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Acquisition of Paxus Australia Proprietary Limited
Adcorp Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1974/001804/06)
Share Code: ADR
ISIN: ZAE000000139
("Adcorp”)
ACQUISITION OF PAXUS AUSTRALIA PROPRIETARY LIMITED (“PAXUS”)(“THE ACQUISITION”)
1. Introduction
Adcorp is pleased to announce that it has entered into an agreement on 12 December 2012 with
Computer Sciences Corporation (“CSC”), a public company listed on the New York Stock
Exchange and the current shareholder of Paxus, to acquire 100% of Paxus for a cash
consideration of approximately R544,800,000 (“Purchase Consideration”).
2. Paxus – nature of the businesses
Paxus is a leading provider of Information Technology (“IT”) contracting and recruitment services
in Australia. With a head office in Melbourne, Paxus has offices throughout Australia and has a
very strong brand in its specialised niche market. Started in 1973, Paxus has consistently been a
dominant player in the A$2.1 billion (R19.1 billion) Australian IT contracting and recruitment
market over the last 40 years. Paxus has approximately 100 staff and 2,000 contractors on
assignment at any given time and a client base which is represented principally by blue chip
corporates and government. Paxus provides IT resources both on a contracting and permanent
basis across the whole spectrum of IT specialties and functions, including business analysts,
project managers, consultants, analyst programmers, testers, and desktop / PC support. With
loyal clients, contractors and employees, and a corporate focus on operational excellence, Paxus
has performed strongly under its experienced management team.
3. Rationale for the Acquisition
The attractions of the acquisition include:
- Paxus is a well-established business with a strong brand name, a well-established and
experienced management team and an excellent reputation;
- Paxus has long established relationships and preferred supplier status with some of
Australia’s blue chip companies and various government departments. In addition, CSC
Australia Pty Limited, currently Paxus’ largest client, has signed a five year limited
exclusivity contract to obtain IT resources from Paxus;
- a focus on high demand scarce skills;
- strong contractor relationships with a database of over 140,000 candidates; and
- a solid financial track record.
Adcorp believes that the acquisition of Paxus will provide a number of financial and operational
benefits including:
- the acquisition is earnings enhancing for Adcorp shareholders based on normalised
earnings;
- Paxus will provide diversity of risk to earnings given greater geographic, client and
service line spread;
- Paxus is highly cash generative in line with Adcorp’s existing business model;
- opportunities for back office and shared services rationalisation;
- knowledge sharing to achieve a “best of breed” approach; and
- a bolstered market capitalisation which is expected to lead to, inter alia, improved
liquidity, a broader institutional shareholder base and greater analyst coverage.
Following implementation of the Acquisition, Adcorp intends to manage the business of Paxus in
the same manner that it was managed prior to the implementation of the acquisition. Adcorp
intends to continue offering employment to all of those employees currently working for Paxus.
4. Details of the Acquisition
4.1 Effective date
The effective date of the transaction is expected to be 25 January 2013 (“Effective Date”).
4.2 Purchase Consideration
Adcorp will acquire all of the shares in Paxus for a cash consideration of approximately
R544,800,000.
Adcorp will settle the purchase consideration in cash on the Effective Date.
It is estimated that Paxus will have an NAV on the Effective Date of approximately
R181,600,000.
4.3 Funding of the purchase consideration
The Purchase Consideration will be funded by raising:
- approximately R366 million of Adcorp equity by way of a vendor placement in terms of
the Listings Requirements of the JSE Limited (“Listings Requirements”) (“Vendor
Placement”); and
- the balance of the consideration is to be funded with debt raised in Australia.
Adcorp has received irrevocable undertakings to subscribe for a maximum of 13.0m new
Adcorp shares at a price of 2,818 cents per share. The vendor placing price represents a
7.5% discount to the 20 day VWAP to Friday, 30 November 2012 of 3,046 cents per share.
The debt component will be funded with Australian debt. The Australian debt funding will
provide a natural hedge against foreign exchange movements.
In addition, Adcorp will raise a working capital facility in Australia to fund the working capital
requirements of the business.
4.4 Conditions Precedent
The Acquisition will be subject to the requisite approval having been received from the South
African Reserve Bank which is targeted to be by 24 January 2013 (or such later date as
Adcorp and CSC may agree in writing).
5. Shareholder undertakings
Adcorp has received irrevocable undertakings from certain Adcorp shareholders holding between
them 63,482,347 Adcorp shares, representing in aggregate 66.4% of the total voting rights in
Adcorp, to vote in favour of the resolutions required to implement the capital raising. The
aforesaid undertakings, however, only apply to Adcorp shares which these shareholders hold on
the date of the relevant Adcorp shareholder meeting and the number of Adcorp shares which they
will vote at the Adcorp shareholders meeting may therefore increase or decrease prior to such
meeting.
Adcorp has also received irrevocable undertakings from certain Adcorp shareholders to subscribe
for a maximum of 13.0m new Adcorp shares at a price of 2,818 cents per share in terms of the
Vendor Placement. The receipt of funds from the Vendor Placement and the listing of the new
Adcorp shares are expected to take place before the end of January 2013.
