Third Addendum to the Fairness Opinion
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UPDATE DOCUMENT RCS MediaGroup S.p.A. Third Addendum to the Fairness Opinion issued for the Board of Directors of RCS MediaGroup S.p.A. on 9 June 2016 relating to the INCREASE OF THE OFFER PRICE OF THE TOTAL VOLUNTARY PUBLIC EXCHANGE OFFER for the common shares of bidder Prof. Roberto TASCA Page 1 UPDATE DOCUMENT RCS MediaGroup S.p.A. Milan, 11 July 2016 To: The Board of Directors of RCS MediaGroup S.p.A. Via Angelo Rizzoli 8 20132 Milan SUBJECT: Third Addendum to the Fairness Opinion issued on 9 June 2016 regarding the increase in the consideration offered for the Total Voluntary Public Exchange Offer for No. 521,864,957 common shares of RCS MediaGroup S.p.A. made by Cairo Communication S.p.A. with a notice pursuant to Articles 102 and 106, paragraph 4 of Legislative Decree no. 58 of 24 February 1998 and Article 37 of the CONSOB Regulation approved by Resolution No. 11971 of 14 May 1999. Introduction Considering that: 1) on 8 April 2016, Cairo Communication S.p.A. (“Cairo” or the “Bidder”) made a voluntary public exchange offer (the “Cairo Offer” or “OPSC” [Offerta Pubblica di Scambio] – Public Exchange Offer) for all of the common shares of RCS MediaGroup S.p.A. (“RCS,” the “Issuer,” or the “Company”), which amounted to No. 521,864,957 shares, for a consideration (the “Cairo Consideration”) of No. 0.12 common shares of Cairo for each common share of RCS; 2) on 9 June 2016, the undersigned, Prof. Roberto Tasca, issued a Fairness Opinion on the Cairo Offer (the “Cairo Fairness”) stating that the Cairo Consideration was NOT FAIR for all of the RCS shareholders; 3) on 17 June 2016, Cairo increased its bid by raising the exchange ratio (the “Increase to the Cairo Consideration”) to No. 0.16 common shares of Cairo for each common share of RCS; Prof. Roberto TASCA Page 2 UPDATE DOCUMENT RCS MediaGroup S.p.A. 4) at the same time as the Increase to the Cairo Consideration, Cairo approved a 2017-2018 Business Plan on a stand alone basis (the “Cairo Business Plan”), disclosing to the market only certain summary figures regarding its Sales, EBITDA, and CAPEX; 5) on 24 June 2016, the undersigned, Prof. Roberto Tasca, issued a first addendum to the Cairo Fairness (the “Addendum to the Cairo Fairness”), stating that the Increase to the Cairo Consideration was NOT FAIR for all of the RCS shareholders; 6) on 1 July 2016, Cairo promoted a further increase to the Increase to the Cairo Consideration (the “Second Increase to the Cairo Consideration” or “Second OPSC increased Bid”), in which it raised the exchange ratio to No. 0.17 common shares of Cairo for each common share of RCS; 7) on 7 July 2016, the undersigned, Prof. Roberto Tasca, issued a second addendum to the Cairo Fairness (the “Second Addendum to the Cairo Fairness”), stating that the Increase to the Cairo Consideration was NOT FAIR for all of the RCS shareholders; 8) on 8 July 2016, Cairo made a further increase to the Second Increase to the Cairo Consideration (the “Third Increase to the Cairo Consideration” or “Third OPSC Increased Bid”), in which it raised the exchange ratio to No. 0.18 common shares of Cairo (the “Third Exchange Ratio”), plus a cash amount equal to EUR 0.25 (the “Cash Consideration”) for each ordinary share of RCS brought to the Cairo Offer; the Board of Directors of RCS asked the undersigned, Prof. Roberto Tasca, to prepare a third update (the “Third Updated Cairo Document,” or the “Third Addendum to the Cairo Fairness”) to the opinions expressed on 9 June 2016, 24 June 2016 and 7 July 2016, on the basis of the Third Increase to the Cairo Consideration. The Third Updated Cairo Document provides support to the Independent Directors and the Board of Directors of RCS in their evaluation of the fairness of the Third Increase to the Cairo Consideration. In particular, the details of the Third Increase to the Cairo Consideration, on which basis the drafting of this Addendum was requested, are as follows: • Issuer: Rizzoli Corriere della Sera MediaGroup S.p.A., with registered office in via Angelo Rizzoli 8, Milan. Prof. Roberto TASCA Page 3 UPDATE DOCUMENT RCS MediaGroup S.p.A. • Bidder: Cairo Communication S.p.A., with registered office at Via Tucidide 56, 20134 Milan, the parent company of the group founded by Urbano Cairo. • Subject: The No. 521.864.9571 common shares of RCS, listed on the MTA (Mercato Telematico Azionario), organized and managed by Borsa Italiana S.p.A., which represent 100% of the share capital of RCS. • The Third Increase to the Cairo Consideration is equal to No. 0.18 (zero point eighteen) common shares of Cairo plus a Cash Consideration of EUR 0.25 (zero point twentyfive) for each common share of RCS tendered to the Cairo Offer. • As specified in the Notice of an Increase in Consideration dated 8 July 2016, on the basis of the official price of Cairo shares recorded on 7 April 2016, the day prior to the announcement of the Cairo Offer, the Third Increase to the Cairo Offer implies a valuation of EUR 1.0402 for each share of RCS tendered to the Cairo Offer. Based on the official price of Cairo shares recorded on 8 July 2016, the Third Increase to the Cairo Consideration implies a valuation of EUR 1.0242 for each share of RCS tendered to the Cairo Offer. In the event of a full consent to the Cairo Offer, Cairo will issue No. 93,935,692 new shares for the RCS shares brought to the Cairo Offer, and it will make a total disbursement for the Cash Consideration of EUR 130,466,239.25. 