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The sale of Convergenet’s interest in Future Cell (Pty) Ltd and share buyback 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”)
ANNOUNCEMENT REGARDING:
* THE SALE OF CONVERGENET’S REMAINING INTEREST IN FUTURE CELL PROPRIETARY
LIMITED (“FUTURE CELL”) TO PEPKOR LIMITED (“PEPKOR”);
* THE SPECIFIC PURCHASE BY CONVERGENET MANAGEMENT SERVICES PROPRIETARY
LIMITED (“CMS”), A WHOLLY OWNED SUBSIDIARY OF CONVERGENET, OF 71 478 594
CONVERGENET ORDINARY SHARES FROM TITAN SHARE DEALERS PROPRIETARY
LIMITED (“TITAN”); AND
* WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
Further to the cautionary announcement released on the Securities Exchange News Service on Tuesday,
31 July 2012 and in the press on Wednesday, 1 August 2012, shareholders are advised that ConvergeNet
has entered into a sale agreement (“Sale Agreement” or “Future Cell Sale Agreement”) with Pepkor on 7
September 2012 for the sale of ConvergeNet?s remaining 15.05% interest in Future Cell, being 158 shares
(“Sale Shares”) for R40 million in cash (“Sale Price”), subject to the fulfilment of the suspensive conditions
in paragraph 2.4 below, on the first business day after the date on which the last suspensive condition set
out in paragraph 2.4 has been fulfilled (“the Closing Date”) (“the Future Cell Transaction”).
ConvergeNet shareholders are also advised that CMS has entered into a share purchase agreement (“the
Share Purchase Agreement” or “the Titan Share Purchase Agreement”) with Titan on 7 September 2012 to
purchase 71 478 594 ConvergeNet ordinary shares (“Purchase Shares”), representing 7.759% of the
issued share capital of ConvergeNet, at 29,675 cents per share, amounting to R 21 211 110 from Titan in
terms of section 48 of the Companies Act 71 of 2008 as amended (“the Act”), subject to the fulfilment of the
suspensive conditions set out in paragraph 3.4 below (“the Titan Share Purchase Transaction”). The
effective date of the Titan Share Purchase Transaction is the first business day following the date upon
which the last suspensive condition is waived or fulfilled (as the case may be) (“the Effective Date”).
2. THE FUTURE CELL TRANSACTION
The Future Cell Transaction has been entered into in terms of the Sale Agreement dated 7 September
2012.
2.1 Business of Future Cell
Future Cell is a focused mobile telecommunications company and operates in the pre-paid distribution
business. The company is characterised by strong systems, processes and skills in this market. Future Cell
distributes its pre-paid products in a number of provinces countrywide.
2.2 Rationale for the Future Cell Transaction
* The board of directors of ConvergeNet (“Board”) has determined that the Company should exit
sub-scale or loss making business units as well as minority interests where the Company has no
strategic influence. The strategy of the Company going forward will be to focus on identified core
operations and to grow these organically and via a disciplined acquisition strategy.
* The sale of the Sale Shares to Pepkor was envisaged to occur towards the end of 2013 but the
Board determined that it would be in the best interests of the Company to accelerate the sale in
line with the strategy outlined above.
* The original transaction structure of the Future Cell Sale Transaction was such that ConvergeNet
has no ability to influence or control the strategy or profitability of Future Cell. In addition, a lack of
dividend flows from Future Cell limited the value of this asset to ConvergeNet.
* The Sale Price represents an attractive valuation and the Board has determined that the sale
proceeds will be more profitably invested in a return of cash to shareholders via a share
repurchase, and by investing in the expansion plans that have been approved for its core operating
subsidiaries.
2.3 Terms
2.3.1 Pepkor will pay the Sale Price to ConvergeNet for the Sale Shares on the Closing Date.
2.3.2 The Sale Price will be payable by Pepkor to ConvergeNet immediately after having received
transfer of the Sale Shares on the Closing Date.
