| Wed 15 Dec 2010, 8:30 | | UCS - UCS Group Limited - Announcement regarding the proposed disposal |
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UCS
UCS
UCS - UCS Group Limited - Announcement regarding the proposed disposal
UCS GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1993/002253/06)
Share code: UCS
ISIN: ZAE000016150
("UCS" )
ANNOUNCEMENT REGARDING THE PROPOSED DISPOSAL BY UCS OF ALL THE SHARES IN AND
CLAIMS HELD BY UCS AGAINST CERTAIN OF ITS SUBSIDIARIES TO BUSINESS CONNEXION
GROUP LIMITED ("BCG") AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
1. Introduction
UCS shareholders ("Shareholders") are referred to the cautionary announcements
published by UCS on 30 September 2010 and 11 November 2010 respectively and are
advised that BCG and UCS have entered into a sale of shares and claims agreement
("the Agreement") dated 14 December 2010 ("the Signature Date"), in terms of
which UCS will, subject to the fulfillment and/or waiver of certain conditions
precedent, dispose of all the shares owned by UCS in Accsys (Proprietary)
Limited ("Accsys"), CEB Maintenance Africa (Proprietary) Limited ("CEB
Maintenance"), Destiny Electronic Commerce (Proprietary) Limited ("Destiny E-
Commerce"), UCS Solutions (Proprietary) Limited ("UCS Solutions") and UCS
Technology Services (Proprietary) Limited ("UCS Technology Services")
(collectively "the Disposal Entities") together with all claims held by UCS
against the Disposal Entities, save for the claims against Destiny E-Commerce,
to BCG ("the Disposal").
The Disposal Entities are wholly owned subsidiaries of UCS (whether directly or
indirectly) ("UCS Group"), save for Destiny E-Commerce, which is 70% owned by
the UCS Group.
The Disposal will become effective on the third business day after the date on
which the last of the conditions precedent referred to in paragraph 6 below have
been fulfilled ("the Effective Date").
2. Rationale for the Disposal
The sale of the Disposal Entities to BCG represents an opportunity for UCS to
execute against its stated strategy of separating its service businesses from
its software businesses, and in the process unlocking value for the shareholders
of UCS. On allotment and issue of the BCG shares in settlement of the guaranteed
purchase consideration (as described in paragraph 3 below), UCS will become the
largest single shareholder in BCG.
By placing the service businesses into BCG, through essentially an equity swap
mechanism, there will be opportunities for such businesses to leverage the BCG
group`s critical mass, strategic African continental positioning, stronger BBBEE
rating and well positioned data centre and cloud computing platforms.
UCS shareholders have the opportunity to remain invested in these assets through
the BCG shares to be allotted and issued in settlement of the guaranteed
purchase consideration. UCS Group will be required to change its name and will
continue to operate as an investment holding company for selected assets
including Software and Value Added Services.
The businesses of the Disposal Entities will continue to operate with their
existing management structures who are appropriately incentivised to ensure a
smooth transition albeit the target companies will continue to operate in their
current form under the UCS brand.
3. Consideration for the Disposal
The purchase consideration pertaining to the Disposal is up to R614 172 791
("the Purchase Consideration") and will be settled by a combination of new BCG
shares and cash.
A portion of the Purchase Consideration will be discharged through the allotment
and issue of 101 243 118 new BCG shares ("the Consideration Shares") to UCS,
which will represent 25% plus one share in the issued share capital of BCG at
the Effective Date resulting in an aggregate issue price of R584 172 791 based
on the volume weighted average traded price ("VWAP") of the BCG shares on the
JSE Limited ("JSE") for the 30 trading days ended 30 September 2010, being
R5.77.
