| Tue 1 Jul 2008, 8:50 | | CVN - Convergenet Holdings Limited - Acquisition of additional interest in Sizwe |
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CVN
CVN
CVN - Convergenet Holdings Limited - Acquisition of additional interest in Sizwe
Africa IT Group (proprietary) Limited ("SIZWE AFRICA IT")
CONVERGENET HOLDINGS LIMITED
(Formerly Vestor Investments Limited)
(Incorporated in the Republic of South Africa)
(Registration number 1998/015580/06)
Share code: CVN ISIN: ZAE000102067
("ConvergeNet" or "the Company")
ACQUISITION OF ADDITIONAL INTEREST IN SIZWE AFRICA IT GROUP (PROPRIETARY)
LIMITED ("SIZWE AFRICA IT")
Introduction
Shareholders are advised that ConvergeNet has negotiated the conclusion of
an agreement dated 13 June 2008 in terms of which ConvergeNet will acquire
an additional 5.2% in Sizwe Africa IT through the issue of new shares by Sizwe
Africa IT. Sizwe Africa IT will in turn utilise the proceeds from such issue
to acquire the 30% minority equity interest in Sizwe Infrastructure Technology
(Pty) Limited ("Sizwe Infrastructure") held by Riaan Schaap and Willem de Klerk
("the vendors"). The vendors are a related party to ConvergeNet as they are
directors of Sizwe Infrastructure. Sizwe Africa IT will then hold 100% of Sizwe
Infrastructure.
Background to Sizwe Africa IT and Sizwe Infrastructure
Sizwe is the ICT services and solutions provider of choice to a wide variety
of private and public organisations. The company has been awarded several
South African Government term supply contracts. Comprehensive infrastructure
services are provided, which includes project management, hardware maintenance
and Installations, Moves, Adds and Changes (IMAC`s). Sizwe also supplies a
number of value added ICT products and solutions to the local market. Sizwe
employs in excess of 550 people and has a country-wide service and support
capability.
Sizwe Infrastructure conducts the cabling business of the group and is the
largest subsidiary within the Sizwe group of companies.
Terms of the acquisitions
Acquisition of 30% of Sizwe Infrastructure
The acquisition agreement was entered into by ConvergeNet on 13 June 2008, in
terms of which ConvergeNet will acquire the vendors` 30% shareholding in Sizwe
Infrastructure for an acquisition price of R26 million, to be settled by the
transfer of 11 111 111 ordinary shares in ConvergeNet at 108 cents per share
and R14 million in cash (raised through a vendor placing), R2 million of which
will be deferred for 3 years subject to the continued employment of the Sizwe
Infrastructure vendors for a minimum period of 3 years
Acquisition of 5.2% of Sizwe Africa IT
The above acquisition will be effected by ConvergeNet acquiring an additional
5.2% in Sizwe Africa IT through the issue of new shares in Sizwe Africa IT for
a purchase consideration of R26 million, which will be settled through the issue
of approximately 22 222 222 ConvergeNet shares at 108c per share as well as a
cash payment of R2 million. Sizwe Africa IT will simultaneously acquire the 30%
equity interest in Sizwe Infrastructure held by the vendors for a purchase
consideration of R26 million, settled by the transfer of 11 111 111 million
ConvergeNet shares at 108c per share and the payment of R14 million in cash
(raised through the vendor placing of the remaining 11 111 111 ConvergeNet
shares).
Following the implementation of the transaction, ConvergeNet will hold a 56.2%
equity interest in Sizwe Africa IT, which in turn will hold a 100% equity
interest in Sizwe Infrastructure.
The Acquisition is subject to the normal terms and warranties usual for a
transaction of the nature contemplated. Goodwill and other intangibles
amounting to R14 785 208 will arise on the Acquisition and will be allocated
between goodwill and other intangibles at the next reporting period of
ConvergeNet.
