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Detailed terms announcement re acquisition of minority interests of two subsidiaries and withdrawal of cautionary
CONVERGENET HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number 1998/015580/06)
Share code: CVN ISIN: ZAE000102067
(“ConvergeNet” or “the Company”)
DETAILED TERMS ANNOUNCEMENT REGARDING THE ACQUISITION OF
MINORITY INTERESTS OF TWO SUBSIDIARIES AND WITHDRAWAL OF
CAUTIONARY ANNOUNCEMENT
INTRODUCTION
Further to the cautionary announcement released on Securities
Exchange News Service on 2 November 2012, the Company is
pleased to advise shareholders that negotiations with regards
to the proposed purchase of minority interests in certain
subsidiaries have been concluded and proposed terms outlined
in this announcement.
BACKGROUND AND RATIONALE
ConvergeNet’s current strategy is to close down or dispose of
non-core businesses as well as gain full control of its
identified core subsidiaries in order to streamline operations
and establish a clear focus of activities.
The first step in this process was concluded during September
2011 when ConvergeNet acquired the remaining 10% interest in
Structured Connectivity Solutions (Pty) Ltd (“SCS”) following
which ConvergeNet now owns 100% of SCS. The SCS business has
shown a positive turnaround in the current financial period
and has a solid pipeline of new projects.
In addition, ConvergeNet disposed of its remaining 15%
shareholding in Future Cell (Pty) Ltd to Pepkor Limited on 7
September 2012 (details of which were published on SENS on 10
September 2012).
Following these actions and in accordance with ConvergeNet’s
strategy, the Company has concluded agreements to acquire the
remaining minority interests in its two largest subsidiary
companies namely, a 25% interest in Sizwe Africa IT Group
(Pty) Ltd (“Sizwe”) and a 26% interest in Andrews Kit (Pty)
Ltd (trading as Contract Kitting (Pty) Ltd) (“Contract
Kitting”), both acquisitions referred to as the
“Transactions”. Details of the Transactions are contained
below.
ACQUISITION OF MINORITY INTEREST IN CONTRACT KITTING
TERMS OF THE ACQUISITION
On 22 November 2012, the Company entered into a Sale of Shares
Agreement with Noel Andrews and John Andrews (“the Sellers”)
for the purchase of all of the ordinary shares in the issued
ordinary share capital of ChrystalPine Investments 9 (Pty) Ltd
(“ChrystalPine”), which owns 100% of Contract Kitting (a 74%
owned subsidiary of the Company), constituting 26% of the
entire issued ordinary share capital (“Sale Shares”) and the
Sellers' claims (“Sales Claims”) (“Contract Kitting
Transaction”) on the following terms:
* The purchase price for the Sale Shares and the Sale Claims is
R20 000 000.00 (Twenty Million Rand) (“the Purchase Price”),
payable to the Sellers, in accordance with the sellers'
proportions, as follows:-
* R6 000 000 (Six Million Rand) payable in cash after the
conditions precedent have been fulfilled;
* R7 000 000 (Seven Million Rand) payable in cash on 31 August
2013; and
* R7 000 000 (Seven Million Rand) payable in cash on 31 August
2014.
The effective date of the Contract Kitting Transaction is on
fulfilment of all the conditions precedent.
Purchase Price Adjustment
The said purchase price shall be subject to adjustment as
follows:
* If the average Profit After Tax (“PAT”) of Contract Kitting
for the financial years ending on 31 August 2013 and 2014
("the Measurement Period") exceeds R10 350 000 (Ten Million,
Three Hundred and Fifty Thousand Rand) (“the Base PAT”) then
the purchase price for the Sale Shares shall be increased in
accordance with a predetermined formula ("the Agterskot");
provided that the Agterskot shall not exceed the Rand
equivalent of 26% of the Contract Kitting net asset value
less R20 000 000.00 (being the purchase price of the Sale
Shares) (“the Maximum Agterskot”);
* The Agterskot shall be paid within 10 days after delivery of
a certificate from the auditors of Contract Kitting
confirming the amount of the Agterskot. Such certificate
shall be delivered by no later than 1 December 2014.
* Notwithstanding the above if the PAT of Contract Kitting in
the financial year ending 31 August 2013 exceeds the Base
PAT then a provisional payment ("the provisional payment")
in respect of such period shall become due by the Company to
the Sellers of such amount exceeding the Base PAT ("Super
PAT 2013");
* The provisional payment shall be made within 10 days after
delivery of a certificate from the auditors of Contract
Kitting confirming the amount of the provisional payment,
but no later 14 December 2013;
* The quantum of the provisional payment shall not exceed 50%
of the Maximum Agterskot;
* The purchase price shall not be adjusted below
R20 000 000.00 in the event that the adjustment arising from
a lower average PAT of Contract Kitting for the financial
years ending on 31 August 2013 and 2014 than the Base PAT.
