| Thu 26 Jul 2001, 0:00 | | Paracon Holdings - Disposal/acquisition |
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Paracon Holdings
("Paracon" or "the company")
Registration No. 1997/008181/06
(Incorporated in the Republic of South Africa)
- the disposal of Paracon's shareholding in Professional Consulting Network
Inc.;
- the acquisition by Paracon of further shares in Mercury Technologies Inc.;
and
- a proposed specific share repurchase
1. Introduction and background
In March 2001, LogicalOptions Limited (subsequently renamed LogOpt Limited)
("LogOpt"), which holds a 41,3% shareholding in Paracon, sold all its assets
and liabilities excluding its shareholding in Paracon to Cardinalis
Investments (Proprietary) Limited (subsequently renamed LogicalOptions
(Proprietary) Limited) ("Cardinalis"). Trading in the shares of LogOpt was
suspended on the JSE Securities Exchange South Africa ("JSE") on 10 April
2001 and, on 8 June 2001, LogOpt announced its intention to unbundle its
shareholding in Paracon. Cardinalis and its nominees hold a 33,5% equity
stake in LogOpt.
Paracon and Cardinalis jointly own 100% of Professional Consulting Network
Inc. ("PCN") and 61% of Mercury Technologies Inc. ("Mercury"). PCN is
situated primarily in the San Francisco Bay area and supplies skilled IT
resources. Mercury, based in New York, provides IT services and solutions.
In order to address the uncertainty surrounding Cardinalis' intentions vis-a-
vis its indirect shareholding in Paracon and the joint venture relationships
offshore, Paracon has concluded a binding heads of agreement with Cardinalis
in terms of which:
- Paracon acquires Cardinalis' indirect shareholding in Mercury and thus now
owns the entire 61% shareholding in Mercury ("the acquisition");
- Paracon disposes of its indirect shareholding in PCN to Cardinalis ("the
disposal"); and
- subject to Paracon shareholder approval and the unbundling by LogOpt of
its entire shareholding in Paracon, Paracon and a wholly-owned subsidiary
company of Paracon acquires Cardinalis and its nominees' effective holding
of 60 035 042 Paracon shares at 65 cents per Paracon share, comprising
14,04% of the entire issued share capital of Paracon, in terms of sections
85 and 89 of the Companies Act, 1973 (Act 61 of 1973), as amended and the
Listing Requirements of the JSE ("the specific repurchase").
The acquisition, the disposal and the specific repurchase, which are
effective from 1 July 2001, are collectively referred to as "the
transaction", are inter-conditional as to implementation and are subject to
the conditions precedent set out in paragraph 5 ("the conditions
precedent").
The net cash consideration payable by Paracon in terms of the transaction is
R43 520 150.
Paracon and Cardinalis have also agreed that Paracon will no longer provide
IT outsourcing services to Cardinalis and that Paracon will give access in
perpetuity to the source code of its proprietary staffing software to
Cardinalis for its internal use.
2. Rationale
2.1 The acquisition and the disposal
Mercury and PCN are both solid businesses that have performed well in the
past. PCN has, however, been severely affected by the tough market
conditions in the USA. Although the directors of Paracon are positive that
earnings will improve with an upturn in the US economy, there are no
indications at present that this upturn will occur within the short-term.
Mercury, whilst also struggling in the difficult US economy, is profitable
and is diversified in the sense that it provides both IT services and
internet-based solutions.
It is believed that given the restructure of LogOpt as detailed in 1 above,
the joint venture relationships in the USA are no longer appropriate and
differing strategies between Paracon and Cardinalis may result in areas of
conflict. The acquisition and the disposal provide an effective solution to
the aforementioned, giving Paracon full control of a profitable company that
is well placed to benefit from any upswing in the global IT markets.
2.2 The specific repurchase
The directors of Paracon believe that the application of a portion of
Paracon's cash resources in the specific repurchase will enhance Paracon's
earnings per share going forward and will assist in maximising shareholder
value.
The directors of Paracon are also of the opinion that implementation of the
specific repurchase will resolve the uncertainty surrounding Cardinalis'
intentions vis-a-vis its indirect shareholding in Paracon.
3. Terms of the transaction
The net cash consideration for the transaction of R43 520 150 will be
settled on the later of fulfilment of the conditions precedent and 1 October
2001 ("the settlement date") and will be funded out of Paracon's existing
cash resources.
Basic warranties as to ownership and the ability to deliver assets sold have
been given by Paracon and Cardinalis.
20 000 000 of the Paracon shares acquired as a result of the specific
repurchase will be held by a wholly-owned subsidiary company of Paracon as
treasury stock and the balance of 40 035 042 will be cancelled. The listing
on the JSE of those Paracon shares to be cancelled will be terminated at the
close of business two business days after the settlement date.
Currently each of LogOpt and Cardinalis has one appointee to the Paracon
board of directors, each of whom will resign upon the fulfilment of the
conditions precedent.
4. Financial effects
Had the transaction been implemented on 1 October 2000, the effect on the
earnings per share ("EPS"), headline earnings per share ("HEPS") and fully
diluted headline earnings per share ("fully diluted HEPS") for the unaudited
six months ended 31 March 2001 and on tangible net asset value per share
("TNAV") and net asset value per share ("NAV") of Paracon at 31 March 2001
would have been as follows:
Before After Change
(cents (cents (%)
per share) per share)
EPS 3,9 3,8 (2,6)
HEPS 4,8 4,8 0,0
Fully diluted HEPS 4,8 4,8 0,0
TNAV 31,9 25,4 (20,4)
NAV 44,7 41,4 (7,4)
Notes:
1. The above calculations are adjusted for treasury shares held by Paracon
which have been eliminated on consolidation.
2. The EPS, HEPS and fully diluted HEPS calculations above assume an after
tax interest rate of 9,1%, being the average after tax interest rate earned
by Paracon on the cash resources to be utilised in the transaction. These
calculations are based on a weighted average of 362 620 780 shares in issue
during the six months ended 31 March 2001, after adjusting for treasury
shares held by Paracon which have been eliminated on consolidation.
3. EPS, HEPS and fully diluted HEPS as calculated above are unchanged due to
the relatively high interest rate earned in that period and the fact that
PCN was profitable. The transaction will have a more positive effect on EPS,
HEPS and fully diluted HEPS going forward in a lower interest rate
environment and with the exclusion of the difficulties that PCN has been
experiencing more recently.
5. Conditions precedent
The transaction is subject, inter alia, to the fulfilment of the following
conditions precedent:
- the approval of the JSE and the South African Reserve Bank to the extent
necessary;
- the implementation of the unbundling of LogOpt's shareholding in Paracon;
- the requisite resolutions being passed in general meeting by Paracon
shareholders; and
- the registration of the required special resolutions by the Registrar of
Companies.
6. Salient dates
2001
Circular mailed to shareholders Friday 17 August
Last day to lodge forms of proxy for the
general meeting of shareholders by 10:00 Monday 10 September
General meeting to be held at 10:00 Wednesday 12 September
Results of the general meeting of
shareholders published Thursday 13 September
Note:
The above dates and times are subject to amendment. Any such amendment will
be published in the press and on the Stock Exchange News Service.
7. Documentation
A circular containing full details of the specific repurchase and including
a notice of the general meeting and form of proxy is in the process of being
prepared and, subject to the approval of the JSE, will be mailed to
shareholders on or about 17 August 2001.
Johannesburg
26 July 2001
Investment bank
Nedcor Investment Bank
Sponsor
HSBC
Attorneys
Werksmans Attorneys
