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HUG - Huge - Acquisition of Centracell and Withdrawal of Cautionary Announcement
HUGE GROUP LIMITED
(formerly Vanquish Fund Managers Limited)
(Registration number 2006/023587/06)
Share code: HUG & ISIN: ZAE000102042
("Huge" or "the company")
ACQUISITION OF CENTRACELL (PROPRIETARY) LIMITED ("CENTRACELL") AND WITHDRAWAL OF
CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
Shareholders are advised that in terms of sale agreements signed on 14
August 2007, Huge Group has acquired the entire share capital of and
shareholders` claims on loan account against CentraCell from Julian Arie
Morelis and Alexander John Morelis ("the sale transactions") for a total
consideration of R80 032 000. The effective date of the sale transactions
will coincide with the closing date of the sale transactions which closing
date is expected to be reached once the condition precedent in paragraph 5
below has been fulfilled.
2. NATURE OF THE BUSINESS OF CENTRACELL
CentraCell is South Africa`s 8th largest least cost routing company. Having
been founded in 2002 its organic growth to date has been significant with
monthly annuity revenues increasing from a zero base to R16.5mn by June
2007. This monthly annuity revenue represents the embedded/in-force/book
value of the company and generates R3.7mn in gross airtime margin per
month.
3. RATIONALE
In keeping with the future strategy of the company as outlined in the
prospectus dated 1 August 2007, Huge Group has identified various growth
opportunities within the market in which it operates. CentraCell aligns
itself perfectly with the vision of Huge Group to become the largest
managed telecommunications service provider in South Africa. CentraCell
adds to the monthly annuity revenues of R26mn generated by TelePassport
providing the group with monthly annuity revenue in excess of R42.5mn.
This revenue is principally generated from the sale of cellular airtime to
corporate customers and currently attracts an incentive structure margin
which averages 19%. Currently service providers in the industry operate at
incentive structure margins of 26% to 29% dependent on volume performance.
The amalgamation of TelePassport and CentraCell is expected to increase the
purchasing power of Huge Group with the service and network providers and
as such Huge Group expects to lift its incentive structure margin by at
least 3% in the foreseeable future. In addition, the three additional
value-added revenue streams developed by TelePassport in the last two
years, which are in the high growth stage of their product life cycles, are
expected to be introduced to the client base of CentraCell in terms of
cross-selling opportunities. These revenue streams, which are growing at
average rates of 15% per month, albeit off a low base, are expected to
contribute significantly to earnings in the forthcoming period. The
acquisition of CentraCell increases the customer base of Huge Group by 40%
from 5000 customers to 7000 customers and increases monthly annuity revenue
by 66% from R26mn to R42.5mn. Total revenue for the ensuing twelve months
is expected to grow by R200mn or 67% from a base the annual revenue base of
R300mn expected to be generated by TelePassport. Ultimately, the
acquisition solidifies Huge Group as the 5th largest service provider in
the cellular least-cost-routing industry.
4. VENDORS OF CENTRACELL
In terms of an agreement of sale dated 7 June 2007, Julian Arie Morelis
acquired 80% of the share capital of, and shareholders` claims on loan
account against, CentraCell, from CentraTel (Proprietary) Limited
("CentraTel"), ("the CentraTel Sale Agreement"). The cash component of the
sale transactions is to be paid on behalf of Julian Arie Morelis to
CentraTel in order to fulfill the obligations of Julian Arie Morelis to
CentraTel (in terms of the CentraTel Sale Agreement. Prior to the
CentraTel Sale Agreement the vendors of CentraCell were Julian Arie Morelis
(holding 15% of the total issued share capital), Alexander John Morelis
(holding 5% of the total issued share capital) and CentraTel ( (holding 80%
of the total issued share capital). Subsequent to the CentraTel Sale
Agreement the vendors of CentraCell were Julian Arie Morelis (holding 95%
of the total share capital) and Alexander John Morelis (holding 5% of the
total issued share capital).
5. CONDITIONS PRECEDENT
The sale transactions are subject to the suspensive condition that the
purchaser and the sellers shall obtain final approval for the
implementation of the transactions contemplated in the sale transaction
agreements in terms of the Competition Act.
6. PRO FORMA FINANCIAL EFFECTS OF THE TRANSACTIONS
Shareholders are advised that the company is in the process of compiling
pro forma financial effects of the sale transactions so as to present the
financial effects of the sale transactions on a Huge Group ordinary share,
which revised pro forma financial effects will be announced on SENS in due
course.
7. PROFIT FORECAST
Shareholders are advised that the company will be revising the profit
forecast included in the prospectus so as to present the effects of the
sale transactions on the future earnings of a Huge Group ordinary share,
which revised profit forecast will be announced on SENS in due course.
8. SETTLEMENT OF CONSIDERATION
The consideration for the transaction shall be settled partly in cash by
way of a payment in the amount of R58 400 000 and partly by way of an issue
of 6 760 000 ordinary shares in Huge Group at an issue price of 320 cents
per share, which shares will be issued to and retained by Julian Arie
Morelis and Alexander John Morelis and certain staff members of CentraCell.
9. CHANGES TO THE BOARD OF DIRECTORS
Once Competition Commission approval for the aquistion of CentraCell has
been approved, Mr Julian Arie Morelis shall be appointed to the board of
directors of Huge as the Sales and Marketing Director, and Mr Rhamees
Nordien shall resign. In accordance with Section 21 of the JSE LImtied`s
Listings Requirements, 50% of the shares issued to Mr Julian Arie Morelis
as part of the acquisition consideration, will be held in trust until the
publication of the financial results of Huge for the year ended 28 Febraury
2009, whereupon 25% of his initial holding shall be releasd to him, and the
remaining 25%, after the publication of Huge`s results for the year ended
28 Fenbruary 2010.
10. RESTRAINT OF TRADE PAYMENTS
In terms of the sale transactions Huge Group Limited will enter into
restraint of trade agreements with Julian Arie Morelis and Alexander John
Morelis in return for the payment of R7 000 000 in cash to Julian Arie
Morelis and the payment of R2 100 000 in cash to Alexander John Morelis.
11. WITHDRAWAL OF CAUTIONARY
Shareholders are referred to the cautionary announcement dated 8 August
2007, and are advised that as a result of this announcement the cautionary
announcement in relation to this announcement is now withdrawn.
12. DOCUMENTATION
In terms of the Listings Requirements of the JSE Limited for ALTx listed
comapnies, the transaction is regarded as a Category 3 transaction in that
the consideration to the market capitalization of Huge Group is
approximately 25.01%. This announcement is therefore made for information
purposes only. The transaction is at arms length and does not require
shareholder approval or a circular to be sent to shareholders. Shareholders
will be informed via SENS on the Competition Commission`s opinion on the
transaction, which opinion is expected to be received within 6 weeks of
this announcement.
15 August 2007
Corporate Advisors
Manhattan Equity Corporate Finance (Pty) LImited
Designated advisor
Arcay Moela Sponsors (Pty) Limited
Date: 15/08/2007 14:30:01 Supplied by www.sharenet.co.za
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