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Labat - Disposal Of ECME Stores (Proprietary) Limited, Group Debt Restructuring
And Further Cautionary Announcement.
LABAT AFRICA LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1986/001616/06)
Share Code: LAB
ISIN: ZAE000018354
("Labat")
DISPOSAL OF ACME STORES (PROPRIETARY) LIMITED, GROUP DEBT RESTRUCTURING AND
FURTHER CAUTIONARY ANNOUNCEMENT
1. Introduction
Brait Corporate Finance, a division of Brait South Africa Limited, is
authorised to announce that Labat has concluded an agreement with Fluxrab
Investments No 111 (Proprietary) Limited ("Fluxrab") on Friday, 4 February
2005 to dispose of Acme Stores (Proprietary) Limited ("Acme Stores") to
Fluxrab, subject to certain suspensive conditions (set out in 6 below),
with effect from 1 November 2004 ("the Disposal").
2. Acme Stores
2.1 Labat was listed on the JSE Securities Exchange South Africa ("JSE"),
in June 1999, when its management consulting business was acquired by
Acrem Holdings Limited ("Acrem"), a company listed on the JSE in a
transaction that constituted a reverse take-over. Acrem was then
renamed Labat and transferred to the JSE"s Venture Capital Market.
Acme Stores was a subsidiary of Acrem and operated a network of retail
stores, granting credit sales for the purchase of a diversified range
of merchandise, including consumer electronics, appliances and
furniture.
2.2 At that time, the Labat board of directors ("the Board") pursued a
strategy of expanding the Acme Stores retail business and considered a
possible franchise system. That resulted in an initial expansion drive
where the Acme store outlets were complemented by the acquisition of
an additional chain of retail stores trading as Dales stores.
Currently, there are 16 retail stores of which 12 trade as Acme Stores
and 4 as Dales stores (collectively referred to as "the Retail
Business").
2.3 Since that time Labat has evolved into an information communications
technology ("ICT") business and the Board has considered various
options relating to the Retail Business, which, inter alia, resulted
in the closure of some retail stores, as well as discussions with
various interested parties in respect of the disposal of the Retail
Business and/or, finding a sustainable long term solution that could
ensure the profitable growth of the Retail Business.
3. Rationale for the Disposal
3.1 The Retail Business requires ongoing funding in order to sustain its
growth model, resulting in onerous funding obligations for Labat.
Presently, the Retail Business is funded by overdraft facilities, in
the region of R38 million as of 31 January 2005 ("Acme Stores
Overdraft"), representing approximately 58% of Labat"s entire group
debt. This is severely limiting the stability and growth of Labat"s
core ICT business operations.
3.2 Labat is in the process of negotiating a debt restructuring package
with its bankers ("Proposed Debt Restructuring") which is subject to
certain conditions, one of which relates to the settlement of the Acme
Stores Overdraft. Further details of the Proposed Debt Restructuring
will be provided in the circular to Labat shareholders containing
information on the Disposal, which will be issued in due course.
3.3 The Disposal will allow Labat not only to focus on its core ICT
businesses, together with its recently acquired Africard business, but
also enable it to settle the Acme Stores Overdraft, allowing Labat to
implement the Proposed Debt Restructuring, which the Board believes
will be to the benefit of Labat and its shareholders. Accordingly, the
Board has decided to proceed with the Disposal, subject to shareholder
approval.
4. Purchase consideration and the application of the proceeds by Labat
4.1 Fluxrab will acquire the entire issued share capital, together with
all claims of whatever nature that Labat has against Acme Stores for
an aggregate maximum purchase consideration of R10,000,001 ("Purchase
Consideration"). Once and only to the extent that Fluxrab has
collected debtors receipts of Acme Stores in excess of R38 million
(see 4.4.1 below) it will settle the Purchase Consideration from
further debtors receipts collected.
4.2 In addition, Fluxrab will assume the Acme Stores Overdraft.
4.3 If the Disposal is approved by shareholders, it is proposed in terms
of the Proposed Debt Restructuring, that Labat will be released from a
suretyship it has granted in favor of Labat"s bankers in respect of
Acme Stores, whilst Acme Stores will be released as guarantor in
respect of other debts of Labat owing to Labat"s bankers.
