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Pinnacle - Pinnacle acquire remaining 50% shareholding in Explix
Pinnacle Technology Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1986/000334/06)
Share code: PNC & ISIN code: ZAE000022570
("Pinnacle" or "the company")
PINNACLE ACQUIRE REMAINING 50% SHAREHOLDING IN EXPLIX
PINNACLE ACQUIRE REMAINING 50% SHAREHOLDING IN EXPLIX
1. Introduction
Bishop Corporate Finance (Proprietary) Limited is authorised to announce that
Pinnacle has reached agreement with:
* Hendev (Proprietary) Limited ("Hendev") in terms of which Pinnacle will
acquire 35% of the issued share capital of Explix (Proprietary) Limited
("Explix") and related shareholders claims for a total purchase
consideration of R 25 739 113 ("the Hendev acquisition"); and
* ITCM Channel Management (Proprietary) Limited ("ITCM") in terms of which
Pinnacle will acquire 15% of the issued share capital of Explix and
related shareholders claims for a minimum purchase consideration of R 7
669 710 ("the ITCM acquisition"),
(together referred to as "the acquisitions").
The acquisition of the share capital from Hendev and ITCM as referred to
above will be effective from 1 March 2006 ("the effective date"), subject to
the fulfilment of certain conditions precedent. The acquisition of the
respective shareholders claims will be effective from the completion date,
being the second day following the fulfilment of the conditions precedent
("the completion date"). Following the acquisitions, Explix will be a wholly
owned subsidiary of Pinnacle.
2. Background to Explix
Explix is a focused value added Information Technology ("IT") distribution
company operating through dedicated business units and taking various best of
breed products to specific market segments. The software market is addressed
through Explix"s Workgroup division ("Workgroup"). Workgroup, as a trading
brand, is well established within the South and Southern African IT markets
and has traded successfully for the last 16 years. Workgroup is regarded as
the largest focused software distributor in South Africa servicing the IT
channel from its national branch infrastructure situated in Johannesburg,
Cape Town, Durban, Port Elizabeth, and it"s African presence in Angola,
Botswana, Mozambique, Namibia, and Zambia. Other divisions within Explix
include CREW, which focuses on the retail market, Merchandise IT ("MIT")
which performs retail merchandising and marketing service functions on behalf
of retail vendors and Horizon, which is the Channel Development Provider for
Sun Microsystems in Sub Saharan Africa.
* Explix has been driving it"s Black Economic Empowerment ("BEE") strategy
through the balanced scorecard approach as formulated by the Department
of Trade and Industries" "Strategy for Broad Based Black Economic
Empowerment". As a wholly owned subsidiary of Pinnacle, Explix has an
effective BEE shareholding of approximately 30%.
3. Rationale for the acquisitions
Pinnacle continues its evolution to a fully diversified ICT group, striving
to provide world-class goods and services to its client base with unsurpassed
dedication and efficiency. The acquisition of the remaining 50% of Explix
will increase the number of agencies and opportunities available to clients
and vendors, assist in the penetration of new markets and unlock operational
synergies within the group. The solutions offered by the new Pinnacle group
("the Group") will now provide the critical mass to cement the initiatives
regarding further expansion in Africa
The value of the existing brands of Workgroup, Horizon, CREW and MIT were
recognised in the acquisitions. The continuation of unsurpassed focus and
service rendered to their respective vendors and suppliers is ensured through
the long term employment agreements entered into between Explix and senior
management, and is expected to materially contribute to the future success of
the Group
4. Terms of the Hendev acquisition
Subject to the conditions precedent set out in paragraph 6 below, with effect
from:
* the effective date, Pinnacle will acquire 35% of the issued share
capital of Explix ("the Hendev shares") for a total cash consideration
of R15 343 123; and
* the completion date, Pinnacle will take cession of all Hendev"s
shareholders claims against Explix ("the Hendev claims") as at the
completion date, for a total cash consideration of R10 395 990.
The total purchase consideration of R 25 739 113 in respect of the Hendev
shares and the Hendev claims, will be paid in three equal payments of R 8 579
704 each. The first payment is payable on the completion date, the second
payment on the first anniversary of the completion date, and third and final
payment on the second anniversary of the completion date. Pinnacle has the
option to settle the second and third payments on earlier dates in its sole
and absolute discretion. The second and third payments shall bear interest at
the rate of 10% per annum, payable monthly in arrears.
