Wrap Text
Detailed terms announcement and withdrawal of cautionary
CONVERGENET HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number 1998/015580/06)
Share code: CVN ISIN: ZAE000182440
(“ConvergeNet” or the “Company” or the “Group”)
DETAILED TERMS ANNOUNCEMENT REGARDING THE FOLLOWING PROPOSED
TRANSACTIONS:
- TRANSFER OF THE COMPANY’S LISTING TO THE “INVESTMENT COMPANIES” SUB-
SECTOR OF THE SECURITIES EXCHANGE OPERATED BY THE JSE LIMITED (the
“JSE”);
- THE DISPOSAL OF ANDREWS KIT PROPRIETARY LIMITED, TRADING AS CONTRACT
KITTING (“Contract Kitting”) AND STRUCTURED CONNECTIVITY SOLUTIONS
PROPRIETARY LIMITED (“SCS”);
- THE ACQUISITION OF THE FOLLOWING STRATEGIC EQUITY INTERESTS:
- 30% OF TELLUMAT PROPRIETARY LIMITED (“Tellumat”)
- 17.64% OF DIGICORE HOLDINGS LIMITED (“Digicore”);
- AN ADDITIONAL 30.32% OF MINE RESTORATION INVESTMENTS LIMITED
(“MRI”);
- AN ADDITIONAL 16.30% OF GOLIATH GOLD MINING LIMITED (“Goliath
Gold”);
- 40.00% OF PRAXIS FINANCIAL SERVICES PROPRIETARY LIMITED ("Praxis");
- A SPECIFIC ISSUE OF SHARES FOR CASH (the “Private Placement”);
- A CHANGE OF NAME;
- AN INCREASE IN THE AUTHORISED SHARE CAPITAL; AND
- WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
1. TRANSFER OF THE COMPANY’S LISTING TO THE “INVESTMENT COMPANIES” SUB-SECTOR
OF THE JSE
1.1 The board of directors of ConvergeNet (the “Board”) has identified an
opportunity to create an investment company which:-
- leverages the Main Board listing of ConvergeNet;
- optimises the use of the Company’s existing assets;
- harnesses the deal-making experience of the Board and the Company’s
corporate advisers in a cost-effective manner;
- facilitates the introduction of strong new shareholders; and
- establishes a platform to facilitate further capital raising and the
growth of the initial investment portfolio.
1.2 To this end, ConvergeNet will be making an application to the JSE for the
transfer of the Company’s listing from the “Computer Services” sub-sector
to the “Investment Companies” sub-sector of the JSE. It is the intention of
the Company to appoint a management company, a private company to be
incorporated (the “Manco”), to manage the portfolio of the Company in
accordance with Section 15 of the Listings Requirements of the JSE (“Listings
Requirements”). The Manco will be advised by AfrAsia Corporate Finance
Proprietary Limited, ConvergeNet’s corporate adviser and a company with
significant investment management experience, to ensure that the Company is
adequately advised on the implementation of its strategy.
1.3 The Manco will manage the Company’s investment portfolio (the “AUM”) on the
basis of a management fee structure comprising:-
1.3.1 a base management fee on a sliding scale as follows:
- 2% of the AUM less than R500 million;
- 1.5% of AUM in excess of R500 million, but less than R1 billion;
- 1% of AUM above R1 billion,
calculated quarterly and payable monthly; and
1.3.2 a performance fee, calculated and payable semi-annually in respect
of the growth in AUM achieved during the previous six-month period,
subject to high-water mark provisions, payable in cash or new shares
in the Company at the election of the Company.
1.4 The investment strategy of the Company will entail the following:-
- to grow a portfolio of equity, debt and hybrid securities, unconstrained
by any particular market or sector, in listed and unlisted businesses,
that will generate above average returns on capital for the Company’s
shareholders;
- to apply a hands-on investment approach, in order to assist management
teams and to provide strategic input, without assuming direct operational
responsibility;
- to apply a flexible investment approach relating to the timing and
duration of investments;
- to actively engage with investee companies in relation to their corporate
activity and other strategic initiatives; and
- to leverage the existing network of the Manco to create a unique, well-
diversified investment vehicle which will be an attractive proposition
for institutional investors.
1.5 To rapidly add value to the investment portfolio of the Company, the
disposals and acquisition detailed in paragraph 2 and the strategic
investments detailed in paragraphs 3 to 6 below will be implemented by
ConvergeNet upon its conversion to a listed investment entity, subject to
fulfilment of the applicable conditions precedent, as detailed in this
announcement. The initial investment portfolio will consist of investments
in the Information and Communication Technology (“ICT”), Financial Services
and Mining Sectors.
1.6 The initial investment portfolio of the Company, as detailed in this
announcement, will serve to benefit the shareholders of the Company and its
investment strategy by:-
- introducing immediate scale to the Company, enhancing the ability to
attract further investment; and
- reducing risk through diversification of the investment portfolio.
