| Thu 5 Aug 2010, 11:52 | | BCX - Business Connexion Group Limited - The announcement relating to BCG`S 30% |
|
BCX
BCX
BCX - Business Connexion Group Limited - The announcement relating to BCG`S 30%
Black Economic Empowerment ("BEE") transaction
Business Connexion Group Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1988/005282/06)
Share code: BCX ISIN: ZAE000054631
("BCG" or "the Company")
THE ANNOUNCEMENT RELATING TO BCG`S 30% BLACK ECONOMIC EMPOWERMENT ("BEE")
TRANSACTION
1. INTRODUCTION
To advance its empowerment objectives and to comply with the Department of
Trade and Industry`s Broad-Based Black Economic Empowerment ("BBBEE") Codes
("DTI Codes") and the Information and Communication Technology ("ICT")
Charter, BCG is proposing to implement a BEE transaction at the BCG level,
pursuant to which 30% of the entire issued share capital of BCG will be
held by BEE shareholders.
The transaction will comprise of the following:
- the proposed share exchange of the Gadlex (Proprietary) Limited
("Gadlex") shareholding in Business Connexion (Proprietary) Limited
("BCX") for ordinary shares in BCG and cash, (the "Gadlex Share Exchange
Transaction"); and
- the proposed creation and issue of a new class of shares in the share
capital of BCG to Gadlex Holdings (Proprietary) Limited ("Gadlex
Holdings"), key BCG executives and senior management ("BCG Management
"A" Share Trust"), organisations involved in social and community
development ("Developmental Organisations") and selected women`s
organisations ("Women`s Groups") ("the BEE Participants"), (the "A"
Share Transaction"),
(Collectively, the "Proposed BEE Transactions").
The effective date of the Proposed BEE Transactions will be 31 August 2010.
2. INFORMATION ON BCG
BCG is a black empowered integrator of innovative business solutions based
on ICT. It runs mission-critical ICT systems and manages products, services
and solutions for JSE listed and key public sector organisations,
parastatals and medium-sized companies.
The BCG unique business model represents an approach to configuring and
integrating business solutions. These solutions are designed to meet
clients` strategic and operational needs, which BCG develops and maintains.
3. RATIONALE
The rationale for the Proposed BEE Transactions is as follows:
3.1 BCG`s BBBEE contributor level and business opportunities
The Company is currently a Level 3 contributor and has been issued
with a BBBEE certificate dated 14 December 2009 which is valid until
13 December 2010.
The group is aiming to be a level 2 contributor by 2011. The Proposed
BEE Transaction will support this objective.
Furthermore, the Electronic Communications Act 2005 stipulates a 30%
minimum shareholding for all significant (individual) licenses. The
ICT Charter, soon to be gazzetted stipulates a 30% minimum BEE
shareholding for all companies involved in the information
communications technology sector and the Independent Communications
Authority of South Africa (ICASA) has developed ownership regulations
that also stipulate the 30% BEE shareholding minimum threshold.
Many of the "request for proposals" specifically in the public sector
have minimum BEE ownership requirements, and a 30% BEE shareholding
will enable BCG to meet such requirements and therefore take full
advantage of these opportunities. In addition to this, companies in
the private sector are also placing a lot of emphasis on the
empowerment credentials of suppliers of services and it is therefore
crucial for BCG to improve the ownership and other parts of its BBBEE
scorecard.
3.2 Simplified group structure
As announced on 14 June 2010, the BCG board of directors ("Directors")
approved a transaction in terms of which it disposed of Nanoteq (Pty)
Limited (a 100% BCG owned subsidiary) and the two data centre
buildings NDC1 on Erf 12 Midridge Park Ext 8 and NDC2 on Erf 47
Midridge Park Ext 10 owned by its wholly-owned subsidiary, Business
Connexion Technology Holdings (Pty) Limited to BCX driven by BCG`s
revitalisation programme and in anticipation of the Proposed BEE
Transactions. This transaction was concluded at fair market value and
a fairness opinion was obtained in this regard.
In addition to the above transaction, a number of BCG shareholders
have indicated their preference for a simplified group structure,
whereby Gadlex`s 20.01% shareholding in BCX is aligned with that of
other BCG shareholders at the BCG level. In terms of the Proposed BEE
Transaction, this objective will then be met.
