| Tue 7 Jul 2009, 14:59 | | JSC - Jasco - Acquisition By Jasco of an initial 30% equity interest and call |
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JSC - Jasco - Acquisition By Jasco of an initial 30% equity interest and call
option to acquire an additional 20% plus one share, in Maringo Communications
(Pty) Limited
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 AN INITIAL 30% EQUITY INTEREST AND CALL OPTION TO
ACQUIRE AN ADDITIONAL 20% PLUS ONE SHARE, IN THE SHARE CAPITAL OF MARINGO
COMMUNICATIONS (PROPRIETARY) LIMITED ("Maringo")
1. THE TRANSACTION
1.1 Jasco shareholders are hereby advised that on 2 July 2009, unconditional
agreement was reached between Jasco and the current shareholders of Maringo,
comprising the four founding shareholders and two minority shareholders
(collectively the "Vendors"), whereby Jasco will:
1.1.1 initially, subscribe for 199 new ordinary shares with a par value of
100 cents per share, in the ordinary share capital of Maringo and
simultaneously acquire a further 2 ordinary shares with a par value of 100
cents per share, from two minority shareholders, collectively totalling 201
ordinary shares and representing a 30% equity interest in Maringo, for a cash
consideration of R4 million (the "Initial Acquisition"));
1.1.2 Acquire 120 shares with a par value of 100 cents per share,
representing 30% of the issued share capital of Maringo Software Solutions
(Pty) Ltd ("Software Solutions") for a cash consideration of R120 from the
four founding shareholders of Maringo (the "Software Solutions Acquisition");
and
1.1.3 be granted an irrevocable call option by the Vendors (the "Call
Option"), requiring Jasco to purchase an additional 20% plus one share in the
share capital of Maringo (the "Option Shares"), in the event that certain pre-
determined performance criteria are achieved by Maringo over the next 24
months ending 30 June 2011 (the "Option Period"). Upon the exercise of the
Call Option Jasco will hold 50% plus one share in the share capital of
Maringo.
1.2 The Initial Acquisition, the Software Solutions Acquisition and the Call
Option are collectively referred to in this announcement as the "Transaction".
1.3 The total purchase consideration in respect of the Transaction will be
determined based on the financial performance of Maringo, as detailed in
paragraph 4 below. The effective date of the Transaction is 1 July 2009,
subject to the last of the suspensive conditions having been fulfilled
1.4 In addition to settling the total purchase consideration as detailed in
paragraph 4 below, Jasco has entered into a loan agreement with Maringo, dated
2 July 2009, in terms of which Jasco will provide Maringo with a loan facility
to the amount of R4 million ("the Business Loan") for purposes of financing
the operational costs incurred by Maringo with regard to the development of
certain business projects undertaken during the Option Period. The Loan will
bear interest at the publicly quoted annual prime rate and is repayable in
equal monthly instalments over a period not exceeding 12 months after the end
of the Option Period.
1.5 To the extent required, Jasco has also undertaken to assist Maringo in
providing performance guarantees for the services to be provided by Maringo to
its sole supplier, subject to such guarantees to be provided by Jasco being
limited to a maximum amount of R5 million.
2. Background to Maringo And Software Solutions
2.1 Maringo was established in April 2008 and commenced business on 1 July
2008. Maringo specialises in providing converged information and
communication, technology services such as Access Solutions, Managed Network
Services, Managed Hosted Services and Converged Applications. Its current
management consists of four experienced team members, full time employed and
shareholders, all of whom previously held senior positions at Nokia Siemens
Networks South Africa. In addition to the four founding shareholders, Maringo
has two minority shareholders who in total hold a 15.1% interest (the
"Minority Shareholders").
2.2 Maringo incurred a loss after tax of R2,14m for the 9 months ended 31
March 2009 and further losses are expected to be incurred in the short term
whilst establishing the Maringo business. Thereafter Maringo is expected to
become profitable, and hence Jasco has been granted the Call Option to acquire
the further 20% plus one share equity interest in Maringo, which is predicated
on Maringo achieving certain pre-determined profit targets (as described in
paragraph 4 below). The investment made by Jasco in terms of the Subordinated
and Business loans will allow Maringo to increase its sales and marketing arm
to secure the implementation of the Maringo footprint in the market.
2.3 Maringo`s management team has extensive experience in the Information and
Communications Technology ("ICT") industry which has enabled Maringo to be
recently appointed as one out of five enhanced channel partners of Vodacom
Business (part of Vodacom Group Limited). Maringo will take Vodacom
Business`s products and services (as mentioned above) to market. Maringo also
provides turnkey Information Technology ("IT") services and solutions to
compliment the Vodacom Business offering. Furthermore, with the advent of the
increased requirement for compliant storage of business data, Maringo brings
to market its Compliant Archiving Solution to address regulatory requirements
in this growth market. This involvement will enable Maringo to establish
itself as a one-stop provider of information and communication technologies in
the fast evolving converged space.