2.3.3 The Sale Price shall be paid by electronic transfer of immediately available funds as follows:
2.3.3.1 Pepkor shall pay the amount of R18 788 890.00 (eighteen million, seven hundred and
eighty eight thousand, eight hundred and ninety Rand) into the bank account of
ConvergeNet; and
2.3.3.2 Pepkor shall pay the amount of R21 211 110.00 (twenty one million, two hundred and
eleven thousand, one hundred and ten Rand) as follows:
2.3.3.2.1 if the Titan Share Purchase Agreement has been entered into and is still
subject to the fulfilment or waiver of one or more of the suspensive conditions
that it may be subject to at the time when the Sale Price becomes payable in
terms of the Sale Agreement, the aforesaid amount shall be paid into the bank
account of Werksmans Attorneys, to be held in trust by Werksmans Attorneys
on behalf of ConvergeNet in a separate escrow account, in accordance with
the terms contained in the draft escrow letter attached to the Titan Share
Purchase Agreement; or
2.3.3.2.2 if the Titan Share Purchase Agreement has become unconditional and
payment is due and payable to Titan in terms thereof at the time when the
Sale Price becomes payable in terms of the Sale Agreement, the aforesaid
amount shall be paid into the bank account of Titan; or
2.3.3.2.3 if the Titan Share Purchase Agreement has not been entered into or has
lapsed or is terminated, the aforesaid amount will be paid into the bank
account of ConvergeNet.
ConvergeNet has provided warranties to Pepkor that are usual for a transaction of this nature. On
finalisation of the Sale Agreement, the put and call option agreement entered into between Pepkor,
ConvergeNet and Future Cell on 1 July 2010 (the “Put and Call Agreement”) will terminate. Existing put
and call options granted in terms of the Put and Call Agreement (the “Put and Call Options”) will be
cancelled.
The proceeds of the Future Cell Transaction will be partially used to fund the Titan Share Purchase
Transaction with the balance to be used for general corporate purposes, including expansion capital for
underlying subsidiary companies.
2.4 Suspensive conditions
The Future Cell Transaction is subject to the fulfilment of the following suspensive conditions by no later
than 30 November 2012:
2.4.1 the Takeover Regulation Panel established in terms of section 196 of the Act has in terms of
section 119(4)(b) issued a compliance certificate in respect of the Future Cell Transaction or has in
terms of section 119(6) exempted Pepkor and ConvergeNet from compliance with any of the
provisions of Parts B and C of the Act and the Takeover Regulations as defined in section 120 of
the Act in respect of the Future Cell Transaction; and
2.4.2 the shareholders of ConvergeNet have in terms of paragraph 10.4 of the JSE Limited Listings
Requirements (“Listings Requirements”) adopted an ordinary resolution approving the Future Cell
Transaction or the JSE Limited (“JSE”) has (to the extent possible) issued a ruling confirming that
they exercise their discretion not to classify the Future Cell Transaction as a related party
transaction.
2.5 Categorisation
In terms of the Listings Requirements, Pepkor is considered an associate of Titan, which is a material
shareholder of ConvergeNet. The Future Cell Transaction is therefore categorised as a related party
transaction in terms of the Listings Requirements and requires a fairness opinion by an independent expert
and ConvergeNet shareholder approval. The Future Cell Transaction is also a category 2 transaction in
terms of Listings Requirements.
The Board will appoint an independent expert acceptable to the JSE (the “Independent Expert”) to
determine if the terms and conditions of the Future Cell Transaction are fair to the ConvergeNet
shareholders. The Independent Expert?s opinion will be included in the circular to be posted to
shareholders, as per paragraph 5 below.
The Board?s opinion and recommendation after taking into account inter alia the opinion of the Independent
Expert will also be included in the circular to ConvergeNet shareholders.
3. THE TITAN SHARE PURCHASE TRANSACTION
A purchase price offered of 29.675 cents per ordinary share by CMS has been accepted by Titan, which
represents a discount of 4.77% to the 30 business day volume weighted average price of 31.16 cents per
share up to and including 6 August 2012, being the last business day prior to the date the final terms of the
Titan Share Purchase Transaction were agreed.
3.1 Rationale for the Titan Share Purchase Transaction
* The agreed purchase price of 29.675c represents an attractive investment opportunity for
ConvergeNet which the Board believes is a significant discount to the intrinsic value of the
Company?s shares.
* The purchase provides a unique and attractive opportunity to return value received from the Future
Cell Transaction to ConvergeNet shareholders.
* The purchase also provides the Company with additional flexibility in relation to its future funding
requirements, including in respect of potential acquisitions and a new BEE transaction.
3.2 Terms
3.2.1 The purchase consideration for the Titan Share Purchase Transaction amounts to R21 211 110
payable in cash (“Purchase Consideration”) on the Effective Date.
3.2.2 Pepkor shall make payment of the purchase consideration of R40 million (“Future Cell
Consideration”) in accordance with the terms of the Future Cell Sale Agreement on the Closing
Date, which date is anticipated to be the Effective Date.
3.2.3 Subject to clause 3.2.1 above, ConvergeNet shall lend and advance an amount equal to the
Purchase Consideration to CMS in accordance with section 44 of the Act.
