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Category 1 Disposal Announcement: Sale of the Armed Response Monitoring Business and Residential Guarding Business
CSG HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 2006/011359/06)
Share code: CSG
ISIN: ZAE000184438
(“CSG” or “the Company”)
CATEGORY 1 DISPOSAL ANNOUNCEMENT: SALE OF THE ARMED RESONSE MONITORING BUSINESS AND
RESIDENTIAL GUARDING BUSINESS OF 7 ARROWS PROPRIETARY LIMITED, A WHOLLY-OWNED SUBSIDIARY OF CSG
1. INTRODUCTION
Shareholders are advised that on 25 June 2020 (“Signature Date”), the Company,
through its wholly-owned subsidiary, 7 Arrows Security Proprietary Limited with
registration number: 2015/208415/07 (“7 Arrows”), entered into an agreement
(“Agreement”) with Fidelity ADT Monitoring Proprietary Limited, with registration
number: 1996/017820/07 (“Purchaser”), in terms of which the Company will sell:
1.1. a certain specified part of the armed response and monitoring business of 7 Arrows,
which encompasses the provision of armed response and monitoring services to
clients of 7 Arrows (“Armed Response and Monitoring Business”); and
1.2. a certain specified part of the residential guarding business of 7 Arrows, which
encompasses the provisions of residential guarding services to clients of 7 Arrows
(“Residential Guarding Business”),
to the Purchaser (collectively the “Business”), for a disposal consideration of
R65,850,000 (sixty-five million eighty hundred and fifty thousand Rand) (“Disposal
Consideration”) (“Disposal”).
2. DESCRIPTION OF THE BUSINESS ASSETS
2.1. The assets of the Business being sold, subject to the fulfillment (or, where permissible,
waiver) of the conditions precedent set out in paragraph 6 below (“Conditions
Precedent”), include the following:
2.1.1. certain specified client (“Specified Client”) contracts concluded between 7 Arrows
and such clients for the provision of security services (“Specified Client
Contracts”);
2.1.2. alarm radios and transmitters relating to Specified Clients, fixed assets, certain
radio signal relay and supporting equipment, certain usage agreements held by 7
Arrows in respect of radio signal relaying facilities, certain service and usage
agreements concluded between 7 Arrows and a third party in respect of the
provision of radio signal relaying facilities, any alarm systems that are owned by 7
Arrows that may be leased to the Specified Clients, all personal information
pertaining to the Specified Clients, control room equipment, license plate
recognition cameras and telephone numbers utilized in the monitoring process;
2.1.3. all licenses, consents and/or registrations necessary to conduct the Business, in
so far as legally transferable;
2.1.4. other assets that are in the Purchaser’s discretion related to or used in connection
with the Business, subject to the approval of 7 Arrows;
2.1.5. 7 Arrow’s registered intellectual property; and
2.1.6. any goodwill associated with any of the abovementioned,
collectively the “Business Assets” but excluding non-Specified Client Contracts.
2.2. The Disposal excludes liabilities of the Business (including contingent liabilities)
arising prior to the effective date of the Disposal, as well as, certain assets of 7 Arrows
relating to the Business, namely, debtors as at the effective date of the Disposal,
firearms, motor vehicles, premises whether owned or leased by 7 Arrows and office
furniture, uniforms and equipment not forming part of the Business Assets.
3. RATIONALE FOR THE DISPOSAL
3.1. Following a thorough and robust interrogation of all parts of the organisation, the
board of directors of CSG adopted a new and focused “business to business”
strategy, which supports the overall long-term strategy of being the leading strategic
outsourced partner for facilities management, security and risk solutions and staffing
solutions.
3.2. As a result of the review of underlying operations, and considering the negative return
on investment of 7 Arrows over the last two years, certain of the 7 Arrows business
segments were considered to be non-core to the future strategy of the Company and
are being disposed of in terms of the Disposal. However, segments that fall within the
ambit of new strategy will be consolidated within the security business of Revert Risk
Management Solutions Proprietary Limited.
4. DISPOSAL CONSIDERATION
4.1. The Disposal Consideration is an amount equal to the sum of R65,850,000 (sixty-five
million eighty hundred and fifty thousand Rand), subject to the Disposal
Consideration adjustments, as set out below.
4.2. The Disposal Consideration is allocated as follows:
4.2.1. an amount of R51,200,000 (fifty-one million and two hundred thousand Rand),
allocated to the Armed Response and Monitoring Business (“Armed Response
and Monitoring Business Consideration”); and
4.2.2. an amount of R14,650,000 (fourteen million six hundred and fifty thousand Rand),
allocated to the Residential Guarding Business (“Residential Guarding
Business Consideration”).
4.3. The metric used to determine the Disposal Consideration is the aggregate recurring
monthly revenue attributable to Specified Client Contracts (“MRR”).
