| Wed 23 May 2007, 16:09 | | CNL - CI Group - Announcement |
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CNL
CNL
CNL - CI Group - Announcement
Control Instruments Group Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1964/003987/06)
Share code: CNL
ISIN: ZAE000001665
("CI Group" or "the Group")
Announcement of:
* the merger of CI Group`s fleet and vehicle management interests into
Telimatrix (Proprietary) Limited ("Matrix Group"), which owns the business of
Matrix Vehicle Tracking (Proprietary) Limited ("Matrix");
* the intention to list Matrix Group on the JSE Limited ("JSE");
* the subsequent unbundling by CI Group of its shares in Matrix Group to CI
Group shareholders ("the unbundling").; and
* withdrawal of cautionary announcement.
1. INTRODUCTION
Further to the cautionary announcements dated 13 March 2007 and 2 May 2007,
CI Group is pleased to advise shareholders that it signed an agreement on 21 May
2007 with Matrix Group whereby Control Instruments OmniBridge (Proprietary)
Limited ("CI OmniBridge") (a wholly owned subsidiary of CI Group), Tripmaster
Incorporated ("Tripmaster") and the recent acquisition of Datatrak UK, FM Europe
and One-Stop-Shop from Siemens VDO ("Datatrak") (collectively "the CI fleet
management business"), will be merged with Matrix in Matrix Group; the CI Group
will receive shares in Matrix Group; and Matrix Group will be listed on the JSE.
On the listing of Matrix Group on the JSE, CI Group will unbundle the majority
of its shares in Matrix Group to CI Group shareholders. The listing and the
unbundling are subject to JSE approval.
2. RATIONALE FOR THE TRANSACTION
The board of CI Group has been considering a number of strategic alternatives in
order to unlock shareholder value.
The strategic course, embarked upon in late 2004, focused on globalising the
Group; increasing the critical mass of its businesses; and investing in the
development of products in which the Group owns the Intellectual Property.
Following the success of this strategy, the directors are in a position to
unlock some of the underlying value in the Group`s operations for the benefit of
CI Group shareholders.
2.1 Benefits of the merged entity
(i) Given the convergence of vehicle tracking and fleet management technology in
the market place, the merger of the CI fleet management business and Matrix
creates an opportunity to combine Matrix`s substantial existing annuity revenue
stream with CI OmniBridge`s state-of-the-art technology platform and product
development capability;
(ii) The combined business has significant critical mass, a global footprint, a
very strong subscriber base, leading technology in all the fields in which it
operates and a strong history of operating successfully in international
markets;
(iii) The strategy of the combined business is to leverage its strong, highly
profitable and cash generating South African operations into the worldwide
distribution network established and operated successfully by CI OmniBridge over
the past ten years;
(iv) The CI fleet management business and Matrix complement each other very
well. There is very little overlap in the different market spaces in the greater
vehicle tracking and fleet management technology markets in which they operate,
and there are many synergistic opportunities;
(v) Matrix Group`s BEE alliance with Kagiso Ventures Limited will enable the
merged entity to aggressively pursue contracts in South Africa; and
(vi) The new business will be focused into all levels of fleet telematics,
enabling it to grow both organically and via acquisitions.
2.2 Features of the merged entity
(i) A significant annuity revenue stream from a combined base in excess of
165 000 subscribers;
(ii) A global distribution network, in over 40 countries (on six continents);
(iii) Its own presence in South Africa, the United States of America, the United
Kingdom and Germany;
(iv) The ability to generate foreign income (Rand hedge);
(v) Strong international growth opportunities; and
(vi) Prominent brands, including VDO FM, Tripmaster FM and Matrix.
2.3 History of relationship between CI Group and Matrix
(i) CI Group and Matrix have a long history. CI Group was one of three original
investors in the 1995 start-up of Matrix. During 2000 as part of a strategy that
included the disposal of all non-wholly owned subsidiaries, CI Group sold its
stake in Matrix to the existing shareholders.
