| Mon 3 Mar 2008, 15:10 | | ALT - Allied Technologies Limited - Acquisition |
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ALT
ALT
ALT - Allied Technologies Limited - Acquisition
ALLIED TECHNOLOGIES LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1946/020415/06)
Share code: ALT & ISIN: ZAE000015251
("Altech")
ACQUISITION BY ALTECH OF A CONTROLLING SHAREHOLDING IN KENYA DATA NETWORKS
LIMITED ("KDN"), SWIFT GLOBAL (KENYA) LIMITED ("SWIFT") AND INFOCOM LIMITED
("INFOCOM")
1. INTRODUCTION
Shareholders of Altech are referred to Altech`s interim results
announcement published on the Securities Exchange News Service ("SENS") of
the JSE Limited ("JSE") on 26 September 2007 wherein Altech shareholders
were informed that Altech had signed binding heads of agreement documents
with Sameer ICT Limited ("Sameer") in which it was agreed that Altech would
purchase a controlling interest of 51% from Sameer in KDN, Swift and
Infocom (the "acquisitions"). The purpose of this announcement is to
provide additional information on the acquisitions in terms of the JSE
Listings Requirements.
2. RATIONALE AND BENEFITS
Pursuant to Altech`s ongoing process of implementing a strategy to become a
prominent broadband network operator on the African continent, Altech has
already acquired usage rights to world leading technology from Xiocom
Wireless Incorporated (USA) and is in the process of establishing a
greenfields network operation in Rwanda.
The Altech board of directors believes that the acquisitions will inter alia:
- enable Altech to become a leading data network operator and internet
service provider ("ISP") in East and Central Africa;
- provide Altech access to Sameer`s regional expertise and allow Altech and
Sameer to form an alliance, in pursuing further opportunities in these
markets; and
- assist Sameer to foster cooperation in other industries with sister
companies of Altech, such as Powertech Technologies Limited ("Powertech")
and Bytes Technology Group Limited ("Bytes").
3. BUSINESS OF THE TARGET COMPANIES
3.1 KDN
KDN is a full service data communications carrier. It was licensed by the
Communications Commission of Kenya in January 2003 as a Public Data Network
Operator. KDN is a typical infrastructure company with a teleport, 450 WiFi
hotspots, 450 km of city fibre in Nairobi, a 1 000 km main fibre line from
Mombassa to Nairobi and its ongoing extension from Nairobi on to the border
of Uganda and ADSL infrastructure in Nairobi. KDN has laid fibre cables in
Nairobi and other major cities/towns with an aim to establish the first
fibre backbone for Kenya. This is also in readiness for an East African
submarine cable system that would connect Kenya to Europe to peer with
access providers to bulk internet supply and global voice traffic.
The KDN`s portfolio of services includes the following broad categories:
- Metro fibre: ISP`s and voice operators are the main customers in this
segment of the market, where they carry IP services and base station
connections, respectively. The volume demands of carriers can only be met
with fibre infrastructure.
- Trunk backhaul: KDN provides backhaul capacity mainly to voice operators
between cities. This base load reduces capacity risks for its data traffic.
- Gateway: KDN is one of six satellite gateway operators in Kenya, all faced
with extremely high cost of international connectivity combined with
limited bandwidth capacity.
- Metro wireless: KDN operates WiFi hotspots in the city of Nairobi for
shared access and WiMax access for dedicated customers.
KDN offers access to its network at wholesale rates to local ISP`s,
including sister company Swift (which uses a significant portion of KDN`s
capacity) and other ISPs in the region. Beyond Nairobi, KDN operates 54
points of presence ("POP`s") linked to its network via owned microwave and
fibre links. These POP`s serve ISP`s and large direct corporate customers
of KDN.
Plans and actions are also underway to have a presence beyond the borders
of Kenya. KDN has commenced installation of a fibre backbone from Kinshasa
(DRC) in an easterly direction towards Rwanda, which it intends meeting up
with backbone from Kenya through Uganda (via Infocom). Its intentions are
to then migrate in a southerly direction to cover Tanzania, Rwanda,
Burundi, Zambia and Malawi, in the medium term.
3.2 Swift
Swift is essentially an ISP in Kenya, utilising gateway and network
capacity provided by KDN. Its products are aimed mainly at business users
who are pre-billed.
Swift`s offerings include IP-based network and internet solutions and VOIP
services, based on copper cable, fibre optic cable, wireless or Vsat
capacity, depending on the requirements and location of each specific
corporate customer. Value added business services include disaster
recovery, off-site back-up, co-location (or application hosting) and
information security. Residential customers access via WiMax and WiFi
clouds, which cover specific areas of Nairobi and other key Kenyan cities.
Swift consumes a substantial portion of the installed capacity of KDN,
resulting in a close relationship between these two companies. Swift has
recently expanded regionally by starting a similar operation in Dar-es-
Salaam, Tanzania. This operation is aimed at business users and it utilises
cross-border backhaul capacity of KDN and its gateway.
