| Thu 2 Jun 2011, 7:05 | | ITR - Intertrading Limited - Acquisition of a 60% shareholding in Connectnet |
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ITR
ITR
ITR - Intertrading Limited - Acquisition of a 60% shareholding in Connectnet
Broadband Wireless Proprietary Limited
INTERTRADING LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1987/004777/06)
Share code ITR ISIN ZAE000015566
("Intertrading" or "the company")
SUSPENDED
- ACQUISITION OF A 60% SHAREHOLDING IN CONNECTNET BROADBAND WIRELESS
PROPRIETARY LIMITED
- MANDATORY OFFER
- WITHDRAWAL OF CAUTIONARY ANNOUCEMENT
1. Introduction
Shareholders are referred to the announcement dated 4 March 2011 wherein they
were informed of the proposed acquisition referred to below, which, if all the
requirements are met, will result in the lifting of the suspension of trading in
Intertrading shares on the JSE, the retention of Intertrading`s listing on the
JSE Limited ("JSE") and in the company becoming a technology focused company.
2. The proposed acquisition
On 19 May 2011 Intertrading entered into an agreement with Fast Communication
Systems Proprietary Limited ("FastComm") in terms of which the company will
acquire 150 ordinary shares representing 60% of the issued share capital from
FastComm in ConnectNet Broadband Wireless Proprietary Limited ("ConnectNet") for
a purchase consideration of R41 779 500 ("the acquisition") to be settled by
Intertrading by the issue of up to a maximum of 278 530 000 ordinary shares in
the capital of Intertrading ("Intertrading shares") to FastComm at an issue
price of 15 cents per share ("consideration shares"). The purchase consideration
is subject to down-ward adjustment should ConnectNet be determined to have
achieved earnings before tax, depreciation and amortisation of less than R6 500
000 for the period 1 March 2011 to 30 June 2011, in which case a purchase
consideration adjustment amount will be determined, which will be paid to
Intertrading in cash.
3. Encha acquisition and the specific issue of shares for cash
Encha Tech Proprietary Limited ("Encha") has entered into an agreement with
FastComm in terms of which Encha/and or its nominees will acquire all of the
consideration shares issued to FastComm at a price of 15 cents per share (the
"Encha acquisiton").
Furthermore, Encha has undertaken to subscribe for 67 000 000 new Intertrading
shares at an issue price of 15 cents per share ("the subscription shares"), to
capitalise Intertrading and to ensure that Intertrading has a subscribed share
capital of not less than R25 000 000, in compliance with the requirements of
clause 4.28(a) of the JSE Listings Requirements ("the specific issue of shares
for cash").
4. The business of Encha
Encha is the technology investment arm of Encha Group Limited ("Encha Group"),
an investment holding company with interests in mineral exploration, industrial,
technology and property assets. Encha Group is controlled by the Moseneke
family.
5. The business of ConnectNet
ConnectNet is a provider of value-added wireless data services for business-to-
business and machine-to-machine applications. Established in 2004, ConnectNet is
a leader in GSM Data (GPRS/EDGE/3G/HSDPA/HSUPA) service provision, with blue
chip clients in the retail, financial, security, telemetry, healthcare and
pharmaceutical sectors.
6. Rationale for the acquisition
The rationale for the acquisition is to lift the suspension of trading in
Intertrading shares on the JSE. It has always been the intention of the board of
directors of Intertrading ("the board") to find a suitable acquisition. The
acquisition gives shareholders exposure to an exciting technology company or the
opportunity to accept the mandatory offer as detailed in paragraph 9 below.
It is the intention of Encha Group to pursue its technology interests through
Intertrading and to grow a substantial listed technology group by way of
acquisition and organic growth. It is optimal for Encha Group to achieve its
growth plans via a listed entity, enabling it to access the capital raising
opportunities presented by a JSE listing and to contribute to the growth of the
company alongside other investors. The acquisition constitutes the first step in
such a strategy.
It is proposed that upon implementation of the acquisition the board will be
reconstituted to facilitate the change in business direction of Intertrading, to
bed down the acquisition in the short term, and to set the strategy for the new
technology company, as more fully set out in paragraph 12 below.
7. Conditions precedent
Implementation of the acquisition is subject to, inter alia, the following
outstanding suspensive conditions:
7.1 the shareholders of Intertrading ("Intertrading shareholders") passing the
appropriate resolution approving the acquisition at a general meeting;
7.2 the granting of all necessary regulatory approvals for the acquisition; and
7.3 the Takeover Regulation Panel ("the Panel") granting a written dispensation
to FastComm confirming that, pursuant to the acquisition by FastComm of the
consideration shares, FastComm shall not be required under the Takeover
Regulations to make an offer to the minority shareholders of Intertrading to
purchase their shareholding in Intertrading.
