ACQUISITION OF BURST MEDIA CORPORATION BY BLINKX PLC
08 Apr 2011
Bringing online video to a wider audience: delivering blinkx’s 35 million hours of content to Burst’s 130 million unique users
The Boards of blinkx plc (AIM:BLNX), the world’s largest video search engine (“blinkx” or the “Company”) and Burst Media Corporation (AIM:BRST), the online advertising services and technology business (“Burst”) are pleased to announce today that they have entered into a definitive agreement (the “Merger Agreement”) pursuant to which blinkx will acquire the entire issued and to be issued shares of common stock of Burst for an aggregate consideration of US$30 million (£18.5 million) to be satisfied by the issue of New Blinkx Shares and, for Non-Accredited Investors, in cash (the “Acquisition”).
The combination of the two companies will bring blinkx’s 35 million hours of online video and TV to Burst’s audience of over 130 million unique users (source: comScore Media Metrix December 2010). blinkx will create contextually relevant video channels for Burst’s network of publishers, thereby aggregating an online video audience for advertisers across long tail internet sites, which will rival the scale of television networks.
- Burst’s network of publishing partners reaches over 61 per cent. of the US online population. It ranks as the 36th largest US media property and the 30th largest UK media property on the internet (source: comScore Media Metrix December 2010). Working together with web publishers and advertisers, Burst enables brands to reach loyal, highly segmented audiences in a quality-assured environment
- Following the Acquisition, blinkx intends to drive significant expansion of its audience through embedding relevant videos and video channels into Burst’s network of publisher sites. In addition to improving the user experience for consumers, this is expected to allow for the sale of video advertising, which typically attracts a significantly higher CPM, increasing the revenue earned by sites that carry the combined solution
- Targeted changes taken to focus Burst’s business mean the Acquisition is expected to have a go-forward revenue run rate of US$33 to 34 million. blinkx expects the Acquisition to be earnings accretive for the year ending 31 March 2012
- blinkx believes that Burst customers will benefit from working with the internet’s leading video search engine with greater financial resources, technology leadership and additional customer-facing strengths in sales and support. The display banner advertising that is currently sold on Burst’s networks attracted an average CPM of US$1.49 over the year ended 31 December 2010; blinkx's standard, untargeted video pre-rolls were priced at a CPM of US$20 in 2010, reflecting the demand for its highly engaging contextual video advertising products. blinkx believes that the combined group will be able to realise some of the differential between these two rates and share the resulting value with its publishers through combining the scale of Burst’s network with blinkx’s video products. Given this should also deliver an improved, richer experience for end users, blinkx believes the combination will represent a win-win-win proposition for users, publishers and advertisers
- The majority of Burst’s senior management team will continue with the combined group, with Jarvis Coffin, Co-Founder and CEO of Burst and David Stein, Co-Founder and CTO of Burst remaining in temporary roles to assist transition
- blinkx’s cash balance on 31 March 2011 was approximately US$52.8 million. Cash consideration payable under the terms of the Acquisition is not expected to exceed US$4.5 million
- Pursuant to the Merger Agreement Burst stockholders will receive US$0.4093 (25.08 pence) in cash or New Blinkx Shares, per Burst Share held by them (the “Per Share Amount”)
Commenting on the Acquisition, Suranga Chandratillake, Chief Executive of blinkx, said:
"In just a few years, we have seen online video advertising become the fastest growing segment of online advertising. Up until now, the primary barrier to further television advertising budgets moving online has been online video’s inability to match the sheer scale of audience that television can deliver. We are extremely excited about the Acquisition as it will allow us to overcome that challenge: by fusing blinkx’s unique patented technology and large video index with Burst’s massive reach, we will have the potential to create personalised, online television that is watched by hundreds of millions of users."
Commenting on the Acquisition, Jarvis Coffin, Chief Executive of Burst, said:
“Since 1995, Burst has supported the interests of vertical web sites online and the loyal users that depend on them for the information they need and want. By combining with blinkx and its enormous video index, we will be able to substantially enhance our users’ experience with high quality, relevant video, and also improve monetisation for our publishers through high value video advertising.