1.7 Following the completion of the acquisitions detailed in paragraphs 3 to 6
below and the Private Placement, Titan Nominees Proprietary Limited (“Titan
Nominees”) and its associated entities, including Titan Premier Investments
Proprietary Limited and Titan Share Dealers Proprietary Limited
(collectively “Titan”) will collectively become the largest investor in the
Company, holding between 28.26% and 33.65% of the ordinary shares in issue.
Titan is an investment vehicle for the family of Dr Christo Wiese.
2. DISPOSAL OF CONTRACT KITTING AND SCS AND ACQUISITION OF 30% OF
TELLUMAT
2.1 Introduction
2.1.1 Shareholders are advised that on 5 September 2014 ConvergeNet
concluded the terms of the sale of 100% of ConvergeNet’s
interest in Contract Kitting (a wholly owned subsidiary of
Chrystalpine Investments 9 Proprietary Limited
(“Chrystalpine”), a wholly owned subsidiary of ConvergeNet) (the
“Contract Kitting Disposal”) and SCS (a wholly-owned subsidiary
of ConvergeNet) (the “SCS Disposal”) for R95.119 million (the
“Contract Kitting Sale Consideration”) and R5 million (the “SCS
Sale Consideration”), respectively, to Tellumat Proprietary
Limited (“Tellumat”), subject to the fulfilment of the
conditions precedent set out in paragraph 2.8 below
(collectively the “Disposals”).
2.1.2 The Contract Kitting Disposal and the SCS Disposal will be
concluded as one indivisible transaction.
2.2 Business of Contract Kitting
Contract Kitting was established in 2001 as an electronics engineering
company with expertise in the telecoms industry, and specialises in
the design, production, integration, testing and implementation of
solutions in the areas of direct current power, operations management,
cooling, hybrid power, cable assemblies and harnesses, and shelter
solutions. Within these specialties Contract Kitting is able to offer
services such as design, production, integration, testing and
implementation. While in the past Contract Kitting has mainly serviced
South African clients in the mobile network market, it is now
fulfilling demand from a broader customer base.
2.3 Business of SCS
SCS was established in 2002 as a full solutions information technology
company dedicated to the consultancy, design and turnkey project
management of all ICT infrastructure projects and installations. These
solutions include multi-service network solutions, facilities for ICT
environments, environmental control and monitoring solutions for ICT
facilities and their support and maintenance, as well as structured
cabling installations, data and switching centre building, disaster
recovery, mobile data and switching centers and express shelters and
buildings.
2.4 Business of Tellumat
Plessey plc established a South African-based subsidiary company in
the early 1960s. In 1989, this company was dissolved and the South
African operation became an autonomous company listed on the JSE in
1995. Fragmented through acquisition in 1998, Tellumat became a
privately owned company. Tellumat is organised into the following
divisions:
- Communications division, which offers multiple telecommunications
solutions, services and products in the wireless and enterprise
communication arenas, providing network design, RF planning and the
implementation and support of key technologies;
- Defense division, which develops, supplies and supports advanced
radar, navigational, avionics and naval systems for defense and
civil system integrators, platform suppliers and end-users; and
- Electronic Contract Manufacturing Division, which offers a full
suite of design, engineering, manufacturing, logistics and post-
manufacturing services to a wide range of customers in the
electronics industry.
2.5 Rationale for the Disposals and the acquisition of Tellumat
2.5.1 The Contract Kitting Disposal is a strategic decision to
diversify the Group’s exposure to the telecommunications sector
whilst affording Contract Kitting an opportunity to leverage
the economies of scale afforded by becoming part of a larger
group of companies.
2.5.2 An operational and strategic review has also concluded that SCS
requires the scalability afforded by a larger ICT group. The
Board believes that Tellumat fits the correct strategic profile
to be the owner of SCS.
2.5.3 Both Contract Kitting and SCS require improved BBBEE ownership
credentials in order to operate effectively in their respective
markets.
2.5.4 In light of the above, the Disposals and the acquisition of
Tellumat will:
- afford the Group the opportunity to diversify its ICT
exposure, while gaining access to the expertise of Tellumat’s
strong management team to create a scalable ICT group;
- allow Tellumat access to the highly skilled technical teams
of Contract Kitting and SCS;
- facilitate a cost-rationalisation strategy in the combined
entity;
- provide a stronger platform from which to execute an
acquisitive growth strategy; and
- provide the opportunity for SCS and Contract Kitting (as well
as the larger group) to leverage the best in class BBBEE
credentials of Tellumat.
2.6 Terms of the Disposals and the acquisition of Tellumat
2.6.1 The Contract Kitting Sale Consideration and SCS Sale
Consideration will be settled by Tellumat by way of the issue
of ordinary shares in Tellumat (which shares are to be retained
by the Company), such that ConvergeNet will hold 30% of the
total issued ordinary shares of Tellumat following the share
issue by Tellumat (the “Tellumat Acquisition”).
