| Wed 29 Jan 2003, 10:24 | | MGX Holdings Limited - MGX final strategic review |
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MGX HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1983/012697/06)
Share code: MGX
ISIN: ZAE000009262
("MGX" or "the Group")
STRATEGIC REVIEW AND CAUTIONARY ANNOUNCEMENT
Preliminary report to shareholders
In an announcement dated 27 November 2002, shareholders were advised that Peter
Flack had been appointed as executive chairman and interim chief executive
officer to head a strategic review of MGX and that FRM Strategies ("FRM") had
been retained as an advisor to the Group; Antony Ball, chief executive officer
of Brait, and Roy Midlane (financial director) were also appointed to the board
of MGX. At the same time, the board cautioned that MGX`s results for the six
months ended 30 December 2002 were likely to be significantly worse than those
for the previous six months.
Preliminary findings
After a thorough investigation of the Group, the review team has concluded that
MGX`s businesses are generally solid with sound management, and that its
difficulties stem from problems at the centre. These can broadly be described
as follows:
* the Group has suffered a number of serious reputational setbacks, notably
the disputed ruling by the Securities Regulation Panel ("SRP") regarding
the acquisition of EC-Hold Limited ("EC-Hold"); the acrimonious split with
its former empowerment partner, Motswedi; and the continuing forensic audit
into the acquisition of Computer Configurations Holdings Limited ("CCH");
and
* the Group has suffered from a general lack of leadership, direction and
control.
In addition to these, the Group had a pressing and immediate problem in that its
cash flow could not service its debt, currently standing at approximately R550
million.
Remedial actions
* Funding pressures have been temporarily eased through a R100 million term-
syndicated loan from a consortium of banks.
* A thorough analysis has confirmed that the Group`s subsidiaries are in
reasonably good shape, with effective leadership, coherent strategies and
well-established businesses, subject to the normal commercial vicissitudes
of a crowded market.
* Negotiations to sell some of these businesses are progressing, and the
process is being conducted by Standard Corporate and Merchant Bank to ease
the pressure on the management teams of these businesses.
* The previously rudimentary accounting function at the centre has been
strengthened.
* Financial reporting systems throughout the Group have been standardised and
are being monitored strictly.
* Monthly board meetings have been instituted at the corporate as well as the
operational level.
* An executive committee - comprising the divisional managing directors, the
financial director, the principals of FRM and a representative of Brait -
has been established and meets on a weekly basis.
* Appropriate black empowerment partners have been identified by each of the
subsidiaries and discussions are in progress with respect to three of them.
* The forensic audit of the CCH acquisition has been completed and the Group
has been advised that no purpose will be served in proceeding with this
matter.
* The SRP has been approached regarding a process for resolving the EC-Hold
matter.
The next stage
It is the team`s intention to achieve the following during the period between
now and June:
* Conclude the sale of certain businesses at favourable prices.
* Proceed with strategic planning for the remaining businesses, which will
effectively constitute a new MGX, and submit plans and budgets to the board
by June.
* Resolve the EC-Hold matter satisfactorily.
* Introduce value-adding black empowerment partners at subsidiary level.
* Achieve a clearer understanding of the Group`s cash flow drivers.
Objectives and outcomes
If all goes according to plan, MGX will by June be restructured as a smaller
business but one, which is profitable and has a positive cash flow. While the
proposed sale of some operations will lighten the debt burden considerably, it
will still be too heavy for the reconstituted group to bear. The following
options will therefore have to be considered at that stage:
* the recapitalisation of the Group through a rights offer;
* the sale of further businesses; or
* the sale of all remaining assets and the distribution of the proceeds.
The interim results
The results for the six months to December 2002 will be published during the
last week of March. Shareholders will be informed of significant corporate or
operational developments should any occur before then.
Cautionary announcement
Shareholders are advised that the current negotiations and developments referred
to above may have a material effect on the MGX share price. Shareholders are,
therefore, advised to exercise caution when dealing in their MGX shares until a
further announcement is made in this regard.
Midrand
29 January 2003
Sponsor
Standard Corporate and Merchant Bank
(A division of The Standard Bank of South Africa Limited)
(Registration number 1962/000738/06)
Date: 29/01/2003 10:00:00 AM Produced by the JSE SENS Department
