| Mon 26 Nov 2007, 12:43 | | LAB - Labat - Acquisitions By Labat Traffic Soluti |
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LAB
LAB
LAB - Labat - Acquisitions By Labat Traffic Solutions (Proprietary) Limited
And Renewal Of Cautionary
LABAT AFRICA LIMITED
Incorporated in the Republic of South Africa
(Registration number 1986/001616/06)
Share code: LAB & ISIN: ZAE000018354
("Labat" or "the group")
ACQUISITIONS BY LABAT TRAFFIC SOLUTIONS (PROPRIETARY) LIMITED AND RENEWAL OF
CAUTIONARY
1. INTRODUCTION
Further to the announcement dated 1 October 2007, and the transaction which
introduced Mvelaphanda Holdings Limited ("Mvela") as a strategic partner to
Labat Traffic Solutions (Proprietary) Limited ("LTS") (an unlisted
subsidiary of Labat), resulting in an increase in LTS` BEE profile, the
board of Labat intends to continue the process of unlocking shareholder
value through the restructuring of the group. Such restructuring includes
the buy-out of the remaining minorities of an operating subsidiary of LTS,
Total Computer Services (Proprietary) Limited ("TCS"), thus positioning the
restructured and amalgamated LTS for a separate listing on the Alternative
Exchange ("AltX") of JSE Limited ("JSE") under the name `Total Client
Services`. A presentation was made by the directors of LTS to the Listings
Advisory Committee of the JSE on 31 October 2007 and subsequently, the
Listings Advisory Committee has recommended to the Listings Division of the
JSE that LTS be allowed to apply to list on AltX under the name `Total
Client Services`. The proposed listing, scheduled for February 2008, will
provide for the unbundling of the newly listed `Total Client Services` to
Labat shareholders and the delisting of Labat.
2. BACKGROUND TO LTS AND TCS
LTS was established in December 1999, to provide highly sophisticated,
unique technology solutions and proprietary software to local and
provincial government law enforcement departments. These state of the art
systems and technology enable them to maximise revenue and minimise the
risks involved in debt collection.
Since the acquisition by LTS in 2002 of 51% of TCS, LTS has also been able
to offer its clients a fully comprehensive back-office administrative
function and a number of payment methods whereby traffic fines can be
settled via various electronic channels, directly to the issuing authority,
resulting in an end-to-end solution for LTS clients.
LTS intends to become the solutions provider of choice to all local and
provincial government law enforcement agencies following the coming into
force of the Administration Adjudication of Road Traffic Offences ("AARTO")
legislation. It will also pursue other revenue streams, such as traffic
flow management, both within the public and private sectors.
3. TERMS AND CONDITIONS OF THE ACQUISITIONS
3 1 Terms and conditions of the acquisition of TCS shares
In terms of the acquisition agreement, LTS shall acquire 49% of the
ordinary issued shares in TCS from Jacobus Hermanus Taljaard ("Taljaard")
and The Birkholtz Family Trust ("the Birkholtz Family Trust"), hereinafter
collectively referred to as "the vendors". Brian Birkholtz (the founder, a
trustee and a beneficiary of the Birkholtz Family Trust) and Taljaard are
both directors of TCS. In lieu of the payment by LTS to the vendors in
respect of the 49% of the ordinary issued shares in TCS, the vendors shall
collectively subscribe for, and LTS shall issue and allot to them, such
number of shares in LTS as will equate to 23% of the total issued ordinary
share capital in LTS after the issue of such consideration shares.
The acquisition agreement contains standard warranties for an acquisition
of this nature. The effective date of the acquisition agreement is the date
upon which the last of the conditions, being the approval by Labat
shareholders at a general meeting of shareholders to be convened for that
purpose in terms of the Listings Requirements, is fulfilled or waived.
It is a material term of the acquisition agreement that the vendors will
enter into service agreements with LTS on terms and conditions no less
favourable than those contained in their current service agreements for a
period of at least two years from 30 September 2007. The vendors have
entered into such service agreements with LTS.
The parties to the acquisition have agreed that all dividends in respect of
the profits of TCS relating to the year ended 28 February 2007, being an
amount of R6 772 000, and an interim dividend in the amount of R11 228 000
for the year ending 28 February 2008 shall be declared by 1 November 2007.
The parties further agree that the aforesaid dividends shall be paid
(subject to the cash flow requirements of TCS at the time) to the vendors
in proportion to their respective shareholdings in TCS immediately prior to
date of signature of the acquisition agreement.