The Hendev acquisition is subject to warranties normal to a transaction of
this nature. Furthermore, Hendev and its shareholder, Cyril Biddlecombe, have
also agreed to the necessary restraint of trade provisions to protect the
business interests of Explix and Pinnacle.
5. Terms of the ITCM acquisition
Subject to the conditions precedent set out in paragraph 6 below, with
effect from:
* the effective date, Pinnacle will acquire 15% of the issued share
capital of Explix (`the ITCM shares") for a minimum consideration of R4
500 000; and
* the completion date, Pinnacle will take cession of all ITCM"s
shareholders claims against Explix ("the ITCM claims") as at the
completion date, for a total cash consideration of R 3 169 710.
The purchase consideration of R 4 500 000 in respect of the ITCM shares,
payable on the completion date, will be increased to a maximum consideration
of R 6 428 780, if an agreed audited profit after tax target in respect of
the financial year ending 30 June 2006 is achieved. The purchase
consideration in respect of the ITCM shares will be satisfied by way of
transferring existing Pinnacle shares (held in treasury) to ITCM valued at R
1.80 per share (the Pinnacle share price used was based on ninety percent of
the 30 day volume weighted average price on the JSE Limited ("JSE") as at 3
April 2006). ITCM shall not be entitled to sell, or otherwise dispose of or
encumber a minimum of fifty percent of the Pinnacle shares received from the
ITCM acquisition, until 30 June 2007. The Pinnacle shares so restricted will
be beneficially owned by Douglas Woolley and Vaughn Parkin, executive
management of Explix. As security for ITCM"s obligation in this regard, they
will pledge the appropriate number of Pinnacle shares back to Pinnacle.
Tugendhaft Wapnick Banchetti and Partners will act as escrow agent in this
regard. The payment in respect of the ITCM claims of R 3 169 710, is payable
in cash on the completion date.
The ITCM acquisition is subject to warranties and indemnities normal to a
transaction of this nature. Furthermore, ITCM, Douglas Woolley, Vaughn
Parkin and Dave Lello, have also agreed to the necessary restraint of trade
provisions to protect the business interests of Explix and Pinnacle. Douglas
Woolley and Vaughn Parkin, the executive management of Explix, have further
agreed to enter into standard employment agreements with Explix, the
duration of which shall be three years from the completion date.
6. Conditions precedent
The acquisitions are subject to the following conditions precedent:
*approval of the terms and conditions thereof by the shareholders of
Pinnacle at a general meeting, and the passing of all necessary ordinary
resolutions in that regard,
*the conclusion of employment agreements between Explix and Douglas
Woolley, and between Explix and Vaughn Parkin;
*The ITCM agreement is subject to the procurement by ITCM of written
undertakings of certain product vendors not to terminate the vendor
agreements in place as a result of the transaction contemplated;
*The ITCM agreement is subject to the conclusion of the Hendev
acquisition and the fulfilment of all conditions precedent to which such
transaction may be subject;
*The Hendev agreement is subject to the conclusion of the ITCM
acquisition and the fulfilment of all conditions precedent to which such
transaction may be subject; and
*the procurement of all regulatory approvals, which may be required to
conclude the acquisitions, including approvals from the relevant
competition authority and the JSE.
7. Pro forma financial effects
The unaudited pro forma financial effects provided are the responsibility of
the directors of Pinnacle. The unaudited pro forma financial effects are to
provide investors with information about the impact of the acquisitions. The
unaudited pro forma financial effects has been prepared for illustrative
purposes only and, because of its nature, may not fairly reflect the
financial position of Pinnacle, changes in its equity or results of its
operations or cash flows after implementation of the acquisitions.
The unaudited pro forma financial effects of the acquisitions on the basic
earnings, headline earnings, net asset value and net tangible asset value
per share, before and after the acquisitions, are set out below. To present
more meaningful information, the financial effects have been calculated also
taking into account the recently concluded black economic empowerment
transaction with Amabubesi Investments (Pty) Limited ("BEE transaction").
