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Detailed terms announcement regarding the proposed restructure of the group
CONVERGENET HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number 1998/015580/06)
Share code: CVN ISIN: ZAE000102067
(“ConvergeNet” or the “Company”)
DETAILED TERMS ANNOUNCEMENT REGARDING THE PROPOSED RESTRUCTURE OF THE
GROUP, INCLUDING:
- THE CLOSURE OF THE COMPANY’S HEAD OFFICE;
- THE DISPOSAL OF:
? SIZWE AFRICA IT GROUP (PTY) LTD (“Sizwe”);
? EQ TICKETS (PTY) LTD (“EQ Tickets”);
? THE SIMAT GROUP;
? X-DSL NETWORKING SOLUTIONS (PTY) LTD (“X-DSL”); AND
? TELESTO COMMUNICATIONS (PTY) LTD (“Telesto”);
- SHARE CONSOLIDATION;
- ODD-LOT OFFER AND SPECIFIC OFFER;
- CHANGES TO THE BOARD; AND
- CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
1.1 The board of directors of ConvergeNet (the “Board”) has agreed
to restructure the ConvergeNet group of companies ("Group") to
take the Company forward. This restructure has been prompted by
the deteriorating financial performance of ConvergeNet, as a
result of a combination of excessive costs and a lack of
strategic focus. The restructure will entail the closure of the
Company’s head office; the disposal of certain non-core
subsidiaries; the comprehensive rationalisation of the Group’s
legal structure (the “Rationalisation”) and a restructuring of
the authorised and issued share capital of the Company by way of
a share consolidation; odd-lot offer and specific offer
(collectively hereinafter referred to as the “Restructure”),
details of which are included in this announcement.
1.2 Following the implementation of the proposed Restructure, the
Group will initially comprise only Andrews Kit (Pty) Ltd
(trading as Contract Kitting (Pty) Ltd (“Contract Kitting”)) and
Structured Connectivity Solutions (Pty) Ltd (“SCS”), which form,
in the Board’s view, a solid base from which to build a scalable
group that is focussed on the provision of ICT solutions to the
private sector across Africa.
1.3 With a more focussed and profitable portfolio of operating
assets, combined with a strong group balance sheet, the Board is
of the view that ConvergeNet will be able to attract new
investment where it is required to support an expansion of these
companies, as well as to fund the acquisitions of complementary
businesses. In this regard, the Company is already in
discussions with potential new investors as well as acquisition
targets. Details of these discussions will be announced in due
course.
2. CLOSURE OF HEAD OFFICE
2.1 The Company’s head office costs are unsustainable. Closure of
the head office will immediately alleviate cash flow pressures
in the Group and allow excess liquidity to be used to expand
existing operations, fund high quality acquisitions and finance
the payment of cash distributions to shareholders.
2.2 Accordingly, the Company has commenced retrenchment
consultations with employees at its head office.
2.3 The costs in respect of the closure of the Company’s head office
will be funded from a shareholder's loan facility to be arranged
by the Company's corporate advisor, AfrAsia Corporate Finance.
The facility will also be made available to settle or refinance
existing liabilities of the Company in order to ensure that the
restructure process is not disrupted. This loan facility will be
repaid in due course from the proceeds of the sales of various
operating assets as detailed below.
2.4 Pursuant to the closure of the Company’s head office in
Centurion, the Group will transfer its registered head office to
the Johannesburg premises of its corporate advisor, AfrAsia
Corporate Finance, on an interim basis.
2.5 The Company is considering the appointment of ConvergeNet’s
current Chief Financial Officer, Mr Danie Bisschoff, as Chief
Executive Officer of the restructured Group on an interim basis.
Shareholders will be advised as soon as this interim position
has been filled.
2.6 The expected finalisation date of the closure of the Company’s
head office is 31 December 2013.
3. DISPOSAL OF SIZWE
3.1 Introduction
Shareholders are advised that on 25 July 2013 ConvergeNet
concluded the terms of the sale of 100% of ConvergeNet’s
interest in Sizwe (the “Sizwe Shares”) for R120 million (“Sizwe
Sale Price”), to a private company to be incorporated by
Mr Hanno van Dyk for the purpose of acquiring the Sizwe Shares
(the “Sizwe Purchaser”), subject to the fulfilment of the
conditions precedent set out in paragraph 3.6 below (the “Sizwe
Transaction”).
3.2 Business of Sizwe
Sizwe was established in 2002 as a support and maintenance
provider in the ICT sector. Its suite of infrastructure services
includes project management, hardware maintenance, IMACs as well
as a number of value-added ICT products and solutions.