Any claims which the vendors may have against the business of TCS,
including loan accounts of the vendors in lieu of inter alia declared
dividends, shall be paid to the vendors notwithstanding the proposed
listing of LTS.
Upon implementation of the acquisition agreement, a separate listing will
be sought on the JSE in respect of the restructured and amalgamated LTS
under the name `Total Client Services`.
The shareholders in LTS intend to place a portion of their respective
shares held in LTS upon such listing of the restructured and amalgamated
LTS. Each of the shareholders in LTS will have the right to place a portion
of their respective shareholding in LTS immediately prior to the listing.
In the event that there is a limit on the number of shares being placed,
then Labat may place its shares before any other shareholder in order to
ensure that subsequent to the listing, its shareholding in LTS is 25%, or,
should the intended unbundling not take place, the requisite percentage as
set out in Section 4 of the Listings Requirements will be maintained.
3.2 Procurement by LTS from Labat and Mvela, of the assignment to LTS of their
respective rights in and to management agreements
3.3
In linked agreements, LTS has contracted to procure an assignment of rights
from Labat and Mvela, of their respective rights in and to their management
agreements in exchange for the issue and allotment of 2,4% and 0,6%,
respectively, of the total issued ordinary share capital in LTS after the
issue of such consideration shares to Labat and Mvela. The aforementioned
management agreements comprise the agreements entered into between:
- LTS and Labat dated 1 March 2006, which has a commercial value to both
LTS and Labat in terms whereof Labat derives revenue in the sum of R2
400 000 per annum, exclusive of VAT; and
- LTS and Mvela dated 25 October 2007, which has a commercial value to
both LTS and Mvela in terms whereof Mvela derives revenue in the sum
of R110 000 per month, exclusive of VAT.
3.3 Procurement by Labat, of rights in and to a management agreement from
Tuscan Mood 242 (Proprietary) Limited ("Tuscan"), which rights LTS procures
by assignment from Labat
Labat has contracted to acquire the rights of Tuscan in and to a management
agreement. The management agreement, entered into between LTS and Tuscan
dated 13 July 2004, has a commercial value to both LTS and Tuscan in terms
whereof Tuscan derives revenue in the sum of R3 000 000 per annum,
exclusive of VAT. In consideration for such assignment of the rights of
Tuscan in and to the management agreement, Labat shall issue and allot to
Tuscan, by means of a new issue of shares, 10 739 933 Labat ordinary shares
at a value of 18 cents per ordinary share, equating to 5,45% of the new
total issued share capital of Labat after issuing such shares.
Labat, in turn has contracted to assign the rights acquired in and to the
management agreement to LTS in exchange for the issue and allotment of 3%
of the total issued ordinary share capital in LTS after the issue of such
consideration shares to Labat.
Hereinafter, the acquisition of TCS shares and the procurement by LTS from
Labat and Mvela of their respective rights in and to the Labat and Mvela
management agreements, respectively, and the procurement by Labat, of
rights in and to a management agreement from Tuscan, which rights LTS
procures by assignment from Labat, are referred to collectively as "the
acquisitions".
The rationale for the acquisitions is to further Labat`s stated intention
in respect of the restructuring and amalgamation of LTS and TCS with a view
to applying for a separate listing in respect of the so restructured and
amalgamated LTS under the name `Total Client Services`.
4. PRO FORMA FINANCIAL EFFECTS OF THE ACQUISITIONS
Set out in table 4.1 below are the unaudited pro forma financial effects of
the acquisitions on the audited results of the group for the year ended 28
February 2007 and set out in table 4.2 below are the unaudited pro forma
financial effects of the acquisitions on the audited results of the group
for the year ended 28 February 2007 after taking into effect the pro forma
financial effects of the Mvela transaction*, respectively. The pro forma
financial effects set out in tables 4.1 and 4.2 reflect the impact that the
acquisitions might have had on the earnings per share and the headline
earning per share of Labat had they been effected on 1 March 2006, and the
effect that the acquisitions might have had on the net asset value per
share and net tangible asset value per share had they been effected on
28 February 2007, excluding the Mvela adjustments and including the Mvela
adjustments, respectively. The pro forma financial effects, which are the
responsibility of the directors, are provided for illustrative purposes
only and, because of their pro forma nature, may not fairly present Labat`s
financial position, changes in equity, results of operations or cash flow.
