Wrap Text
Unsolicited firm intention by eqstra holdings limited (“Eqstra”) to acquire the entire issued ordinary share capital
Protech Khuthele Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 2000/024352/07)
Share code: PKH ISIN: ZAE000101986
(“Protech” or the “Company”)
UNSOLICITED FIRM INTENTION BY EQSTRA HOLDINGS LIMITED (“EQSTRA”) TO
ACQUIRE THE ENTIRE ISSUED ORDINARY SHARE CAPITAL OF THE COMPANY
THAT IT DOES NOT ALREADY OWN
1. Introduction
Protech shareholders are advised that the board of directors of Protech (the “Board”)
received correspondence from Eqstra on Friday, 30 November 2012, constituting its
unsolicited firm intention to acquire the entire issued ordinary share capital of the
Company that it does not already own (the “Proposed Transaction”) (the “Firm Intention
Letter”). Eqstra currently holds c. 32.8% of Protech’s issued share capital through recent
on-market beneficial acquisitions.
It should be noted that the Firm Intention Letter was sent to Protech late in the
afternoon on Friday and that the board of Protech was not alerted to the content
of the Firm Intention Letter prior to its delivery. The Firm Intention Letter
demanded a response from Protech by 17:00 on Wednesday, 5 December 2012,
only three business days after its delivery. The Firm Intention Letter does not
provide any explanation or reasons for the urgency, but states that if Protech
does not respond, within the short time period, that it will support the Proposed
Transaction, Eqstra will proceed with a hostile offer. Protech has been given no
reasons for Eqstra’s demand to respond within such a short period, and it is clear
from the timetable included in the Firm Intention Letter that there is no urgency in
the completion of the Proposed Transaction, and that there is no good reason for
placing the board of Protech under such pressure.
Subsequent to receipt of the Firm Intention Letter, the Board, acting in accordance with
the requirements of the Companies Act, No 71 of 2008 (the “Companies Act”) and the
Companies Regulations, 2011 (the “Companies Regulations”) has taken the following
actions:
* An independent board, consisting of Mafahle Mareletse, Terence Rensen and
Matsotso Vuso, being independent non-executive directors of the Company, (the
“Independent Board”) has been established to consider the Proposed
Transaction.
* The Independent Board has appointed Nedbank Capital, a division of Nedbank
Limited (“Nedbank Capital”) and Bowman Gilfillan Inc. to act as advisors to the
Independent Board. The Independent Board is additionally in the process of
appointing an independent professional expert (“Independent Expert”) to provide
independent advice on the terms of the Proposed Transaction.
* The Independent Board provided its initial response to the board of directors of
Eqstra (the “Eqstra Board”) on Wednesday, 5 December 2012, the details of
which are set out in paragraph 2 below.
As Protech is obliged to publish a firm intention announcement upon receipt of the Firm
Intention Letter it is publishing this announcement which sets out the terms of
transaction proposed by Eqstra and the Independent Board’s initial response to it.
2. Initial response by the Independent Board to the Firm Intention Letter
As detailed in paragraph 3.1.2 below, the Firm Intention Letter demanded that the Board
provide a written undertaking to Eqstra by no later than 17:00 on 5 December 2012 to
co-operate with Eqstra in proposing a scheme of arrangement between Protech and its
shareholders in terms of section 114 and 115 of the Companies Act (the “Scheme”).
Failure to meet this demand would result in Eqstra implementing a hostile take-over offer
in terms of section 117 (1)(c)(v) of the Companies Act (the “Hostile Take-Over Offer”).
In terms of Regulation 109(c) of the Companies Regulations, the Independent Board
must allow themselves sufficient time to discharge all duties and responsibilities, “and
resist haste and pressured time deadlines”. This is to enable the Independent Board to
become properly informed for the purpose of responding to the Firm Intention Letter.