2.4 Software Solutions is a non-trading entity whose sole purpose is to own
the software licence rights pertaining to specific software used in the
Compliant Archiving Solution service offering.
3. Rationale for the Transaction
3.1 Jasco strongly believe that the Transaction will afford the Jasco group
the opportunity to acquire a controlling share in a converged information and
communication technology business at an attractive value. The Transaction
meets Jasco`s stated strategic objective of growing and diversifying the Jasco
group into complementary growth areas. Furthermore, the Transaction will
ensure that products, applications and value add services in both the build
and deliver side of Jasco`s identified strategic value chain are filled,
without having to become a network operator.
3.2 The Transaction constitutes an acquisition of a familiar business which
will allow for the utilisation of existing Jasco products and services, such
as security and telecommunication services. Electronic security solutions is
one of the value add products proposed by Maringo in the converged product
offering to gated communities and industrial parks. Jasco is currently
working with Maringo on developments to offer an integrated solution in this
regard. Through Maringo, Jasco will also explore cross selling opportunities
of its existing product portfolio.
3.3 The business carried out by Maringo will also fit into and assist the
execution of two of Jasco`s divisional strategies namely growth in Africa and
inter-divisional supply. In terms of inter-divisional supply Jasco can make
use of the value added service offered by Maringo for its own
telecommunication and IT services and a cost saving of up to 20% is estimated
in this regard.
3.4 The rationale for the Transaction from a Maringo perspective is the
gaining of access to capital, improvement of its BEE credentials, the
existence of synergies with Jasco`s security and telecommunications divisions
for both its product and client base and access to the client base in the
AfroCentric and CIH groups for Maringo`s product offerings.
4. Purchase consideration
The total purchase consideration will range between a minimum of R4million
(assuming that only the initial equity interest is acquired) and a maximum of
R34 million, which will be determined and discharged as follows:
4.1 Initial acquisition of 30% equity interest
Jasco will settle the consideration of R4 million in respect of the Initial
Acquisition of a 30% equity interest in Maringo in cash, of which R1 million
(the "Minority Interest Consideration") will be used to acquire the shares in
Maringo held by the Minority Shareholders and the balance of R3 million will
be treated as a subordinated shareholders loan (the "Subordinated Loan").
4.2 Acquisition of 20% plus one share interest
4.2.1 If the actual annualised average profit after tax achieved by
Maringo during the last four months of the Option Period ("PAT") is less than
R7 200 000 per annum (the "Minimum Profit Target"), Jasco will have the
discretion on whether to exercise the Call Option to purchase the Option
Shares for an additional cash consideration of R20 million, or not to purchase
any further shares in Maringo;
4.2.2 If PAT is between the Minimum Profit Target and R10 434 783
(the "Mid Profit Target"), Jasco will be required to purchase the Option
Shares for an additional cash consideration of R20 million;
4.2.3 If PAT is between the Mid Profit Target and R12 340 426 (the
"Maximum Profit Target"), Jasco will be required to purchase the Option
Shares for an additional cash consideration to be calculated as 50% of PAT
multiplied by a price:earnings ratio of 4.6, less the R4 million paid for the
Initial Acquisition. This additional payment is limited to a maximum of R25
million;
4.2.4 If PAT is between the Maximum Profit Target and R13 600 000
(the "Maximum Stretch Profit Target"), Jasco will be required to purchase the
Option Shares for an additional cash consideration to be calculated as 50% of
PAT multiplied by a price:earnings ratio of 4.7, less the R4 million paid for
the Initial Acquisition. This additional payment is limited to a maximum of
R30 million; and
4.2.5 Should the purchase consideration as calculated in each case
above, prove to be in excess of R20 million, such excess amount will be paid
into an escrow account for a period commencing on the date on which the sale
pursuant to the Call Option becomes effective, being 20 business days after
Jasco has exercised the Call Option. It will end 12 months from the date the
funds are invested in the escrow account. The funds invested in the escrow
account will only be released to the Vendors if the PAT for the 12 months
following the date of the investment exceeds PAT on which the purchase price
for the 20% plus one share has been calculated.
5. Unaudited Pro FORMA financial effects
The unaudited pro forma financial effects on Jasco and its subsidiaries before
and after the Transaction, as set out in the table below, are the
responsibility of the Company`s directors, and have been prepared for
illustrative purposes only to show how the Transaction may have affected
Jasco`s results for the 12 month period ended 28 February 2009.
