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Pro forma financial effects and withdrawal of a cautionary announcement
HUGE GROUP LIMITED
(Registration number 2006/023587/06)
Share code: HUG ISIN: ZAE000102042
(“Huge” or “the Company")
PRO FORMA FINANCIAL EFFECTS OF VARIOUS CAPITAL RAISING TRANSACTIONS
AND THE ACQUISITION OF 100% OF CONNECTNET BROADBAND WIRELESS
PROPRIETARY LIMITED AND WITHDRAWAL OF A CAUTIONARY ANNOUNCEMENT
INTRODUCTION
Shareholders are referred to the previous announcement released by Huge
on 17 November 2016, which announcement advised that Huge:
- had concluded a subscription and repurchase agreement (the
“Subscription and Repurchase Agreement”) with CNet Empowerment
Proprietary Limited (“CNet”), DataWireless Proprietary Limited
(“DataWireless”), DM Holdco Proprietary Limited (“DM Holdco”),
Stephanus Marius Oberholzer (“Oberholzer”), Unwire Communications
Proprietary Limited (“Unwire”) and Connectnet Broadband Wireless
Proprietary Limited (“Connectnet”);
- had concluded cession and pledge agreements with CNet,
DataWireless, DM Holdco, Oberholzer and Unwire (the “Relevant
Shareholders”);
- was in the process of concluding an escrow agreement with the
Relevant Shareholders and TMF Corporate Services (South Africa)
Proprietary Limited; and
- would, subject to market conditions and the necessary shareholders’
approvals, offer new shares to be issued pursuant to a specific issue of
shares for cash, to institutional investors and by invitation, individuals
who are regarded as “public shareholders” in terms of the Listings
Requirements, with a value of up to a maximum amount of
R300 000 000.
In terms of the Subscription and Repurchase Agreement:
- Huge shall subscribe (the “Connectnet Subscription”) for 185 new
ordinary shares (“Connectnet Subscription Shares”) in Connectnet for a
total subscription consideration of R418 000 000 (the “Connectnet
Subscription Consideration”):
- R266 750 000 of the Connectnet Subscription Consideration shall
be settled by Huge in cash (the “Cash settled subscription for the
Connectnet Subscription Shares”); and
- R151 250 000 of the Connectnet Subscription Consideration shall
be settled by Huge on the closing date through the issue of
renounceable letters of allocation (“RLAs”) to Connectnet in
respect of such number of Huge ordinary shares (the "Transaction
Consideration Shares relating to the Share settled
subscription for the Connectnet Subscription Shares”) as is
equivalent to an amount of R151 250 000;
- subject to and conditional upon the implementation of the
Connectnet Subscription, Connectnet shall repurchase 122
Connectnet ordinary shares in Connectnet (the “Repurchase of Shares
in Connectnet”), representing 100% of the ordinary shares in issue prior
to the Connectnet Subscription, from the Relevant Shareholders for an
initial repurchase consideration of R275 000 000 (the “Initial Repurchase
Consideration”):
- R123 750 000 of the Initial Repurchase Consideration shall be
settled by Connectnet in cash; and
- R151 250 000 of the Initial Repurchase Consideration shall be
settled by Connectnet on the closing date by renouncing the
RLAs in favour of the Relevant Shareholders;
- the Transaction Consideration Shares relating to the Share settled
subscription for the Connectnet Subscription Shares will be issued by
Huge at a price of 600 cents per share. Other than the price per share,
the Transaction Consideration Shares relating to the Share settled
subscription for the Connectnet Subscription Shares will rank pari passu
with the Huge ordinary shares issued to qualifying investors in terms of
the specific issue of shares for cash.
Connectnet is party to a facilities agreement with an existing lender (the
“Existing Lender”). The principal amount owing by Connectnet to the Existing
Lender under the facilities agreement is approximately R142 900 000 currently
(the “Existing Senior Debt”).
In terms of the specific issue of shares for cash:
- ordinary shares to the value of R123 750 000 will be issued to fund a
portion of the Cash settled subscription for the Connectnet Subscription
Shares (the “Specific Issue of the Placement Shares”);
- ordinary shares to the value of R176 250 000 may be issued (the
“Specific Issue of Shares for Cash”) for the purpose of:
- financing future acquisitions by Huge;
- augmenting the existing working capital capacity of Huge; or
- possibly reducing debt in Huge or Connectnet.
Huge is in advanced discussions with the Existing Lender in respect of the
raising of senior debt (the “Raising of Senior Debt”) in Huge in the amount of
R163 000 000, to be utilised by Huge to:
- fund R143 000 000 of the Cash settled subscription for the Connectnet
Subscription Shares, which in turn will be utilised by Connectnet for the
repayment of the Existing Senior Debt (the “Repayment of the Existing
Senior Debt”); and
- fund the repayment of an amount of R20 000 000 owing by Huge
Software and Technologies Proprietary Limited to Stellar Specialised
Lending Proprietary Limited in terms of a bridging facility (the
“Repayment of the Stellar Bridging Facility”).
PRO-FORMA FINANCIAL INFORMATION RELATING TO THE SPECIFIC ISSUE OF THE
PLACEMENT SHARES, THE SPECIFIC ISSUE OF SHARES FOR CASH, THE RAISING OF
SENIOR DEBT, THE REPAYMENT OF THE STELLAR BRIDGING FACILITY, THE
CONNECTNET SUBSCRIPTION, THE REPURCHASE OF SHARES IN CONNECTNET
AND THE REPAYMENT OF THE EXISTING SENIOR DEBT
The table below sets out the pro forma financial effects of the Specific Issue of the
Placement Shares, the Specific Issue of Shares for Cash, the Raising of Senior Debt,
the Repayment of the Stellar Bridging Facility (the “Capital Raising Transactions”)
and the Connectnet Subscription, the Repurchase of Shares in Connectnet and the
repayment of the Existing Senior Debt (the “Proposed Transaction”) on the
unaudited condensed consolidated interim financial results of Huge for the six
months ended 31 August 2016.