8. Change of control and waiver of a mandatory offer by FastComm
In terms of the acquisition, and in settlement of the purchase consideration,
Intertrading will issue the consideration shares to FastComm, which issue will
render FastComm a controlling shareholder of Intertrading, holding more than 35%
of Intertrading`s issued share capital. The proposed acquisition thus effects a
change in control in the company and is an affected transaction in terms of the
Takeover Regulations.
Under the circumstances FastComm would ordinarily, in terms of the Takeover
Regulations, be required to make a mandatory offer to Intertrading shareholders
at 15 cents per share. However, FastComm has agreed to sell the consideration
shares to Encha and/or its nominees upon issue and allotment thereof by
Intertrading. Encha has further entered into a subscription agreement in terms
of which Intertrading will effect the specific issue of shares for cash.
The implementation of the aforesaid agreements has the result that Encha will
become the controlling shareholder of Intertrading. The transactions are
affected transactions in terms of the Takeover Regulations and therefore require
that Encha make an offer to Intertrading shareholders, in terms of section 123
of the Companies Act, 2008(Act 71 of, 2008), of South Africa, as amended ("the
Act").
The transactions between Intertrading, FastComm and Encha are so closely
interlinked that the making of a mandatory offer to the shareholders of
Intertrading (due to the change of control of Intertrading) by Encha alone will
not prejudice the shareholders of Intertrading as they will be in the same
position as they would have been in if the mandatory offer had been made by
FastComm. Accordingly, application to the Panel will be made for a dispensation
in terms of section 119(6) of the Act, absolving FastComm from the requirement
to make a mandatory offer pursuant to receipt of the consideration shares
provided Encha makes such an offer.
9. Mandatory offer by Encha
9.1 The offer
The board has received a formal notification from Encha that it will make an
offer to acquire from Intertrading shareholders, free of all costs to such
shareholders, all of the ordinary shares in Intertrading held by them at an
offer price of 15 cents per Intertrading share.
Encha currently owns 29.8% of the ordinary shares in Intertrading.
The salient details of the offer shall be incorporated in the circular to
Intertrading shareholders referred to in paragraph 16 below ("the circular").
9.2 Irrevocable undertakings
To date Intertrading shareholders holding 17 450 100 shares, representing 34.9%
of Intertrading shares not held by Encha and therefore available for
participation in the offer have irrevocably undertaken not to accept the offer.
9.3 Cash Confirmation
As required by the Takeover Regulations, a South African registered bank will
provide an irrevocable unconditional guarantee to the Panel on behalf of Encha
and in favour of the offerees for the sole purpose of fully satisfying the
maximum cash offer commitments.
9.4 Statement by the Intertrading board and the independent advisor
The board has appointed BDO Corporate Finance (Pty) Limited ("BDO Corporate
Finance") as an independent advisor to provide it with external advice on how
the offer affects Intertrading shareholders. BDO Corporate Finance has advised
the board that it has considered the terms and conditions of the offer, and is
of the opinion that these terms and conditions are fair to Intertrading
shareholders. The text of the opinion provided by BDO Corporate Finance will be
included in the circular.
The board, having considered, inter alia, the independent advice from BDO
Corporate Finance and the terms and conditions of the offer, advise that
although the offer is fair to shareholders, they recommend that shareholders not
accept the offer in order to participate in the positive prospects of the
company going forward. Mr Gontse Moseneke, a director and shareholder of
Intertrading, will not be accepting the offer. None of the other directors of
Intertrading hold any shares in Intertrading.
10. Change in the name of the company
Subject to the approval of the shareholders by way of a special resolution, it
is proposed that the name of the company be changed from "Intertrading Limited"
to "Emergent Technologies Limited" in order to reflect its new corporate
identity, focus and business.
The name reservation has been approved by the Companies and Intellectual
Property Commission ("Commission").
11.Adoption of a new Memorandum of Incorporation by Intertrading
Subject to the approval of the shareholders by way of a special resolution, it
is proposed that a new Memorandum of Incorporation ("MoI") be adopted by the
company in order to alter the main business of the company to reflect that the
company will, after the acquisition, be constituted as a technology focused
company and to ensure that the MoI complies with the Act and the JSE Listings
Requirements.