3.3 Sustainable BEE transaction
14 years ago, Gadlex created Business Connexion Solutions Holdings
(Proprietary) Limited ("BCSH") which was merged in 2003 with the then
Comparex Africa Group (Proprietary) Limited ("CAG"). After the merger
CAG was renamed to BCG. Gadlex has been BCX`s BEE shareholder since
this merger. Currently, Gadlex has a 20.01% shareholding in BCX
("Gadlex Shares"). In terms of the existing agreement with Gadlex
which was entered into in 2008 ("Gadlex Shareholder`s Agreement"),
Gadlex is entitled to realise 60% of its shareholding in BCX between
14 March 2011 and 14 March 2013 and the remaining portion of its
shareholding in BCX after 14 March 2013. This means that BCG`s BEE
shareholding could possibly be significantly diluted by 60% in 2011.
The new lock-in provisions for Gadlex are such that Gadlex will only
be able to dispose of 20% of its Ordinary Shares in March 2013 and the
remaining portion of the Ordinary Shares in August 2015, which is
approximately an addition 5 year lock-in for the majority of the
shareholding.
3.4 Retention of key BCG executives and senior management
The ICT industry is faced with significant skills shortages and it is
with this in mind that the BCG Management "A" Share Trust is proposed.
The object of the BCG Management "A" Share Trust is to grant and issue
"A" Shares to selected key executives and senior management of BCG
("Participating Employees") to promote economic empowerment within BCG
as well as encourage employees to drive growth and profitability
within the company.
3.5 Corporate social responsibility
The Proposed BEE Transactions will involve the issue of shares to
Developmental Organisations involved in programs that concentrate on
poverty alleviation projects in South Africa and social development.
3.6 Women Empowerment
The Proposed BEE Transactions will also involve the issue of shares to
previously disadvantaged women. In addition, shares will be issued to
a group of black women with ICT experience that will enable them to
add value to the group.
4. DETAILS OF THE GADLEX SHARE EXCHANGE TRANSACTION
Gadlex is principally an investment holding company, with its only
investment being the shares it holds in BCX. It is controlled by Gadlex
Holdings, which owns 94.6% of the shares in Gadlex. The remaining 5.4% is
held by the Gadlex Share Trust, a trust constituted for the benefit of
Gadlex employees.
4.1 Mechanics of the Gadlex Share Exchange
- In terms of the agreement entered into by Gadlex, Gadlex
Holdings, BCG and BCX for the purposes of the Share Exchange
Transaction ("Gadlex Share Exchange Agreement"), BCG will acquire
Gadlex Shares in BCX for a purchase consideration of R 237 514
292.
- In settlement of this purchase consideration, BCG will issue 41
092 438 ordinary shares in the share capital of BCG ("Ordinary
shares") ("Consideration Shares") to Gadlex, at R5.78 per share
comprising 13.5% of the total issued share capital after the
issue of the Consideration Shares.
- BCG will also acquire Gadlex`s loan to BCX ("Gadlex Claims") for
a purchase consideration of R39 990 820, being the face value of
the Gadlex Claims, to be settled in cash.
- The BCG Share Trust will then purchase from Gadlex, 2 492 438
Ordinary Shares ("BCG Share Trust Sale Shares") for cash, at a
purchase price of R5.78 per Ordinary Share, being the volume
weighted average price per Ordinary Share during the 30 day
trading period ("30 day VWAP") ending on the 11 June 2010
totalling R14 406 292.
4.2 Terms of the Gadlex Share Exchange Transaction
The salient terms of the Gadlex Share Exchange Transaction, inter
alia, include the following:
4.2.1 Lock-in provisions and rights
The new lock-in provisions for Gadlex are such that Gadlex
will only be able to dispose of 20% of its Ordinary Shares
in March 2013 and the remaining portion of the Ordinary
Shares in August 2015. All the other veto and minority
protection rights currently applicable to Gadlex in terms of
the Gadlex Shareholder`s Agreement will be relinquished.
Gadlex`s Ordinary Shares in BCG after the Gadlex Share
Exchange Transaction shall rank pari passu to all other
Ordinary Shares in BCG and will therefore carry the same
voting rights as that of any other Ordinary Shares, except
for the lock-in provisions applicable to these shares as
detailed in this paragraph.
4.2.2 Valuation of the Gadlex Shares
In terms of the existing Gadlex Shareholder`s Agreement, the
number of shares to be issued to Gadlex in exchange for the
BCG Ordinary Shares must be based on fair value of BCX as
determined by an independent merchant bank or a firm of
auditors. This is the basis on which the Consideration
Shares were determined for the purposes of the Gadlex Share
Exchange Transaction. Gadlex has been compensated for the
extended lock-in restrictions and forfeiture of the veto and
minority protection rights as indicated in paragraph 4.2.1
above.
