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Proposed Related Party Acquisitions, Approval of a Convertible Loan, Withdrawal of and Renewal of Cautionary
JOHN DANIEL HOLDINGS LIMITED
(to be renamed Ecsponent Limited)
Incorporated in the Republic of South Africa
Registration number: 1998/013215/06
JSE Code: JDH - ISIN: ZAE000136677
("the Company" or "JDH" or "the Group")
PROPOSED RELATED PARTY ACQUISITIONS, APPROVAL OF A CONVERTIBLE LOAN, WITHDRAWAL OF
CAUTIONARY ANNOUNCEMENT AND RENEWAL OF CAUTIONARY ANNOUNCEMENT
Introduction
As previously announced on 7 November 2013, 20 December 2013, 10 January 2014 and 25 February 2014, the
board of JDH has decided to expand its financial services business in Africa and requires an injection of capital and
debt in order to grow the underlying operations, acquire new businesses in Africa and begin Greenfield operations in
certain countries.
In terms of the injection of capital required, shareholders have been advised that the Company is proceeding with a
rights offer of R100 million at an issue price of 14 cents per share. The rights offer will be partially underwritten by
its controlling shareholder, Escalator Capital through the capitalisation of its existing and future loan account in JDH
expected to amount to approximately R45 million at the date of the rights offer. In addition, Escalator Capital has
advised of its intention to provide a funding facility to JDH up to R100 million, less the proceeds of the intended
rights offer. The funding facility will be convertible into ordinary shares in JDH at the rights offer price, subject to any
necessary shareholder approval (“the Convertible Loan”). The period of conversion and other salient terms are still
in the process of being negotiated.
The capital will be utilized to fund the continued organic growth of the existing operations, in addition the Company
has entered into agreements for the acquisition of a number of growth businesses from Escalator Capital (RF)
Limited (“Escalator Capital”) or other related parties (the “Acquisitions”). It has further entered into an agreement
with a non-related party to acquire a financial services business in Zambia, subject to the fulfillment of the conditions
precedent.. Details of the proposed related party and non-related acquisitions are set out below.
1. Escalator Financial Services (Pty) Ltd (“EFS”) Acquisition
1.1 Terms for the EFS Acquisition
On 5 March 2014, JDH entered into an agreement with Escalator Capital for the acquisition of 100% of
the issued share capital and loan accounts in EFS for a purchase consideration of R15 000 000, payable
through the increase in the shareholder loan from Escalator Capital.
The EFS Acquisition purchase consideration is expected to result in a transfer of R11.1 million to the
common control reserve in terms of JDH’s merger accounting policy.
EFS was established by Escalator Capital and had not been purchased by Escalator Capital from a third
party in the past three years.
1.2 Business of EFS
EFS was incorporated as a private company on 24 April 2006 under the name Tiespro 69 (Pty) Ltd,
registration number 2006/012668/07. The name was changed to EFS on 22 November 2011.
EFS is registered with the FSB as a Financial Services Provider (licence number 32968) to provide
intermediary services between product providers and the public in general. EFS’ main business is the
provision of financial services and it has been appointed to act as intermediary between Escalator
Capital and the public as Placement Agent.
EFS recruits and manages qualified advisors under its FSB licence to market the products under the
rules and regulations that are prescribed by the FSB. Advisors who are already registered with the FSB
are also be evaluated to market these products.
1.3 Rationale for the EFS Acquisition
The JDH financial services strategy requires access to and control of key elements of the channel to
market. FSB regulatory licenses are an important component of the roll out of the strategy and the
acquisition of EFS provides JDH with the required licenses, skills and infrastructure.
1.4 Conditions precedent
The acquisition is subject to normal regulatory approvals as well as JDH shareholder approval as
contemplated in the JSE Listings Requirements.
1.5 Categorisation
Escalator Capital the EFS Vendor is a material shareholder of JDH. The EFS Acquisition is therefore
categorised as a related party transaction in terms of the Listings Requirements and accordingly requires
a fairness opinion by an independent expert as well as JDH shareholder approval.
The Board has appointed Effortless Corporate Finance (Pty) Ltd, a JSE approved Independent Expert,
as the Independent Expert to determine if the terms and conditions of the EFS Acquisition are fair to the
JDH shareholders and the report of the Independent Expert will be included in the circular to
shareholders.
