09:59 DENWAY MOTORS<00203> - Announcement (6) December June June 2002 2003 2004 2004 Profit 1,304 1,974 1,076 2,262 before taxation Net profit 1,200 1,806 973 2,060 after taxation and minority interests (Unaudited) approximately HK$ million As at 31 As at 30 December June 2002 2003 2004 Net 1,742 2,866 3,561 tangible assets Reasons for the Acquisition With the continuous growth in consumer's purchasing power and the promulgation of favorable government policies, the PRC's automobile market has a huge growth potential in commercial vehicles and passenger automobiles ownership. The Board is of the view that the Acquisition signifies the continued support from China Lounge and represents an excellent opportunity for the Group to strengthen its direct and indirect interests in its core automobiles manufacturing arm, namely Guangzhou Denway and Guangzhou Honda respectively. The consolidation of interests in Guangzhou Denway is expected to provide additional return as a result of the additional profit attributable to the Guangzhou Denway Interests. In addition, the Company has since then deposited the Remaining Funding as short-term bank deposits in Hong Kong. Instead of earning a relatively low interest return on the short-term bank deposits, the Directors consider that the application of the Remaining Funding towards the settlement of part of the Cash Portion represents an excellent opportunity for the Company to achieve a better equity return for its Shareholders. The Group will continue to seek investment opportunities of better returns with a focus on the automobile business. Accordingly, the Board considers that the Acquisition is in line with the corporate strategy of the Group and that the Acquisition is in the interests of the Company and the Shareholders. The independent non-executive Directors will opine on the terms of the Acquisition Agreement, the Shareholder's Loan Assignment and the transactions contemplated thereunder and whether the terms of the Acquisition Agreement and the Shareholder's Loan Assignment are on normal commercial terms and fair and reasonable so far as the Company and the Shareholders as a whole are concerned after considering the advice from the independent financial adviser. Such views will be set out in the circular to be issued by the Company to the Shareholders as soon as possible in compliance with the Listing Rules. General Since China Lounge is the immediate controlling shareholder of the Company, City Achieve is a connected person (as defined under the Listing Rules) by virtue of its being a wholly-owned subsidiary of China Lounge. Accordingly, the Acquisition and the allotment and issue of the Consideration Shares to City Achieve constitute connected transactions of the Company under Rule 14A.17 of the Listing Rules and are subject to the approval of the Independent Shareholders at the EGM by poll. China Lounge and its associates will abstain from voting in respect of the relevant resolutions at the EGM. Since one of the Relevant Ratios in respect of the Acquisition exceeds 5% but is less than 25%, the Acquisition also constitutes a discloseable transaction for the Company under Rule 14.06(2) of the Listing Rules. An Independent Board Committee has been formed to advise the Independent Shareholders in relation to the Acquisition and DBS Asia Capital Limited has been appointed as the independent financial adviser to advise the Independent Board Committee and Independent Shareholders in this regard. A circular containing, among other things, further details of the Acquisition and the allotment and issue of the Consideration Shares, the advice from the Independent Board Committee to Independent Shareholders, the recommendation of the independent financial adviser to the Independent Board Committee and Independent Shareholders in respect of the Acquisition, the notice of the EGM and information on the Company will be sent to the Shareholders as soon as possible in compliance with the Listing Rules. Definitions In this announcement, the following terms shall have the following meaning: