Connect Airways
RECOMMENDED CASH OFFER for FLYBE GROUP PLC byCONNECT AIRWAYS LIMITED
(a company jointly-owned by DLP Holdings S.ΰ. r.l., Stobart Aviation Limited and
Virgin Travel Group Limited, a wholly-owned subsidiary of
Virgin Atlantic Limited) Summary Following the announcement on 14 November 2018 and the launch of the Formal Sale Process with respect to Flybe, the Boards of Flybe and Connect Airways announce that they have reached agreement on the terms of a recommended cash offer for Flybe by Connect Airways pursuant to which Connect Airways will acquire the entire issued and to be issued share capital of Flybe. Under the terms of the Acquisition, Flybe Shareholders will be entitled to receive:one in cash for each Flybe Sharewhich values the entire issued and to be issued share capital of Flybe at approximately on the basis of the fully diluted share capital of 216,656,776 Flybe Shares. Cyrus, Stobart Group and Virgin Atlantic have engaged with Flybe in a collaborative due diligence process since the commencement of the Formal Sale Process, and have formulated the Offer Price after careful review of the due diligence information, the capital needs of Flybe, the challenging trading environment and prevailing market conditions. Concurrently with announcing the Acquisition, Cyrus, Stobart Group and Virgin Atlantic have committed to make available a bridge loan facility to support Flybe's ongoing working capital and operational requirements. In addition, following completion of the Acquisition, Cyrus, Stobart Group and Virgin Atlantic are intending to provide up to of further funding to the Combined Group to invest in its business and support its growth, as well as a contribution of Stobart Air. It is intended that the Acquisition will be effected by means of a Court-sanctioned scheme of arrangement between Flybe and the Scheme Shareholders under Part 26 of the Companies Act. The Acquisition is subject to a number of Conditions and further terms, including the approval of the Scheme by the Scheme Shareholders by the requisite majorities and the sanctioning of the Scheme by the Court. The Conditions are set out in full in Part A of Appendix 1 to this Announcement.Connect Airways Connect Airways is a joint venture company the share capital of which is owned 40% by DLP Holdings, S.ΰ. r.l., a company wholly-owned by funds managed by Cyrus, 30% by Stobart Aviation, a wholly-owned subsidiary of Stobart Group, and 30% by Virgin Travel Group Limited, a wholly-owned subsidiary of Virgin Atlantic, the holding company of Virgin Atlantic Airways Limited and Virgin Holidays Limited. It is also expected that, immediately prior to completion of the Acquisition, Connect Airways will acquire Stobart Air, Stobart Group's regional airline and aircraft leasing business. The combined group is expected to bring benefits to customers, suppliers and employees, providing stability in a tough trading environment.Combined Group Cyrus, Stobart Group and Virgin Atlantic believe that combining Flybe and Stobart Air in a more integrated commercial cooperation with Virgin Atlantic's long-haul operations will create a fully-fledged network carrier under the Virgin Atlantic brand, alongside Stobart Air's wet lease operations and aircraft leasing business which will continue to operate as it does today. Such a combination would be a compelling proposition with a comprehensive regional network in the and coupled with an enhanced European footprint, providing greater choice and connectivity for customers to travel to destinations all over the world. The Acquisition will enable Flybe to benefit from committed strategic investment partners in terms of Cyrus, Stobart Group and Virgin Atlantic (through Connect Airways) and from an enhanced presence at London Heathrow Airport and Manchester Airport with potential to grow further in London Southend Airport. The Acquisition and combination with franchise airline, Stobart Air, will provide the Combined Group with an opportunity to increase passenger numbers at London Southend Airport, accelerating its growth for and European air travel.Recommendation and support for the offer The Flybe Board, who have been advised by Evercore (who are providing independent financial advice to the Flybe Board for the purposes of Rule 3 of the Code) as to the financial terms of the Acquisition, considers the terms of the Acquisition to be fair and reasonable. In providing its financial advice to the Flybe Directors, Evercore has taken into account the commercial assessments of the Flybe Directors. Accordingly, the Flybe Directors believe that the terms of the Acquisition are in the best interests of Flybe Shareholders as a whole and unanimously recommend that Flybe Shareholders vote in favour of the resolutions to be proposed at the Court Meeting and the Flybe General Meeting (or, in the event that the Acquisition is implemented by way of a Takeover Offer, to accept or procure the acceptance of such Takeover Offer). Each Flybe Director who holds Flybe shares has irrevocably undertaken to vote in favour of the resolutions in respect of their own beneficial holdings of Flybe Shares, amounting to, in aggregate, 871,664 Flybe Shares representing approximately 0.40% of Flybe's share capital in