* The acquisition by Mvela of a 49% shareholding in LTS, the subscription
by Mvela for 2 600 preference shares in LTS and the repurchase by LTS of
21,54% of its issued ordinary shares from Mvela, which details are set out
in a circular to Labat shareholders dated 27 September 2007.
4.1 Pro forma financial effects of the acquisitions excluding the Mvela
transaction*
Before the After the Change
acquisitions 1 acquisitions 2
(cents) (cents) (%)
Loss per share (34.83) (24.99) 28
Headline loss per share (20.48) (16.16) 21
Net asset value per share 13.15 19.17 46
Net tangible asset value 9.14 8.72 (5)
per share
Number of shares in issue 186 414 549 197 154 482
throughout the period
4.2 Pro forma financial effects of the acquisitions after the Mvela
transaction*
After the Mvela After the Mvela Change
transaction 3 transaction and
the acquisitions
4 (cents)
(cents)
(%)
Loss per share (36.38) (26.75) 26
Headline loss per (22.04) (17.92) 19
share
Net asset value 4.40 11.75 167
per share
Net tangible 0.06 1.10 1 733
asset value per
share
Number of shares 186 414 549 197 154 482
in issue
throughout the
period
Notes:
1. The "Before the acquisitions" column in table 4.1 has been extracted from
the audited final results of Labat for the year ended 28 February 2007.
2. The "After the acquisitions" column in table 4.1 reflects the financial
effects of the acquisitions on Labat.
3. The "After the Mvela transaction" column in table 4.2 has been extracted
from the pro forma financial effects of the Mvela transaction on the
audited financial results of Labat for the year ended 28 February 2007, the
details of which are set out in a circular to Labat shareholders dated 27
September 2007.
4. The "After the Mvela transaction and the acquisitions" column in table 4.2
reflects the financial effects of the acquisitions on Labat following the
Mvela transaction.
5. The effects on earnings per share and headline earnings per share are
calculated based on the assumption that the acquisitions were effected on 1
March 2006.
6. The effects of net asset value per share and net tangible asset value per
share are calculated based on the assumption that the acquisitions were
effected on 28 February 2007.
5. RELATED PARTY TRANSACTIONS
5.1 TCS related parties
The vendors are also directors of TCS. Consequently, they are related
parties as defined in the Listings Requirements. The vendors have no
shareholding in Labat, and to the extent that they become shareholders, the
vendors and their associates would be precluded from voting on the
acquisition of TCS shares at the general meeting.
5.2 Related parties
In respect of the procurement by LTS, from Mvela, of its rights in and to
the Mvela management agreements, Mvela is a material shareholder of LTS,
and consequently Mvela is a related party as defined in the Listings
Requirements. Mvela has no shareholding in Labat, and to the extent that
Mvela becomes a shareholder, Mvela and its associates would be precluded
from voting at the general meeting on the procurement by LTS, from Mvela,
of the assignment of their rights in and to the management agreements.
5.3 Fairness opinions
In terms of the Listings Requirements, fairness opinions are required in
respect of related party transactions. The fairness opinions in respect of
the above have been prepared by PKF Corporate Finance (Proprietary)
Limited, an independent expert, and the fairness letter in respect thereof
will be set out in a circular to Labat shareholders. In the opinion of the
independent expert, the related party transactions are fair to the
shareholders of Labat.
6. FURTHER DOCUMENTATION AND RENEWAL OF CAUTIONARY
A circular containing full details of the acquisitions and incorporating a
notice of general meeting will be sent to Labat shareholders on or about 28
November 2007. Further to the cautionary announcement dated 1 October 2007,
Labat shareholders are advised that the board of Labat`s intention to
continue the intended strategy of listing the restructured and amalgamated
LTS under the name `Total Client Services` and the unbundling thereof to
shareholders of Labat, and the delisting of Labat, may have a material
effect on the price of the Labat`s securities. Accordingly, shareholders
are advised to exercise caution when dealing in the Labat`s securities
until a further announcement setting out the details of the unbundling and
delisting, is made.
26 November 2007
Sponsor
Merchant Sponsors (Proprietary) Limited
Legal adviser
Routledge Modise Attorneys
Reporting accountants
Greenwoods Chartered Accountants
Auditors and reporting accountants to LTS
PricewaterhouseCoopers Incorporated
Auditors and reporting accountants to TCS
Meintjes, Vermooten & Partners
Independent expert
PKF Corporate Finance (Proprietary) Limited
Date: 26/11/2007 12:43:14 Produced by the JSE SENS Department.
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