3.3 Rationale for the Sizwe Transaction
The Board has determined that the Company should exit sub-scale
and loss-making business units in non-core areas. The strategy
of the Company going forward will be to focus on identified core
operations and to grow these organically and through a
disciplined acquisition strategy.
3.4 Terms of the Sizwe Transaction
3.4.1 The Sizwe Sale Price will be settled as follows:
3.4.1.1 R40 million deposit payable in cash on the
effective date (referred to in paragraph 3.4.3
below); and
3.4.1.2 R80 million vendor loan to be extended by
ConvergeNet (the “Vendor Loan”) on the
following terms:
- Term: 4 years
- Interest rate: Prime minus 2% per month,
payable monthly in arrears
- Security:
? Cession of book debts
? Pledge of the Sizwe Shares
? Negative pledge
- Capital repayments: Semi-annual
amortisation. The following incentives
will be applicable for early capital
repayments:-
Term 24 months 12 months
Total repayment R115 900 000 R103 100 000
Capital reduction R10 000 000 R20 000 000
Minimum capital payment
required semi-annually R17 500 000 R30 000 000
Interest rate after
minimum capital payment Prime minus 3% Prime minus 6%
3.4.2 ConvergeNet has provided no warranties to the Sizwe
Purchaser.
3.4.3 The Sizwe Transaction will become effective on the date
of fulfilment of all the conditions precedent to be
included in the final sale and purchase agreement,
including those detailed in paragraph 3.6 below.
3.5 Application of the proceeds of the Sizwe Transaction
The proceeds of the Sizwe Transaction will be utilised to pay
outstanding debt obligations of ConvergeNet and for general
corporate purposes.
3.6 Conditions precedent
The Sizwe Transaction is subject to the fulfilment of the
following outstanding conditions precedent on or before
31 October 2013:
3.6.1 approval by all applicable regulatory authorities,
including but not limited to the Takeover Regulation
Panel (“TRP”), as detailed in paragraph 3.8.2 below, and
the JSE Limited (“JSE”);
3.6.2 approval by Shareholders in general meeting;
3.6.3 the fulfilment of any orders which have been placed with
Contract Kitting by Sizwe;
3.6.4 settlement of all management fees due by Sizwe to
ConvergeNet up until 31 August 2013;
3.6.5 settlement of all other amounts, in addition to such
management fees referred to in paragraph 3.6.4 above,
due by Sizwe to the Group; and
3.6.6 such other conditions precedent as the parties may agree
in the final sale and purchase agreement, details of
which will be included in the circular referred to in
paragraph 12 below.
3.7 Other conditions
3.7.1 ConvergeNet will have the right to nominate a director
to the board of Sizwe for the duration of the Vendor
Loan.
3.7.2 Sizwe will be required to provide ConvergeNet with
quarterly management accounts for Sizwe for the duration
of the Vendor Loan.
3.8 Categorisation
3.8.1 In terms of the Listings Requirements of the JSE
(“Listings Requirements”), the Sizwe Purchaser is an
associate of Mr Hanno van Dyk, a director of the Board,
and therefore considered a related party of ConvergeNet.
Accordingly, the Sizwe Transaction is categorised as a
related party transaction and requires a fairness
opinion by an independent expert and approval by
Shareholders. The Sizwe Transaction is also a category 1
transaction in terms of the Listings Requirements.
3.8.2 In terms of section 112 of the Companies Act, No 71 of
2008, as amended, the Sizwe Transaction is regarded as
both a fundamental transaction and an affected
transaction and will therefore require approval by the
TRP and Shareholders by way of special resolution.
3.8.3 The Board will appoint an independent expert acceptable
to the TRP and the JSE (“Independent Expert”) to
determine whether the terms and conditions of the Sizwe
Transaction are fair and reasonable. The Independent
Expert’s opinion will be included in the circular to be
posted to Shareholders, as per paragraph 12 below.
3.8.4 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.
4. DISPOSAL OF EQ TICKETS
4.1 Introduction
Shareholders are advised that the board of directors of Sizwe
has accepted an offer from Mr Daki Nkanyane (the “EQ Tickets
Purchaser”) on 25 July 2013 to acquire 100% of Sizwe’s
shareholding (being 74%) and loan claims in EQ Tickets (the “EQ
Tickets Shares”) for R5 million (“EQ Tickets Sale Price”) (the
“EQ Tickets Transaction”).
