| Mon 29 Oct 2001, 0:00 | | Cs Computer Services Holdings Limited - The Introd |
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Investment Holdings As A Strategic Black Partner, And Acquisition Of Argil
Holdings
CS Computer Services Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1996/015131/06)
("CS Holdings" or "the Company")
Share code: CSH
ISIN code : ZAE 000022034
Making sense of IT
THE INTRODUCTION OF WORLDWIDE AFRICA INVESTMENT HOLDINGS AS A STRATEGIC
BLACK PARTNER, AND ACQUISITION OF ARGIL HOLDINGS
1. INTRODUCTION
Gensec Bank Limited and Barnard Jacobs Mellet Corporate Finance
(Proprietary) Limited are authorised to announce that CS Holdings has
entered into an agreement with Worldwide Africa Investment Holdings Limited
("WAIH"), a prominent black controlled and managed company, to purchase 100%
of the shares of, and shareholders' claims against, Argil Holdings
(Proprietary) Limited ("Argil").
The R30.5m purchase price for Argil will be settled with the issue of CS
Holding's shares, which will result in WAIH acquiring approximately 15% of
the Company. As part of the transaction, WAIH is committed to acquire a
further 10% in CS Holdings.
2. INFORMATION ON ARGIL
Argil, previously the management consulting business of Ernst & Young South
Africa, is one of the largest black owned consultancies in South Africa, and
has established itself as one of the leading consulting firms in the
country. Argil, which provides inter alia, the following core services:
business process re-engineering;
management consulting;
people effectiveness and change management; and
SAP implementation services,
has been particularly successful in the public and parastatal sectors. In
addition, Argil has maintained a close working relationship with Ernst &
Young SA.
3. INFORMATION ON WAIH
WAIH is a privately owned and managed black investment holding company, and
its focus is to develop a portfolio of investments in certain key areas,
including information technology and telecommunications ("ICT"), energy and
financial services. WAIH's involvement in the ICT sector is inspired by its
increasing relevance to global business development and the convergence
between IT and telecommunications is expected to create synergy within its
portfolio of investments, which includes, inter alia, Johnnic, Plessey,
Commerce One SA and Netcom Solutions. WAIH's other strategic investments
include Engen, Afric Oil and Zenex.
The founders and executive staff of WAIH together with Sego Investments
(Pty) Ltd own just over 50% of WAIH, with the balance represented by large
South African and off-shore institutions.
3. RATIONALE FOR THE ACQUISITION
Significant synergies with CS Holdings underpin the rationale for the
acquisition of Argil:
3.1 Complementary competencies
The merger of Argil and CS Systems Integration, the processes division of CS
Holdings, will add significantly to CS Holdings' consulting service
offerings, the combination of which is expected to enhance business in the
public, parastatal and private sectors.
3.2 Expansion of skills base
Argil has approximately 60 professional consultants with vast experience in
financial and business advisory services, as well as a pool of high-level
SAP skills and resources, who will be fully integrated into CS Systems
Integration, with Argil's key management becoming part of CS Holdings'
strategic management team. This, together with the existing IT skills of CS
Holdings, will position the group as one of the leaders in management and IT
consulting services.
3.3 Black empowerment
With the purchase of 25 percent of the issued share capital of CS Holdings,
WAIH will appoint Litha Nyhonyha, Thuli Zuma, and Nomfundo Qangule
(alternate) as non-executive directors to the CS Holdings board. The
strategic input of these directors, together with WAIH's strategic
shareholding, are expected to be important factors in CS Holdings'
positioning in the public and parastatal sectors. This transaction is
therefore of great strategic importance to CS Holdings in terms of its
realisation of black empowerment within the group.
3.4 Strategic relationship between CS Holdings and Ernst & Young SA
CS Holdings and Ernst & Young SA have agreed to continue with the close
working relationship that Argil had with its former parent company and
discussions to further this relationship are in progress.
3.5 Rationalisation
Overlapping services, geographical representation and infrastructure will be
merged with those of CS Systems Integration in order to unlock
rationalisation benefits, increase capacity utilisation and thereby increase
profitability.
4. FINANCIAL INFORMATION
4.1 Purchase consideration
The purchase consideration of R30.5m, has a minimum threshold of
approximately R18m, which is subject to an adjustment equal to the amount of
any decrease or increase of the expected tangible net asset value of Argil,
as at the effective date. In terms of the warranted profits for Argil there
is a maximum purchase price of R45m. The purchase consideration is to be
settled by the issue of CS Holdings shares. The issue price of which will be
based on the volume weighted average share price for the 14-day period prior
to the effective date, but will not be less than 95 cents per share, or
higher than 100 cents per share.
4.2 Financial effects
The financial effects of the acquisition on the headline earnings per share
and net tangible asset value per share of CS Holdings, had the acquisition
been effective for the 12 month period ended 30 June 2001, are set out
below:
Before After %
the the Change
acquisit acquisit
ion ion
(cents) (cents)
Headline earnings per share 18.0 18.9 5.0
Net tangible assets per share 33.4 27.8 (16.8)
Weighted average number of 191 364 221 864 15.9
shares in issue (`000)
The financial effects after the acquisition are based on:
the "before acquisition" position reflecting the effect of the inclusion of
Getronics SA, as per the circular sent to shareholders on 26 September 2001;
the acquisition being effective from 1 July 2000;
after tax profit contribution of R7.5m, from Argil, for the 9-month period 1
July 2000 to 31 March 2001, annualised for 12 months;
an unadjusted purchase consideration of R30.5 million; and
the issue of 30.5m CS Holdings shares at 100 cents per CS Holdings share in
settlement of the purchase consideration.
5. SUSPENSIVE CONDITIONS
The acquisition is subject to the following suspensive conditions being
fulfilled:
the approval for and subsequent listing of the new shares by the JSE
Securities Exchange South Africa, the approval by the Competition Commission
and any other regulatory authorities, insofar as may be necessary; and
the finalisation and conclusion of any cession or assignment agreements that
may be required in terms of any "change of control" clauses in any of
Argil's customer agreements.
6. WITHDRAWAL OF CAUTIONARY
Shareholders are referred to the cautionary announcement dated 22 September
2001 and are advised that as a result of this announcement the cautionary is
now withdrawn.
7. CIRCULAR TO SHAREHOLDERS
A circular giving full details of the acquisition, which is subject to
approval by the JSE, will be sent to shareholders within 28 days of this
announcement.
Corporate Legal Joint Sponsors Transactio
Advisors advisor n advisor
Havadel Hofmeyr Barnard Gensec Corporate
Finance Jacobs Bank Solutions
(Pty) Ltd Mellet Limited (Pty) Ltd
Gensec Bank Corporate
Limited Finance
(Pty) Ltd
Midrand
29 October 2001