The balance of the Purchase Consideration of up to R30 000 000 ("the Purchase
Consideration Balance") will be paid in cash to UCS on the 5th business day
after receipt of the audited management accounts of the Disposal Entities for
the financial year ending 30 September 2011 ("the Earn-out Period"), if and to
the extent that the agreed net profit after tax ("NPAT") targets of the Disposal
Entities are met. Up to R20 000 000 will be deducted from the total Purchase
Consideration Balance to meet the costs associated with the achievement of the
agreed NPAT targets by the Disposal Entities. To the extent that the aggregated
NPAT target is not met, then the Purchase Consideration Balance will be reduced
on a sliding scale basis.
Further to the above Purchase Consideration, should BCG dispose of any one or
more of the Disposal Entities within 12 months of the Effective Date to an
independent third party, UCS shall have the right to elect that in respect of
any one of such disposals, BCG and UCS shall share in the net proceeds (in the
ratio 30:70) of such disposal where the net proceeds are in excess of the market
value of the BCG shares issued to UCS in respect of the acquisition of such
Disposal Entity.
Based on the current BCG 30-day VWAP, up to and including Monday, 13 December
2010, being R6.68, the potential purchase consideration including the Purchase
Consideration Balance of R30 000 000 is R706 304 028 (excluding any net proceeds
as contemplated in the paragraph above).
It is intended that the Consideration Shares will be unbundled to UCS
shareholders within six months from when the Disposal becomes effective ("the
Unbundling"). From the Signature Date to the date of the Unbundling, the
Consideration Shares shall not constitute less than 25% of the entire issued
share capital of BCG, plus one BCG share ("the UCS` Minimum Shareholding"). If
such minimum threshold is not maintained BCG shall be obliged to allot and issue
so many additional BCG Shares so as to ensure that UCS will hold the UCS Minimum
Shareholding on the date on which UCS implements the Unbundling, provided that
the Unbundling occurs prior to the end of the Earn-out Period.
UCS has undertaken not to complete the Unbundling prior to the expiry of the
period commencing on the Effective Date and ending three months thereafter ("UCS
Unbundling Period") but as soon as reasonably possible thereafter. UCS shall
not itself be entitled to vote the Consideration Shares if the Unbundling has
not occurred before the expiry of a period of six months after the expiry of the
UCS Unbundling Period. To the extent that UCS is not entitled to vote the
Consideration Shares, UCS shall then take instruction from its shareholders on
the same basis that a Central Securities Depository Participant (CSDP) takes
instructions from the beneficial holders on whose behalf it holds listed shares,
and UCS shall vote on the Consideration Shares on the instructions so received
from the Shareholders. If any Shareholder fails to direct UCS to vote the
Consideration Shares as aforesaid, then such pro rata number of Consideration
Shares shall not be counted for the purposes of any vote by the shareholders of
BCG and any meeting of the shareholders of BCG until the Unbundling has
occurred.
The Disposal and Unbundling will further collectively be referred to as "the
Transaction" in this announcement.
4. Nature of business of the Disposal Entities
Accsys
Accsys is an award winning South African company which develops, markets and
supports a comprehensive suite of integrated people management software, Accsys
PeopleWare. The business provides high level training, professional consultancy
and technical expertise supporting industry leading solutions, including
Payroll, ESS, Time & Attendance, Biometric Access Control and Human Resources as
well as offering Recruitment and Outsourcing.
CEB Maintenance
CEB Maintenance specialises in `man-in-van` IT services for large-scale retail
operators and has an enviable list of blue chip retail customers.
Destiny E-Commerce
The business known as CSC is an authorised VeriFone International Partner for
VeriFone payment systems into Sub Saharan Africa and has sale and distribution
rights for such terminals into the territory. CSC further provides software
payment solutions and field support services for use with and in relation to the
payment devices and/or systems.
UCS Solutions
UCS Solutions is a leading business and IT solutions provider to clients in the
retail and consumer goods industries. The company harnesses its industry
knowledge to help clients achieve better business performance, offering end-to-
end consulting, business systems outsourcing and technology services across the
full range of IT operations.
UCS Technology Services
UCS Technology Services renders services relating to the "in-store" point of
sale providing software on behalf of third party software vendors, solutions and
services required to install, operate and support point-of-sale information
technology elements.