4.2 Business of EQ Tickets
EQ Tickets is a ticketing provider which offers technology for
ticketing, admission control, accreditation, loyalty and
membership. These functions can be combined to form a fully
integrated solution or built into customised packages to meet a
customer's specific needs.
4.3 Rationale for the EQ Tickets Transaction
Shareholders are referred to paragraph 3.3 above for the
rationale for the EQ Tickets Transaction.
4.4 Terms of the EQ Tickets Transaction
4.4.1 The EQ Tickets Sale Price, which includes a full and
final settlement of all outstanding loan amounts owed by
EQ Tickets to Sizwe, will be settled as follows:
4.4.1.1 R2.5 million payable in cash within 30 days
from the date of transfer of the EQ Tickets
Shares from Sizwe to the EQ Tickets Purchaser
(the “Initial Payment Date”); and
4.4.1.2 R2.5 million payable in cash in 12 equal
instalments over 12 months from the Initial
Payment Date. The final instalment of the
EQ Tickets Sale Price will be subject to
adjustment in accordance with the terms to be
specified in the final sale and purchase
agreement, details of which will be included
in the circular referred to in paragraph
12 below.
4.4.2 ConvergeNet has provided no warranties to the EQ Tickets
Purchaser.
4.4.3 The EQ Tickets Transaction will become effective on the
date of fulfilment of all the conditions precedent to be
included in the final sale and purchase agreement.
4.5 Application of the proceeds of the EQ Tickets Transaction
The proceeds of the EQ Tickets Transaction will be utilised to
pay outstanding debt obligations of ConvergeNet and for general
corporate purposes.
4.6 Conditions precedent
The EQ Tickets Transaction is subject to the fulfilment of the
conditions precedent as the parties may agree in the final sale
and purchase agreement on or before 31 October 2013, details of
which will be included in the circular as referred to in
paragraph 12 below.
4.7 Other conditions
The EQ Tickets Purchaser is to procure the release of Sizwe from
all its obligations in terms of suretyships provided by Sizwe in
favour of EQ Tickets.
4.8 Categorisation
4.8.1 In terms of the Listings Requirements, the EQ Tickets
Purchaser is considered a related party of ConvergeNet
by virtue of his interest of 26% in EQ Tickets. Due to
the size of the EQ Tickets Transaction, it is therefore
categorised as a small related party transaction and
requires a fairness opinion by an Independent Expert.
4.8.2 The Board will appoint the Independent Expert to
determine if the terms and conditions of the EQ Tickets
Transaction are fair. The Independent Expert’s opinion
will be included in the circular to be posted to
Shareholders, as per paragraph 12 below.
4.8.3 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.
5. DISPOSAL OF INTEREST IN THE SIMAT GROUP
Shareholders are advised that on 25 July 2013 SIMAT Management
Company (Pty) Ltd (“SIMAT SA”), in which ConvergeNet holds a 51%
interest, has entered into a term sheet with Afriswiftcom
Investment Holdings Limited (the “SIMAT Purchaser”), a company
incorporated in Mauritius, for the sale of 100% of SIMAT SA’s
interest in the SIMAT Group for R1, subject to the fulfilment of
certain conditions precedent. In terms of the Listings
Requirements, this transaction is not categorised, and is
therefore included in this announcement for information purposes
only. SIMAT SA has provided no warranties to the SIMAT
Purchaser. Shareholders are referred to paragraph 3.3 above for
the rationale for this transaction.
6. DISPOSAL OF X-DSL
Shareholders are advised that on 25 July 2013 ConvergeNet has
entered into a term sheet with Messrs M van Dyk and D Fourie
(the “X-DSL Purchasers”) for the sale of 100% of ConvergeNet’s
interest in X-DSL (being 66%) and a shareholder loan account
in the amount of R2 360 000 for R1, subject to the fulfilment
of certain conditions precedent on or before 31 October 2013.
In terms of the Listings Requirements, this transaction is not
categorised, and is therefore included in this announcement
for information purposes only. ConvergeNet has provided no
warranties to the X-DSL Purchasers. Shareholders are referred
to paragraph 3.3 above for the rationale for this transaction.
7. DISPOSAL OF TELESTO
7.1 Introduction
Shareholders are advised that ConvergeNet has entered into a
term sheet with Mr Danie Bisschoff, or his nominee (the “Telesto
Purchaser”), on 25 July 2013 for the sale of 100% of
ConvergeNet’s interest in Telesto for R7.3 million (“Telesto
Sale Price”), subject to the fulfilment of the conditions
precedent set out in paragraph 7.6 below (the “Telesto
Transaction”).