3.3 Infocom
Infocom commenced business in Uganda in 1995 and later became a division of
Celtel (then MSI), which disposed of it in 2006 to Sameer. Infocom`s
management holds 30% in the company and the Sameer group holds 70%, prior
to the transaction with Altech. Infocom has comprehensive agreements with
Celtel with respect to the co-location of equipment in Celtel facilities
(inclusive of teleport, network operations centre and base stations) and
other services provided by Celtel.
Infocom provides ISP and IT services, including the design and
implementation of virtual private networks. Its customers include mainly
business and corporate customers. Infocom offers fixed wireless broadband
Internet access via WiMax access equipment. Trials are currently underway
with VOIP and WiFi. Infocom is the main wireless broadband provider in
Uganda.
Infocom is licensed to offer full communications services, inclusive of
voice, data and video over any medium and technology. In addition, Infocom
is licensed to carry international traffic and to use one 10 MHz channel in
the 3.5GHz spectrum band for providing wireless access via WiMax.
4. THE ACQUISITIONS
4.1 Introduction
Altech signed binding heads of agreement documents with Sameer on 18
September 2007 in which it was agreed that Altech would acquire 51% in KDN,
Swift and Infocom, for cash. Independent valuations of the three target
companies were completed in October 2007 and a term sheet referring to
certain commercial terms of the acquisitions was signed on 17 November
2007.
The parties have now signed comprehensive agreements according to which the
acquisitions will be implemented by the effective date.
4.2 The consideration
Altech will pay a total cash consideration of US $ 75 million which will be
allocated as follows:
- US $ 68 million for the shares in KDN;
- US $ 5 million for the shares in Swift Global; and
- US $ 2 million for the shares in Infocom
Of the total US $ 75 million referred to above, an amount of US $ 10
million will be held in escrow, to be released to the vendors of the shares
concerned, against the achievement of an aggregate combined profit after
taxation ("PAT") of KDN, Swift and Infocom as specified hereafter.
The escrow amount and interest thereon actually payable to the vendors of
the shares will be determined by reference to the combined audited PAT for
KDN, Swift and Infocom which will be achieved for the twelve months ending
31 December 2008. This is projected to be US $ 11.7 million, being an
increase of US $ 7.8 million on the estimated PAT of US $ 3.9 million for
the twelve month period ended 31 December 2007. The escrow amount and
interest thereon will be reduced proportionately to any shortfall in that
increase of US $ 7.8 million.
Altech, Sameer and certain of its associated minority shareholders in the
three companies concerned will also inject into KDN, Swift and Infocom, a
total amount of new capital of US $ 20 million of which 51% will be
provided by Altech and 49% by Sameer and its associates. Of this amount US
$ 2 million will be provided to Swift, US $ 1 million to Infocom and US $
17 million to KDN.
The total Altech cash outflow will accordingly be US $ 85.2 million,
comprising the US $ 75 million for the acquisitions and the US $ 10.2
million cash injection.
4.3 Pro forma financial effects of the acquisitions on Altech shareholders for
the six month period ended 31 August 2007 and for the 12 month period ended
28 February 2007
The tables below illustrate the unaudited pro forma financial effects of
the acquisitions based on the published unaudited and unreviewed interim
results for the six month period ended 31 August 2007; and the unaudited
pro forma financial effects of the acquisitions for the twelve month period
ended 28 February 2007. The preparation of the unaudited pro forma
financial effects is the responsibility of the directors of Altech. The
unaudited pro forma financial effects have been prepared for illustrative
purposes only to provide information on how the acquisitions may have
impacted on Altech`s results and financial position before and after the
acquisitions and due to the nature thereof may not give a fair reflection
of Altech`s results and financial position.
6 months Before the After the Change 3
ended 31 acquisitions 1 acquisitions 2
August 2007
(R) (R) (%)
Headline 2.20 1.99 4, 7 -9.5%
earnings per
share
Earnings per 1.72 1.60 4, 7 -7.0%
share
Net asset 17.76 17.76 5, 8 0%
value per
share
Net tangible 14.40 8.10 5, 8 -43.8%
asset value
per share
12 months Before the After the Change3
ended 28 acquisitions1 acquisitions2
February 2007
(R) (R) (%)
Headline 4.14 3.76 4, -9.2%
earnings per 7
share
Earnings per 4.10 3.90 4, -4.9%
share 7
Net asset 19.25 19.25 5, 0%
value per 8
share
Net tangible 15.52 9.16 5, -41.0%
asset value 8
per share
The combined PAT of KDN, Swift Global and Infocom for the twelve month
period ended 31 December 2006 amounted to US$ 2 028 930. For the six months
ended 30 June 2007, their combined PAT amounted to US$ 1 204 504.
Audited figures for KDN, Swift Global and Infocom for the twelve months
ended 31 December 2007 are expected to be finalised in March 2007.
Management accounts to that date reveal an unaudited figure of US$ 2 610
716.
For illustrative purposes, if the projected PAT of $11.7m for the year
ending 31 December 2008 referred to in paragraph 4.2 above is applied to
the Altech headline earnings per share for the year ended 28 February 2007,
the "After the acquisitions" figure would increase to R4.18 per share (6)
i.e. would represent an decrease of 0.3% on the "Before the acquisitions"
figures.