This will include obtaining appropriate advice on the way forward; including external
advice from an Independent Expert on the adequacy of the R0.60 offer price per Protech
share (the “Offer Price”). Given the unreasonable timeframe set out in the Firm Intention
Letter, the Independent Board is not yet in a position to reach a decision in this regard
and, accordingly, expects Eqstra to commence its Hostile Take-Over Offer as they have
undertaken to do in the Firm Intention Letter. In terms of Regulation 102(2) of the
Companies Regulations Eqstra is required to post its offer circular within 20 business
days of the publication of this announcement or such longer period as allowed by the
Takeover Regulation Panel (“TRP”).
Additionally, the Independent Board advised Eqstra that until such time as it has
received and considered the advice referred to above, it can unfortunately not accede to
Eqstra’s request to conduct an accounting, legal and tax due diligence. The Independent
Board believes the request, with pressured time deadlines and in haste, is unreasonable
and also makes it impracticable to accede to the request. Upon consideration by the
Independent Board of the advice referred to above, and if the Independent Board
supports a Proposed Transaction with Eqstra, the Independent Board will then consider
whether or not to grant Eqstra the opportunity to conduct a due diligence.
The Firm Intention Letter and further correspondence from Eqstra, state that Eqstra has
received significant irrevocable undertakings from existing Protech shareholders to
support the Proposed Transaction, including such an undertaking by Protech Khuthele
BEE Proprietary Limited, the Company’s Black Economic Empowerment vehicle which is
wholly owned by the Protech Khuthele BEE Trust, which was set up, amongst other
things, to assist the Company with black economic empowerment. Protech is
investigating the validity of this irrevocable undertaking. Further, the Independent Board
has taken note of a 2% break fee payable to Protech shareholders who provide an
irrevocable undertaking in support of the Proposed Transaction on or before 30 January
2013, subject to approval by the TRP, and have raised its concern in relation to this
arrangement in the light of section 127 of the Companies Act, which provides that during
an offer, or when one is in contemplation, an offeror, or a person acting in concert with it,
must not, amongst other things, make arrangements with any holders of the relevant
securities or enter into any arrangements which involve acceptance of an offer, if there
are favourable conditions attached that are not being extended to all holders of the
relevant securities.
3. Details of the Firm Intention Letter and Proposed Transaction
The information contained in paragraph 3 below details the main features of the Firm
Intention Letter and what has been stated by Eqstra in the Firm Intention Letter.
3.1. Proposed Transaction mechanism
3.1.1. The Proposed Transaction in terms of the Firm Intention Letter may be
implemented in accordance with either of the following procedures:
3.1.1.1. The Combined Scheme Offer Proposal (the "Combined Scheme
Proposal")
It should be noted that the Combined Scheme Proposal would
require the support of the Protech board, which support it has not
been able to consider properly due to the tight deadline imposed
by Eqstra.
Pursuant to this mechanism, a Scheme will be proposed by
Eqstra as between Protech and its shareholders other than
Eqstra (the "Remaining Shareholders") on the following basis:
3.1.1.1.1. the Scheme will be proposed in terms of section 114 of the
Companies Act, as read together with section 115 of the
Companies Act;
3.1.1.1.2. the Scheme will be subject to the fulfilment of the
conditions precedent referred to in paragraph 3.6
hereunder;
3.1.1.1.3. the price payable, and the terms of payment, to the
Remaining Shareholders for their ordinary shares in
Protech will be as is set out in paragraph 3.2 hereunder;
and
3.1.1.1.4. it will be an express term of the Scheme that, if all of the
conditions precedent set out in paragraph 3.6 hereunder
are fulfilled, but the resolution of Protech pursuant to which
the Scheme is proposed is not approved by the required
majority of Scheme shareholders, or if, having been
approved, is set aside by the High Court in terms of section
115(7) of the Companies Act, then, as soon as is
reasonably possible thereafter, Eqstra will make an offer
(the "Offer") to the Remaining Shareholders to acquire the
shares not already owned by Eqstra (the “Remaining
Protech Shares”) on the following basis:
3.1.1.1.4.1. the Offer will be made under section 117(1 )(c)(v) of
the Companies Act;
3.1.1.1.4.2. the price payable, and the terms of payment, to the
Remaining Shareholders for their Remaining
Protech Shares will be as is set out in paragraph 3.2
hereunder; and
3.1.1.1.4.3. the Offer must be accepted by Remaining
Shareholders holding such number of the
Remaining Protech Shares as will result in Eqstra
beneficially holding (directly or indirectly) not less
than 51 % of all of the Remaining Protech Shares.
