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Dimension Data Holdings Plc - Agreement Reached With A Black Economic
Release Date: 01/09/2004 08:40:01 Code(s): DDT
Dimension Data Holdings plc - Agreement reached with a black economic
empowerment consortium on the transfer of a 25.01%
interest in Dimension Data South Africa (Pty)
Limited
Dimension Data Holdings plc
Incorporated in Great Britain under the Companies Act 1985
Registration Number 3704278
Share Code: DDT ISIN number: GB0008435405
(`Dimension Data` or ` the Group`)
Agreement reached with a black economic empowerment (`BEE`) consortium on the
transfer of a 25.01% interest in Dimension Data South Africa (Pty) Limited
(`DDSA` or `the company`)
1. Introduction
Further to the announcement made on 30 March 2004, Dimension Data
shareholders are advised that Ngcaba Holdings (Pty) Limited, a company led
by Andile Ngcaba (`Ngcaba Holdings`), Safika Holdings (Pty) Limited
(`Safika`) and a group of Broad Based Black Economic Empowerment
participants, including current and future DDSA staff members (`Broad Based
BEE participants`) (collectively `the BEE Consortium`) have entered into an
agreement with DDSA that will result in the BEE Consortium receiving an
interest in DDSA of 25.01% through a shareholder facilitated transaction
(`the transaction`). The 25.01% interest in DDSA has been valued at R380
million and will be substantially facilitated through a notional vendor
finance mechanism, with the balance being funded by the BEE Consortium
through a cash payment of R23 million.
DDSA, a wholly owned subsidiary of Dimension Data, is a specialist IT
services and solution provider that helps clients plan, build and support
their IT infrastructures. Dimension Data applies its expertise in
networking, security, operating environments, storage and contact centre
technologies and its unique skills in consulting, integration and managed
services to create customised client solutions. Internet Solutions (Pty)
Limited, a 60% held subsidiary of DDSA, is the leading internet enabler in
South Africa, focusing on providing corporate internet access and e-
commerce solutions. In addition to the above operations, DDSA holds
interests in a number of subsidiaries and associates, some of which are:
- Plessey (Pty) Limited (49%);
- Conscripti (Pty) Limited (80%); and
- Paracon Holdings Limited (28.3%).
2. Rationale for the transaction
As a leading Information Communication and Technology (`ICT`) Group, it is
DDSA`s intention to be at the forefront of BEE and transformation in
accordance with the proposed ICT BEE Charter (`the Charter). The Charter
seeks to address the imbalances of the past, improve the lives of a broad
base of historically disadvantaged South Africans and create long-term
economic benefits for South Africa.
When searching for BEE partners, DDSA considered individuals and BEE groups
with knowledge of the ICT industry. DDSA considered it an imperative to
involve partners which could play a major role in promoting transformation
but also be active in the management of the business, and lead DDSA to
further growth in South Africa. In addition, the BEE Consortium
incorporates persons with whom DDSA has long-standing relationships,
including its historically disadvantaged South African staff.
DDSA and the BEE Consortium believe that the transaction will encompass
both the spirit and stated requirements of the Charter on a basis which is
commercially sustainable for both parties. Together they will address the
broader requirements of the Charter necessary to achieve this
transformation. This will include compliance with procurement requirements,
thereby allowing DDSA to operate within the preferred procurement
parameters of its customers, and contribute to maintaining a sustainable
business environment for DDSA.
3. DDSA`s commitment to transformation
In 2003, DDSA signed a statement of intent on its BEE objectives, which are
set out in the DDSA Transformation Charter. Included in this charter are a
number of initiatives relating to employment equity, skills development,
preferential procurement, enterprise development and social spend.
The BEE Consortium, together with DDSA, has undertaken to advance the DDSA
Transformation Charter. The vendor financing period and senior management`s
key performance measurement criteria are aligned to the achievement of the
objectives of this charter.
The salient features of the DDSA Transformation Charter are to:
- achieve 50% representation by historically disadvantaged South
Africans on the DDSA Board as well as the executive committee of DDSA;
- maintain an employment ratio of at least 50% historically
disadvantaged South African employees to total employees;
- continue preferential procurement of non-stock purchases through black
empowered companies of at least 40%;
- ensure that 60% of all attendees on management development programs
are historically disadvantaged South Africans; and
- sponsor and provide internships for at least 20 black learners per
annum in SETA approved learning programmes.
DDSA is also committed to corporate social investment, primarily in the
educational sector and with a particular focus on ICT education. Some of
the corporate social investment initiatives already undertaken by DDSA
include sponsoring a Saturday School outreach programme to eight secondary
schools in Tembisa; providing internet services and sponsorship to CIDA
City Campus; and conducting an annual outreach programme with the Diepsloot
Combined School.
