| Thu 14 Feb 2008, 15:04 | | KEL - kelly group limited - acquisition by m squared consulting, inc. (a |
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KEL
KEL
KEL - kelly group limited - acquisition by m squared consulting, inc. (a
delaware corporation and a subsidiary of kelly group) ("m squared") of the class
b common stock of m squared representing 10% of the entire issued share capital
of m squared ("the sale shares") from certain members of management of m squared
("management shareholders") ("the acquisition")
KELLY GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1999/026249/06)
ISIN: ZAE000093373
Share Code: KEL
("Kelly Group")
ACQUISITION BY M SQUARED CONSULTING, INC. (A DELAWARE CORPORATION AND A
SUBSIDIARY OF KELLY GROUP) ("M SQUARED") OF THE CLASS B COMMON STOCK OF M
SQUARED REPRESENTING 10% OF THE ENTIRE ISSUED SHARE CAPITAL OF M SQUARED ("the
sale shares") FROM CERTAIN MEMBERS OF MANAGEMENT OF M SQUARED ("management
shareholders") ("the acquisition")
1. INTRODUCTION
Shareholders are advised that pursuant to the private placement circular issued
in respect of the listing of Kelly Group, shareholders were advised that Kelly
Group would in due course and after its listing, pursue the repurchase of the
sale shares so as to constitute Kelly Group as the sole shareholder in Kelly
Group`s international subsidiary, M Squared.
Kelly Group and the management shareholders have reached agreement on the terms
of the acquisition of the Sale Shares and the directors of Kelly Group intend to
proceed with the acquisition to acquire the remaining minority interests in M
Squared, currently held by Alexander Dodd ("Dodd") an alternate director of
Kelly Group and a shareholder and director of M Squared, and Russel Orelowitz
("Orelowitz"), a shareholder and director of M Squared, and other management and
shareholders of M Squared in exchange for varying combinations of cash and
shares in Kelly Group.
2. THE ACQUISITION
2.1 Rationale
The acquisition constitutes the implementation of an agreement in principal
reached with the management shareholders, prior to listing, to constitute Kelly
Group as the sole shareholder in M Squared.
2.2 Terms of the acquisition and purchase consideration
M Squared will repurchase the sale shares for the aggregate gross purchase
consideration of US$3.026 million with effect from 31 January 2008. The purchase
consideration will be reduced by an amount of US$197 689 (plus interest of US$4
392) owing by the management shareholders in terms of promissory notes they
issued to M Squared for the original purchase of the sale shares by them ("the
promissory notes"). 50% of the value of the promissory notes will be deducted
from the original cash payment and the balance due on the promissory notes will
be discharged at the same time, and in the same proportions, as the Kelly Group
shares are released from the restrictions imposed on the disposal thereof as set
out below.
US$2 046 million (being the US dollar value of the 1 429 757 shares to be
delivered) of the purchase consideration will be discharged by M Squared
procuring the delivery of 1 429 757 listed shares in Kelly Group Limited ("Kelly
shares") to the management shareholders, 1 092 460 of which will be subject to
the following restrictions:
50% can be sold after 30 April 2008; and
50% of the balance after 30 April 2009,
provided that the Kelly shares will be released from any restrictions in the
event that Kelly Group ceases to be the majority shareholder in M Squared or M
Squared disposes of its business. The balance of the consideration is payable
in cash.
2.3 The business of M Squared
M Squared is a professional services firm providing interim management solutions
to clients across all industries. Since its formation in 1988, M Squared has
successfully completed more than 3 000 projects for over 500 clients. It
operates from San Francisco, Los Angeles, San Diego and the Silicon Valley
helping companies, ranging from start-ups to Fortune 500s, achieve their
business objectives. Some of these clients have included Cisco Systems, Wells
Fargo Bank and the Union Bank of California.
M Squared is also the parent company of a wholly owned subsidiary Collabrus Inc.
Collabrus provides consultant compliance services. It focuses on risk management
services for independent contractors that include pay and management functions.
Collabrus offers the following services:
mitigation of tax and co-employment risk, including compliance and consultant
due diligence, and background checks;
project management, including time and milestone tracking;
payroll services, including W-2 pay classifications and benefit plans;
access to an exclusive network of top consultants through their affiliation with
M Squared.
2.4 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
Kelly Group`s financial position, changes in equity, results of operations or
cash flows after implementation of the acquisition or of the Kelly Group`s
future earnings.
Before After Change
the the (%)
acquisition(1) acquisition
(cents) (2,3,4,5)
(cents)
EPS 78.42 79.88 1.86
Headline EPS 78.46 79.92 1.86
NAV per share 207.81 207.81 0.00
NTAV per share 63.26 46.54 (26.44)
The financial effects are based on the assumptions set out below:
1. Based on the audited results of the Kelly Group for the year ended 30
September 2007.
2. Earnings and headline earnings effects are based on the following
assumptions:
a. the acquisition was effective 1 October 2006;
b. the net purchase consideration of US$2.824 million was financed from
existing USA cash resources earning interest at 1.5% and;
c. the purchase consideration was translated at the exchange rate at 30
September 2007 (R6.9219:US$1) and income statement minorities were
converted at the average exchange rate for the 2007 financial year
(R7.2085:US$1).
3. NAV and NTAV effects are based on the following assumptions:
a. the acquisition was effective 30 September 2007;
b. the purchase consideration was translated at the exchange rate at
(R6.9219:US$1)
The number of ordinary shares in issue and weighted number of shares does not
change as a result of the acquisition;
The acquisition is not a business combination as defined in IFRS 3. The
acquisition was treated on the "parent equity method".
3. SMALL RELATED PARTY TRANSACTION
As Dodd is both an alternate director of Kelly Group and a director of M Squared
and Orelowitz is a director of M Squared, the acquisition constitutes a small
related party transaction under Section 10.7 of the Listing Requirements of the
JSE Limited and requires a fairness opinion confirming that the acquisition is
fair to Kelly Group shareholders.
As a consequence, Merchant Sponsors (Proprietary) Limited and Grant Thornton,
were appointed as joint experts ("the joint experts") to advise the board of
Kelly Group on the fairness of the acquisition.
The joint experts have confirmed that the acquisition is fair and their joint
opinion is available for inspection by Kelly Group shareholders at Kelly Group`s
registered office, 6 Protea Place, Sandton, Johannesburg, for 28 days commencing
from 14 February 2008.
Sandton
14 February 2008
SPONSORS TO KELLY GROUP JOINT EXPERTS TO KELLY GROUP
RAND MERCHANT BANK BOARD
(A division of FirstRand GRANT THORNTON
Bank Limited) 137 Daisy Street
cnr Grayston Drive
Sandown, 2196
ATTORNEYS TO KELLY GROUP MERCHANT SPONSORS
READ HOPE PHILLIPS ATTORNEYS (PROPRIETARY) LIMITED
2nd floor 2nd Floor, North Wing
30 Melrose Boulevard HydePark Shopping Centre,
Melrose Arch JanSmuts Avenue
Sandton, 2196
ATTORNEYS TO MSQUARED
FARELLA BRAUN + MARTEL LLP
Russ Building
235 Montgomery Street
San Francisco, CA
Date: 14/02/2008 15:04:03 Produced by the JSE SENS Department.
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