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Further terms announcement and shareholder update
CONVERGENET HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number 1998/015580/06)
Share code: CVN ISIN: ZAE000182440
(“ConvergeNet” or the “Company”)
FURTHER TERMS ANNOUNCEMENT AND SHAREHOLDER UPDATE
Further to the detailed terms announcement released by the Company on SENS and in the press on
8 September 2014 and 9 September 2014, respectively (the “Terms Announcement”), ConvergeNet
is pleased to inform shareholders of an increase in the acquisition of its strategic equity holdings
comprising:
- A FURTHER 1.62% OF DIGICORE HOLDINGS LIMITED (“Digicore”) SUCH THAT THE
COMPANY WILL HOLD 19.26% OF THE TOTAL ISSUED SHARES OF DIGICORE; AND
- A FURTHER 5.47% OF GOLIATH GOLD MINING LIMITED (“Goliath Gold”) SUCH THAT THE
COMPANY WILL HOLD 21.91% OF THE TOTAL ISSUED SHARES OF GOLIATH GOLD.
All terms defined in the Terms Announcement shall bear the same meaning in this announcement.
1. ACQUISITION OF AN ADDITIONAL 1.62% OF DIGICORE
1.1 Introduction
Shareholders are advised that on 23 October 2014 ConvergeNet concluded the terms of the
purchase of an additional 1.62% of Digicore (the “Additional Digicore Acquisition”) for
R10 000 000 (the “Additional Digicore Purchase Consideration”) from Pannar Group Pension
Plan (0.10% for R625 000) and ClucasGray Future Titans Fund (1.52% for R9 375 000), subject
to the fulfilment of the conditions precedent set out in paragraph 1.3 below. Following
completion of the Digicore Acquisition, the terms of which were detailed in the Terms
Announcement, and the Additional Digicore Acquisition detailed herein, ConvergeNet will hold
19.26% of the total issued shares of Digicore.
1.2 Terms of the Additional Digicore Acquisition
1.2.1 The Additional Digicore Purchase Consideration will be settled by ConvergeNet by way of
the issue of 5 000 000 new ordinary shares in ConvergeNet at R2.00 per share.
1.2.2 The Additional 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 1.3
below.
1.3 Conditions precedent
The Additional 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 in writing):
1.3.1 approval of the Additional Digicore Acquisition by the board of directors of ConvergeNet;
1.3.2 approval by all applicable regulatory authorities, including but not limited to the JSE; and
1.3.3 approval by ConvergeNet shareholders by way of an ordinary resolution in general meeting.
1.4 Categorisation
In terms of the Listings Requirements, the Additional Digicore Acquisition, together with the
Digicore Acquisition, are regarded as Category 1 transactions and accordingly require the
approval from ConvergeNet shareholders by way of an ordinary resolution.
2. ACQUISITION OF AN ADDITIONAL 5.47% OF GOLIATH GOLD
2.1 Introduction
Shareholders are advised that on 23 October 2014 ConvergeNet concluded the terms of the
purchase of an additional 5.47% of Goliath Gold (the “Additional Goliath Gold Acquisition”) for
R16 127 940 from clients of Trinity Asset Management Proprietary Limited (5.35% for R15 779
900) and Warren Geyer (0.12% for R348 040) (“Additional Goliath Gold Purchase
Consideration”), subject to the fulfilment of the conditions precedent set out in paragraph 2.3
below. Following completion of the Goliath Gold Acquisition, the terms of which were detailed in
the Terms Announcement, and the Additional Goliath Gold Acquisition detailed herein,
ConvergeNet will hold 21.91% of the total issued shares of Goliath Gold.
2.2 Terms of the Additional Goliath Gold Acquisition
2.2.1 The Additional Goliath Gold Purchase Consideration will be settled by ConvergeNet by way
of the issue of 8 063 970 new ordinary shares in ConvergeNet at R2.00 per share.
2.2.2 The Additional 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 2.3
below.
