STV Group plc

On 21 April, our client STV Group plc (STV) announced the disposal for consideration of £1 of its wholly-owned subsidiary Pearl & Dean Cinemas Limited (Pearl & Dean) to Image Limited (Image), a newco specifically formed for the purpose of acquiring Pearl & Dean. Image is wholly-owned by Thomas Anderson, a director and the ultimate beneficial owner of Empire Cinemas Limited.

Pearl & Dean is currently the second largest cinema advertising contractor in the UK, with a 36.6 per cent. UK share by admissions, covering 1,478 screens on 349 sites as at February 2010. For the year ended 31 December 2009, Pearl & Dean had revenues of £19.9m and losses of £13.3m.

Pearl & Dean has been loss making due to minimum income guarantee payments required to be made to Vue Cinemas in respect of rents payable to Vue under an onerous screen advertising contract entered into in 2004 and which terminates in December 2010. Pearl & Dean paid the 2010 minimum income guarantee to Vue of £17.6m in February 2010 by way of an intercompany loan from STV. As part of the deal agreed with Image, Pearl & Dean will repay to STV a portion of this loan relating to the period from 1 May 2010 to 31 December 2010, amounting to £9.1m. The first repayment of £2.5m will be received upon completion, with further monthly repayments to be received thereafter. STV expects the loan to have been repaid in full by January 2011, with the backstop date for full repayment being June 2011. The consideration will be adjusted on a £1 for £1 basis to the extent to which working capital differs from the agreed target working capital of £2.5m at 30 April 2010 and to reflect any debt / cash in the business as at that date.

Following completion of this disposal, STV will have implemented fully its strategy of selling its non-core assets, using any proceeds to reduce debt. Pearl & Dean is the last of STV's assets previously identified by STV's board as non-core. Canaccord Genuity previously advised STV on the disposal of Primesight, another of STV's non-core assets.

Canaccord Genuity acted as sole financial advisor to STV Group plc.