167 / 248
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS
CONTINUED
For the year ended 31 May 2015
165
BLUE LABEL INTEGRATED ANNUAL REPORT 2015
26.
BUSINESS COMBINATIONS continued
Acquisition of subsidiary continued
Viamedia Proprietary Limited (Viamedia) 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 Blue Label Telecoms Limited to pay in cash the former
owner of Viamedia, an additional amount of R215.6 million if certain profit warranties are achieved. The first
three amounts of R24.1 million are based on the profits of Viamedia for the year ended 31 May 2015
and years ending 31 May 2016 and 31 May 2017. The fourth and fifth amounts of R30.9 million and
R112.5 million are based on the profits of Viamedia for the three years ending 31 May 2017.
The potential undiscounted amount of all future payments that the Group could be required to make
under this arrangement is between Rnil 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, third
and fourth profit targets management has assumed a probability of 100%. For the fifth profit target
management has assumed a probability of 0%. In determining these probabilities management has
assessed the cash flow projections based on financial budgets approved by the board of directors for the
forthcoming three years which are based on assumptions of the business, industry and economic growth.