2.6.2 The number of shares issued by Tellumat to ConvergeNet has been
calculated as equal to the proportion that the Contract Kitting
Sale Consideration and SCS Sale Consideration respectively bear
to the equity value of Tellumat.
2.6.3 Both ConvergeNet and Tellumat have provided standard warranties
for a transaction of this nature.
2.6.4 Call Option
2.6.4.1 ConvergeNet will grant a call option to Tellumat, or its
shareholders (other than ConvergeNet) (the “Call Option”),
to acquire the Tellumat shares issued to ConvergeNet, should–
o a change of control of (i) ConvergeNet, or (ii) the Manco
occur, ("Change of Control"), in which case the purchase
price shall be 75% of the fair market value of the
Tellumat shares; or
o the board of directors of Tellumat reasonably determine
that it is commercially necessary for Tellumat increase
its BBBEE shareholding, and that the purchase of the
Tellumat Consideration Shares is the best method to do
so ("BEE Requirement"), in which case the purchase price
shall be the fair market value of the Tellumat shares;
or
o the board of directors of the option holder otherwise
resolve to acquire the shares ("Voluntary Repurchase"),
in which case the purchase price shall be the fair market
value of the Tellumat shares,
2.6.4.2 The Call Option may only be exercised within the first 3 years
following the Disposals, provided that the Voluntary
Repurchase option may only be exercised (i.e. other than in
the case of a Change of Control or a BEE Requirement) after
the first anniversary of the Disposal.
2.6.4.3 In the event of a Change of Control or BEE Requirement, 50%
of the purchase price shall be payable upfront and the balance
shall be paid in cash equal monthly instalments over period
of 36 months, with the outstanding amounts from time to time
bearing interest at Prime +3% and secured by a guarantee from
the majority shareholders of Tellumat. In any other event
purchase price shall be payable in full in cash.
2.6.4.4 In the event that the Call Option is exercised pursuant to
BEE Requirement or in terms of Voluntary Repurchase and within
18 months following the date of the acquisition and the
Tellumat shares are resold at a premium to the purchase price
paid by the option holder, or the business of Tellumat is
sold at a price which implies a premium, then the relevant
seller shall pay to ConvergeNet a cash amount equal to the
amount by which it profited as a resulted of the resale of
the relevant Tellumat shares.
2.6.5 The Disposals and the Tellumat Acquisition will become effective
on the first day of the month in which these transactions close,
being on fulfilment of all the conditions precedent to be
included in the final sale and purchase agreement, including
those detailed in paragraph 2.8 below.
2.7 Application of the proceeds of the Disposals
The proceeds of the Disposals, comprising a 30% equity interest in
Tellumat, will constitute an investment to be managed in accordance
with the strategy of the larger Group.
2.8 Conditions precedent
The Disposals and the Tellumat Acquisition are subject to the
fulfilment of the following outstanding conditions precedent on or
before 30 November 2014 (or such later date as may be agreed between
the parties):
2.8.1 approval of the Disposals and the Tellumat Acquisition by the
boards of directors of ConvergeNet and Tellumat;
2.8.2 conclusion of definitive legal documentation;
2.8.3 in respect of the Contract Kitting Disposal:
2.8.3.1 approval by all applicable regulatory authorities, including
but not limited to the Takeover Regulation Panel (“TRP”), as
detailed in paragraph 2.9.2 below, the JSE and the
Competition Commission of South Africa;
2.8.3.2 approval by way of a special resolution of ConvergeNet
shareholders in general meeting; and
2.8.4 in respect of the Tellumat Acquisition, approval by ConvergeNet
shareholders by way of an ordinary resolution in general
meeting; and
2.8.5 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 to be distributed to ConvergeNet
shareholders, as referred in paragraph 13 below (the
“Circular”).
2.9 Categorisation and Regulatory Approvals
2.9.1 In terms of the Listings Requirements, the transaction values
of the Disposals are to be aggregated for categorisation
purposes. Accordingly, the Contract Kitting Disposal and the
SCS Disposal, as well as the Tellumat Acquisition, are regarded
as Category 1 transactions and therefore require approval by
ConvergeNet shareholders.
2.9.2 The Contract Kitting Disposal also constitutes a disposal of
the greater part of the assets of ConvergeNet as contemplated
in section 112 of the Companies Act, No 71 of 2008, as amended
(the “Companies Act”). As such the Contract Kitting Disposal is
also regarded as both a fundamental transaction and an affected
transaction and will therefore require approval by the TRP and
ConvergeNet shareholders by way of special resolution.
2.9.3 The Board will appoint an independent expert acceptable to the
TRP (the “Independent Expert”) to determine whether the terms
and conditions of the Contract Kitting Disposal are fair and
reasonable. The Independent Expert’s opinion will be included
in the Circular.
2.9.4 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.