7.2 Business of Telesto
Telesto focuses exclusively on the AVAYA Predictive Dialler and
Agent Effectiveness Applications from AVAYA for distribution and
sale in Sub Saharan Africa and the Middle East. These systems
are widely used in outbound operations for call centres. The
most common applications used are Collections, Telemarketing and
Tele-servicing.
7.3 Rationale for the Telesto Transaction
Shareholders are referred to paragraph 3.3 above for the
rationale for the Telesto Transaction.
7.4 Terms of the Telesto Transaction
7.4.1 The Telesto Sale Price will be settled as follows:
7.4.1.1 R6 million payable in cash on or before
15 November 2013; and
7.4.1.2 R1.3 million payable in cash on or before
31 October 2014 (the “Final Payment”).
7.4.2 ConvergeNet has provided no warranties to the Telesto
Purchaser.
7.4.3 Until the Final Payment is made, ConvergeNet will hold a
pledge and Cession of the ordinary shares and the book
debts of Telesto.
7.4.4 The Telesto Transaction will become effective on the
date of fulfilment of all the conditions precedent to be
included in the final sale and purchase agreement.
7.5 Application of the proceeds of the Telesto Transaction
The proceeds of the Telesto Transaction will be utilised to pay
outstanding debt obligations of ConvergeNet and for general
corporate purposes.
7.6 Conditions precedent
The Telesto Transaction is subject to the fulfilment of the
following outstanding conditions precedent on or before
31 October 2013:
7.6.1 approval by all applicable regulatory authorities,
including but not limited to the JSE;
7.6.2 approval by Shareholders in general meeting;
7.6.3 renouncement of all claims which Mr Danie Bisschoff may
have against ConvergeNet in terms of his employment
contract with the Company; and
7.6.4 such other conditions precedent as the parties may agree
in the final sale and purchase agreement, details of
which will be included in the circular referred to in
paragraph 12 below.
7.7 Categorisation
7.7.1 In terms of the Listings Requirements, the Telesto
Purchaser is considered a related party of ConvergeNet
by virtue of Mr Danie Bisschoff’s position on the Board.
The Telesto Transaction is therefore categorised as a
related party transaction and requires a fairness
opinion by an independent expert and approval by
Shareholders. The Telesto Transaction is also a category
2 transaction in terms of the Listings Requirements.
7.7.2 The Board will appoint the Independent Expert to
determine whether the terms and conditions of the
Telesto Transaction are fair to Shareholders. The
Independent Expert’s opinion will be included in the
circular to be posted to Shareholders, as per paragraph
12 below.
7.7.3 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.
8. PROPOSED CONSOLIDATION OF SHARE CAPITAL
8.1 Introduction
The Board wishes to advise Shareholders of a proposed
restructuring of the authorised and issued share capital of the
Company by the consolidation of every 10 (ten) ordinary shares
currently held in ConvergeNet with no par value into 1 (one)
share with no par value (the “Share Consolidation"). As a result
of the Share Consolidation, ConvergeNet will have 200 000 000
authorised shares and 97 093 513 shares in issue.
8.2 Rationale for the Share Consolidation
It is expected that the Share Consolidation will result in the
narrowing of the spread between the bid-to-buy price and the
offer-to-sell price, resulting in a more stable market
capitalisation of the Company, minimising significant
movements in the share price on small volumes traded. The
Board is of the view that the Share Consolidation will not
only provide additional confidence to existing shareholders,
but also increase the attractiveness of ConvergeNet to
potential investors.
8.3 Conditions precedent
The Share Consolidation is subject to, inter alia, JSE and
shareholder approval.
9. ODD-LOT OFFER AND SPECIFIC OFFER
9.1 In order to reduce the costs of administration connected with a
large number of small shareholders, the Board has proposed the
implementation of an odd-lot offer and a specific offer
following the Share Consolidation for purposes of facilitating a
reduction in the number of small shareholders in an equitable
manner.