4.4. The Disposal Consideration has been calculated based on agreed MRR amounts,
multiplied by an agreed price multiple (as set out in the Disposal Agreement)
(“Effective Date MRR”), which 7 Arrows expects to receive from the Specified Client
Contracts over particular periods following the effective date of the Disposal, being
the first calendar day of the month following the fulfilment of the Conditions Precedent
or such later date as the parties may agree in writing (“Effective Date”). The
aforementioned particular periods being certain anniversaries of the 30th (thirtieth)
day following the Effective Date (“Banked Date”) as set out in paragraphs 4.6 and
4.7 below.
4.5. Following the implementation of the Disposal Agreement on the Effective Date, in the
event the relevant actual MRR received by the Purchaser over a relevant agreed
period:
4.5.1. is less than the Effective Date MRR for that relevant period, the Disposal
Consideration allocated to be paid in respect of that particular period shall be
adjusted downwards and the Purchaser shall only pay (or receive a credit note in
respect of) the proportion of the actual received MRR for the relevant period as a
percentage of the total Effective Date MRR (plus VAT), multiplied by the multiple
used for calculating the Effective Date MRR, less any Disposal Consideration
payments already paid for prior periods;
4.5.2. is greater than the Effective Date MRR for that relevant period, the Disposal
Consideration allocated to be paid in respect of that particular period shall be
adjusted upwards on the basis consistent with paragraph 4.5.1, provided that 7
Arrows is the effective cause for such increase in MRR over the relevant period.
4.6. Armed Response and Monitoring Business Disposal Consideration
The Purchaser shall settle the Armed Response and Monitoring Disposal
Consideration as follows:
4.6.1. 20% (twenty percent) of the Armed Response and Monitoring Disposal
Consideration on or before the 30th (thirtieth) day following the Banked Date;
4.6.2. 32,5% (thirty-two comma five percent) of the Armed Response and Monitoring
Disposal Consideration on or before the last day of the 3rd (third) calendar month
following on the Banked Date;
4.6.3. 10% (ten percent) of the Armed Response and Monitoring Disposal Consideration
on or before the last day of the 6th (sixth) calendar month following the Banked
Date;
4.6.4. 20% (twenty percent) of the Armed Response and Monitoring Disposal
Consideration on or before the last day of the 12th (twelfth) calendar month
following the Banked Date;
4.6.5. 8,75% (eight comma seven five percent) of the Armed Response and Monitoring
Disposal Consideration on or before the last day of the 15th (fifteenth) calendar
month following the Banked Date; and
4.6.6. the balance of the Armed Response and Monitoring Disposal Consideration on or
before the 25th (twenty fifth) calendar month following the Banked Date.
4.7. Residential Guarding Business Disposal Consideration
The Purchaser shall settle the Residential Guarding Business Disposal Consideration
as follows:
4.7.1. 10% (ten percent) of the Residential Guarding Business Disposal Consideration
on or before the 30th (thirtieth) day following the Banked Date;
4.7.2. 25% (twenty five percent) of the Residential Guarding Business Disposal
Consideration on or before the last day of the 6th (sixth) calendar month following
the Banked Date;
4.7.3. 40% (forty percent) of the Residential Guarding Business Disposal Consideration
on or before the last day of the 12th (twelfth) calendar month following the Banked
Date; and
4.7.4. the balance of the Residential Guarding Business Disposal Consideration on or
before the 25th (twenty fifth) calendar month following the Banked Date.
4.8. Non-Specified Client Contracts
In respect of those Business related client contracts which are not Specified Client
Contracts as at the Effective Date, the Purchaser and 7 Arrows, by mutual
agreement, may at a later stage identify any such client contracts which could be
classified as a Specified Client Contract, and these client contracts will be sold by 7
Arrows to the Purchaser at the applicable MRR amounts multiplied by the same
agreed price multiple applicable to the Specified Client Contracts (subject to the
consent of the client, to the extent applicable).
5. APPLICATION OF THE DISPOSAL CONSIDERATION
The disposal consideration will be used to settle the remaining creditor business liabilities
in 7 Arrows, as well as a reduction of Nedbank debt facilities in CSG.
