| Wed 2 Apr 2003, 17:23 | | Faritec - Terms Announcement |
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Faritec - Terms Announcement
Release Date: 02/04/2003 17:00:01 Code(s): FRT
Faritec - Terms Announcement
FARITEC HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1998/004872/06)
("Faritec" or "the group")
(Share Code: FRT)
(ISIN number: ZAE000016838)
TERMS ANNOUNCEMENT CONCERNING -
i) the disposal by Faritec of 30% of its operations to an empowerment
consortium led by Jay & Jayendra (Pty) Limited ("J&J") ("the empowerment
consortium");
ii) an issue of Faritec shares to the empowerment consortium; and
iii) the acquisition by Faritec of certain operational assets of Consilience
Technologies (Pty) Limited ("Consilience")
1. INTRODUCTION
Peregrine Corporate Advisory Services (Pty) Limited is authorised to announce
that, further to the cautionary announcements published on SENS on 22 January
2003 and 4 March 2003, Faritec has agreed, subject to the conditions precedent
set out below, to:
- dispose of 30% of all of its operations and assets to the empowerment
consortium ("the disposal");
- issue Faritec shares to the empowerment consortium after three years in
exchange for the 30% interest it holds in Faritec"s operations ("the share
issue"). The number of Faritec shares to be issued to the empowerment consortium
will be determined based on the value of the empowerment consortium"s 30%
interest in Faritec"s operations and the share price of Faritec at the date of
the share issue; and
- acquire certain operational assets of Consilience, an Information Technology
("IT") systems integration company in which members of the empowerment
consortium have a significant interest ("the acquisition")
(collectively "the transaction").
2. THE DISPOSAL AND THE SHARE ISSUE
Background and rationale
Faritec is a leading IT company listed on the JSE Securities Exchange South
Africa ("JSE") that provides managed business and technology infrastructure
solutions. Faritec combines intellectual capital, resources, technology and
business processes to provide tailor-made IT solutions with the objective of
assisting clients to manage their businesses more effectively.
The board of Faritec has identified the need to introduce a Black Economic
Empowerment ("BEE") shareholder to assist in:
- developing the strategic direction and focus of Faritec"s business;
- managing the transformation of the staff complement of Faritec"s business in
terms of the Employment Equity Act, 1998 (Act No. 55 of 1998); and
- developing appropriate procurement policies which promote the development of
black-owned and small and medium sized enterprises.
Faritec identified the empowerment consortium as the appropriate BEE
shareholder.
The consortium comprises J&J and Lesaka Holdings. J&J is an empowerment
investment and management company, with interests in primarily IT and financial
services. Lesaka is a union investment company, 70% owned by a union consortium,
representing close to one million members. Lesaka shareholders include Popcru,
Nehawu, Sadtu and Nactu.
The consortium is broad-based, are known to take active positions in their
investments and have demonstrated sound track records and strategic insights
into the IT sector. The consortium brings an array of networks and capabilities
which will translate into access to new segments of the IT market in the public
sector as well as adding new customers to Faritec"s predominantly private sector
customer base.
The disposal and the share issue allow the empowerment consortium to secure a
meaningful equity interest in Faritec"s business and create an effective
mechanism for the empowerment consortium to obtain a return on investment in the
medium term.
MECHANISM OF THE DISPOSAL
Faritec will dispose of all of its operating subsidiaries, businesses and other
assets to Faritec Investments (Pty) Limited ("Faritec Investments"), a company
which is to be established as a wholly owned subsidiary of Faritec. Faritec will
then dispose of 30% of its interest in Faritec Investments to the empowerment
consortium. The consideration for the disposal is R13,229 million, which is to
be settled by the issue to Faritec of cumulative redeemable preference shares in
the company that will hold the empowerment consortium"s interest in Faritec
Investments ("the preference shares"). An annual dividend calculated at a coupon
rate of 13,5% per annum will be payable on the preference shares ("the
preference dividends"). The preference shares may, at the election of the
empowerment consortium, be redeemed at any time up and to the fourth anniversary
of its issue date.
