| Thu 2 Aug 2007, 12:05 | | UCS - UCS Group - Announcement regarding the propo |
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UCS
UCS
UCS - UCS Group - Announcement regarding the proposed unbundling and
withdrawal of cautionary announcements
UCS Group Limited
(Incorporated in the Republic of South Africa)
(Registration number 1993/002253/06)
JSE code: UCS
ISIN: ZAE000016150
("UCS" or "the company")
Announcement regarding the proposed unbundling of the shares in Rendalyn
Trading (Proprietary) Limited ("Product Co") by way of a distribution in
specie and withdrawal of cautionary announcements
1 Introduction
Shareholders are referred to the announcement regarding the
establishment, financing and intended unbundling of Product Co released
on SENS on 15 May 2007 and the cautionary announcements released on SENS
on 25 April 2007, 6 June 2007 and 20 July 2007 ("cautionary
announcements") and are advised that the board of directors of UCS ("the
UCS board") has resolved, following the establishment and financing of
Product Co and subject to the fulfilment of the conditions precedent as
set out in paragraph 4 below, to distribute all of the issued shares in
Product Co ("Product Co distribution shares") to UCS shareholders ("the
unbundling").
The unbundling will be effected by way of a distribution in specie ("the
distribution") and a reduction in the share premium account of UCS in
terms of section 90 of the Companies Act, 1973 (Act 61 of 1973), as
amended.
The Product Co distribution shares will be distributed in the ratio of
one Product Co share for every holding of ten UCS shares held by a
shareholder recorded in the register at the close of business on Friday,
21 September 2007 ("the record date").
2 Background to and rationale for the unbundling
UCS is an investment holding company for a group of information
technology companies ("the Group") focused on the provision of software,
solutions and outsourcing services in chosen markets. UCS has shown
significant growth since its listing and has achieved a market leadership
position in the provision of software as well as solutions and services
in the retail sector in South Africa.
Having achieved this position in South Africa, the Group is looking to
expand internationally through a number of defined initiatives, one of
which is the establishment of Product Co.
The establishment and unbundling of Product Co will enable UCS to:
- establish a separate and independent software product business with
its primary focus being to create a leading brand and product suite
for selected verticals in the global retail industry, to be sold
through a global channel of appropriately selected and trained
dealers;
- allow Product Co to exclusively focus on the development of the
acquired Active Retail and Dolfin product suite and associated
intellectual property ("IP") and in so doing enable such products to
reach their true global potential;
- allow Product Co to have an independent channel to market and
operate free from the inherent limitations currently imposed by
virtue of the Group exercising control over the IP and the Group
thereby being seen as a competitor (or potential competitor) to the
envisaged distribution channels of Product Co; create an arm`s
length partner who will enter into an outsourced product development
contract with UCS Software Manufacturing (Pty) Ltd ("UCSSM") to
maintain and enhance the Product Co IP and the products for the
global market; and
- create additional value to UCS shareholders through revenue earned
by UCSSM on the outsourced product development contract as well as a
royalty entitlement on license revenues earned by Product Co in
respect of the Active Retail and Dolfin product suite ("the
products").
3 The unbundling
Based on the current number of UCS shares in issue (281,641,304) and the
enterprise value of Product Co at the time of unbundling (R 163 672 000)
the value of Product Co:
per UCS share equates to R0.58 (fifty eight cents); or
per Product Co share R5.81 (five rand and eighty one cents).
The R 163 672 000 enterprise value consists of the Active Retail and
Dolfin product suites and associated IP acquired from UCS Software
(Proprietary) Limited ("UCS Software") and UCSSM for R 113 672 000 and a
loan receivable from UCS of R 50 000 000 to fund initial working capital
requirements. This loan receivable arises as a result of Product Co
reinvesting the cash raised from UCS through a share subscription
agreement prior to the unbundling.
UCS has also entered into a loan facility agreement with Product Co to
provide a further
R 50 000 000 for working capital funding which Product Co is entitled to
access after the first R 50 000 000 (the loan receivable tabled above)
has been utilised but prior to the third anniversary date of the
distribution, on which date this facility will cease to be available.
Loan funding that is specifically accessed by Product Co on this basis
will be repayable within three years from the end of the loan facility
availability period, i.e. within six years from the date of the
distribution and will be secured by a cession over the annuity revenue
streams created by Product Co for the duration that there is a loan
amount outstanding. The funds available under the facility shall reduce
to the extent that Product Co raises working capital funding elsewhere.
It is not the intention to list Product Co on the JSE Limited ("JSE") on
the unbundling. Product Co is forecast to realise losses for the first
two years after its establishment and unbundling out of the Group. Post
implementation of the distribution, it is therefore unlikely that Product
Co will be listed in the short to medium term however such decision will
reside with the board of Product Co.
BJM Corporate Finance (Proprietary) Limited will conduct a book building
exercise on behalf of Product Co on the distribution of the Product Co
shares ("the book building exercise"). The book building exercise will
undertake to identify potential sellers of Product Co shares and match
them with identified buyers. Details of the book building exercise will
be contained in the circular to shareholders to be issued on or about 27
August 2007 ("the unbundling circular").
