| Wed 14 Nov 2007, 15:12 | | KEL - Kelly Group Limited - Acquisition of Ichoice |
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KEL
KEL
KEL - Kelly Group Limited - Acquisition of Ichoices Call Centre Outsourcing
(Proprietary) Limited and withdrawal of cautionary announcement
KELLY GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1999/026249/06)
ISIN: ZAE000093373
Share Code: KEL
("Kelly Group" or "the Company")
ACQUISITION OF ICHOICES CALL CENTRE OUTSOURCING (PROPRIETARY) LIMITED AND
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
Further to the cautionary announcements released on SENS on 20 September
2007 and 31 October 2007, shareholders are advised that Kelly Group has
entered into an agreement with MMC Holdings (Proprietary) Limited and
Crestwell Trading 2 (Proprietary) Limited ("the Sellers") ("the Sale
Agreement") to purchase the entire issued share capital of iChoices Call
Centre Outsourcing (Proprietary) Limited ("iChoices") ("the Acquisition").
2. THE ACQUISITION
2.1 Rationale
The Acquisition was a strategic one designed to extend the group`s presence
in the high-growth call centre sector. Kelly Group already provides
staffing for call centres and through iChoices will now also offer call
centre infrastructure and facilities, thus providing the market with a one-
stop service. iChoices is a leading-edge call centre outsourcing provider
that is well versed in face-to-face, as well as telephonic and electronic
customer relationships. iChoices is able to offer a variety of solutions
ranging from renting call centre facilities to a complete outsourcing
solution. Operating principally in Johannesburg and Cape Town, iChoices
operates in a core business that enhances the current business processing
outsourcing offerings of Kelly Group. This allows for the leveraging of
client relationships and enhanced offerings. It is anticipated that the
Acquisition will be earnings enhancing in the short and medium term.
2.2 The Acquisition consideration
The Acquisition consideration will be calculated in accordance with a
formula based on the audited financial statements of iChoices for the 12
months ending 31 December 2007. The Acquisition consideration is subject to
the adjustment based on iChoices achieving profit warranties for the years
2008 to 2010, provided that the total consideration payable by Kelly Group
in relation to the Acquisition (including any agterskot payment and/or
other payment) shall not exceed R110 000 000.
The Acquisition consideration shall be discharged in cash in four annual
tranches and 50% of each tranche shall be applied by the Sellers to
purchase listed shares ("Kelly Group shares") in Kelly Group on the open
market and Kelly Group will purchase the shares as agent for the Sellers.
The first tranche of the purchase price is payable on the effective date of
the Acquisition and the further tranches are payable annually after the
determination of the warranted profits for each of the years 2008 to 2010.
The Kelly Group shares will be acquired at the 30-day weighted average
market price immediately preceding the payment date of the particular
tranche. In terms of the Sale Agreement, certain restrictions have been
placed on the Sellers in relation to their ability to dispose of the Kelly
Group shares.
The Sale Agreement signed on 13 November 2007 does not contain any
warranties that are unusual in transactions of this nature.
2.3 Pro forma financial effects of the Acquisition
The table below sets out the unaudited pro forma financial effects of the
Acquisition on earnings per share ("EPS"), headline EPS, net asset value
("NAV") and net tangible asset value ("NTAV") per share.
The unaudited pro forma financial effects are the responsibility of the
directors and have been prepared for illustrative purposes only to provide
information about how the Acquisition may impact shareholders on the
relevant reporting date and because of its nature may not give a fair
reflection of the Company`s financial position, changes in equity, results
of operations or cash flows after implementation of the Acquisition or of
the Company`s future earnings.
Before the After the Change
Acquisition(1 Acquisition(2, (%)
) 3,4,5)
(cents) (cents)
EPS 19.2 3.86 (80)
Headline EPS 19.2 3.86 (80)
NAV per share (181.09) (181.09) -
NTAV per share (387.99) (532.40) (37)
Weighted average 46 555 46 555 -
shares in issue
(`000)
Shares in issue 65 479 65 479 -
(`000)
The financial effects are based on the following:
1. based on the published unaudited interim results of Kelly Group Limited for
the six-months ended 31 March 2007;
2. earnings and headline earnings effects are based on the following
assumptions:
(a) the Acquisition was effective 1 October 2006;
(b) he cash consideration of R 110 000 000 was financed by bank borrowings
incurring interest at 13,5% pa; and
(c) deferred tax has been raised at 29% on current year iChoice losses.;
3. NAV and NTAV effects are based on the following assumptions:
(a) the Acquisition was effective 31 March 2007 for balance sheet
purposes;
(b) the cash consideration of R 110 000 000 was financed by bank
borrowings incurring interest at 13,5% pa; and
(c) the Sellers will make good any net liability value prior to the
Acquisition;
4. a purchase price allocation exercise will need to be performed at the
effective date of the acquisition in terms of IFRS3: Business Combinations.
For purposes of the pro forma financial effects, the difference between the
carrying value of the assets and liabilities acquired has been allocated to
goodwill; and
5. the number of ordinary shares in issue and weighted number of shares does
not change as a result of the acquisition.
The negative change in the financial information provided above is due to
the nature of the call centre industry. Accordingly, the business incurred
losses during the first months of trading due to high setup costs.
3. EFFECTIVE DATE AND CONDITIONS PRECEDENT
The effective date of the Acquisition is the later of :
- the first business day after the fulfilment of the last of the
conditions; or
- 14 days after determination of the profits for the financial year
ending 31 December 2007; or
- receipt by the purchaser of signed audited financial statements for
the 12 months ending 31 December 2007.
The implementation of the Acquisition is subject to the fulfillment of the
following conditions precedent:
- the satisfactory completion of the due diligence by 28 February 2008;
- the Acquisition being unconditionally approved by the Competition
Commission and/or Competition Tribunal (as the case may be);
- supplier and customer approvals to extent necessary, or required by
Kelly Group in respect of a change of control in iChoices; and
- signature of Restraint Agreements by other key parties identified by
Kelly Group within 30 days of the signature of the Sale Agreement.
4. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Shareholders are advised that caution is no longer required to be exercised
by shareholders when dealing in their Kelly Group shares.
Sandton
14 November 2007
Merchant bank and sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Attorneys
Read Hope Phillips
Date: 14/11/2007 15:12:01 Produced by the JSE SENS Department.
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