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Terms announcement relating to the acquisition of Paycorp Holdings by Main Street 1127
TRANSACTION CAPITAL LIMITED
(Incorporated in the Republic of South Africa)
(Registration No. 2002/031730/06)
ISIN: ZAE00167391
JSE share code: TCP
("Transaction Capital" or the "Company")
TERMS ANNOUNCEMENT RELATING TO THE ACQUISITION OF PAYCORP HOLDINGS
PROPRIETARY LIMITED (REGISTRATION NO. 2000/020217/07) ("PAYCORP") BY MAIN STREET 1127
PROPRIETARY LIMITED (REGISTRATION NO. 2013/077630/07) ("NEW HOLDCO")
1. INTRODUCTION
Transaction Capital shareholders are advised that the Company has entered into a written
agreement (the "Agreement") with Paycorp, New Holdco (a subsidiary of Actis Columbus (Mauritius)
Limited, the shares of which are held by funds managed by Actis LLP ("Actis")) and Main Street
1126 Proprietary Limited, a wholly owned subsidiary of New Holdco, pursuant to and in terms of
which Paycorp will, subject to the fulfilment or waiver of the conditions precedent specified in the
Agreement ("Conditions Precedent"), become a wholly owned subsidiary of New Holdco (the
"Proposed Transaction"). The salient features of the Proposed Transaction, including the
Conditions Precedent are set out below.
2. PARTICULARS OF THE PROPOSED TRANSACTION
The salient features of the Proposed Transaction are as follows -
2.1. the subject matter of the Proposed Transaction is Paycorp, a wholly owned subsidiary of
Transaction Capital;
2.2. New Holdco will acquire Paycorp and the claims on loan account which Transaction Capital
will have against ATM Solutions Group Securitisation Proprietary Limited ("ATM
Securitisation") on the implementation date of the Agreement. A net amount of
approximately R937 000 000,00 (nine hundred and thirty seven million rand) ("Payment
Amount") will be received by Transaction Capital provided that, if the Effective Date (as
defined in paragraph 2.4) occurs -
2.2.1. on or before 31 December 2013, and if the implementation date of the
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Agreement is delayed to a date beyond the 30 (thirtieth) day following the
Effective Date, the Payment Amount will be increased by notional interest
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thereon calculated at a rate of 1,25% per month from and including the Effective
Date up to and including the day before the implementation date of the
Agreement, provided that such notional interest shall not be added to the
Payment Amount where the delay in the implementation date of the Agreement
either (i) has not been caused by New Holdco; or (ii) has arisen from a dispute
in respect of a material adverse change, as contemplated in paragraph 6, which
is resolved in favour of New Holdco; and
2.2.2. after 31 December 2013 -
2.2.2.1. the Payment Amount will be increased by notional interest thereon
calculated at a rate of 1,25% per month from and including
1 January 2014 up to and including the day before the Effective
Date (the Payment Amount plus the interest calculated thereon
referred to in this paragraph 2.2.2.1 shall, for the purposes of this
paragraph 2.2, be referred to as the "Increased Payment
Amount"); and
2.2.2.2. if the implementation date of the Agreement is delayed to a date
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beyond the 30 (thirtieth) day following the Effective Date, the
Increased Payment Amount will be increased by notional interest
thereon calculated at a rate of 1,25% per month from and including
the Effective Date up to and including the day before the
implementation date of the Agreement, provided that such notional
interest shall not be added to the Increased Payment Amount where
the delay in the implementation date of the Agreement either (i) has
not been caused by New Holdco; or (ii) has arisen from a dispute in
respect of a material adverse change, as contemplated in
paragraph 6, which is resolved in favour of New Holdco;
2.3. the Payment Amount, and any notional interest envisaged in paragraphs 2.2.1 or 2.2.2, as
the case may be, will be settled by New Holdco in cash;
2.4. the effective date of the Proposed Transaction will be the last business day of the month in
which the Conditions Precedent are fulfilled or waived (where appropriate), as the case may
be, (the "Effective Date");
2.5. Transaction Capital is entitled, in respect of the period from 1 October 2012 up to and
including 31 December 2013 or the Effective Date (whichever occurs first) to receive a
proportion of the net profits of the Paycorp Group for such period as a dividend. If the date
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of payment of such dividend is delayed to a date beyond the 30 (thirtieth) day following the
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Effective Date, the dividend shall be increased by an amount equal to notional interest
thereon calculated from and including the Effective Date up to the day before the date of
payment of the dividend at a rate of 1,25% (one comma two five per cent) per month,
calculated daily and compounded monthly in arrear; provided that such notional interest
shall not be added to the dividend where the delay in the date of payment of the dividend
either -
2.5.1. has not been caused by New Holdco; or
2.5.2. has arisen from a dispute in relation to the unaudited consolidated management
accounts of Paycorp and its subsidiaries (the "Paycorp Group") (i) as at the
Effective Date for the period commencing on 1 October 2013 and terminating
on the Effective Date; and/or (ii) for the period commencing on 1 October 2012
and terminating on 30 September 2013, which is resolved in favour of New
Holdco;
2.6. the Proposed Transaction is subject to the fulfilment or waiver (where appropriate), as the
case may be, inter alia, of the Conditions Precedent listed in paragraph 6; and
2.7. the other significant terms of the Proposed Transaction are the following -
2.7.1. the Company has provided New Holdco with warranties customary for a
transaction of this nature, subject to customary limitations as to the period
during which claims may be brought and customary thresholds for the capping
of claims; and
2.7.2. the Securitisation Scheme is a structure established and operated by ATM
Solutions Proprietary Limited ("ATM Solutions"), a wholly owned subsidiary of
Paycorp, in terms of which ATM Securitisation purchases ATMs from ATM
Solutions, enters into rental agreements in relation to such ATMs, purchases
certain receivables from ATM Solutions and raises funding by way of the issue
of debentures to acquire such assets ("Securitisation Scheme"). On a date
not later than 5 (five) days before the Effective Date, the external debt owing by
ATM Securitisation in respect of the Securitisation Scheme will be settled and
the Securitisation Scheme unwound. For the purposes of this paragraph,
"external debt" means all amounts owing by ATM Securitisation to the holders
of the debentures issued by it, all amounts owing by it in respect of all related
hedging arrangements and all early settlement and other wind-up costs incurred
in settling the Securitisation Scheme but excluding the debt owing by ATM
Solutions.