To the extent that the supply of Product Co shares that becomes available
through the book building exercise does not meet the demand for such
shares, Product Co would be prepared to offer a further 7 500 000 shares
(constituting a maximum of 21.03% of the issued share capital) at a price
of between R6.40 and R6.95 per share.
Subsequent to the unbundling and the book building exercise, those
shareholders that hold their script in Product Co will be placed on a
platform as from 1 November 2007 which will enable them to continue to
trade on an "over the counter" basis.
4 Conditions precedent
The implementation of the unbundling is subject to the fulfillment of the
following conditions precedent:
- in terms of Section 5.85 of the JSE Listings Requirements the
unbundling is deemed a specific payment and accordingly the
requisite approval by UCS shareholders is sought for the unbundling
by way of the distribution, in general meeting;
- the approval of the unbundling by the necessary regulatory
authorities;
- the approval and processing of the application made as per paragraph
7 below to convert Rendalyn Trading (Proprietary) Limited to a
public company; and
- the implementation of the relevant agreements to give effect to the
assignment of the products and associated IP, the financing of
Product Co and subsequent unbundling.
5 Product Co
Product Co is a pure software product business with its primary focus
being to create a leading brand and product suite for selected verticals
in the global retail industry, to be sold through a global "channel" of
appropriately selected and trained dealers.
The management team that has been assembled to execute the Product Co
strategy comprises a suitable blend of local management who have the
knowledge and expertise of the product sets and associated IP being
assigned to Product Co. This is complimented by strong international
(United Kingdom based) management who too have extensive retail software
and industry expertise and a well established network. Lester Aderem,
previously a senior executive of the UCS Software business and
responsible for the package software and the southern region has been
appointed managing director of Product Co.
The international management currently comprise Ian Bowater, who has been
appointed as Product Co`s non-executive chairman (founder, entrepreneur
and chief executive of Compass Software PLC which was listed on AIM in
2000 and subsequently acquired by Alphameric PLC in 2003) and Andrew
Blatherwick, who has been appointed as executive director -
business development (previously managing director for JDA Europe Middle
East Africa region).
Through an outsourced product development agreement with UCSSM, Product
Co is able to leverage the unique capabilities of the internationally
certified specialist retail software manufacturing unit as well as the
experience and expertise of its CEO, Neels van Tonder, and his team of
professional retail software engineers. This will ensure that Product Co
is able to concentrate on its primary focus of creating a leading retail
software brand and a strong international channel to market.
6 UCS post unbundling
This unbundling represents the sale by UCS of the Active Retail and
Dolfin product suites and the associated IP together with the creation of
a material outsourced product development customer for UCSSM. Based on
the interim results for the six months ended 31 March 2007 these product
suites and the associated IP accounted for R7.2-million of the Group`s
reported revenue of R 510.5-million and therefore based on current
activity represents an immaterial portion of the Group`s overall domestic
revenue generating potential.
The Group retains` its extensive retail domain application components and
associated IP within UCSSM as well as the other retail application
product sets currently owned by the various companies within the Software
division. The Solutions and Services division continues unaffected by
the unbundling.
7 Rendalyn Trading (Proprietary) Limited
UCS has acquired a shelf company, Rendalyn Trading (Proprietary) Limited
("Rendalyn Trading"), for purposes of the unbundling. Application has
been made to the Companies and Intellectual Property Registration Office
for the conversion of Rendalyn from a private company to a public company
to facilitate the unbundling.
8 Financial effects of the unbundling on UCS shareholders
The table below sets out the pro forma financial effects of the
unbundling on a UCS shareholder in respect of their UCS shares for the
six months ended 31 March 2007.
The pro forma financial information has been prepared to illustrate the
impact of the unbundling on the reported financial information of UCS for
the six months ended 31 March 2007, had the unbundling occurred on 1
October 2006 for income statement purposes and on 31 March 2007 for
balance sheet purposes.
The pro forma financial information is the responsibility of the
directors and has been prepared for illustrative purposes only and
because of its nature may not give a true picture of UCS` financial
position after the unbundling.
1
Before the After the Percentage
Per UCS share (cents) unbundling(1) unbundling(3) change
Basic earnings(2) 17.1 43.8 156.1
Headline earnings(2) 14.5 14.8 2.1
Net asset value 159.3 122.1 (23.4)
Tangible net asset 42.9 21.5 (49.9)
value
Notes:
1 Based on the published reviewed interim results for the six months ended
31 March 2007.
2 Basic earnings per share and headline earnings per share are based on
248,112-million shares, being the weighted average number of shares in
issue during the six months ended 31 March 2007.
