Australian transit and smart card systems vendor ERG has reached agreement with Banksys, Visa, and Interpay Nederland to settle and renegotiate an outstanding A$54 million in debts relating to its disastrous purchase of Belgian chip card firm Proton World International.
ERG acquired Proton World in January 2002 for A$150 million, only to sell the venture to STMicroelectronics a year later for A$60 million as it struggled to rebuild its balance sheet.
The move to settle outstanding liabilities against Proton comes as the stricken company completes a corporate restructuring and undertakes a fully underwritten A$67 million rights issue to settle debt and provide additional working capital.
Under the terms of the Proton transaction, ERG will extinguish $39.8 million of liabilities due to the former PWI shareholders, in exchange for making an up-front cash payment of $15.8 million and issuing a potential total 12.5 million shares at differential values over the next seven years.
A residual liability due by ERG of $14.5 million will be retained and is repayable based on future profitability at a rate of five per cent to 7.5% of Ebitda in any one year.
The up-front cash payment of $15.8 million will be funded from the proceeds of the rights issue. ERG will incur a one-off profit of $22.2 million on the settlement.
The agreement follows a similar transaction concluded in late 2003 with another PWI shareholder American Express in which outstanding debts totalling $20.6 million were retired for a cash payment of approximately $11.7 million.
The chairman of ERG, Tony Shepherd, comments: "The favourable settlement of the remaining liabilities associated with the acquisition of the now divested Proton World and the completion of the corporate restructure come at a time when the company is on the cusp of returning to profitable growth."