Observer announces U.S acquisition

11/14/2001 2:49 AM EST

Observer announces U.S. acquisition

· Observer to acquire Bacon's for USD 90 million

· Bacon's is a leading provider of media databases and media
monitoring services in the U.S.

· Bacon's pro forma* turnover USD 37.1 million and EBITA USD 10.8
million October 2000 - September 2001

· Acquisition expected to immediately improve Observer's EPS
after tax excluding goodwill amortization

· Acquisition anticipated to positively affect EPS after tax from
2003

· Observer's first acquisition in the U.S. and third in North
America

· U.S. expansion strengthens Observer's global service offering


Observer AB has agreed to acquire all shares in Bacon's Information,
Inc. - a leading provider of media databases and media monitoring
services in the U.S. - from Primedia Inc. (NYSE: PRM). Completion of the
acquisition is conditional upon approval by U.S. regulatory authorities.
Observer has obtained full financing commitment with customary
conditions precedent for payout upon completion. U.S. regulatory
approval is expected within a few weeks and the transaction is expected
to close at that time.

Bacon's pro forma* turnover was USD 37.1 million for the most recent 12-
month period October 2000 - September 2001 with an EBITA margin of 29.1
percent. The purchase price equals 8.3 times EBITA (operating profit
before goodwill amortization).







* Pro forma amounts reflect the period October 1, 2000 - September 30,
2001, assuming the acquisition of Bacon's as of September 30, 2000.


Comments by Observer's CEO, Robert Lundberg
"The acquisition of Bacon's represents a huge success for us. The
company has been our preferred choice in the U.S. Coupled with our
earlier acquisitions in Canada, we now have a position of strength in
North America. Our already strong position in Europe therefore enables
us to further develop our international offering and to secure
Observer's role as a global leader in its industry," said Robert
Lundberg, President and CEO for Observer.



Acquisition significant step in Observer's growth strategy
This acquisition marks a significant step in Observer's growth strategy,
since Bacon's both strengthens and complements Observer's offering
within its Media Intelligence as well as Communication Tools divisions.
With this acquisition, Observer is creating a new platform and
strengthening its position as a global leader in its industry. Observer
is the only media and market monitoring/media databases provider present
both in Europe and North America. In the U.S., Bacon's is a leading
provider of media databases and media monitoring services. By offering a
wider range of value-added services, new IT solutions and through
intensified marketing efforts, Observer intends to enhance opportunities
for increased growth and earnings in Bacon's.

The U.S. turnover for media monitoring services, such as Observer's, is
valued at USD 300 to 400 million (approx. SEK 3 - 4 billion). Annual
growth has averaged approximately 10 percent in recent years. Although
smaller, demand for media databases is expanding rapidly. The general
economic and political situation is currently having a dampening effect
on industry growth.

For many industries, the U.S. is the most important market in the global
arena as well as home to a majority of the world's largest companies.
Observer's U.S. presence therefore substantially increases its stature
among multinational companies. Through local presence, and as a leading
European player Observer is able to develop global co-operations with
global clients. The combination of Observer's existing international
offering with Bacon's already strong range lays the foundation for
continued growth and profitability.



Financial effects
Observer's earnings per share after tax excluding goodwill amortization
is expected to increase immediately as a result of the acquisition.
Observer's earnings per share after tax is expected to rise in 2003 as a
result of the acquisition. The acquisition is expected to immediately
improve cash flow.



Financing
The purchase price of USD 90 million (approx. SEK 950 million) will be
financed through USD 60 million (approx. SEK 630 million) in new debt, a
promissory note to the seller, Primedia Inc., in the amount of USD 15
million (approx. SEK 160 million), and USD 15 million (approx. SEK 160
million) from Observer's cash reserves. Observer has obtained full
financing commitment with customary conditions precedent for payout upon
completion. In addition to the purchase price, acquisition-related costs
are estimated at approximately USD 3.0 million (approx. SEK 32 million).
The pro forma debt/equity ratio will amount to approximately 0.9 and
interest coverage ratio to approximately 3.9. Observer's financial
position therefore remains strong.