2.3 Conditions precedent
The Additional 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):
2.3.1 approval of the Additional Goliath Gold Acquisition by the board of directors of ConvergeNet;
2.3.2 approval by all applicable regulatory authorities, including but not limited to the JSE; and
2.3.3 approval by ConvergeNet shareholders by way of an ordinary resolution in general meeting.
2.4 Categorisation
In terms of the Listings Requirements, the Additional Goliath Gold Acquisition, together with
the Goliath Gold Acquisition, are regarded as Category 1 transactions and accordingly
require the approval from ConvergeNet shareholders by way of an ordinary resolution.
3. RE-CATEGORISATION OF THE MRI ACQUISITION
3.1 In terms of the Listings Requirements, the MRI Acquisition, as detailed in the Terms
Announcement, and the Goliath Gold Acquisition are to be aggregated for categorisation
purposes due to both these transactions having been entered into with common parties, being
ASOF and Titan Share Dealers Proprietary Limited. Accordingly, both the MRI Acquisition and
the Goliath Gold Acquisition are regarded as Category 1 transactions and therefore require
approval by ConvergeNet shareholders.
4. DEFERRAL OF THE ACQUISITION OF 40% OF PRAXIS
4.1 Shareholders are advised that the Company will no longer proceed with the purchase of 40% of
Praxis as part of the Company’s initial investment portfolio, as detailed in the Terms
Announcement. The Company has considered the onerous regulatory implications related to
the acquisition of Praxis and has concluded that the interests of the Company and its
shareholders will be better served if this acquisition is not concluded as part of the
establishment of the initial investment portfolio. However, ConvergeNet will continue to engage
with Praxis to strengthen the strategic relationship that has been established and expects to
complete this transaction at a later date to be determined.
5. TRANSFER OF THE COMPANY’S LISTING TO THE “INVESTMENT COMPANIES” SUB-
SECTOR OF THE JSE AND ESTABLISHMENT OF A MANAGEMENT COMPANY
5.1 The Company wishes to advise shareholders that an application for the transfer of the
Company’s listing from the “Computer Services” sub-sector of the JSE to the “Investment
Companies” sub-sector has been submitted to the JSE and that the outcome of the application
will be announced in due course (the “Sector Transfer Application”).
5.2 As detailed in the Terms Announcement, it is the intention of the Company to appoint a
management company (the “Manco”), a newly incorporated private company, to manage the
portfolio of the Company in accordance with section 15 of the 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.
5.3 The calculation and payment of the base management fee and performance fee due to the
Manco, calculated as detailed in paragraph 1.3.1 and 1.3.2 of the Terms Announcement, will be
performed and paid on a quarterly basis and not on a monthly and semi-annual basis,
respectively, as detailed in the Terms Announcement. This is an administrative amendment to
the terms previously announced which ensures that the calculation and payment of fees by the
Company align with the financial reporting period of the Company and will not have a material
impact on shareholders.
5.4 The Manco will have wide-ranging powers to act on behalf of the Company in sourcing,
negotiating, concluding and executing investment opportunities for the Company. However, all
material decisions, including but not limited to the acquisition and disposal of investments, will
require the approval of the majority of the Board. Although the Board reserves the right to
delegate its investment decision making powers to an investment sub-committee, it is
envisaged that the full Board will consider investment decisions until shareholders are advised
otherwise.
