| Tue 25 Nov 2003, 8:53 | | Mustek Limited - Announcement |
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Mustek Limited - Announcement
Release Date: 25/11/2003 08:00:00 Code(s): MST
MUSTEK LIMITED - ANNOUNCEMENT
MUSTEK LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1987/070161/06)
Share code: MST
ISIN: ZAE000012373
("MUSTEK")
Introduction of a Black Economic Empowerment ("BEE") shareholder
1. Introduction
Nedbank Corporate Finance is authorised to announce that Mustek has entered into
an agreement ("the agreement") with Safika Holdings (Proprietary) Limited and
Mduduzi Edward Gama ("Mdu Gama") (jointly "Safika") in terms of which Safika
will be entitled to:
* exercise votes in Mustek equivalent to an effective 25% plus one share of the
voting rights in Mustek on a poll ("the voting rights"); and
*acquire up to a maximum shareholding of 25% plus one share of the total volume
weighted average number of issued ordinary shares in Mustek from 1 July 2003
("the commencement date") to the fifth anniversary of the commencement date less
those issued ordinary shares in Mustek held by subsidiaries of Mustek and held
by Mustek directly or indirectly and excluding the shares issued to Safika in
terms of the agreement ("the effective number of issued shares in Mustek"),
("the transaction"). The transaction will take place over a five-year period
commencing on the commencement date until the fifth anniversary of this date
("the relevant period"). The transaction mechanics are set out in detail in
paragraph 3 below, and the transaction is subject to the fulfilment of the
suspensive conditions listed in paragraph 6 below.
2. Rationale for the transaction
Mustek currently has a number of BEE initiatives in place relating to employment
equity, procurement, and product distribution channels. The introduction of BEE
equity ownership will further meaningfully improve Mustek"s positioning in
relation to its competitors and significantly enhance Mustek"s potential for
improved participation in public and private sector opportunities, thereby
providing an enhanced platform for growth.
The benefits to Mustek of the transaction can be summarised as follows:-
* Allows implementation of a defensive strategy i.e. the retention of current
market share and clients, particularly in relation to business at risk in the
absence of BEE ownership;
* Allows implementation of a growth strategy i.e. the expansion of market share
into government, parastatals and corporates having regard to their respective
procurement strategies;
* Ensures compliance with national and sectoral BEE transformation requirements;
* Increases Mustek"s local visibility and brand recognition; and
* Potentially improves Mustek"s market rating.
2.2 The introduction of an Information Communication and Technology ("ICT") BEE
charter ("the charter") is imminent within the sector, which charter is likely
to be similar in intent and structure to the BEE charters existing in the Liquid
Fuels, Mining and Financial Services sectors. Mustek has always been fully
supportive and committed to the concept of BEE, which is a South African
national and business imperative, and welcomes the introduction of the charter.
3. Salient terms of the transaction
The acquisition by Safika of up to a maximum of 25% plus one share of the
effective number of issued shares in Mustek will be achieved through a mechanism
based on the achievement by Mustek of pre-agreed United States Dollars EBITDA
hurdles ("the EBITDA hurdles") over the relevant period. The mechanics of the
transaction are detailed below.
3.1 Subscription for a preference share in Mustek
Safika will subscribe for one preference share which will entitle Safika to
immediately exercise the voting rights. The subscription value of the preference
share is R5 million and Safika will be entitled to dividends in respect of the
preference share which dividends will be determined with reference to the
overnight call rate offered by Nedbank Corporate to Mustek on a R5 million
deposit, less the amount of dividends declared by Mustek during the financial
year concerned in respect of the ordinary shareholding of Mustek pursuant to the
call option.
3.2 Option to subscribe for ordinary shares ("the call option")
On the attainment of the EBITDA hurdles by Mustek, Safika will be entitled to
subscribe for ordinary shares in Mustek up to a cumulative maximum of 5% of the
effective number of issued shares at the end of the financial year for which the
relevant portion of the call option relates. Safika will subscribe for the
ordinary shares at the nominal value of such ordinary shares. Safika will only
be entitled to exercise each portion of the call option at the end of each
financial year in which the EBITDA hurdles are achieved ("the call option
dates") by Mustek.