Goodwill
Bacon's will be acquired by a newly established U.S. holding company,
which is wholly-owned by Observer. Observer Group will amortize the USD
92 million (approx. SEK 965 million) in goodwill arising from the
acquisition over a 20-year period. According to U.S. tax laws, the
amortization of goodwill will be deductible against earnings in the U.S.
operations. An estimated tax reduction of USD 2.2 million (approx. SEK
23 million) per year during the fiscal amortization period of 15 years
is expected. The present value of these tax deductions discounted by the
cost of debt is estimated at approximately USD 21 million (approx. SEK
220 million).



Observer after the acquisition of Bacon's
Bacon's will be integrated into Observer, thereby strengthening its
position as a world-leading provider of media and market monitoring and
media databases. After the acquisition, Observer's operations will
extend to 13 countries. The acquisition will increase the number of
employees at Observer by some 400 to approximately 2,700.

Observer intends to develop a complete North American offering by
integrating the service offerings of the previously acquired companies
in Canada with Bacon's.

Bacon's CEO and management will continue to lead the company as part of
Observer Group.


Questions concerning this press release can be directed to:

Robert Lundberg, President and CEO, phone +46 (0) 8 507 410 10


Anders Lundmark, CFO, phone +46 (0) 8 507 417 23, mobile phone +46 (0)
70-333 29 77


Jan-Erik Jansson, M&A officer, tel. +46 (0) 8 507 410 14, mobile phone
+46 (0) 70-511 91 53


Per Blixt, Senior VP Corporate Communications, mobile phone +46 (0) 70-
549 28 08


Carnegie acted as financial adviser to Observer.

This press release is also available online at: http://www.waymaker.net

Telephone conference call
Observer AB invites you to attend a conference call concerning the
acquisition of Bacon's on Wednesday, November 14 at 11 a.m. (CET).
Robert Lundberg, CEO and Per Blixt, Senior VP Corporate Communications
will host the conference call from New York, while Anders Lundmark, CFO
and Jan-Erik Jansson, M&A Officer, will join the conference call from
Stockholm.



If you would like to participate, please call +44 (0)20 8240 8244 and
state the following code: Observer.



Presentation materials will be made available one hour before the
conference call and can be accessed at www.observergroup.com under
"news/presentations." These materials can also be forwarded
electronically via e-mail by contacting Magdalena Ericsson at
 



Telephone playback will be accessible during a five-day period following
the conference call and can be accessed by calling +44 (0)20 8288 4459,
code: 687942.



About Observer AB
On a rolling twelve-month basis (Oct. 2000 - Sep. 2001), Observer AB has
a turnover of more than SEK 1,200 million and employs approximately
2,300 people. Today, the company has operations in the UK, Sweden,
Canada, Germany, Finland, Norway, Denmark, Portugal, Ireland, Estonia,
Latvia and Lithuania.

Observer's operations are divided into two divisions: Media Intelligence
and Communication Tools. The Media Intelligence division offers media
and market monitoring, communication evaluations and analysis.
Observer's Communication Tools division offers clients, primarily in the
fields of IR and PR, databases of who's who in the media and financial
worlds. Clients also receive communication solutions for distributing
business information via various electronic channels including the
Internet.

Read more about Observer at: www.observergroup.com


About Bacon's

Bacon's is a leading provider of media databases and media monitoring
services. Headquartered in Chicago, Bacon's has approximately 400
employees and operations in New York, Los Angeles, Rockford (Illinois),
and Washington DC.

