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DLG
DLG
DLG - Dialogue Group Holdings Limited - Acquisition by dialogue group of a
controlling interest in continuitysa and reminder of cautionary
announcement
Dialogue Group Holdings Limited
(formerly Africa`s Best 364 Limited)
(Incorporated in the Republic of South Africa)
(Registration number 2005/039219/06)
Share code: DLG ISIN: ZAE000083820
("Dialogue Group")
ACQUISITION BY DIALOGUE GROUP OF A CONTROLLING INTEREST IN CONTINUITYSA AND
REMINDER OF CAUTIONARY ANNOUNCEMENT
1 Introduction
Bridge Capital is authorised to announce that Dialogue Group has entered
into an agreement dated 27 July 2007 to acquire a 51% interest in
ContinuitySA (Pty) Limited ("ContinuitySA") for a maximum amount of R41
million effectively through the subscription for new ordinary shares in
ContinuitySA ("the acquisition").
2 ContinuitySA
ContinuitySA is the largest provider of business continuity and disaster
recovery services in South Africa servicing blue chip clients including
many of the largest financial institutions in the country.
ContinuitySA provides a range of disaster recovery or standby services from
disaster resistant computer and call centres in Midrand, Cape Town and
Gaborone, Botswana. A subscription to such a standby service allows a
subscribing client to recover and operate its critical computer
applications after suffering an extended outage at its production site.
The client can also relocate its staff to the appropriate office recovery,
call centre and treasury dealer areas such that critical staff can continue
working after a disaster has struck. These office recovery areas are
equipped with desks and personal computers networked to the computer suite.
The facility is in turn linked to the outside world via multiple Telkom and
wireless networking infrastructures.
Consultancy in Business Impact Analysis and in writing Business Continuity
Plans is provided by internationally qualified staff. ContinuitySA also
provides Business Continuity training.
ContinuitySA is in the process of rolling out its business model into other
African countries following the success of Botswana where the company has
built a 1500m2 recovery site on the back of a prestigious anchor client.
3 Rationale for the acquisition
ContinuitySA already shares many clients with Dialogue Group and forms part
of the strategy of providing a broader range of outsourced services to
existing clients both locally and internationally. The infrastructure
platforms that ContinuitySA uses are very similar to those used by Dialogue
Group providing co-location opportunities for both businesses. It is
estimated that 80% of all disaster recovery operations in South Africa are
still managed in-house, leaving considerable opportunity for growth in the
outsourcing of these services.
4 Details of the acquisition
4.1 Acquisition consideration
The maximum acquisition consideration is R41 million of which R33 million
will be payable upon the fulfilment of the conditions precedent set out
under 4.2 below with the balance of up to R8 million payable within 7
business days of the finalisation of ContinuitySA`s audited financial
statements for the year ending 31 December 2009 and based on the
achievement by ContinuitySA of certain warranted after-tax profits.
In addition, Dialogue Group will subscribe for new cumulative, redeemable,
convertible preference shares in ContinuitySA in the amount of R7m. The
preference shares will attract a coupon equal to 71% of the prevailing
prime overdraft rate per annum payable six-monthly.
The acquisition consideration and preference share subscription will be
funded out of Dialogue Group`s existing cash resources pursuant to the
placing of Dialogue Group shares mentioned below.
The acquisition represents a Category 3 transaction in terms of the JSE
Listings Requirements.
4.2 Conditions precedent
The acquisition is subject to, inter alia, the fulfilment of the
following conditions precedent:
* Completion of a comprehensive due diligence review of ContinuitySA to
Dialogue Group`s satisfaction;
* Approval of the final terms of the acquisition by the Dialogue Group
board of directors;
* Conclusion of comprehensive transaction and shareholders agreements;
* All statutory and regulatory approvals including but not limited to
the JSE and the Competition Commission;
* Conclusion of appropriate service and restraint agreements with the
senior management members of ContinuitySA;
* Dialogue Group being successful in placing new DLG shares with
selected institutional or BEE shareholders amounting to not less than
R20m.