3. ACQUISITION OF 17.64% OF DIGICORE
3.1 Introduction
Shareholders are advised that on 5 September 2014 2014 ConvergeNet
concluded the terms of the purchase of 17.64% of Digicore (the
“Digicore Acquisition”) for R109 231 925 (the “Digicore Purchase
Consideration”) from Titan Nominees Proprietary Limited (12.00% for
R74 312 500), Titan Share Dealers Proprietary Limited (“Titan Share
Dealers”) (3.62% for R22 419 425) and Dale International Trust Company
Limited As Trustees Of The Salty Portfolio Trust (“Salty”) (2.02% for
R12 500 000), subject to the fulfilment of the conditions precedent
set out in paragraph 3.5 below.
3.2 Business of Digicore
Digicore, a company established in 1985 and which is listed under the
“Electronics & Electrical” sub-sector of the JSE, provides its global
client base with advanced mobile asset-tracking and management
solutions. Digicore’s end-to-end research, design, development,
manufacturing, sales and support of tailored solutions for customers
is serviced by a global network of staff and team members in over 50
countries. The company’s technology and electronics division designs
and develops a robust range of asset management and monitoring systems
using GPS, GSM cellular communication systems and other advanced
communication and sensory technologies. Products and services are
sold to the market under the Ctrack brand.
3.3 Rationale for the Digicore Acquisition
Digicore has seen a substantial decrease in profits over the past
five years and subsequently embarked on structural and management
changes in 2012 which entailed a consolidation process including cost
and operations rationalising, improved customer service,
reprioritisation of growth strategies, more focused leadership and
the implementation of a new technology platform. These changes in
internal procedures and processes have seen an increase in earnings
for the six months ended 31 December 2013. Following the
implementation of the proposed Digicore Acquisition, the Company will
be the single largest shareholder and as such will seek to support
management to execute and enhance the current strategy.
3.4 Terms of the Digicore Acquisition
3.4.1 The Digicore Purchase Consideration will be settled by
ConvergeNet by way of the issue of 54 615 963 new ordinary
shares in ConvergeNet (the “Digicore Consideration Shares”) at
R2.00 per share, such that ConvergeNet will hold 17.64% of the
total issued ordinary shares of Digicore following the share
issue by ConvergeNet.
3.4.2 The Digicore Acquisition will become effective on the first day
of the month in which the transaction closes, being on
fulfilment of all the conditions precedent to be included in
the final sale and purchase agreement, including those detailed
in paragraph 3.5 below (the “Effective Date”).
3.4.3 If, within six months of the Effective Date of the Digicore
Acquisition, ConvergeNet disposes of the Digicore Consideration
Shares acquired from Titan for a cash amount of more than R2.50
per Digicore share, then the Digicore Purchase Consideration
payable to Titan will be adjusted upwards on a rand-for-rand
basis. ConvergeNet will settle the difference owing by way of
the issue of additional ConvergeNet shares to Titan at an issue
price of R2.00 per share.
3.5 Conditions precedent
The Digicore Acquisition is subject to the fulfilment of the following
outstanding conditions precedent on or before 30 November 2014 (or
such later date as may be agreed between the parties):
3.5.1 approval by all applicable regulatory authorities, including
but not limited to the JSE; and
3.5.2 approval by ConvergeNet shareholders by way of an ordinary
resolution in general meeting.
3.6 Categorisation
In terms of the Listings Requirements, the Digicore Acquisition is
regarded as a Category 1 transaction and accordingly requires the
approval from ConvergeNet shareholders by way of an ordinary
resolution.
4. ACQUISITION OF AN ADDITIONAL 30.32% OF MRI
4.1 Introduction
Shareholders are advised that on 5 Spetmber 2014 2014 ConvergeNet
concluded the terms of the purchase of an additional 30.32% of MRI
(the “MRI Acquisition”) for R25 272 664 (the “MRI Purchase
Consideration”) from AfrAsia Special Opportunities Fund (“ASOF”)
(29.78% for R24 822 664) and Titan Share Dealers Proprietary Limited
(0.54% for R450 000), subject to the fulfilment of the conditions
precedent set out in paragraph 4.5 below.
4.2 Business of MRI
MRI was listed on the Alternative Exchange of the JSE on 25 June 2012
after a reverse listing of Western Utilities Corporation Proprietary
Limited (“WUC”) into MRI (then known as Capricorn Investment Holdings
Limited) and a successful equity raise of R40 million. MRI is a
holding company with its wholly-owned subsidiary, WUC, established to
carry on the business of mine rehabilitation activities.
4.3 Rationale for the MRI Acquisition
The acquisition provides further diversification to the investment
portfolio of the Company and secures the Company the position of
largest shareholder in an innovative business that operates in an
industry that is expected to see significant growth going forward,
namely the environmental rehabilitation of mine sites. As a result of
the networks of the Board and the Manco, it is expected that the Group
will be able to add material value to MRI as it seeks new opportunities
to deploy its technologies in Southern Africa.
