Acquisition of subsidiary

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Shares in the following subsidiaries were acquired during the period: Effective date
of acquisition
  % acquired  
Viamedia Proprietary Limited 1 September 2014   75  
Details of the total net assets acquired and the resulting goodwill as at the date of acquisition are as follows:     Total
Total purchase consideration     229 157  
Fair value of net assets acquired     43 190  
Goodwill     185 967  
The assets and liabilities acquired through acquisition are as follows: Fair value at
acquisition date
amount on
acquisition date
Bank overdraft (13 086)   (13 086)  
Property, plant and equipment 1 579   1 579  
Intangible assets 62 762   1 314  
Goodwill 185 967    
Inventories 619   619  
Receivables 15 800   15 800  
Deferred tax (17 066)   139  
Tax receivable 19 403   19 403  
Payables (12 424)   (12 424)  
Carrying/fair value of subsidiary acquired 243 554   13 344  
Non-controlling interest (14 397)      
Fair value of net assets acquired 229 157      
Total purchase consideration     229 157  
Contingent consideration     (84 783)  
Plus: Bank overdraft of subsidiary     13 086  
Cash flow on acquisition     157 460  

Viamedia Proprietary Limited (Viamedia) was purchased with the objective of affording the Group access to new channels for the distribution of both Viamedia and Group products and services.

In most business acquisitions, there is a part of the cost that is not capable of being attributed in accounting terms to identifiable assets and liabilities acquired and is therefore recognised as goodwill. In the case of the acquisition of Viamedia, this goodwill is underpinned by a number of elements, which individually cannot be quantified. Most significant among these is the opportunity that the distribution network affords the Group.

The contingent consideration arrangement requires Blue Label Telecoms Limited to pay in cash the former owner of Viamedia, an additional amount of R215.6 million if certain profit warranties are achieved. The first three amounts of R24.1 million are based on the profits of Viamedia for the year ended
31 May 2015 and years ending 31 May 2016 and 31 May 2017. The fourth and fifth amounts of R30.9 million and R112.5 million are based on the profits of Viamedia for the three years ending 31 May 2017.

The potential undiscounted amount of all future payments that the Group could be required to make under this arrangement is between Rnil and
R215.6 million.

The fair value of the contingent consideration arrangement of R84.8 million was estimated by applying the income approach. The fair value estimates are based on a discount rate of 9%. For the first, second, third and fourth profit targets management has assumed a probability of 100%. For the fifth profit target management has assumed a probability of 0%. In determining these probabilities management has assessed the cash flow projections based on financial budgets approved by the board of directors for the forthcoming three years which are based on assumptions of the business, industry and economic growth.