3.2.4 In the event that the Closing Date coincides with the Effective Date, and subject to the fulfilment or
waiver of the suspensive conditions (listed in clause 3.4 below), ConvergeNet shall instruct Pepkor
to pay an amount equal to the Purchase Consideration from the Future Cell Consideration (in
accordance with the Future Cell Sale Agreement) directly to Titan on behalf of CMS, as
consideration for the purchase of the Purchase Shares, on or as soon as possible after the Effective
Date.
3.2.5 In the event that the Future Cell Sale Agreement completes prior to the Share Purchase Agreement,
and the Future Cell Consideration becomes due and payable to ConvergeNet before the Effective
Date:
(1) ConvergeNet, CMS and Titan will enter into an escrow letter with Werksmans Incorporated (“the
Escrow Agent”) in the form of the draft escrow letter attached to the Share Purchase Agreement
should it be required, in terms of which the Purchase Consideration will be held in trust by the
Escrow Agent;
(2) Pepkor will pay the Purchase Consideration into the account of the Escrow Agent (the details of
which are set out in the Escrow Letter) on the Closing Date to be held in trust in accordance with
the terms of the Escrow Letter; and
(3) ConvergeNet will instruct the Escrow Agent to pay the Purchase Consideration to Titan on
behalf of CMS on the Effective Date.
Titan gives to ConvergeNet the following warranties, each of which Titan warrants will be correct as at the
signature date of the Share Purchase Agreement and the Effective Date:
(1) Titan is the sole registered owner of the Purchase Shares and is duly authorised to enter into the
Share Purchase Agreement;
(2) the Purchase Shares are free and clear of any lien, charge or encumbrance whatsoever and there is
no outstanding call on any of the Purchase Shares and all such shares are fully paid; and
(3) Titan is entitled and able to give ConvergeNet free and unencumbered title to the Purchase Shares.
After the conclusion of the Titan Share Purchase Transaction, 92 128 594 ConvergeNet ordinary shares,
representing 10% of the issued shares in ConvergeNet, will be held as treasury shares by CMS.
3.3 Categorisation
The Titan Share Purchase Transaction is classified as a specific purchase of securities in terms of section
5.67 of the Listings Requirements from a related party as defined in Section 10.1(b) of the Listings
Requirements, as Titan is a material shareholder holding 11.1% of the issued share capital of the
Company (net of treasury shares) before the Titan Share Purchase Transaction.
As the price at which the securities are purchased is not at a premium to the volume weighted average
traded price over the 30 days prior to the date the final terms of the Titan Share Purchase Transaction
were agreed, a fairness opinion is not required in terms of the Listings Requirements.
3.4 Suspensive conditions
The Titan Share Purchase Transaction is subject to the fulfilment or waiver (to the extent capable of
wavier) of the following suspensive conditions by not later than 30 November 2012 (or such later date
as may be agreed by the parties in writing):
(1) the Future Cell Sale Agreement being executed and becoming unconditional in accordance with its
terms (save for any condition relating to the conclusion of the Share Purchase Agreement);
(2) the board of directors of Titan authorising the sale of the Purchase Shares to CMS and the conclusion
of the Share Purchase Agreement on the terms and conditions set out therein;
(3) the approval of the acquisition of the Purchase Shares by the requisite majority of the directors of
ConvergeNet and CMS as contemplated in section 48, read with section 46, of the Act;
(4) the approval of the provision of financial assistance by ConvergeNet in favour of CMS for the payment
of the Purchase Consideration by the requisite majority of the directors of ConvergeNet as
contemplated in section 44 of the Act;
(5) the approval of the Titan Share Purchase Transaction by the shareholders of ConvergeNet by way of
special resolution at a general meeting as contemplated in article 37 of the memorandum of
incorporation of ConvergeNet and paragraph 5.67(B) of the Listings Requirements;
(6) the approval of the provision of financial assistance by ConvergeNet in favour of CMS for the payment
of the Purchase Consideration by the shareholders of ConvergeNet by way of special resolution at a
general meeting as contemplated in section 44 of the Act; and
(7) the receipt of unconditional approvals, consents or waivers from all regulatory bodies, necessary to
implement the Titan Share Purchase Transaction including, but not limited to the JSE in terms of
paragraphs 5.69 to 5.71, 16.3 and 16.5 of the Listings Requirements, and to the extent that any such
approvals, consents or waivers are subject to conditions, such conditions being satisfactory to
ConvergeNet and CMS.
