| Wed 21 Jan 2004, 14:41 | | ANNOUNCEMENT CONCERNING A PROPOSED INVESTMENT BY |
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ALTECH/EWG - ANNOUNCEMENT CONCERNING A PROPOSED INVESTMENT BY ALTECH IN EWG
Allied Technologies Limited
(Incorporated in the Republic of South Africa)
(Registration number 1946/020415/06)
Share code: ALT ISIN: ZAE000015251
("Altech" or "the Company")
Econet Wireless Global Limited
(Incorporated in Botswana)
(Registration number 2002/1140)
("EWG")
ANNOUNCEMENT CONCERNING A PROPOSED INVESTMENT BY ALTECH IN EWG
1. INTRODUCTION
Further to the cautionary announcement dated 13 January 2004, Altech
shareholders are advised that the Company has entered into a binding heads of
agreement ("the agreement") with:
- T.S.M.I. Limited, a company incorporated in the British Virgin Islands
("BVI");
- The Econet Wireless Holdings Limited Trust ("EWH Trust"), a trust registered
in Guernsey; and
- The Econet Wireless Employee Share Trust, a trust registered in Botswana,
constituting the current shareholders of EWG (collectively, "TSMI").
T.S.M.I. Limited is the international investment company of the Masiyiwa family,
the founders of the operations comprising the current Econet Wireless Group
("Econet").
Econet holds various telecommunication interests in Africa, the United Kingdom
("UK") and New Zealand providing mobile, fixed line and satellite
telecommunication services and solutions. It was founded in 1994 and has as its
primary focus mobile telecommunications operations with GSM spectrum licences in
Botswana, Kenya, Lesotho, New Zealand, Nigeria and Zimbabwe. In addition to
these interests, Econet has network management contracts in certain of its key
operations and a satellite gateway that carries voice and data traffic between
the UK, Europe and Africa.
Whilst Econet"s primary regional focus is on Africa, providing a significant
growth platform as Africa migrates to mobile telephony, its operations in the UK
and a GSM spectrum licence in New Zealand provide a complementary focus in the
telecommunications sector.
2. OVERVIEW OF THE TRANSACTION
In terms of the agreement, Altech and TSMI shall establish joint control of a
South African holding company to be formed ("Newco"). Telecommunication
interests of Econet and cash funding from Altech will be introduced into Newco.
The Econet assets will be restructured so as to achieve and consolidate control
through EWG which will be a wholly-owned subsidiary of Newco ("the
restructuring").
Through Newco, Altech and TSMI intend to jointly develop the current operations
of Econet and pursue further opportunities in the telecommunications sector, in
particular as an operator of mobile telephony networks. Altech and TSMI shall
jointly control Newco through a voting pool agreement, which will provide for a
consensus decision-making process.
Subject to the conditions precedent set out below, Altech will subscribe for
shares in Newco, representing 50% of the entire issued share capital of Newco,
for a cash consideration of US$70 million. TSMI will subscribe for the balance
of the issued share capital of Newco with the consideration being settled
through the introduction of selected assets of Econet, valued at US$70 million.
The transaction will become effective ten business days after the fulfilment of
the conditions precedent.
In terms of the agreement, Altech will have the right to appoint the Chairman
and the Chief Operating Officer of the Econet operating group. TSMI will have
the right to appoint the Chief Executive Officer.
3. ASSETS THAT ARE THE SUBJECT OF THE TRANSACTION
The assets comprising the proposed transaction are:
- Mascom Wireless Botswana (Proprietary) Limited ("Mascom")
Econet currently owns an effective 20% of Mascom of which 14% is held via Econet
Wireless Holdings Zimbabwe Limited ("Econet Zimbabwe") and 6% will be held via
EWG. Mascom was launched in March 1998 and has grown to a subscriber base of
approximately 310 000. The market share attained by Mascom amounts to
approximately 70%.
By way of the exercise of certain pre-emptive rights, Econet has agreed to
acquire a further 20% shareholding in Mascom, to be held via an EWG - associated
special purpose vehicle ("SPV") in which a Botswana investment consortium has a
majority financial interest. This transaction is subject to Botswana regulatory
approval.
The Botswana investment consortium concerned has indicated a willingness in
principle to exchange its interest in the SPV for shares in EWG on terms to be
agreed, subject to, inter alia, the implementation of the investment by Altech
in Newco outlined in this announcement and the approval of the consortium"s
bankers. In the event that the aforesaid exchange occurs, this would result in
EWG holding a 26% direct shareholding in Mascom, with 14% continuing to be held
by Econet Zimbabwe, resulting in a combined shareholding of 40%.
