| Fri 5 Mar 2010, 16:32 | | IQG - IQuad Group - Exercise Of Rights And Disposal By Iquad Of Its 60% Equity |
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IQG
IQG
IQG - IQuad Group - Exercise Of Rights And Disposal By Iquad Of Its 60% Equity
Stake In Entrepreneurs Survival Solutions (Pty) Limited
IQuad Group Limited
Incorporated in the Republic of South Africa
(Registration Number 2004/025177/06)
Share Code: IQG ISIN: ZAE000101622
("IQuad" or "the Company")
EXERCISE OF RIGHTS AND DISPOSAL BY IQUAD OF ITS 60% EQUITY STAKE IN
ENTREPRENEURS SURVIVAL SOLUTIONS (PTY) LIMITED
1. INTRODUCTION
Shareholders are referred to the SENS announcement of 31 January 2008 wherein it
was announced that IQuad had entered into a Subscription and Sale Agreement with
Messrs Dean Harding and Wayne van der Poll and had accordingly acquired a
combined 60% shareholding in Entrepreneurs Survival Solutions (Pty) Limited
("ESS") with effect from 1 March 2008, for a purchase consideration of
R6 100 000 discharged in a combination of cash and IQuad shares. Pursuant to the
Subscription and Sale Agreement, the ESS vendors warranted the consolidated
audited normalised profits after tax of ESS for the financial years ending 28
February 2009 to 28 February 2011 ("profit warranties").
The aforementioned profit warranties have not been achieved and therefore IQuad
has exercised its rights in terms of the Subscription and Sale Agreement
whereby:
1.1 cash in the amount of R2 660 000 previously held in escrow has been
released to IQuad on 28 February 2010 ("cash warranty"); and
1.2 subject to shareholder approval, the IQuad shares transferred to the
vendors will be re-acquired by IQuad, for no consideration, in terms of a
specific repurchase (shareholder approval will be sought to authorise the
specific repurchase in due course).
(collectively referred to as "profit warranty rights")
2. THE TRANSACTION
In addition to the aforementioned, shareholders are hereby advised that IQuad,
has entered into an memorandum of understanding ("MOU") with Messrs Dean Harding
and Wayne van der Poll or their nominee (collectively hereafter referred to as
"the Purchasers"), dated 24 February 2010 ("the agreement"), in terms of which
IQuad will dispose of its 8 275 ordinary shares in ESS , which constitute
IQuad`s 60% interest in ESS, on the terms set out below ("the disposal"). The
terms of the MOU will be incorporated into a purchase and sale agreement
("Agreement"). In the event that the Agreement contains any requirements not
contained in the MOU, then both IQuad and the Purchasers shall have the option
of cancelling the MOU, should an independent expert agree that such change is
significant enough to warrant the cancellation.
3. BUSINESS OF ESS
ESS is a Durban based provider of small and medium enterprises ("SME") support
services throughout KZN. Their services are mainly focussed on Business
Development, Training and BBBEE consulting and verification.
4. BACKGROUND INFORMATION ON THE PURCHASERS
The purchasers are part of the management team of ESS and executive directors on
the board of ESS.
5. RELATED PARTY TRANSACTION
The Purchasers are both directors of a subsidiary of IQuad, however as the
categorisation of the disposal is less than 10%, the disposal is not regarded as
a related party disposal in terms of rule 21.11(a) of the Listings Requirements.
6. RATIONALE FOR THE TRANSACTION
IQuad acquired a controlling interest in ESS during 2008 as a strategic
diversification into the development of SME`s, following Governments continued
focus in this area. ESS is a major regional (Kwazulu Natal) player in this arena
and the opportunity existed to nationalise the ESS business model. However
significant changes in Government policy relating to the funding of
entrepreneurial development have had a negative impact on ESS`s business model
and therefore the board has resolved to exit IQuad`s investment in ESS.
7. THE EFFECTIVE DATE OF THE TRANSACTION
The effective date of the disposal will be 1 December 2009.
