| Fri 15 Jul 2011, 12:30 | | UCS - UCS Group Limited - UCS Scheme of arrangement |
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UCS
UCS
UCS - UCS Group Limited - UCS Scheme of arrangement
UCS GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1993/002253/06)
Share code: UCS
ISIN: ZAE000016150
("UCS" or "the Company")
ANNOUNCEMENT REGARDING:
* A SCHEME OF ARRANGEMENT TO BE PROPOSED BY THE BOARD OF DIRECTORS OF UCS
BETWEEN UCS AND ITS SHAREHOLDERS IN TERMS OF WHICH UCS WILL RE-ACQUIRE
THE SHARES HELD BY CERTAIN OF ITS SHAREHOLDERS;
* THE PROPOSED DELISTING OF THE UCS SHARES; AND
* THE WITHDRAWAL OF THE CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
UCS shareholders ("Shareholders") are referred to the announcement
published on the Securities Exchange News Service ("SENS") of the JSE
Limited ("JSE") on 30 May 2011 and in the press on 31 May 2011 ("the
Announcement") wherein Shareholders were advised that the board of
directors of UCS ("the Board") had resolved, in principle, to seek the
delisting of UCS on the exchange operated by the JSE ("the Delisting").
Following the Announcement, the Board has resolved that it will propose
a scheme of arrangement between UCS and Shareholders in terms of which
UCS will propose to re-acquire those UCS ordinary shares ("Shares") in
respect of which Shareholders do not, or fail to, elect to continue
holding some or all of their Shares ("Scheme Shares") ("the Scheme") and
to implement the Delisting, details of which are set out below.
Consequently, if the Scheme is approved and becomes unconditional,
Shareholders wishing to retain some or all of their Shares shall be
required to elect not to have such Shares re-acquired by UCS pursuant to
the Scheme ("the Continuation Election"), failing which UCS will
automatically re-acquire the Scheme Shares.
2. RATIONALE FOR THE DELISTING AND SCHEME
2.1 Delisting
Following the successful disposal of the majority of the business
operations of UCS to Business Connexion Group Limited ("BCG") ("the BCG
Disposal"), as more fully set out in the circular to Shareholders dated
9 March 2011, and the unbundling of the BCG consideration shares
received pursuant to the BCG Disposal to Shareholders ("BCG
Consideration Shares") ("the Unbundling"), the Board considered, inter
alia, the following factors in assessing the viability of a continued
listing of UCS on the exchange operated by the JSE:
* the size of the remaining businesses ("Remaining Businesses") held
by UCS, relative to the continued costs of remaining listed on the
JSE;
* the relative size and market capitalisation of UCS, relative to
other listed companies in the Software and Computer Services sector
of the JSE;
* the future capital requirements of the Remaining Businesses; and
* the development and/or maturity profile of the Remaining Businesses
and whether a listing would suit the stage of development and/or
maturity of these businesses.
The Continuation Election allows all Shareholders to remain invested, by
retaining all or some of their Shares (at every Shareholder`s election),
in UCS following implementation of the Delisting, whereas the Scheme
allows all Shareholders that cannot hold shares in an unlisted entity or
do not wish to hold such shares, to dispose of all or some of their
Shares (at every such Shareholder`s election) prior to implementation of
the Delisting.
2.2 Scheme
The purpose of the Scheme is to allow Shareholders that cannot or do not
wish to hold Shares in UCS following implementation of the Delisting, to
dispose of such Shares.
In order to proceed with the Scheme, which was contemplated in principle
in the Announcement, sufficient clarity was required in respect of
certain potentially material transactions and events (referred to in the
Announcement as the "Upside Events") ("Upside Events").
These Upside Events have now either materialised or the likely outcome
thereof is capable of being quantified, thereby enabling the Board to
take a view in respect of, inter alia, the cash flow and value
implications of these Upside Events to UCS and, in respect of
Shareholders, the consideration payable pursuant to the Scheme.