4.2.3 Gadlex Preference Share funding
Gadlex has preference share funding in the form of A and B
preference shares subscribed for by BCG in Gadlex and C
preference shares subscribed for by BCG in Gadlex Holdings
amounting to R204 890 383 in aggregate. This funding
agreement will remain in place after the Gadlex Share
Exchange Transaction.
The cash received by Gadlex in respect of the sale of the
Gadlex Claims and BCG Share Trust Sale Shares totalling R54
397 112 will not be used to redeem the A, B and C preference
shares. All other cash amounts received by Gadlex, be it
dividends or otherwise shall be used to redeem these
preference shares.
The redemption date in respect of the A, B and C preference
shares will be extended to coincide with the extended lock-
in period and the funding rate (preference dividend rate)
shall remain at 80% of the prime rate.
In addition the existing B preference shares upside which
entitles BCG to 50% of the appreciation in the BCX equity
value in relation to 2.94% of the Gadlex Shares is to be
deleted from the B preference share agreement.
5. DETAILS OF THE "A" SHARE TRANSACTION
The "A" Share Transaction shall be implemented as a BEE transaction
governed by the principles set out in the DTI Codes and involves the issue
of 75 100 000 "A" Shares to BEE Participants.
5.1 Mechanics of the "A" Share Transaction
- In terms of the subscription agreements entered into by BCG and
the BEE Participants, BCG will issue a total of 75 100 000 "A"
Shares to the BEE Participants at a subscription price of R0.0059
per "A" Share, as a specific issue for cash.
- BCG will advance a loan to the BEE Participants in respect of the
applicable subscription price for the number of their allocated
"A" Shares.
- The loans issued to the Developmental Organisations will be
interest free, however the loans issued to Gadlex Holdings, the
BCG Management "A" Share Trust and the Women`s Groups will bear
interest at a rate of 80% of the prime rate.
5.2 Terms of the "A" Share Transaction
The salient terms of the "A" Share Transaction, inter alia, include
the following:
5.2.1 Lock-in provisions
The "A" Shares will be locked-in for at least 5 years i.e.
the BEE Participants will only realise value in 5 years time
("Lock-in Period").
5.2.2 "A" Share allocation price
The "A" Shares are to be allocated at a notional amount
equating to R5.78 ("Notional Amount") per "A" Shares based
on the 30 day VWAP as at 11 June 2010 (which in essence is
market value). A rate of 80% of the prime rate ("Notional
Rate") will be applied to the Notional Amount.
5.2.3 Rights attaching to the "A" Shares
The "A" Shares will rank pari passu to Ordinary Shares in
respect of voting at the BCG shareholders` general meetings
i.e. they have full voting rights.
The "A" Shares are also entitled to notional dividends equal
to the dividend declared or the distribution made in respect
of each Ordinary Share ("Notional Dividends"). These
Notional Dividends will be notionally applied against the
Notional Amount for the duration of the Lock-in Period;
therefore there will be no cash dividend during this period.
5.2.4 Participating Employees` existing share options
Some of the Participating Employees currently hold share
options in the BCX (2009) Executive Share Option Scheme. As
a condition for participation in the BCG Management "A"
Share Trust, these Participating Employees will be required
to replace their share options with units in the BCG
Management "A" Share Trust ("Units").
In order to compensate the Participating Employees for the
option value accumulated on the replaced share options
("Option Value"), the Option Value will be credited against
the Notional Amount and will accrue interest annually until
the end of the Lock-in Period.
The share options that are replaced with Units will be
available for distribution to other BCG employees that will
not participate in the BCG Management "A" Share Trust.
5.2.5 Calculation at the end of the Lock-in Period
During the Lock-in Period, the Notional Amount will be
increased by the Notional Rate and also reduced by the
Notional Dividend and Option Value (where applicable).
If by the end of the Lock-in Period, the balance of the
Notional Amount is not equal to zero, BCG will be entitled
to buy-back at par such number of "A" Shares sufficient
enough to reduce the Notional Amount to zero based on the
market value of the BCG Ordinary Shares at that stage.
5.3 Details of the BEE Participants in the "A" Share Transaction
5.3.1 Gadlex Holdings
Gadlex Holdings is an investment holding company whose major
shareholders include L.B Mophatlane, L.I Mophatlane, N.N
Kekana and L.B Sithole.
Gadlex Holdings will subscribe for 18 200 000 "A" Shares,
for a subscription price of R107 380 and a Notional Amount
of R105 196 000, comprising 4.8% of the issued share capital
of BCG after the implementation of the Proposed BEE
Transactions.
5.3.2 The BCG Management "A" Share Trust
The BCG Management "A" Share Trust will be implemented for
the benefit of BCG`s current and future selected executive
and senior management.