3 Included in the "after the unbundling" earnings and headlines earnings
are the following adjustments and related assumptions:
a six months contribution to revenue relating to the outsourced
product development contract between Product Co and UCSSM which
equates to R10-million (annual contract revenue is R 20-million);
b The reversal of the development costs capitalised related to the
products sold and the resultant net expense thereof (i.e. offset by
the development costs written of during the period) which amounted
to R 4.7 million;
C The inclusion of an outsourced finance, administration and treasury
fee of R 1.25-million for the period under review (R 2.5-million
rand annually);
d The inclusion of cost of sales related to the license fees now
payable to Product Co which amounted to R 3.6 million for the period
under review (i.e. 50% of the end user license fee on the products
that would be payable);
e The realisation of the applicable profit on sale of the products and
associated IP which amounted to R74.8 million pre tax and
transaction costs;
f The inclusion of the interest expense related to the R50 million
loan payable to Product Co which amounts to R 2.3 million (based on
an agreed variable interest rate which is currently 9%) for the
period under review;
g The net tax effect of the preceding adjustments totals R 9.7 million
of which the once off component specific to the profit on sale and
subsequent unbundling amounts to R 9.3 million. This includes the
realisation of estimated tax losses in the Group which amounted to
R58.7-million. Both UCS Software and UCSSM will now as a consequence
be in a fully taxable position moving forward; and
h The assumption that R155 million of the R163.7 million distribution
value will be sheltered by the company`s share premium for Secondary
Tax on Companies purposes.
4 The net asset value per share and tangible net asset value per share were
not adjusted for any costs relating to the unbundling and are based on
the unbundling having been effected on 31 March 2007.
9 Opinions and recommendations
The Corporate Finance division of KPMG Services (Proprietary) Limited has
been appointed by the UCS board to prepare the indicative valuation of
the products and associated IP being sold by the Group to Product Co and
to express an opinion on the fairness and reasonableness of this value.
Their opinion will be included in the unbundling circular.
The UCS board has considered the terms and conditions of the unbundling
and is of the opinion that the unbundling will be advantageous to UCS
shareholders.
Accordingly UCS board members who hold shares in UCS intend to vote in
favour, in respect of the UCS shares held by them, of the resolutions
necessary to implement the unbundling and the UCS Board recommend that
UCS shareholders also vote in favour of such resolutions.
10 Salient dates and times
The salient dates and times of the unbundling are as follows:
2007
Last day for lodging of forms of proxy for the Monday, 10 September
general meeting by 09h30 on
General meeting of UCS shareholders at 09h30 on Wednesday, 12 September
Results of the general meeting announced on SENS Wednesday, 12 September
on
Results of the general meeting published in the Thursday, 13 September
press on
Last day to trade in UCS shares on the JSE to
participate in the unbundling on Friday, 14 September
UCS shares trade "ex" the entitlement to the
Product Co distribution shares on Monday, 17 September
Record date to participate in the unbundling on Friday, 21 September
Unbundling date on Tuesday, 25 September
Product Co share certificates will be posted, by
registered post, at the risk of the certificated Tuesday, 25 September
shareholders concerned
Notes:
1 Any changes to the above dates and times will be announced on SENS and
published in the press.
2 All times given in this circular are local times in South Africa.
3 UCS share certificates may not be dematerialised or rematerialised
between Monday, 17 September 2007 and Friday, 21 September 2007 both days
inclusive.
4 Product Co shareholders will receive share certificates as Product Co
will not be listed on the JSE or any other stock exchange.
11 General meeting
A general meeting of UCS shareholders will be held at 09h30 on Wednesday,
12 September 2007 at 20th Floor, 209 Smit Street, Braamfontein,
Johannesburg, in order to consider and, if deemed fit, pass, with or
without modification, the ordinary resolutions required to implement the
unbundling.
12 Circular to shareholders
The unbundling circular, setting out full details of the unbundling and
including the notice convening the general meeting, will be posted to UCS
shareholders on or about Monday, 27 August 2007.
13 Withdrawal of cautionary announcements
Shareholders are advised that the cautionary announcements are hereby
withdrawn and shareholders no longer need to exercise caution when
dealing in their securities.
Johannesburg
2 August 2007
Conference Call with Management
UCS Management are hosting a conference call to discuss Product Co at
15.00 on August 2007 (SA time). The dial in number is +27 (0)11 535 3600.
Ask to join the UCS call.
Enquiries
UCS Group +27 (0) 11 712 1449
John Bright, CEO +27 (0) 82 900 4793
Dean Sparrow, CFO +27 (0) 83 494 6803
College Hill +27 (0) 11 447 3030
Johannes van Niekerk +27 (0) 82 921 9110
Fred Cornet +27 (0) 83 307 8286
Corporate advisors Joint Legal Reporting accountants
and Sponsor advisors and tax advisors
Barnard Jacobs Jowell Glyn Marais Deloitte & Touche
Mellet Corporate Edward Nathan Registered Auditors
Finance (Pty) Sonnenbergs
Limited
Communication Independent
Advisors professional expert
College Hill KPMG Services (Pty)
Limited
Date: 02/08/2007 12:05:01 Produced by the JSE SENS Department.