OR
3.1.1.2. The Hostile Take-Over Offer
The Hostile Take-Over Offer will be made on the following basis:
3.1.1.2.1. the terms applicable to the Offer, as set out in paragraph
3.1.1.1.4 above, will apply, mutatis mutandis, to the Hostile
Take-Over Offer;
3.1.1.2.2. the Hostile Take-Over Offer will be subject to the conditions
precedent set out in paragraph 3.6 hereunder; and
3.1.1.2.3. in the event the Hostile Take-Over Offer is accepted by
Remaining Shareholders holding such number of the
Remaining Protech Shares as will result in Eqstra
beneficially holding (directly or indirectly) not less than 90%
of all of the Remaining Protech Shares, then Eqstra
reserves the right to implement a compulsory acquisition of
the Remaining Protech Shares in accordance with section
124 of the Companies Act.
3.1.2. The Combined Scheme Proposal will be implemented by Eqstra if Eqstra
receives from Protech, by no later than 17h00 on 5 December 2012 an
undertaking by the directors of Protech to co-operate with Eqstra in the
implementation of the Combined Scheme Proposal and, in particular, to
propose the Scheme. Such undertaking must consist of a written
confirmation by Protech to Eqstra, by counter-signature and return of a
duplicate original of the Firm Intention Letter, that it will co-operate with
Eqstra and will propose the Scheme to Protech shareholders in
accordance with the terms and conditions of the Firm Intention Letter. As
set out above Protech was not given sufficient time to consider the
Proposed Transaction properly bearing in mind the Independent Board’s
statutory and fiduciary duties, and accordingly did not give such
confirmation.
3.1.3. The Firm Intention Letter further provides that if by no later than 17h00 on
5 December 2012, Eqstra does not receive the undertakings required
from Protech in terms of paragraph 3.1.2 above, then Eqstra will act on its
firm intention to make an offer, as contained in the Firm Intention Letter,
as soon as is reasonably possible thereafter, by implementing the Hostile
Take-Over Offer.
3.1.4. Should the Scheme or the Hostile Take-Over Offer be used to implement
the Proposed Transaction, and in the event of the Take-Over being
implemented and the provisions of section 124 of the Companies Act
being applied, Eqstra will acquire all of the Remaining Protech Shares
from the Remaining Shareholders and, following the implementation of
the Proposed Transaction, Protech will constitute a wholly-owned
subsidiary of Eqstra and be delisted from the JSE.
3.2. Offer price
3.2.1. Subject to the fulfilment or waiver (as the case may be) of the conditions
precedent set out in paragraph 3.6 hereunder, the Proposed Transaction
will, if it is implemented, result in the payment by or on behalf of Eqstra to
the Remaining Shareholders of a cash price of R0.60 per Remaining
Protech Share. The Offer Price will be adjusted for any changes to the
capital structure of Protech between the date of the Firm Intention Letter
and the date of implementation of the Proposed Transaction.
3.2.2. The Offer Price is proposed on the basis of an assumed maximum net
debt (all interest bearing debt less cash and cash equivalents) ("Maximum
Net Debt") amount of R 125 million and on the basis that, immediately
prior to the implementation of the Proposed Transaction, the issued
capital of Protech will comprise exactly 362 500 000 Protech shares.
3.2.3. The Offer Price per Remaining Protech Share represents a premium of
40.7% to the 90 (ninety) day volume-weighted average price of R0.43 and
a premium of 39.5% based on the closing price on 4 December 2012 of
R0.43.
3.3. Funding
3.3.1. The Firm Intention Letter states that Eqstra will fund the purchase
consideration for the Proposed Transaction from available cash resources
and that the Proposed Transaction is not subject to the raising of debt
funding.
3.3.2. The Firm Intention Letter states that Rand Merchant Bank, a division of
FirstRand Bank Limited ("RMB"), has provided the TRP with the
necessary guarantees required in terms of the Companies Regulations.