The number of shares that Mustek will issue to Safika at each call option date
will be limited to an effective cumulative maximum of 5% in year one, 10% in
year two, 15% in year three, 20% in year four, and 25% plus one share in year
five, of the effective number of issued shares after taking into account the
number of shares to be issued to Safika at the end of the particular financial
year to which that portion of the call option relates.
In the event that Mustek does not achieve the EBITDA hurdles in any financial
year, Safika will be entitled to a catch up mechanism that will allow Safika to
subscribe for ordinary shares based on the achievement of minimum EBITDA hurdles
during the remaining transaction period. Safika will not be entitled to carry
forward any over-achievement in respect of the EBITDA hurdles achieved by
Mustek. In the event of any corporate actions during the transaction period,
the number of shares that Safika will be entitled to hold will be adjusted
accordingly.
An independent fair and reasonable statement will be obtained on the option for
cash in terms of The JSE Securities Exchange South Africa Listing Requirements
3.3 The EBITDA hurdles
The EBITDA hurdles have been formulated with the intention of ensuring that the
issue of shares in terms of the transaction will have a non-dilutory effect to
existing shareholders, which dilution is determinable on an EBITDA per share
basis.
Pursuant to the transaction Mustek will endeavour to achieve the EBITDA hurdles
over the relevant period. The EBITDA hurdles have been calculated with reference
to the proportionate consolidated EBITDA of Mustek"s South Africa operations
only.
3.4 Voting rights
The voting rights exercisable by Safika as the holder of the preference share
shall reduce to the extent that Safika acquires ordinary shares in Mustek in
terms of the call option such that Safika will be entitled, throughout the
duration of the relevant period, to exercise 25% plus one share of the voting
rights in Mustek.
3.5 Cancellation of the preference share
At the election of Mustek, Mustek will be entitled to cancel the preference
share at par and cancel the remainder of the call option under various
circumstances including inter alia:
* where any entity of the Safika group has breached its restraint and/or
confidentiality undertakings;
* the expiry of the relevant period, upon the final issue of shares to Safika
on the fifth anniversary of the call option date in terms of the call option,
whichever event occurs later;
* the shareholding, effective control and economic interest of historically
disadvantaged persons in Safika being less than 51%. In the event that Safika"s
shares list on the JSE, 35% of the shareholding, effective control and economic
interest of the shareholding in Safika should be held by historically
disadvantaged persons, directly or indirectly;
* the EBITDA hurdles are not met by Mustek for any combination of any three 12
month periods during the relevant period; or
* Safika is placed into provisional liquidation and fails to take bona fide
steps to have the order of provisional liquidation overturned.
The cancellation value of the preference share will be either R1 or R5 million
depending on which of the above occurrences triggers the right to cancel, and
the circumstances underlying such occurrence. If the preference share is
cancelled at the end of the transaction period, it will be cancelled at R1.
3.6 Restraint of trade
Safika, its subsidiaries, its associated companies, any direct or indirect
shareholder, firm, undertaking or concern in which Safika is directly or
indirectly interested, and Moss Ngoasheng, Saki Macozoma, Vuli Cuba, Marc Ber,
and Mdu Gama will be restrained from engaging in any business that is the same
or similar or directly competitive with Mustek"s business. The restraint period
will be in place until the later of the cancellation of the preference share in
accordance with its terms or a period of 18 months after a disposal by Safika of
its entire shareholding. No payment has been made by Mustek in terms of the
restraint of trade.
3.7 Appointments to the board of directors
Up to cancellation of the preference share Safika will be entitled to nominate 1
executive, 1 non-executive, and identify 1 independent director to the Mustek
board. In this regard Safika has nominated Vuli Cuba, Chief Executive Officer of
Safika, as deputy non-executive Chairman of Mustek.
