Untitled - David Kronemyer

TI{IS DOCUMENT IS IMPORTANT AND REQUIRIS YOUR IMMEDIATE ATTENTTON. If you are in any
doubt about whaa action to take, you should consult your stockbroker, bank manager, solicitor, accountant
or other professional adviser immediately. lf you have sold all your holding of Ordinary Shares arrd/or 7 per
cent. Conyertible Redeemable Second Cumulative Preference Shares 1992/99 in THORN EMI plc please
send this document with the accompanying form(s) of proxy to the stockbroker or other agent through
whom the sale was effected for transmission to the purchaser.
THORN EMI plc
(Registered io England No. 229231)
Registered Omce:
.l Tenterden Street
Iondon w'IA 2AY
To the holders of the Ordinary Shares and the 7 per cent. Convertible Redeemable S€cond Cumulative
Preference Sharcs 199A99 and for iiformation only the holders of the 3-5 per cent. Cumulative Preference
Shares and the holders of the Unsecured Loan Stocks.
f)ear Sir or Madam,
PROPOSED REDUCTION OF SIIARE PREMIUM ACCOL\IT
The Board announced on 4 March 1988 that it proposed to seek such consents as af,e necessary to enable
the Company to reduce its Share Premium Account.
You will find set out on pages 4 and 5 of this document Notices convening a separate CL$s Meeting of the
holders of the 7 per cent. Convertible Redeemable Second Cumulative Preference Shares 199299 of the
Company ("the Convertible Preference Shares") and an Extraordinary General Meeting of the Company to
be held on 23 and 3O March 1988 respectively to consider and I/ot€ on the implementation ofthe proposal.
The purpose of this letter is to explain the reasons for the proposal with a view to seeking the necessary
authority from the shareholders at the Meetings.
Background
The Group has achieved its present size and structure through a combination of organic grolt,th and
acquisitions. The principal acquisitions in recent financia.l years have included EMI Limited in f980 (Sf 5 f
million), INMOS International plc in 19a5, (I,f 25 million) and Rent-A-Center Inc. ("Rent-A-Center") this
financial year (t372 million), at the historical costs shown in brackets.
The total consideration payable on an acquisition will often include an element of goodwill which
represents the excess of the consideration over the fair value of the net tangible assets on the date of the
acquisition. Any goodwill arising is required to be dealt with in the manner set out below.
Statement of Standard Accounting Practice No. 22 requires that such goodwill should be eliminated either
by immediate write off against reserves or amortisation through the consolidated profit and loss account
over a Period of time. In common with the maiority of U.K public companies your Directors have adopted
the first approach as they consider that to amortise significant amounts of goodq.iu through the profit and
loss account would be inappropriate.
The Group's stated policy is controlled expansion by acquisition as well as organic groEth. Suitable
opportunities continue to be investigated which may, in turn, give rise to acquisitions. The nature of the
businesses in which the Group is interested is such that future acquisitions are likely to gi\/e rise to further
goodwill and the principal purpose of the proposed reduction of the shate premium account is to create a
reserve against which such goodwill can be written off.
Share Premium Accoutrt
where a company issues shares at a value which represents a premium over their nominal yalue, the
premium must Senerally, under the Companies Act, be transferred to a share premium account. Under the
Companies Act, the uses to v/hich the share premium account can be put are very restricted and the
account cannot be used for writing off goodwill.
If an acquisition is made wholly or partly for shares and certain specilic conditions are met, the Companies
Act provides relief from the need to create a share premium account (known as "merger relief'). Under
these provisions the premium is taken to a merger reserve against which any goodwill arising can be
written off- Merger relief was available in connection with the acquisition of Rent-A-Center and the
premium was taken to a merger feserve against which the goodwill has been applied.