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JASCO ELECTRONICS HOLDINGS LIMITED - Acquisition of Telesto Communications Proprietary Limited

Release Date: 12/06/2014 16:27
Code(s): JSC
 
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Acquisition of Telesto Communications Proprietary Limited

JASCO ELECTRONICS HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1987/003293/06)
Share Code: JSC & ISIN: ZAE000003794
("Jasco" or “the Company” or “the Group”)


ACQUISITION OF TELESTO COMMUNICATIONS PROPRIETARY LIMITED


1.   Introduction
1.1. Jasco wishes to advise that Jasco Enterprise Proprietary Limited (“Jasco Enterprise”), a
     subsidiary of the Company, has entered into an agreement with ConvergeCom Proprietary Limited
     (“ConvergeCom”) and Telesto Communications Proprietary Limited (“Telesto”), in terms of which
     Jasco Enterprise will acquire all of the shares in the issued share capital of Telesto constituting
     100% of the total issued share capital of Telesto (“Sale Shares”), as well as certain shareholder
     claims (“Claims”), from ConvergeCom for a maximum acquisition consideration of R9 850 000
     (“the Acquisition”).


2.   Background to Telesto
2.1. Telesto was founded in 1999 and has offices in Centurion as well as presences in Cape Town and
     Durban. Telesto provides Avaya Contact Centre solutions, with a strong focus on Outbound
     Dialling systems.
2.2. Telesto was previously owned by ConvergeNet Holdings Limited (“ConvergeNet”) a company
     listed on the JSE Limited, but was subsequently sold in October 2013 following a successful
     management buy-out transaction whereby ConvergeCom acquired 100% of the equity of Telesto.


3.   Rationale for the Acquisition
     Telesto focuses on providing call centre solutions, specifically for inbound & outbound applications
     in the collections, telemarketing and telesales industries. The Acquisition provides the Jasco group
     with an opportunity to bolster its Enterprise division with an additional service offering whilst also
     ensuring consolidation in the South African dialler industry and securing new clientele. Telesto has
     excellent blue chip customers, comprising major financial institutions and telecommunications
     operators, which complement the group’s customer base. Telesto is a profitable and well
     established business and will not only enhance Jasco Enterprises’ annuity type revenue but also
     add a strong, experienced management team, engineering skills and sales resources to the
     group’s current operations.

4.   Salient features of the Acquisition
4.1. Effective Date
        4.1.1.Notwithstanding the signature date of the Acquisition but subject to all of the conditions
              precedent to the Acquisition being fulfilled or waived, as the case may be, the effective
              date of the Acquisition will be 1 May 2014 (“Effective Date”).
4.2. Acquisition Consideration
        4.2.1.In terms of the Acquisition, Jasco Enterprise will acquire the Sale Shares and Claims as
              one indivisible transaction.
        4.2.2.The total acquisition consideration will be adjusted in accordance with a formula in terms
              of which certain amounts will be taken in account including inter alia:
            4.2.2.1.  the net asset value of Telesto as at the Effective Date and whether it is less
                      than the net asset value represented by Telesto in its management accounts as at
                      31 December 2013;.
             -    the net profit after tax of Telesto for the period 1 September 2013 to 31 August 2014
                  as certified by the Auditors in the audited annual financial statements of Telesto for
                  the year ending on 31 August 2014, adjusted for specific agreed items factored by
                  four; and
             -    the capital amount outstanding of a facility held by Telesto with Nedbank (“Nedbank
                  Facility”) as at the Effective Date as set out in the audited financial statements of
                  Telesto for the period from the date of the last audited annual financial statements
                  and ending on the Effective Date;
        4.2.3.The acquisition consideration will be settled as follows:
             -    R5 850 000, will be payable in cash by Jasco Enterprise on the closing date of the
                  Acquisition, being 3 business days after the fulfilment of the last of the conditions
                  precedent to the Acquisition, or such other date as ConvergeCom, Jasco Enterprise
                  and Telesto may agree in writing (“Closing Date”); and
             -    the balance will be payable within 30 days after the completion and signature by
                  Jasco Enterprise’s external auditors and the directors of Jasco Enterprise of the
                  audited annual financial statements of Telesto for the year ending on 31 August 2014.
                  The balance will be discharged either by payment in cash, by the issue of
                  consideration shares in the Company in the name of ConvergeCom or a combination
                  of both. In the event that Jasco Enterprise elects in its sole discretion to discharge
                  the balance by procuring an issue of consideration shares in the Company, such
                  consideration shares will be calculated at the greater of the volume weighted average
                  price per share for the 30 days prior to 31 August 2014 or the net asset value per
                  share as at 31 August 2014, as certified by Jasco Enterprise’s external auditors.

4.3. Conditions Precedent
     The Acquisition is subject to the fulfilment or waiver, as the case may be, of the following
     outstanding conditions precedent:
       4.3.1.by no later than 30 June 2014, Jasco Enterprise will have notified ConvergeCom in writing
             that its due diligence investigation has not elicited any fact or circumstance which has
             caused Jasco Enterprise, in its sole discretion, to decline to implement the Acquisition;
       4.3.2.by no later than 30 June 2014, in the event that Telesto is determined to be a regulated
             company as contemplated in section 117(1)(i) of the Companies Act. 2008 (“the Act”) as
             amended, the Takeover Regulation Panel issuing a compliance certificate or granting an
             exemption in respect of the Acquisition as contemplated in section 121(b) of the Act;
       4.3.3.by no later than 30 June 2014, ConvergeCom procuring an unconditional and irrevocable
             written release signed by Nedbank Limited releasing ConvergeCom from any securities
             provided by ConvergeCom in favour of Nedbank Limited in relation to Telesto’s
             indebtedness to Nedbank Limited pursuant to the Nedbank Facility provided to Telesto
             (including without limitation the suretyship signed by ConvergeCom in favour of Nedbank
             Limited) on terms acceptable to Jasco Enterprise in its sole discretion;
       4.3.4.by not later than 30 June 2014, ConvergeCom procuring an unconditional and irrevocable
             written release signed by Nedbank Limited releasing Telesto from any securities provided
             by Telesto in favour of Nedbank Limited in relation to Telesto’s indebtedness to Nedbank
             Limited pursuant to the Nedbank Facility (including without limitation the deed of pledge
             and cession signed by Telesto in respect of Telesto’s debtors) on terms acceptable to
             Jasco Enterprise in its sole discretion.

