| Wed 12 Dec 2007, 10:42 | | HUG - Huge - Pro forma financial effects of the acquisition of Italk Cellular |
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HUG
HUG
HUG - Huge - Pro forma financial effects of the acquisition of Italk Cellular
(Proprietary) Limited
HUGE GROUP LIMITED
(Incorporated in the Republic of South Africa)
(formerly Vanquish Fund Managers Limited)
(Registration number 2006/023587/06)
Share code: HUG & ISIN: ZAE000102042
("Huge" or "the Company")
PRO FORMA FINANCIAL EFFECTS OF THE ACQUISITION OF ITALK CELLULAR (PROPRIETARY)
LIMITED
1. INTRODUCTION
Huge announced on SENS on 23 November 2007 that it had entered into a binding
agreement ("the iTalk Acquisition"), to acquire 59% of the issued share capital
and claims on loan account in iTalk Cellular (Proprietary) Limited ("iTalk"),
with effect from 1 March 2007, from the Bebinchand Seevnarayan Trust ("Trust").
The proposed transaction remains subject to the conditions precedent set out in
paragraph 4 below.
2. PRO-FORMA FINANCIAL EFFECTS
Set out in the table below are the pro forma financial effects of the iTalk
Acquisition, which has been prepared for illustrative purposes only, to provide
information about how the iTalk Acquisition might have affected the financial
information presented in respect of Huge`s results for the six months ended 31
August 2007. The pro forma financial effects, because of their nature, may not
give a true reflection of the financial position of Huge. The pro forma
financial effects are the responsibility of the directors of Huge.
Before the After the Percentage
iTalk iTalk Change (%)
Acquisition Acquisition
Basic earnings per
share (cents) 3.50 8.30 137
Headline earnings
per share (cents) 3.49 8.30 138
Net asset value per
share (cents) 266.03 225.13 (15)
Tangible net asset
value per share (cents) 163.20 171.85 5
Total number of shares in issue
as at 31 August 2007(`000) 100 000 193 000 93
Weighted average number
of shares in
issue as at
31 August 2007(`000) 59 178 152 178 157
Notes:
i) The earnings and headline earnings per Huge share, as set out in the
"Before the iTalk Acquisition" column of the table, are based upon the
unaudited financial results of Huge for the six months ended 31 August
2007. Huge operates through its only subsidiary, Huge Telecom
(Proprietary) Limited ("Huge Telecom") (formerly TelePassport (Proprietary)
Limited). The results for the six months ended 31 August 2007 represent a
single month of trading from Huge Telecom. Furthermore, these results do
not incorporate the acquisition of CentraCell (Proprietary) Limited
("CentraCell").
ii) The earnings and headline earnings per Huge share, as set out in the "After
the iTalk Acquisition" column of the table, are based upon the unaudited
financial results of Huge for the six months ended 31 August 2007, to which
the unaudited results as per the management accounts of iTalk for the six
months ended 31 August 2007 are added, and the assumptions that:
- Huge operates through its only subsidiary, Huge Telecom. The results
for the six months ended 31 August 2007 represent a single month of
trading from Huge Telecom. Furthermore, these results do not
incorporate the acquisition of CentraCell;
- the iTalk Acquisition was effective from 1 March 2007;
- the purchase consideration was settled on 1 March 3007 through the
issue of 93 000 000 Huge shares ("Vendor Shares") at an issue price of
550 cents per share;
- the effective tax rate is 29%;
- there was no impairment of goodwill arising from the iTalk
Acquisition.
iii) The net asset value and tangible net asset value per Huge share, as set out
in the "Before the iTalk Acquisition" column of the table, are based on the
unaudited balance sheet of Huge as at 31 August 2007;
iv) The net asset value and tangible net asset value per Huge share, as set out
in the "After the iTalk Acquisition" column of the table, are based on the
unaudited balance sheet of Huge as at 31 August 2007, to which the
unaudited balance sheet as per the management accounts of iTalk as at 31
August 2007 are added, and the assumptions that:
- The iTalk Acquisition was effective 31 August 2007;
- The Vendor Shares were issued on 31 August 2007.
3. RATIONALE FOR THE iTALK ACQUISITION
In keeping with the future strategy of the company, the directors of the Huge
Group have identified various growth opportunities within the telecommunications
market.
iTalk fits perfectly with the vision of Huge to leverage its brand and increase
its points of presence throughout South Africa and augments a strong corporate-
based managed telecommunications business with that of a consumer related
telecommunications business with strong brand credentials. The annuity revenue
base and earnings of Huge is expected to be enlarged by the transaction with
iTalk.
iTalk does not focus on the cellular least cost routing (CLCR) industry and as
such the business of iTalk will complement the existing business of Huge, as
well as assist in diversifying certain business risks of Huge relating to mobile
termination rates.
iTalk will facilitate aggressive growth by Huge in Kwa-Zulu Natal where the
presence of Huge in the corporate market is modest.
The presence of Huge in the Cape Province and Gauteng is significant and this is
expected to assist iTalk in gaining significant market share in these areas.
Certain costs currently being incurred by iTalk and related to advertising,
marketing and promotional costs will be significantly reduced in future periods,
which amounts to R23 million for the current period. Significant margin
enhancement is anticipated from the iTalk Acquisition as the group will now be
in possession of a Service Provider license. The benefits accruing in respect
of the cost reductions and margin enhancement have not been incorporated into
the pro-forma effects set out above.
4. CONDITIONS PRECEDENT
The iTalk Acquisition remains subject to a number of suspensive conditions:
- The conclusion of a due diligence by Huge of the business of iTalk;
- The conclusion of a comprehensive sale agreement in respect of the
shares and claims;
- The consent of Mobile Telephone Networks Holdings (Proprietary)
Limited to the change in control of iTalk;
- Final and unconditional approval for the implementation of the iTalk
Acquisition in terms of the Competition Act, 89 of 1998;
- All other statutory or regulatory approvals as may be necessary,
including the approval of the JSE.
5. DOCUMENTATION
In terms of the Listings Requirements of the JSE Limited, the iTalk Acquisition
is regarded as a Category 1 transaction that will require shareholder approval
by way of a circular to be sent to shareholders. Due to the closure of the JSE
for formal documentation submission for the period 12 December 2007 until 8
January 2008, it will not be possible for the company to post a circular to
shareholders within the 28 day period prescribed by section 9.20 (b) of the JSE
Listings Requirements. The company shall endeavour, however, to comply with
this requirement as soon as is practically possible, but by no later than 31
January 2008.
6. FURTHER ANNOUNCEMENTS
Further announcements will be made on SENS as soon as any of the remaining
outstanding conditions precedent have been fulfilled or waived, as the case may
be.
Johannesburg
12 December 2007
Corporate Advisor
Manhattan Equity Corporate Finance (Proprietary) Limited
Designated Advisor
Arcay Moela Sponsors (Proprietary) Limited
Registered office:
Block 2, Woodlands Drive Office Park, 5 Woodlands Drive, Woodmead, Johannesburg,
2191 (PO Box 16376, Dowerglen, 1610)
Transfer secretaries
Computershare Limited, Ground Floor, 70 Marshall Street, Johannesburg
Directors:
EF Lediga*, BA McQueen*, AD Potgieter (CEO), JC Herbst (FD), MR Nordien, VM
Mokholo
*Non-executive
Date: 12/12/2007 10:42:24 Produced by the JSE SENS Department.
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