(ii) Over the years, CI Group and Matrix have maintained close contact. As a
result of the growth of the individual businesses, particularly the
globalisation of CI OmniBridge, and the convergence of the fleet management and
vehicle recovery markets in recent years, the directors of both businesses
believe that shareholder value will be maximised by merging the businesses.
2.4 Board and management of the merged entity
(i) The CEO of the merged entity will be Stefan Joselowitz, the current managing
director of Matrix. Charles Tasker, currently the managing director of
CI OmniBridge will run the worldwide fleet management business and Riette Botha
currently the COO of Matrix will run the South African vehicle tracking
business. Terry Buzer, an executive director of CI Group since 1987, will also
join the executive team of the merged entity.
(ii) An independent, non-executive chairman and a number of non-executive
directors will be appointed.
(iii) The major shareholders in Matrix Group and Richard Friedman, group
managing director of CI Group, have agreed to sign lock-in agreements in respect
of their shareholdings in Matrix Group prior to its listing.
3. THE TRANSACTION
3.1 Transaction steps
(i) Matrix Group will be the holding company of operating companies undertaking
businesses which constituted, before implementation of the transaction:
* The CI fleet management business, which includes:
(a) CI OmniBridge;
(b) CI Group`s interest in Tripmaster; and
(c) CI Group`s interest in Datatrak.
* Matrix`s vehicle tracking and recovery business.
(ii) On the effective date, CI Group will receive shares in Matrix Group in
consideration for CI OmniBridge and Datatrak ("the consideration shares").
(ii) As soon as possible after the effective date application will be made to
the JSE to list all of the issued shares in Matrix Group on the main board of
the JSE.
(iii) In terms of the agreement CI Group has undertaken to unbundle at least 75%
of the consideration shares to its shareholders.
3.2 Purchase consideration
The purchase consideration comprises 50% of Matrix Group`s total shareholding
and a cash portion ("purchase consideration").
For purposes of this announcement, 50% of the total shareholding has been
assumed to be worth R650 million and the cash portion to be R42 million. These
amounts have been used in the pro forma calculations in paragraph 6.
3.3 Matrix Group shareholders
The major shareholders of Matrix Group are Kagiso Ventures Limited, the GAF
Family Trust and RA Frew. Management of the Matrix Group are significant
shareholders.
3.4 Listing of Matrix Group
Subject to JSE approval and fulfilment of the conditions precedent to the
agreement, Matrix Group is expected to be listed on the JSE during September
2007. The key conditions precedent are listed in paragraph 5 below.
3.5 Proposed transaction diagram
3.6 Related parties
There are no related parties.
4. NATURE OF BUSINESS
4.1 CI OmniBridge
CI OmniBridge specialises in the design, development and sale of fleet
management products and services for the commercial vehicle market, primarily in
health and safety and productivity and risk management.
It owns the intellectual property ("IP") for its comprehensive range of vehicle
and fleet management products (the Fleet Manager ("FM") range of products) that
are sold in over 40 countries (on six continents) through a global distribution
network. CI OmniBridge has an installed base of over 300 000 onboard computers
worldwide and over 30 000 current connections on its FM-Web and Datatrak
services. It employs approximately 273 employees worldwide and has offices in
the USA, the United Kingdom, Germany and South Africa.
CI OmniBridge products offer the broadest range of information for full
functionality fleet management including vehicle and driver performance
management, fuel measurement, and tracking and utilisation. It operates globally
with major multi-nationals and large national companies.
4.2 Tripmaster
On 10 March 2006 it was announced that agreement was reached between CI Group
and Richard M. Geib, whereby CI Group has acquired 51% of the shares in
Tripmaster for US$3.5 million.
Tripmaster is based in Dallas Fort Worth, Texas. It is a leading supplier of
high-end onboard computers to the North American trucking market. Tripmaster is
a very well recognised brand in its market segment in North America and
worldwide.