Further information pertaining to the Upside Events is set out in
paragraph 8 below.
3. MATERIAL TERMS OF THE SCHEME
3.1 Scheme approval
The Scheme will be proposed in terms of section 114(1)(e) of the
Companies Act, No. 71 of 2008, as amended ("the Act") and a scheme
and/or general meeting of Shareholders will be convened ("Scheme
Meeting") in order to consider and, if deemed fit, pass, inter alia, the
following inter-conditional resolutions:
- a special resolution in terms of section 48(8) of the Act and in
terms of the JSE Listings Requirements ("Listings Requirements"),
in order to authorise the re-acquisition of the Scheme Shares;
- a special resolution in terms of section 115(2) of the Act, in
order to approve the Scheme; and
- an ordinary resolution in terms of paragraph 1.14(a) of the
Listings Requirements to authorise the Delisting,
collectively hereinafter referred to as "Scheme Resolutions".
The Scheme will be subject to the conditions set out in paragraph 4
below.
The Board will propose the Scheme upon the passing of a resolution as
contemplated in section 46(1) of the Act, pertaining to the solvency and
liquidity position of the Company ("Section 46(1) Resolution"). The
Board will consider and, if deemed fit, pass the Section 46(1)
Resolution prior to disseminating the Scheme Circular (as defined and
contemplated in paragraph 3.3 below) in order to ensure that the Scheme
remains subject only to the Scheme Conditions (as defined and
contemplated in paragraph 4 below).
3.2 Scheme consideration
In terms of the Scheme, UCS will propose to re-acquire the Scheme Shares
at a price of 55 cents per Scheme Share, to be settled in cash ("the
Scheme Consideration").
The Scheme Consideration represents a 42% premium over the volume
weighted average price of the Shares traded on the exchange operated by
the JSE during the 10 trading days commencing on the date upon which the
Shares traded "ex" their entitlement to the BCG Consideration Shares in
terms of the Unbundling and ending on (and including) the day before the
date of the Announcement.
3.3 Scheme circular and salient dates pertaining to the Scheme
Further details of the Scheme and the Delisting will be included in a
circular to Shareholders to be posted by no later than 15 August 2011
("Scheme Circular"). The Scheme Circular will, inter alia, contain a
notice of the Scheme Meeting at which the Scheme Resolutions will be
proposed, a form of proxy and a form of election for purposes of making
the Continuation Election.
The Scheme Circular will also set out the salient dates pertaining to
the Scheme and the Delisting, which dates will also be announced by UCS
on SENS and in the press on the date on which the Scheme Circular is
posted to Shareholders.
4. SCHEME CONDITIONS
The Scheme is subject to the fulfilment of the following conditions:
- the requisite majority of Shareholders approving the Scheme
Resolutions;
- in the event of the provisions of section 115(5) of the Act
becoming applicable, the approval of the Scheme by the High Court
of South Africa; and
- UCS obtaining such other statutory and regulatory approvals as may
be required in order to implement the Scheme and the Delisting,
collectively hereinafter referred to as "Scheme Conditions".
5. CASH GUARANTEE
Nedbank Limited has confirmed that sufficient funds are available to UCS
to satisfy in full the Scheme Consideration in respect of the maximum
number of Scheme Shares which the Company will be entitled or obliged to
re-acquire and has provided an irrevocable, unconditional bank guarantee
in favour of Shareholders to the Takeover Regulation Panel for this
purpose.
6. IRREVOCABLE UNDERTAKINGS
UCS has received irrevocable undertakings from certain Shareholders
representing in aggregate 70.6% of the issued share capital of UCS to
vote in favour of the Scheme Resolutions.
UCS has furthermore received irrevocable undertakings from certain
Shareholders, representing in aggregate 65.4% of the issued share
capital of UCS, in terms of which they irrevocably undertake to exercise
the Continuation Election ("Continuation Election Undertakings").
