JSE-listed Softline's share was trading 5.26% down by late this morning after an announcement that talks which would have seen the company shed its troublesome interest in US company SVI Solutions have been abandoned.
Softline has been criticised repeatedly by the investment community for holding onto the stake in the poorly performing US company.
SVI reported a net loss of more than $28 million for the year to end-March 2001, a sizeable decline from the $4 million loss for the previous year. Its revenues and gross margins also declined.
The South African company announced in May that it had signed a letter of intent involving a proposed deal with SVI and European investment group Shmulik Stein International Investments.
Softline investor relations director Lara Jawitz says Softline terminated the talks after Shmulik Stein wanted material changes to the memorandum of understanding between the companies.
"We weren't willing to accept them," Jawitz says. "Our first responsibility is to our shareholders, and so Softline terminated the talks."
In terms of the deal, a series of transactions would have seen Softline dispose of the majority of its stake in SVI in return for SVI's interest in Irish software company Integrity, resulting in Softline holding an 11% equity interest in Integrity.
Softline's loan of $11.5 million would have been converted into $7 million worth of new SVI shares which would have been sold to Shmulik Stein for $7 million cash, with the balance of the loan remaining as a convertible instrument in SVI, carrying the right to be converted into SVI shares at $1 per share.
Softline says it is "in advanced negotiations with SVI and their advisers, Jeffries & Company (an internationally recognised investment bank based in Los Angeles), to restructure and further reduce Softline's investment in SVI".
Jawitz says she cannot talk in detail about the negotiations since the company is under cautionary.
Asked whether the company will still attempt to recoup the loan, she says that the cautionary also restricts her from commenting on that in detail, since it is also part of the current negotiations.
"Suffice it to say that it would be our objective," she says. "But given current global market conditions it is not that easy to structure the best possible deal."
The market reacted to the news by hammering the share to 100c in early morning trade on the JSE, 14c or 12.3% down from yesterday's close, before it regained some ground to trade at 108c by late morning.
Jawitz says it is important to note that the SVI results are no longer consolidated in Softline's figures, since the group is no longer a subsidiary, but an investment.
"The business of Softline is very sound and it is profitable. But we do need to bring the SVI disposal to a conclusion," she adds.
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