Read more about Bacon's at: www.bacons.com


Pro forma accounts

The following pro forma accounts have been prepared in order to
illustrate the financial effects of Observer Group's acquisition of
Bacon's. In preparing the pro forma income statement for the period
October 1, 2000September 30, 2001 the acquisition of Bacon's is assumed
to have been completed as of September 30, 2000. In the pro forma
balance sheet Bacon's consolidation into the Group is assumed per
September 30, 2001. In both the pro forma income statement and balance
sheet it is assumed that the acquisition of Bacon's is financed through
USD 75 million in new interest bearing liabilities and USD 15 million in
cash reserves.

The acquisition will be reported according to the purchase accounting
method, resulting in USD 92 million in goodwill. This goodwill will be
amortized over 20 years and thus give rise to annual goodwill
amortization of approximately USD 4.6 million. Interest-bearing debt
increases by USD 75 million and cash reserves decrease by approximately
USD 18 million. Based on current interest rates, net financial items are
affected by USD -5.3 million.

Bacon's pro forma
Observer plans to carry out integration measures in Bacon's during 2002.
Integration related costs are expected to amount to USD 2.0 million.

Pro forma income statement1
October 1, 2000September 30, 2001
Observer
Observer Bacon's Group
Amounts in SEK million Group pro forma Acquisitio pro forma
n
Operating revenue 1,265.4 389.6 1,655.0
Operating expenses -982.5 -265.7 -1,248.2
Depreciation -47.4 -10.5 -57.9
Profit before goodwill
amortization and

noncomparable items 235.5 113.4 348.9

Amortization of goodwill -95.6 -48.2 -143.8
Noncomparable items
Operating profit 139.9 113.4 -48.2 205.1

Net financial income and -31.8 -56.1 -87.9
expenses
Profit after financial items 108.1 113.4 -104.3 117.2

Tax -58.1 -44.2 41.4 -60.9
Minority interest -1.6 -1.6
Net profit for the period 48.4 69.2 -62.9 54.7

Operating margin before 18.6% 29.1% 21.1%
goodwill amortization, %

Interest coverage ratio 6.1 3.9




1 The figures are unaudited. Bacon's balance sheet and income statement
has been translated to SEK at a SEK/USD exchange rate of 10.50.




Pro forma balance sheet1
September 30, 2001 Observer
Group
Amounts in SEK million Observe Bacon' Acquisiti Eliminati pro
r s on ons forma
Goodwill 2,112.0 336.0 629.0 3,077.0
Other fixed assets 208.8 25.2 977.6 -977.6 234.0
Current receivables 365.4 79.8 445.2
Financial assets 442.2 -190.1 252.1
Total assets 3,128.4 441.0 787.5 -348.6 4,008.3

Shareholders' equity 1,700.9 348.6 -348.6 1,700.9
Minority share 3.8 3.8
Provisions 106.5 6.3 112.8
Current liabilities 245.0 86.1 331.1
Financial liabilities 1,072.2 787.5 1,859.7
Total shareholders' 3,128.4 441.0 787.5 -348.6 4,008.3
equity and liabilities

Operating capital 2,334.7 348.6 629.0 3,312.3
Operating capital 222.7 12.6 235.3
excluding goodwill
Net interest-bearing 630.0 977.6 1,607.6
debt
Equity/assets ratio, % 54% 79% 43%
Debt/equity ratio, % 37% 0% 94%




1 The figures are unaudited. Bacon's balance sheet and income statement
has been translated to SEK at a SEK/USD exchange rate of 10.50.


Pro forma data per share
October 1, 2000September 30, Observer Group
2001
Amounts in SEK Observer after
acquisition
Number of shares at year-end, 55,510 55,510
'000
Average number of shares, '000 55,510 55,510

Average no. of shares after full 57,577 57,577
dilution, '000
Operating revenue 22.80 29.81

Profit after full tax 0.87 0.99
Excl. goodwill amortization 2.59 3.58

Profit after full tax and full 0.87 0.98
dilution
Excl. goodwill amortization 2.53 3.48

Shareholders' equity 30.64 30.64