Embattled ASX-listed services provider, LongReach Group (ASX: LRG), has agreed to sell its ServicePoint business for $9 million to management consulting and systems integration company, The Citadel Group.
In a letter to shareholders, LongReach reported the $9 million offer was raised during a strategic review of its business in May last year. It appointed Grant Thornton to head up the review. The cash deal is subject to working capital adjustments at completion and shareholder approval.
The sale is expected to generate a pre-tax profit of $6.5 million and will provide LongReach with a much needed cash injection to pay back $5.4 million in convertible notes due on October 31.
"There is no certainty that the sale of ServicePoint will be successfully concluded but, if it is, the company proposes to use the funds received to pay costs associated with the sale, provide for the redemption of the convertible notes [of $5.4 million] due on October 2008, and as working capital for the remaining operations of the company," the ASX statement read.
LongReach CEO, William Masson, refused to talk about the reasons for the sale or the company's long-term plans until an explanatory memorandum is distributed to shareholders.
In the financial year to June 30, ServicePoint reported $12.3 million in revenue with pre-tax earnings of $2.3 million. This was in contrast to LongReach's net loss of more than $17 million on annual revenues of $21.2 million.
According to a recent statement from Masson, the ServicePoint business consists of its traditional videoconferencing and visual communications services as well as Allied's Voice Technical Management Services contract. The company primarily targets defence and government customers including the Australian Communications and Media Authority and Air Services Australia.
Without ServicePoint, LongReach's remaining operations will be its turnkey communication systems subsidiary, C4i (previously Redflex Communications Systems), and Allied Technologies' voice facilities management business.
The ServicePoint sale comes after a difficult year for the LongReach Group. The company placed its LongReach Communications business into voluntary administration in July last year after being unable to secure longstanding sales opportunities through subsidiary, LongReach Networks. It also blamed its demise on an unsuccessful fund raising initiative. Allied Technologies Australia merged with LongReach Group in June 2006.
LongReach also sold off its integration subsidiary, TUSC systems, to Ericsson in 2005, just 12 months after acquiring the business.