Before After BEE After Change
Per ordinary share (cents) (cents) Acquisition (%)
B (cents)
A C (C-B)/B
Basic and headline earnings
Basic earnings per ordinary 11.9 11.2 12.5 11.6
share
Headline earnings per ordinary 12.2 11.6 12.8 10.3
share
Net asset value and net
tangible asset value
Net asset value per ordinary 82.1 89.3 89.3 -
share
Net tangible asset value per 68.8 76.0 63.2 (16.8)
ordinary share
Weighted average number of 144 109 144 109 144 109 -
ordinary shares in issue
(`000)
Total number of ordinary 148 096 148 096 148 096 -
shares in issue (`000)
Notes:
1. The amounts in the "Before" column are based on the headline earnings
and earnings per share as reported in the interim financial results of
Pinnacle for the six month period ended 31 December 2005. The amounts
in the "After-BEE" column represent the headline earnings and earnings
that would have accrued per share for the six month period ended 31
December 2005 based on the assumptions in respect of the BEE transaction
as set out in the circular to shareholders dated 13 March 2006. The
amounts in the "After-Acquisition" column represent the headline
earnings and earnings that would have accrued per share for the six
month period ended 31 December 2005 based on the following assumptions:
* The acquisitions and BEE transaction were effective 1 July 2005;
* The unaudited financial results of Explix, a 100% subsidiary, for
the six months ended 31 December 2005;
* Interest earned on positive cash balances was reduced by the
equivalent of 6.5% p.a. calculated on the cash consideration of the
first Hendev payment, the cash requirement to provide treasury
shares to ITCM and the purchase consideration in respect of the
ITCM claims; and
* Interest charges were increased by the contractually agreed 10%
p.a. calculated on the 2nd and 3rd payments of the purchase
consideration due to Hendev.
2. The amounts in the "Before" column are based on the net asset value
per share and net tangible asset value per share as reported in the
interim financial results of Pinnacle for the six month period ended 31
December 2005. The amounts in the "After-BEE" column represent the net
asset value per share and net tangible asset value per share at 31
December 2005 based on the assumptions in respect of the BEE transaction
as set out in the circular to shareholders dated 13 March 2006. The
amounts in the "After-Acquisition" column represent the net asset value
per share and net tangible asset value per share at 31 December 2005
based on the following assumptions:
* The acquisitions and BEE transaction were effective 31 December
2005;
* The unaudited financial results of Explix, a 100% subsidiary, for
the six months ended 31 December 2005;
* Available cash resources were reduced by the cash considerations
required to satisfy the first Hendev payment, the cash requirement
to provide treasury shares to ITCM and the purchase consideration
in respect of the ITCM claims;
* The 2nd and 3rd payments of the purchase consideration due to
Hendev remaining unpaid on 31 December 2005; and
* The goodwill attributed to the acquisitions were R18,3 million.
8. Related parties and independent financial advice
Hendev is owned and controlled by the chairman and large shareholder of
Pinnacle, Cyril Biddlecombe. Furthermore, ITCM is owned by the family trusts
of three directors of Explix (currently a 50% subsidiary of Pinnacle), Dave
Lello, Douglas Woolley and Vaughn Parkin. In terms of the JSE Listings
Requirements, Hendev and ITCM are deemed related parties to the acquisitions.
The JSE has therefore requested the company to obtain independent financial
advice regarding the acquisitions. The board of directors have appointed
Arcay Corporate Services, a division of Arcay Client Support (Pty) Ltd, as
the independent expert.
9. Amendment to the Pinnacle BEE Share Purchase Scheme and notice of general
meeting
A circular containing full details of the acquisitions, and a proposed
amendment to the current Pinnacle BEE Share Purchase Scheme ("the Scheme
amendment"), including a notice to shareholders convening a general meeting
to be held to enable shareholders to consider and if deemed fit to approve,
with or without modification, the resolutions required to implement the
acquisitions and the Scheme amendment, will be posted to shareholders during
July 2006.
Midrand
14 June 2006
Corporate Adviser
Bishop Corporate Finance
Attorneys
TWB
Sponsor
Deloitte&Touche Sponsor Services
Independent Expert
Arcay Corporate Services
Reporting Accountants
BDO Simama Incorporated
Date: 14/06/2006 07:00:09 AM Supplied by www.sharenet.co.za
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