* The agreement provides for the immediate transfer of shares
and resignation of the Sellers from the Contract Kitting and
ChrystalPine board of directors after the conditions
precedent have been fulfilled.
CONDITIONS PRECEDENT
The following remaining conditions precedent requires
fulfilment in terms of the above-mentioned sale of shares
agreement:
* Approval from the JSE Limited pertaining to related party
transactions by 31 March 2013; and
* ConvergeNet shareholder approval by no later than 31 March
2013.
WARRANTIES
The Contract Kitting Transaction contains warranties usual for
such a transaction.
CATEGORISATION
This proposed Contract Kitting Transaction is a Category 2
acquisition for the Company in terms of the JSE Limited’s
Listings Requirements. In addition, by virtue of the fact that
the Sellers are current directors on the ChrystalPine and
Contract Kitting board of directors, the transaction is also
deemed a related party transaction per the JSE Limited
Listings Requirements. A circular to shareholders as well as a
fairness opinion from an Independent Expert are required.
ACQUISITION OF MINORITY INTEREST IN SIZWE
TERMS OF THE ACQUISITION
On 22 November 2012, the Company entered into a Sale of Shares
Agreement with Yellow Star Group (Pty) Ltd (“Yellow Star”) for
the purchase of all of the ordinary shares in the issued
ordinary share capital of Sizwe Africa IT (Pty) Ltd (“Sizwe”)
owned by Yellow Star, constituting 25% of the entire issued
ordinary share capital of Sizwe (“Sale Shares”) for an
aggregate purchase price of R45 000 000 (forty five million
Rand)("Sizwe Purchase Price") payable by the Company to Yellow
Star (“Sizwe Transaction”). The effective date of the Sizwe
Transaction is on fulfilment of the conditions precedent.
The Sizwe Purchase Price shall be payable as follows –
* an amount of R 4 000 000 cash payable on the Signature Date
of the Sale of Shares Agreement (should the suspensive
conditions not be met by 31 March 2013, Yellow Star shall
be required to reimburse the Company for the amount of R
4 000 000 paid);
* an amount of R 4 000 000 cash payable on the day following
fulfilment of all suspensive conditions;
* an amount of R 5 000 000 on or before 30 June 2013; and
* the issue and allotment of 100 000 000 listed shares in the
Company at an issue price of R0.32 per share.
Purchase Price Adjustment
* In the event that Sizwe achieves a NPAT equal to or in
excess of R 40 000 000 (“Base-Line NPAT”) for the financial
year ending 31 August 2013, the Sizwe Purchase Price shall
be increased by R 15 000 000, which is payable in cash.
* In the event that the NPAT of Sizwe is between R 30 000 000
(“Bottom Line”) and R 40 000 000, the Purchase Price shall
be increased by R 1 500 000 for every completed R 1 000 000
(but not part thereof) by which the NPAT exceeds the Bottom
Line.
* In the event that the NPAT of Sizwe is less than the Bottom
Line, there shall be no increase in the Purchase Price.
* The Purchase Price Adjustment shall be paid within 30 days
after the finalisation of the audited financial statements
of Sizwe.
CONDITIONS PRECEDENT
The following remaining conditions precedent requires
fulfilment in terms of the above-mentioned sale of shares
agreement:
* JSE unconditional approval of the circular and listing of
the consideration shares;
* Absa Capital, a division of Absa Bank Limited, granting
approval to Yellow Star to sell the Sale Shares to the
Company; and
* ConvergeNet shareholder approval of the acquisition as the
well as the increase of authorised share capital of the
Company and simultaneous conversion to no par value shares
in accordance with the Companies Act No. 71 of 2008, as
amended.
WARRANTIES
The Sizwe Transaction contains warranties usual for such a
transaction.
CATEGORISATION
This proposed Sizwe Transaction is a Category 1 acquisition
for the Company in terms of the JSE Limited’s Listings
Requirements. In addition, by virtue of the fact that Yellow
Star is a material shareholder of the Company and that certain
of the Yellow Star directors are also directors of the
Company, the acquisition will similarly be deemed a related
party transaction per the JSE Limited Listings Requirements. A
circular to shareholders as well as a fairness opinion from an
Independent Expert are required.