9.2 ConvergeNet wishes to extend an odd-lot offer to Shareholders
holding less than 100 shares (“Odd-Lot Shareholders”), amounting
to a total of 9 Shareholders, holding a total of 287 shares
(which represent approximately 0.00003% of the total issued
share capital of ConvergeNet) (the “Odd-Lot Offer”) and a
specific offer to Shareholders holding 100 or more shares but
fewer than 5 001 shares (“Specific Offer Shareholders”),
amounting to a total of 157 Shareholders, holding a total of
310 025 shares (which represents approximately 0.03193% of the
total issued share capital of ConvergeNet) (the “Specific
Offer”). The Odd-Lot Offer and the Specific Offer will be made
at an offer price to be determined using the 5-day volume
weighted average price (“VWAP”) of ConvergeNet shares traded on
the JSE up to the close of business of the day prior to this
announcement plus a 5.0% premium (the “Offer Price”).
9.3 The Odd-Lot Offer and the Specific Offer will provide for a two-
way election in terms of which the Odd-Lot Shareholders and
Specific Shareholders may:
9.3.1 elect to retain their shareholding; or
9.3.2 elect to sell their shareholding.
9.4 The Odd-Lot Offer and Specific Offer will enable Odd-Lot
Shareholders and Specific Offer Shareholders who wish to
participate in the Odd-Lot Offer and Specific Offer to dispose of
their shareholding in a cost-effective manner. Those who choose to
sell their shares will be afforded the opportunity of realising
the maximum possible proceeds from the sale of their
shareholdings.
9.5 On completion of the Odd-Lot Offer and Specific Offer, the Company
intends to repurchase the shareholdings of the Odd-Lot Offer
Shareholders and the Specific Offer Shareholders amounting to a
maximum total of 310 182 shares which will be regarded as a
specific repurchase of shares in terms of section 48 of the
Companies Act as well as in terms of the Listings Requirements.
Shareholder approval of a special resolution in this regard will
be required.
9.6 The repurchase of shares in terms of the Odd-Lot Offer and the
Specific Offer will be funded out of the cash resources of
ConvergeNet. These resources include the current cash resources of
the Company, the cash proceeds realised from the sale of existing
subsidiaries and any additional funding that may be advanced to
the Company by Shareholders for the purposes of the Restructure
process. As a result, the purchase consideration payable to
Shareholders will constitute a dividend as defined in section 1 of
the Income Tax Act, No. 58 of 1962. Dividends tax in respect of
the purchase consideration payable by ConvergeNet will be
applicable to those Shareholders who are not exempt.
9.7 By virtue of the Company implementing the Odd-Lot Offer and the
Specific Offer and repurchasing the odd-lot and specific offer
shareholdings, shareholder approval of a specific repurchase in
terms of the Listings Requirements will be required. However, as
the specific repurchase will not be from any related party,
notwithstanding the fact that the repurchase price is at a slight
premium to the 30-day VWAP, a fairness opinion will not be
required.
10. IRREVOCABLE UNDERTAKINGS
The Company intends to procure irrevocable undertakings from the
required number of its shareholders in favour of the resolutions
required for the implementation of the Telesto Transaction, the
Sizwe Transaction, the Share Consolidation, the Odd-Lot Offer and
the Specific Offer. Details of such irrevocable undertakings will
be included in the circular to Shareholders referred to in
paragraph 12 below.
11. CHANGES TO THE BOARD
In compliance with paragraph 3.59(b) of the Listings Requirements,
Shareholders are hereby advised that Messrs Sandile Swana and Tim
Modise have resigned as directors of ConvergeNet with effect from
1 August 2013 and that Mr Hanno van Dyk has resigned as a director
of ConvergeNet with effect from the completion date of the Sizwe
Transaction.
The Board would like to thank each director for their service to
the Company.
12. DOCUMENTATION AND SALIENT DATES
12.1 Further details of the JSE categorised transactions contemplated
in this announcement (the “Transactions”) will be included in a
circular to be sent to Shareholders in due course, which will
include, inter alia, fairness opinions from an Independent Expert,
a notice of the General Meeting and a form of proxy (the
“Circular”).
12.2 The salient dates and times in relation to the Transactions, as
well as the Company’s new ISIN pursuant to the proposed
implementation of the Share Consolidation, will be published on
the date of posting of the Circular.
13. RESPONSIBILITY STATEMENT
The 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 importance of the
information included.
14. CAUTIONARY ANNOUNCEMENT
Shareholders are advised that the Transactions may have a material
effect on the price of the Company’s securities. Accordingly,
Shareholders are advised to exercise caution when dealing in the
Company’s securities until the pro forma financial effects of the
Transactions have been published.
Centurion
29 July 2013
Corporate advisor to ConvergeNet: AfrAsia Corporate Finance Proprietary
Limited
Sponsor: Deloitte & Touche Sponsor Services Proprietary Limited
Date: 29/07/2013 11:20:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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