Adding more bite to business

PRODUCERS need marketers and marketers need a product – it’s one of those golden rules of business.

Willhart Ltd and Byte Power have recognised how they can apply this rule to their business and have agreed to permanently unite their expertise.

The union will be achieved through a slightly convoluted process whereby, through a series of equity issues as part payment, the purchaser will, in effect, sell itself to the owning trust of the company the purchaser is seeking to acquire.

No wonder, then, that the two companies involved prefer to talk of mergers rather than takeovers.

Just over a month ago, on May 1, ASX-listed Perth company Willhart Ltd announced it had arranged a put and call option agreement with a trust – Apel Pacific – to buy the trust’s Brisbane company, Byte Power. The deal also involves that company’s online IT procurement business,

Having started off as a computer hardware wholesaler, Byte Power now sells its abilities in system integrations, the online procurement of hardware, software and telecommunications, and security software.

Willhart has positioned itself as an IT management company, but also has two other business streams – producing uninterruptible power supply units, and in the mechanical services industry.

Under the agreement, after July 1 2002, either Willhart or Apel Pacific will be able to exercise the option, at which time Willhart will purchase all of the issued share capital in a company that will own Byte Power. The put and call option is exercisable by either party after July 1 2002.

The payment for the business would be $10 million, payable in three tranches, and subject to certain conditions.

Initially, Willhart will pay Apel Pacific $7 million, comprising $3.5 million in cash and $3.5 million in fully paid ordinary shares in Willhart at an issue price of 3.8 cents per share, prior to any share consolidation (a total of about 92 million shares).

The second tranche will involve Willhart paying Apel Pacific on or before October 31 2003 $1.5 million in cash and $1.5 million in fully paid ordinary shares in Willhart, at an issue price of 7.6 cents per share, prior to any share consolidation (a total of approximately 19.7 million shares).

But if Byte Power does not achieve an EBITDA result of at least $2 million in the financial year ending June 30 2003, Willhart will not be required to make this payment.

A third tranche of shares is issuable by October 31 2003 to Apel Pacific at a 20 per cent discount to Willhart’s average market price, on a basis proportionate to the amount by which Byte Power’s EBITDA exceeds $2 million for the 2001/02 financial year.

If the acquisition proceeds, Byte Power’s Alvin Phua and Byte Power nominee Terence Seow will join the Willhart board, Phua as CEO. Current Willhart directors Ken King and Alden Halse will remain on the board.

Willhart has been struggling to support the technology side of its business. The company lost $6.75 million in the 2000/01 financial year, writing down $3.9 million in goodwill and booking an operating loss of $1.6 million from its technology division.

Willhart will need to raise the $3.5 million cash component of its purchase via a share placement to existing shareholders, and will also have to consolidate its capital so shares are valued at a minimum 20 cents each.

Willhart shares are currently at their highest level since September 2001, but at eight cents, are still well short of the 20-cent level.

The company’s executive chairman, Ken King, said the two companies had been talking about getting together since last year, having recognised there were various synergies in the companies’ operations.

“One of the strengths of Byte Power is that it has a very effective distribution and marketing channel and they’re very successful at doing that,” he said.

“One of the things they haven’t necessarily had is some proprietary products, and Willhart’s got some proprietary products that we haven’t been very successful at marketing, so we provide the proprietary product and they provide the marketing skills, and that’s the way we can really push forward.”

Mr King said was a successful online information technology and telecommunications business, which had achieved a turnover of $500,000 per month in just two years of business.

While Byte Power is based in Queensland, up to 70 per cent of its business is said to come from South-East Asia, where Apel Pacific has substantial business connections.

Mr King said he hoped the combined company would be able to take advantage of Willhart’s presence and facilities in Sydney, Melbourne and Perth to open up and develop new markets.


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