| Fri 6 Aug 2010, 10:15 | | BCX - Business Connexion Group Limited - The announcement relating to BCG`S 30% |
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BCX
BCX
BCX - Business Connexion Group Limited - The announcement relating to BCG`S 30%
Black Economic Empowerment ("BEE") transaction and withdrawal of cautionary -
correction announcement
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 AND WITHDRAWAL OF CAUTIONARY - CORRECTION ANNOUNCEMENT
Due to the omission of some of the details of the Developmental Organisations
participating in the Proposed BEE Transaction from the announcement released on
5 August 2010 ("Prior Announcement") paragraph 5.3.3, this Prior Announcement is
hereby withdrawn and replaced with this announcement dated 6 August 2010.
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 additional 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 the 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, the 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 the 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" Share 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 R65 892. 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 League of Friends of the Blind is a non-government organisation
based in the Cape Town area. They provide a wide range of
independent development services to partially sighted and blind
people.
5.3.3.3 Sakhikamva Investments (Proprietary) Company Limited is a black
economic empowerment investment group which has as its
beneficiaries black South Africans who have been, and continue to
be, excluded from access to real economic opportunities.
5.3.3.4 BCX Education Association will be a bursary scheme, set up for
the benefit of the children of BCG junior level employees. The
funds to be utilised for the bursaries, however will only be
available after the Lock-in Period.
5.3.3.5 Cape Flats Development Association is a non-profit child and
family organisation providing numerous services to disadvantaged
communities in the Cape Flats.
5.3.3.6 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.
5.3.3.7 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.
5.3.3.8 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 ("Freewheel")
The shareholders of Freewheel are F.L Sekha and 3 other black
women. F.L Sekha is currently an independent non-executive
Director of BCG, and is therefore a related party in relation to
BCG.
5.3.4.2 YWCA Dube Charitable Trust ("YWCA")
The YWCA Dube Branch which is based in Soweto. The YWCA 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 the After the Percentage
Proposed Proposed change
BEE Transaction
Transaction
s (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 (`000) 262 637 303 729 16%
(4)
Weighted average number of shares 260 360 298 960 15%
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 to Friday, 13 August
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.
Investment Bank and Transaction Sponsor
Investec Bank Limited
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 06/08/2010 10:15:01 Produced by the JSE SENS Department.
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