| Wed 25 Jun 2008, 15:33 | | KGM - Kagiso Media - Acquisition Of Urban Brew Studios (PTY) LTD And Withdrawal |
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KGM
KGM
KGM - Kagiso Media - Acquisition Of Urban Brew Studios (PTY) LTD And Withdrawal
Of Cautionary Announcement
Kagiso Media Limited
(Incorporated in the Republic of South Africa)
(Registration number 1957/000036/06)
Share code KGM ISIN ZAE 000014007
("Kagiso Media" or "the company")
ACQUISITION OF URBAN BREW STUDIOS (PTY) LTD AND WITHDRAWAL OF CAUTIONARY
ANNOUNCEMENT
Introduction
The board of directors of Kagiso Media is pleased to advise shareholders that
the company has entered into an agreement in terms of which it will acquire a
controlling interest in Urban Brew Studios (Pty) Ltd ("Urban Brew") from Mr.
Danie Ferreira and Mr. Zwelakhe Sisulu ("the sellers"), full details of which
are contained in this announcement ("the acquisition").
The acquisition is subject to the conditions precedent set out in paragraph 5
below.
Background on Urban Brew
Urban Brew is involved in the creation and distribution of audio visual content
on broadcasting platforms including but not limited to live and pre-recorded
television, concept development, content production, post production, editing
and broadcasting. It has a strong and successful history as one of the largest
audiovisual content production companies in South Africa and has strong
relationships in the emerging African broadcasting market.
Urban Brew operates from world class studios in Randburg from where it produces
flagship shows like Three Talk With Noleen, Yo TV and the Live Lotto Draw. It
also manages and produces the One Gospel Channel on the DSTV bouquet and has a
joint venture interest in Soweto Community TV.
Rationale for the acquisition
With a focus on making the Kagiso Media group a content rich company in the face
of proliferating platforms with an insatiable appetite for content, Urban Brew
will play a key roll in providing Kagiso Media with access to visual media.
Every new platform that has emerged since the advent of television has evolved
into a medium that supports video. Today, mobile phones which are the
predominant device owned by consumers after radio; and the internet, which will
support content across platforms, are both rich in printed and visual media.
Urban Brew fits into the broadcast division`s strategy to become a content rich
organisation by offering access to visual content and media. Urban Brew is not
directly impacted by advertising revenue, hence provides a degree of
diversification of our revenue mix and is well positioned to take advantage of
platform convergence driven by technology.
Details of the acquisition
4.1 Kagiso Media will acquire a 50.1% interest in the issued share capital of
Urban Brew from the sellers on the terms as set out below:
An initial purchase consideration of R75.1 million to be settled in cash ("the
initial purchase consideration").
Kagiso Media is entitled to claw-back on the initial purchase consideration in
the event that Urban Brew fails to achieve a minimum growth in its sustainable
profit after tax of 12% per annum compounded annually for the 3 years ending 31
December 2010 ("targeted PAT"). The claw-back value will be based on 7.7 times
the difference between targeted PAT for the year ended 31 December 2010 and the
actual audited sustainable PAT for the year then ended. The sellers have pledged
their remaining shares in Urban Brew in favour of Kagiso Media as security for
the claw-back;
The sellers are entitled to an agterskot payment in the event that Urban Brew
outperforms the targeted PAT. The agterskot will be based on the difference
between actual sustainable PAT and targeted PAT multiplied by the highest of 7.7
or 62% of Kagiso Media`s PE at that time, the result of which may not exceed 9.
In no event may the agterskot payment be more than R125 million. Kagiso has the
option to settle up to 20% of the agterskot through the issue of Kagiso Media
shares while the balance will be settled in cash.
4.2 The sellers have agreed to enter into employment contracts with Urban Brew
for a 5 year period. The sellers have also agreed to enter into a shareholders
agreement with Kagiso Media which agreement makes provision for the lock-in of
the sellers` remaining shares for a period 5 years in the case of Mr. Ferreira
and 3 years in the case of Mr. Sisulu, restraint of trade undertakings in favour
of Urban Brew and Kagiso Media and pre-emptive rights in the event of the
disposal of shares in Urban Brew.
4.3 The sellers have given warranties that are normal for transactions of this
nature.
4.4 The effective date of the acquisition will be the first day of the month
following the fulfilment of the last condition precedent.
Conditions precedent
5.1 The acquisition is subject to inter alia the following conditions:
Approval of the acquisition by the Competition Tribunal;
Completion of a legal due diligence into the affairs of Urban Brew.
Financial effects
The table below sets out the pro forma financial effects of the acquisition on
Kagiso Media based on the interim financial statements of the company for the 6
months ended on 31 December 2007. These financial effects are the
responsibility of the directors of the company, are prepared for illustrative
purposes only and, because of their nature, may not fairly present the financial
position, changes in equity, results of operations or cash flows of the company
after the acquisition.
Before(1) After % change
Earnings per share (cps) 66.1 68.1(2) 3.1%
Headline earnings per share 66.1 68.1(2) 3.1%
(cps)
Diluted earnings per share 65.9 68.0(2) 3.1%
(cps)
Net asset value per share (cps) 289.0 289.0 0.0%
Net tangible asset value per (91.0) (139.3)(3) (53.2%)
share (cps)
Notes:
(1) Extracted from the interim results of Kagiso Media for the 6 months ended
3 December 2007
(2) The earnings, headline earnings and diluted earnings per share in the
after column have been based on an adjustment for interest for the 6 months
ended 31 December 2007 on the cash that will be utilised to settle the purchase
consideration which has been based on an after tax interest rate of 5.8% and
50.1% of Urban Brew`s attributable profit after tax for the 6 months ended 31
December 2007
(3) The net tangible asset value per share in the after column has been based
on an adjustment for Kagiso Media`s share in the consolidated net assets of
Urban Brew of R28.2 million as at 31 December 2007 and the excess of the
purchase consideration over the net asset value which has been allocated to
goodwill (R61 million) in anticipation of a purchase price allocation exercise
which will be completed in terms of IFRS 3: Business Combinations in due course.
Categorisation and withdrawal of cautionary
The acquisition is categorised as a category 2 transaction and this announcement
is issued in terms Rule 9.15 of the Listing Requirements of the JSE Limited.
Shareholders are referred to the cautionary announcements dated 29 April 2008
and 4 June 2008 and are advised that caution is no longer exercised in dealing
in the company`s securities.
By order of the board.
Johannesburg
25 June 2008
Sponsor Attorneys
Investec Barkers Attorneys
Transactional adviser to
Kagiso
Charles Orbach & Company
Corporate Finance (Pty) Ltd
Date: 25/06/2008 15:33:02 Produced by the JSE SENS Department.
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