3.8 Safika to be exclusive BEE partner
Until the cancellation of the preference share or the expiry of the relevant
period, Mustek will not, without obtaining the prior consent of Safika, initiate
any further transaction(s) to increase the shareholding in Mustek by
historically disadvantaged persons unless such transaction is concluded on an
arm"s length basis.
3.9 Sale of shares by Safika
Safika will only be entitled to dispose of an effective cumulative 20% of the
shares issued in terms of the call option per annum after the relevant period
and. Safika may in no way encumber or alienate its Mustek shares acquired in
terms of the call option.
3.10 Pre-emptive right
Mustek or its nominee shall have a right of first refusal to repurchase any
shares that Safika wishes to sell in excess of 5% of the effective number of
issued shares per annum after the relevant period. The price of such shares
shall not exceed the 30-day volume weighted average of the share price as
indicated by the JSE Securities Exchange South Africa ("JSE") up to the day
immediately preceding the date on which Safika offers its shares to Mustek in
terms of the pre-emptive right.
3.11 Extraordinary dividends
Allowance has been made for the preference share to participate in an
extraordinary dividend that is declared (other than the dividend arising from
the usual day to day trading activities of Mustek in the ordinary course) to the
extent that Safika has not at the date of such declaration been permitted the
opportunity to subscribe for Mustek shares in terms of the call option.
4. Safika
Safika is a black-owned and controlled investment company established in 1994.
Safika has various interests in media, telecommunications, information
technology human resources development, financial services and mineral
resources. Safika is led by a number of leading black business personalities,
most notably, Saki Macozoma, Moss Ngoasheng and Vuli Cuba.
5. Pro forma financial effects of the transaction
The pro-forma financial effects of the transaction are disclosed for
illustrative purposes only and that:
* it may not fairly present Mustek"s financial position, changes in equity,
results of operations or cashflow; and
* all adjustments are expected to have a continuing effect.
The pro-forma financial effects for the twelve months ended 30 June 2003 based
on a full vesting of the call option are as follows:
Before After the Percentag
the transacti e change
transacti on (%)
on (cents) 1
(cents)
Net asset value per 469,1 484,0 3,2
share 2
Tangible asset value 2 457,3 475.1 3,9
Headline earnings per 118,7 114,5 -3,5
share
Earnings per share 97,2 98,6 1,4
Weighted number of 94 396 126 873
shares in issue 631 970
Number of shares in 97 433 129 911
issue 818 757
Notes:
1. Headline earnings per share and earnings per share figures in the "after"
column have been calculated based on the average of the cumulative minimum
additional earnings required to have full vesting of the option over the
transaction period converted into Rands at a Rand/Dollar exchange rate of 7 Rand
to 1 US Dollar and applying corporate tax rate of 30% to the additional
earnings. The financial effects does not take into account possible tax
consequences of the structure.
2. The net asset value and tangible net asset value have been calculated based
on all the EBITDA hurdles being achieved in full for each of the five years
during the transaction period.
6. Suspensive conditions
The implementation of the transaction is subject to, inter alia, the following
suspensive conditions:
* the approval of the transaction by Mustek"s shareholders in general meeting;
* confirmation that the shareholding and economic interest in, and control of,
Safika is held at least 51% by persons or categories of persons who are
historically disadvantaged; and
* the attainment of all regulatory and/or statutory approvals by the appropriate
regulatory authorities as required.
7. Documentation
A circular containing full details of the transaction and a notice of general
meeting will be posted to Mustek shareholders in due course.
Johannesburg
25 November 2003
Investment bank and Sponsor
transaction sponsor
Nedbank Corporate Deloitte & Touche Sponsor
Services (Proprietary) Limited
Joint legal advisors to Mustek Joint legal advisors to Safika
Edward Nathan & Friedland Derek H Rabin & Associates
(Pty) Ltd (Pty) Ltd
Kramer & Viljoen Moss Morris
Independent reporting
accountants
Deloitte & Touche (SA)
Henry K H Ron & Co
