EBITDA of $15.1 million.
"Somerset is pleased with Fluid's offer and believes unitholders will be equally satisfied. Our specialty music business and our Puretracks digital platform complements Fluid's overhead messaging business and considerable low-royalty music library. Together, the new business will be more efficient and well-positioned to exploit new opportunities in the music industry. We look forward to a smooth transition and future growth," said Somerset CEO, Andy Burgess.
Full details of the Fluid offer will be included in the take-over bid circular that is expected to be mailed to unitholders shortly. Fluid's obligation to acquire units pursuant to the offer will be subject to certain customary conditions, including there having been validly deposited and not withdrawn at the expiry of the offer that number of units, together with any units owned by Fluid, which constitutes at least 66 2/3% of the aggregate number of units outstanding on a fully diluted basis.
As at the date of this release, unitholders holding approximately 66% of the outstanding units (on a fully-diluted basis) have entered into lock-up agreements with Fluid pursuant to which they have agreed to deposit their units to the offer. Accordingly, it is expected that the minimum tender condition will be met at the expiry time of the offer following which Fluid intends to immediately proceed with a compulsory acquisition or subsequent acquisition transaction to acquire the remaining units. Mr. Burgess and Mr. Gibson have agreed to tender for the cash alternative, while the majority of the locked-up unitholders have agreed to tender for the Fluid convertible debenture alternative. The lock-up agreements may be terminated by the locked-up unitholders in the event an alternative offer in excess of $3.25 per unit is made by any other party. The support agreement permits Somerset to declare and pay its regular monthly distribution of up to $0.0167 per unit until the transaction is concluded.
The listing of Fluid common shares and convertible debentures to be issued in the offer is subject to the approval of the TSX.
Fluid has entered into subscription agreements with Mr. Lorne Abony and Mr. Andrew Rivkin (a consultant to Fluid) to sell up to approximately $12.74 million aggregate principal amount of debentures of Fluid to fund, in part and to the extent required, the cash consideration under the offer. The terms of such debentures will be substantially equivalent to those of the unsecured convertible debentures to be offered to Somerset unitholders pursuant to the offer, save and except for the conversion features attaching to the latter. Such purchasers have agreed to purchase such debentures for approximately $706.66 per $1,000 debenture; representing the amount a convertible debenture could be acquired by such purchasers were they to acquire Somerset units at the cash offer price of $2.12 per unit and subsequently tender such units for convertible debenture under the offer. The closing of the stand-by commitment is conditional upon Fluid taking up units under the Offer. The stand-by commitment will only be drawn as required to pay cash consideration to unitholders who elect the cash alternative. Fluid will pay a fee equal to 5% of the $9 million aggregate gross cash committed amount under the stand-by commitment. Fluid has on hand the balance of the cash required to fund the cash alternative in the event all unitholders elect to tender for cash (other than certain locked-up unitholders who have agreed to tender for Fluid convertible debentures).
Subject to compliance with applicable laws and the entering into of subscription documentation in form and substance satisfactory to Fluid, Fluid shareholders as of the close of business on October 9, 2009 (being the last day trading day on the TSX prior to the announcement of the offer) who are eligible to acquire securities on a private placement basis pursuant to applicable securities laws may participate in the stand-by commitment on the same terms and conditions. The minimum subscription for the stand-by commitment is $150,000. Any such person must provide written notice to Fluid (c/o James Lanthier, Chief Financial Officer, Fax: 416-947-0866) of its interest in so doing not later than 4:00 pm (Toronto time) on Thursday, October 15, 2009. The amount of the stand-by commitment provided by and fee payable to Mr. Lorne Abony and Mr. Andrew Rivkin will be reduced by the amount of any such commitments received during this period from and associated fees payable to third parties, respectively.
About Fluid Music Canada, Inc.
Fluid is a leading private label music aggregation and distribution company, providing music solutions to both business and individual consumers. Fluid has compiled a music library of over five million songs, free of digital rights management restrictions, from a diverse network of producers, including major label, independent and emerging artists. Fluid's revenue model is comprised largely of programming and broadcasting services for retail and hospitality businesses through a wholly-owned subsidiary. Fluid's objective is to grow its business by monetizing its music catalogue through a range of sales channels and partners.
About Somerset Entertainment Income Fund
Somerset is the leading North American producer and distributor of specialty music and DVDs sold internationally through non-traditional music retailers using interactive displays and a distributor of music in digital format. Somerset's extensive distribution network includes mass merchants, specialty chains and independent gift stores in more than 20 countries, including the United States and Canada. Based in Toronto, Canada, Somerset employs over 180 people at offices in Toronto, Ontario (Canada); Buffalo Grove, Illinois, and Minneapolis, Minnesota (U.S.A.); and Essex, England (U.K.).
Certain statements contained in this release, the forthcoming Offer and the Circular, in addition to certain statements contained in this release and elsewhere in the Offer and the Circular concerning Fluid's objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates, and the business, operations, financial performance and condition of Somerset and Fluid are forward-looking statements. The words "believe", "expect", "anticipate", "estimate", "intend", "may", "will", "would" and similar expressions and the negative of such expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are subject to important assumptions, including the following specific assumptions: the ability of Somerset and Fluid to meet their respective revenue targets; the ability to achieve cost synergies; the completion of the offer in accordance with its terms; general industry and economic conditions; changes in Somerset's and Fluid's relationships with their customers and suppliers; pricing pressures and other competitive factors; and changes in regulatory requirements affecting the businesses of Somerset and Fluid. Fluid has also made certain macroeconomic and general industry assumptions in the preparation of such forward-looking statements. While Fluid considers these factors and assumptions to be reasonable based on information currently available, they may prove to be incorrect.
Known and unknown factors could cause actual results to differ materially from those projected in the forward-looking statements. Such factors include, but are not limited to: failure to satisfy the conditions of the offer; risks related to any inefficiencies with the structure of Somerset and/or Fluid, their respective tax treatments and any costs associated with reorganizing Somerset following closing; Fluid may not have sufficient funds to repay the Convertible Debentures in cash at maturity; general economic and business conditions; financing risk; risks inherent in the business of operating Somerset and Fluid, including the inability to attract and retain qualified employees; competition; disruptions in business operations; interest rate and foreign currency fluctuations; existing governmental regulations and changes in, or the failure to comply with, governmental regulations; and liability and other claims asserted against Somerset or Fluid. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
All of the forward-looking statements made in the offer and the Circular are qualified by these cautionary statements and other cautionary statements or factors contained herein, and there can be no assurance that the actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, Fluid and/or Somerset. Forward-looking statements are given only as at the date hereof and both Fluid and Somerset disclaim any obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable laws.
References to "EBITDA" are to earnings before interest, income taxes, amortization and non-controlling interest. EBITDA is not an earnings measure recognized under GAAP and does not have a standardized meaning prescribed by GAAP. Therefore, EBITDA may not be comparable with similar measures presented by other entities. Investors are cautioned that EBITDA should not be construed as an alternative to net income determined in accordance with GAAP as indicators of Somerset's performance, or to cash flows from operating, investing and financing activities as measures of liquidity and cash flows.
Additional information relating to Fluid Music Canada, Inc. is available at www.fluidmusic.com and www.sedar.com. Additional information relating to Somerset Entertainment Income Fund is available at www.somersetent.com and www.sedar.com.
SOURCE FLUID MUSIC CANADA, INC.
For further information: For further information: Fluid Music Canada, Inc., Lorne Abony, President & Chief Executive Officer, (310) 665-9878; Somerset Entertainment Income Fund, Andy Burgess, President & Chief Executive Officer, (416) 510-2800