5. Application of the Securities Regulation Code on Takeovers and Mergers and
the Rules of the SRP ("the SRP Code") and the JSE Listings Requirements
("Listings Requirements") to the Transaction
The Disposal and the subsequent Unbundling will each result in UCS selling or
distributing the greater part of its assets as contemplated in section 228 of
the Companies Act, No.61 of 1973, as amended ("the Act"), and will, therefore,
be deemed to be affected transactions in terms of the SRP Code. The Disposal is
a Category 1 transaction for UCS in terms of the Listings Requirements. The
Unbundling will be effected by way of a distribution to shareholders as
contemplated in Section 90 of the Act and section 5.85 of the Listings
Requirements.
Further to the above, UCS shareholder approval will be required to effect the
Transaction and a circular setting out details as required by the SRP Code and
the Listings Requirements and incorporating a notice convening a general meeting
to approve the Transaction will be posted to UCS shareholders in due course
("the Circular").
In terms of the Code, the UCS Board is required to obtain appropriate external
advice on the Transaction as to how it affects Shareholders. Accordingly, the
UCS Board will appoint an independent adviser to provide such advice and their
fairness report as well as the UCS Board`s recommendation with regard to the
Transaction will be included in the Circular.
6. Conditions precedent
The Transaction is subject to the fulfillment and/or waiver of, inter alia, the
following conditions precedent by no later than 29 April 2011 (or such later
date as UCS and BCG may agree in writing):
- the approval by the requisite majority of UCS shareholders of the
resolutions to be proposed at the general meeting to approve the Disposal
and any other matters relating to the Transaction;
- the obtaining by each of UCS and BCG of any regulatory approvals as may be
required for the Transaction in terms of the Listings Requirements and the
SRP Code;
- the approval by the requisite majority of BCG shareholders in general
meeting of the acquisition of the Disposal Entities and any other matters
relating to the Transaction;
- the approval of the Competition Authorities of the Disposal;
a written undertaking from UCS` current BEE shareholders in terms of which
- they agree not to dispose of so many BCG shares distributed to them
pursuant to the Unbundling, or written undertakings from Shareholders in
terms of which they agree to sell to BCG so many BCG shares distributed to
them pursuant to the Unbundling, or a combination of the above, as is
required in order for BCG to retain a BEE ownership status of at least 25%
plus 1 BCG share after the Unbundling and until 31 December 2011;
- the approval of the Disposal and all agreements and transactions
contemplated therein by Nedbank Limited, to the extent required; and
- the waiver by the 30% minority management shareholders in Destiny E-
Commerce of their pre-emptive and related rights under and in terms of the
shareholders agreement entered into in respect of Destiny E-Commerce.
7. The pro forma financial effects of the Disposal and Unbundling
The table below sets out the unaudited pro forma financial effects of the
Disposal and Unbundling based on the published audited results of UCS for the
year ended 30 September 2010. The unaudited pro forma financial effects have
been prepared for illustrative purposes only, in order to provide information
about how the Transaction might have affected Shareholders had the Transaction
been implemented on the dates indicated in the notes below. Due to their nature,
the unaudited pro forma financial effects may not fairly present the financial
position or the effect on future earnings of UCS after the Transaction. The
preparation of the unaudited pro forma financial effects is the responsibility
of the directors.
Before the After Change After the Change
Transactio the % Disposal %
n(1) Dispos and after
al and the
before Unbundlin
the g (2)
Unbund
ling(2
)
Earnings per share 13.9 157.5 1 033.1 157.5 1 033.1
(cents)
Diluted earnings per 13.7 154.8 1 029.9 154.8 1 029.9
share (cents)
Headline earnings per 16.2 (5.3) (132.7) (5.3) (132.7)
share (cents)
Diluted headline earnings 16.0 (5.2) (132.5) (5.2) (132.5)
per share (cents)
Net asset value per share 170.3 314.2 84.5 77.2 (54.7)
(cents)
Net tangible asset value 31.8 265.5 734.9 28.5 (10.4)
per share (cents)
Weighted average number 284 653 284 - 284 653 -
of shares in issue (`000) 653
Diluted weighted average 289 731 289 - 289 731 -
number of shares in issue 731
(`000)
Number of shares in issue 285 356 285 - 285 356 -
(`000) 356
Notes and assumptions:
1. Based on the published consolidated audited results of UCS for the
year ended 30 September 2010.