4 Pro forma financial effects
The table below sets out the unaudited pro forma financial effects of the Future Cell Transaction and the
Titan Share Purchase Transaction on ConvergeNet. The pro-forma financial effects are the responsibility of
the Company's directors and are presented for illustrative purposes only to show how the Future Cell
Transaction and the Titan Share Purchase Transaction would have affected ConvergeNet's financial
performance and position. The accounting policies of ConvergeNet have been used in calculating the pro-
forma financial effects.
The unaudited pro-forma financial effects which, due to their nature, may not provide a fair reflection of
ConvergeNet?s financial performance or position after the Future Cell Transaction and the Titan Share
Purchase Transaction, are based on the assumptions that:
- For the purpose of calculating earnings per share and headline earnings per share the Future Cell
Transaction and the Titan Share Purchase Transaction 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 Future Cell Transaction and the Titan Share Purchase Transaction were implemented on 29
February 2012.
Effect of Effect of Titan
Future Cell Share Purchase %
Before Transaction Transaction After Transactions Change Change
Earnings per
share (cents) (0.16) 0.39 (0.06) 0.16 0.32 199.1%
Diluted earnings
per share (cents) (0.16) 0.39 (0.06) 0.16 0.32 199.0%
Headline earnings
per share (cents) (1.84) 0.28 (0.22) (1.77) 0.06 3.5%
Diluted headline
earnings per share
(cents) (1.82) 0.28 (0.22) (1.76) 0.07 3.6%
Net asset value
per share (cents) 53.32 0.39 2.04 55.76 2.44 4.6%
Tangible net asset
value per share
(cents) 31.07 0.39 0.07 31.53 0.47 1.5%
Total number of
shares in issue 921 285 941 - - 921 285 941 - -
Weighted average
number of ordinary
shares in issue 890 644 784 - (71 478 594) 819 166 190 (71 478 594) (8.0%)
Weighted average
diluted number of
ordinary shares in
issue 896 148 185 - (71 478 594) 824 669 591 (71 478 594) (8.0%)
Number of
ordinary shares in
issue net of
treasury shares
(„000) 879 223 084 - (71 478 594) 807 744 490 (71 478 594) (8.1%)
Notes and assumptions:
a. The "Before" column information has been extracted, without adjustment, from ConvergeNet?s
published results for the six months ended 29 February 2012.
b. Earnings per share and diluted earnings per share in the “Effect of Future Cell Transaction”
column take into account the following:
* Reversal of the share of profits of associate of R2.4 million;
* A gain of R2.6 million arising from the sale of investment in associate;
* Reversal of the gain of R4.0 million on re-measurement of the Put and Call Options;
* The gain of R9.6 million arising from cancellation of the Put and Call Options; and
* The net tax effect of the above adjustments.
c. Headline earnings per share and diluted headline earnings per share in the “Effect of Future
Cell Transaction” column take into account the adjustments in paragraph b above with the
exception of the gain from the sale of investment in associate and related tax effect.
d. The net asset value per share and tangible net asset value per share in the “Effect of Future
Cell Transaction” column take into account the following:
* Disposal of the investment in financial asset for gross cash proceeds of R40 million,
together with the related tax effects;
* Cancellation of the Put and Call Options and related tax effects; and
* Once-off transaction costs of R2 107 000
e. Earnings per share, diluted earnings per share, headline earnings per share and diluted
headline earnings per share in the “Effect of Titan Share Purchase Transaction” column take
into account once-off transaction costs of R691 000;
f. Net asset value per share and tangible net asset value per share in the “Effect of Titan Share
Purchase Transaction” column take into account the following:
* Cash of R21 211 110 utilised; and
* Once-off transaction costs of R691 000.
5. CIRCULAR
A circular providing further information on the Future Cell Transaction and the Titan Share Purchase
Transaction, which will contain a notice of general meeting and a form of proxy, will be posted to
shareholders in due course.
6. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
As details of the Future Cell Transaction and the Titan Share Purchase Transaction have been provided in
this announcement, shareholders are no longer required to exercise caution when dealing in their
ConvergeNet securities.
7. RESPONSIBILITY STATEMENT
ConvergeNet?s 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 import of the information.
Centurion
10 September 2012
Sponsor
Deloitte & Touche Sponsor Services Proprietary Limited
Corporate Adviser for ConvergeNet
AfrAsia Corporate Finance Proprietary Limited
Attorneys to ConvergeNet
Norton Rose South Africa
Reporting Accountants
BDO Corporate Finance Proprietary Limited
Attorneys to Pepkor
Werksmans Inc.
Date: 10/09/2012 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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