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Response To Announcement By Protech Khuthele Holdings Limited (“Protech”) Regarding The Firm Intention By Eqstra Hol
Eqstra Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1998/011672/06)
Share code: EQS ISIN Number: ZAE000117123
("Eqstra")
RESPONSE TO ANNOUNCEMENT BY PROTECH KHUTHELE HOLDINGS LIMITED ("PROTECH")
REGARDING THE FIRM INTENTION BY EQSTRA HOLDINGS LIMITED ("EQSTRA") TO ACQUIRE
THE ENTIRE ISSUED ORDINARY SHARE CAPITAL OF PROTECH THAT IT DOES NOT ALREADY
BENEFICIALLY OWN
1. Introduction
Shareholders of Eqstra and Protech are referred to the announcement dated 5 December 2012
released by the independent board of directors of Protech (the "Independent Board") on SENS
(such announcement, the "Protech Announcement"). The Protech Announcement refers to a letter
that was submitted by Eqstra to the board of directors of Protech (the "Protech Board") on
30 November 2012 (such letter, the "Firm Intention Letter") containing Eqstra's firm intention to
acquire from the remaining Protech shareholders, other than Eqstra, ("Remaining Shareholders"),
the entire issued ordinary share capital of Protech not already beneficially owned by Eqstra, being
c.67.2% of Protech (the "Remaining Protech Shares") (such transaction is hereinafter referred to as
the "Transaction").
Shareholders are advised that the Firm Intention Letter indicated Eqstra's preference to implement
the Transaction by way of a "Combined Scheme Offer Proposal" that would have included a
scheme of arrangement, as contemplated in sections 114 and 115 of the Companies Act,
No. 71 of 2008, as amended (the "Companies Act"), and Chapter 5 of the Companies Regulations,
2011 (the "Companies Regulations"), coupled with a general offer, as contemplated in
section 117(1)(c)(v) of the Companies Act, if Eqstra was not able to implement the scheme of
arrangement for any reason.
The Transaction could only have proceeded in this way if the Protech Board was supportive of the
Transaction as the Protech Board would have needed to propose the scheme of arrangement to the
Protech shareholders. However, given the history of the interactions between Eqstra and Protech,
as set out in more detail below, Eqstra had reason to believe that the Protech Board may continue
to frustrate a potential takeover transaction. Further, given the significant level of irrevocable
support that Eqstra has obtained for the transaction, it designed its firm intention, as contained in
the Firm Intention Letter, in such a way that it could proceed by way of a general offer to the
Remaining Shareholders, as contemplated in section 117(1)(c)(v) of the Companies Act
(the "Offer") within a reasonable timeframe.
From the initial engagement between Eqstra and Protech following the on-market beneficial
acquisition of c.32.8% of the Protech issued share capital in late 2011, Eqstra has attempted to
engage with the Protech Board, management team and their various advisors (none of which are
currently engaged by the Independent Board) about a potential takeover. Shareholders are advised
that, on 12 March 2012, Eqstra tabled a non-binding expression of interest to acquire the Remaining
Protech Shares at a significant premium to the prevailing market price at that time and requested a
confirmatory due diligence to satisfy itself about Protech, so as to enable the seamless progression
to a formal binding offer. Despite trading under a Cautionary Announcement from 14 March 2012 to
3 October 2012, limited progress was made by the parties to arrive at an agreed price range and
Eqstra was never allowed access to conclude a due diligence investigation.
Eqstra had therefore to conclude by late November 2012 that it had reached an impasse with
Protech. Eqstra consequently approached some of the Remaining Shareholders directly to
determine if there was support for the Transaction. Having received support from Remaining
Shareholders representing 45.1% of the Remaining Protech Shares, Eqstra decided to deliver the
Firm Intention Letter on 30 November 2012 in the hope of obtaining support for the Transaction from
the Board of Protech or in the very least constructively engage with the Board of Protech in this
regard. In addition, Eqstra wanted to ensure that the matter became public, thereby allowing all
Protech shareholders to consider the Transaction on its merits.
