| Wed 15 Dec 2010, 8:30 | | BCX - Business Connexion Group Limited - Terms announcement relating to the |
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BCX
BCX
BCX - Business Connexion Group Limited - Terms announcement relating to the
acquisition of shares
Business Connexion Group Limited
(Incorporated in the Republic of South Africa)
(Registration number 1988/005282/06)
(ISIN: ZAE000054631)
(Share code: BCX)
("BCX" or "the Company")
TERMS ANNOUNCEMENT RELATING TO THE ACQUISITION OF shares IN and CERTAIN
claims AGAINST certain of the underlying subsidiaries OF UCS GROUP LIMITED
("UCS") AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
1. Introduction
Further to the cautionary announcements released by BCX on SENS on Thursday,
30 September 2010 and Wednesday, 10 November 2010, BCX shareholders are
advised that BCX has entered into a Sale of Shares and Claims Agreement (the
"Agreement") with UCS regarding the sale of the Target Companies as defined
in paragraph 3 below (the "Transaction").
The purpose of this announcement is to provide BCX shareholders with the
salient terms of the Transaction. A circular with information in respect of
the Transaction and incorporating a notice convening a general meeting of BCX
shareholders (the "Circular") will be posted to BCX shareholders in due
course.
2. Rationale
The Transaction gives BCX an opportunity to acquire the Target Companies,
being key UCS assets, thereby creating one of Africa`s largest IT services
groups with extensive retail capacity.
Some specific opportunities include, inter alia:
- the Target Companies provide the opportunity for BCX to be a market
leader within the retail IT services sector, which sector is well suited
for BCX`s data centre offering;
- the Target Companies complement BCX`s African expansion strategy as some
of South Africa`s leading retailers have a stated strategy to pursue
opportunities in the rest of Africa; and
- the Target Companies will improve the margins within the Company as the
services proportion of total revenue increases.
3. Details of the Transaction
3.1 Salient details of the Target Companies
3.1.1 UCS Solutions (Proprietary) Limited ("UCS Solutions")
UCS Solutions is a wholly owned subsidiary of UCS Solutions Holdings
(Proprietary) Limited ("UCS Holdings"), which in turn is a wholly owned
subsidiary of UCS. UCS Solutions specialises in the provision of outsourced
application hosting services, integrated service management services, SAP and
JDA application software services as well as strategic and optimisation
consulting services for the retail industry.
3.1.2 CEB Maintenance Africa (Proprietary) Limited ("CEB Maintenance")
CEB Maintenance is a wholly owned subsidiary of UCS Holdings. CEB
Maintenance specialises in the provision of general computer hardware
services, including implementation, roll-out, support and maintenance
services for the retail industry, and the supply of computer hardware,
including point-of-sale hardware to the retail industry for long standing
blue chip retail customers.
3.1.3 UCS Technology Services (Proprietary) Limited ("UCS Technology
Services")
UCS Technology Services is a wholly owned subsidiary of UCS Holdings. UCS
Technology Services provides services relating to the "instore" point of
sale, software on behalf of third party software vendors, solutions and
services required to install, operate and support point-of-sale information
technology elements that are required in a retail store and including, to a
lesser extent, support services to the retailers` central environment to
consolidate and distribute data to and from the store.
3.1.4 Accsys (Proprietary) Limited ("Accsys")
Accsys is a wholly owned subsidiary of UCS. Accsys specialises in the
provision of payroll, time, attendance and human resources management
software and the source and provision of associated hardware together with
the deployment and implementation services associated with such solutions and
ongoing maintenance and support of such solutions. Accsys also provides an
outsourced payroll bureau service as well as a recruitment function including
a certified e-learning course specifically related to payroll administration.
3.1.5 Destiny Electronic Commerce (Proprietary) Limited ("Destiny E-
Commerce")
Destiny E-Commerce is a 70% (seventy percent) subsidiary of Computerkit
Holdings (Proprietary) Limited, which in turn is a wholly owned subsidiary of
UCS. Destiny E-Commerce specialises in the provision of the distribution of
VeriFone transactional terminals into South Africa on an exclusive basis, it
also has a distribution right for such terminals into Southern Africa.
Destiny E-Commerce also provides various related computer software solutions
for use with and in relation to transactional terminals.