The unaudited pro forma financial effects, which, due to their nature, may not
fairly reflect Jasco`s financial performance and position after the
Transaction, are based on the assumptions that:
5.1 for the purpose of calculating earnings per ordinary share (basic and
diluted) and headline earnings per ordinary share (basic and diluted), the
Transaction was effected on 1 March 2008; and
5.2 for the purpose of calculating net asset value and net tangible asset
value per ordinary share, the Transaction was effected on 28 February 2009.
Before Initial Change Change Initial Change Change
Published Acquisition (cents) (%) Acqui-sition (cents) (%)
(cents)1 After and Exercise
Pro forma of Call
(cents)2 Option After
Pro forma
(cents)3, 4
Earnings 32.5 31.3 (1.2) 3.7% n/a6 n/a6 n/a6
per share
2,5
Headline 33.0 21.8 (1.2) 3.6% n/a6 n/a6 n/a6
earnings
per
share2,5
Diluted 29.9 28.8 (1.1) 3.7% n/a6 n/a6 n/a6
earnings
per
share2,5
Diluted 30.3 29.3 (1.0) 3.6% n/a6 n/a6 n/a6
headline
earnings
per
share2,5
Net asset 261.3 261.3 - - 260.3 (1.0) 0.4%
value per
share3,4,
5
Net 216.1 216.1 - - 180.3 (35.8) 16.6%
tangible
asset
value per
share3,4,
5
Weighted 100 899 355 100 899 355 - - 100 899 355 - -
number of
shares in
issue
Actual 109 745 931 109 745 931 - - 109 745 931 - -
number of
shares in
issue
Notes
1. The "Before Published" financial information has been extracted, without
adjustment, from Jasco`s published reviewed interim results for the 12 month
period ended 28 February 2009.
2. (a) This adjustment reflects Jasco`s 30% equity accounted share of
Maringo`s net loss after tax of R2.14 million for the 9 month period ended 31
March 2009, and has been extracted without adjustment from the audit annual
accounts of Maringo.
(b) This adjustment reflects the net after tax interest payable by Jasco
of R238 000 calculated at the prime rate of 11% per annum for 9 months.
(c) This adjustment reflects the once-off transaction costs of R320 000
payable by Jasco, and expensed as per the revised IFRS 3 - Business
Combinations.
3. The pro forma "After" adjustment for the Initial Acquisition includes the
Minority Interest Consideration of R1 million, the Subordinated Loan of R3
million and the Business Loan of R4 million. The bank overdraft has been
adjusted by R8 million to reflect the cash outflow impact.
4. The pro forma "After" adjustment for the Initial Acquisition and the
exercise of the Call Option include the balance sheet of Maringo at 31 March
2009 showing a negative net asset position of (R2.14) million as well as the
maximum purchase consideration of R34 million paid for Jasco`s interest in
Maringo on the basis that the Maximum Stretch Profit target of R13.6 million
per annum has been achieved at the end of the Option Period.
5. (a) The calculation of basic and diluted earnings per share and headline
earnings per share is based on a weighted number of shares in issue
of 100 899 355.
(b) The calculation of net asset value per share and net tangible asset
value per share is based on an actual number of shares in issue
of 109 745 931.
6. The table below sets out for illustrative purposes only, the net
contribution (at 50% plus 1 share) to Jasco`s EPS and HEPS (basic and
diluted), on a pro forma basis, of exercising the Call Option at the various
profit target levels as set out in paragraphs 4.2.1 - 4.2.4 of this
announcement, after calculating the net after tax interest effect by applying
the same interest rate as per note 2 (b) above and assuming the same
transaction costs as per note 2 (c) above, and is based on the weighted and
actual number of shares in issue set out in note 5 (a) and (b) above:
Minimum Mid Maximum Maximum
Profit Profit Profit Stretch
Target Target Target Profit
Pro Pro Pro Target
forma forma forma Pro
(cents) (cents) (cents) forma
(cents)
Earnings per share 1.8 3.4 4.1 4.4
Headline earnings per 1.8 3.4 4.1 4.4
share
Diluted earnings per 1.7 3.2 3.8 4.1
share
Diluted headline earnings 1.7 3.2 3.8 4.1
per share
6. CATEGORISATION
In terms of the Listings Requirements of the JSE Limited, the Transaction is
deemed to be a Category 2 transaction and therefore does not require
shareholder approval.
Johannesburg
7 July 2009
Corporate Advisor and Sponsor: PSG Capital (Proprietary) Limited
Date: 07/07/2009 14:59:36 Produced by the JSE SENS Department.
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