Acquisition
September 21 2007 - 2:00AM
UK Regulatory
RNS Number:2383E
Argentvive PLC
20 September 2007
20 September 2007
ArgentVive plc
Proposed acquisition of AuctionAssist Limited
The Board of ArgentVive plc (the "Company") announces that it is today posting a
circular to shareholders proposing a resolution which if passed will allow the
Company to enter into an agreement to purchase the entire issued share capital
of AutionAssist Limited ("AuctionAssist") a company providing internet based
multi-channel auction services ("the Acquisition").
The Company has agreed in principle to acquire the entire issued capital of
AuctionAssist for a total consideration of approximately #2.6 million to be
satisfied by the issue of up to 5,500,000 new Ordinary Shares in the Company
representing 20 per cent. of the Enlarged Share Capital following the
Acquisition assuming the issue of all the Consideration Shares. The Company is
completing its due diligence on AuctionAssist and while the terms of the
Acquisition have yet to be finalised, on the basis of the information currently
available to the Board, and subject to the satisfactory completion of financial,
legal and commercial due diligence and the agreement of the parties to the final
terms of the Acquisition, the Board anticipates that the transaction will be
completed following the EGM.
Mr Denton, who owns 14,852,435 Ordinary Shares (67.5 per cent of the issued
share capital) and is Deputy Chairman of the Company, also holds 15.6 per cent.
of the ordinary share capital of AuctionAssist. Under the terms of the
Acquisition, Mr Denton will, upon Completion, receive up to 860,085
Consideration Shares (less the Retention Shares attributable to him), which will
increase his holding to 15,712,520 Ordinary Shares, representing approximately
57.1 per cent of the Enlarged Share Capital. As such the Company is required
under section 320 of the Act to obtain Shareholders' approval in relation to the
acquisition of his shares in AuctionAssist and the issue of Consideration Shares
to Mr Denton before it can proceed with the Acquisition. The purpose of the
Circular is to seek the necessary authority from Shareholders.
Background to and reasons for proposed acquisition
The Company has announced its intention to implement a strategy to acquire and
develop internet based businesses. In so doing ArgentVive intends to become a
major provider of technology based e-commerce solutions to both companies and
consumers. AuctionAssist is an early-stage multi-channel e-commerce business
which is seen by the Board to be an excellent fit for this objective.
The Board believes that the Acquisition will provide synergies with the
Company's current and future business activities. Mr Van Tran, the Chief
Executive and majority shareholder of AuctionAssist, has agreed to remain with
AuctionAssist to continue the development of the Company's strategy whilst
retaining responsibility for the continued growth of the AuctionAssist business.
Mr Van Tran has considerable experience with internet and technology based
start-up businesses and therefore the Board considers that his addition to the
management team would assist the Company with the implementation of its new
strategy.
Despite the turnover of AuctionAssist increasing substantially since
incorporation an injection of working capital is required in order to sustain
the rapid rate of growth. In addition the lack of resources has meant that
business opportunities were being missed due to insufficient staffing levels to
enable AuctionAssist to capitalise on opportunities as they arose. The
Acquisition by the Company should help to accelerate the development of
AuctionAssist's business model by providing the necessary cash resources and
infrastructure so as to maximise profitability from current business
relationships. Whilst it is difficult to predict the future profitability of
AuctionAssist, the Board believes that AuctionAssist is an ideal incubation
candidate for the Company's as it has become a significant player in its market
in a short space of time despite the working capital and other constraints
referred to above. The Board believes that, with additional funding and
mentoring, AuctionAssist has excellent potential for growth.
In considering the proposed acquisition of AuctionAssist, Mr Denton participated
in the Board's initial deliberations. However, due to his interest in
AuctionAssist through his shareholding, he has not participated since and will
not participate in any further discussions by the Board including the approval
of the final terms. As a result of Mr Denton's interest in AuctionAssist, the
proposed acquisition will also be a related party transaction under the AIM
Rules and, once the final terms have been agreed, the Company will make the
appropriate announcement in accordance with the AIM Rules.
Information on AuctionAssist Limited
AuctionAssist was incorporated in November 2004 and its principal activity is to
assist distributors and retailers of domestic appliances and electrical goods in
resolving inventory problems by providing internet and other sales channels for
unwanted stock.
AuctionAssist offers a number of benefits to both sellers and buyers. The
benefits to sellers include: outsourcing of the e-commerce process, access to
local, national and international markets and exploitation of the leading
web-based retailers, including eBay and Amazon. The key benefit for buyers is
the availability of an expanding choice of discounted, high ticket,
high-quality, branded goods.
AuctionAssist has developed strong relationships with a number of key retailers
and distributors. While arrangements with these key customers are currently on a
non-exclusive, informal basis AuctionAssist has begun formalising these
relationships.
The initial business model of AuctionAssist involved an investment in inventory
which tied up the cash resources of the company. AuctionAssist has switched to a
model that requires the company to carry a lower level of inventory, which has
reduced the impact on cash flow, but has resulted in lower gross margins.
Currently, AuctionAssist focuses mainly on the electrical goods sector selling
mostly through eBay but the Directors believe that it will be possible to expand
across other product types, sales channels and new markets.
AuctionAssist has been entitled to the exemption from filing audited accounts
qualifying as small or medium-sized company under section 249 of the Act.
Operating profits for the 12 months from date of incorporation to 30 November
2005 were #3,777. The Company subsequently changed its accounting reference date
to 31 March and the operating loss for the 16 months ending 31 March 2007 was
#687,997. Within the results for the 16 month accounting period ended 31 March
2007, the board of AuctionAssist has made provisions of approximately #80,000
for potential costs which may or may not arise.