3.2 Terms of the Transaction
In terms of the Transaction, BCX will acquire the Target Companies from UCS
for an aggregate Transaction consideration of R614,172,791 (six hundred and
fourteen million one hundred and seventy two thousand seven hundred and
ninety one rand) ("Transaction Consideration"). The Transaction Consideration
will be settled partly by the issue of BCX ordinary shares with the balance
being settled in cash:
- The Transaction Consideration will be settled partly by the issue of
101,243,118 (one hundred and one million two hundred and forty three
thousand one hundred and eighteen) BCX ordinary shares ("Consideration
Shares"), based on the 30 day volume weighted average price ("VWAP") as
at 30 September 2010 of R5.77. The Consideration Shares will
subsequently be unbundled to UCS shareholders ("UCS Unbundling").
Excluding the "A" shares in issue by BCX, this translates into 25%
(twenty five percent) of the entire issued ordinary share capital of BCX
(including treasury shares) plus 1 (one) BCX share.
- The balance of R30,000,000 (thirty million rand) will be settled in cash
("Purchase Consideration Balance") provided that the agreed upon net
profit after tax ("NPAT") of the Target Companies is achieved for the
financial year ending 30 September 2011 ("Target NPAT"). The Purchase
Consideration Balance will be adjusted downwards on a sliding scale
should the NPAT not be met. Consequently the Target Companies` existing
management structure is incentivised to ensure a smooth transition.
BCX has warranted to UCS that, on the dates set out below, the number of
Consideration Shares shall not constitute less than 25% (twenty five percent)
of the entire issued ordinary share capital of BCX (including treasury
shares) plus 1 (one) BCX share ("UCS Minimum Shareholding"), and, to the
extent that the number of Consideration Shares constitutes less than the UCS
Minimum Shareholding, BCX shall issue so many more BCX ordinary shares in
order to constitute the UCS Minimum Shareholding on all of the following
dates:
- the date upon which BCX issues the Consideration Shares to UCS; and
- the date upon which UCS implements the UCS Unbundling, provided that the
unbundling is effected within a certain period.
The Transaction will be effective on the 3rd (third) business day after the
date on which the last of the Conditions Precedent is fulfilled or waived
("Effective Date"), as the case may be. Pursuant to the Transaction, the
Target Companies will become subsidiaries of BCX.
Further to the above Transaction Consideration, should BCX dispose of any one
or more of the Target Companies within 12 months of the Effective Date to an
independent third party, UCS shall have the right to elect that in respect of
one of those disposals, BCX 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 BCX shares issued to UCS in respect of the acquisition of
such Target Company.
3.3 UCS Unbundling
UCS has undertaken not to complete the UCS Unbundling prior to the expiry of
the period commencing on the Effective Date and ending 3 (three) months
thereafter ("UCS Unbundling Warranty Period") but as soon as reasonably
possible thereafter. UCS acknowledges and agrees that UCS shall not itself
be entitled to vote the Consideration Shares if the UCS Unbundling has not
occurred on or before the expiry of a period of 6 (six) months after the
expiry of the UCS Unbundling Warranty Period and, in such event, UCS shall
then take instructions from its shareholders on the same basis that a CSDP
takes instructions from the beneficial holders on whose behalf it holds
listed shares, and UCS shall vote the Consideration Shares on the
instructions so received from the shareholders of UCS. If any UCS
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 BCX at any
meeting of the shareholders of BCX until the UCS Unbundling has occurred.
4. Pro forma financial effects of the Transaction on BCX shareholders
The unaudited pro forma financial effects of the Transaction on BCX
shareholders set out below are based on the BCX results for the year ended 31
August 2010 and the Target Companies` results for the year ended 30 September
2010. The unaudited pro forma financial effects are the responsibility of the
board of directors of BCX and have been prepared for illustrative purposes
only and because of their pro forma nature may not give a fair reflection of
BCX`s financial position or results of operations after the Transaction.