Econet is negotiating for the acquisition of additional shares in Mascom which
may result in Econet achieving a controlling equity position, again subject to
regulatory approval in Botswana.
- Econet Wireless Kenya Limited ("Econet Kenya")
It is envisaged that Econet will have a stake of 51% in Econet Kenya. Econet
Kenya will be a mobile network operator with a licence which has recently been
awarded by the regulator. Econet is in the process of finalising the terms and
conditions of this operating licence with the regulator and the shareholding
structure with its operating partners, before commencing with the installation
of the network. Kenya has a population of approximately 31 million people.
According to Kenyan government estimates for the last quarter of 2003, the
number of mobile phone subscribers stood at about 1.35 million, with cellular
network coverage of only 3% of the territory.
- Mountain Kingdom Communications (Proprietary) Limited (Lesotho) ("MKC")
Econet holds 21% of the issued share capital of MKC with Eskom Enterprises
(Proprietary) Limited holding the balance. MKC owns 70% of Telecom Lesotho (Pty)
Limited ("Telecom Lesotho"), a joint venture with the Lesotho Government.
Telecom Lesotho owns and operates the national fixed line network, transmission
infrastructure and international gateway as well as the second GSM operator of
Lesotho. There is only one other GSM operator in Lesotho, a country with a
population of approximately 2 million people and teledensity of below 5%.
- Econet Wireless Nigeria Limited ("Econet Nigeria")
Econet, through a wholly-owned company, Econet Wireless Limited ("EWL"), owns 5%
of the issued share capital of Econet Nigeria and the balance is held by various
Nigerian financial institutions, private investors and certain Nigerian State
Governments.
Econet Nigeria was launched in August 2001 and currently has more than 966 000
subscribers. Other mobile operators in this market include MTN Nigeria Limited,
Nigeria Telecommunications Limited and Globacom Limited. Econet Nigeria
currently has a market share of approximately 30% of the mobile market.
EWL and Econet Nigeria reached agreement on the subscription for additional
shares in Econet Nigeria for US$150 million, increasing EWL"s shareholding to
33%. The implementation of the concluded agreement was interrupted when a third
party network operator made an alternative investment proposal to Econet
Nigeria.
EWL"s pre-emptive rights in terms of the existing shareholders agreement,
together with the implications of various procedural matters involving Econet
Nigeria and its shareholders following the third party offer referred to above,
are now the subject of an international arbitration process and certain legal
proceedings against various parties. The outcomes of the arbitration process
and these proceedings are expected shortly. TSMI has furnished to Altech an
undertaking to the effect that the net tangible assets and earnings attributable
to Altech"s investment in Newco will not be adversely affected by the costs
associated with these matters.
- Econet Wireless New Zealand Limited ("Econet New Zealand")
Econet and the Hautaki Trust, a Pan-Maori investment syndicate, acquired the
rights to the second GSM spectrum licence, inclusive of rights to provide 3G
services, in New Zealand. Econet holds 65% of the issued share capital of
Econet New Zealand, the Hautaki Trust 30% and key employees the balance of 5%.
Econet has identified New Zealand as a market with high growth potential, as it
is the only Organisation for Economic Co-operation and Development ("OECD")
country to have only one GSM network.
- Econet Wireless International Limited ("Econet International")
Econet International, wholly owned within Econet, employs the technical and
management resources for the network operations of Econet. The company employs
over 100 professional staff in the various disciplines required to design,
construct, market and manage mobile telecommunication networks.
Econet International receives income derived from various technical services and
management agreements relating to the management of various Econet network
operations.
- Econet Satellite Services Limited ("Econet Satellite")
Econet Satellite, wholly owned within Econet, is based in the UK where its main
earth station and UK / European network links are located. Its satellite
footprint covers Africa and Europe and is used as an international
telecommunications gateway between these continents. The gateway was
commissioned in 2002 and has experienced significant increases in traffic
volumes since commissioning.
Econet Satellite has direct and indirect interconnections with many
international telecommunications carriers and it is expected that its traffic
volumes will continue to increase as additional operators are interconnected by
it. Econet Satellite, through a majority stake in a newly established
subsidiary, also operates prepaid telecommunications services from the UK and
Europe into Africa.
4. PROPOSED GROUP STRUCTURE
The diagram structure can be found in the press announcement and on the Altech
website: www.altech.co.za.