4.4 Terms of the MRI Acquisition
4.4.1 The MRI Purchase Consideration will be settled by ConvergeNet
by way of the issue of 12 636 332 new ordinary shares in
ConvergeNet (the “MRI Consideration Shares”) at R2.00 per share,
such that ConvergeNet will hold, in addition to its existing
interest of 4.18%, 34.50% of the total issued ordinary shares
of MRI following the share issue by ConvergeNet.
4.4.2 The MRI Acquisition will become effective on the first day of
the month in which the transaction closes, being on fulfilment
of all the conditions precedent to be included in the final sale
and purchase agreement, including those detailed in paragraph
4.5 below.
4.4.3 In the event that the shares in MRI acquired from ASOF are sold
for an amount of less than R0.10 per share, or in the event that
MRI is liquidated or wound-up as a result of an insolvency event,
within 12 months of the date of acquisition of such shares, ASOF
shall be liable to ConvergeNet for an amount equal to 50% of the
direct loss suffered by ConvergeNet as a result. ASOF may
discharge that liability in cash or by way of the transfer to
the Company of MRI Consideration Shares (or the relevant portion
thereof).
4.5 Conditions precedent
The MRI Acquisition is subject to the fulfilment of the following
outstanding conditions precedent:
4.5.1 by no later than 30 September 2014, MRI has published its annual
report for the financial year ending 30 June 2014;
4.5.2 on or before 30 November 2014 (or such later date as may be
agreed between the parties) approval of the MRI Acquisition by
the boards of directors of ConvergeNet and ASOF; and
4.5.3 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.
4.6 Categorisation
In terms of the Listings Requirements, the MRI Acquisition is regarded
as a Category 2 transaction.
5. ACQUISITION OF AN ADDITIONAL 16.30% OF GOLIATH GOLD
5.1 Introduction
Shareholders are advised that on 5 September 2014 ConvergeNet
concluded the terms of the purchase of an additional 16.30% of Goliath
Gold (the “Goliath Gold Acquisition”) for R48 041 802 (the “Goliath
Gold Purchase Consideration”) from ASOF (4.99% for R14 700 000),
clients of Trinity Asset Management Proprietary Limited (“TAM”) (3.33%
for R9 817 976), Titan Share Dealers Proprietary Limited (2.13% for
R6 268 380), Dale International Trust Company Limited As Trustees Of
The Salty Portfolio Trust (“Salty”) (4.93% for R14 518 628) and Crater
Valley Investments Proprietary Limited (0.93% for R2 736 418), subject
to the fulfilment of the conditions precedent set out in paragraph
5.5 below.
5.2 Business of Goliath Gold
Goliath Gold is a South African incorporated mining exploration
company that has been listed on the Main Board of the JSE in the
‘Mining: General Mining’ sub-sector since May 2011. Focused on
identifying and exploring diversified resources across Southern
Africa, the company currently holds gold prospecting rights and a
mining right over several contiguous areas in South Africa’s East
Rand Basin in the Gauteng Province as well as prospecting rights for
heavy mineral sands over an area within South Africa’s Western Cape
Province. The company’s current exploration portfolio comprises an
established mineral gold resource base of 10.68 million ounces,
compliant with the SAMREC Code and independently audited by SRK
Consulting (South Africa) Proprietary Limited.
5.3 Rationale for the Goliath Gold Acquisition
The acquisition provides further diversification to the investment
portfolio of the Company and secures the Company the position of large
minority shareholder in a portfolio of highly prospective gold assets
with a significant proven resource base. The majority shareholder of
Goliath Gold is well capitalised and has access to the funding
required to further prove and develop the resource base. The Company
is confident that the initial investment cost represents a material
discount to the intrinsic value of this business.
5.4 Terms of the Goliath Gold Acquisition
5.4.1 The Goliath Gold Purchase Consideration will be settled by
ConvergeNet by way of the issue of 24 020 901 new ordinary
shares in ConvergeNet at R2.00 per share, such that ConvergeNet
will hold, in addition to its existing interest of 0.14%, 16.44%
of the total issued ordinary shares of Goliath Gold following
the share issue by ConvergeNet.
5.4.2 The Goliath Gold Acquisition will become effective on the first
day of the month in which the transaction closes, being on
fulfilment of all the conditions precedent to be included in
the final sale and purchase agreement, including those detailed
in paragraph 5.5 below.
5.5 Conditions precedent
The Goliath Gold Acquisition is subject to the fulfilment of the
following outstanding conditions precedent on or before 30 November
2014 (or such later date as may be agreed between the parties):
5.5.1 approval of the Goliath Gold Acquisition by the board of
directors of ConvergeNet
5.5.2 approval by all applicable regulatory authorities, including
but not limited to the JSE;
5.5.3 approval by ConvergeNet shareholders in general meeting by way
of an ordinary resolution; and
5.5.4 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.
5.6 Categorisation
In terms of the Listings Requirements, the Goliath Gold Acquisition
is regarded as a Category 1 transaction and accordingly requires the
approval from ConvergeNet shareholders by way of an ordinary
resolution.
