| Wed 9 Jun 2010, 14:50 | | CVN - Convergenet - Disposal of a 54% interest in future Cell (Proprietary) |
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CVN
CVN
CVN - Convergenet - Disposal of a 54% interest in future Cell (Proprietary)
Limited to Pepkor Retail Limited and withdrawal of cautionary announcement
CONVERGENET HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1998/015580/06)
Share code: CVN ISIN: ZAE000102067
("ConvergeNet" or "the Company")
DISPOSAL OF A 54% INTEREST IN FUTURE CELL (PROPRIETARY) LIMITED ("Future Cell")
TO PEPKOR RETAIL LIMITED ("Pepkor") AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Introduction
Further to the cautionary announcement on 14 May 2010, shareholders are advised
that ConvergeNet has negotiated the conclusion of an agreement dated 08 June
2010 in terms of which ConvergeNet will dispose of a 54% of the issued share
capital, and claims against, Future Cell ("the Disposal") for a sale
consideration of R66 197 970. Pepkor will also acquire shares from Future Cell
management. ConvergeNet and the Future Cell management are hereby collectively
referred to as the Sellers. ConvergeNet will retain a 20% shareholding in Future
Cell.
Background to Future Cell
Future Cell is a focused mobile telecommunications company and operates in the
pre-paid distribution business. The company is characterised by strong systems,
processes and skills in this market. Future Cell distributes its pre paid
products in a number of provinces countrywide.
Rationale
The disposal of Future Cell by ConvergeNet will result in an injection of cash
into ConvergeNet that will be available for other strategic acquisitions. In
addition, the value of the retained shareholding of 20% in Future Cell is
expected to grow significantly pursuant to Pepkor`s acquisition of a controlling
interest in Future Cell.
Terms of the Disposal
The effective date of the disposal is 31 May 2010.
ConvergeNet will, subject to the fulfillment of certain suspensive conditions,
sell 54% of the issued share capital of the Company to Pepkor for an aggregate
purchase price of R66 197 970, on the following terms and conditions:
(i) ConvergeNet will sell 567 shares, being 54% of the issued share capital for
a cash consideration of R49 187 817 and an "agterskot" of R17 010 153;
(ii) Future Cell has warranted that it will achieve a Profit before Interest and
Tax and before any management fees ("PBIT") of R18 000 000 for the year
ended 31 August 2010 and of R49 000 000 for the year ended 31 August 2012.
(iii)Should Future Cell not achieve a PBIT of R18 000 000 for the year ended 31
August 2010, the Sellers will be obliged to repay to Pepkor proportionately
R5.75 for every R1 of profit below the agreed PBIT.
(iv) Should Future Cell not achieve a PBIT of R49 000 000 for the year ended 31
August 2012, the "agterskot" payment to the Sellers will be reduced
proportionately by R5.75 for every R1 of profit below the agreed PBIT.
(v) The cash consideration portion of the purchase price will be paid on the
fifth business day following the fulfillment of all conditions precedent to
the Agreement and the final "agterskot" will be payable five business days
after signing by the directors of Future Cell of the annual audited
financial statements for the 2012 financial year, but in any event not
later than three months after 31 August 2012.
(vi) ConvergeNet entering into a separate agreement with Pepkor, which agreement
will, inter alia, provide for:
a. Pepkor to be granted a call option against ConvergeNet in terms of
which Pepkor will have the right but not the obligation to purchase
its remaining 20% shareholding in Future Cell limited to;
i. 33.33% of the 25% on 31 August 2013
ii. 33.33% of the 25% on 31 August 2014
iii. the balance on 31 August 2015;
b. ConvergeNet to be granted a put option against Pepkor in terms of
which ConvergeNet will have the right but not the obligation to sell
its remaining 20% shareholding in Future Cell to Pepkor on 31 August
2013;
c. The value of Future Cell for both the Put and Call option to be
determined using a fixed PE ratio of R5.75; and
(vii)ConvergeNet and Pepkor concluding a shareholders` agreement in respect of
Future Cell.
