Jan. 2 - In its AIM admission document dated 1 November 2007, ADSL confirmed it had signed a non-binding letter of intent on 28th June 2007 to acquire Chengdu Gao Li Yuan Beverage Co., Ltd.
The Board of ADSL is pleased to announce that it has negotiated an amended arrangement and, accordingly, has today conditionally agreed to acquire part of the assets and intellectual property rights of Gao Li Yuan Beverage Co., Ltd (the ‘Gao Li Yuan’) through investing in Chengdu Gao Yuan Commercial trading Co., Ltd (the ‘JV’). The consideration to be paid by ADSL to the vendors, one of whom is Mr Robert Ling, comprises RMB1.0 million upfront cash plus up to RMB 1.0million in cash which has to be used to subscribe for new ADSL Ordinary Shares under an employment contract based on the achievement of profit targets in the period ending 31 December 2010 by the JV, as is described in more detail below.
ADSL has entered into a joint venture agreement (‘JV agreement’) with Mr Robert Ling, the current general manager and the majority shareholder of Gao Li Yuan, to form the JV which is classified as a Sino-Foreign Joint Venture in the People’s Republic of China (‘China’). The JV will be established for the purpose of acquiring certain of the assets of Gao Li Yuan. Under the terms of the JV agreement, ADSL will hold 65 per cent of the JV’s equity and the remaining equity will be held by Mr Robert Ling, the majority shareholder of Gao Li Yuan. Both parties will contribute a total capital of RMB3 million in cash according to their respective shareholdings in the JV, to provide the JV with registered capital of RMB3million.
The JV will enter into a conditional trade asset sale and purchase agreement (the ‘Agreement’) with Gao Li Yuan to acquire part of the assets and intellectual property rights of Gao Li Yuan. The cash consideration of RMB1 million is to be settled as to 50 per cent three days before the acquired assets are transferred and the remaining 50 per cent is to be settled 10 days after the acquired assets are transferred.
Completion of the Agreement is conditional, inter alia, upon the following conditions:
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1. The value of the acquired trade assets audited and assessed by a qualified licensed valuer is not over RMB1 million;
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2. Gao Li Yuan terminates its existing business and repays all its debts without delay, and deregisters its business from the relevant PRC authorities within a reasonable time agreed by both parties; and
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3. any other regulatory approvals as may be required being obtained regarding the formation and approval of the New JV Co, Chengdu Gao Yuan Commercial trading Co., Ltd.
In addition, ADSL has entered into an employment contract with Mr Robert Ling whereby he is to be appointed as General Manager of the JV. Under the terms of his employment contract, Mr Ling is to receive RMB1.05 million for the subscription of a 35 per cent interest in the JV. He will receive a gross monthly salary of RMB40,000. As has been described above, subject to the achievement by the JV of profit targets, Mr Ling will also receive deferred consideration by way of the issue and allotment to him of up to RMB1 million new Ordinary Shares in ADSL. Furthermore, subject to the achievement of these profit targets, Mr Ling may also be awarded up to 300,000 share options.
Gao Li Yuan is a beverage distribution business located in Chengdu, the capital of Southwest China. It distributes beverage products including branded juice, coconut drinks, yogurt and bottled water through some major retail chains in Chongqing, Chengdu and the rest of Sichuan Province. The latest financial statements of Gao Li Yuan for the period ended 30 November 2007 submitted to the China tax authority show that Gao Li Yuan had a turnover and net loss of RMB5.37 million and RMB0.48 million respectively. The total assets and net assets of the company are RMB1.73 million and RMB1.44 million respectively.
The JV will manage and operate locally the ADSL product range of wines Snapples (Cadbury Schweppes Juice flavoured tea) and beers as well as acting as the local importer and exporter of alcohol and beverages, via the wholesale market as well as the third party commission agency sales. The JV will also be providing the relevant supporting services for the domestic and international markets of Palm Tree Brand of coconut juices and Watson's Brand water, Sunkist Brand of Orange Drinks. The JV will commence its trade as soon as the appropriate approvals are obtained and various registrations are completed, through 10 international and national supermarket accounts and 300 second and third tier wholesalers distributing local brands and other assorted products.
The acquisition the Chengdu beverage business will extend ADSL’s distribution network and further diversify ADSL’s product portfolio. The Directors believe ADSL will be able to add considerable product range both local and imported to the JV through distributing ADSL’s existing imported wines, spirits and other products to the JV’s new customers.
Steve Wong, ADSL’s Chief Executive, commented:
"Establishing the JV in Chengdu will enable us to broaden our geographic coverage to an important and large regional consumer market in China and it will also expand the scope of our distribution services. By adding our own products and other supplies to the existing infrastructure we expect Chengdu Gao Yuan Commercial trading Co., Ltd will contribute positively to the Group’s turnover and profits.
We continue to seek ways of improving our coverage through the major cities in China and have several other prospects which we are currently evaluating."