3.3.3. The Independent Board cannot comment on these statements at this
stage.
3.4. Due diligence
3.4.1. Eqstra’s offer is conditional upon conducting and being satisfied with the
outcome of an accounting, commercial, legal and tax due diligence
investigation into the affairs of Protech. Eqstra have requested access to
the requisite information by not later than 6 December 2012. The
Independent Board could not accede to this request based on the
unreasonable deadlines imposed by Eqstra and notes the requirement for
a due diligence investigation notwithstanding Eqstra’s significant
shareholding in the Company.
3.5. Irrevocable Undertakings
3.5.1. Eqstra has indicated that it has received irrevocable undertakings from
the following Remaining Shareholders to vote in favour of the Scheme or
to accept the Offer or the Hostile Take-Over Offer, as the case may be,
which shareholders collectively hold 28.9% of the issued ordinary shares
of Protech:
Shareholder Protech Shares Percentage of
Protech Shares
beneficially held or
controlled (directly
or indirectly)
1 Protech Kuthele BEE (Pty) Ltd 73 795 552 20.4%
2 Strategy Systems Consulting 15 919 960 4.4%
Services (Pty) Ltd
3 Stonehedge Trust 9 375 000 2.6%
4 Clane Family Trust 4 488 362 1.2%
5 Starling Trust 953 389 0.3%
Total 104 532 263 28.9%
3.6. Conditions precedent to the Proposed Transaction
3.6.1. Implementation of the Proposed Transaction (whether in the form of the
Scheme, the Offer or the Hostile Take-Over Offer, is subject to the
fulfilment or waiver (in whole or in part) of the following conditions
precedent by not later than 31 July 2013, which, to the extent not fulfilled
or waived as at the time of the posting of the circular, will be included in
the circular, substantially in the form set out below:
3.6.1.1. a favourable fairness opinion being provided by an independent
professional expert approved by the JSE and the TRP;
3.6.1.2. receipt of approvals, consents or waivers from all regulatory
bodies, governmental or quasi-governmental entities necessary
to implement the Proposed Transaction (in each case either
unconditionally or subject to conditions reasonably acceptable to
the persons on whom such conditions are imposed) including,
but not limited to, -
3.6.1.2.1. the JSE;
3.6.1.2.2. the TRP (in terms of a compliance certificate to be issued
in terms of the Companies Act in relation to the Proposed
Transaction);
3.6.1.2.3. the South African Reserve Bank; and
3.6.1.2.4. the competition authorities;
3.6.1.3. a confirmatory due diligence audit having been completed by a
due diligence advisor confirming that the EBITDA and Revenue
of Protech, as reflected in the unaudited interim results of
Protech for the six-month period ended on 31 August 2012, -
3.6.1.3.1. have been computed in accordance with International
Financial Reporting Standards;
3.6.1.3.2. fairly represent profits, losses, assets and liabilities of
Protech; and
3.6.1.3.3. have been prepared on a basis consistent with the basis of
the audited financial statements of Protech for the twelve-
month period ended on 29 February 2012;
3.6.1.4. a confirmatory due diligence investigation having been
completed by Eqstra's legal advisors in respect of all material
contracts entered into by each company in the Protech Group,
and Eqstra's legal advisors have confirmed to Eqstra in writing
that, to the best of their knowledge and belief,
3.6.1.4.1. all material contracts to which any company in the Protech
Group is a party are legal and valid and are binding on, and
enforceable against, the counterparty to such agreement;
3.6.1.4.2. the implementation of the Proposed Transaction will not
materially contravene, violate, cause a default and/or
breach of the terms of, and/or otherwise conflict with any
material contract to which any company in the Protech
Group is a party; and
3.6.1.4.3. no material contract contains any term, condition, warranty,
representation or undertaking that may materially reduce
the operating performance of the Protech Group. For
purposes of this paragraph 3.6.1.4, to be material, the
aggregate adverse effect must have (or be reasonably
expected to have) an adverse impact on Protech's EBITDA
of not less than 10% when measured against Protech's
EBITDA for the twelve-month period ended on 29 February
2012; and
3.6.1.5. by the date on which each of the above conditions referred to in
this paragraph 3.6 has been fulfilled or waived (as the case may