1.6 Future prospects
The EFS network has successfully marketed unlisted, prospectus based products. JDH intends
providing listed products and products with enhanced tradability which the directors believe will
substantially improve the market acceptance of the product range. It is further the company’s intention to
expand the product range further bolstering the future prospects.
1.7 Other salient information regarding EFS
The EFS Acquisition requires the approval of shareholders in order for the shares in EFS to transfer to
JDH.
Trade receivables in EFS have been ceded to Escalator Capital as security for the loans to EFS.
The EFS Vendor has not guaranteed the book debts or assets of EFS.
Normal warranties have been given.
No liability for accrued taxation arises from the EFS Acquisition Agreement.
The 100% shareholding will be transferred to a JDH subsidiary following shareholder approval of the
EFS Acquisition. The 100% shareholding has not been ceded or pledged prior to the acquisition by JDH
1.8 Pro forma financial effects
The table below sets out the pro forma financial effects of the disposal on the headline earnings and
earnings and net asset value per share of JDH, based on the published unaudited interim results of the
Company for the financial period ended on 30 June 2013. The financial effects are the responsibility of
the directors of the Company, are prepared for illustrative purposes only and, because of their nature,
may not fairly present the financial position of the company, changes in its equity or the results of its
operations or cash flows after the Acquisitions and Convertible Loan.
After the
Acquisition
Before of EFS % Change
Attributable
earnings per
ordinary share
(cents) 0.004 (0.543) (12 797)
Headline
earnings per
share (cents) 0.010 (0.554) (5 451)
Net asset value
per share
(cents) 4.894 2.361 (52)
Net tangible
asset value per
share (cents) 4.484 1.951 (56)
Weighted
average shares
in issue (000’s) 444 132 444 132 0
Ordinary
shares in issue
at period end
(000's) 444 132 444 132 0
Notes:
1. The "Before" column is extracted from the Company`s unaudited, published results for the interim
period ended 30 June 2013;
2. For Statement of Financial Position purposes, it has been assumed that the Acquisitions and
Convertible Loan occurred on 30 June 2013 and for Statement of Comprehensive Income Statement
purposes the Acquisitions and Convertible Loan have been assumed to have occurred on 1 January
2013;
3. Purchase price of R15 million is designated in terms of IFRS 3 Business Combinations at fair value
with the goodwill element relating to the FSB licenses and IP designated to the intangible assets.
4. EFS unaudited results for the year ended 31 December 2013 included in pro-forma effects.
5. Normal taxation has been calculated at the corporate rate of 28%;
6. Transaction costs of R500 000 have been assumed.
2. Details of the Sanceda Going Concern (“Sanceda”) Acquisition
2.1 Terms for the Sanceda Acquisition
On 5 March 2014, JDH entered into an agreement with Sanceda Collections (Pty) Ltd (“Sanceda
Collections”) for the acquisition of the business and assets of Sanceda Collections for a purchase
consideration of R7 000 000, payable in cash which will be funded by Escalator Capital by way of an
increase in the shareholder loan from Escalator Capital, which loan will be settled through the Rights
Offer.
The Sanceda Acquisition purchase consideration is expected to result in a transfer of R2.3 million to the
common control reserve in terms of JDH’s merger accounting policy.
The business was started as Kwando Collections (Pty) Ltd and the founder sold the shares to The
Holdem Legacy Trust for a purchase consideration of R450 000, who in March 2012 moved the
business out of the Kwando Collections to Sanceda Collections.
2.2 Business of Sanceda
Sanceda is a collections agency registered with the Debt Collectors Council, which regulates the debt
collection industry including collections on behalf of 3rd parties. Sanceda focusses on “soft collections”
which are call centre based and it has established the management and infrastructure to collect on
significant volumes of arrear accounts.
Sanceda collections expertise includes tracing of defaulters, repayment and contract agreement, debit
order and related collection management and legal pursuance of defaulters should this become
necessary.
Sanceda currently manages a distressed debt portfolio of around R700 million. The bulk of the portfolio
is debt books owned by Escalator Asset Management (Pty) Ltd.
2.3 Rationale for the Sanceda Acquisition
The JHD financial services strategy includes the acquisition of debt books and the realisation of value
through the efficient collection of the debt. The acquisition of Sanceda provides JDH with the skills and
infrastructure to collect against its own debt books. In addition, the debt crisis in South Africa creates the
opportunity to expand the collections of third party debt.
2.4 Conditions precedent
The acquisition is subject to normal regulatory approvals as well as JDH shareholder approval as
contemplated in the JSE Listings Requirements.