Burst stockholders are receiving a substantial premium for their Burst Shares and those who receive their consideration in New Blinkx Shares will hold stock in a bigger, more liquid company with an opportunity to participate in the high growth online video market where blinkx is one of the market leaders.”
Suranga Chandratillake, Chief Executive Officer
Jonathan Spira, Chief Financial Officer
+1 415 655 1450
Burst Media Corporation
Jarvis Coffin, Chief Executive Officer
Steve Hill, Chief Financial Officer
+1 781 852 5271
Canaccord Genuity Limited (Financial Adviser to blinkx)
+44 20 7050 6500
Citigroup Global Markets Ltd (NOMAD and Broker to blinkx)
Christopher Wren +44 20 7986 4000
Altium (Financial Adviser and NOMAD to Burst)
+44 20 7484 4040
Financial Dynamics (PR Adviser to blinkx)
+44 20 7831 3113
Hudson Sandler (PR Adviser to Burst)
+44 20 7796 4133
Key terms of the Acquisition
Burst is incorporated in the State of Maryland in the USA. The Acquisition will be consummated as a merger in accordance with Maryland General Corporation Law (“MGCL”), as amended, and as such the Acquisition is not subject to the City Code on Takeovers and Mergers.
Pursuant to the Merger Agreement, for each Burst Share held:
- Burst stockholders who are not Accredited Investors will receive the Per Share Amount in cash;
- Burst stockholders who are Accredited Investors will receive 0.248443 New Blinkx Shares; and
- holders of vested in-the-money options over Burst Shares will receive in cash per option the Per Share Amount less the exercise price of such option,
such consideration together valuing the issued and to be issued shares of common stock of Burst at US$30 million (£18.5 million).
The Per Share Amount represents a premium of approximately:
- 402 per cent. to the mid market closing price of 5.0 pence per Burst Share on 7 April 2011, being the last dealing day prior to the date of this announcement; and
- 339 per cent. to the average mid market closing price of 5.71 pence per Burst Share for the twelve month period up to the date of this announcement.
As at the date of this announcement, Burst had 71,628,562 Burst Shares in issue and admitted to trading on AIM and at the Closing Date there will be 957,437 vested in-the-money options over Burst Shares at the Per Share Amount. In addition, pursuant to an agreement dated 6 April 2010 relating to Burst’s acquisition of On the Phone Media Limited (“OTP”), a total of 1,000,000 Burst Shares will be issued and allotted to certain of the OTP vendors prior to the Closing Date.
As at the date of this announcement, blinkx had 334,405,282 Blinkx Shares in issue. Assuming 85 per cent of the existing and to be issued shares of Burst Shares are held by Accredited Investors, blinkx will issue 15,374,715 New Blinkx Shares pursuant to the Merger Agreement and such shares will, when issued, represent approximately 4.4 per cent. of blinkx’s enlarged issued share capital.
The Acquisition is conditional, inter alia, upon receiving the irrevocable and unconditional written consent from holders of at least seventy five per cent. of the voting power of the existing issued shares of Burst Shares within twenty four hours of the signing of the Merger Agreement, and on the admission to trading on AIM of the New Blinkx Shares.
On the basis of the currently envisaged timetable, and in order to comply with US securities laws, completion of the Acquisition will occur on 9 May 2011.
Cancellation of Burst’s AIM Admission
Prior to (and conditional on) completion of the Acquisition, Burst will give notice under Rule 41 of the AIM Rules for Companies for the cancellation of the admission to trading of Burst Shares on AIM.
Burst Media Corporation Overview
Burst, headquartered in Burlington, Massachusetts, USA, is an online media and technology company founded in 1995. Burst is a leading seller of vertically targeted audiences found in the long tail of the internet. By working together with web publishers and advertisers, the company sells the value of long tail content to enable brands to reach highly segmented audiences in a quality-assured environment. Through its media divisions Burst Network, Burst Direct, Burst Media UK and Giant Realm, the company represents a broad and deep offering of interest-based websites. These networks focus on specialty content provision, ‘verticals’ within the long tail of the internet, enabling improved targeting.
