MGX is to be restructured as a smaller business as the first step in a turnaround strategy announced by interim CEO Peter Flack.
The MGX share tumbled on the news, falling 69c or 31.5% to trade at 150c by early afternoon.
The group has also announced that former CEO Chris Hills, who stepped down last year to take extended sick leave, has not been reappointed as a director.
The group said last week that the notice of the annual meeting at which directors Hills, Dan McMahon and Norman Webster were re-elected, was defective, although the board was entitled to appoint directors.
A notice issued today says Lindsay Robertson has been elected to the board and Christopher Seabrooke has been appointed a non-executive director. McMahon and Webster`s reappointments were confirmed. Without elaborating the group says only that Hills was not reappointed.
Flack, a turnaround specialist, took the helm at MGX last year to head a strategic review of the troubled group.
He told shareholders today that a thorough investigation has shown that MGX`s businesses are generally solid with sound management.
The difficulties, he says, "stem from problems at the centre". These include blows to its reputation arising from the dispute over the Securities Regulation Panel (SRP) ruling regarding the EC-Hold acquisition, the acrimonious split with former empowerment partner Motswedi and the continuing forensic audit into the CCH acquisition.
In addition, he says MGX has suffered from a general lack of leadership, direction and control. Another problem was the fact that cash flow could not service debt, currently at about R500 million.
Negotiations are now under way to sell some businesses to ease the debt load. Flack says this is not being conducted on a "fire sale basis" and the businesses will be sold only at a fair price.
However, he warns that even if the sales are concluded by the June target date, the remaining debt might still be too much to bear. The board may then have to consider a rights offer, further disposals or even the sale of all remaining assets.
Immediate funding problems have been eased by a R100 million loan from a consortium of banks.
Among other measures, the board has approached the SRP regarding a process for resolving the EC-Hold dispute, something Flack says is a priority.
The forensic audit into the CCH acquisition has been completed and the board has been advised that it is pointless to pursue the matter further. One reason for the audit was to determine why the R240 million purchase cost MGX more than expected.
"If all goes according to plan, MGX will by June be restructured as a smaller business, but one which is profitable and has a positive cash flow," Flack says.
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