7. THE DELISTING
Upon the Scheme becoming unconditional and being implemented,
application will be made by UCS to the JSE to terminate the listing of
the Shares on the exchange operated by the JSE.
8. UPSIDE EVENTS
The Announcement confirmed the Upside Events that the Board was and, at
the date of this announcement, remains aware of to be as follows:
* the potential upside pertaining to UCS sharing in the upside of the
proposed disposal by BCG of its interests in Destiny Electronic
Commerce (Proprietary) Limited ("Destiny E-Commerce") to VeriFone
Singapore PTE Limited ("the VeriFone Transaction") ("VeriFone
Upside");
* the potential upside pertaining to the disposal of the enterprise
services business ("Enterprise Services Business") to HCL Axon
(Proprietary) Limited and UCS` on-going interest in this
transaction ("HCL Axon Upside"), which transaction was announced on
16 July 2009; and
* the potential upside pertaining to the disposal of UCS`
shareholding in TSS Managed Services (Proprietary) Limited ("TSS
Managed Services") and UCS` on-going interest in this transaction
("TSS MS Upside"), which transaction was announced on 23 September
2009 and a circular to Shareholders was issued on 19 October 2009.
The status of the Upside Events at the date of this announcement is as
follows:
8.1 VeriFone Upside
Shareholders are referred to the joint announcement, dated 30 June 2011,
wherein UCS and BCG confirmed that the conditions precedent to the
VeriFone Transaction had been fulfilled and that the VeriFone
Transaction became effective on 30 June 2011.
Based on written confirmation received by UCS from BCG, the minimum
amount of the VeriFone Upside which UCS will receive equates to
approximately R67.6 million (net of tax).
8.2 HCL Axon Upside
As set out in the Announcement, the key driver of the HCL Axon Upside is
the revenue to be achieved by the Enterprise Services Business for the
twelve months ending 31 July 2011.
At the date of this announcement, the Board had been provided with an
update as to the likely achievement of the revenue forecast and
consequently, the Board has taken a view in respect of the HCL Axon
Upside to be achieved, taking into account, inter alia, further revenue
recognition risk that has transpired subsequent to the Announcement.
The Board is of the view, based on the information at hand, that the HCL
Axon Upside is unlikely to exceed R19 million (net of tax), as referred
to in the Announcement, and may be significantly less than the aforesaid
amount in view of the further revenue recognition risk.
8.3 TSS MS Upside
Shareholders are referred to the announcement published by EOH Holdings
Limited ("EOH") on 5 July 2011 regarding the acquisition by EOH Mthombo
(Proprietary) Limited, a wholly-owned subsidiary of EOH, of the entire
issued share capital of and all claims against TSS Managed Services,
from Tactical Software Systems (Proprietary) Limited ("TSS") ("EOH TSS
Transaction").
As a consequence of the EOH TSS Transaction, TSS has elected to exercise
its right to an early redemption of the preference shares issued by TSS
to UCS Solutions Holdings (Proprietary) Limited ("TSS Preference
Shares"). The early redemption election was made by TSS in accordance
with the terms and conditions of the disposal by UCS of its shareholding
in TSS Managed Services and the TSS Preference Shares subscription
agreement, as approved by Shareholders at the general meeting held on 3
November 2009.
Accordingly, the TSS MS Upside as contemplated in the Announcement has
been realised and UCS will receive an amount of approximately R24
million (net of tax) in this regard.
9. PRO FORMA FINANCIAL INFORMATION
The table below sets out the unaudited pro forma financial effects
("Financial Effects") of the BCG Disposal and Unbundling, the VeriFone
Transaction and the Scheme, which are based on the reviewed interim
results of UCS for the six months ended 31 March 2011 ("Interim
Results"), published on 30 May 2011. The previously published Financial
Effects of the BCG Disposal and Unbundling and the VeriFone Transaction
were based on UCS` audited results for the year ended 30 September 2010
and have been revised to reflect the impact on the Interim Results as
these transactions became effective after 31 March 2011.