5.   Pro forma financial effects
     The pro forma financial effects, for which the directors are responsible, are provided for illustrative 
     purposes only to show the effect of the Acquisition on the earnings, headline earnings, diluted earnings 
     and diluted headline earnings per share as if the Acquisition had taken effect on 1 July 2013 and on the
     net asset value and net tangible asset value per share as if the Acquisition had taken effect on 31 December 2013. 
     Because of their nature, the pro forma financial effects may not give a fair presentation of the financial position, 
     changes in equity, results of operations and cash flows of the Jasco group nor
     the effect and impact of the Acquisition.


     The pro forma financial effects have been prepared using accounting policies that comply with International Financial 
     Reporting Standards and that are consistent with those applied in the published audited annual financial information 
     of Jasco for the year ended 30 June 2013.


     The pro forma financial effects are based on the following scenarios:

     (1) The total purchase consideration is paid in cash; or
     (2) The total purchase consideration is paid in cash and consideration shares.
                                                 After                                        After
                                  Before       Scenario 1    Scenario 1   Scenario 1        Scenario 2     Scenario 2
                                (Published)   (Pro forma)     Change       Change          (Pro forma)         Change     Scenario 2
                                                                             (%)                                              Change
                                                                                                                                  (%)
Earnings per share (“EPS”)
(cents)                                 4.9            5.2          0.3         6.61%               5.2            0.3          6.55%
Headline Earnings per share
(“HEPS”) (cents)                        5.3            5.6          0.3         6.09%               5.6            0.3          5.90%
Diluted earnings per share
(cents)                                 4.9            5.2          0.3         6.61%               5.2            0.3          6.55%
Diluted headline earnings per
share (cents)                           5.3            5.6          0.3         6.09%               5.6            0.3          5.90%
Net asset value per share
(“NAVPS”) (cents)                     164.4          164.4            -             -             165.8            1.4          0.84%
Net tangible asset value per
share (“NTAVPS”)                       97.0           97.0            -             -              98.4            1.4          1.42%
Weighted average number of
shares in issue                 141 272 436    141 272 436            -             -       143 704 980      2 432 544          1.72%
Number of shares in issue       141 272 436    141 272 436            -             -       143 704 980      2 432 544          1.72%
  Notes:


(1)         The “Before Published” financial information has been extracted, without adjustment, from
            Jasco’s published unaudited interim results for the six months ended 31 December 2013.
(2)         The unpublished unaudited management accounts for Telesto for the six months to 31 April
            2014 have been used to calculate the pro forma financial effects. The board of Jasco is
            satisfied with the quality of the unaudited management accounts of Telesto.
(3)         For the purposes of calculating EPS, HEPS, diluted EPS and diluted HEPS, the following
            key assumptions and adjustments have been made in the calculation of the pro forma
            figures:
            a.         The Acquisition became effective on 1 July 2013 for the statement of
                       comprehensive income and the Acquisition consideration was paid on that date;
            b.         The maximum acquisition consideration of R9 850 000 is paid in two different
                       scenarios: (1) The total acquisition consideration is paid in cash; and (2) The
                       acquisition consideration will be partly paid in cash of R5 850 000 and the
                       outstanding balance paid through the issue of 2,432,544 consideration shares at
                       an assumed issue price of 164.4 cents per new Jasco ordinary share (for purposes
                       of the calculation of the pro forma financial effects the net asset value of Jasco has
                       been used);
           c.          The adjustments reflect the after tax profit contribution of Telesto of R1 266 000
                       tax effect: R295 000) attributable to Jasco for the six months ended 31 December
                       2013.
           d.          The next pre-tax interest cost totaling R419 000 (tax effect: R117 000) (scenario
                       1) and R249 000 (tax effect: R70 000) (scenario 2) arose due to the payment of
                       the Acquisition consideration of R9 850 000 (scenario 1) and R5 850 000 (scenario
                       2) which is an increase in the Company’s overdraft facilities, calculating at an
                       interest rate of 8.5%.
           e.          The pre-tax profit is calculated taking non-tax deductible transaction costs of R212
                       000 into account;
           f.          All adjustments, with the exception of costs directly attributable to the Acquisition
                       and the Acquisition consideration are expected to have a continuing effect on the
                       financial results of Jasco.
(3)    For the purposes of calculating NAVPS, NTAVPS, the following key assumptions and
       adjustments have been made in the calculation of the pro forma figures:
           a.          The Acquisition consideration was paid out of Company’s overdraft facilities of
                       R9 850 000 (scenario 1) and R5 850 000 (scenario 2);
           b.          The consolidation adjustments reflect an increase of R10 086 000 of total assets,
                       an increase of R43 000 of total equity and an increase of R10 043 000 in total
                       liabilities.

6.   Categorisation
6.1. The Acquisition is categorised as a category 2 transaction for purposes of the JSE listings
     requirements and therefore does not require shareholder approval.



By order of the Board


Midrand


12 June 2013

Sponsor to Jasco
Grindrod Bank Limited

Legal advisor
Norton Rose Fulbright South Africa

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