In a separate announcement (the “Preliminary Results Announcement”), Burst has today also announced its results for the year ended 31 December 2010. In summary, for the twelve months ended 31 December 2010, Burst has reported revenues of US$37.7 million (2009: US$31.4 million), gross profit of US$15.5 million (2009: US$14.0 million), and adjusted EBITDA loss of US$1.4 million (2009: adjusted EBITDA of US$0.6 million). As at 31 December 2010 gross assets were US$21.0 million and cash and cash equivalents were US$0.4 million (2009: US$5.7 million).
More information on Burst, including the Preliminary Results Announcement is available at www.burstmedia.com
The Burst Board’s recommendation of the Acquisition
The Burst Board believes that not only are Burst stockholders receiving an appropriate value for their Burst Shares but also that the commercial rationale for the Acquisition is especially strong. Those Burst stockholders that are eligible to receive New Blinkx Shares will have the opportunity to participate as shareholders in a larger, more liquid group with exciting plans to capitalise on the growth in video and display advertising.
The Burst Board unanimously approved the Merger Agreement and the Acquisition and recommends that Burst stockholders consent to the adoption of the Merger Agreement.
The Burst Board retained Altium to provide it with a fairness opinion in connection with the Acquisition. Altium has advised the Burst Board that, as of the date of its opinion, based upon and subject to the various conditions, considerations and assumptions set forth in its opinion provided to the Burst Board, the consideration to be received by Burst Shareholders is fair from a financial point of view to such holders. In providing its advice to the Burst Board, Altium has taken into account the commercial assessments of the Burst Board. Those members of the Burst Board who hold shares of Burst Shares and their related family trusts, accounting for in aggregate 21,267,468 Burst Shares representing approximately 29.7 per cent of the issued Burst Shares, have irrevocably consented to Burst entering into the Merger Agreement.
In connection with the Acquisition, Jarvis Coffin, Chief Executive Officer of Burst has agreed not to dispose of 1,942,559 New Blinkx Shares, equating to eighty per cent. of such New Blinkx Shares to be issued to him, representing approximately 0.6 per cent. of the Company’s enlarged share capital, for a nine month period from the Closing Date.
The total number of New Blinkx Shares subject to lock-up arrangements and orderly market restrictions is 4,052,376 representing approximately 1.2 per cent. of the Company’s enlarged share capital.
Burst Management and Employees
blinkx has stated that it attaches great importance to the skills and experience of the existing management and employees of Burst. Following the completion of the Acquisition, the existing contractual employment rights of Burst employees will be continued on substantially similar terms. Conditional upon the completion of the Acquisition, Steve Hill, David Hanger, Jim Garrity, Brian Emsell, Tim Trotter and Felice Kincannon, all current members of the Burst Board, will resign from the Burst Board.
Burst Share Option Plans
Under the terms of the Merger Agreement, it is proposed that all outstanding vested in-the-money Burst options be cancelled and exchanged for the right to receive a cash payment in an amount equal to the Per Share Amount less the cost of exercising each option. It is also proposed that all outstanding unvested in-the-money Burst options be cancelled and exchanged for the right to receive options over Blinkx Shares.
The Acquisition provides for a total consideration of US$30 million (£18.5 million) to be satisfied by the issue of New Blinkx Shares and cash. Burst stockholders who are Accredited Investors (as finally determined by blinkx) will receive the Per Share Amount in New Blinkx Shares. Burst stockholders who are not Accredited Investors will receive the Per Share Amount for each Burst Share in cash.
As soon as reasonably practicable following the Closing Date, each person who is a Burst stockholder at the Closing Date will be posted a Letter of Transmittal, which will contain instructions with regards the actions to be taken to submit the certificates which represented their Burst Shares at the Closing Date to the Exchange Agent and to receive in return the relevant consideration due to them pursuant to the Merger Agreement.
Settlement of the consideration due pursuant to the Merger Agreement cannot take place until the return of the completed and signed documentation.
