Highly complementary merger, which will deliver significant synergies and accelerate achievement of strategic plan
Amsterdam, the Netherlands and Marly, France - 21 May 2008 - Corporate Express NV and Lyreco SAS announced today that they entered into a transaction, subject to shareholders’ approval, to combine both companies to create the undisputed leading global office products supplier focused purely on the business to business (B2B) market. The combination will benefit from a shared vision on industry and strategy, major economies of scale, a well-balanced international presence and customer mix.
Compelling industrial and strategic rationale
- The number one B2B player in Europe, North America and Asia-Pacific with € 7.8 billion of combined sales
- Enhanced opportunities to grow top-line and profitability based upon complementary geographic reach, expanded customer base, IT platform and best-in-class customer service
- Experienced management with strong track record: Eric Bigeard to become CEO, Peter Ventress COO and Floris Waller CFO
- Acceleration of the execution of Corporate Express’ strategic development
Substantial value creation and clear benefits for all stakeholders
- Significant synergies, reaching run-rate of at least € 100 million in third year
- EPS¹ accretive from year one onwards
- Original sales and margin guidance for Corporate Express increased:
- Combined 2008E sales € 8.0-8.2 billion and combined 2008E EBITDAe² margin of 6.5-6.8%
- Combined 2011E sales € 9.5-10.0 billion and combined 2011E EBITDAe margin of 9% (including € 100 million in synergies)
Transaction highlights
- Corporate Express to acquire 100% of Lyreco valuing Lyreco at € 1,731 million³ or 9.6x 2007 EBITDAe of € 181 million. Including run-rate synergies the transaction multiple reduces to 6.2x
- The consideration paid to Lyreco shareholders will be 102.5 million new ordinary shares (29.9% of the total outstanding capital), € 560 million of cash and € 340 million as a vendor loan note
- Fully committed financing in place
- Corporate Express’ shareholders’ approval will be requested at an Extraordinary General Meeting of its shareholders. Lyreco shareholders have approved the transaction
Peter Ventress, CEO of Corporate Express
“This is the most logical and compelling merger one could envision in our industry. The two businesses are highly complementary. We will have an excellent geographic and customer balance and valuable market leading positions, while remaining fully focused on B2B customers. This merger accelerates our stated strategic development.
The Boards of both companies are unanimous in their view that this combination and the associated synergies will provide an outstanding opportunity to create significant value for our shareholders, clients and employees. Lyreco’s management has an impressive track record, built on a proven business model, which has delivered impressive growth. This is an excellent and value creating deal.”
Eric Bigeard, CEO of Lyreco
“The combination of Corporate Express and Lyreco will create a formidable player in our market. We share a vision on the industry and strategic direction. The natural fit of the two companies will create a strong global platform to further grow our business, backed by the commitment of the management teams and the support from the employees of both companies.
This merger marks a significant milestone for Corporate Express and Lyreco and for the industry as a whole and both management teams strongly support it. I am delighted to be working with Peter Ventress and his team and believe the combined group will benefit from a wealth of experience.”
Unanimous support from Corporate Express’ Supervisory Board and Executive Board
The Supervisory Board and Executive Board of Corporate Express, taking into account the interests of shareholders and other stakeholders, unanimously support the intended transaction.
Full commitment of Lyreco’s Board and shareholders
The Board of Lyreco unanimous supports the merger. The current Lyreco shareholders have approved the transaction and show their commitment through a vested financial interest in the combined group.
A merger of strengths, between two highly complementary businesses
The combined group will provide significant benefits to its shareholders given that the businesses are highly complementary in a variety of fields. It will be the largest global B2B office products supplier with leading positions: the number one player in Europe, North America and Asia-Pacific. The combined group will further build up its strong market positions and extensive customer bases in both large and mid-markets.
The combination will have a well balanced geographic presence, with 43% of 2007 sales realised in Europe, 39% in North America and 11% in Asia-Pacific. The combined group will have operations in 32 countries and over 28,000 employees.
The management from both businesses has considerable experience and a strong track record which will provide enhanced execution capabilities. The combined group benefits from a second to none purchasing and marketing process and best-in-class logistics. The single IT platform of Lyreco is similar to the direction Corporate Express’ IT strategy is heading and both companies have dedicated sales driven operations.
2007 combined group sales were € 7.8 billion, with combined 2007 EBITDAe of € 509 million (EBITDAe margin of 6.5%). Cash flow amounted to € 362 million. This highly cash generative combination, enhanced by the realisation of significant synergies, is expected to result in rapid de-leveraging whilst maintaining the ability to finance internal and external growth. The dividend policy remains unchanged. Corporate credit ratings are expected to stay at current levels.
Significant synergies - for the benefit of shareholders
Importantly, shareholders of the combined group will fully benefit from significant synergies delivered through the merger. The combined cost base will be reduced through economies of scale, including improved purchasing power and an optimisation in warehousing, distribution and back office functions. Sharing best practices will improve the operational focus, central sourcing, category management and IT infrastructure.
Synergies4 are expected to be € 28 million in year one, € 68 million in year two and the run-rate synergies of € 100 million are expected to be achieved in year three. Total one-time integration costs are estimated at € 80 million, split about 50%/25%/25% split over three years. The synergy benefits will strengthen the group’s profitability with earnings per share accretion achieved in the first year.
Lyreco, a unique and highly complementary partner
Lyreco is a leading supplier of office products to the B2B market, with 40% of its revenue in mid-sized businesses. The privately-owned company, which was founded in 1926, is based in France, employing about 10,300 people. Worldwide it operates from some 180 locations in 29 countries. In 2007 the company generated sales of € 2.2 billion and EBITDAe of € 181 million. As well as being market leader in Europe, Lyreco is also present in Canada and Asia-Pacific. The group operates from 28 state-of-the-art distribution centres and more than 150 regional centres.