6. Financial effects on Adcorp shareholders
The unaudited pro forma financial effects of the Acquisition on Adcorp shareholders, for which the
Adcorp board is responsible, are provided for illustrative purposes only to provide information
about how the Acquisition will affect the financial position of the Adcorp shareholders by
illustrating the effect thereof on the earnings per share (“EPS”), normalised earnings per share
(“NEPS”) and headline earnings per share (“HEPS”) of Adcorp as if the Acquisition had become
operative on 1 March 2012 and, for the purpose of net asset value per share (“NAVPS”) and net
tangible asset value per share (“NTAVPS”) of Adcorp, as if the Acquisition had become operative
on 31 August 2012. Because of their nature the unaudited pro forma financial effects may not
give a fair presentation of Adcorp’s financial position and results of operations after the
Acquisition. The unaudited pro forma financial effects have been compiled using accounting
policies that comply with IFRS and that are consistent with those applied in the audited
consolidated financial statements of Adcorp for the 6 months ended 31 August 2012.
Before the After the
Acquisition Acquisition % Change
(Note 1) (Note 2)
EPS (cents) 127.3 113.0 -11.2%
NEPS (cents) 166.8 170.2 2.0%
HEPS (cents) 127.1 112.9 -11.2%
NAVPS (cents) 1,917.7 2,040.5 6.4%
NTAVPS (cents) 309.8 214.7 -30.7%
Weighted average number of shares
76,978 89,978
in issue (‘000)
Number of shares in issue (‘000) 78,139 91,139
Notes:
1) The financial information in the "Before the Acquisition" column has been prepared based on
Adcorp’s interim financial results for the 6 months ended 31 August 2012.
2) The financial information in the “After the Acquisition” column has been prepared based on
Paxus’ 6 month earnings of AUD 3.9m less an after tax adjustment of AUD 0.6m for
incentivisation costs. These amounts have been converted into Rands using a ZAR:AUD
exchange rate of 9.08. In addition the following assumptions have been made:
a) The debt funding of AUD 19.7m for the Acquisition will be raised in Australia and an
average utilisation of AUD 5m has been assumed on a working capital facility. An
Australian funding rate of 6.75% has been assumed. This interest will be tax deductible
and will have a continuing effect.
b) In terms of the requirements of IFRS 3 and based on Adcorp management`s best
estimate, the excess of R363 million of the Purchase Consideration paid to CSC over the
net asset value at 30 September 2012 has been allocated as follows:
i. R145 million to intangible assets which have been amortised based on an expected
useful life of 5 years; and
ii. R218 million to goodwill.
iii. The final allocation will require a detailed identification and valuation exercise which
will be completed only once the Acquisition is implemented. These amounts were
derived using a ZAR:AUD exchange rate of 9.08.
c) The Purchase Consideration is funded by debt of R179 million and by the issue of 13.0
million new Adcorp Shares to the value of R366 million (based on Adcorp’s 20 day VWAP
to 30 November 2012, issued at a discount of 7.5%).
d) Once-off transaction costs have been excluded from the above analysis
7. Categorisation and documentation
This is a category two transaction per the categorisation rules contained in the Listings
Requirements.
In terms of Adcorp’s memorandum of incorporation and the Listings Requirements it is necessary
for Adcorp shareholders to place the unissued shares under the control of the Adcorp directors in
order to issue the new Adcorp shares in terms of the Vendor Placement. Accordingly, a circular
will be sent to Adcorp shareholders containing, inter alia, a notice of the general meeting of
Adcorp Shareholders and a form of proxy. The Adcorp circular is expected to be posted to Adcorp
shareholders on or about 13 December 2012.
8. Salient Dates and Times
Circular and notice of general meeting posted to shareholders on Thursday, 13 December 2012
Last day to trade in Adcorp shares in order to be recorded in
Friday, 4 January 2013
Adcorp’s securities register to vote at the general meeting on
Record date to be entitled to attend, participate in and vote at the
Friday, 11 January 2013
general meeting by close of trading on
Proxy forms for the general meeting to be received by 10:00 on Tuesday, 15 January 2013
General meeting held at 10:00 on Wednesday, 16 January 2013
Results of the general meeting released on SENS on Wednesday, 16 January 2013
Results of the general meeting published in the South African
Thursday, 17 January 2013
press on
Expected date of listing on the JSE of the new Adcorp shares Monday, 28 January 2013
Notes:
a) All dates and times may be changed by Adcorp and/or may be subject to the obtaining of certain
regulatory approvals. Any change will be published on SENS and in the South African press.
b) Shareholders should note that as transactions in Adcorp Shares are settled in the electronic
settlement system used by Strate, settlement of trades takes place 5 Business Days after such
trade. Therefore, Shareholders who acquire shares after Friday, 4 January 2013 will not be eligible
to vote at the general meeting.
c) All times given in this announcement are local times in South Africa.
d) If the general Meeting is adjourned or postponed, forms of proxy submitted for the initial general
meeting will remain valid in respect of any adjournment or postponement of the general meeting.
Bryanston
12 December 2012
Investment Bank, Corporate Advisor and Transaction Sponsor to Adcorp
Investec Corporate Finance
Sponsor to Adcorp
Deloitte & Touche Sponsor Services (Pty) Ltd
5
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