As a significant shareholder of Protech, Eqstra is concerned about recent events at Protech
including, inter alia, the suspension of the Group Financial Director and the postponement of the
annual general meeting of Protech shareholders. Eqstra believes there is a risk to its investment
and that of the Remaining Shareholders if Eqstra should fail to proceed with its plan to acquire
control of Protech. In addition, any further delays in the Transaction could create further downside
risks.
Eqstra also believed that it was necessary to make its firm intention public before the next annual
general meeting of Protech, which is scheduled for Friday, 14 December 2012, and before the
onset of the South African summer holiday season. It is for this reason that Eqstra wished to
receive the feedback of the Protech Board before 17h00 on 5 December 2012. It should be noted
in this regard that Eqstra was not asking for the Protech Board's definitive views on the Firm
Intention Letter or the merits of the Transaction. These matters would be canvassed in time in the
circular/s to be sent to Protech shareholders. All that Eqstra was seeking was an indication as to
whether or not the Protech Board would be willing to consider proceeding with a friendly
transaction, since Eqstra would always have the option of making the Offer to the Remaining
Shareholders.
In addition, and notwithstanding the fact that the Firm Intention Letter imposed a deadline for the
Protech Board to confirm its co-operation with Eqstra by not later than 17h00 on 5 December 2012,
Eqstra communicated on several occasions, both verbally and through signed written
correspondence, with the Protech Board, so as to procure a favourable response and encourage a
friendly transaction. At no point did the Protech Board and/or the Independent Board request an
extension to the proposed deadline or raise a concern regarding the Firm Intention Letter or the
corresponding deadline.
Eqstra further committed to the Protech Board that it would be able to conclude its confirmatory due
diligence in a very short space of time, and before the onset of the construction sector's holiday
period to ensure that Protech shareholders are not prejudiced by further undue delays in this regard.
Shareholders are advised further that the Protech Announcement classifies the Eqstra approach as
a "Hostile Take-Over". Eqstra's intention in providing itself with the flexibility of implementing by
way of the Offer was never to create a hostile' situation with the Protech Board; it simply enables
Eqstra to protect its investment in Protech by allowing it to seek control of Protech. Eqstra never
referred to its alternative offer as a "Hostile Take-Over", even though the Protech Announcement
made it appear that way. The Independent Board chose to use that term for the alternative offer
that Eqstra included in its Firm Intention Letter. Given the prolonged engagement between Eqstra
and Protech, Eqstra's ambitions to proceed with the Transaction on a friendly' basis and Protech's
reluctance and refusal to cooperate with Eqstra thus far, the nature of the Transaction has taken a
form that was never (and is still not) desired by Eqstra. As mentioned above, Eqstra's intention
from the outset was to acquire Protech through a friendly scheme of arrangement, as outlined in the
Firm Intention Letter.
It should be noted that the break-fee arrangement described in more detail in paragraph 4 below is
subject to the approval of the Takeover Regulation Panel ("TRP"). This was made clear in the Firm
Intention Letter. Regardless of whether or not the TRP approves of this break-fee arrangement, the
irrevocable undertakings received by Eqstra will remain valid and enforceable. In addition, it should
be noted that the irrevocable undertaking provided by Protech Khuthele BEE (Proprietary) Limited
was approved unanimously by all the trustees for the time being of the Protech Khuthele BEE Trust,
and Eqstra has obtained legal advice regarding the validity and enforceability of the undertaking.
2. Rationale for the Offer
Notwithstanding the stance adopted by the Independent Board in the Protech Announcement,
Eqstra believes that the Offer enables Protech shareholders to unlock substantial value at a price
level far in excess of that likely to be attained by Protech in the medium term. The premium of the
Offer Price above the undisturbed closing price on Tuesday, 4 December 2012, of Protech shares
was 39.5%.
Eqstra further believes that the Offer will allow Protech to continue to service key customers, further
strengthen Eqstra's footprint across Africa and thereby result in enhanced economies of scale.