8. PURCHASE CONSIDERATION
The consideration payable by the Purchasers to IQuad in terms of the agreement
is R3 000 000 ("sale proceeds") and same has been / will be paid on the
following basis:
8.1 an amount of R1 000 000 was paid within 5 days of MOU being signed;
8.2 an amount of R1 000 000 was paid on 28 February 2010; and
8.3 the balance of the purchase consideration, being R1 000 000, will remain
outstanding as a loan repayable by the Purchasers prior to the end of February
2012, subject to acceptable security being provided, which includes a cession of
20% of the ESS equity. This loan will accrue interest at prime plus two percent.
9. OTHER SIGNIFICANT TERMS OF THE AGREEMENT
Other significant terms of the disposal include the following:
9.1 IQuad is to be released from the surety it has signed on behalf of ESS with
ABSA bank for an overdraft security in the amount of R600 000, by 31 May 2010.
In the event that the surety is not released the Purchasers will place an amount
of R600 000 in escrow as security for IQuad`s potential liability. In the event
that the Purchasers fail to place the amount in escrow or fail to release IQuad
from the said surety by 31 August 2010:
9.1.1 IQuad is entitled to claim a break fee of R600 000 from the
Purchasers; and/or
9.1.2 reverse the disposal, in which event IQuad will repay any amounts paid
to it, without interest, and take ownership of the 60% equity interest in ESS.
9.2 Should the loan not be paid in full by 29 February 2012, IQuad will be
entitled to exercise the security furnished for the loan, thereby taking up 20%
of the equity of ESS.
9.3 IQuad has exercised its rights in terms of the Profit Warranties.
10. APPLICATION OF THE SALE PROCEEDS
The sale proceeds will be applied primarily towards meeting current and future
obligations of the Company and to further organic growth within the IQuad group.
11. CONDITIONS PRECEDENT
There are no outstanding conditions precedent in terms of the agreement.
12. PRO FORMA FINANCIAL EFFECTS
The pro forma financial effects of the disposal are presented for illustrative
purposes only and because of their nature may not give a fair reflection of the
Company`s financial position nor of the effect on future earnings after the
disposal.
Set out below are the unaudited pro forma financial effects of the disposal,
based on the unaudited interim results for the period ended 31 August 2009. The
directors of Iquad are responsible for the preparation of the unaudited pro
forma financial information.
Unaudited Pro Forma Change Pro Forma Change
before the after profit after the
disposal warranty disposal
(Cents per rights
share)
Basic earnings 16.7 17.5 4.8% 20.2 15.4%
per share
Basic headline 16.8 17.6 4.8% 19.5 10.8%
earnings per
share
Net asset value 470.8 471.6 0.2% 472.4 0.2%
per share
Net tangible 116.7 128.6 10.2% 138.2 7.5%
asset value per
share
Weighted number 27 979 27 382 (2.1%) 27 382 0.0%
of shares in
issue (`000)
Number of 27 979 27 382 (2.1%) 27 382 0.0%
shares in issue
(`000)
Notes and assumptions:
1. The basic earnings per share and basic headline earnings per share figures
in the "Pro Forma after profit warranty rights" and the "Pro Forma after the
disposal" columns have been calculated on the basis that the exercise of the
profit warranty rights and the disposal were effected on 1 March 2009.
2. The net asset value per share and the tangible net asset value per share
figures in the "Pro Forma after profit warranty rights" and the "Pro Forma after
the disposal" columns have been calculated on the basis that the exercise of the
profit warranty rights and the disposal were effected on 31 August 2009.
3. The "Pro Forma after the disposal" column reflects the exclusion of net
loss after tax of R387.4 thousand from ESS attributable to IQuad and a profit
after tax on disposal of ESS amounting to R205.2 thousand.
4. Interest on the cash warranty and purchase consideration received has been
calculated based on the ruling prime interest rate from time to time. The
taxation rate applicable is assumed to be 28%.
5 March 2010
Designated Adviser
PSG Capital (Pty) Limited
Date: 05/03/2010 16:32:02 Produced by the JSE SENS Department.
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