The Participating Employees will qualify regardless of race
or gender; however the majority of the beneficiaries within
this BCG Management "A" Share Trust will be black people as
defined in the DTI Codes.
The BCG Management "A" Share Trust will subscribe for 37 900
000 "A" Shares for a subscription price of R223 610 and a
Notional Amount of R219 062 000, comprising 10.0% of the
issued share capital of BCG after the implementation of the
Proposed BEE Transactions.
5.3.3 The Developmental Organisations
The following Developmental Organisations will be
participating in the "A" Share Transaction and in total will
subscribe for 11 400 000 "A" Shares for a subscription price
of R67 260 and a Notional Amount of R65 892 000, comprising
3% of the issued share capital of BCG after the
implementation of the Proposed BEE Transactions. The
details of the Development Organisations are as follows:
5.3.3.1 Ditikeni Investment Company Limited is a 100% broad-
based investment holding company. Its 19 shareholders
are all non-profit organisations. These non-profit
organisations work in over 200 poor black communities
throughout South Africa and there are over 2 million
beneficiaries located in all 9 provinces.
5.3.3.2 Combined Churches in Action is a non-profit
organisation and constitutes a number of churches in
the greater Clarens area. Some of their activities
include working with youth, feeding programmes,
HIV/AIDS education and programmes for the physically
disabled.
5.3.3.3 CIE Investment Company Limited is a public investment
holding company. Its main focus is to make an ongoing
contribution to the sustainability of values based
education in South African Catholic schools.
5.3.3.4 Community Outreach Program Trust is a non-profit
organisation that concentrates on establishing
sustainable projects within the poor communities. They
provide weekday pre-primary school care, nutrition &
education and weekend adult family education or life
skills. COP currently has projects in Gauteng, Kwazulu-
Natal and the Eastern Cape.
5.3.4 The Women`s Groups
The following Women`s Groups will be participating in the
"A" Share Transaction and in total will subscribe for 7 600
000 "A" Shares for a subscription price of R43 928.
5.3.4.1 Freewheel Trade and Invest 36 (Proprietary) Limited, is
a women`s group and has as its shareholders, F.L Sekha
(BCG`s independent non-executive Director) and 3 other
black women.
5.3.4.2 YWCA Dube Charitable Trust is based in Soweto and is
particularly involved in projects that develop women
and girls.
6. UNAUDITED PRO FORMA FINANCIAL EFFECTS OF THE PROPOSED BEE TRANSACTIONS
The unaudited pro forma financial effects of the Proposed BEE Transactions
for which the Board of Directors is responsible, are presented for
illustrative purposes only in order to provide information about the
financial position of BCG on the assumption that the Proposed BEE
Transactions are implemented with effect from 1 September 2009 for purposes
of the statement of comprehensive income and on 28 February 2010 for
purposes of the statement of financial position and, because of its nature,
may not fairly present the financial position, changes in equity and
results of operations or cash flows post the implementation of the Proposed
BEE Transactions.
The independent reporting accountants` report on the pro forma financial
effects of the Proposed BEE Transactions will be included in the circular
to shareholders.
Unaudited Pro Forma Financial Effects of the Proposed BEE Transactions
Per Ordinary Share Before After the Percenta
the Proposed ge
Proposed BEE change
BEE Transaction
Transacti
ons
(cents)
(1)
Earnings (2) 28.5 10.8 (62%)
Headline earnings (2) 28.1 10.4 (63%)
Net asset value (3) 557.8 476.2 (15%)
Tangible net asset value (3) 501.6 427.6 (15%)
Number of shares in issue 262 637 303 729 16%
(`000) (4)
Weighted average number of 260 360 298 960 15%
shares in issue (`000) (4)
Notes:
1. Extracted from BCG`s published reviewed results for the 6 months ended
28 February 2010.
2. The number of Ordinary Shares issued as part of the Gadlex Share
Exchange Transaction was based on the number of shares in issue on 28
February 2010. Basic earnings and headline earnings have been adjusted
for the following items:
- The de-recognition of the non-controlling interest of R14 855 401
for 6 months, in relation to Gadlex`s 20.01% shareholding in BCX;
- The recognition of the IFRS 2 charge relating to the BEE
Participants for the "A" Share Transaction of R52 497 296 in
aggregate. R46 447 318 of this option cost relates to Gadlex
Holdings, the Developmental Organisations and the Women`s Groups.
The portion that relates to the BCG Management "A" Share Trust is
R6 049 978 which is in respect of a 6 month period only.
- The recognition of estimated transaction costs of R4 359 000
relating to the Proposed BEE Transactions.
