| Fri 20 Jun 2003, 17:36 | | DISPOSAL OF BUSINESS TO NEWSHELF 716 (PROPRIETARY) |
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DISPOSAL OF BUSINESS TO NEWSHELF 716 (PROPRIETARY) LIMITED
INTRODUCTION
Further to the cautionary announcement published on 2 May 2003 and the
further cautionary announcement published on 13 June 2003, shareholders of the
company are advised that the company has concluded a written sale agreement
("sale agreement") with Newshelf 716 (Proprietary) Limited ("Newshelf")
(registration number 2003/011344/07), a subsidiary of J & J Financial Services
(Proprietary) Limited ("JJFS") (registration number 2001/025716/07), in terms of
which the company has, subject to certain suspensive and resolutive conditions
(referred to in 5 below), disposed of the entire business undertaking conducted
by it ("business") to Newshelf with effect from the date of fulfilment of the
last of the suspensive conditions ("disposal") for a purchase consideration of
R13 000 000.
DISPOSAL
2.1 The disposal of the business excludes all cash and bank balances of the
company (other than an amount of R1 500 000), the foreign exchange business of
the company previously disposed of (referred to in 8 below), all of the debtors
and creditors of the company and some of the company"s work-in-progress. The
business also excludes all of the company"s claims against third parties, which
includes the company"s claim against the City of Johannesburg in an amount of
R45 619 000, together with interest thereon, which amount is the subject of
ongoing arbitration proceedings between the company and the City of
Johannesburg.
2.2 The purchase consideration for the business is an amount of R13 000 000
("purchase consideration") which is subject to adjustment (as referred to in 2.4
below) which is to be settled by Newshelf as follows-
2.2.1 an amount of R1 000 000 is payable in cash on the first business day
following the fulfilment or waiver of the suspensive conditions ("effective
date");
2.2.2 the balance, being an amount of R12 000 000 is payable over a period
of three calendar years, commencing on the effective date, in amounts equal to
40% of the after tax profit generated by the business during each of the
calendar years over such three year period, with the balance, if any, payable
following the third anniversary of the effective date; and
2.2.3 an "agterskot" payment, equal to 15% of the cumulative after tax
profit of the business above R75 000 000, for the aforesaid threeyear period is
payable by Newshelf following the third anniversary of the effective date.
2.3 The obligations of Newshelf in respect of the purchase consideration
payable by it to the company have been guaranteed by JJFS.
2.4 Depending on the happening or non-happening of certain events, the purchase
consideration may be reduced, provided that any reduction in the purchase
consideration shall not be more than R3 000 000.
NATURE OF BUSINESS
3 The business operates as a provider of treasury and risk management
services primarily to the public sector.
4. RATIONALE FOR THE DISPOSAL
The company has been largely unable to attract sufficient new business during
the past fourteen-month period despite protracted and vigorous marketing
efforts. This inability to attract such new business is, in the main, ascribed
to insufficient black economic empowerment ("BEE") credentials that has either
disqualified the company or, alternatively, hindered the ability of the company
to attract such new business. The shareholdings of the company existing BEE
shareholders have reduced to significantly lower levels and Despite concerted
efforts by the board of directors of the company ("board") and management to
introduce a new BEE partner as a shareholder of the company, this has not been
achievable. Furthermore, the company"s BEE partnerships have not proved to be
as productive as originally envisaged. Accordingly, the board resolved to
dispose of the business as a going concern on the basis set out in the sale
agreement so as to negate any further operating losses that the company may
sustain going forward in the absence of new business. The executive committee of
the company has unanimously agreed to the disposal. The purchase consideration
will be applied by the company to increase its cash reserves.
CONDITIONS
5.1 The disposal is subject, inter alia, to the suspensive conditions that-
5.1.1 the company advertises the disposal in accordance with the provisions
of section 34 of the Insolvency Act 24 of 1936, as amended; and
5.1.2 the company obtains the approval from the counterparties to certain
key business contracts to which the company is a party, for the transfer of such
contracts to Newshelf, to the extent that such approval may be required.
5.2 The disposal is furthermore subject, inter alia, to the resolutive
conditions that-
5.2.1 the JSE Securities Exchange South Africa ("JSE") and the Securities
Regulation Panel ("SRP") approve of the disposal on the terms contained in the
sale agreement; and
5.2.2 the shareholders of the company approve of the disposal on the terms
contained in the sale agreement, in general meeting.
FINANCIAL EFFECTS
6.1 The net asset value attributable to the business as at 28 February 2003
amounts to R2 519 997, resulting in a profit of R10 480 003 on the disposal.
The net loss attributable to the business for the fourteen months ended 28
February 2003 amounted to R10 641 203.