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2.8. The Company is in discussion with the JSE Limited ("JSE") regarding the categorisation of
the Proposed Transaction under the JSE Listings Requirements (the "Listings
Requirements"). If required, a further announcement will be released on SENS in this
regard.
3. APPLICATION OF THE PROCEEDS ARISING UPON IMPLEMENTATION OF THE AGREEMENT
The Payment Amount and any notional interest thereon, as envisaged in paragraphs 2.2.1 or 2.2.2,
as the case may be (which the Company will receive upon the implementation date of the
Agreement) will be applied for the purpose of delivering shareholder value through strategic
acquisitions and/or capital management initiatives.
4. OVERVIEW OF THE BUSINESS OF THE PAYCORP GROUP
The Paycorp Group is the owner and operator of off-site ATMs, pre-paid debit cards and EFT
terminals. The Paycorp Group is a large South African payment group, owning its own third party
transaction switch and owning, deploying and operating a large number of off-site ATMs. It is also a
Visa-certified provider of stored value pre-paid card solutions and a deployer of debit and credit card
terminals.
5. RATIONALE FOR PROPOSED TRANSACTION
5.1. Transaction Capital
5.1.1. Transaction Capital has consistently held the view that it is obliged to consider
disposing of a subsidiary if the prospects and performance of that subsidiary
may be enhanced by another owner, as reflected in a premium price.
5.1.2. The Paycorp Group’s inclusion as a subsidiary of Transaction Capital has
logically been justified as a cash generating component of a non-deposit taking
financial services portfolio. However, the synergies between a low cost, high
volume transactional ATM business and the differentiated credit risk businesses
that constitute the balance of Transaction Capital’s portfolio are elusive. To
date there has been very little incremental value created expressly as a
consequence of the Paycorp Group’s collaborating with other subsidiaries of the
Transaction Capital group.
5.1.3. The implementation of the Proposed Transaction will enhance Transaction
Capital’s shareholder value without in any way being prejudicial to the
sustainability of the Paycorp Group or to the stakeholders of Transaction Capital
and/or the Paycorp Group.
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5.2. Actis
Actis is a private equity investor in emerging markets. It is seeking to acquire the assets of
the Paycorp Group to supplement its current investment portfolio. For Actis, the acquisition
of the Paycorp Group is an attractive investment opportunity which is anticipated to achieve
good returns for its investors in future. The Proposed Transaction epitomises Actis’s
investment thesis: rising consumer demand for quality services and the build out of social
infrastructure. It also fits with its financial services strategy and track record of building value
across similar current investments such as AGS, the Indian independent ATM deployer, and
EMPH, the Africa and the Middle East payment processing business.