Expected Timetable of Principal Events
|Record date for Stockholder consent||7 April 2011|
|Consent Notice Announcement||8 April 2011|
|Consent Notice sent to Burst Stockholders||8 April 2011|
|Admission of New Blinkx Shares||9 May 2011|
|Closing Date of the Acquisition||9 May 2011|
|Letter of Transmittal sent to Burst Stockholders||10 May 2011|
blinkx Current Trading
As announced separately today, following good interim results, trading for the second half of the financial year has continued to be strong. blinkx expects to report revenues greater than US$65 million, an increase of over 90% from last year (ahead of analyst expectations), and to report an operating profit above the current analyst consensus estimates of US$6.7m (after share based compensation charges) for the financial year ended 31 March 2011 before one-time costs associated with the Acquisition.
blinkx is the world's largest and most advanced video search engine. Today, blinkx has indexed more than 35 million hours of audio, video, viral and TV content, and made it fully searchable and available on demand. blinkx's founders set out to solve a significant challenge - as TV and user-generated content on the Web explode, keyword-based search technologies only scratch the surface. blinkx's patented search technologies listen to - and even see - the Web, helping users enjoy a breadth and accuracy of search results not available elsewhere. In addition, blinkx powers the video search for many of the world's most frequented sites.
For the six months ended 30 September 2010, blinkx's revenues rose 109% to US$27.4 million, driven by strong underlying growth in the business. With operating expenses flat during the period, the revenue growth translated into the group’s first positive operating profit of US$2.0 million and its first positive free cash flow of US$1.4 million.
blinkx is based in San Francisco, USA and Cambridge, UK. More information is available at www.blinkx.com.
This announcement is for information only and, save as expressly set out herein, does not constitute an offer or invitation to underwrite, subscribe for or otherwise acquire or dispose of any securities or investment advice in any jurisdiction, including without limitation, the United Kingdom, the United States, Australia, Canada or Japan. Persons needing advice should consult an independent financial adviser.
The distribution of this announcement and the issue and allotment of the New Blinkx Shares as set out in this announcement in certain jurisdictions may be restricted by law. No action has been taken by blinkx or Canaccord that would permit an offering of the New Blinkx Shares or possession or distribution of this announcement or any other offering or publicity material relating to the New Blinkx Shares in any jurisdiction where action for that purpose is required. Persons into whose possession this announcement comes are required by blinkx and Canaccord to inform themselves about, and to observe, such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.
Canaccord, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting exclusively for blinkx and no one else in connection with the Acquisition and will not be responsible to anyone other than blinkx for providing protections afforded to clients of Canaccord.
Altium, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting exclusively for Burst and no one else in connection with the Acquisition and will not be responsible to anyone other than Burst for providing protections afforded to clients of Altium.
This announcement contains (or may contain) certain forward-looking statements with respect to blinkx’s or Burst’s plans and its current goals and expectations relating to its future financial condition and performance and which involve a number of risks and uncertainties. blinkx and Burst caution readers that no forward-looking statement is a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statements. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements sometimes use words such as 'aim', 'anticipate', 'target', 'expect', 'estimate', 'intend', 'plan', 'goal', 'believe', or other words of similar meaning. Examples of forward-looking statements include, among others, statements regarding blinkx’s or Burst’s future financial position, income growth, impairment charges, business strategy, projected levels of growth in its markets, projected costs, estimates of capital expenditure, and plans and objectives for future operations of blinkx or Burst and other statements that are not historical fact.
By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances, including, but not limited to, UK domestic and global economic and business conditions, the effects of continued volatility in credit markets, market-related risks such as changes in interest rates and exchange rates, the policies and actions of governmental and regulatory authorities, changes in legislation, the further development of standards and interpretations under International Financial Reporting Standards ("IFRS") applicable to past, current and future periods, evolving practices with regard to the interpretation and application of standards under IFRS, the outcome of pending and future litigation, the success of future acquisitions and other strategic transactions and the impact of competition - a number of which factors are beyond blinkx’s or Burst’s control. As a result, blinkx’s or Burst’s actual future results may differ materially from the plans, goals, and expectations set forth in blinkx’s or Burst’s forward-looking statements. Any forward-looking statements made herein by or on behalf of blinkx or Burst speak only as of the date they are made. Except as required by the FSA, AIM or applicable law, blinkx and Burst expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this announcement to reflect any changes in blinkx’s or Burst’s expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based.