The pro forma financial effects are presented for illustrative purposes only, for the
purposes of this announcement and, because of their nature, may not give a fair
reflection of Huge’s financial position, changes in equity, results of operations and
cash flows after the Capital Raising Transactions and the Proposed Transaction.
It has been assumed for purposes of the pro forma information presented below that
the Capital Raising Transactions and the Proposed Transaction were effective from
31 August 2016 for statement of financial position purposes and at 1 March 2016 for
statement of comprehensive income purposes.
The pro forma financial information is the responsibility of the directors of Huge and
has not been reviewed or reported on by the Company’s auditors.
After the
After the Proposed
Unaudited at Capital Transaction
31 August Raising % %
2016 Transactions change change
Basic and diluted earnings
10.05 7.81 -22.29% 19.98 98.81%
per share (cents)
Headline and diluted
headline earnings per share 10.05 7.81 -22.29% 19.63 95.32%
(cents)
Net asset value per share
269.85 376.40 39.49% 408.34 51.32%
(cents)
Tangible net asset value per
55.92 233.19 317.01% 73.05 30.63%
share (cents)
Number of shares in issue
101 255 151 255 49.38% 176 463 74.28%
(000s)
Notes and assumptions relating to the pro forma financial effects in respect of the
statement of financial position:
1. Huge as at 31 August 2016 is extracted, without modification, from the
published unaudited condensed consolidated interim results for the six
months ended 31 August 2016.
2. It is assumed that the proceeds of the Specific Issue of the Placement
Shares will be utilised to settle a portion of the Cash settled subscription
for the Connectnet Subscription Shares. It is assumed that the
Placement Shares will be issued at a price R6.00 per share.
3. It is assumed that once-off transaction costs of R3 914 411 relating to
the Capital Raising Transactions and the Proposed Transaction will be
set off the proceeds of the Specific Issue of Shares for Cash.
4. It is assumed that the Raising of Senior Debt from the Existing Lender will
bear interest at a rate of JIBAR plus 4.25%.
5. It is assumed that R20 000 000 of the proceeds from the Raising of the
Senior Debt is used for the Repayment of the Stellar Bridging Facility.
6. The reviewed condensed consolidated interim results of Connectnet
for the six months ended 31 August 2016 were used without
modification before showing the effects of the Connectnet
Subscription, the Repurchase of Shares in Connectnet and the
Repayment of the Existing Senior Debt.
7. It is assumed that the Repayment of the Existing Senior Debt is made by
using a portion of the proceeds of the Cash settled subscription for the
Connectnet Subscription Shares.
8. It is assumed that the goodwill adjustment, which represents the value
paid in excess of the book net asset value, of Connectnet is as follows:
R'000s
Connectnet Subscription Consideration 418 000
Book net asset value of Connectnet as at 31 August 2016 (66 130)
Fair value attributed to goodwill 351 870
Based on preliminary fair value allocation exercise, the surplus of the
Connectnet Subscription Consideration over the book net asset value of the
Connectnet is attributed to goodwill. A fair value allocation exercise in terms
of IFRS 3: Business Combinations will need to be performed at the effective
date of the Proposed Transaction.
Notes and assumptions relating to the pro forma financial effects relating to the
statement of comprehensive income:
1. Huge as at 31 August 2016 is extracted, without modification, from the
published unaudited condensed consolidated interim results for the six
months ended 31 August 2016.
2. It is assumed that the interest earned on the Specific Issue of Shares for
Cash is placed on call at a rate of JIBAR plus 4.25% (which is equal to
approximately Prime plus 1.11%), pro-rated for the six month period.
3. It is assumed that the interest expense incurred on the Raising of Senior
Debt with the Existing Lender bears interest at a rate of JIBAR plus 4.25%
per annum, pro-rated for the six month period, and is tax deductible.
4. It is assumed that the interest saving arising from the Repayment of the
Stellar Bridging Facility is calculated with reference to the difference
between the current interest cost, of prime plus 9%, and the interest
cost relating to the Raising of Senior Debt, of JIBAR plus 4.25%, pro-
rated for the six month period.
5. The reviewed condensed consolidated interim results of Connectnet
for the six months ended 31 August 2016 were used without
modification.
6. The interest saving arising from the settlement of the Existing Senior Debt
was calculated with reference to an interest rate of JIBAR plus 4.5%,
pro-rated for the six month period. The interest expense from the
Existing Senior Debt is not deductible for tax purposes.
7. The pro forma adjustments in 2, 3, 4 and 6 above will have a continuing
effect on the comprehensive income of Huge.
WITHDRAWAL OF A CAUTIONARY ANNOUNCEMENT
Shareholders are referred to the cautionary announcement, unrelated to the
Proposed Transaction, contained in the announcement dated 17 November
2016 and are advised that negotiations in respect thereof have been
terminated and accordingly caution is no longer required to be exercised by
shareholders when dealing in their Huge shares.
Johannesburg
15 December 2016
Sponsor:
Questco Proprietary Limited
Date: 15/12/2016 10:55:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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