6. CONDITIONS PRECEDENT TO THE PROPOSED TRANSACTION
The Proposed Transaction is subject, inter alia, to the fulfilment or waiver (where appropriate), as the
case may be, of the following Conditions Precedent, namely -
6.1. the obtaining of all of the following approvals by no later than –
6.1.1. 24 September 2013, all applicable regulatory and statutory approvals (other
than from (i) the South African competition authorities as may be required or
provided for in terms of the Competition Act (No. 89 of 1998, as amended) (the
"Competition Authorities") as dealt with below, and (ii) the JSE) as may be
required in the Republic of South Africa for the implementation of the Proposed
Transaction (including all necessary approvals from the Financial Surveillance
Department of the South African Reserve Bank);
6.1.2. 19 October 2013, the JSE approves, insofar as may be necessary, the
implementation of the Proposed Transaction in accordance with the Listings
Requirements;
6.1.3. 29 November 2013, insofar as may be necessary, the board of directors and the
shareholders of Transaction Capital pass such resolutions as may be required
to authorise and implement the Proposed Transaction; and
6.1.4. 31 January 2014, the parties obtain such approval or deemed approval from the
Competition Authorities as may be required for the Proposed Transaction;
6.2. by no later than –
6.2.1. 24 September 2013, New Holdco enters into agreements with third party
funders in respect of its funding requirements for the Proposed Transaction (the
"Acquisition Finance Agreements") and such Acquisition Finance
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Agreements become unconditional in all respects in accordance with their
terms, save for any condition relating to the Agreement becoming unconditional;
and
6.2.2. 24 September 2013, all agreements required to unwind the Securitisation
Scheme with effect from a date not later than 5 (five) days before the Effective
Date are entered into on terms reasonably satisfactory to New Holdco and such
agreements become unconditional in all respects in accordance with their
terms, save for any condition relating to the Agreement becoming unconditional;
and
6.3. by no later than 19 October 2013, all third party consents required for the continuation of
certain material contracts of the Paycorp Group after implementation of the Proposed
Transaction are obtained unconditionally, or if subject to conditions, on terms reasonably
satisfactory to New Holdco.
It is also a Condition Precedent that there will be no material adverse change as notified either by
Transaction Capital or New Holdco (as the case may be) between the signature date of the
Agreement and 5 business days before the Effective Date. For purposes thereof, a "material
adverse change" is an event specific to any company in the Paycorp Group which will, on a balance
of probabilities, have an ongoing effect (being a recurring adverse consequence on the sustainable
annual earnings of the Paycorp Group before interest, tax, depreciation and amortisation (but after
taking into account any overstated liabilities and provisions for liabilities) in the 2014 financial year
and one or more financial years thereafter) of R10 000 000 or more.
The dates prescribed above may be extended by agreement in writing between the parties to the
Agreement.
7. UNAUDITED PRO FORMA FINANCIAL EFFECTS OF THE PROPOSED TRANSACTION
The unaudited pro forma financial effects of the Proposed Transaction set out below have been
prepared to assist Transaction Capital’s shareholders in assessing the impact of the Proposed
Transaction on the Transaction Capital Group’s historical diluted earnings per share ("EPS") and
diluted headline earnings per share ("HEPS"). The pro forma financial effects are the responsibility of
the directors of Transaction Capital and are provided for illustrative purposes only. The pro forma
financial effects have been prepared on the basis that the Proposed Transaction had been fully
implemented on 1 October 2012 for purposes of the Income Statement and at 31 March 2013 for
purposes of the Statement of Financial Position. It does not purport to be indicative of what the
consolidated financial results would have been had the Proposed Transaction been implemented on
a different date. The material assumptions are set out in the notes following the table below.
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Due to their nature, the pro forma financial effects may not fairly present the financial position,
changes in equity, results of operations or cash flows of the Transaction Capital Group after the
implementation of the Proposed Transaction.
Before the After the Proposed Percentage change
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Proposed Transaction
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Transaction
EPS (ZA cents)
- Diluted 40.25 109.46 172%
- Basic 40.25 109.46 172%
HEPS (ZA cents)
- Diluted 39.91 37.68 - 6%
- Basic 39.91 37.68 - 6%
Net asset value per ordinary
shareholder per share (ZA cents) 527.40 598.80 14%
Net tangible asset value per ordinary
shareholder per share (ZA cents) 362.67 493.49 36%
Weighted average number of shares
in issue* (million)
- Diluted 583.80 583.80 0%
- Basic 583.80 583.80 0%
Headline earnings (ZA Rm) 233.00 220.00 - 6%
Value of net assets that are the subject of the transaction: R170 million as at 31 March 2013
Profits attributable to the net assets that are the subject of the transaction: R28 million for the 6
months ended 31 March 2013
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The "Before" financial information has been extracted, with the exception of net tangible asset per share
without adjustment, from the Transaction Capital Group’s published reviewed interim results for six months
ended 31 March 2013.
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The pro forma "After" financial information comprises the "Before" financial information adjusted for the
following principal assumptions:
a. The investment in Paycorp is sold for gross proceeds of approximately R1.03 billion.
b. A profit on sale, net of taxation, is recognised in the Statement of Comprehensive Income.
c. The profit on sale is excluded for headline earnings calculation net of taxation and non-controlling interest
effects.
d. Certain ongoing costs were prudently estimated and included in the Statement of Comprehensive Income.
e. No shares were repurchased as part of the Proposed Transaction including shares relating to the
Transaction Capital Limited share scheme.
Johannesburg
6 August 2013
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Legal advisors to Transaction Capital:
Edward Nathan Sonnenbergs Inc.
Sponsor to Transaction Capital:
Deutsche Securities (SA) Proprietary Limited
Independent Expert to board of directors of Transaction Capital:
Grant Thornton
Independent auditors and reporting accountant on the unaudited pro forma financial information of
Transaction Capital:
Deloitte
Tax advisors to Transaction Capital:
Werksmans
Legal and tax advisers to Actis and New Holdco:
Webber Wentzel
Date: 07/08/2013 07:05:00 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
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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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