The AuctionAssist unaudited balance sheet as at 30 November 2005 and 31 March
2007 is set out below:
As at As at
30 November 2005 31 March 2007
# #
Fixed assets
Tangible assets 29,307 7,038
Current Assets
Stocks 21,500 85,269
Debtors 9,318 8,477
Cash at bank and in hand 10,518 4,677
Total current assets 41,336 98,423
Creditors: amounts falling due
within one year 15,886 232,153
Net current assets 25,450 (133,730)
Total assets less current 54,757 (126,692)
liabilities
Financed by:
Share capital 700 891
Share premium 50,280 556,637
Profit and loss account 3,777 (684,220)
54,757 (126,692)
The financial information concerning AuctionAssist for the financial period
ended 31 March 2007 stated above and contained in the Circular does not
constitute statutory accounts within the meaning of section 240 of the Act but
has been extracted or derived, without material adjustment, from the statutory
accounts of AuctionAssist for the relevant period. Such statutory accounts have
not been delivered to the Registrar of Companies in England and Wales. No report
has been made on such statutory accounts under section 235 of the Act as
AuctionAssist is exempt from filing audited accounts under section 249 of the
Act.
Principal terms of proposed acquisition
The Company has agreed in principle to acquire the entire issued capital of
AuctionAssist for a total consideration of approximately #2.6 million, to be
satisfied by the issue of up to 5,500,000 new Ordinary Shares in the Company,
representing 20 per cent. of the Enlarged Share Capital. The Company has
sufficient authority under section 80 of the Act to issue all the Consideration
Shares.
The Vendors of Auction Assist will receive 4,400,000 Consideration Shares upon
Completion. The remaining 1,100,000 Consideration Shares will not be issued at
Completion and will serve as a retention against which warranty and indemnity
claims can be off-set (if agreed, proven or settled) under the terms of the
documentation relating to the Acquisition. The Retention Shares will be issued
in three equal tranches (assuming no warranty or indemnity claims) on the first
anniversary of Completion, eighteen months after Completion and the second
anniversary of Completion. To the extent that any warranty or indemnity claims
were made and were agreed, proven or settled, the number of Retention Shares to
be issued would be reduced accordingly.
If the aggregate value of all the Retention Shares is insufficient to meet all
warranty and indemnity claims in relation to the Acquisition, 85 per cent. of
any additional liability will be met by Mr Van Tran and the balance of 15 per
cent. will be met by Mr Denton, up to a maximum of the total consideration of
approximately #2.6 million (but this limit will not apply in certain
circumstances).
The Board emphasise that the final terms of the Acquisition, including the terms
relating to the issue of the Retention Shares, may be amended from the terms set
out above in light of the due diligence review currently being conducted and
subject to final negotiations with the Vendors and their professional advisers.
Mr Denton also has an option to subscribe for further shares in AuctionAssist,
equivalent to 10 per cent. of the current issued share capital of AuctionAssist
but, subject to Completion occurring, he will not exercise his option and the
option will be cancelled.
The Acquisition will be effected by and on the terms of a share purchase
agreement and tax indemnity, containing such provisions as are customary for
transactions of this nature. Mr Van Tran will also enter into a new service
agreement with AuctionAssist. Both the share purchase agreement and the new
service agreement will include non-compete covenants by Mr Van Tran.
Lock-in and orderly market arrangements
Mr and Mrs Van Tran and Mr Denton will enter into a lock-in agreement at
Completion whereby each will undertake not to dispose of any of the aggregate
2,479,939 Consideration Shares that they will receive at Completion. In
addition, Mr and Mrs Van Tran and Mr Denton will be entitled to receive up to
619,985 Retention Shares, subject to the terms and conditions of the share
purchase agreement, which will also be subject to the lock-in agreement. Under
the proposed terms of the share purchase agreement, all of the Vendors will be
subject to orderly market provisions whereby each will undertake to sell their
shares only through Charles Stanley until the first anniversary of their
respective dates of allotment.
Section 320 of the Act
Under section 320 of the Act, a company cannot enter into an arrangement to
acquire a non-cash asset of the "requisite value" from any of its directors
without the prior approval of an ordinary resolution of shareholders unless
certain limited exceptions apply. "Requisite value" currently means an asset
that is worth at least #2,000 and otherwise has a value that exceeds 10 per
cent. of the company's net asset value or, if lower, #100,000. The limited
exceptions do not apply in the case of the proposed acquisition of AuctionAssist
and, as the value of the shares in AuctionAssist held by Mr Denton are of the "
requisite value", shareholder approval is required before the Company can
finalise the Acquisition.
Recommendation
The Directors, with the exception of Mr Denton who is a related party for the
purposes of the Acquisition, consider, having consulted with Charles Stanley,
that the terms of the Acquisition are fair and reasonable insofar as
Shareholders are concerned. In reaching its opinion Charles Stanley has relied
on the assessment of the Independent Directors as to the commercial
opportunities that the Acquisition will afford to ArgentVive.
The Independent Directors unanimously recommend that Shareholders vote in favour
of the Resolution to be considered at the EGM
Although Mr Denton is unable to recommend that Shareholders vote in favour of
the Resolution, he confirms that he intends to vote in favour of the Resolution
in respect of his own beneficial holding of Ordinary Shares amounting, in
aggregate, to 14,852,435 Ordinary Shares representing approximately 67.51 per
cent. of the issued share capital of the Company.
Enquiries:
ArgentVive plc Tel: 01932 569 912
Andrew Wells
Charles Stanley Securities Tel: 020 7149 6000
Nominated Adviser and Joint Broker
Russell Cook
Carl Holmes
IAF Securities Tel: 020 7747 7400
Financial Adviser and Joint Broker
Gary Pinkerton
Definitions used in this announcement have the same meaning as defined in the
Circular. Copies of the Circular will also shortly be available on the
Company's website at www.argentvive.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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