| Tue 20 Nov 2007, 17:41 | | PAL - Pals - Disposal of the operating subsidiary |
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PAL
PAL
PAL - Pals - Disposal of the operating subsidiary of pals and withdrawal of
cautionary announcement
PALS HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1987/002753/06)
Share Code: PAL
ISIN: ZAE000005237
("Pals" or "the Company")
DISPOSAL OF THE OPERATING SUBSIDIARY OF PALS AND WITHDRAWAL OF CAUTIONARY
ANNOUNCEMENT
INTRODUCTION
Shareholders are referred to the cautionary announcements published on SENS on
12 September 2007, 31 October 2007 and 8 November 2007 and in the press on 14
September 2007. Shareholders are advised that the Company has concluded a
merger and acquisition process and has received an offer from AD-Style CC
("the Purchaser") which is owned by Ron Stockdale who is a related party in
terms of the JSE Limited`s ("JSE") Listings Requirements, to purchase the
interest of the Company in its operating subsidiary, Pals Clothing (Pty)
Limited ("Pals Clothing").
Shareholders are hereby advised that the Company has entered into an agreement
("the sale agreement") on 16 November 2007 ("signature date") with the
Purchaser, in terms of which the Company sold its entire shareholding
(constituting 100% of the issued shares) in its operating subsidiary, Pals
Clothing to the Purchaser for a total cash consideration of R3 500 000 ("the
sale consideration"), subject to the fulfilment of the suspensive conditions
set out below ("the transaction"). The effective date of the transaction is
the 3rd business day after the fulfilment or waiver of the suspensive
conditions which is expected to be early January 2008.
In terms of the sale agreement, Pals is providing warranties in relation to
the shares in Pals Clothing which are standard for transactions of this nature
to the Purchaser, but is not providing any warranties as to the future
financial performance of Pals Clothing.
BACKGROUND ON PALS CLOTHING
Pals Clothing is involved in the business of manufacturing mens and ladies
formal wear for national and export markets under a variety of labels. It
supplies the major national chains and independent retailers throughout the
country with a selection of ranges from classic to fashion garments.
RATIONALE
As a result of the losses experienced by Pals Clothing through June 2007 and
its future prospects, the board of directors of Pals reviewed its investment
in Pals Clothing with the help of various professionals.
This review included a review of turnaround options, a wind down or
liquidation and the sale of all or part of the business. After the completion
of a two month formal merger and acquisition process, it was decided that the
sale of the business to Ron Stockdale
was the most desired option for all stakeholders.
After the completion of the transaction, Pals will become a small cash shell
and will have six months after the classification as a cash shell, to enter
into an agreement and make an announcement relating to the acquisition of
viable assets that satisfy the conditions for listing as per the JSE Listings
Requirements. Failure to do so will result in the suspension of its shares on
the JSE.
The board of directors of Pals is considering the possible distribution of the
net proceeds of the transaction to shareholders.
SETTLEMENT OF THE SALE CONSIDERATION
The consideration payable by the Purchaser will be settled as follows:
* A deposit of R750 000 payable to the Company`s attorneys on the
signature date of the agreement and released to the Company on the
effective date;
* R500 000 payable before 31 March 2008; and
* The balance will be paid by means of 20 equal monthly installments
of R112 500 each, payable on the last business day of each month
commencing in April 2008 and terminating in November 2009.
Interest is payable by the Purchaser at the prime rate on the balance due
after paying the deposit.
SUSPENSIVE CONDITIONS
The transaction is subject to fulfillment of the following suspensive
conditions, all of which must be fulfilled by no later than 60 working days
after the signature date:
* approval by shareholders in general meeting;
* Pals Clothing concludes new executive service agreements with
certain key executives or reaches agreement with them to terminate
their existing service agreements, as the case may be, on terms
reasonably acceptable to the Purchaser;
* Pals Clothing concludes a new lease agreement with the landlord of
the premises currently occupied by it at 97 Durham Avenue, Salt
River, on terms reasonably acceptable to the Purchaser;
* the Purchaser procures that Pals is released from certain
suretyships granted by it to secure the financial obligations of
Pals Clothing; and
* Regulatory approvals.
INDEPENDENT OPINION
The transaction constitutes an affected transaction in terms of the Securities
Regulation Code on Takeovers and Mergers ("SRP") and is a related party
transaction in terms of the JSE Listings Requirements and therefore requires
an independent opinion. Mazars Moores Rowland Corporate Finance (Pty) Limited
has been appointed by the board of directors of Pals, as an independent expert
to provide such opinion which will be included in the circular to
shareholders.
FINANCIAL EFFECTS OF THE TRANSACTION
Set out in the table below are the pro forma financial effects of the
transaction based on Pals` published reviewed financial results for the year
ended 30 June 2007. The pro forma financial effects have been prepared for
illustrative purposes only to provide information on how the transaction may
have impacted on the results and financial position of Pals. Because of their
nature, the pro-forma financial effects may not give a true picture of Pals`s
financial position after the transaction.
The directors of Pals are responsible for the preparation of the pro forma
financial effects.
Before the After the Percentage
transaction transaction change
(cents) (cents) (%)
Loss per share (Note 1) 68.9 196.9 186
Headline loss per share (Note 1) 68.9 15.2 (78)
Net asset value per share (Note 2) 150.1 23.4 (84)
Net tangible asset value per share 150.1 23.4 (84)
(Note 2)
Notes:
1. The amounts in the "Before" column represent the reviewed loss and
headline loss per share as disclosed in the reviewed financial results
for the year ended 30 June 2007. The amounts in the "After" column
represent the loss per share and headline loss on the assumption that the
transaction was effective from 1 July 2006.
2. The amounts in the "Before" column represent the net asset value and net
tangible asset value per share as disclosed in the reviewed financial
results for the year ended 30 June 2007. The amounts in the "After"
column represent the net asset value and net tangible asset value per
share based on the reviewed financial results for the year ended 30 June
2007 adjusted for the transaction, had it been effected on 30 June 2007.
3. Transaction costs of R1.3m have been provided for in the above financial
effects. Included in these costs are a potential liability of up to
R840,000 relating to certain executives.
4. The current indebtedness of Pals to Pals Clothing ("the Pals
indebtedness") shall be discharged by means a of a set-off against the
loan claim of the Pals Holdings Share Trust against Pals Clothing (which
claim shall be ceded to Pals), and the set-off of the balance of the Pals
indebtedness against the claim of Pals against Pals Clothing for payment
of a dividend to be declared by Pals Clothing prior to the Effective
Date. To the extent that Pals Clothing is precluded from declaring such
dividend, the Purchaser shall assume the liability of Pals to pay the
balance of the Pals indebtedness to Pals Clothing.
DOCUMENTATION
A circular containing details of the transaction, including a notice of a
general meeting, will be posted to shareholders in due course.
CAUTIONARY ANNOUNCEMENT
Shareholders are advised that the cautionary is hereby withdrawn.
Cape Town
20 November 2007
Transactional Sponsor
Deloitte and Touche Sponsor Services (Pty) Limited
Attorneys
Edward Nathan Sonnenbergs
Independent advisor
Mazars Moores Rowland Corporate Finance (Pty) Limited
Reporting Accountants
Mazars Moores Rowland
Corporate Advisor
Deloitte and Touche Corporate Finance
Sponsor
Sasfin Capital
Date: 20/11/2007 17:41:15 Produced by the JSE SENS Department.
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