2.5 Categorisation
In terms of the Listings Requirements, the Sanceda Vendor is deemed a related party to JDH due to the
fact that Sanceda is accustomed to acting in accordance with instructions of Escalator Capital, a material
shareholder of JDH. The Sanceda Acquisition is therefore categorised as a related party transaction in
terms of the Listings Requirements and accordingly requires a fairness opinion by an independent expert
as well as JDH shareholder approval.
The Board has appointed Effortless Corporate Finance (Pty) Ltd, a JSE approved Independent Expert,
as the Independent Expert to determine if the terms and conditions of the Sanceda Acquisition are fair to
the JDH shareholders and the report of the Independent Expert will be included in the circular to
shareholders.
2.6 Future prospects
The systems infrastructure of Sanceda will shortly be upgraded to include a sophisticated analytics
platform and predictive dialing facilities. These improvements are anticipated to double the throughput of
the call center and substantially improve efficiency of the operator.
JDH intends to utilize certain funds from the right offer (which has been announced to shareholders and
is the subject of a separate circular to shareholders) to acquire additional distressed debt portfolios
improving the throughput and profitability of the company.
2.7 Other salient information regarding Sanceda
The Sanceda Acquisition requires the approval of shareholders in order for the business and assets of
Sanceda to transfer to JDH.
Trade receivables in Sanceda have been ceded to Escalator Capital as security for the loans to
Sanceda.
The Sanceda Vendor has not guaranteed the book debts or assets of Sanceda.
Normal warranties have been given.
No liability for accrued taxation arises from the Sanceda Acquisition Agreement.
The business and assets of Sanceda will be transferred to a subsidiary of JDH following shareholder
approval of the Sanceda Acquisition. The balance of the assets of Sanceda have not been ceded or
pledged.
2.8 Pro-forma financial effects
The table below sets out the pro forma financial effects of the disposal on the headline earnings and
earnings and net asset value per share of JDH, based on the published unaudited interim results of the
Company for the financial period ended on 30 June 2013. The financial effects are the responsibility of
the directors of the Company, are prepared for illustrative purposes only and, because of their nature,
may not fairly present the financial position of the company, changes in its equity or the results of its
operations or cash flows after the Acquisitions and Convertible Loan.
After the
Acquisition
Before of Sanceda % Change
Attributable
earnings per
ordinary share
(cents) 0.004 (0.649) (15 278)
Headline
earnings per
share (cents) 0.010 (0,643) (6 311)
Net asset value
per share
(cents) 4.894 4.360 (11)
Net tangible
asset value per
share (cents) 4.484 3.950 (12)
Weighted
average shares
in issue (000’s) 444 132 444 132 0
Ordinary
shares in issue
at period end
(000's) 444 132 444 132 0
Notes:
1. The "Before" column is extracted from the Company`s unaudited, published results for the interim
period ended 30 June 2013;
2. For Statement of Financial Position purposes, it has been assumed that the Acquisitions and
Convertible Loan occurred on 30 June 2013 and for Statement of Comprehensive Income Statement
purposes the Acquisitions and Convertible Loan have been assumed to have occurred on 1 January
2013;
3. The purchase price of R7 million designated to the intangible assets arising from the debt collection
intellectual property in terms of IFRS 3 Business Combinations
4. The pro-forma financial effects reflect the Sanceda assets and liabilities acquired at the values
disclosed in the Sanceda 31 Dec 2013 unaudited financial statements.
5. Normal taxation has been calculated at the corporate rate of 28%;
6. Transaction costs of R500 000 have been assumed.
3. Details of the Escalator Investment Holdings (Pty) Ltd, a company incorporated in the Republic of
Botswana, (“Escalator Botswana”) Acquisition
3.1 Terms for the Escalator Botswana Acquisition
On 5 March 2014, JDH entered into an agreement with Escalator Global Capital Limited (“Escalator
Global”), the majority shareholder in Escalator Capital, for the acquisition of 100% of the issued share
capital and loan accounts in Escalator Botswana for a purchase consideration of R5 000 000, payable
through the increase in the shareholder loan from Escalator Capital, which loan will be settled through
the Rights Offer.
The Escalator Botswana Acquisition purchase consideration is expected to result in a transfer of R6.2
million to the common control reserve in terms of JDH’s merger accounting policy.
Escalator Botswana has been recently established by Escalator Global and has not been purchased by
Escalator Global from a third party in the past three years.