After the third anniversary but prior to the fourth anniversary of the effective
date of the disposal, the empowerment consortium will dispose of its 30% holding
in Faritec Investments to Faritec in exchange for the redemption of the
preference shares and the issue of new Faritec shares. The value of the
empowerment consortium"s 30% interest in Faritec Investments will be established
with reference to the market capitalisation of Faritec at the time. The number
of Faritec shares to be issued to the empowerment consortium will be calculated
based on the Faritec share price at the time and the value of the empowerment
consortium"s 30% interest in Faritec Investments less the cumulative value of
the preference shares that have, to date, not been redeemed (being R13,229
million less any capital redemption to date plus the cumulative value of any
preference dividends accrued but not paid).
EFFECTIVE DATE
The effective date of the disposal is one business day after the fulfillment or
waiver of the conditions precedent set out below.
3. THE ACQUISITION
The board of Faritec intends to acquire certain operational assets of
Consilience. Consilience is a joint venture between J&J (66,7% holding) and Tata
Africa Holdings (SA) (Pty) Limited ("Tata") (33,3% holding) (collectively
"Consilience shareholders"). Tata itself is a member of the Tata group of
companies, one of India"s oldest and largest conglomerates. The operational
assets of Consilience comprise primarily proposals made and tenders submitted in
respect of certain strategic initiatives and opportunities.
Pursuant to the implementation of the acquisition, certain operating activities
of Consilience and Faritec will be combined and the employees of Consilience
involved with the operating activities acquired will be employed by Faritec. The
Consilience employees will be authorised to perform the necessary procedures and
duties in order to implement any mandates secured as a result of proposals or
tenders submitted prior to the effective date of the disposal.
NATURE OF BUSINESS OF CONSILIENCE
Consilience commenced operating during 2001 and is currently involved in
operating activities similar to those performed by some of the subsidiaries of
Faritec. Consilience focuses on the delivery of IT services to key sectors of
the South African economy providing, inter alia, the following products and
services:
- software development and consulting services, networking, implementation and
training, support and facilities management;
- business process reengineering services;
- e-business solutions;
- computer education and training; and
- outsourcing services.
RATIONALE FOR THE ACQUISITION
Subsequent to the implementation of the disposal, J&J will become a significant
indirect shareholder in Faritec Investments. As set out above J&J holds a 66,7%
interest in Consilience. The acquisition has therefore been proposed in order to
eliminate any potential future conflict of interest between Faritec and J&J.
In addition Consilience also has a number of business opportunities and
relationships that will significantly benefit Faritec.
CONSIDERATION
At this stage in the development of Consilience, a significant amount of effort
and expense have been invested in the preparation and submission of specific
proposals and tenders to secure mandates for the business. However, the outcomes
of many of these proposals are still pending and it is impossible to determine
whether they will be successful or not. The boards of J&J and Faritec have
agreed that it is more appropriate to determine what value has been realised
from these proposals and tenders in 18 months time, once they have either been
accepted or rejected, and to compensate Consilience accordingly at that time
("the deferred payment").
The consideration will be payable through the issue of new Faritec shares to
Consilience on the following basis:
(Gross profit recorded
by Consilience during
the period from the
Number of new effective date of the
Faritec shares to acquisition until
be issued at volume 30 June 2004) xN1 x 65%2
weighted average = (Gross profit recorded
traded share price by the Faritec group,
for the 30 trading excluding Consilience,
days prior to issue during the period from
the effective date of
the acquisition until
30 June 2004)
Notes
1. Number of Faritec shares in issue at the time of the deferred payment.
2. Factor to reduce the number of shares to be issued to compensate Faritec for
some operating costs that will be incurred by Faritec on behalf of Consilience.
In order to protect Faritec shareholders against a significant dilution in their
effective shareholdings in Faritec, the maximum number of shares to be issued in
aggregate as consideration to the empowerment consortium and Consilience, in
respect of the share issue and the acquisition, will be limited to 29,9% of the
issued share capital of Faritec at the time of the share issue.
EFFECTIVE DATE
The effective date of the acquisition is one business day after the fulfillment
or waiver of the conditions precedent set out below.
4. FINANCIAL EFFECTS
THE DISPOSAL
The pro forma financial effects of the disposal on Faritec"s earnings per
ordinary share, headline earnings per ordinary share, net asset value per
ordinary share and tangible net asset value per ordinary share for the six
months ended 31 December 2002 are set out below:
Pro forma
after the
implemen-
tation Percentage
of the increase/
Before(1) disposal(2) (decrease)
Earnings per Faritec
share for the six months
ended 31 December 2002
(cents)(3) (1,0) 0,01 >100%
Headline earnings per
Faritec share for the
six months ended
31 December 2002 (cents)(3) (1,0) 0,02 >100%
Net asset value per
Faritec share at
31 December 2002 (cents)(4) 67,8 58,0 (15%)
Net tangible asset value
per Faritec share at
31 December 2002 (cents)(4) 61,6 53,6 (13%)
Notes:
(1) The figures in the "Before" column have been extracted from the published
unaudited interim financial results of Faritec for the six months ended 31
December 2002.