Notes to the diagram
(1) Listed on the Johannesburg Stock Exchange South Africa.
(2) Listed on the Zimbabwe Stock Exchange.
(3) Currently 100% which will dilute to 87.5% in the event of the successful
conclusion of negotiations pertaining to the proposed exchange of its indirect
interest in Mascom for shares in EWG, which will result in EWG"s shareholding in
Mascom increasing to 26%. The balance of the equity in EWG would be held by the
Botswana investment consortium.
(4) Expected to increase to a controlling shareholding (51%) in Econet Kenya,
subject to finalisation of licence terms. Currently EWG owns 5% of Econet Kenya.
(5) Currently negotiating to increase shareholding in Mascom to a potential
controlling position (51%). EWG currently owns 6%.
5. OTHER RIGHTS AND OBLIGATIONS
The assets of Econet Zimbabwe, including its 14% shareholding in Mascom, have
initially been excluded from the proposed transaction. However, it is the
intention of the parties to the agreement to incorporate the assets of Econet
Zimbabwe into Newco as soon as regulatory and other conditions within Zimbabwe
so permit. At that time Newco will have the right to call for the acquisition
of a minimum 51% shareholding in Econet Zimbabwe and TSMI will have the right to
put to Newco a shareholding of 51% in Econet Zimbabwe, both on an independent
valuation basis.
Should this acquisition result in Altech having fewer shares in Newco than TSMI,
then Altech shall be entitled to subscribe for such number of shares, which will
result in Altech"s shareholding in Newco being equal to the shareholding of
TSMI.
Econet Zimbabwe"s network, which was launched in 1998, is the founding operation
of Econet. Econet Zimbabwe is listed on the Zimbabwe Stock Exchange. The
Masiyiwa family indirectly owns 60% of the issued share capital of Econet
Zimbabwe. Econet Zimbabwe, which was launched in 1998, has enjoyed rapid growth
and now services in excess of 150 000 subscribers, making it the largest mobile
network operator in Zimbabwe.
TSMI will have a call option to subscribe for additional shares in Newco, based
on an agreed formula to determine the quantity and cost thereof. The call
option shall only be exercisable if Altech"s shareholding in Newco exceeds that
of TSMI and on the basis that the number of call option shares to be subscribed
for do not result in TSMI"s shareholding in Newco exceeding that of Altech.
6. RATIONALE
In recent years, Altech has successfully pursued a strategy of developing and
conducting operations in the Telecommunications, Multi-media and Technology
("TMT") sector, focussing particularly on convergence opportunities.
Simultaneously, Altech has progressively developed both that portion of its
business which is involved in "annuity income" activities and that portion which
has potential for globalisation.
Altech has also increasingly developed its own technologies and solutions, which
can be exploited globally, becoming progressively less dependent on technologies
and products supplied by overseas principals (in which Altech has been largely
restricted to the southern African markets). Altech has also moved increasingly
from the supply of equipment and hardware to the development of service and
solution activities.
In accordance with these strategies, during 2003, Altech divested from Alcatel
Altech Telecoms (Pty) Limited, which was involved in the supply of
telecommunication infrastructure equipment to the local market, on a vendor-
dependent basis.
Altech"s current activities in the cellular telephony market are conducted
through its Autopage Group subsidiaries. Autopage Cellular has become South
Africa"s largest independent cellular service provider with more than 500 000
subscribers and has produced consistent high growth since its inception.
Altech"s strategy is to increase and extend its exposure to the mobile
telecommunications industry through an involvement in mobile network activities
with global growth potential. Such resultant positioning will elevate Altech on
the telecommunications "value-chain", thereby protecting/ increasing margins.
The proposed transaction accords with these strategies. Econet is an ideal
entry point for Altech into mobile network operations, with its base of high-
growth operations in Africa and several initiatives in other parts of the globe.
Altech will be directly involved in the future development and management of
Econet as restructured and refinanced through this proposed transaction.
Altech"s marketing and systems expertise developed within Autopage Cellular and
other subsidiaries will be of direct benefit to Econet, together with Altech"s
corporate support, financial and administrative structures.
The proposed transaction will, furthermore, create significant opportunities and
synergies for Altech, Autopage Cellular as well as its other subsidiaries,
including the supply of products and solutions to the various operations
comprising Econet.