6. UPDATED PRO FORMA FINANCIAL EFFECTS
Before (1) After SCS Change After MRI Change After Goliath Change (%)
Disposal (%) Acquisition(3) (%) Gold
and Contract Acquisition
Kitting (4)
Disposal(2)
Basic (loss)
per ordinary
share (cents) (47.42) (26.09) 45.0% (42.03) 11.4% (35.87) 24.4%
Headline
(loss) per
ordinary
share (cents) (12.11) (10.30) 14.9% (10.73) 11.4% (9.13) 24.6%
Weighted
average
number of
shares in
issue ('000) 98,592,416 99,842,416 -1.3% 111,228,748 12.8% 30,677,287 32.5%
Number of
shares in
issue - net of
treasury
shares ('000) 100,369,281 101,028,057 0.7% 113,005,613 12.6% 132,454,152 32.0%
Net asset
value per
share (cents) 188.14 205.77 9.4% 189.46 0.7% 191.01 1.5%
Tangible net
asset value
per share
(cents) 174.53 202.72 16.2% 177.38 1.6% 180.70 3.5%
After Change After Private Change After Change
Digicore (%) Placement (%) (7)(8)(9) (%)
Acquisition (6)
(5)
Basic (loss)
per ordinary
share (cents) (29.87) 37.0% (26.55) 44.0% (9.47) 80.0%
Headline
(loss) per
ordinary
share (cents) (7.54) 37.7% (6.78) 44.0% (3.65) 69.9%
Weighted
average
number of
shares in
issue ('000) 158,208,379 60.5% 176,117,416 78.6% 281,704,582 185.7%
Number of
shares in
issue - net of
treasury
shares ('000) 159,985,244 59.4% 177,894,281 77.2% 284,015,223 183.0%
Net asset
value per
share (cents) 192.56 2.3% 190.47 1.2% 199.48 6.0%
Tangible net
asset value
per share
(cents) 184.02 5.4% 182.79 4.7% 198.40 13.7%
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”) by utilising 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 R2.5 million 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 as detailed in the Terms Announcement. 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 21.77% of the issued ordinary shares of Goliath Gold by way of issuing
32 084 871 new shares in the Company. The investment in Goliath Gold has been accounted for at
cost of R64.17 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 of 19.26% of the issued ordinary shares of Digicore by way of issuing 59 615 963
new shares in the Company. The investment in Digicore has been accounted for at cost of R119.23
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, 38 350 000 thereof at R2.00 per share, 38 482 500 thereof at R2.00
net of commitment fees and underwriting fees (R3 665 000) settled by way of the issue of 1 832 500
new shares in the Company at R2.00 per share and a further 692 500 shares in the Company to settle
underwriting fees of R1 385 000.
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.
7. REVERSE TAKEOVER
7.1 Following the approval by the JSE of the Sector Transfer Application referred in paragraph 5.1
above, the Company’s listing will be transferred from the “Computer Services” sub-sector of the
JSE to the “Investment Companies” sub-sector, which transfer will be the result of a
fundamental change in the business of ConvergeNet. Accordingly, in terms of section 9.5(c) of
the Listings Requirements, the Company will be regarded as having undertaken a reverse
takeover.
7.2 In accordance with section 9.24 of the Listings Requirements, shareholders are cautioned that
the Company can only retain its listing following the reverse takeover if the JSE is satisfied that
the Company continues to qualify to be listed. The Board is satisfied that the Company will
comply with all relevant requirements in this regard to maintain its Main Board listing as an
investment entity.
8. EXTENSION OF CIRCULAR POSTING DATE
8.1 As detailed in the announcement released on SENS on 10 October 2014, in terms of
Regulation 102(2)(a) of the Companies Regulations, the Company is required to post the
Circular within 20 business days after the date of publication of the Terms Announcement.
8.2 Shareholders are advised that the definitive legal documentation in respect of the Disposals and
the Tellumat Acquisition is still in the process of being finalised. In addition, the various
reporting accountants’ reports on the historical financial information of the Category 1
acquisitions, as required in terms of the Listings Requirements, are also still in the process of
being prepared. Accordingly, the posting of the Circular has been delayed.
8.3 In terms of Regulation 102(2)(b) of the Companies Regulations, the TRP has granted an
extension of the Circular posting date, which date will now be no later than Friday, 12
December 2014.
8.4 The salient dates in relation to the Transactions will be published on SENS and in the press
prior to the posting of the Circular.
9. RESPONSIBILITY STATEMENT
9.1 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.
Rosebank
27 October 2014
Sponsor and Corporate Adviser to ConvergeNet: AfrAsia Corporate Finance Proprietary Limited
Attorneys to ConvergeNet: Cliffe Dekker Hofmeyr Inc
Date: 27/10/2014 05:40:00 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,
information disseminated through SENS.
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