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JSC
JSC - Jasco Electronics Holdings - Acquisition And Renewal of Cautionary
Announcement
JASCO ELECTRONICS HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration Number 1987/003293/06)
Share code: JSC & ISIN: ZAE000003794
("Jasco" or "the company")
ACQUISITION BY JASCO OF A 34% ECONOMIC INTEREST IN MALESELA TAIHAN ELECTRIC
CABLE (PTY) LIMITED ("M-Tec");
ACQUISITION BY BEE INVESTMENT COMPANY AFROCENTRIC INVESTMENT CORPORATION
LIMITED ("AfroCentric") OF 34.9% OF JASCO; and
RENEWAL OF CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION TO TRANSACTIONS
To ensure the necessary background to the transaction detailed in 2
below, Jasco wishes to outline the following:
1.1 Jasco`s original empowerment transaction
1.1.1 In terms of Jasco`s original empowerment transaction concluded with
Community Investment Holdings (Pty) Limited ("CIH") in March 2003, the
purchase consideration was settled through the issue of both ordinary
and fully-paid redeemable preference shares ("the preference shares").
CIH obtained a 30% shareholding in Jasco through the ordinary shares,
which combined with the preference shares, gave CIH 51% voting control.
During 2004, Inkonkoni Investment Holding Trust ("Inkonkoni"), an
associated entity of CIH, acquired a further interest in Jasco on the
open market, increasing their combined ordinary shareholding to 34.9%
and aggregate voting control to 54.4%.
1.1.2 The preference shares are due to be redeemed after 29 February 2008
and a number of new Jasco ordinary shares, still to be calculated and
based on previously agreed Jasco performance targets for the five-year
period ended 29 February 2008, will be issued after the finalisation of
the Jasco results for the year ended 29 February 2008 (hereinafter
referred to as the "Jasco preference share redemption").
1.1.3 In this regard, readers are referred to the Jasco trading update
published on SENS on 31 March 2008, wherein the increase in the diluted
earnings per share and diluted headline earning per share is expected to
be between 32% and 45% on the corresponding period last year. This
implies that as a result of the Jasco preference share redemption,
between 16,8 million and 17,4 million new Jasco ordinary shares will be
issued to CIH.
1.1.4 To protect the interests of the Jasco minority shareholders on
matters relating to the original empowerment transaction, an independent
group of three individuals was appointed, referred to as the Protectors.
The Protectors comprise experienced businessmen, namely Messrs F Noble,
J Barbarovich and K Hacker, and were appointed to the committee by Mr TB
Rutstein, the previous Chairperson of Jasco.
1.1.5 In terms of the original empowerment transaction, a number of
actions by CIH, the Jasco board and Jasco shareholders may only be
approved with the consent of the Protectors. Certain of the provisions
in the agreements contemplated in this announcement therefore require
the consent of the Protectors, hence the inclusion of paragraph 5.2 as a
condition in this announcement.
2. DETAILS OF THE TRANSACTIONS
2.1 Acquisition by Iningi Investments 180 (Pty) Limited ("Iningi"), a wholly-
owned subsidiary of Jasco, of a 34% economic interest in M-Tec
2.1.1 Jasco shareholders are advised that on 31 March 2008, agreement was
reached between Jasco, Iningi, CIH, Taihan Electric Wire Co. Limited
("Taihan") and Malesela Holdings No 1 (Pty) Ltd ("MH1") a wholly owned
subsidiary of CIH, whereby Iningi, subject to the fulfilment of the
conditions precedent set out in paragraph 5 below and for a total
consideration of R214.1 million, will:
- acquire from MH1, 49% of the ordinary shares in M-Tec as well as an
option to acquire a further 2% of the ordinary shares at a nominal value
of 1 cent per ordinary share (collectively representing an 11% economic
interest), for a total consideration of R99.1 million. The
consideration will be discharged by:
- Iningi procuring the delivery to MH1, of fully paid renounceable
letters of allocation in respect of 27 415 385 Jasco ordinary
shares at an issue price of 325 cents per Jasco ordinary share; and
- R10 million in cash; and
- acquire from MH1 the call option, for no consideration, granted by
Taihan to MH1, to acquire 51.1% of the convertible preference shares in
issue in M-Tec representing a 23% economic interest. Immediately after
the acquisition of 49% of the M-Tec ordinary shares (referred to above)
becomes unconditional, Iningi will exercise the call option and acquire
from Taihan, 51.1% of the M-Tec convertible preference shares for a
total cash consideration of R115 million.
(collectively "the M-Tec acquisition")
2.1.2 Iningi will finance R100 million of the total R125 million cash
consideration through the issue to AfroCentric Investment Corporation
Limited ("AfroCentric") of 40 000 redeemable preference shares at an
issue price of R2 500 per Iningi preference share ("the Iningi
preference share issue"). The balance of R25 million will be funded by
Jasco through a loan to Iningi.