The unaudited pro forma financial effects of the Transaction on BCX
shareholders are set out below:
Before the After the After the % change
Transaction Transaction - Transacti
(1) Post on - Pre
transaction % change transacti
costs on costs
(2), (3), (7)
(4),(5),(6)
Headline 47.6 43.3 (9.0) 47.0 (1.3)
earnings per
share (cents)
Basic earnings 47.2 43.1 (8.7) 46.8 (0.9)
per share
(cents)
Diluted headline 40.3 38.4 (4.7) 3.5
earnings per 41.7
share (cents)
Diluted earnings 40.1 38.2 (4.7) 41.4 3.2
per share
(cents)
Net asset value 508.4 514.7 1.2 518.0 1.9
per share
(cents)
Net tangible 460.1 370.9 (19.4) 374.2 (18.7)
asset value per
share (cents)
Number of shares 303,729 404,972 33.3 404,972 33.3
in issue (000`s)
Weighted average 260,854 362,097 38.8 362,097 38.8
number of shares
in issue (000`s)
Diluted weighted 307,636 408,879 32.9 408,879 32.9
average number
of shares
(000`s)
Notes and assumptions:
1. The financial information in the "Before the Transaction" column
has been based on:
- for statement of comprehensive income purposes, BCX`s
published and audited statement of comprehensive income for
the year ended 31 August 2010; and
- for statement of financial position purposes, BCX`s published
and audited statement of financial position as at 31 August
2010.
2. The unaudited pro forma statement of comprehensive income of BCX
has been prepared assuming that BCX acquired the Target Companies
with effect from 1 September 2009.
3. The unaudited pro forma statement of financial position of BCX has
been prepared assuming that the Transaction was effected on 31
August 2010.
4. The unaudited pro forma statement of comprehensive income and
unaudited pro forma statement of financial position has been
prepared using the management accounts of the Target Companies for
the year ended 30 September 2010.
5. The unaudited pro forma finacial statements include:
- transaction costs of approximately R13.4 million;
- the asumption that the carrying amounts of the net assets of
the Target Companies represent their fair values;
- the assumption that the deferred tax balances of the Target
Companies is the deferred tax at acquisition;
- an indicative valuation of the fair value of intangible assets
at acquisition; and
- deferred tax raised on the indicative valuation of intangible
assets.
6. The number of ordinary shares in issue increases by approximately 101.2
million as a result of the Transaction.
7. Excludes transaction costs of approximately R13.4 million.
5. Shareholder support
Following the cautionary announcement released on SENS on Wednesday, 10
November 2010, BCX held discussions with a number of its major shareholders,
the majority of whom have indicated support for the Transaction.
6. Conditions precedent
The Transaction is subject to the fulfilment and/or waiver of, inter alia,
the following conditions precedent by no later than 29 April 2011 (or such
later date as UCS and BCX may agree in writing):
6.1 the approval by the requisite majority of UCS shareholders of the
resolutions to be proposed at the general meeting to approve the Transaction
and any other matters relating to the Transaction;
6.2 the obtaining by each of UCS and BCX of any regulatory approvals as may
be required for the Transaction in terms of the Listings Requirements and the
SRP Code;
6.3 the approval by the requisite majority of BCX shareholders in general
meeting of the Transaction and any other matters relating thereto;
6.4 the approval of the Competition Authorities of the Transaction;
6.5 a written undertaking from UCS` current BEE shareholders in terms of
which they agree not to dispose of so many BCX shares distributed to them
pursuant to the Unbundling, or written undertakings from UCS shareholders in
terms of which they agree to sell to BCX so many BCX shares distributed to
them pursuant to the Unbundling, or a combination of the above, as is
required in order for BCX to retain a BEE ownership status of at least 25%
plus 1 BCX share after the Unbundling and until 31 December 2011;
6.6 the approval of the Transaction and all agreements and transactions
contemplated therein by Nedbank Limited, to the extent required; and
6.7 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 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.
8. UCS announcement
BCX shareholders are also referred to the separate announcement that has been
made by UCS on SENS today, 15 December 2010, relating to the Transaction.
9. Withdrawal of cautionary announcement
BCX shareholders are advised that, as a result of the publication of this
announcement, the relevant cautionary announcement is now withdrawn and
caution is no longer required to be exercised by BCX shareholders when
dealing in their BCX shares.
Midrand
15 December 2010
Merchant bank and sponsor to BCX
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Attorneys to BCX
Cliffe Dekker Hofmeyr Incorporated
Transaction manager
Imbewu Capital Partners
Independent reporting accountants
KPMG Registered Auditors
Date: 15/12/2010 08:30:01 Produced by the JSE SENS Department.
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