6. ACQUISITION OF 40% OF PRAXIS FINANCIAL SERVICES PROPRIETARY LIMITED
Shareholders are advised that on 5 September 2014 ConvergeNet
concluded the terms of the purchase of 40% of Praxis Financial
Services Proprietary Limited (“Praxis”) for a nominal consideration
of R1.00 by way of the issue of new shares in Praxis, subject to the
fulfilment of certain conditions precedent on or before 30 November
2014 (or such later date as may be agreed between the parties). Praxis
is the leading provider of short term finance and parts to the motor
body repair (“MBR”) industry.
Praxis, through its network of part suppliers, insurers and approved
repairers, has established itself as the leading provider of bridging
finance to MBRs within the KwaZulu-Natal and Gauteng markets and will
look to rapidly expand its service offering geographically and within
the MBR supply chain in the short term. The Company, alongside Praxis'
existing lenders, will support this growth strategy via the provision
of working capital funding and through strategic input at board level.
Manco will also seek alternative sources of capital and funding for
Praxis in order to lower its cost of capital and thus increase the
equity value in the business.
In terms of the Listings Requirements, this transaction is not
categorised and is therefore included in this announcement for
information purposes only.
7. THE PRIVATE PLACEMENT
7.1 Introduction
7.1.1 In order to provide ConvergeNet with balance sheet capacity for
purposes of growing its investment portfolio as well as working
capital headroom, the Company will, subject to the requisite
regulatory and shareholder approvals, raise a maximum amount of
R150 million (the “Private Placement Amount”) of equity capital
by way of a specific issue of 75 million new ordinary ConvergeNet
shares for cash to identified investors, which will include the
entities referred in paragraph 7.1.2 below and a combination of
existing shareholders and new investors, at an issue price of
R2.00 per share (the “Issue Price”).
7.1.2 The following investors have irrevocably committed to
participate in the Private Placement:
7.1.2.1 Titan Premier Investments Proprietary Limited (an existing
ConvergeNet shareholder) has provided an irrevocable
commitment to subscribe, as part of the Private Placement,
for a minimum number of 24 500 000 shares in the share
capital of ConvergeNet at a subscription price of R2.00 per
share;
7.1.2.2 Investec Asset Management Proprietary Limited (a new
investor), in equal proportions through the Investec
Emerging Companies Fund and Investec IAL Special Focus Fund,
has provided an irrevocable commitment to subscribe, as part
of the Private Placement, for 12 800 000 shares in the share
capital of ConvergeNet at a subscription price of R2.00 per
share. A commitment fee of 5% of the subscription value (R1
280 000) is payable in shares of the Company at R2.00 per
share;
7.1.2.3 Momentum Collective Investments Limited (a new investor) has
provided an irrevocable commitment to subscribe, as part of
the Private Placement, for 10 000 000 shares in the share
capital of ConvergeNet at a subscription price of R2.00 per
share. A commitment fee of 5% of the subscription value (R1
000 000) is payable in shares of the Company at R2.00 per
share.
7.1.3 The balance of the Private Placement Amount will be underwritten
by Titan in respect of 50% of the Company shares not placed by
the last practicable date prior to the finalisation of the
Circular (the “Last Practicable Date”), Lavender Sky Investments
40 Proprietary Limited in respect of 25% of the Company shares
not placed by the Last Practicable Date and Thunder Capital
Proprietary Limited in respect of 25% of the Company shares not
placed by the Last Practicable Date, for an underwriting fee of
5% of the amount underwritten, payable by way of the issue of
new shares in the Company at R2.00 per share.
7.1.4 The Private Placement is not an offer to the public as
contemplated in the Companies Act and accordingly no prospectus
will be issued or registered in respect thereof.
7.1.5 To the extent that any identified investor is deemed to be non-
public or a related party, as defined in the Listings
Requirements, the required disclosures in this regard will be
detailed in the Circular, which will contain full details of
the Private Placement, and announced prior to the distribution
of the Circular. In this event, the Board will be required to
obtain a fairness opinion in respect of the Private Placement
only if the Issue Price is at a discount to the 30-day volume
weighted average price.
7.1.6 The Private Placement will exceed 30% of the issued share
capital of ConvergeNet and will therefore require the approval
of ConvergeNet shareholders by way of a special resolution in
terms of the Companies Act. The Private Placement will also
exceed 25% of the issued share capital of ConvergeNet and the
Company will therefore issue revised listing particulars in
addition to the Circular.
7.1.7 At this stage, no investor has indicated that it would subscribe
for shares in excess of 35% of the issued share capital of
ConvergeNet, thereby triggering a mandatory offer in terms of
section 123 of the Companies Act. However, should this threshold
be breached, the Board will consider proposing a waiver of such
a mandatory offer in terms of Regulation 86.4 of the Takeover
Regulations and further details in this regard will, to the
extent required, be included in the Circular and announced prior
to the distribution of the Circular.