2.1.3 The Iningi preference shares will pay a dividend to AfroCentric
calculated at 80% of the ruling prime interest rate on the issue price
per Iningi preference share and will be redeemable at the discretion of
Jasco after three years, but no later than five years, from the date of
issue. AfroCentric will have the right to put the preference shares to
Jasco in terms of a put option agreement. This put option will be
secured by a pledge and cession of Iningi`s investment in M-Tec.
2.1.4 The current shareholding of M-Tec, in which Jasco will acquire a
34% economic interest comprises:
- 51% ordinary shares held by MH1; and
- 49% ordinary shares and 100% of the 45 0000 convertible preference
shares held by Taihan.
2.1.5 Taihan also holds 100% of R20 million convertible debentures
(comprising 33 431 debentures at a price of R598,25 per debenture) in M-
Tec. These debentures may be converted (at the option of Taihan) to
fully paid ordinary shares after 31 August 2010 or when the company is
listed on any stock exchange. Taihan therefore effectively owns 89% of
the economic interest in M-Tec, with the remaining 11% economic interest
currently held by MH1.
2.1.6 Furthermore, as outlined above, Taihan granted an option to MH1 to
acquire 51.1% of the preference shares in M-Tec, thus allowing MH1 to
increase their economic interest in M-Tec to 34%.
2.1.7 Following the M-Tec acquisition, Taihan will effectively own 66% of
the economic interest in M-Tec and Jasco 34%.
2.2 Acquisition by AfroCentric of 34.9% of the ordinary shares in Jasco
("the AfroCentric investment")
2.2.1 On 31 March 2008, JSE-listed BEE investment company AfroCentric
entered into an agreement with CIH and Inkonkoni (hereinafter
collectively referred to as the "Vendors") as well as with MH1 and
Jasco, whereby AfroCentric will acquire from the Vendors:
- 34.9% of the ordinary shares in Jasco. The AfroCentric investment
will take place after the Jasco preference share redemption
referred to in 1 above, at an issue price of 325 cents per Jasco
ordinary share (ex-dividend for the financial year ended 29
February 2008). The actual number of Jasco ordinary shares to be
acquired by AfroCentric will only be determined after the issue of
the new Jasco ordinary shares to CIH, in terms of the Jasco
preference share redemption. However, in terms of the Jasco
trading update published on SENS on 31 March 2008, the
consideration payable by AfroCentric, prior to the exercise of the
call and put options referred to below, is expected to be between
R98,4 million and R99,0 million and will be settled by the issue to
the Vendors of between 37,8 million and 38,1 million AfroCentric
shares at 260 cents per share; and
- a call option, for no consideration, to acquire the requisite
number of ordinary shares in Jasco from the Vendors to ensure
AfroCentric`s investment in Jasco is maintained at 34.9% after the
M-Tec acquisition. A reciprocal put option on the same terms has
been granted by AfroCentric to the Vendors. The call and put
option price is fixed at the same price as above, namely 325 cents
(ex-dividend) per Jasco ordinary share and 260 cents per
AfroCentric share.
2.2.2 Post the AfroCentric investment, the Jasco preference share
redemption and the M-Tec acquisition, the Vendors will hold an
indirect interest in Jasco through their respective equity
interests in AfroCentric, and in addition CIH will hold a direct
interest in Jasco resulting from the remainder of Jasco ordinary
shares held. The effective percentage of CIH`s direct stake will
only be determined on completion of the Jasco audit for the
financial year ended 29 February 2008. All the original ordinary
shares issued to CIH during 2003, as well as the new Jasco ordinary
shares to be issued in terms of the Jasco preference share
redemption, are subject to the terms of the original empowerment
agreement concluded in May 2003. The sale thereof is therefore
restricted to one twenty fourth of the original and newly issued
ordinary shares per month after 1 March 2008.
3. rationale FOR THE TRANSACTIONS
3.1 The M-Tec acquisition
3.1.1 M-Tec, formerly Union Steel Corporation of SA Limited, is a South
African manufacturer and leading supplier of power cable, fibre optic
cable, aluminium overhead conductors, bare copper wire, strip products
and non-ferrous products.
3.1.2 M-Tec is based in Vereeniging, Gauteng, and employs approximately
450 people. The group is a pioneer in the manufacturing of non-ferrous
products in South Africa. Recently, an ultra-modern fibre optic plant
and a new copper telecommunications plant were commissioned on the
premises, significantly increasing the product range offered by M-Tec.