The price of shares and the income from them may go down as well as up and investors may not get back the full amount invested on disposal of the shares.
Neither the content of Burst’s or blinkx’s websites (or any other website) nor the content of any website accessible from hyperlinks on either of Burst or blinkx’s websites (or any other website) is incorporated into, or forms part of, this announcement.
Burst and the Directors of Burst accept responsibility for the information contained in this document in so far as it relates to matters concerning Burst. To the best of the knowledge and belief of Burst and the Directors of Burst (who have taken all reasonable care to ensure such is the case) the information contained in this document for which they are taking responsibility is in accordance with the facts and contains no omission likely to affect the import of such information.
blinkx and the Directors of blinkx accept responsibility for the information contained in this document in so far as it relates to matters other than those concerning Burst. To the best of the knowledge and belief of blinkx and the Directors of blinkx (who have taken all reasonable care to ensure such is the case) the information contained in this document for which they are taking responsibility is in accordance with the facts and contains no omission likely to affect the import of such information.
|“Accredited Investors”||(A) a U.S. Person that is an “accredited investor” as such term is defined in Rule 501 promulgated under the Securities Act, or would otherwise be excluded under Rule 501(e)(1) under the Securities Act from any calculation of the number of purchasers of New Blinkx Shares in the Acquisition; (B) a non U.S. Person who is a “qualified investor” within the meaning of Article 2(1)(e) of the Prospectus Directive and/or persons who are permitted to receive New Blinkx Shares pursuant to an exemption from the Prospectus Directive and other applicable legislation; and (C) in the United Kingdom, a non U.S. Person who is a qualified investor who is: (i) an investment professional within the meaning of Article 19(5) of the FPO; (ii) a high net-worth company, unincorporated association and other body within the meaning of Article 49 of the FPO; or (iii) a person to whom it is otherwise lawful to issue New Blinkx Shares provided, that blinkx shall have a sole and absolute discretion to determine whether a Stockholder is Accredited or Non-Accredited for the purposes of the Merger Agreement;|
|“Acquisition”||has the meaning given to it in paragraph 1 of this Announcement;|
|“Admission”||admission to trading on AIM of the New Blinkx Shares becoming effective in accordance with the AIM Rules for Companies|
|“AIM”||the AIM market of the LSE;|
|“Altium”||Altium Capital Limited, Financial Adviser to Burst|
|“Blinkx Share”||an ordinary share of £0.01 in the capital of the Company;|
|“Burst Share”||one share of Burst’s common stock, par value $0.01;|
|“Canaccord”||Canaccord Genuity Limited, Financial Adviser to the Company;|
|“Closing Date”||the date on which the Acquisition closes, such time and date to be specified by the parties;|
|“CPM”||Cost Per Mille, the estimated cost to show an advertisement to 1,000 viewers;|
|“Exchange Agent”||Capita Registrars of The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU;|
|“FPO”||the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended;|
|“FSA”||Financial Services Authority;|
|“IFRS”||International Financial Reporting Standards;|
|“LSE”||London Stock Exchange plc;|
|“Merger Agreement”||the Agreement and Plan of Merger, dated April 7, 2011, by and among the Company, Burst, and Merger Sub;|
|“Merger Sub”||Burst Merger Company, a Maryland corporation and wholly-owned subsidiary of the Company;|
|“New Blinkx Shares”||new ordinary shares of £0.01 each in the capital of the Company;|
|“Non-Accredited Investors”||a Person who is not an Accredited Investor|
|“OTP”||On The Phone Media Limited;|
|“Per Share Amount”||US$0.4093 (25.08 pence) in cash per share of Burst common stock;|
|“Prospectus Directive”||Directive 2003/71/EC; and|
|“Stockholder”||a holder of shares of Burst’s common stock, par value $0.01 per share or any holder of shares of the stock of Merger Sub.|
US$ amounts in this announcement have been converted into £ Sterling at an exchange rate of US$1.6318 = £1, the rate prevailing on 6 April 2011.