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Huge Group, ConnectNet deal moves forward

Paula Gilbert
By Paula Gilbert, ITWeb telecoms editor.
Johannesburg, 18 Nov 2016
The price of the equity remains R275 million, says Huge Group CEO James Herbst.
The price of the equity remains R275 million, says Huge Group CEO James Herbst.

Huge Group's planned purchase of ConnectNet Broadband Wireless is moving forward after it concluded a subscription and repurchase agreement (SRA) on the deal.

In September, the JSE-listed company announced plans to purchase 100% of ConnectNet for a total initial purchase consideration of R275 million.

Huge Group has now issued an announcement on the Stock Exchange News Service, saying it has concluded an SRA with the relevant shareholders of ConnectNet instead of a sale of shares agreement contemplated in the memorandum of agreement (MOA) signed in September.

The company, however, says the financial effects of the SRA are exactly the same as those of a sale of shares agreement.

"The price of the equity remains R275 million, of which R151.25 million will be settled in Huge Group ordinary shares (the transaction consideration shares) and R123.75 million will be settled in cash," Huge Group CEO James Herbst told ITWeb via e-mail.

The transaction consideration shares will be subject to various lock-in provisions, one of which includes the pledging of a portion of the transaction consideration shares as security for an operating profit warranty.

"The relevant shareholders have warranted in favour of Huge Group that the cumulative aggregate operating profit of the ConnectNet group for the three years ended February 2018, 2019 and 2020 will not be less than 80% of a cumulative aggregate operating profit target of R239.9 million."

ConnectNet was established in November 2004, to provide connectivity services to the card payment terminals of the commercial banks in SA by making use of, primarily, secure dual SIM connectivity over GSM data networks.

In 2014, it expanded its operations and offering with the acquisition of Sainet, a network service provider and data communications company that offers Internet data services, managed network solutions, branch connectivity, hosting services, and Web site and system development.

SA remains ConnectNet's largest geographical market, although it also provides services in Botswana, Lesotho, Mozambique, Namibia, Swaziland, Zambia and Zimbabwe.

Herbst says in terms of the MOA, Huge Group contemplated placing the transaction consideration shares by means of a vendor placement. The company intends now to undertake a specific issue of shares of cash which will take place in terms of a bookbuild process. The company has decided it will raise up to R300 million in the specific issue.

The group is preparing a specific issue circular that will be posted to shareholders, as well as an investment information memorandum which will be shared with qualifying investors.

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