Lyreco has a highly efficient business model relying on systematic implementation of group best practices and fully centralised IT systems. This single best-in-class IT platform drives all parts of the business around the globe.
Since 1992, Lyreco has grown its sales six-fold. Sales increased 52% since 2003 which implies a compounded average growth rate (CAGR) of 11.1%. In that period EBITDAe grew at a CAGR of 13.6% to € 181 million, representing 8.3% margin. 2007 cash flow amounted to € 136 million.
Acceleration of strategic development
The combination is well aligned with Corporate Express’ strategic plan, which includes four strategic priorities to deliver profitable sales growth. The combination of the two complementary businesses accelerates this strategic development through:
- Increase share of wallet: enlarged customer base, focused sales force and improved pricing mechanisms
- Improve category offering: enhanced sourcing capabilities, combined strong private brands, broader product range and merchandising experience
- Grow mid-market share: Lyreco’s strong track record in the mid-market, proven ability to execute and standardised sales approach
- Strengthen geographic footprint: improved geographical balance, strengthening current market positions and exposure to new growth markets
Additional benefits resulting from the combination include Lyreco’s centralised IT-platform, best-in-class logistics, marketing and purchasing expertise and a strong operationally-focused management.
The combined group head office will be in Amsterdam and its operational headquarters will be in Marly, France.
Financial guidance for the combined group
The combination with Lyreco will add value to the strategic development of Corporate Express and accelerates the speed with which Corporate Express reaches its sales and margin targets.
For 2008 combined sales of € 8.0-8.2 billion are expected, resulting in a combined EBITDAe margin of 6.5-6.8%. Including run-rate synergies, EBITDAe margin would amount to 7.8-8.1%. Corporate Express previous 2008 standalone guidance was: sales of € 5.7–5.8 billion and EBITDAe margin of 5.6–6.0%.
For 2011 sales of € 9.5-10.0 billion are expected. Sales growth will be driven by accelerating the strategic development. The realisation of all synergies in combination with good execution and economies of scale will then be resulting in an EBITDAe margin of 9%. Corporate Express previous 2011 standalone guidance was: sales of € 6.8 billion and EBITDAe margin of at least 7%.
Governance and organisation
The Supervisory Board will, upon completion of the transaction, comprise of four of the current Corporate Express members and two new Board members proposed by a French company, Corely S.C., through which Lyreco’s shareholders will participate in Corporate Express. Corely will have a nomination right for two out of the six Supervisory Board Members. Frank Meysman will continue to be the Chairman of the Supervisory Board and Georges Gaspard, currently Chairman of Lyreco, will become Vice Chairman of the combined group.
On the Executive Board Eric Bigeard, the current CEO of Lyreco, will become CEO. Peter Ventress, currently CEO of Corporate Express, will be appointed COO and Floris Waller will remain CFO.
Transaction highlights and financing
Corporate Express will acquire 100% of the share capital of Lyreco for a total consideration of € 1,731 million.
The total consideration consists of:
- 102,468,236 new ordinary shares to be issued to Corely5, equating to 29.9% of total outstanding capital and voting6. This represents a total value of € 831 million based on the Corporate Express share price as of close of day 20 May 2008
- Cash of € 560 million
- Vendor Loan Note of € 340 million to be issued to Lyreco's shareholders
The implied EV/EBITDAe transaction multiple is 9.6x (based on Lyreco's 2007 EBITDAe of € 181 million) and 6.2x when including 100% of the run-rate synergies.
The shares to be issued to Corely will be subject to a two-year lock-up arrangement.
The financing has been committed by a number of banks and will be syndicated at a later stage. The bookrunners are ABN AMRO, BNP Paribas, Deutsche Bank, Fortis, ING, JPMorgan and Rabobank.
Net debt/2007 EBITDAe amounts to 3.5 times, and 2.9 times including run-rate synergies. Corporate Credit ratings are expected to stay at current levels. De-leveraging is targeted, with an estimated leverage ratio of 2.0 times in 2011.
The transaction is subject to usual conditions (such as anti-trust and works council) and other closing conditions that are normal for this type of transaction. Under certain circumstances, a break fee of € 30 million will be payable to Corely upon termination of the transaction.
Shareholders approval
The transaction will be put to the Corporate Express General Meeting of Shareholders for approval. If the General Meeting of Shareholders would not approve the transaction and/or if the majority of the shareholders would tender their shares in a public offer, which is declared unconditional, the transaction can be terminated.
Indicative timetable
The Supervisory and Executive Boards of Corporate Express will request the approval from Corporate Express shareholders at a Corporate Express Extraordinary General Meeting of shareholders (EGM) expected to be scheduled in the second half of June 2008.
The shareholders’ Circular with information about the transaction is expected to be published at the end of May/early June 2008.
Financial and legal advisors
Deutsche Bank and JPMorgan are acting as the financial advisors to Corporate Express with Allen & Overy as its legal advisor. The Supervisory Board of Corporate Express obtained separate financial advice from ABN Amro and legal advice from the De Brauw Blackstone Westbroek.
Rothschild is acting as the financial advisor to Lyreco and Simmons & Simmons and CMS-Francis Lefebvre as legal advisors.
Footers
1 EPS is excluding fair value changes, amortisation of other intangibles and special items
2 EBITDAe defined as Earnings Before Interests, Taxes, Depreciation, Amortisation and special items
3 Based on share price of € 8.11, closing Tuesday 20 May 2008
4 Excluding integration costs
5 Eric Bigeard will hold (through Corely) ca. 2.5% interest in the combined group and Georges Gaspard will hold (through Corely) ca. 27.4%
6 29.9% after taking into account the Preference A shares voting arrangements