12. Reconstitution and remuneration of the board
To give full effect to the change in shareholding and the development of the new
business imperative to be pursued by the company, after implementation of the
proposed transactions and to comply more fully with the Act, a change in the
composition of the board will be proposed upon implementation of the acquisition
as follows:
Mr Johan Zwarts will retain his current position as Financial Director;
Mr Gontse Moseneke will be appointed as the Chief Executive Officer ("CEO");
The designations of Messrs Christopher Paul Jousse and Giovanni Guiseppe Burelli
will change to independent non-executive directors;
Ms Audrey Anne Deiner will remain as a non executive director; and
Dr Sedise Gabaiphiwe Moseneke will be appointed to the board as a non-executive
director.
Subject to the approval of shareholders the board will therefore be
reconstituted as follows:
* CEO: Mr Gontse Moseneke
* Financial Director: Mr Johan Zwarts
* Independent non- executive Chairman: Mr Giovanni Guiseppe Burelli
* Independent non-executive director: Mr Christopher Paul Jousse
* Non-executive director: Dr Sedise Gabaiphiwe Moseneke
* Non-executive director: Ms Audrey Anne Deiner
Shareholders will also be required to approve the proposed remuneration of the
reconstituted board at the general meeting in accordance with the Act.
13. Encha Group Memorandum of Agreement
13.1 On 19 May 2011 Intertrading entered into an agreement with Encha Group
("the Encha Group Memorandum of Agreement") in terms of which Encha Group
undertook to utilise its reasonable commercial endeavours to:
13.1.1 assist Intertrading in raising capital including, but not limited
to, the introduction of potential investors to Intertrading;
13.1.2 assist Intertrading in procuring such security as may be required
by any provider of funding to Intertrading, which assistance may
include, in the sole discretion of Encha Group, the cession and pledge
of Intertrading shares held by Encha Group or Encha, to any such
funder in securitatem debiti; and
11.3.3 introduce Intertrading to technology related business
opportunities and facilitate the implementation of transactions
pursuant to such introduction.
13.2 Encha Group is entitled to receive remuneration from Intertrading in
relation to the provision of the services detailed above in the form
of cash or Intertrading ordinary shares, at the election of
Intertrading, as follows:
13.2.1 in respect of assistance with capital raising, Encha Group shall be
entitled to a fee equivalent to 2.5% of the capital raised, net of any fees
or levies raised by the capital provider for which Intertrading is liable;
13.2.2 in respect of shares ceded and pledged by Encha Group or Encha to
procure security for funding provided to Intertrading, a fee equivalent to
3% of the aggregate value of the Intertrading ordinary shares so ceded and
pledged by Encha Group or Encha; and
13.2.3 in respect of the implementation of transactions pursuant to the
introduction by Encha Group of technology related businesses to
Intertrading, a fee equivalent to 1.5% of the value of such a transaction.
13.3 Subject to shareholder approval, the Encha Group Memorandum of Agreement
will commence on 1 June 2011 and shall endure thereafter indefinitely,
subject to the right of either Intertrading or Encha Group to terminate it
on 90 days` written notice to the other party.
13.4 Rationale for the Encha Group Memorandum of Agreement
Encha has a long track record of successfully concluding transactions and
continues to see potential value accretive transactions in the technology
sector, which it would like to offer to Intertrading, on an exclusive
basis, as investment opportunities, having first screened, evaluated and
assessed these technology opportunities.
Condition precedent to the Encha Group Memorandum of Agreement
The Encha Group Memorandum of Agreement, is subject to the condition precedent
that it shall be approved by Intertrading shareholders, excluding Encha Group
and its associates (including Encha) at a general meeting of Intertrading
shareholders, the circular pertaining to which is expected to be posted to
shareholders within 28 business days of this announcement.
14. Financial effects
Unaudited pro forma financial effects of the acquisition and specific issue of
shares for cash to Encha (collectively "the transactions")
The unaudited pro forma financial effects of the transactions set out below is
based on the published unaudited results of Intertrading for the 12 months ended
28 February 2011. The unaudited pro forma financial information is the
responsibility of the board and has been prepared for illustrative purposes
only, and, because of their pro forma nature, may not give a fair reflection of
Intertrading`s financial position, changes in equity, results of operations or
cash flows after the transactions.
The detailed unaudited pro forma financial information, the notes thereto, and
the independent report of BDO South Africa Incorporated on the unaudited pro
forma financial effects, will be contained in the circular referred to in
paragraph 16 below.