The forecasted financial information above has not been reviewed or
reported on by Altech`s auditors in accordance with section 8.40(a) of the
JSE Listings Requirements.
Notes:
The financial effects are indicative only and have been based on the
assumptions set out below:
1. The "Before the acquisitions" column for the six months ended 31 August
2007 reflects the published Altech unaudited and unreviewed financial
results for the six months ended 31 August 2007. The "Before the
acquisitions" column for the twelve months ended 28 February 2007 reflects
the published Altech audited financial results for the twelve months ended
28 February 2007.
2. The "After the acquisitions" columns have been adjusted for the effects of
the acquisitions by Altech.
3. The percentage change is calculated on the rounded amounts.
4. For the purposes of calculating headline earnings per share and basic
earnings per share "After the acquisitions" for the six months ended 31
August 2007 and for the twelve months ended 28 February 2007, the unaudited
earnings figures for KDN, Swift Global and Infocom for the six months ended
30 June 2007 and for the twelve months ended 31 December 2006,
respectively, have been included.
4.1 All income statement figures for KDN, Swift Global and Infocom have
been translated at the average daily exchange rate for the period to
which they relate. All balance sheet figures for KDN, Swift Global and
Infocom have been translated at the actual rate on the date of the
balance sheet.
The following exchange rates were used in the above calculations:
Type of exchange rate Date Exchange Rate
KES/ZAR 6 months ended 2007/06/30 0.106
KES/ZAR as at 2007/06/30 0.107
KES/ZAR 12 months ended 2006/12/31 0.095
KES/ZAR as at 2006/12/31 0.102
UGX/ZAR 6 months ended 2007/06/30 0.0042
UGX/ZAR as at 2007/06/30 0.0043
UGX/ZAR 12 months ended 2006/12/31 0.0038
UGX/ZAR as at 2006/12/31 0.0041
ZAR/USD 12 months ended 2007/12/31 7.069
KES/USD 6 months ended 2007/06/30 69.012
KES/USD 12 months ended 2006/12/31 72.618
KES/USD 12 months ended 2007/12/31 67.819
UGX/USD 6 months ended 2007/06/30 1,760.677
UGX/UGX 12 months ended 2006/12/31 1,846.829
UGX/USD 12 months ended 2007/12/31 1,741.235
4.2 Interest foregone on the total cash consideration for the acquisition
has been included in the headline earnings per share and earnings per
share calculations.
4.3 Interest foregone has been calculated at the rate of 10.55% before
tax, being the rate obtained by Altech on its 21 day money market
accounts on 2 February 2008.
4.4 For the calculations, the excess of the purchase price over the net
assets is treated as goodwill and therefore has no effect on the
headline earnings per share or earnings per share figures.
5. For the purposes of calculating the net asset value per share and net
tangible asset value per share "After the acquisitions" at 31 August 2007
and 28 February 2007, figures for KDN, Swift and Infocom have been
consolidated from the respective unaudited 30 June 2007 and 31 December
2006 balance sheets.
5.1 Net tangible assets includes all assets except for intangible assets,
and goodwill.
5.2 The total value of the cash paid upfront by Altech has been deducted
from net assets per share and net tangible assets per share.
6. The forecasted effect on earnings includes Altech`s portion of the full
earnings target set to management and the effect of interest paid on the
full value of the transaction.
7. The weighted average number of issued Altech shares used to calculate the
above earnings per share and headline earnings per share figures are as
follows:
Period Date Weighted Average
Number of Issued
Altech Shares
6 months 2007/08/31 97,763,000
ended
12 months 2007/02/28 97,712,000
ended
8. The actual number of issued Altech shares used to calculate the net assets
per share and net tangible assets per share are as follows:
Date Actual Number of
Issued
AltechShares
2007/08/31 98,034,000
2007/02/28 97,820,000
5. CONDITIONS PRECEDENT
The conditions precedent relating to the acquisitions have been fulfilled.
These include the completion of a satisfactory due diligence investigation
of KDN, Swift and Infocom by Altech, approvals by the board of Altech, the
South African Reserve Bank and by the relevant regulatory authorities in
Kenya and Uganda.
6. EFFECTIVE DATE OF THE ACQUISITIONS
The effective date of the acquisitions will be 1 March 2008.
7. CATEGORISATION
In terms of the JSE Listings Requirements the acquisitions have been
aggregated and are categorised as a category two transaction.
Sandton
3 March 2008
Investment bank and sponsor to Altech
Investec Bank Limited
(Registration number 1969/004763/06)
Independent advisor to Altech
Deloitte Consulting Limited, Nairobi
(Registration number 19 443)
Legal advisor to Altech
HR Levin Attorneys, Notaries & Conveyancers
(Practice number M2841)
Legal advisor to Altech
Anjarwalla & Khanna Advocates, Nairobi
(Registration number 39 203)
Date: 03/03/2008 15:10:12 Produced by the JSE SENS Department.
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employees and agents accept no liability for (or in respect of) any direct,
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