Mergers, Acquisitions and Financial Results

Shareholders in Celsys Limited have rejected a debt-for-equity swap that would have handed founder Gary Shayne a larger stake of the technology company, while drastically cutting minority interests.

Shayne had proposed that shareholders issue 624 million shares to six percent shareholder Peak Mine, a company he owns, in exchange for debt of $93.6 billion. Shareholders had also been asked to surrender their pre-emptive rights in respect of the new stock.

However, shareholders blocked the proposals at an extraordinary general meeting held on New Year's Eve. A shareholders' meeting has been scheduled for Monday, where Shayne hopes to convince them to back a new set of resolutions.

ZABG is the largest shareholder in Celsys with 24 percent, having taken over control from Shayne after taking stock as payment for Celsys' debt to Trust Bank. Shayne currently controls 19 percent.

Shayne's defeat was unexpected given his extensive influence in Celsys through stock held by family and close associates.

Had shareholders backed the original proposal, Shayne would have lifted his total shareholding possibly closer to the 70 percent regulatory threshold for a single investor.

But ahead of the meeting, the company had sought to allay shareholder concern over the proposals. Responding to a Financial Gazette report that the deal could be part of a plan to take the company off the stock exchange, Celsys said it had "no intentions now or in the future to de-list from the Zimbabwe Stock Exchange".

"The major shareholder (Shayne) has agreed to assist the company in this regard which will see the business well placed to continue operations in 2006. Once the debt is transferred the business will be in a position to utilise its free cash flows to grow its business model. No further debt will be taken on by the business in the foreseeable future," Celsys said.

The debt burden is a result of Celsys' surging growth over the past few years, driven mostly by leveraged acquisitions. When the company was in desperate need of cash in 2004, Celsys failed to raise funding through equity. Growth was therefore funded by expensive borrowings, and finance income failed to repair the damage caused to earnings by interest charges.

Celsys makes security documents such as cheques, and also cellular recharge cards. However, its most profitable division has been payphone business C-phone. At the 2004 half year, C-phone carried Celsys to an 8 486 percent growth in earnings, numbers which surprised the market and sent its stock rising. C-phone now accounts for an estimated 70 percent of Celsys' business.

The Financial Gazette