3. Material Terms of the Offer
Notwithstanding the description of the features of the Offer in the Protech Announcement, Eqstra
wishes to restate the material terms of the Offer below.
3.1. Transaction Mechanism
Shareholders are advised that the stance adopted by the Independent Board in the Protech
Announcement has eliminated the possibility for Eqstra concluding its proposed takeover of
Protech by way of the "Combined Scheme Offer Proposal" referred to in paragraph 3.1.1 of the
Protech Announcement. Accordingly, Eqstra will make the Offer to the Remaining
Shareholders for the Remaining Protech Shares on the following basis:
3.1.1. the Offer will be made under section 117(1)(c)(v) of the Companies Act;
3.1.2. 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;
3.1.3. the Offer must be accepted by Remaining Shareholders holding such number of
the Remaining Protech Shares as will result in Eqstra (together with its existing
beneficial shareholding) beneficially holding (directly or indirectly) not less than
51% of the entire issued share capital of Protech; and
3.1.4. in the event the Offer is accepted by Remaining Shareholders holding such
number of the Remaining Protech Shares as will result in Eqstra (together with its
existing beneficial shareholding) beneficially holding (directly or indirectly) not less
than 90% of the entire issued share capital of Protech, then Eqstra reserves the
right to implement a compulsory acquisition of the Remaining Protech Shares in
accordance with section 124 of the Companies Act.
3.2. Offer price
3.2.1. Subject to the fulfilment or waiver (as the case may be) of the conditions
precedent set out in paragraph 6 hereunder, the Offer will result in the payment by
Eqstra to the Remaining Shareholders that accept the Offer of a cash price of
R0.60 per Remaining Protech Share that is tendered into the Offer ("Offer Price").
The Offer Price will be adjusted, inter alia, for any changes to the capital structure
of Protech between the date of this announcement and the date of implementation
of the Offer.
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 R125 million and on the basis that, immediately prior to the
implementation of the Offer, the issued capital of Protech will comprise exactly
362 500 000 Protech shares.
3.2.3. The Offer Price per Protech share represents a premium of 40.7% to the
90 (ninety) day volume-weighted average price of R0.4264 and a premium of
39.5% based on the closing price on 4 December 2012 of R0.4300.
3.2.4. The Offer values the entire issued ordinary share capital of Protech (including
Eqstra's Protech shares) at R217 500 000 on the basis of a total of 362 500 000
Protech ordinary shares in issue.
3.2.5. The Offer Price per Protech share is based on the assumption that 362 500 000
Protech shares are in issue and that the number of Remaining Protech Shares is
equal to 243 691 758.
3.2.6. Based on the Offer Price per Protech share, the aggregate value of the
consideration payable by Eqstra to the Remaining Shareholders is
R146 215 054.80 at R0.60 per Remaining Protech Share (prior to any
adjustments) if all of the Remaining Shareholders accept the Offer in respect of all
of their Remaining Protech Shares.
3.2.7. The Offer Price per Protech share will be reduced proportionately if and to the
extent that the Maximum Net Debt of Protech as at the last day of the calendar
month immediately preceding the month during which the Offer is implemented is
greater than R125 million.
3.2.8. All eligible share schemes will be settled in cash prior to the implementation date
of the Offer, provided that, to the extent that shares forming part of such scheme/s
have vested in a participant, the participant will only receive the difference
between the Offer Price and the price at which those shares vested in him
pursuant to the terms of the relevant scheme.
3.2.9. The Offer Price per Protech share will be decreased proportionately by an amount
equal to the sum of (i) the aggregate of any dividend declared and paid or
distribution made after 6 December 2012 and before the settlement of the Offer
Price, and (ii) any amount for which Protech itself is liable to pay by way of taxes
on such dividends or distributions (that is, excluding any obligation on Protech to
withhold any amount payable by any Protech shareholder).