7.2 Conditions precedent
The Private Placement is subject to the fulfilment of the following
outstanding conditions precedent on or before 30 November 2014 (or
such later date as may be agreed between the parties):
7.2.1 the conclusion of subscription agreements between ConvergeNet
and the identified investors;
7.2.2 approval by all applicable regulatory authorities, including
but not limited to the JSE;
7.2.3 approval by ConvergeNet shareholders of the special resolutions
required in terms of sections 41(1) and (3) of the Companies
Act (to the extent required) and section 5.51 of the Listings
Requirements; and
7.2.4 the listing of the Private Placement shares by the JSE.
7.3 Categorisation of the Private Placement
In terms of the Listings Requirements, the Private Placement is
regarded as a specific issue of shares for cash and therefore requires
approval by way of an ordinary resolution with at least 75% of the
votes of ConvergeNet shareholders to be cast in favour thereof in
terms of section 5.51(g) of the Listings Requirements. The votes of
any shareholders and their associates participating in the Private
Placement will not be taken into account in calculating the percentage
of voting rights required to approve the Private Placement. In
addition, in accordance with section 41(3) of the Companies Act, the
Private Placement will also require support of at least 75% of the
ConvergeNet shareholders present and entitled to vote at the General
Meeting as more than 30% of ConvergeNet’s issued share capital will
be issued.
8. PRO FORMA FINANCIAL EFFECTS
8.1 The table below sets out the pro forma financial effects of the
Disposals and the Tellumat Acquisition, Digicore Acquisition, MRI
Acquisition, Goliath Gold Acquisition and Private Placement
(collectively the “Transactions”).
8.2 The pro forma consolidated statement of comprehensive income for the
six month period ended 28 February 2014 and pro forma consolidated
statement of financial position at 28 February 2014 have been prepared
for illustrative purposes only, based on current information available
to management, in order to provide information about the financial
results and position of the Company following the Transactions. Due to
its nature, the pro forma financial information may not fairly present
the Company’s financial position, changes in equity and results of
operations or cash flows after the Transactions, and are based on the
assumptions that:
- for the purpose of calculating earnings per share and headline
earnings per share, the Transactions were implemented on 1 September
2013; and
- for the purpose of calculating net asset value per share and net
tangible asset value per share, the Transactions were implemented
on 28 February 2014.
8.3 The pro forma financial information has been prepared using the most
recent financial period of the Company for the six month period ended
28 February 2014 in terms of the Listings Requirements and guidelines
issued by the South African Institute of Chartered Accountants.
8.4 The accounting policies of ConvergeNet have been used in calculating
the pro forma financial effects. The accounting policies used are
consistent with previous accounting policies used by ConvergeNet and
the accounting policies have been applied on the same basis.
8.5 The directors of the Company are responsible for the preparation of
the pro forma financial information contained in this announcement.
After the
disposal
of SCS and After
Contract After Acqui-
Before Kitting Change acquisition Change sition of Change
(1) (2) (%) of MRI (3) (%) Goliath (4) (%)
Basic
(loss) per
ordinary
share
(cents) (47.42) (28.96) 38.9% (42.03) 11.4% (38.23) 19.4%
Headline
(loss) per
ordinary
share
(cents) (12.11) (10.43) 13.9% (10.73) 11.4% (9.73) 19.7%
Weighted
average
number of
shares in
issue 98,592,416 98,592,416 0.0% 111,228,748 12.8% 122,613,317 24.4%
Number of
shares in
issue –
net of
treasury
shares 100,369,281 100,903,057 0.5% 113,005,613 12.6% 124,390,182 23.9%
Net asset
value per
share
(cents) 188.14 203.55 8.2% 189.46 0.7% 190.43 1.2%
Tangible
net asset
value per
share
(cents) 174.53 200.50 14.9% 177.38 1.6% 179.45 2.8%
After
acquisition After
of Digicore Change Cash Change After Change
(5) (%) Issue (6) (%) (7)(8)(9) (%)
Basic (loss) per
ordinary share
(cents) (30.84) 35.0% (26.55) 44.0% (10.42) 78.0%
Headline (loss)
per ordinary share
(cents) (7.79) 35.7% (6.78) 44.0% (3.68) 69.6%
Weighted average
number of shares
in issue 153,208,379 55.4% 176,117,416 78.6% 279,890,612 183.9%
Number of shares
in issue - net of
treasury shares 154,985,244 54.4% 177,894,281 77.2% 269,701,253 168.7%
Net asset value
per share (cents) 192.32 2.2% 190.47 1.2% 199.46 6.0%
Tangible net asset
value per share
(cents) 183.51 5.1% 182.79 4.7% 198.31 13.6%
Notes to the pro forma financial effects:
1. The amounts set out in the “Before” column have been extracted from
the unaudited interim results of the Company for the six months
ended 28 February 2014, as published on SENS on 13 June 2014. The
investments in Tellumat, MRI, Goliath Gold and Digicore, as
described in notes 2 to 5 below, have been accounted for at cost.
