| Thu 27 Mar 2003, 17:20 | | Bytes Technology Group Limited - Acquisition Of Xe |
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Bytes Technology Group Limited - Acquisition of Xerox Limited"s interest in
Xerox South Africa (Pty) Limited
Bytes Technology Group Limited
(Incorporated in the Republic of South Africa)
(Registration number 1911/003874/06)
Share code: BTG ISIN: ZAE000029526
("BTG" or "the company")
The acquisition by BTG of Xerox Limited"s 50% plus 1 share interest
in Xerox South Africa (Pty) Limited
1. Introduction
Further to the cautionary announcement published on 12 March 2003,
shareholders of BTG are advised that agreement has been reached
between BTG and Xerox Limited for BTG to acquire the 50% plus 1
share interest ("the Xerox interest") that Xerox Limited owns in
Xerox South Africa (Pty) Limited ("Xerox South Africa") ("the
acquisition"). BTG currently has management control and a 50% less
1 share interest in Xerox South Africa.
Xerox South Africa has also agreed to change its name to Xeratech
(Pty) Limited (or such other name as may be approved by the parties
to the agreement and the Registrar of Companies) and has entered
into a 10-year exclusive distributorship agreement with Xerox
Limited to continue distributing Xerox products in South Africa and
its neighbouring countries. Xeratech (Pty) Limited retains the
right to use the "Xerox" trademarks and logo.
2. Terms of the acquisition
BTG will acquire the Xerox interest for a consideration of R235
million in cash.
The acquisition agreement contains terms, conditions and warranties
normal for agreements of such a nature.
3. Rationale for the acquisition
Xerox Limited owns a controlling equity interest in Xerox South
Africa but, in terms of the joint venture with BTG, it does not have
management control. Xerox Limited has made a strategic decision to
change the nature of its business relationship in South Africa from
that of a joint venture to that of an independent distributor.
This decision has afforded BTG the opportunity to make Xerox South
Africa a wholly-owned subsidiary, which offers BTG significant
advantages. Although BTG currently has management control of Xerox
South Africa it has not had unfettered control over its cash flows.
The acquisition of the Xerox interest will enable BTG to obtain
direct access to the cash flows of Xerox South Africa and will
enable it to utilise such cash flows optimally within the BTG group.
In addition BTG"s earnings and, as a consequence BTG"s shareholders"
returns, will be enhanced.
4. Suspensive conditions
The acquisition is subject to the fulfilment, inter alia, of the
following suspensive conditions:
* the approval of the acquisition by the boards of directors of
BTG, Xerox South Africa and Xerox Limited;
* the approval of the acquisition by BTG shareholders in general
meeting;
* the approval of the acquisition by the necessary regulatory
authorities, including the JSE Securities Exchange South Africa and
the Competition authorities; and
* the conclusion of the distributorship agreement referred to in 1
above.
5. Pro forma financial effects
The pro forma financial effects have been prepared for illustrative
purposes only, to provide information about how the acquisition
might have affected the financial information presented and, because
of their pro forma nature, may not give a true reflection of BTG"s
financial position.
The pro forma financial effects of the acquisition set out below are
based on the published unaudited interim results of BTG for the six
months ended 31 August 2002, adjusted for the acquisition of Plato
Computer Services (UK) Limited ("Plato acquisition") which became
effective on 1 December 2002.
The table below sets out the pro forma financial effects of the
acquisition on the basic earnings, headline earnings, adjusted
headline earnings, net asset value and net tangible asset value per
BTG share:
Interim Pro forma
Results after the Pro forma
at 31 Plato after the
August acquisition(7) acquisition
2002 (1) Before After Change
Cents Cents Cents %
Basic earnings per
share (2) 1.77 (27.54) (4) (30.01) (5) (9)
Headline earnings
per share (2) 23.55 17.53 (4) 23.44 (5) 33.7
Net asset value per
share (3) 319.12 319.12 (4) 319.12 (6) -
Net tangible asset
value per share (3) 189.83 (30.73) (4) (114.92) (6) (274)
Weighted average
number of shares in
issue (000) 151 344 151 344 151 344 -
Number of shares in
issue (000) 151 364 151 364 151 364 -
Notes:
(1) The interim financial information has been extracted, without adjustment,
from the published unaudited interim results of BTG for the six months ended 31
August 2002.
(2) The basic and headline earnings per share have been based on the assumption
that the acquisition was implemented on 1 March 2002 and that it was effective
for the six months ended 31 August 2002.
(3) The net asset value and net tangible asset value per share calculations have
been based on the assumption that the acquisition was implemented on 31 August
2002.
(4) The earnings, headline earnings, net asset value and net tangible asst value
have been adjusted for the Plato acquisition, full details and financial effects
of which were included in the circular to BTG shareholders dated 24 October
2002.
(5) Basic headline earnings per share has been adjusted to include
100% of the attributable profit of Xerox South Africa for the six months ended
31 August 2002, the amortisation of the goodwill (over 5 years) arising on the
acquisition and the opportunity cost of the R235 million consideration, assuming
an interest rate of 13.5% and adjusted for tax at the statutory rate. Headline
earnings per share excludes the amortisation of goodwill arising on the
acquisition.
(6) Net asset value and net tangible asset value per share has been adjusted to
eliminate the minority shareholders in Xerox South Africa, include the goodwill
arising on the acquisition of R127.4 million and the payment of the purchase
consideration amounting to
R235 million. Net tangible asset value per share excludes the goodwill arising
on the acquisition.
(7) Shareholders are advised to take cognisance of the comment below, extracted
from the circular to BTG shareholders dated 24
October 2002, when reviewing the Plato acquisition financial effects.
"Resignation of founding shareholder and director
Plato was formed in 1984 and managed for many years by its major
shareholder, Mr MJ Dowd. In recent times, Mr Dowd has structured the
business to essentially operate without his daily input. Mr S
McNulty was appointed as managing director in 2001 to deal with the
day-to-day running of the business. Notwithstanding this, Mr Dowd
has continued to draw a significant salary and other benefits out of
the business.
In terms of the acquisition agreement, Mr Dowd will resign from
Plato after completion of the acquisition. He will not be replaced
and Mr McNulty will continue to manage the business. Accordingly, in
making its assessment of the value of Plato, BTG took cognisance of
the fact that Mr Dowd"s substantial employment costs will not be
incurred going forward. Mr Dowd"s costs amounted to GBP484 000 for
the six months ended 30 June 2002 and GBP704 000 for the year ended
31 December 2001.
As a consequence of the above, the inherent profitability of Plato"s
business is significantly higher than the profitability disclosed in
Plato"s audited historical accounts. Having assessed the
sustainability of profits and following much due diligence, both by
BTG and its independent professional advisors, BTG decided to
proceed with the acquisition at a price commensurate with the
sustainable earnings. BTG would not have proceeded with and
concluded the acquisition if the audited profits had been
representative of the inherent performance and viability of Plato."
6. Documentation
A circular containing full details of the acquisition and a notice
of general meeting will be posted to the shareholders of BTG on or
about Thursday 15 May 2003, following the release of BTG"s
preliminary results for the year ended 28 February 2003.
Johannesburg
27 March 2003
Investment bank and joint sponsor
Nedbank Corporate
Attorneys to BTG
Werksmans
Attorneys to Xerox Limited
Sonnenberg Hoffman Galombik
Joint sponsor
Cazenove