The acquisition provided CI OmniBridge with its own North American distribution
network, an area not focused on by Siemens VDO for the FM range of products.
CI Group will acquire the outstanding 49% of Tripmaster prior to the merger of
the CI fleet management business with Matrix.
4.3 Datatrak
It was announced on 2 May 2007 that agreement has been reached between CI Group
and Siemens VDO Trading ("Siemens VDO"), whereby CI Group will acquire the
distribution rights in respect of FM Europe and the businesses and assets of
Datatrak UK and One-Stop-Shop from Siemens VDO. The agreement is subject to the
finalisation of Reserve Bank approval. It is anticipated that the effective date
will be not later than 30 June 2007.
(i) Datatrak UK is a vehicle tracking, fleet management and vehicle telematics
business based in the United Kingdom. It has its own proprietary communication
network covering the United Kingdom. A large portion of the business` revenue is
derived from an annuity subscriber base.
(ii) FM Europe holds the worldwide distribution rights (excluding the USA and
sub-Saharan Africa) for the FM products that are developed and manufactured by
the Group and for which the Group owns the IP.
CI OmniBridge`s European sales and support (excluding the United Kingdom) will
be managed out of the Group`s office in Donaueschingen, Germany. This office is
responsible for the sale and distribution of the FM products through the Siemens
VDO network and other independent distributors in Europe.
(iii) One-Stop-Shop is a specialised vehicle fitment business focusing on
non-standard solutions for commercial vehicles, including the installation of
fleet management products. It is based in the UK.
4.4 Matrix
Established in 1995, Matrix is one of the "Big 3" vehicle tracking and recovery
services in South Africa and boasts an active subscriber base of over 135 000
all utilising its unique GSM cellular technology. This is the largest GSM
tracking base in the country.
Matrix`s advanced technology gives it a competitive advantage in that it is able
to focus on value-added services beyond just traditional theft recovery. Its
philosophy of "Our customers are people not vehicles" is embodied in features
such as "Crash Alert" and "No-Go-Zones" which are just a few examples of its
Personal Safety focus.
Matrix`s latest release is "Crash Alert" which is a standard feature on its
flagship MX3 product. A sensor in the vehicle automatically detects an impact so
in the event of an accident, the system transmits a distress signal to Matrix`s
National Control Centre where the exact location of the accident is plotted.
Medical Emergency response is immediately deployed to the scene - a potentially
life-saving service.
Matrix`s focus on Personal and Family Safety does not preclude stolen vehicle
recovery and this service remains a core offering of the company. Matrix owns
its own helicopter assets and also operates a network of dedicated ground
response teams throughout South Africa.
5. CONDITIONS PRECEDENT TO THE TRANSACTION
The following are the key conditions precedent to the various transaction steps:
5.1 Receipt of Reserve Bank approval;
5.2 Receipt of approval of the competition authority for the implementation of
the transaction;
5.3 Approval by CI Group shareholders in general meeting of the disposal of the
CI fleet management business and the unbundling of shares;
5.4 Written confirmation by CI Group to Matrix Group that it is satisfied with
the outcome of the due diligence investigation conducted by CI Group; and
5.5 Written confirmation by Matrix Group to CI Group that it is satisfied with
the outcome of the due diligence investigation conducted by Matrix Group.
6. UNAUDITED PRO FORMA FINANCIAL EFFECTS OF THE TRANSACTION
The table below sets out the unaudited pro forma financial effects of the merger
and the unbundling on CI Group`s audited earnings per share ("EPS"), headline
earnings per share ("HEPS"), net asset value ("NAV") per share and tangible net
asset value ("TNAV") per share, based on the audited results of CI Group for the
financial year ended 31 December 2006 and the audited results of Matrix for the
financial year ended 30 June 2006.