Pro forma financial effects on unaudited results of Intertrading for the 12
months ended 28 February 2011:
Effects per
Intertrading share
Before After
the the
transacti acquisit
ons ion and
issue of After the Change%
28 consider Transaction
February ation s
2011 shares
(Loss)/earnings per (0.93) 0.26 0.22 123
share (cents)
Headline (0.93) 0.26
(loss)/earnings per 0.22 123
share (cents)
Net asset value per 16.28 6.30 7.77 (52)
share (cents)
Net tangible asset 16.28 5.81
value per share (cents) 7.37 (55)
Weighted average shares 50 000 328 530
in issue (`000) 395 530 691
Shares in issue (`000) 50 000 328 530
395 530 691
Notes:
1 The "Before the transactions" earnings and headline earnings per share have
been extracted without adjustment from the published, unaudited results of
Intertrading for the twelve months ended 28 February 2011. The "Before the
transactions" net asset value and net tangible asset value per share have
been calculated from the published, unaudited results of Intertrading for
the twelve months ended 28 February 2011.
2 The "After the acquisition and issue of consideration shares" earnings and
headline earnings per share assumes:
a The consolidation of ConnectNet`s income and expenditure as extracted from
the audited results of ConnectNet for the year ended 28 February 2011;
b The payment of the transaction costs estimated to amount to R3 000 000; and
c The issue of 278 530 000 new Intertrading shares at 15 cents per share in
settlement of the purchase consideration.
3 The "After the acquisition and issue of consideration shares" net asset
value and net tangible asset value per share assumes:
a The acquisition is a reverse acquisition in terms of IFRS 3: Business
Combinations and, therefore, Intertrading is the legal parent and the
acquiree and ConnectNet is the legal subsidiary and the acquiror for
accounting purposes. In accordance with this accounting treatment:
i The identifiable assets and liabilities of Intertrading have been
measured at fair value;
From a legal point of view Intertrading`s shareholders have obtained a
60% interest in ConnectNet. However, from an accounting point of view
FastComm has obtained an 85% interest in Intertrading with the
remaining 15% interest being held by Intertrading`s shareholders. As
ConnectNet is the accounting acquirer, because FastComm has obtained
85% of the legal acquirer (being Intertrading), it is necessary to
calculate how many shares ConnectNet would have issued in order to
give FastComm an 85% interest in Intertrading. This is a hypothetical
calculation because ConnectNet never issued any shares since it is the
legal subsidiary. The Intertrading shareholders hold 150 shares in
ConnectNet. For this to represent 85%, ConnectNet has to issue 27
shares to Intertrading calculated as ((150/0.85)- 150)
ii The cost of the acquisition is R9 730 000 based on the issue of 27
ConnectNet shares at a fair value of R361 333 per ConnectNet share and
the goodwill amounts to R1 590 000; and
b The payment of the transaction costs of R3 000 000.
4 The "After the transactions" earnings per share and headline earnings per
share assumes:
a The adjustments set out in 2 a to c above; and
b The issue of 67 000 000 new Intertrading shares to Encha, a related party,
at 15 cents per share.
c No income benefit has been attributed to the cash received in respect of
the specific issue of shares as the proceeds with be used to fund working
capital.
5 The "After the transactions" net asset value and net tangible asset value
per share assumes:
a The adjustments as set out in 3 a to b above;
b The issue of 67 000 000 new Intertrading shares to Encha at 15 cents per
share.
15. Responsibility Statement:
The directors of Encha and the independent board of Intertrading comprising of
Mr Giovanni Guiseppe Burelli, Mr Christopher Paul Jousse, Mr Johan Zwarts and Ms
Audrey Anne Deiner:
15.1. accept responsibility for the information contained in this announcement;
15.2. confirm that to the best of their respective knowledge and belief, the
information contained in this announcement is true; and
15.3. confirm that this announcement does not omit anything likely to affect
the importance of the information contained in this announcement.
The board of directors of FastComm have not participated in the preparation of
this announcement nor have they participated in the preparation of the circular
to be posted to Intertrading shareholders in due course and therefore are unable
to provide a responsibility statement.
16. Withdrawal of cautionary announcement and further documentation
Having regard to the information set out above shareholders are advised that
they need no longer exercise caution when dealing in the company`s securities.
A circular and Revised Listings Particulars to shareholders containing the
requisite information pertaining to the proposed acquisition, the Encha
acquisition, the specific issue of shares for cash, the mandatory offer, the
change of name, the adoption of a new MoI and the reconstitution and
remuneration of the board and convening a meeting of shareholders will be posted
to shareholders within 28 days of publication of this announcement or such later
date as agreed to by the JSE Limited.
2 June 2011
Johannesburg
Sponsor and Corporate Advisor
Sasfin Capital
(a division of Sasfin Bank Limited)
Attorneys
Deneys Reitz Inc.
Independent Advisor
BDO Corporate Finance (Pty) Ltd
Auditors to Intertrading
PKF (Jnb) Inc
Date: 02/06/2011 07:05:25 Produced by the JSE SENS Department.
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