3.1.3 The group had net assets of R238.5 million, generated a net
turnover of R1.042 billion and profit after tax of R71 million for the
financial year ended 30 June 2007.
3.1.4 Taihan is one of the major cable manufacturing businesses in the
world with operations in Korea, Mongolia and South Africa. Taihan
provides valuable management and technical expertise and assistance to M-
Tec in the form of dedicated personnel with the necessary technical and
management skills that work on a contract basis at M-Tec. Taihan was
instrumental in the erection and commissioning of M-Tec`s new fibre and
copper telecommunications plant.
3.1.5 M-Tec has a spread of customers, with the five major customers
contributing between 50% and 60% of the turnover. For example, M-Tec was
recently awarded a R2.5 billion five-year contract from Eskom to supply
power cables.
3.1.6 The broadening of the product range in the electrical and
electronics fields between M-Tec`s and Jasco`s businesses, will allow
Jasco to strengthen its role as a value adding supply partner as well as
positioning Jasco to take further advantage of the bourgeoning
infrastructure spend in South Africa. Both Jasco and M-Tec will benefit
from the access to common customers.
3.2 The AfroCentric investment in Jasco
3.2.1 AfroCentric is a black-controlled diverse investment holding
company, led by successful South African businessmen Michael
(Motty) Sacks, chairperson of Netcare, Meyer Kahn, chairperson of
SABMiller and Brian Joffe, CEO of the Bidvest Group. The group`s
directors also include Brigalia Bam, chairperson of the Independent
Electoral Commission, Nomhle Canca, CEO of Blue IQ Investment
Holdings, Mandla Gantsho, vice president of the African Development
Bank, and Prof Derrick Swartz, vice-chancellor of the Nelson
Mandela Metropolitan University in Port Elizabeth.
3.2.2 AfroCentric`s strategy is to create shareholder value through
investments in enterprises which, in the first instance, could
materially benefit from its principal BEE status and the entrepreneurial
and intellectual capital residing in the company and, secondly, through
investment in sectoral enterprises that present prospective
opportunities to outperform the markets.
3.2.3 The Board of Jasco is of the opinion that the AfroCentric
investment allows Jasco to continue its strong long term relationship
with CIH, while also allowing access to AfroCentric`s intellectual
capital. It further enhances Jasco`s BEE shareholding and allows the
group to tap into opportunities that could be made available through
AfroCentric`s established networks.
3.2.4 AfroCentric will grant Jasco a pre-emptive right to all
opportunities in Jasco`s current field of operations, namely
Telecommunications, Domestic Products and Security, and also warrants
Jasco`s BEE status.
3.2.5 The current representatives of CIH, Dr Anna Mokgokong and Mr Joe
Madungandaba, will remain on Jasco`s board. A representative of
AfroCentric will also join the Jasco board.
In conclusion, apart from the commercial benefits expected to result
from the M-Tec acquisition, when taken together with the effects of the
Jasco preference share redemption and the AfroCentric investment,
Jasco`s BEE ownership will increase to above 50%. This will therefore
convert Jasco into a black owned entity as opposed to a black controlled
entity. The M-Tec acquisition also meets Jasco`s stated strategic
objective of growing the Jasco group.
4. WARRANTIES
MH1 has given warranties, which are normal for a transaction of this
nature.
5. conditions precedent
The M-Tec acquisition and the AfroCentric investment are subject to the
following conditions:
5.1 the approval of Jasco and AfroCentric shareholders at their respective
general meetings;
5.2 the consent of the Jasco Protectors to the extent required;
5.3 the relevant regulatory approvals to the extent required, including
those from the JSE Limited and the Securities Regulation Panel; and
5.4 the AfroCentric investment and the Ingini preference share issue
becoming unconditional in accordance with its provisions.
6. Financial effects and renewal of cautionary
Jasco shareholders are referred to the cautionary announcement dated 5
November 2007 and its renewal on 10 December 2007, 21 January 2008 and 3
March 2008 and are advised to continue exercising caution when trading
in Jasco shares until a further announcement is made in due course,
setting out the pro forma financial effects on Jasco of the M-Tec
acquisition and Iningi preference share issue, as detailed in this
announcement.
7. Further documentation
Jasco shareholders are advised that in accordance with the JSE Listing
Requirements, a circular to shareholders and revised listing particulars
will be issued in due course containing further details of the proposed
transactions, together with a notice convening a general meeting of
Jasco shareholders.
Johannesburg
3 April 2008
Corporate Advisers and Legal advisers to Jasco
Sponsor to Jasco
PSG Capital Rossouws Attorneys
Legal advisers to CIH / MH1 Corporate Advisers to
CIH / MH1
Rothbart Inc. Sinergi
Date: 03/04/2008 11:30:01 Produced by the JSE SENS Department.
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