2. On the assumption that the Disposal and Unbundling took place on 1
October 2009 for consolidated income statement purposes and on 30
September 2010 for statement of financial position purposes.
3. Included in the "After the Disposal and before the Unbundling"
earnings and headline earnings are the following adjustments and
related assumptions:
a. The reversal of the Disposal Entities` contribution to earnings
and headline earnings for the twelve months ended 30 September
2010 totaling R62.4 million, net of non-controlling interests of
R7.1 million. The reversal excludes the profit realised in the
period on the disposal by UCS Solutions of the Enterprise
Solutions Division of R12.4 million and related taxation effect
of R1.7 million.
b. To take into account the Secondary Tax on Companies of R0.7
million relating to a pre -Effective Date dividend paid by
Destiny E-Commerce;
c. To take into account a total purchase consideration of R706.3
million comprising:
i. 101 243 118 new BCG ordinary shares valued at the volume
weighted average traded price of BCG on the JSE Limited for
the 30 trading days ended Monday, 13 December 2010 being
R6.68 per BCG share.
ii. The receipt of the Purchase Consideration Balance assuming
the NPAT targets are met, before the costs associated with
the execution of the Transaction and the delivery of the
NPAT targets.
d. The re-instatement of R0.8 million, relating to inter-company
eliminations reversed between the Disposal Entities and a
subsidiary of UCS on consolidation.
4. After the realisation of R104.7 million goodwill, the applicable
profit on sale of the Disposal Entities totaling R493.5 million pre-
tax and the estimated transaction costs of R3.3 million included in
earnings per share, which are once-off in nature.
5. On the basis the provisions of section 42 of the Income Tax Act 58 of
1962 ("the Tax Act") are met, no capital gains tax or securities
transfer tax shall be payable by UCS relating to the receipt of the
Consideration Shares.
6. To take into account the provision of the estimated capital gains tax
amounting to R19.0 million, payable by UCS, due to the de-grouping
provision of section 45 of the Tax Act applicable in UCS Technology
Services.
7. To take into account income tax at a statutory rate of 28%.
8. The application of section 46 of the Act whereby UCS shall unbundle
all of the BCG equity consideration received on the Disposal
Transaction. Accordingly no capital gains tax or securities transfer
tax will be payable by UCS on the Unbundling Transaction.
9. For statement of financial position purposes, the net asset value per
share and tangible net asset value per share were calculated to
demonstrate the effect of the Transaction as if it had taken place on
30 September 2010. Consequently, due to the growth in the Disposal
Entities net asset value, the applicable profit on sale amounts to
R430.3 million net of estimated transaction costs and tax.
8. The Agreement
The Agreement contains provisions usually provided for in transactions of this
nature including, without limitation, warranties, rights to terminate in the
event of a material adverse event and limitation of liability, the details of
which shall be described in more detail in the Circular to be posted to
Shareholders in due course.
9. BCG announcement
Shareholders are also referred to the separate announcement that has been made
by BCG on SENS today, 15 December 2010, relating to the Transaction.
10. Withdrawal of cautionary announcement
Further to the above, Shareholders are no longer required to exercise caution
when dealing in their UCS securities.
Johannesburg
15 December 2010
Corporate adviser and transaction sponsor to UCS
One Capital
Attorneys to UCS
Glyn Marais Inc
Independent auditor and reporting accountant
Deloitte & Touche
Tax Advisers to UCS
Bowman Gilfillan
Date: 15/12/2010 08:30:06 Produced by the JSE SENS Department.
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