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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 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.