6. CONDITIONS PRECEDENT
The Disposal is subject to the fulfilment or waiver (to the extent legally permissible)
of the following outstanding conditions precedent (“Conditions Precedent”):
6.1. by not later than 10 (ten) business days from the Signature Date, or such later date
as the parties may agree in writing:
6.1.1. the sole shareholder of the 7 Arrows passing a special resolution, as may be
required in terms of section 112 as read with section 115 of the Companies Act 71
of 2008, as amended from time to time (“Companies Act”), to approve and
implement the Disposal;
6.1.2. 7 Arrows and / or the Company to provide the Purchaser with a copy of the
cancellation agreement pertaining to the cession agreement entered into between
the Company and 7 Arrows on 22 October 2018;
6.1.3. the Purchaser and/or Fidelity Services Group Proprietary Limited with registration
number: 2002/030292/07 (“FSG”) delivering to 7 Arrows, a written notice
confirming that it is satisfied with the due diligence investigation to be performed
by the Purchaser in respect of the Business (“Due Diligence Investigation”) and
that the Purchaser is satisfied that no material variance in the assumptions made
by the Purchaser regarding the Business information has occurred;
6.1.4. the terms of this Agreement and the implementation thereof being approved by
the Purchaser’s board and shareholders, FSG and the Purchaser’s funders (as
appropriate);
6.2. by not later than 17h00 on 30 September 2020, or such later period as may be agreed
between the parties (“Deadline Date”):
6.2.1. 7 Arrows procuring the consent of all counterparties to certain Specified Client
Contracts (to the extent required), if any, to the cession and assignment of such
Specified Client Contracts to the Purchaser, with effect from the Effective Date;
6.2.2. 7 Arrows furnishing the Purchaser (to the extent such information has not been
furnished to the Purchaser as at the Signature Date), with a Tax Status
Compliance Certificate from the South African Revenue Services, certifying that 7
Arrows is tax complaint and its tax affairs are up to date and in order;
6.2.3. 7 Arrows furnishing the Purchaser (to the extent such information has not been
furnished to the Purchaser as at the Signature Date), with a Compliance Certificate
from the Private Security Sector Provident Fund certifying that 7 Arrows is duly
complaint in all respects;
6.2.4. the Purchaser satisfying itself that no material adverse changes in the business,
operations, assets, financial and/or trading position of 7 Arrows or any other
circumstance that may result in such a material adverse change, have occurred
subsequent to the date of conclusion of the Due Diligence Investigation;
6.2.5. the Purchaser not discovering any material risks not previously disclosed to it in
writing; and
6.2.6. CSG providing the Purchaser with a resolution approving the Disposal passed by
the requisite majority of its shareholders in accordance with provisions of the JSE
Listings Requirements.
7. EFFECTIVE DATE OF THE DISPOSAL
Delivery in respect of the Business Assets will take place on the Effective Date, which is
anticipated as being 1 September 2020.
8. WARRANTIES AND OTHER SIGNIFICANT TERMS OF THE AGREEMENT
8.1. CSG and certain of its subsidiaries namely BDM Management Proprietary Limited,
CSG Resourcings Proprietary Limited, CSG Food Solutions Proprietary Limited,
Afriboom Proprietary Limited, Revert Risk Management Solutions Proprietary Limited
and Hi-Tech Nelspruit Proprietary Limited (collectively the “Material Subsidiaries”)
have provided an irrevocable and unconditional guarantee to the Purchaser, as
principal debtor and obligor, in respect of the complete performance and discharge
by 7 Arrows promptly when due, of all the duties, obligations, undertakings,
warranties and liabilities of 7 Arrows at any time under the Disposal Agreement
(“Guaranteed Obligations”).
8.2. CSG and its Material Subsidiaries, jointly and severally with 7 Arrows, have
indemnified and held the Purchaser harmless against any and all loss, damages,
claims, costs and other liabilities arising from, inter alia, any failure by 7 Arrows to
perform promptly and discharge when due, any and all of the Guaranteed
Obligations.
8.3. The Purchaser is entitled but not obliged to take-over the employment contracts of
specific employees of 7 Arrows, subject to the Purchaser’s election in writing by not
later than 30 (thirty) business days prior to the Deadline Date. In respect of those
employees which the Purchaser takes over, if any, 7 Arrows shall remain liable for
and settle all pre-Effective Date liabilities of such employees, if any.
8.4. The Purchaser is entitled to terminate the Disposal Agreement prior to the Effective
Date on the happening of certain events, including but not limited to, a material
adverse changes occurring, the Purchaser becoming aware that a warranty (given by
7 Arrows) is not true and correct in all respects or that a warrantee has been
breached, 7 Arrows is placed in liquidation or business rescue and/or the
performance of any obligation of 7 Arrows in terms of the Disposal Agreement is
unlawful, invalid or unenforceable.
8.5. The Disposal Agreement further contains interim period undertakings, confidentiality
and restraint provisions and warranties and indemnities that are customary for
agreements of this nature.
9. CLASSIFICATION OF THE DISPOSAL
9.1. As the value of the Disposal exceeds 30% of the Company’s market capitalisation as
at the date of the signature of the Agreement, it meets the definition of a category 1
transaction as contemplated in section 9 of the JSE Limited Listings Requirements.
9.2. As a result, the Disposal is required to be approved by an ordinary resolution of the
shareholders of the Company and accordingly a general meeting of the shareholders
of the Company will be convened.
9.3. For the avoidance of doubt, the 7 Arrows Business does not constitute the greater
part of the assets or undertaking of CSG, as contemplated in section 112 of the
Companies Act.
10. CIRCULAR
A circular containing the full details of the Disposal, incorporating a notice convening the
required general meeting of the shareholders of the Company, will be distributed to
shareholders in due course, at which time the salient dates and times of the Disposal,
including the date of the general meeting, will be announced on SENS.
11. CONTINUATION OF CAUTIONARY ANNOUNCEMENT
Shareholders are referred to the cautionary announcement released on SENS on 22 June
2020. Notwithstanding the publication of this announcement, given that the financial
information applicable to the Disposal has not been included in this announcement,
shareholders are advised to continue to exercise caution when dealing in the Company’s
securities until a further announcement regarding the financial information applicable to
the Disposal has been made.
26 June 2020
Sponsor
PSG Capital
Date: 26-06-2020 12:00:00
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