6.2 The table below sets out the unaudited pro forma financial effects of the
disposal of the foreign exchange business (referred to in 8 below) and the
business. The unaudited proforma financial effects are provided for
illustrative purposes only. Because of their nature, the unaudited pro-forma
financial effects may not give a fair reflection of the company"s financial
position or the effect on its future income.
Before After % After % Change
(cents) disposa Change disposal of
l of the
Foreign business
Exchang (cents)
e
(1) Busines (3)
s
(cents)
(2)
Earnings (26,63) (18,80) 29,40 20,92 >100
(loss)
per
share
(EPS)
Headline (26,63) (25,33) 4,88 1,32 >100
earnings
(loss)
per
share
(HEPS)
Net 122,72 130,13 6,04 149,98 15,25
asset
value
per
share
(NAV)
Net 122,72 130,13 6,04 149,98 15,25
tangible
asset
value
per
share
(NTAV)
Notes:
1. The "before" column is based on the company"s audited preliminary
results for the fourteen months ended 28 February 2003, reflecting a loss of R14
262 929.
2. The sale of the foreign exchange business is assumed to be effective
on 1 January 2002 in calculating the proforma effects on EPS and HEPS and at 28
February 2003 in calculating the pro forma effects on NAV and NTAV. The loss
attributable to this business for the fourteen months ended 28 February 2003
amounted to R222 122. No net asset value was attributed to this business. It
has been assumed that the cash proceeds of the disposal earned interest at an
average rate of 11,5% per annum.
3. The sale of the business is assumed to be effective on 1 January 2002
in calculating the proforma effects on EPS and HEPS and at 28 February 2003 in
calculating the pro forma effects on NAV and NTAV. It has been assumed that the
cash proceeds of the disposal earned interest at an average rate of 11,5% per
annum.
4. The balance of the purchase consideration referred to in 2.2.2, being
an amount of R12 000 000, has not been adjusted to take into account the time
value of money effect.
AFFECTED TRANSACTION
7.1 The executive directors and other senior managers of the company will,
subsequent to the implementation of the disposal, participate in a share option
trust representing a 20% interest in Newshelf. The disposal may therefore be
classified as a related party transaction in terms of the Listings Requirements
of the JSE. The disposal is also an affected transaction as defined in the Code
on Mergers and Takeovers of the SRP. While none of the executive directors have
voted on the disposal nor have they been party to the negotiations in relation
to the disposal other than on due diligence matters and in relation to their
participation in Newshelf, they fully support the disposal.
7.2 The independent non-executive directors of the company will appoint an
independent advisor to advise shareholders on whether or not the terms of the
disposal are fair and reasonable and their report will be included in the
circular to shareholders referred to in 11 below.
PRIOR DISPOSAL OF THE FOREIGN EXCHANGE BUSINESS
On 28 May 2003, the company concluded a written sale agreement with PSG Treasury
Outsourcing (Proprietary) Limited ("PSGT") (registration number 1997/005801/07)
("PSGT sale agreement"). In terms of the PSGT sale agreement, the company
disposed of the foreign exchange business conducted by it to PSGT for a purchase
price of R3 500 000. PSGT made a cash payment of R2 000 000 to the company on 4
June 2003, and the balance, being an amount of R1 500 000, is payable by PSGT on
28 September 2003. The portion of the purchase price due for payment on 28
September 2003 is subject to the transfer of certain of the company"s contracts
to PSGT which, if not transferred, will result in a reduction in the purchase
price payable by PSGT on 28 September 2003, provided that such reduction shall
not exceed R1 500 000.
SHAREHOLDERS" APPROVAL IN GENERAL MEETING
Shareholders" approval for the disposal will be sought at a general meeting to
be held on a date to be advised in the circular to shareholders referred to in
11 below.
PROSPECTS
Following the disposal, the company will have no operating business, and
its only income will be from interest received on its cash balances. Over the
next three years the company will have a claim against Newshelf and/or JJFS for
the outstanding balance of the purchase consideration, in addition to its claim
against the City of Johannesburg, which the company will pursue vigorously. The
board has resolved not to apply for a termination of the listing of the company
or to suspend its trading on the JSE. The board is furthermore considering
various options with regard to the future prospects of the company.
CIRCULAR
Further details of the disposal will be included in a circular to
shareholders, which is in the process of being finalised and will be posted to
shareholders in due course.
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Shareholders are advised that, following the publication of this
announcement, caution in dealing in the company"s shares is no longer required.
Randburg
20 June 2003
Sponsor Attorney Reporting
Accountants
Exchange Sponsors Werksmans Ernst & Young