7. FURTHER OPPORTUNITIES
In addition to the proposed transaction, Econet will continue to assess various
opportunities in Africa and elsewhere, together with its ownership position in
certain of its network operations referred to above. The provision of any
additional funding, required for these purposes will be on a basis to be
negotiated by Altech and TSMI.
Altech and TSMI have undertaken to make available for exploitation by Econet, as
reconstituted, any additional cellular network opportunities which may become
available to them, on a right of first refusal basis. In addition, Mr Strive
Masiyiwa, the appointed Chief Executive Officer of Econet, has signed a
restraint of trade undertaking in favour of Econet and Newco to protect the
interests of its shareholders.
8. PROFORMA FINANCIAL EFFECTS OF THE TRANSACTION
The table below sets out the proforma financial effects of the transaction on
Altech shareholders. These calculations are based on the assumption that Newco
owns 100% of EWG and reflects the current investment of EWG in Econet Kenya of
5% and Mascom of 6%. Further assumptions are set out in the notes to the table.
In considering these financial effects, shareholders should be mindful of the
fact that certain of Econet"s operations are in a start-up phase.
Before the After the
transaction transaction Change
(cents per (cents per
share) 1 share)
Basic earnings 140.1 129.8 (7.4%)
Headline earnings 143.9 134.5 (6.5%)
Net asset value 1327.3 1310.1 (1.3%)
Net tangible asset value 1316.1 1096.4 (16.7%)
Notes
- The "Before the transaction" financial information has been extracted,
without adjustment, from the published, unaudited six months ended 31 August
2003, financial results of Altech.
- The basic and headline earnings per share calculations have been based on the
assumptions that the transaction was implemented on 1 March 2003 and that it was
effective for the six months ended 31 August 2003. The calculation was based on
the weighted average number of shares in issue for the six months ended 31
August 2003 (105 220 000 shares).
- The net asset value and net tangible asset value per share calculations have
been based on the assumption that the transaction was implemented on 31 August
2003. Net asset value per share is calculated as shareholders" equity divided
by the total number of Altech shares in issue at 31 August 2003 (105 224 000
shares).
- Basic earnings per share have been adjusted to incorporate the attributable
profit of EWG for the six months ended 30 June 2003, the interest foregone on
cash holdings of the ZAR equivalent of US$70 million, assuming a US$ exchange
rate of 8.0:1 (being the prevailing rate of exchange at 1 March 2003), an
interest rate of 7.1% (being the average after tax rate of interest for the six
month period ended 31 August 2003) and the weighted average number of Altech
shares in issue being 105 220 000 shares. Headline earnings per share exclude
amortisation of goodwill arising on the investment in EWG. The basic earnings
and headline earnings of EWG, for the six month period ended 30 June 2003, have
been extracted from the proforma consolidated financial results of EWG, which
were based on the audited results of the subsidiaries and investments of EWG for
the year ended 30 June 2003.
- Net asset value and tangible net asset value have been adjusted to include
the attributable portion of the assets of EWG and the payment of the total
consideration amounting to US$70 million in cash. Net asset value per share has
been further adjusted to include the goodwill of US$49.1 million and US$17.5
million in respect of the licences arising on the investment in EWG. The
adjustments have been made assuming a US$ exchange rate of 7.3:1 (being the
prevailing rate of exchange at 31 August 2003). The net asset value and the net
tangible asset value of EWG have been extracted from the proforma consolidated
financial results of EWG, which were based on the audited results of the
subsidiaries and investments of EWG for the year ended 30 June 2003.
9 CONDITIONS PRECEDENT
The proposed transaction is subject to fulfilment of the following principal
outstanding conditions precedent:
- the approvals by the Board of Directors of Altech, the Executive Committee
and the Board of Directors of Allied Electronics Corporation Limited ("Altron")
and T.S.M.I Limited;
- the approval, where required, of the South African Reserve Bank, the JSE
Securities Exchange South Africa and any other regulatory authority; and
- successful completion by Altech of limited outstanding due diligence
investigations relating to certain Econet business operations.
Shareholders will be advised of developments including the fulfilment of the
conditions precedent to the agreement and the conclusion of the transaction.
Johannesburg
21 January 2004
A member of the Altron Group
Merchant bank to Altech - Standard Corporate Merchant Bank
Sponsor to Altech - Cazenove
Attorneys to Altech - HR Levin Attorneys, Notaries & Conveyancers
Advisor to EWG - Brait
Attorneys to EWG - Read Hope Philips Attorneys
Date: 21/01/2004 02:10:17 PM Produced by the JSE SENS Department
