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BUSINESS MODEL
AND STRATEGIC
OBJECTIVES
LEADERSHIP
GOVERNANCE
OPERATING
PERFORMANCE
SHAREHOLDERS’
INFORMATION AND
ADMINISTRATION
FINANCIAL
PERFORMANCE
BLUE LABEL INTEGRATED ANNUAL REPORT 2014
193
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS
CONTINUED
For the year ended 31 May 2014
26.
BUSINESS COMBINATIONS (continued)
26.3 Post-balance sheet acquisition of subsidiary (continued)
Viamedia Proprietary Limited 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 BLT to pay in cash the former owner of Viamedia three
additional amounts of R24.06 million, R24.06 million and R55 million if warranted profits are achieved by
Via Media during a 36 month warranty period. If the warranted profits are not achieved, the above
payments will be allotted on a pro rata basis. If, however, the warranted profits fall below an agreed
threshold BLT will have the right to put its shares to the former owner for a refund of all payments made plus
interest thereon. An additional R112.5 million or part thereof will be payable if stretched targets are
achieved. These targets are over and above the warranted accumulated profit over the warranty period.
The potential undiscounted amount of all future payments that the Group could be required to make under
this arrangement is between R0 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 and third
profit targets management has assumed a probability of 100%. For the fourth profit target management has
assumed a probability of 0%.