Black Economic Empowerment TRANSACTION (“BEE”)
Although the cautionary announcement referred to above made
mention of negotiations regarding a proposed BEE transaction,
the Company, at this stage, has not concluded negotiations in
this regard. The Company intends to revisit discussions and
consideration for a robust, comprehensive BEE deal in the
short term. Shareholders will be kept appraised of any
developments in this regard.
UNAUDITED PRO FORMA FINANCIAL EFFECTS
The unaudited pro forma financial effects of the Transactions
on Shareholders are the responsibility of the ConvergeNet
directors and have been prepared for illustrative purposes
only to provide information about how the Transactions may
affect the financial position and results of ConvergeNet and,
because of its nature, may not give a fair reflection of
ConvergeNet’s financial performance and position, changes in
equity, and results of operations and cash flows after the
Transactions, and are based on the assumptions that:
- For the purpose of calculating earnings per share and
headline earnings per share, the Transactions were
implemented from 1 September 2011; and
- For the purpose of calculating net asset value per share
and net tangible asset value per share, the Transactions
were implemented on 31 August 2012.
The accounting policies of ConvergeNet have been used in
calculating the pro-forma financial effects. The pro forma
financial information is prepared in terms of the Listings
Requirements of the JSE and guidelines issued by the South
African Institute of Chartered Accountants.
Before Effect of After
the Contract Effect of Transactions
Transacti Kitting Sizwe %
1
ons Transaction Transaction change
Loss per share (4.07)
(cents) (4.91) 0.29 0.55 17.2
Diluted loss per (4.05)
share (cents) (4.89) 0.29 0.55 17.1
Headline loss per (4.13)
share (cents) (5.01) 0.33 0.56 17.7
Diluted headline (4.11)
loss per share
(cents) (4.98) 0.32 0.55 17.5
Net asset value 45.98
per share (cents) 48.05 0.32 (2.39) (4.3)
Net tangible 27.84
assets value per
share (cents) 27.88 0.32 (0.35) (0.1)
Total number of 921 285 996 748 185
shares in issue 941 - 75462244 8.2
Weighted average 990 792 352
number of
ordinary shares 890 792
in issue 352 - 100 000 000 11.2
Weighted average 995 205 685
diluted number of
ordinary shares 895 205
in issue 685 - 100 000 000 11.2
Number of 987 878 185
ordinary shares
in issue net of 887 878
treasury shares 185 - 100 000 000 11.3
Notes and assumptions:
1. The amounts set out in the “Before the Transactions”
column above have been extracted from the published
audited consolidated financial results of ConvergeNet for
the year ended 31 August 2012.
2. Loss per share, diluted loss per share, headline loss per
share and diluted headline loss per share in the “Effect
of Contract Kitting Transaction” column take into account
the following:
* Bargain purchase of R4 108 000; and
* Once-off transaction costs of R1 007 000;
3. Loss per share, diluted loss per share, headline loss per
share and diluted headline loss per share in the “Effect
of Sizwe Transaction” column take into account the
following:
* Once-off transaction costs of R2 153 000;
4. Net asset value per share and tangible net asset value per
share in the “Effect of Contract Kitting Transaction”
column take into account the following:
* Cash of R6 000 000 utilised; and
* Once-off transaction costs of R1 007 000.
5. Net asset value per share and tangible net asset value per
share in the “Effect of Sizwe Transaction” column take
into account the following:
* Cash of R13 000 000 utilised;
* Transaction with minorities through equity of
R8 119 000;
* The issue of 75 462 244 new shares at 32 cents per
share;
* The utilisation of 24 537 756 treasury shares; and
* Once-off transaction costs of R2 153 000.
DOCUMENTATION AND SALIENT DATES
Further details of the Transactions will be included in a
circular to be sent to Shareholders in due course, which will
include fairness opinions from an Independent Expert, and
which will contain, inter alia, a notice of the General
Meeting and a form of proxy (the “Circular”).
The salient dates in relation to the Transactions will be
published on or about the date of posting of the Circular.
WITHDRAWAL OF CAUTIONARY
Following the release of this terms announcement, the
cautionary announcement released on 2 November 2012 is hereby
withdrawn.
RESPONSIBILITY STATEMENT
The ConvergeNet board accepts responsibility for the
information contained in this announcement. To the best of
their knowledge and belief, the information contained in this
announcement is true and nothing has been omitted which is
likely to affect the importance of the information included.
Johannesburg
23 November 2012
Corporate adviser: AfrAsia Corporate Finance Proprietary
Limited
Sponsor: Deloitte & Touche Sponsor Services Proprietary
Limited
Date: 23/11/2012 03:35:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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