1 Please recall that the Company holds No. 4,575,114 treasury shares. Prof. Roberto TASCA Page 4 UPDATE DOCUMENT RCS MediaGroup S.p.A. Assignment’s execution Because the Bidder has not provided any new information to the market, the Third Addendum to the Cairo Fairness expresses considerations on the basis of the analyses already conducted for the Cairo Fairness, the Addendum to the Cairo Fairness, and the Second Addendum to the Cairo Fairness. The additional element that must be considered to form a fairness opinion with regard to the documentation previously issued by the undersigned is the Cash Consideration added to the Third Exchange Ratio, which entails an Offer Portfolio for RCS shares that we can define as follows: No. 0.18 x 1 common share of Cairo + EUR 0.25 = 1 common share of RCS Which equals: No. 0.18 x 1 common share of Cairo = 1 common share of RCS - EUR 0.25 No. 0.18 = (1 common share of RCS - EUR 0.25) / 1 common share of Cairo [1] Therefore, in developing this additional fairness opinion, one must take this new situation into account, in which each individual shareholder who intends to tender a share of RCS will receive a fraction equal to 0.18 of one Cairo share plus EUR 0.25. In function of the equation illustrated in [1] above, this consideration will be considered as a value to be subtracted from: - the weighted average prices of RCS, defined on the basis of the historic series of Stock Market quotations considered in the Fairness Opinion, It must be said that the estimates of the fundamental value of Cairo shares contain an implicit hypothesis by which there is a condition of equality between the reduction of the Bidder’s net financial position following the payment of the Cash Consideration and the resulting purchase Prof. Roberto TASCA Page 5 UPDATE DOCUMENT RCS MediaGroup S.p.A. value of RCS’ equity. This is because, in view of the fundamental values of RCS shares determined on the basis of the DCF, the potential acquisition by Cairo is believed to be at a fair market price.2 This assumption entails the invariance of the value of Cairo shares pre- and post-acquisition, as this produces a substituting effect between the lower net financial position post-acquisition and the value of the residual asset represented by the equity interest that may be acquired if the Cairo Offer is successfully concluded. In light of the foregoing, the structure of the valuation process is as follows: First of all, the criteria used in the Cairo Fairness authored by the undersigned on 9 June 2016 are confirmed for the weighted average prices, which were determined on the basis of historic Stock Exchange Quotations in the period from 8 April 2015 to 7 April 2016, the premiums drawn from historic PTOs conducted in Italy between 2010 and 2016, and the analyst target prices in the period from 8 April 2015 to 7 April 2016. The weighted average prices of RCS shares used on that occasion must be adjusted (reduced) by the Cash Consideration (EUR 0.25). Secondly, the quantifications made in the Addendum to the Cairo Fairness regarding the estimated fundamental value of the Bidder, obtained by applying the market multiples method to the economic amounts included in the Cairo Business Plan Cairo and disclosed to the market, are confirmed. For the purpose of determining the exchange rate, these amounts are compared with the range of fundamental values determined for RCS using the DCF method, these values having been adjusted (reduced) by the Cash Consideration (EUR 0.25). Therefore, the structure of this document can be broken down as follows: - a recalculation and summary of the valuations expressed in the Cairo Fairness, including the Cash Consideration offered; - a recalculation and summary of the valuations expressed in the Addendum to the Cairo Fairness, including the Cash Consideration offered; 2 When we define the range of fundamental values for RCS shares between 0.80 and 1.13, an acquisition that provides for a Cash Consideration of EUR 0.25 and an exchange ratio of 0.18 should be defined as fair for a range of values for common shares of Cairo between a minimum of EUR: (0.80-0.25)/0.18 = 3.06 and a maximum of EUR: (1.13-0.25)/0.18 = 4.88 Where the average fundamental value of RCS equals EUR 0.95, the average fundamental value of Cairo would be EUR: (0.95-0.25)/0.18 = 3.89 Prof.