be), there not having occurred an adverse effect, fact,
circumstance, or any potential adverse effect, fact or
circumstance, which has arisen or occurred, or might reasonably
be expected to arise or occur, and which is or might reasonably
be expected (alone or together with any other such actual or
potential adverse effect, fact or circumstance) to be material with
regard to the operations, continued existence, business,
condition, assets and liabilities of Protech and its subsidiaries
(whether or not as a consequence of the Proposed Transaction)
and/or any restrictive undertaking or undertakings or similar
provision entered into by Protech or any of its subsidiaries that
may materially reduce the operating performance of Protech. For
the purposes of this paragraph 3.6.1.5, to be material, the
adverse effect, fact or circumstance or covenant or provision
must have (or be reasonably expected to have) an aggregate
adverse impact on Protech's annual consolidated EBITDA for the
twelve-month rolling period ending on the date on which the
above conditions referred to in this paragraph 3.6 have been
fulfilled or waived (as the case may be) of no less than 10%
when measured against the EBITDA of Protech for the financial
year ending 29 February 2012 on an annualised basis taking into
account the period since 29 February 2012.
3.6.2. If the Scheme is used as the mechanism to implement the Proposed
Transaction, the Scheme will, in addition to the conditions precedent set
out in paragraph 3.6.1 above, be subject to the fulfilment or waiver (in
whole or in part) of the following additional conditions precedent:
3.6.2.1. the approval of the Scheme by the requisite majority of the
Remaining Shareholders, as contemplated in section 115(2) of
the Companies Act, and to the extent required, the approval of
the implementation of such resolution by the Court; and
3.6.2.2. within thirty business days following the Remaining
Shareholders' meeting convened to approve the Scheme,
Remaining Shareholders exercise appraisal rights, in terms of
section 164 of the Companies Act, by giving valid demands in
terms of section 164(7) of the Companies Act, in respect of not
more than 5% of the issued ordinary shares of Protech, provided
that, in the event that Remaining Shareholders give notice
objecting to the Scheme as contemplated in section 164(3) of the
Companies Act and/or vote against the resolutions proposed at
the Scheme Meeting in respect of no more than 5% of the issued
ordinary shares of Protech, this condition will be deemed to have
been fulfilled at the time of the Scheme meeting.
3.6.3. If the Offer is used as the mechanism to implement the Proposed
Transaction, the Offer will, in addition to the conditions precedent set out
in paragraph 3.6.1 above, be subject to the fulfilment or waiver (in whole
or in part) of the additional condition precedent, that the Offer is accepted
by Remaining Shareholders holding not less than 51% of the Remaining
Protech Shares.
3.6.4. The conditions precedent in paragraphs 3.6.1.1, 3.6.1.3, 3.6.1.4,
3.6.1.5, 3.6.2.2 and 3.6.3 above are stipulated for the benefit of Eqstra,
which alone will be entitled, in writing only, to waive those conditions
precedent or extend the date by which anyone or more of them is to be
fulfilled.
3.6.5. The remainder of the conditions precedent, that is those in
paragraphs 3.6.1.2 and 3.6.2.1 above, are of a regulatory nature and
cannot be waived by the parties.
4. Responsibility statement
The Independent Board of Protech accepts responsibility for the information contained in
this announcement insofar as the information relates to Protech, and confirms that, to
the best of their knowledge and belief, the information is true and does not omit anything
likely to affect the importance of the information. In regard to the information in respect
of the Proposed Transaction, the Independent Board has relayed the main features of
the Firm Intention Letter to shareholders in this announcement.
5. Further information
The Independent Board is treating the Proposed Transaction with the utmost urgency
and will provide Protech shareholders with further information once it is in a position do
so.
Lanseria
5 December 2012
Investment bank and transaction sponsor
Nedbank Capital
Legal advisor
Bowman Gilfillan Inc.
Sponsor
Deloitte & Touche Sponsor Services (Pty) Limited
Date: 05/12/2012 04:58:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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