The unaudited pro forma financial effects have been disclosed in terms of the
JSE Listings Requirements. They are the responsibility of the directors of
CI Group and have been prepared for illustrative purposes only to provide
information about how the transaction may have affected the financial position
of CI Group shareholders on the relevant reporting date. Due to their nature,
the unaudited pro forma financial effects may not be a fair reflection of
CI Group`s financial position after the implementation of the transactions.
CI Group CI Group CI Group CI Group
Before After After After
transaction acquisition disposal disposal
of Datatrak before after
unbundling unbundling
Cents Cents Cents Cents
(i) (ii) (iii) (iv)
EPS 60.8 74.7 622.0 622.0
HEPS (0.6) 13.2 (20.5) (20.5)
NAV per share 348.7 348.1 887.3 342.1
TNAV per share 68.8 21.2 674.9 129.8
Notes:
(i) Audited consolidated financial results of CI Group as reported for the year
ended 31 December 2006. EPS and HEPS are based on 93 247 420 weighted average
number of shares in issue and NAV and TNAV per share are based on 100 434 208
shares in issue.
(ii) The EPS and HEPS, as set out in the "CI Group after acquisition of
Datatrak" column of the table, are based on the audited income statement of
CI Group for the year ended 31 December 2006 and unaudited income statement of
Datatrak for the year ended 30 September 2006; 93 247 420 weighted average
number of shares in issue; a Rand/GBP exchange rate of 14.2; and the assumptions
that the acquisition became effective at the beginning of the twelve-month
period; the consideration was paid at the beginning of the twelve- month period;
and an interest rate of 12.0% nominal annual compounded quarterly is applicable
on the term loan facilities.
The NAV and TNAV per share, as set out in the "CI Group after acquisition of
Datatrak" column of the table, are based on the audited balance sheet of
CI Group at 31 December 2006 and unaudited balance sheet of Datatrak at
30 September 2006; 100 424 208 shares in issue; a Rand/GBP exchange rate of
14.2;
and the assumptions that the acquisition became effective at the end of the
twelve-month period; and the consideration was paid at the end of the twelve-
month period.
(iii) Unaudited pro forma consolidated financial results of CI Group for the
year ended 31 December 2006 after the disposal of CI OmniBridge, Tripmaster and
Datatrak for the purchase consideration.
The financial impacts on the earnings of CI Group are illustrated as if the
transaction had been implemented at the beginning of the year ended 31 December
2006, while the impacts on the net assets of CI Group are shown as if the
transaction had been implemented on 31 December 2006. The EPS and HEPS are based
on 93 247 420 weighted average number of shares in issue and NAV and TNAV per
share are based on 100 434 208 shares in issue.
(iv) Unaudited pro forma consolidated financial results of CI Group for the year
ended 31 December 2006 after unbundling 95% of its shareholding in Matrix Group.
The financial impacts on the earnings of CI Group are illustrated as if the
transaction had been implemented at the beginning of the year ended 31 December
2006, while the impacts on the net assets of CI Group are shown as if the
transaction had been implemented on 31 December 2006. The EPS and HEPS are based
on 93 247 420 weighted average number of shares in issue and NAV and TNAV per
share are based on 100 434 208 shares in issue.
Assumptions used to calculate the EPS, HEPS, NAV and TNAV in the "CI Group after
disposal, before unbundling" and "CI Group after disposal, after unbundling"
columns:
* CI Group`s 50% shareholding in Matrix Group has been valued at R650 million
and treated as an available-for-sale asset in the balance sheet.
The R650 million is calculated as follows:
(i) Based on historical unaudited management results of the merged businesses
for the twelve months ended 31 March 2007, it is estimated that the new entity
will have revenue of approximately R690 million; EBITDA of R144 million; PBIT of
R122 million; and profit after tax of R87 million. Head office costs and listing
fees of approximately R20 million have been included in the above calculations
and a tax rate of 29% was applied.
(ii) A pe of 15.0 has been used, this is based on a current average pe in the
electronics sector of 15.92.
