| Thu 14 Aug 2008, 17:26 | | KEL - Kelly Group Limited - Acquisition of Torque Holdings (Proprietary) Limited |
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KEL
KEL
KEL - Kelly Group Limited - Acquisition of Torque Holdings (Proprietary) Limited
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 TORQUE HOLDINGS (PROPRIETARY) LIMITED
1. INTRODUCTION
Shareholders are advised that Kelly Group ("the purchaser") has entered into an
agreement dated 12 August 2008 ("the sale agreement") with Mthunzi Mdwaba,
Gerhard de Beer, Carl Raath and Tebogo Makgatho ("the sellers") to purchase the
entire issued share capital of Torque Holdings (Proprietary) Limited and its
wholly owned subsidiaries ("Torque IT") ("the acquisition").
2. THE ACQUISITION
2.1 Rationale
The acquisition is in keeping with Kelly Group`s strategy of strengthening its
presence in the high-growth IT outsourcing and permanent placement sectors by
providing Kelly Group with a source of potential candidates through learnerships
and internships. The acquisition will complement the Kelly Group`s new ICT
division created by its flagship brand Kelly.
Torque IT is made up of three principal business operations viz, Torque
Technical Training, Torque Career Campus and Torque Africa.
Torque IT is a certified training partner for a number of international IT
brands such as Cisco Systems, Microsoft, Sun Microsystems, Novell, Red Hat and
VMWare, offering learnerships and outsourced training to a number of large
enterprises. Torque IT has delivered training solutions onsite for clients in
24 countries across Africa over the past two years and at present has two
franchises operating in Kenya and Angola.
2.2 Terms of the acquisition
In terms of the acquisition, Kelly Group will acquire all of the shares and
claims of the sellers in respect of Torque IT with effect from the effective
date, being the date of fulfilment of the last of the conditions precedent as
set out in 3 below.
2.3 The consideration
The acquisition consideration will be calculated in accordance with a formula
based on the audited financial statements of Torque IT for the 12 months ending
30 November 2008. The acquisition consideration is subject to an adjustment
based on Torque IT achieving free cash flow warranties for the years 2008, 2009
and 2010, provided that the total consideration payable by Kelly Group in
relation to the acquisition shall not exceed R37.85 million.
The acquisition consideration shall be discharged in tranches, in a combination
of cash and shares. The first tranche will be discharged in cash (R17.0 million)
and is payable on the effective date of the acquisition ("first tranche"). After
the determination of the profitability of Torque IT for the 2008 year, the
remaining consideration will be discharged by the payment of any additional cash
due ("second tranche"), and the delivery of all shares into escrow. The escrowed
shares ("consideration shares") will be released to the sellers in three equal
annual tranches seven days after the finalisation of the annual financial
statements ending 30 November 2009, 2010 and 2011 respectively and on condition
that (a) the sellers remain employed with Kelly Group and (b) the free cash flow
targets are achieved.
The number of Kelly Group shares to be issued to the sellers will be calculated
with reference to the greater of the 30-day volume weighted average price of
Kelly Group shares as at 30 November 2008, 2009 and 2010 respectively and R8.20
per Kelly Group share. In terms of the sale agreement, certain restrictions have
been placed on the sellers in relation to their ability to dispose of the
consideration shares. These shares are available from treasury stock arising
from repurchases from the open market in terms of Kelly Group`s general
authority to repurchase shares obtained at the last annual general meeting of
the company held on 15 February 2008.
The sale agreement does not contain any warranties that are unusual in
transactions of this nature.
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 based on the unaudited results
of the company for the six month period ended 31 March 2008.
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 have impacted 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 38.55 38.08 (1.2)
Headline EPS 38.55 38.08 (1.2)
NAV per share 176.32 176.32 -
NTAV per share 31.40 (9.07) (128.9)
Weighted average 95 413 95 413 -
shares in issue
(`000)
Shares in issue 93 482 93 482 -
(`000)
The financial effects are based on the assumptions set out below:
1. Based on the published unaudited interim results of the Kelly Group, for
the six months ended 31 March 2008.
2. Earnings and headline earnings effects are based on the following
assumptions:
a. the acquisition was effective 1 October 2007;
b. the net purchase consideration of R37.85 million was discharged as
follows:
* R17.00 million was settled in cash on 1 October 2007, and was financed
from existing cash resources and;
* R20.85 million was settled in both cash and shares on 1 April 2008,
and no adjustments to finance costs in the six month period have been
made; and
c. the effects of the acquisition have been based on unaudited management
accounts for Torque IT for the six months ended 31 March 2008, and have
been adjusted for certain accounting entries processed in the period,
relating to the prior period.
3. NAV and NTAV effects are based on the following assumptions:
a. the acquisition was effective 31 March 2008 for balance sheet purposes; and
b. the purchase consideration is first applied to shareholders` loans
acquired, and then to the shares in Torque IT.
4. The number of ordinary shares in issue and weighted number of shares does
not change as a result of the acquisition, as the shares delivered to the
sellers are available from treasury shares, re-purchased from the open
market in terms of the Kelly Group`s general authority to repurchase
shares.
5. 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.
3. CONDITIONS PRECEDENT
The implementation of the acquisition is subject to the fulfilment of the
following remaining conditions precedent:
- the approval by the JSE Limited ("JSE") of Torque IT`s articles of
association which will be amended in conformance with Schedule 10 of the
JSE Listings Requirements;
- that the acquisition is unconditionally approved by the Competition
Commission and/or Competition Tribunal, as the case may be;
- each of the sellers concludes service and restraint agreements with the
Kelly Group;
- the approval, to the extent necessary and required by the purchaser of the
change of control in Torque IT by those key customers and suppliers of
Torque IT identified by the purchaser; and
- all other actions and /or approvals of a legal and /or administrative
nature required to implement the acquisition being undertaken and /or
obtained.
Sandton
14 August 2008
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Attorneys
Read Hope Phillips
Date: 14/08/2008 17:26:22 Produced by the JSE SENS Department.
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