(2) The figures in the "After" column reflect the pro forma effects of the
disposal and were calculated on the assumption that the acquisition was effected
on 1 July 2002 for earnings purposes and on 31 December 2002 for net asset value
purposes.
(3) Based on a weighted average number of 125 989 000 Faritec ordinary shares
in issue during the period 1 July 2002 to 31 December 2002.
(4) Based on 125 989 000 Faritec ordinary shares in issue at 31 December 2002.
THE ACQUISITION
The financial effects of the acquisition cannot be accurately determined at this
stage as the consideration to be paid will be determined based on the value
realised from the proposals and tenders submitted by Consilience prior to the
implementation of the disposal. However, the financial effects are initially
neutral and both earnings and net asset value per share will be enhanced should
the Consilience proposals and tenders contribute earnings to the group.
THE SHARE ISSUE
The financial effects of the share issue cannot be determined at this stage as
the number of Faritec shares to be issued will only be determined at the time of
the share issue, based on the Faritec share price, the value of the empowerment
consortium"s 30% interest in Faritec Investments and the preference share
investment at the time. The payment or accumulation of the preference dividends
will further influence the number of shares to be issued.
Based on the assumptions that,
- the share price of Faritec is below 51 cents at the time of the share issue;
and
- no preference dividends are paid,
no value will accrue to the empowerment consortium and Faritec will once again
vest full ownership in Faritec Investments without any dilution to Faritec
shareholders.
Should the share price of Faritec increase to levels above 51 cents (or 40 cents
should all preference dividends be paid), Faritec shares will be issued to the
empowerment consortium as follows:
No preference Preference
dividends paid dividend paid
Faritec Number Percentage Number Percentage
shares of shares of of shares of
price to be Faritec to be Faritec
(cents) issued shares issued shares
50 0 0% 10 958 8%
100 26 363 17% 32 477 20%
200 40 179 24% 43 236 26%
300 44 785 26% 46 822 27%
5. CONDITIONS PRECEDENT
The implementation of the transaction is conditional, inter alia, on the
following conditions precedent:
a. the approval by Faritec shareholders of all resolutions relating to the
transaction (i.e. the implementation of the disposal, the share issue and the
acquisition is interdependent);
b. the approval of the JSE and any other requisite regulatory body;
c. the passing and, where necessary, registration of such other resolutions as
may be necessary to enable the implementation of the transaction; and
d. the granting by the JSE of a listing for the shares to be issued in respect
of the share issue and the acquisition.
6. OPINIONS AND RECOMMENDATION
The board of directors of Faritec appointed Charles Orbach & Company to provide
it with an opinion confirming that the terms of the transaction are fair and
reasonable to the shareholders of Faritec. Following the receipt of such
confirmation, the board recommends that shareholders vote in favour of the
resolutions necessary to enable Faritec to implement the transaction. One of the
directors of Faritec, Dr Duarte da Silva, is also an advisor to J&J. Dr da Silva
will not be voting on any of the resolutions concerning the transaction and has
recused himself from any discussions at board level on the merits of the
transaction.
7. DOCUMENTATION
A circular, which is subject to the approval of the JSE, giving details of the
transaction and containing the independent fair and reasonable opinion and a
notice of a general meeting of Faritec shareholders, is being prepared and will
be posted to Faritec shareholders as soon as possible. A further announcement
will be published in the press at that time.
Johannesburg 2 April 2003
Corporate advisers and sponsor to Faritec
Peregrine Corporate Advisory Services (Pty) Ltd
Reg no 2000/013672/07
Legal advisers to Faritec
Werksmans Incorporated
Reg no 2000/005164/07
Accountants of Faritec
Charles Orbach & Company
Chartered Accountants (SA)
Registerd Accountants and Auditors
Corporate advisers to empowerment consortium
J&J Financial Services (Pty) Ltd
Legal advisers to empowerment consortium
Edward Nathan & Friendland (Pty) Ltd
Reg No 1999/026464/07