The Financial Effects have been prepared for illustrative purposes only,
in order to provide information about how the Scheme might have affected
UCS` earnings per share ("EPS"), headline earnings per share ("HEPS"),
diluted EPS, diluted HEPS, net asset value per share ("NAVPS") and net
tangible asset value per share ("NTAVPS"), had it been implemented on
the dates indicated in the notes below. Due to their nature, the
Financial Effects may not fairly present the financial position or the
effect on future earnings of UCS after the Scheme. The directors of UCS
are responsible for the compilation, contents and preparation of the
Financial Effects.
Before After the % change After the % change
the BCG Disposal VeriFone
Scheme and Transaction
(1) Unbundling and before
(2) & (3) the Scheme
(2) & (4)
EPS (cents) 3.3 76.0 2 203.0 84.0 2 445.5
Diluted EPS 3.3 75.4 2 184.8 83.2 2 421.2
(cents)
HEPS 3.4 (9.8) (388.2) (9.8) (388.2)
(cents)
Diluted 3.4 (9.7) (385.3) (9.7) (385.3)
HEPS
(cents)
NAVPS 168.4 68.0 (59.6) 75.9 (54.9)
(cents)
NTAVPS 45.8 21.6 (52.8) 29.5 (35.6)
(cents)
Weighted 287 129 287 129 - 287 129 -
average
shares in
issue
(`000)
Diluted 289 656 289 656 - 289 656 -
weighted
average
shares in
issue
(`000)
Shares in 288 911 288 911 - 288 911 -
issue net
of treasury
shares held
(`000)
Table continued
Scenario % change Scena-rio 2 % change
1 (5) (6)
EPS (cents) 100.4 2 942.4 127.3 3 757.6
Diluted EPS (cents) 99.3 2 909.1 125.6 3706.1
HEPS (cents) (13.2) (488.2) (16.8) (594.1)
Diluted HEPS (cents) (13.1) (485.3) (16.5) (585.3)
NAVPS (cents) 78.9 (53.1) 85.3 (49.3)
NTAVPS (cents) 22.8 (50.2) 14.3 (68.8)
Weighted average 237 032 (17.4) 186 935 (34.9)
shares in issue
(`000)
Diluted weighted 239 559 (17.3) 189 462 (34.6)
average shares in
issue (`000)
Shares in issue net 238 814 (17.3) 188 717 (34.7)
of treasury shares
held (`000)
Notes and assumptions:
1. Based on the Interim Results.
2. Based on the assumption that the BCG Disposal and Unbundling, the
VeriFone Transaction and the Scheme were effected on 1 October 2010
for condensed consolidated income statement purposes and on 31
March 2011 for condensed consolidated statement of financial
position purposes.
3. Included in the "After the BCG Disposal and Unbundling" earnings
and headline earnings are the following adjustments and related
assumptions:
a The reversal of the contribution to earnings and headline
earnings by the entities disposed of in terms of the BCG
Disposal for the six months ended 31 March 2011 totaling
R40.179 million, net of non-controlling interest of R2.027
million.
b To take into account the Secondary Tax on Companies ("STC") of
R0.7 million relating to a dividend paid by Destiny E-Commerce
pre the effective date of the BCG Disposal and Unbundling;
c To take into account a total BCG Disposal purchase
consideration of R508.801 million comprising:
i. 101 243 118 BCG ordinary shares valued at the the BCG
closing price on Monday, 23 May 2011, being the date of
the Unbundling, of R4.86 per BCG share i.e. an ordinary
share consideration of R492.042 million;
ii 25 033 334 million BCG "A" ordinary shares valued at BCG
closing price on Monday, 23 May 2011 of R0.27 per BCG
share i.e. an equity consideration of R6.759 million; and
iii the receipt of the purchase consideration balance
assuming the pre-determined targets are met.