Pro form financial effects of the acquisition
The table below summarises the pro forma financial effects of the additional
investment in Sizwe Africa IT and the acquisition of the 30% minority interest
in Sizwe Infrastructure by Sizwe Africa IT. The financial effects are the
responsibility of the directors and have been prepared for illustrative purposes
only, to provide the possible financial effects on the additional Sizwe
investment as if the investment had taken place from 01 September 2007 for the
period of 6 months until 29 February 2008. The pro forma financial effects,
because of its nature, may not give a true reflection of the financial position,
the cash flow position, the results of operations or the changes in equity of
ConvergeNet.
Before After % Change
Weighted average shares in 667 857 690 079 851 3.3%
issue (`000) 629
Earnings per share 2.80 3.24 15.5%
ordinary share (cents)
Headline earnings per 2.80 3.24 15.5%
ordinary share (cents)
Shares in issue at period 695 971 718 193 261 3.2%
end (`000) 039
Net asset value per share 31.92 34.78 9.0%
(cents)
Net tangible asset value 7.44 9.00 20.9%
per share (cents)
Assumptions:
i) The earnings and headline earnings per ConvergeNet share, as set out in
the "Before" column of the table, are based on the unaudited interim
financial results of ConvergeNet for the six months ended 29 February 2008
and 667 857 629 weighted average shares in issue.
ii) The "After" column shows the earnings and headline earnings in i) above,
adjusted for the acquisition of the 30% minority interests in Sizwe
Infrastructure and 690 079 851 weighted average number of ConvergeNet shares in
issue and the assumptions that:
- the additional investment of 5.2% in Sizwe Africa IT was effective from 1
September 2007;
- the acquisition of the additional 30% from minorities in Sizwe
Infrastructure was effective from 1 September 2007;
- the purchase price of R26 000 000 was settled on 1 September 2007 through
the issue of 11 111 111 new ConvergeNet shares at 108 cents to Sizwe
Infrastructure vendors and the issue of 11 111 111 new ConvergeNet shares at 108
cents per share for cash;
- there were no additional costs incurred relating to the additional
investment in Sizwe Africa IT;
- there was no amortisation of any intangible assets arising from the
acquisitions; and
- there was no impairment of any goodwill arising from the acquisitions
iii) The net asset value and tangible net asset value per ConvergeNet share, as
set out in the "Before" column of the table, are based upon the unaudited
Balance Sheet of ConvergeNet at 29 February 2008 and 695 971 039 shares in
issue.
iv) The "After" column shows the net asset value and tangible net asset value
in iii) above, adjusted for the effects of the additional investment in Sizwe
Africa IT and the acquisition of the minority shareholding in Sizwe
Infrastructure by Sizwe Africa IT, and 718 193 261 ConvergeNet shares in issue
and the assumptions that:
- the additional investment in Sizwe Africa IT and the acquisition of the
minority shareholding in Sizwe Infrastructure was effective 1 September 2007;
- the 22 222 222 shares were issued at 108 cents on 1 September 2007; and
- the purchase price was settled on 1 September 2007.
Rationale
The acquisition of an increased shareholding in both Sizwe Africa IT and Sizwe
Infrastructure is in line with the Group`s stated strategy of increasing its
shareholding in underlying subsidiaries following the initial acquisition.
ConvergeNet intends delivering turnkey project solutions, ancillary support and
managed services to the Middle Eastern, African and southern African markets.
The acquisition of an additional interest in Sizwe Africa IT and Sizwe
Infrastructure is in line with the Group`s strategy to position itself as a
significant ICT industry player.
Fairness opinion
The acquisition is defined as a small related party transaction in terms of the
JSE Listings Requirements and accordingly a fairness opinion on the transaction
is required. The company has appointed Moore Stephens Corporate Finance
(Proprietary) Limited to act as a professional expert for this opinion, which
opinion will lie for inspection at the company`s registered office from 24 June
2008.
Johannesburg
30 June 2008
Sponsors
Arcay Moela Sponsors (Proprietary) Limited
Reg No 2006/033725/07
Date: 01/07/2008 08:50:01 Produced by the JSE SENS Department.
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