* 95% of the consideration shares will be unbundled to CI Group shareholders
(although in terms of the agreement CI Group has to unbundle at least 75%, the
intention is to unbundle most or all of the consideration shares).
* CI Group will receive R42 million in cash.
* The net asset value of CI OmniBridge is R55 million.
* The net asset value of Tripmaster is R24 million;
* The net asset value of Datatrak is R71 million.
* The EPS includes CI Group`s effective profit on the transaction.
7. CI GROUP POST THE TRANSACTION
7.1 The remaining businesses in CI Group are focused on designing, manufacturing
and distributing products and services to the global automotive component
market. In order to remain competitive they will continue to focus on
specialised niche markets in the original equipment manufacturing ("OEM") and
aftermarket automotive industry.
(i) Products and components supplied to the automotive OEM industry are designed
and manufactured by the Group.
* The Group`s sales and design facilities are situated close to its customers in
the USA, the United Kingdom, Germany and South Africa.
* All manufacturing is currently undertaken in South Africa at the Group`s
state-of-the-art manufacturing facilities.
* The business of Pi Technology ("Pi"), a leading electronic and design
consultancy which has operations in the United Kingdom, USA and Europe, was
acquired in December 2006.
* The acquisition of Pi has provided a "front end" into the mainstream of the
European and USA OEM automotive industries. Pi has an excellent reputation and
working relationship with a number of the major international OEMs and it is
expected that this will create opportunities for the Group to develop business
relationships with these OEMs.
* The strategy, to be implemented over a period of time, is to convert Pi from a
business that is totally dependent on consultancy services, into the worldwide
sales and development arm for the Group. First orders using this business model
have been won. This strategy, if successful, should result in sustainable export
opportunities for products designed and manufactured by the Group.
(ii) A comprehensive basket of high quality, branded automotive components and
products that are sold and distributed into the sub-Saharan African automotive
aftermarket.
* These products are either manufactured locally or sourced internationally from
the Group`s international partners.
* Well known brand names represented include Gabriel, Siemens VDO, VDO, Warn and
Shurlok. As part of the agreement with Siemens VDO in respect of Datatrak,
CI Group will retain the distribution rights in sub-Saharan Africa for Siemens
VDO`s automotive aftermarket products.
7.2 Post the transaction CI Group will still qualify for listing on the JSE in
accordance with section 4.28 of the JSE Listings Requirements and it is the
directors` intention, subject to JSE approval, to move CI Group`s listing to the
automotive (automobile and parts) sector of the JSE.
7.3 The unaudited revenue of CI Group post the transaction, based on historical
information and results is estimated to be approximately R1 billion per annum.
8.PLACEMENT OF SHARES
The directors are considering the placement of shares to eliminate the current
CI Group debt to allow for the unbundling of all of the shares in Matrix Group
to CI Group shareholders.
9.DIVIDEND
It was stated in the Group`s annual report for the year ended 31 December 2006
that the board of directors had deferred a decision to declare a final dividend
in respect of the year ended 31 December 2006 until the negotiations in respect
of this transaction had been completed.
In light of this transaction, a final dividend in respect of the year ended
31 December 2006 has not been declared.
10. CIRCULAR TO SHAREHOLDERS
The acquisition has been categorised as a category 1 transaction in terms of
section 9.5(b) of the JSE Listings Requirements.
A circular providing further information on the transactions and containing a
notice of general meeting and a form of proxy will be posted to CI Group
shareholders in due course.
11. WITHDRAWAL OF CAUTIONARY
The cautionary announcement is hereby withdrawn and accordingly caution is no
longer required to be exercised by shareholders when dealing in their CI Group
shares.
Cape Town
23 May 2007
Sponsor to CI Group: (INVESTEC BANK)
Legal advisors to CI Group: (JAN S DE VILLIERS)
Corporate and legal advisors to Matrix Group: (JAVA CAPITAL)
Matrix Vehicle Tracking
Date: 23/05/2007 16:09:02 Produced by the JSE SENS Department.
