Connection Group has sold its 84% stake in retail software solutions company Ultimate Connection to UCS for a maximum of R5.57 million.
UCS will also assume the obligations relating to Ultimate`s overdraft, amounting to R16.7 million.
The deal leaves Connection Group with its 100% stakes in IT retailer Incredible Connection and Enterprise Connection, an IT infrastructure solutions provider.
Incredible Connection currently accounts for about 80% of Connection Group`s revenue.
UCS is to pay R1.57 million in cash upfront, with a deferred payment of 50% of the amount by which Ultimate`s gross profit for the year to 30 April 2003 exceeds R22.46 million. The deferred payment will not exceed R4 million.
Connection Group CEO Pierre Joubert says there were two reasons for the sale. "First of all, it puts a lot of cash on our balance sheet, and secondly, it allows us to focus more on our retail piece, which is really the backbone of the business."
He says the deal represents a sharpening of focus. "The other two businesses have been around for a long time. The bulk of our money comes out of Incredible, and it just allows us to have some surplus cash with which to grow that side of the business."
UCS financial director Neil Michelson says the acquisition will significantly boost the turnover contribution by UCS`s retail solutions arm.
"They have got quality software in the Microsoft world, and they`ve won some international awards on that side. They really complement the UCS strategy of owning our own software and being involved in the niche markets that we choose to dominate in," he adds.
Michelson says there is no intention at present to integrate Ultimate Connection into any of UCS`s other subsidiaries and it will operate on its own. In terms of the deal a change of name has to take place within six months.
He says UCS is in a strong cash position and there are several options open to it with regard to settling Ultimate`s overdraft.
"We are currently pretty strong from the cash point of view, and we have loads of options available to ourselves. We could choose to settle it or we could return the facility or whatever we want to do."
No staff cuts are planned, he adds.
Connection Group adds that the group believes it is appropriate to consider a change of sector for its JSE listing, and will update shareholders on developments.
It is expected to release its year-end results on 10 July.
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