| Thu 17 Mar 2011, 17:09 | | MOR - Morvest Business Group Limited - Acquisition of R and S Consulting |
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MOR
MOR
MOR - Morvest Business Group Limited - Acquisition of R and S Consulting
(Proprietary) Limited,withdrawal of cautionary announcement dated 25 February
2011 and renewal of cautionary dated 9 March 2011
MORVEST BUSINESS GROUP LIMITED
(Previously Simeka Business Group Limited)
(Incorporated in the Republic of South Africa)
(Registration No. 2003/012583/06)
Share code: MOR ISIN code: ZAE000152567
("Morvest" or "the Company")
ACQUISITION OF R AND S CONSULTING (PROPRIETARY) LIMITED,
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT DATED 25 FEBRUARY 2011 AND RENEWAL OF
CAUTIONARY DATED 9 MARCH 2011
1 Introduction and terms
Shareholders of Morvest are referred to the cautionary announcement dated 25
February 2011 and are advised that Morvest has entered into a sale of shares
agreement dated 16 March 2011 to acquire 50% plus one share of the issued share
capital of R and S Consulting CC ("R&S") on conversion of R&S from a CC to a
private company for a maximum consideration of R60 million ("the acquisition")
payable over a 4 year period, ending February 2014. The effective date of the
acquisition is 18 April 2011.
2 Background on the business of R&S
R&S is a leader in providing conceptual solutions, marrying the corresponding
enabling technologies and providing the execution capability to businesses
within the specific niche` of mobile data. As such, it has expertise in an array
of specialist disciplines that include GSM, RFID and smart card technologies.
R&S is the only entity of its kind on the continent that provides the delivery,
implementation and support of Mobile Data products and services as well as GSM
convergence technologies to mobile operators for the rollout of their mobile
data strategy as its core business.
With a highly experienced team in our technology implementation unit, R&S is
able to roll-out managed service solutions that encompass amongst others,
infrastructure deployment, software and hardware maintenance, GSM product
rollout and the associated support. To this end, R&S is a strategic partner to
leading entities in telecommunications industry for the rollout of 3G products
and services, Wimax, Assured rate services, ADSL, network trialing and various
other convergence products into the corporate and consumer marketplace.
R&S has been in business for over 6 years and is headquartered in Cape Town with
a national footprint.
3 Rationale for the acquisition
The acquisition is consistent with Morvest strategy to enhance its mobility
offerings to include data support services and the acquisition of R&S will
complement Morvest`s business in the ICT sector and strengthen its data support
services and objectives.
4 Settlement of the consideration
The purchase consideration payable to Mr R Vally and Ms S Kadwa ("the sellers")
for the acquisition is R60 million in cash and will be settled as follows:
* R15 million payable within 30 days from the date the Company`s auditors
confirm that the R&S 28 February 2011 profit after tax ("PAT") is not less
than R8 million ("initial payment"); and
* A payment of R15 million within 30 days following the issue of the audited
annual financial statements of R&S for the financial year ended 29 February
2012 evidencing a PAT exceeding R15 million ("second payment"); and
* A payment of R10 million within 30 days following the issue of the audited
annual financial statements of R&S for the financial year ended 28 February
2013 evidencing a PAT exceeding R20 million; and
* A payment of R10 million within 30 days following the issue of the audited
annual financial statements of R&S for the financial year ended 28 February
2014 evidencing a PAT exceeding R25 million. Furthermore, should the PAT
for the financial year ended 28 February 2014 exceed R30 million, a further
payment of R10 million will be payable to the sellers (collectively "the
purchase price").
Should the tangible net asset value of R&S increase by R3 million six months
after the initial payment has been made, Morvest shall make a payment of R2
million to the sellers, which will reduce the final payment by R2 million.
Should any of the annual PAT targets not be achieved within the abovementioned
periods, the amount payable for that specific period will not be payable but
will be carried over for the following 12 month period. Should the final PAT for
the combined periods ending 28 February 2014 be below R68 million, the purchase
price will be reduced proportionately.
5 Call Option
Morvest has granted the sellers a call option that in the event of non-payment
of any portion of the purchase price, the sellers may acquire an equal amount of
shares in R&S from Morvest in proportion to the amount of the purchase price
outstanding.
6 Financial Effects
The unaudited pro forma financial effects of the acquisition are set out below.
The unaudited pro forma financial effects have been prepared for illustrative
purposes only to provide information on how the acquisition may have impacted on
the results and financial position of Morvest. Preparation of the unaudited pro
forma financial effects is the responsibility of the directors. Because of
their nature, the unaudited pro forma financial effects may not fairly present
Morvest`s financial position after the acquisition or the effects on future
earnings:
Notes Before the After the Percentage
acquisition acquisition change
for the six %
months
ended
30 November
2010
Earnings per share 4.25 4.23 -0.50%
(cents)
Headline earnings 4.31 4.28 -0.70%
per share (cents)
Net asset value per 44.98 44.98 0%
share(cents)
Net tangible asset (1) 10.46 1.41 -86.53%
value per share(cents)
Number of shares in 535 411 535 411 0%
issue (`000)
Weighted average number 537 497 537 497 0%
of share in issue
(`000)
Notes and assumptions:
(1) In terms of IFRS 3 all contingent consideration needs to be recorded on
acquisition date however the full benefit of the profits to be realized in
terms of the profit warranty thus resulting in a (86,5%) negative impact on
the net tangible asset value.
(2) Key assumptions used
* R100 000 in respect of the cost of acquisition payment to specialists
which amount is considered a direct cost and charged directly to the
income statement.
* R407 000 Opportunity cost of interest revenue forfeited in relation to
the purchase consideration which would have been invested at 6% per
Morvest management.
* The purchase price of R60 million has been discounted to its present
value at current prime interest rate (9%). Thus the present value of
the purchase consideration is R50 181 232.
* The interest component which will be expensed up to 2014 amounts to R9
818 768.
* The interest unwound on the vendor liability for the 6 month period is
R1 583 155.
* Management has estimated that R & S will meet all of its profit
targets thus the fair value of the purchase consideration is R60
million before taking into consideration the time value of money.
7 Conditions precedent
The acquisition is subject to the fulfillment of the following conditions
precedent prior to the effective date:
- Conversion of R&S into a proprietary limited company;
- Conclusion of a shareholder agreement between Morvest and the sellers; and
- Obtaining of any regulatory approvals to the extent required.
8 Categorisation of the acquisition
The acquisition is a Category 2 transaction in terms of the JSE Limited Listings
Requirements and accordingly approval by Morvest shareholders is not required.
9 Withdrawal of cautionary announcement
Shareholders are advised that the cautionary announcement dated 25 February,
2011 which was regarding the R&S acquisition, has been withdrawn as a full terms
announcement has now been published on SENS with details of the pro forma
financial effects included in paragraph 6 above.
10 Renewal of cautionary announcement
Shareholders are however advised to continue to exercise caution when dealing in
the securities of the Company until the pro forma financial effects of the Mint
transaction which was announced on 9 March have been announced on SENS.
Johannesburg
17 March 2011
Designated Advisor and Corporate Advisor: Sasfin Capital
(A division of Sasfin Bank Limited)
Date: 17/03/2011 17:09:16 Produced by the JSE SENS Department.
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