4. Protech shareholder support
The Protech Announcement refers in paragraph 3.5 to certain irrevocable undertakings to support
the Offer that had been obtained by Eqstra prior to its delivery to the Protech Board of the Firm
Offer Letter. Eqstra has subsequently received additional irrevocable undertakings from further
Remaining Shareholders, such that the following Remaining Shareholders, which collectively hold
45.1% of the Remaining Protech Shares, have undertaken to accept the Offer (if it should become
unconditional):
Shareholder Remaining Percentage of Remaining
Protech Protech Shares
Shares beneficially held or
controlled (directly or
indirectly)
1 Protech Kuthele BEE (Pty) Ltd 73 795 552 30.3
2 Strategy Systems Consulting Services (Pty) Ltd 15 919 960 6.5
3 Stonehedge Trust 9 375 000 3.8
4 The Tumsedi Share Trust 5 345 943 2.2
5 Clane Family Trust 4 488 362 1.8
6 Starling Trust 953 389 0.4
Total 109 878 206 45.1
Eqstra has agreed, subject to the approval of the TRP, and in circumstances in which the Offer is
not implemented for any reason whatsoever, to pay each Remaining Shareholder that has given, or
that gives on or before 31 January 2013, an irrevocable undertaking to support the Offer (in a form
and substance reasonably acceptable to Eqstra) a break fee in an amount equal to 2% of the
aggregate Offer Price that would have been received by the Remaining Shareholder in question if
the Offer had been implemented.
Shareholders are advised that this break fee is payable only if:
(i) the conditions precedent to the Offer set out in paragraph 6 hereunder are not fulfilled or
waived, as the case may be, by 30 June 2013; and
(ii) the TRP approves of such break fee.
Shareholders should note that Eqstra is mindful of the restrictions imposed in section 127 of the
Companies Act and it is for this reason that it required that the payment of such break fee be made
subject to the approval of the TRP.
5. Funding and Guarantee
Eqstra will fund the payment of the Offer Price to all Remaining Shareholders that accept the Offer
from available cash resources. The payment of such amount is not subject to the raising of debt
funding.
Rand Merchant Bank, a division of FirstRand Bank Limited ("RMB"), has provided TRP with the
necessary guarantee required in terms of regulations 111(4) and (5) of the Companies Regulations.
This guarantee will expire on the earlier of:
- the date of payment of the Offer Price to those Remaining Shareholders that accept the Offer,
being the sixth business day after the date of fulfilment or waiver, as the case may be, of the last
of the conditions precedents set out in paragraph 6 hereunder; or
- the date on which the Offer lapses, if any of the conditions precedent set out in paragraph 6
hereunder is not fulfilled or waived.
6. Conditions precedent to the Offer
6.1. Implementation of the 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 (as defined below) will be included in the
Circular, substantially in the form set out below:
6.1.1. a favourable fairness opinion being provided by an independent professional
expert to be appointed by the Independent Board;
6.1.2. receipt of approvals, consents or waivers from all regulatory bodies, governmental
or quasi-governmental entities necessary to implement the Offer (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, -
i. the JSE;
ii. the TRP (in terms of a compliance certificate to be issued in terms of the
Companies Act in relation to the Offer);
iii. the South African Reserve Bank; and
iv. the competition authorities;
6.1.3. a confirmatory due diligence audit having been completed by a due diligence
advisor (one of the big four professional accounting firms) nominated by Eqstra
(the "Nominated Advisor"), and the Nominated Advisor confirms to Eqstra in
writing 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,:
i. have been computed in accordance with International Financial Reporting
Standards;
ii. fairly represent profits, losses, assets and liabilities of Protech; and
iii. 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; and
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 having confirmed to Eqstra in
writing that, to the best of their knowledge and belief,:
i. 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;
ii. the implementation of the Offer 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
iii. 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 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
6.1.5. by the date on which each of the above conditions referred to in this paragraph 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 Offer) and/or any restrictive undertaking or undertakings or
similar provision entered into by Protech or any of its subsidiaries, which may
materially reduce the operating performance of Protech. For the purposes of this
paragraph 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 upon 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 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.
