The negotiations with Virgin Active follow the failure of earlier talks by LeisureNet to sell its 57.8% stake in Healthland International to Fitness Holdings Worldwide. LeisureNet gave no reasons for the failure of those talks.
LeisureNet said in a statement under the letter of intent signed with Virgin Active that Virgin Active would form a new company Newco to acquire all the shares of Virgin Active and all those of Healthland.
Newco would pay LeisureNet £35m, which would be settled by Newco issuing unlisted shares valued at £23m and a subordinated note with a face value of £12m with 10 years' maturity.
LeisureNet said the merger of Healthland and Virgin Active would provide Newco with critical mass and position it as a leading health and fitness group in the United Kingdom, Continental Europe and Australia with strong Virgin branding.
"LeisureNet will be in a position to focus on its local operations and core business, the Health and Racquet Club, where it is the dominant player," it said.
LeisureNet said last month Healthland's aggressive roll-out strategy and programme had caused undue pressure on LeisureNet's management and financials resources.
It said the Virgin Active transaction was subject to due diligence and approvals from LeisureNet shareholders, the Johannesburg Stock Exchange as well as the South African Reserve Bank exchange control department.