3.2 Business of Escalator Botswana
Escalator Botswana is a registered financial services company in Botswana.
Escalator Botswana provides funding to selected financial services companies whilst also providing
secured credit to small, medium and micro enterprises (SMMEs).
3.3 Rationale for the Escalator Botswana Acquisition
Escalator Botswana is anticipated to provide high growth and high net returns to stakeholders. The
acquisition of a 100% interest in the company at a start-up phase provides the opportunity for high
returns whilst also providing a channel to market for JDH products and services into Botswana.
3.4 Conditions precedent
The acquisition is subject to Exchange Control approval as well as JDH shareholder approval as
contemplated in the JSE Listings Requirements.
3.5 Categorisation
In terms of the Listings Requirements, the Escalator Botswana Vendor is an associate and a material
shareholder of JDH, being the ultimate controlling shareholder of JDH. The Escalator Botswana
Acquisition is therefore categorised as a related party transaction in terms of the Listings Requirements
and accordingly requires a fairness opinion by an independent expert as well as JDH shareholder
approval.
The Board has appointed Effortless Corporate Finance (Pty) Ltd, a JSE approved Independent Expert,
as the Independent Expert to determine if the terms and conditions of the Escalator Botswana
Acquisition are fair to the JDH shareholders and the report of the Independent Expert will be included in
the circular to shareholders.
3.6 Future prospects
The directors anticipate substantial organic growth in respect of the existing business model. In addition
the company’s research has identified opportunities in lucrative niche SMME markets. It is the
company’s intention to leverage its vendor finance products to maximize these opportunities.
3.7 Other salient information regarding Escalator Botswana
The Escalator Botswana Acquisition requires the approval of shareholders in order for the shares in
Escalator Botswana to transfer to JDH.
Trade receivables in Escalator Botswana have been ceded to Escalator Global as security for the loans
to Escalator Botswana.
The Escalator Botswana Vendor has not guaranteed the book debts or assets of Escalator Botswana.
Normal warranties have been given.
No liability for accrued taxation arises from the Escalator Botswana Acquisition Agreement.
The 100% shareholding will be transferred to a JDH subsidiary following shareholder approval of the
Escalator Botswana Acquisition. The 100% shareholding has not been ceded or pledged as at the Last
Practicable Date.
3.8 Pro forma financial effects
The table below sets out the pro forma financial effects of the disposal on the headline earnings and
earnings and net asset value per share of JDH, based on the published unaudited interim results of the
Company for the financial period ended on 30 June 2013. The financial effects are the responsibility of
the directors of the Company, are prepared for illustrative purposes only and, because of their nature,
may not fairly present the financial position of the company, changes in its equity or the results of its
operations or cash flows after the Acquisitions and Convertible Loan.
After the
Acquisition
of Escalator
Botswana
Before Acquisition % Change
Attributable
earnings per
ordinary share
(cents) 0.004 (0.189) (4 513)
Headline
earnings per
share (cents) 0.010 (0.183) (1 864)
Net asset value
per share
(cents) 4.894 3.467 (29%)
Net tangible
asset value per
share (cents) 4.484 3.057 (32%)
Weighted
average shares
in issue (000’s) 444 132 444 132 0%
Ordinary
shares in issue
at period end
(000's) 444 132 444 132 0%
Notes:
1. The "Before" column is extracted from the Company`s unaudited, published results for the interim
period ended 30 June 2013;
2. For Statement of Financial Position purposes, it has been assumed that the Acquisitions and
Convertible Loan occurred on 30 June 2013 and for Statement of Comprehensive Income
Statement purposes the Acquisitions and Convertible Loan have been assumed to have occurred
on 1 January 2013;
3. Purchase price of R5 million designated to the intangible assets arising from the above
contractual rights in terms of IFRS 3 Business Combinations
4. The pro-forma financial effects reflect the 31 December 2013 unaudited financial results of
Escalator Investment Holdings Limited.
5. Normal taxation has been calculated at the corporate rate of 28%;
6. Transaction costs of R500 000 have been assumed.
4. Convertible loan
4.1 Terms for the Convertible Loan
On 5 March 2014, JDH entered into an agreement with Escalator Capital for the provision of a
convertible loan of up to R100 000 000 less the amount raised in terms of the Rights Offer, including the
underwritten portion of the Rights Offer.