6.2. The Offer will, in addition to the Conditions Precedent set out in paragraph 6.1 above, be
subject to the fulfilment or waiver (in whole or in part) of the following additional condition
precedent, that the Offer is accepted by Remaining Shareholders holding such number of the
Remaining Protech Shares as will result in Eqstra (together with its existing shareholding)
beneficially holding (directly or indirectly) not less than 51% of the entire issued share capital of
Protech.
6.3. The conditions precedent in paragraphs 6.1.1, 6.1.3, 6.1.4, 6.1.5 and 6.2 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 any one or more of them is to be fulfilled.
6.4. The remaining condition precedent, that is the condition precedent in paragraph 6.1.2 above, is
of a regulatory nature and cannot be waived by the parties.
6.5. Shareholders are advised, with respect to the conditions precedent in paragraphs 6.1.3
and 6.1.4 above, that, in the interests of providing the market and Protech shareholders and
employees with certainty, Eqstra undertook in the Firm Intention Letter to use its reasonable
commercial endeavours to complete the appropriate due diligence investigations before
14 December 2012. This would obviously have depended on the Protech Board and
management providing Eqstra with the relevant documentation in a timeous manner. It should
be noted, however, that Eqstra has until 31 July 2013 to complete the due diligence
investigations. Accordingly, the Protech Board should have engaged with Eqstra if it believed
that the due diligence investigations could have waited until early 2013. Eqstra would still like
to conduct its due diligence investigations in early 2013 if the Protech Board is willing to grant
Eqstra and its advisors access to the relevant documentation.
7. The Independent Board
Eqstra understands from the Protech Announcement that the Protech Board formed an Independent
Board for the purpose of considering the terms and conditions of the Offer. Eqstra is considering
the composition of the Independent Board, and will continue to monitor the process followed by the
Independent Board, for the purposes of ensuring that the Companies Regulations are complied with.
Following the release of the Protech Announcement, the Independent Board is required in terms of
the Companies Regulations (i) to appoint an independent professional expert to provide it with a
fairness opinion regarding the fairness and reasonableness of the Offer Price; and (ii) following
receipt of that fairness opinion, to communicate that fairness opinion to Protech shareholders,
together with the Independent Board's opinion on whether or not the Remaining Protech
Shareholders should accept the Offer.
Notwithstanding the fact that Eqstra continues to seek a friendly transaction, in which Eqstra and the
Independent Board release a joint offer circular containing the terms of the Offer, the fairness
opinion and the recommendation of the Independent Board, it is likely that the Independent Board
will prepare and post its own offeree response circular to Protech shareholders after the posting of
the offeror Offer circular by Eqstra, which offeree response circular will then contain the fairness
opinion and the Independent Board's recommendation. The Independent Board is required to post
this response circular to Protech shareholders within twenty business days of the date of posting of
the Offer circular, or such longer period as may be consented to by the TRP.
8. Beneficial interests in Protech
Eqstra currently beneficially owns c.32.8% of Protech's share capital.
There are no parties acting in concert with Eqstra in relation to the Offer. The holdings of the
parties who have given undertakings to accept the Offer are set out in paragraph 4 above.
9. Salient dates
An offeror Offer circular will be posted by Eqstra to Protech shareholders within twenty business
days of the date of this announcement, or such longer period as consented to by the TRP. The
salient dates and times in respect of the Offer will also be published by Eqstra in due course.
10. Responsibility statement
The board of directors of Eqstra accepts responsibility for the information contained in this
announcement 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.
11. Link to the circular
In addition to the receipt of the offer circular via post, Protech shareholders will further be able to
access the Circular at http://www.eqstra.co.za.
Kempton Park
6 December 2012
Merchant bank and Sponsor to Eqstra
RAND MERCHANT BANK (A DIVISION OF FIRSTRAND BANK LIMITED)
Attorneys to Eqstra
WERKSMANS
Date: 06/12/2012 01:27:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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