issue on 10 January 2019 (being the latest practicable date before the release of this Announcement). Comment on the Acquisition Commenting on the Acquisition, Christine Ourmiθres-Widener, CEO of Flybe said:"Flybe plays a vital role in the transport infrastructure with a regional network which positions it well to benefit from growing demands from long haul carriers for passenger feeder traffic. We have successfully implemented a clear strategy in recent years focused on tighter fleet management, improving revenue per seat and increasing load factors. The pursuit of operational excellence has reduced maintenance times and increased efficiencies and customer satisfaction."However, the industry is suffering from higher fuel costs, currency fluctuations and significant uncertainties presented by Brexit. We have been affected by all of these factors which have put pressure on short-term financial performance. At the same time, Flybe suffered from a number of legacy issues that are being addressed but are still adversely affecting cashflows."By combining to form a larger, stronger, group, we will be better placed to withstand these pressures. We aim to provide an even better service to our customers and secure the future for our people." Commenting on the Acquisition, Warwick Brady, CEO of Stobart Group said:"The Board of Stobart Group believes that bringing Stobart Air together with Flybe and partnering with Virgin Atlantic and Cyrus Capital is the best way for us to play an active role in regional flying. "The combined entity will be a powerful combination with sufficient scale to compete effectively in the and European airline markets. It will allow us to continue to work with Flybe and provides an excellent opportunity to continue to grow passenger numbers at London Southend Airport." Commenting on the Acquisition, Shai Weiss, CEO of Virgin Atlantic said:"The Virgin Atlantic brand is built on the foundation of putting customers at the heart of everything, providing customers with the choice they deserve and a travel experience they love. We are pleased to have this opportunity to partner with Stobart Group and Cyrus to bring Virgin Atlantic service excellence to Flybe's customers. Together, we can provide excellent connectivity to our extensive long haul network and that of our joint venture partner, Delta Air Lines, at London Heathrow Airport and Manchester Airport for the benefit of our customers. In the near future, this will only increase, through our expanded joint venture partnership with Air France-KLM.". Commenting on the Acquisition, Lucien Farrell, Partner of Cyrus said:"We are delighted to be working once again with the Virgin Group following our successful partnership in the launch and eventual sale of Virgin America to Alaska Airlines. We believe Flybe's regional focus and high quality management, together with Virgin Atlantic's dedication to the best customer experience and Stobart Group's expertise in regional flying, will produce a world-class airline."The Scheme process The Scheme will be put to Scheme Shareholders at the Court Meeting and the Flybe General Meeting. In order to become Effective, the Scheme must be approved by a majority in number of the holders of Scheme Shares present and voting, either in person or by proxy, representing not less than 75% in value of the Scheme Shares held by such holders. In addition, resolutions to deal with certain ancillary matters must be passed at the Flybe General Meeting to be held immediately after the Court Meeting. The Scheme Document, containing further information about the Acquisition and notices of the Court Meeting and the Flybe General Meeting, together with the Forms of Proxy, will be published as soon as practicable and, in any event, within 28 days of this Announcement and that, subject to the satisfaction, or where relevant waiver, of all relevant Conditions, the Scheme will become Effective and the Acquisition completed early in Q2 2019. Advisers Barclays is acting as financial adviser to Stobart Group and Connect Airways in respect of the Acquisition. Morgan, Lewis & Bockius LLP is acting as legal adviser to Connect Airways and Cyrus in respect of the Acquisition. Hill Dickinson is acting as legal adviser to Connect Airways and Stobart Aviation in respect of the Acquisition. Rothschild & Co is acting as financial adviser to Virgin Atlantic in respect of the Acquisition. Herbert Smith Freehills LLP is acting as legal adviser to Virgin Atlantic in respect of the Acquisition. Evercore is acting as financial adviser to Flybe in respect of the Acquisition. Bryan Cave Leighton Paisner LLP is acting as legal adviser to Flybe in respect of the Acquisition.This summary should be read in conjunction with, and is subject to, the full text of this Announcement (including the Appendices). The Acquisition will be subject to the Conditions and certain further terms set out in Appendix 1 to this Announcement and to the full terms and conditions which will be set out in the Scheme Document. Appendix 2 contains details of the irrevocable undertakings received in relation to the Acquisition that are referred to in this Announcement. Appendix 3 contains definitions of certain terms used in this summary and this Announcement.