The loan will be convertible at 14 cents per share (being the Rights Offer share price) for a period of
three years following the closing date of the Rights Offer
4.2 Rationale for the Convertible Loan
The intention of Escalator Capital is to ensure that JDH is adequately funded for the anticipated growth
pursuant to the Acquisitions, to the extent that JDH shareholders do not follow all their rights in terms of
the Rights Offer, Escalator Capital has agreed to provide any shortfall in the capital raising of up to R100
million by way of a convertible loan.
4.3 Conditions precedent
The Convertible Loan is subject to shareholder approval as contemplated in the JSE Listings
Requirements.
4.4 Categorisation
In terms of the Listings Requirements, Escalator Capital is a material shareholder of JDH. In addition,
the price at which the Convertible Loan will convert into ordinary shares is at a fixed price of 14 cents per
Share. Thus it is not known whether the conversion price will be at a discount or premium to the share
price of JDH at the date of conversion. The Convertible Loan is therefore categorised as a specific issue
to a related party in terms of the Listings Requirements and accordingly requires a fairness opinion by an
independent expert as well as JDH shareholder approval.
The Board has appointed Effortless Corporate Finance (Pty) Ltd, a JSE approved Independent Expert,
as the Independent Expert to determine if the terms and conditions of the convertible loan are fair to the
JDH shareholders and the report of the Independent Expert will be included in the circular to
shareholders.
4.5 Restrictive Funding Provisions
The agreement provides Escalator Capital with normal warranties and sessions in case of default for
similar transactions. The agreement further provides Escalator Capital with an anti-dilution mechanism,
which would be subject to JSE and shareholder approval should Escalator Capital decide in the 3 year
period following the closure of the Rights Offer to invoke such a right as part of a future acquisition.
5. Details of the Graypages Financial Solutions, a company incorporated in the Republic of Zambia
(“Graypages”) Acquisition
5.1. Terms for the Graypages Acquisition
On 3 March 2014, JDH entered into an agreement with the shareholders of Graypages for the
acquisition of 86% of the issued share capital in Graypages for a subscription consideration of Zambian
Kwacha 2 150 000, payable in cash. JDH has further committed to provide further additional expansion
loan funding of Zambian Kwacha 3 000 000.
The Graypages subscription consideration is expected to result in no goodwill arising after the purchase
price allocation to tangible and intangible assets.
Graypages has been established by the shareholders of Graypages and has not been purchased by
those shareholders from a third party in the past three years.
5.2. Business of Graypages
Graypages is licenced to operate as a Financial Institution under the Banking and Financial Services Act
in Zambia to carry out credit facilities, linkage banking, in-country transfers and savings.
5.3. Rationale for the Graypages
Graypages is anticipated to provide high growth and high net returns to stakeholders. The acquisition of
an 86% interest in the company provides the opportunity for high returns whilst also providing a channel
to market for JDH products and services into Zambia.
5.4. Conditions precedent
The acquisition is subject to a due diligence review as well as regulatory approval, Exchange Control
approval and JDH board approval..
5.5. Categorisation
The Graypages’ current shareholders are not related. The transaction is categorized as a category 4
transaction.
5.6. Future prospects
The directors anticipate substantial organic growth in respect of the existing business model. In addition,
the company’s research has identified opportunities in lucrative niche SMME markets. It is the
company’s intention to leverage its vendor finance products to maximize these opportunities.
5.7. Other salient information regarding Graypages
The Graypages Acquisition does require the approval of regulatory authorities and the JDH board of
directors in order for the shares in Graypages to transfer to JDH.
Normal warranties have been given.
JDH will take management control of Graypages and change the name to reflect the group’s corporate
identity.
Pro forma financial effects will be published once the due diligence has been completed and the financial
information received, although this transaction is not material.
Withdrawal of cautionary announcement and documentation
Following the publication of the above information, Shareholders are advised that the cautionary announcement is
now withdrawn in relation to the proposed Acquisitions and Convertible Loan. It is expected that a circular to
shareholders will be finalised and posted to shareholders during April 2014 due to the company requiring reporting
accountants reports on the various acquisitions, which entails an audit of the results of the subject of the acquisitions
for the period or year ended 31 December 2013.
Renewal of cautionary announcement
Shareholders are advised to continue to exercise caution when dealing in their shares until a full announcement has
been published detailing the proposed rights offer as well as the pro forma financial effects thereof.
By order of the board
Pretoria
6 March 2014
Sponsor
Arcay Moela Sponsors Proprietary Limited
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