The investments will subsequently be carried at fair value through
profit and loss (“Fair Value”) in accordance with IFRS 10
Consolidated Financial Statements paragraph 27(c) as it applies to
investment entities on the assumption that the Company has further
selected to utilise the exemption from applying the equity method
of accounting in IAS 28 (2011) paragraph 18.
2. The Contract Kitting Disposal and SCS Disposal for a total purchase
consideration of R95.119 million and R5 million, respectively,
settled by way of the issue of new shares in Tellumat such that
after the Contract Kitting Disposal and SCS Disposal the Company
holds 30% of the issued ordinary shares of Tellumat. The investment
in Tellumat has been accounted for at cost of R100.119 million which
assumes a valuation of R333.73 million for the combined entity
incorporating Tellumat’s existing business, Contract Kitting and
SCS. Transaction costs of R2 500 000 have been expensed in the
statement of comprehensive income.
3. The acquisition of an additional 30.32% of the issued ordinary
shares of MRI by way of issuing 12 636 332 new shares in the Company.
The investment in MRI has been accounted for at Fair Value of
R25.273 million which assumes a valuation of R0.10 per MRI share.
Transaction costs of R125 000 have been expensed in the statement
of comprehensive income.
4. The acquisition of an additional 16.30% of the issued ordinary
shares of Goliath Gold by way of issuing 24 020 901 new shares in
the Company. The investment in Goliath Gold has been accounted for
at cost of R48.04 million which assumes a valuation of R2.00 per
Goliath Gold share. Transaction costs of R125 000 have been
expensed in the statement of comprehensive income.
5. The acquisition of 17.64% of the issued ordinary shares of Digicore
by way of issuing 54 615 963 new shares in the Company. The
investment in Digicore has been accounted for at cost of R109.23
million which assumes a valuation of R2.50 per Digicore share.
Transaction costs of R500 000 have been expensed in the statement
of comprehensive income.
6. The issue of 77 525 000 shares, 24 500 000 million thereof at R2.00
per share and the remaining number of shares at R2.00 net of 5%
commitment fees (R5 050 000) settled by way of the issue of 2 525 000
new shares in the Company at R2.00 per share.
7. It has been assumed that the Transactions were implemented on 28
February 2014 for purposes of compiling the statement of financial
position and on 1 September 2013 for purposes of compiling the
statement of comprehensive income.
8. Tax consequences in relation to the Transactions have been taken
into account.
9. All adjustments, other than transaction costs of R3 250 000, will
have a continuing effect.
9. PROPOSED CHANGE OF NAME
In light of the intended transfer of the Company’s listing from the
“Computer Services” sub-sector to the “Investment Companies” sub-
sector of the JSE (as detailed in paragraph 1 above), and in order to
correctly describe the Group’s restructured nature, the Board proposes
that the Company’s name be changed to “CQ Capital Partners Limited”
(the “Name Change”). ConvergeNet has reserved the name “CQ Capital
Partners Limited” with CIPC in accordance with section 12 of the
Companies Act.
10. CHANGE OF YEAR-END
Shareholders are advised that the Board has resolved to amend the
financial year-end of the Company from 31 August 2014 to 30 November
2014.
11. INCREASE IN AUTHORISED SHARE CAPITAL
In order for ConvergeNet to effect the share issuances as detailed in
this announcement, it is necessary to increase the Company’s
authorised share capital. Accordingly, and subject to the requisite
approval by shareholders, the Board will propose that the Company’s
authorised share capital be increased from 200 000 000 ordinary shares
of no par value to 1 000 000 000 ordinary shares of no par value by
the creation of 800 000 000 ordinary shares of no par value in the
share capital of the Company.
12. IRREVOCABLE UNDERTAKINGS
The Company intends to procure irrevocable undertakings from its
shareholders to vote in favour of the resolutions required for the
implementation of the Transactions. Details of such irrevocable
undertakings will be included in the Circular.
13. DOCUMENTATION AND SALIENT DATES
13.1 Further details of the JSE categorised transactions contemplated in
this announcement will be included in a circular to be distributed to
shareholders in due course, which will include, inter alia, the fair
and reasonable opinion from the Independent Expert, a notice of the
General Meeting and forms of proxy and surrender (in respect of the
Name Change).
13.2 The salient dates and times in relation to the Transactions will be
published in due course.
14. RESPONSIBILITY STATEMENT
The Board accepts responsibility for the information contained in this
announcement. To the best of its 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.
15. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Shareholders are referred to the further cautionary announcement
released on SENS on 13 June 2014 and are advised that, following the
release of this announcement, shareholders no longer need to exercise
caution when dealing in the Company’s securities.
Rosebank
8 September 2014
Sponsor and Corporate Adviser to ConvergeNet: AfrAsia Corporate Finance
Proprietary Limited
Attorneys to ConvergeNet: Cliffe Dekker Hofmeyr Inc
Date: 08/09/2014 02:24:00 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
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
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,
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