d. After the realisation of R101.878 million goodwill, the
applicable profit on sale of the BCG Disposal totaling
R261.746 million pre-tax and the transaction costs incurred of
R4.4 million accounted for in the Interim Results which are
once-off in nature.
e. On the basis that the provisions of section 42 of the Income
Tax Act are met, no Capital Gains Tax ("CGT") or Securities
Transfer Tax ("STT") shall be payable by UCS relating to the
receipt of the BCG Consideration Shares.
f. To take into account the provision of the estimated CGT
amounting to R8.725 million, payable by UCS, due to the de-
grouping provision of section 45 of the Income Tax Act
applicable in UCS Technology Services (Proprietary) Limited.
g. To take into account income tax at a statutory rate of 28%.
h. The application of section 46 of the Income Tax Act whereby
UCS unbundled all of the BCG Consideration Shares received on
the BCG Disposal. Accordingly no CGT, STT or STC will be
payable by UCS on the Unbundling.
i. For statement of financial position purposes, the NAVPS and
NTAVPS were calculated to demonstrate the effect of the BCG
Disposal and Unbundling as if it had taken place on 31 March
2011. Consequently, due to the growth in the BCG Disposal
entities` net asset value, the applicable profit on sale
amounts to R208.713 million, net of estimated transaction
costs and tax.
4. Included in the "After the VeriFone Transaction and before the
Scheme" earnings and headline earnings are the following
adjustments and related assumptions:
a. to take account of the acquisition by BCG from UCS of the sale
claims held by UCS against Destiny E-Commerce equal to the
face value thereof being R44.896 million; and
b. based on the total consideration to be received by BCG in
terms of the VeriFone Transaction being an estimated amount of
R255 million and taking UCS` share thereof into account, being
R22.836 million after CGT.
5. Based on the assumption that Continuation Elections for 50% of the
Shares are received (which Shares exclude the Continuation Election
Undertakings), 50 097 054 Shares are re-acquired in terms of the
Scheme and estimated transaction costs relating to the Scheme of
R4.4 million (pre-tax) are incurred.
6. Based on the assumption that no Continuation Elections are received
(which Shares exclude the Continuation Election Undertakings), 100
194 108 Shares are re-acquired in terms of the Scheme and estimated
transaction costs relating to the Scheme of R4.4 million (pre-tax)
are incurred.
10 BOARD RESOLUTIONS, RECOMMENDATION AND FAIRNESS OPINION
The independent members of the Board ("Independent Board") has appointed
KPMG Services (Proprietary) Limited as independent expert to provide it
with external advice in relation to the Scheme and the Delisting.
The substance of the external advice and the views of the Independent
Board will be detailed in the Scheme Circular.
In passing the Board resolutions necessary to, inter alia, propose the
Scheme and the Delisting and matters ancillary thereto ("Board
Resolutions") and in terms of the provisions of Regulation 108(8)(b)(ii)
contained in the Companies Regulations, 2011, promulgated in terms of
the Act ("Regulations"), Messrs DF Coles and JD Bright have complied
with the provisions of Regulation 108(5) of the Regulations, by, inter
alia, recusing themselves from deliberations in respect of and voting on
the Board Resolutions.
11. RESPONSIBILITY STATEMENT
The Independent Board accepts responsibility for the information
contained in this announcement. To the best of the Independent Board`s
knowledge and belief, the information contained in this announcement is
true and nothing has been omitted which is likely to affect the
importance of the information.
12. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Following the release of this announcement, the cautionary announcement
contained in the Announcement is hereby withdrawn and caution is no
longer required to be exercised by Shareholders when dealing in Shares.
15 July 2011
Corporate Advisor and Sponsor
One Capital
Attorneys
Glyn Marais Inc.
Independent Expert
KPMG Services (Proprietary) Limited
Tax Advisor
Bowman Gilfillan Attorneys
Date: 15/07/2011 12:30:12 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.