4.4 Fluxrab will collect the debtors receipts of the Retail Business and,
in respect of any amounts collected , apply the proceeds as follows:
4.4.1 the first R38 million in settlement of the Acme Stores
Overdraft payable directly to Labat"s bankers;
4.4.2 a further R10 million in respect of the Purchase
Consideration as set out in 4.1 above, will be used to
further reduce Labat"s debt, whereafter any further amounts
will accrue for the benefit of Fluxrab.
5. Related party transaction
5.1 Fluxrab was established for the purpose of concluding the Disposal.
The individual shareholders of Fluxrab are as follows: Mervyn Stewart
and management 47%, Freidshelf 477 (Proprietary) Investments trading
as BVR Investments 47% ("BVR Investments"), with Hymie Pedro and Brian
van Rooyen being the sole shareholders of BVR Investments and the
Employee share trust 6%.
5.2 Brian van Rooyen is a director and major shareholder of Labat and,
accordingly, the transaction is classified as a related party
transaction in terms of the Listings Requirements of the JSE. The
Board has appointed Bridge Capital services (Proprietary) Limited as
independent expert to conduct an investigation as to whether the
Disposal is fair and reasonable.
6. Suspensive conditions
6.1 The Disposal is subject to the following outstanding suspensive
conditions, being:
6.2 the approval by the relevant regulatory authorities including, but not
limited to the JSE; and
6.3 approval by Labat"s shareholders in general meeting.
7. Financial effects
The unaudited pro forma financial effects of the Disposal on the earnings,
headline earnings, net asset value and net tangible asset value per share
for Labat, are set out below. The unaudited pro forma financial effects
have been prepared for illustrative purposes only and, because of their
nature, may not fairly reflect the financial position of Labat after the
Disposal or results of its operations going forward. The unaudited pro
forma financial effects provided are the responsibility of the Board.
Per Labat ordinary Before1 the After the Change
share disposal(Ce Disposal2 (%)
nts) (Cents)
Earnings3,4 (5.4) (3.9) 27.8
Headline earnings3,4 (5.5) (3.9) 29.1
Net asset value and 71.3 70.2 (1.5)
Net tangible asset
value3
Number of Labat Africa 184,415 184,415 0
Limited shares in
issue (`000)
Notes:
1. The "Before the disposal" column is based on the published interim results
of Labat for the six month period ended 31 August 2004.
2. The "After" column reflects the financial effects after the Disposal on
Labat.
3. The earnings and headline earnings effects are calculated based on the
following assumptions:
- The Disposal was effective 1 March 2004;
- Costs of R700 000 before tax, as a result of the Disposal, will be
borne by Labat.
- Capital Gains Taxation of R460 000 will be borne by Labat, as a result
of the gain realised on the Disposal; and
- Net asset and net tangible asset effects are calculated based on the
assumption that the Disposal was effective 31 August 2004.
4. The Purchase Consideration is only payable to the extent that the debtors
receipts of the Retail Business are collected in excess of R38 million.
Assuming that Fluxrab will collect sufficient debtors receipts to settle
the Purchase Consideration, this will have the effect of increasing
earnings per share by a maximum of 0.3 cents per share as a result of the
interest saving due to the reduction of Labat"s indebtedness to its
bankers. Having considered the size of the debtors receipts and since the
Retail Business will continue as a going concern, Fluxrab is confident that
it will collect sufficient debtors receipts to satisfy payment of the
Purchase Consideration. Accordingly it was assumed that the Purchase
Consideration was paid to Labat"s bankers on 1 March 2004 and resulted in
an interest saving at an after tax rate of 38.3% for the six month period
ended 31 August 2004.
8. Further cautionary announcement
Shareholders are advised that Labat is considering further transactions
unrelated to the Disposal, which, if successfully concluded, may have a
material impact on the price at which Labat"s shares trade on the JSE and
which may further improve Labat"s current debt position and focus going
forward. As a result, shareholders are advised to continue to exercise
caution when dealing in their shares until a further announcement is made.
Johannesburg
18 February 2005
Corporate advisor to Legal advisor to Independent expert
Labat Labat
-Brait- -Evan Scop- -Bridge Capital-
Sponsor to Labat
-BRAIT SPONSORS-
Date: 18/02/2005 05:37:12 PM Supplied by www.sharenet.co.za
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