The acquisition is subject to the following conditions precedent being fulfilled
by not later than 30 June 2010:
- completion by Pepkor of a comprehensive due diligence investigation of
Future Cell;
- the approval of the transaction by the Board of Directors of Pepkor and
delivery of a copy of the resolution to the Sellers;
- further agreements being entered into between the Sellers and Pepkor in
terms of which Pepkor is afforded a call option and the ConvergeNet is
afforded a put option in respect of the shares in Future Cell held by the
ConvergeNet;
- a shareholders agreement being entered into between the Sellers and Pepkor
and the current shareholders agreement in existence between the Sellers and
Future Cell be cancelled;
- the written acceptance by MTN Service Provider (Pty) Limited of Future Cell
as a participant in terms of the retail distribution agreement between
Pepkor Retail Limited and MTN Service Provider (Pty) Limited; and
- an agreement being entered into between Future Cell and Masscash (Pty)
Limited that amends the Distribution Agreement between them in a manner
that satisfies Pepkor and the delivery by Pepkor of a notice to the Sellers
that such an agreement has been entered into and that Pepkor is satisfied
with the terms thereof.
The disposal is subject to the normal terms and warranties usual for a
transaction of the nature contemplated.
Competition Act approval
In terms of Section 13A(1) of the Competition Act, no approval by the
Competition Authorities is required.
Pro forma financial effects
Set out in the table below are the pro forma financial effects of the Future
Cell disposal, which have been prepared for illustrative purposes only, to
provide information about how the Future Cell disposal might have affected the
financial information presented. 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.
Unaudited After the
6 months Future Cell
28 February Disposal
2010 % change %
"Before" "After"
Earnings per share 1.53 2.73 79%
Headline earnings per share 1.53 1.16 (24%)
Net asset value per share 48.5 49.2 1%
Tangible net asset value per 18.2 26.2 44%
share
Weighted average number of 895 611 179 895 611 179 -
shares in issue
Shares in issue at period end 915 115 941 915 115 941 -
Notes:
i. The earnings per share and headline earnings per share, as set out in the
"Before" column of the table, are based upon the unaudited Income Statement
of ConvergeNet for the six months ended 28 February 2010 and 895 611 179
ConvergeNet shares in issue.
ii. The earnings per share and headline earnings per share, as set out in the
"After" column of the table, are based upon the unaudited Income Statement
of ConvergeNet for the six months ended 28 February 2010, excluding the
unaudited Income Statement of Future Cell at 28 February 2010 as per the
management accounts, and 895 611 179 ConvergeNet shares in issue and the
assumptions that:
- The Future Cell disposal was effective from 1 September 2009;
- The disposal consideration of R66 197 970 was settled on 1 September
2009 in cash;
- There is no additional costs incurred relating to the Future Cell
disposal;
- There is no impairment of the goodwill arising from the Future Cell
disposal; and
- No interest on the proceeds from the disposal have been assumed.
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 28 February 2010 and 915 115 941
ConvergeNet shares in issue.
iv. The net asset value and tangible net asset value per ConvergeNet share, as
set out in the "After" column of the table, are based upon the unaudited
Balance Sheet of ConvergeNet at 28 February 2010, excluding the unaudited
Balance Sheet of Future Cell at 28 February 2010 as per the management
accounts, and 915 115 941 ConvergeNet shares in issue and the assumptions
that:
- The Future Cell disposal was effective 1 September 2009; and
- The disposal consideration was settled on 1 September 2009.
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
The cautionary announcement is now withdrawn following the publishing of
financial information and pro forma financial effects.
Johannesburg
09 June 2010
Sponsors
Arcay Moela Sponsors (Proprietary) Limited
Date: 09/06/2010 14:50:01 Produced by the JSE SENS Department.
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