ROW Entertainment Income Fund

May 09, 2005 16:22 ET

ROW Entertainment Income Fund Announces The Acquisition Of Koch And Bought Deal Financing


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: ROW ENTERTAINMENT INCOME FUND

TSX SYMBOL: ROW.UN

MAY 9, 2005 - 16:22 ET

ROW Entertainment Income Fund Announces The
Acquisition Of Koch And Bought Deal Financing

TORONTO, ONTARIO--(CCNMatthews - May 9, 2005) - NOT FOR DISTRIBUTION TO
U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE U.S. ANY FAILURE TO
COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF U.S.
SECURITIES LAW.

ROW Entertainment Income Fund ("ROW" or the "Fund") announced today that
it has entered into a definitive agreement to acquire a number of
entities1 collectively referred to as KOCH (the "KOCH Acquisition").
KOCH is a leading and fast growing independent music company in the U.S.
and considers itself to be one of the largest independent music and
video distributors in North America.

ROW is buying the business from Michael Koch, its founder and CEO, and
certain affiliates (the "Vendors") for a total purchase price of
approximately US$80 million, which includes the assumption of certain
specified liabilities of approximately US$5.1 million. The purchase
price will be satisfied by the delivery of 2,355,721 Units of the Fund
valued at C$10.54 per Unit for an aggregate value of US$20 million; the
payment of US$54.9 million in cash; and the retirement immediately after
closing of the specified liabilities of US$5.1 million. The acquisition,
which has been approved by the Trustees of ROW, is expected to be
immediately accretive to ROW's distributable cash per unit. The combined
businesses would have had pro forma revenues of C$675 million for the
twelve months ended December 31, 2004.

The closing of the KOCH Acquisition is scheduled to occur on June 1,
2005. The acquisition remains subject to a number of conditions,
including the receipt of regulatory approvals. While the Fund
anticipates that all conditions to closing will be either met or waived
by the Fund on or prior to closing, there can be no assurance that the
Fund will do so or that the acquisition will be completed as currently
contemplated.

KOCH ACQUISITION HIGHLIGHTS

KOCH's operations encompass a music publishing business and a
distribution business, similar to ROW.

KOCH's recording and music publishing businesses produce and market
under KOCH's own private labels Adult Contemporary, Country, Urban,
Hip-Hop/Rap, and Childrens' music. In addition, KOCH has a 75% ownership
interest in DRG Records, Inc, an independent theatre music label.

Through the KOCH Acquisition, ROW will benefit from ownership and
control over a significant amount of entertainment content, allowing it
to determine the timing and channel of distribution of such content.
KOCH's distribution business distributes pre-recorded music and video
products for the home entertainment industry across the U.S. as well as
in Canada. KOCH's Canadian distribution business will complement the
Fund's existing private label business, further strengthening the Fund's
leadership position in the Canadian marketplace.

The acquisition will provide ROW with a platform for the U.S. market for
home entertainment. The resulting expansion into the U.S. will provide
ROW with increased product distribution capabilities, further
diversification of its customer base, and provide increased
opportunities within the growing DVD sector.

In commenting on the KOCH Acquisition, Darren Throop, President and CEO
of the Fund, stated, "The titles from KOCH's music publishing business
will be available for distribution both in Canada and in the U.S. by our
various business units. In addition, the KOCH Acquisition will enhance
our position as one of the leading suppliers of home entertainment in
Canada and the U.S. market."

Michael Koch added "I am excited to join forces with ROW and I am
pleased about the new opportunities that will be afforded to our
combined business through this transaction". Michael Koch will enter
into an employment agreement with ROW for a period of three years,
bringing with him extensive experience and intimate knowledge of the
U.S. home entertainment business. In addition, the KOCH management team,
including Bob Frank, President KOCH Records, Michael Zgarka, President
KOCH Entertainment Canada and Alan Grunblatt, Executive Vice President
KOCH Records, will also remain following the acquisition, allowing the
enterprise to retain their extensive knowledge and experience.

ACQUISITION FINANCING

The cash portion of the purchase price, together with associated
transactions costs, will be financed as to US$13.5 million through an
increase in ROW's senior bank facilities with Scotiabank with the
balance from the proceeds of a C$70 million equity offering. The Fund
has entered into an agreement to sell, on a bought deal basis, 7,000,000
Subscription Receipts priced at C$10.00 per Subscription Receipt to a
syndicate of underwriters co-led by CIBC World Markets Inc. and Scotia
Capital Inc., and including National Bank Financial Inc., BMO Nesbitt
Burns Inc. and TD Securities Inc. Each Subscription Receipt will entitle
the holder to receive one Unit of ROW upon closing of the KOCH
Acquisition. The closing of the offering is anticipated to occur on June
1, 2005, subject to regulatory approval.

The securities being offered have not been, nor will be, registered
under the U.S. Securities Act of 1933, as amended, and may not be
offered or sold in the U.S. absent registration or applicable exemption
from the registration requirement of such Act. This release does not
constitute an offer for sale of securities in the U.S. and any public
offering of securities in the U.S. will be made by means of a
prospectus.

CONFERENCE CALL

ROW will host a conference call for investors on May 9, 2005 at 4:30pm.
To participate, please call 416 405-9310, or 877 211 7911. A replay of
the call will be available until midnight on May 16, 2005 and can be
accessed by dialing 416 695 5800, or 800 408 3053, code 3152835.

ABOUT ROW ENTERTAINMENT INCOME FUND

ROW Entertainment is the largest wholesaler in Canada of CDs and DVDs
the largest specialty retailer of CDs and DVDs in secondary markets in
Canada. The Fund Units are listed on the Toronto Stock Exchange under
the symbol ROW.UN.

NON-GAAP MEASURES

Distributable cash of the Fund is a non-GAAP measure generally used by
Canadian open-ended trusts as an indicator of financial performance.
Distributable cash of the Fund may differ from similar computations as
reported by other similar organizations and, accordingly, may not be
comparable to distributable cash as reported by such organizations.

FORWARD-LOOKING STATEMENTS

This document may contain forward-looking statements, relating to the
Fund's operations or to the environment in which it operates, which are
based on the Fund's operations, estimates, forecasts and projections.
These statements are not guarantees of future performance and involve
risks and uncertainties that are difficult to predict, and/or are beyond
the Fund's control. A number of important factors could cause actual
outcomes and results to differ materially from those expressed in these
forward-looking statements. These factors include those set forth in
other public filings. Consequently, readers should not place any undue
reliance on such forward-looking statements. In addition, these
forward-looking statements relate to the date on which they are made.
The Fund disclaims any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise.

1 Consisting of KOCH International Inc., KOCH Entertainment Distribution
LLC and KOCH Music Publishing LLC, an equity interest in certain other
entities, and the assets and undertaking of KOCH Entertainment Inc., a
Canadian business.


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Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    ROW Entertainment Income Fund
    Chris Jamieson
    Chief Financial Officer
    (905) 475-3550 Ext. 251
    cjamieson@rowentertainment.ca