4.3 Effective date
The effective date of the acquisition will be the first day of the
month following the month in which the last remaining condition
precedent is fulfilled.
4.4 Options
Following implementation of the acquisition, the remaining 49% of
ContinuitySA will be held by its management and staff ("the minority
shareholders"). Appropriate option arrangements have been agreed
which will facilitate Dialogue Group acquiring the remaining 49% of
ContinuitySA in due course. In this regard, the minority shareholders
are entitled to put their remaining shareholding in ContinuitySA to
Dialogue Group at any time after the expiry of the 3rd anniversary of
the effective date. The strike price of the options will be based on
the effective price to earnings multiple used for purposes of the
acquisition.
4.5 Articles of association
Pursuant to the acquisition, ContinuitySA will become a subsidiary of
Dialogue Group. In accordance with paragraph 9.16 of the JSE Listings
Requirements, the articles of association of ContinuitySA will be
amended to conform to Schedule 10 of the JSE Listings Requirements.
5 Pro forma financial effects of the acquisition
Set out in the table below are the unaudited pro forma financial effects of
the acquisition on Dialogue Group`s audited results for the year ended 31
December 2006. The unaudited pro forma financial effects are presented for
illustrative purposes only, to provide information on the impact of the
acquisition. The unaudited pro forma financial effects are the
responsibility of Dialogue Group`s directors. Due to the nature of the
unaudited pro forma financial effects, they may not give a fair
presentation of Dialogue Group`s financial position and the results of its
operations after the acquisition.
Before the After the Percentage
acquisition(1) acquisition change
(%)
Earnings per share 7.7 9.8(2) 27.3
(cents)
Headline earnings per 7.6 9.7(2) 27.8
share (cents)
Net asset value per share 22.9 30.2(3) 32.0
(cents)
Net tangible asset value 22.9 8.2(3) (64.0)
per share (cents)
Notes:
1 Extracted from the published audited results of Dialogue Group for the
year ended 31 December 2006.
2 Earnings and headline earnings per share in the "After the
acquisition" column have been based on the following assumptions:
A The acquisition was effective 1 January 2006;
B Dialogue Group holds 51% of the issued share capital of ContinuitySA,
hence 49% minorities have been taken into account;
C ContinuitySA`s results used in the preparation of the pro forma
financial effects were extracted from the audited annual financial
statements for the year ended 30 June 2006.
D The weighted average number of Dialogue Group shares in issue is 184
877 000 before and 194 877 000 after the acquisition;
E 10 000 000 new Dialogue Group shares were issued on 1 January 2006 at
R2.00 per share;
F Interest foregone on the cash utilised by Dialogue Group to fund the
acquisition at an pre-tax rate of 8% per annum was taken into account;
G Debt facilities of approximately R50 million were settled with effect
1 January 2006 resulting in an after-tax interest saving for
ContinuitySA of approximately R4 225 500; and
H The preference shares coupon at a rate of 9.23% per annum was taken
into account.
3 Net asset value and net tangible asset value per share in the "After
the acquisition" column have been based on the following assumptions:
A The acquisition was effective 31 December 2006;
B The balance sheet of ContinuitySA used in the preparation of the pro
forma financial effects was extracted from the audited annual
financial statements at 30 June 2006;
C 10 000 000 new Dialogue Group shares were issued on 31 December 2006
at R2.00 per share; and
D The total number of Dialogue Group shares in issue is 210 000 000
before and 220 000 000 after the acquisition.
6 Reminder of cautionary announcement
Shareholders are reminded of the cautionary announcement released on SENS
on Friday, 27 July 2007 wherein it was announced that Dialogue Group is
involved in discussions which if successfully concluded could have an
impact on the price at which Dialogue Group shares trade. These
discussions are ongoing. Accordingly, shareholders are advised to continue
to exercise caution when dealing in their Dialogue Group shares until a
further announcement is made.
Johannesburg
02 August 2007
Corporate Advisor and Designated Advisor : Bridge Capital Advisors (Pty)
Limited
Date: 02/08/2007 08:00:01 Produced by the JSE SENS Department.
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