- The earnings and headline earnings per share after the Proposed
BEE Transactions excluding the IFRS 2 charges in respect of the
"A" Share Transaction as noted above would have been 29.8 cents
(an increase of 4.6%) and 29.5 cents (an increase of 5.0%)
respectively.
3. The net asset value and tangible net asset value has been adjusted for
the following:
- The increased number of Ordinary Shares in issue in the Share
Capital as a result of the issue of the Consideration Shares to
Gadlex;
- The reduction of the cash balance by R54 397 112 as a result of
the cash paid to Gadlex for the Gadlex Claims and BCG Share Trust
Sale Shares;
- The de-recognition of the Gadlex`s non-controlling interest
balance of R113 287 274 in respect of Gadlex`s 20.01%
shareholding in BCX; and
- The reduction of the short term borrowings balance by R39 990 820
as a result of the acquisition of the Gadlex Claims by BCG.
4. For purposes of calculating the movement in the weighted average
number of shares, treasury shares of 2 492 438 which will be held by
the BCG Share Trust, which is treated as a Subsidiary by BCG for
accounting purposes, were not taken into account.
5. BCG is not able to ascertain the extent of ultimate dilution in 5
years time in respect of the "A" Shares issued and therefore has not
updated diluted earnings or diluted headline earnings per share for
the potential "A" Shares dilution.
7. JSE REQUIREMENTS-RELATED PARTY TRANSACTIONS
Gadlex is a material shareholder in BCX and two of the shareholders of
Gadlex, namely L.B Mophatlane and N.N Kekana, are also Directors of BCG.
Gadlex Holdings and Gadlex are therefore related parties in relation to
BCG.
One of the shareholders of Freewheel, F.L Sekha is also a Director of BCG
and therefore Freewheel is a related party in relation to BCG. V. Olver is
a BCG Director and is also participating in the "A" Share Transaction
through the BCG Management "A" Share Trust.
Consequently, the Directors of BCG have appointed an independent expert,
acceptable to the JSE, to provide a fairness opinion on the Gadlex Share
Exchange Transaction and the "A" Share Transaction.
8. CONDITIONS PRECEDENT OF THE PROPOSED BEE TRANSACTIONS
The Proposed BEE Transactions in relation to the BEE Participants is
conditional upon the fulfilment, inter alia, of the following conditions
precedent which have to be fulfilled before or on 10 September 2010:
- the delivery of a BBBEE certificate to BCG by each BEE Participant;
- the requisite approval by the shareholders and the passing of all the
necessary special and ordinary resolutions tabled at the General
Meeting; and
- the registration of the special resolutions tabled at the General
Meeting.
The Gadlex Share Exchange is conditional upon the implementation of the "A"
Share Transaction.
9. OPINIONS AND RECOMMENDATIONS
The Directors of BCG have considered the terms and conditions of the
Proposed BEE Transactions and are of the opinion that the Proposed BEE
Transactions are in the best interests of all of BCG`s key stakeholders,
including customers, suppliers, employees, debt funders and shareholders
and, accordingly, recommend that the BCG shareholders vote in favour of the
resolutions required to implement the Proposed BEE Transactions.
The Directors who directly or indirectly beneficially own BCG Ordinary
Shares and are not involved or interested in the Proposed BEE Transactions
and are entitled to vote, intend to vote in favour of the resolutions to
implement the "A" Share Transaction and the Gadlex Share Exchange
Transaction in respect of their shareholdings.
Deloitte and Touche Corporate Finance has been appointed by BCG to furnish
an independent fairness opinion on the Proposed BEE Transactions and has
indicated that the Proposed BEE Transactions are fair to the BCG
shareholders.
10. SALIENT DATES AND TIMES
A circular containing full details of the Proposed BEE Transactions and
incorporating a notice of general meeting, which is subject to the approval
of the JSE, will be posted to BCG shareholders in due course:
2010
Circular and notice of general meeting posted Friday, 13 August
to shareholders on
Forms of proxy for the general meeting to be Thursday, 2 September
lodged by no later
than 10:00 on
General meeting to be held at 10:00 on Monday, 6 September
Results of general meeting to be announced on Monday, 6 September
SENS on
Results of general meeting to be published in Tuesday, 7 September
the press on
11. WITHDRAWAL OF CAUTIONARY
Shareholders are referred to the cautionary announcement dated 21 July
2010, and are advised that, the material terms and conditions of the
Proposed BEE Transaction have been agreed to with Gadlex and all the BEE
participants and caution is no longer required to be exercised by
shareholders when dealing in the their securities.
Financial Advisor
Investec Bank Limited
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 05/08/2010 11:52:05 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