The DDSA Transformation Charter encompasses the objectives, other than
ownership, of DDSA`s BEE drive and formalises the strategy to achieve these
objectives.
4. Information on the BEE consortium
4.1 Shareholding structure
DDSA`s shareholding post the implementation of the transaction will be
as follows: (Refer to the diagram to be published in the press on 2
September 2004)
4.2 Ngcaba Holdings
On 30 March 2004, Dimension Data announced that Andile Ngcaba would
join DDSA in an executive capacity and upon implementation of the BEE
transaction would be appointed as Executive Chairman designate.
Andile Ngcaba has extensive experience in the ICT industry, having
served as Director General of the South African Department of
Communications for eight and a half years until December 2003. His
involvement as a member of DDSA`s strategic leadership team will be
invaluable in implementing the company`s African strategy, driving the
growth in DDSA`s share of public sector business and accelerating
internal transformation at DDSA.
Ngcaba Holdings includes Broad Based BEE participants as reflected in
the shareholding structure set out above.
4.3 Safika
DDSA has a long-standing relationship with the Executive Chairman of
Safika, Moss Ngoasheng, who was appointed to the DDSA board on 1
October 2000. His significant contribution and the value he added to
the Group in South Africa resulted in his appointment to the Dimension
Data board on 1 October 2002. He has been involved with DDSA`s BEE
strategy and transformation since joining the Group.
Safika is an empowerment investment holding company, which focuses on
making strategic investments and assisting in the management of such
investments. It facilitates greater historically disadvantaged South
African shareholder participation in South Africa`s economic
evolution, ensures historically disadvantaged South African economic
prosperity by forming strategic alliances and acquiring significant
interests in viable business ventures and promotes historically
disadvantaged South African business empowerment and constructive
community involvement. Safika has investments in different sectors of
the economy including communications, human capital, natural resources
and financial services.
4.4 Broad Based BEE participants
DDSA believes that an effective way to address the imbalances of the
past is to create a shareholding for the benefit of a wide group of
historically disadvantaged South Africans. Accordingly, the
transaction will result in Broad Based BEE participants, including
participants in Ngcaba Holdings, being beneficially interested in
10.2% out of the 25.01% shareholding in DDSA. The 10.2% will be
separated into two parts:
4.4.1 2.97% will be for the benefit of a number of development
initiatives for historically disadvantaged South Africans;
4.4.2 7.23% will be for the benefit of historically disadvantaged
South African individuals and black business partners, who
include:
- certain present and future DDSA historically
disadvantaged South African employees; and
- a number of black business partners who have been
identified by DDSA and the BEE Consortium as being able
to make a significant contribution to the growth and
the future prospects of DDSA.
5. Salient terms of the transaction
5.1 Overview
For the purposes of the transaction, Dimension Data appointed Cazenove
to perform a valuation of DDSA. Based on the result of the valuation,
DDSA is valued at R1 520 million which translates into a value of R380
million for the 25.01% interest to be acquired by the BEE Consortium.
The R380 million will partially be funded by the BEE Consortium
through a cash payment of R23 million (in respect of 1.51% of the
25.01% interest) with the balance being facilitated through a notional
vendor finance mechanism (in respect of 23.5% of the 25.01% interest).
The transaction structure, explained in 5.2 below, allows the BEE
Consortium to pay down its 23.5% notionally vendor financed interest
in DDSA using 23.5% of annual headline earnings of the Company, over
the term of the transaction, whilst fully participating in 23.5% of
the future capital growth of the Company. Accordingly, a notional
vendor finance rate of 18% per annum has been used and is viewed as
appropriate, given the fact that the structure allows full headline
earnings instead of only dividends to pay down the notional vendor
finance amount.
5.2 Transaction structure
5.2.1 The duration of the vendor facilitation will be that period
required by DDSA to attain the objectives contained in the
DDSA Transformation Charter or such shorter period as may be
determined by Dimension Data, provided that the period shall
not end before 30 September 2009, and no later than 30
September 2011 (`the Empowerment Period`).
5.2.2 The BEE Consortium will own 25.01% of DDSA in the form of
ordinary shares and A ordinary shares (`the A ordinary
shares`), both of which will have full voting rights from
the outset of the transaction.
5.2.3 The BEE Consortium will receive part of the 25.01% interest
upfront in the form of ordinary shares, in consideration for
an upfront cash payment of R16.7 million from Ngcaba
Holdings and R6.3 million from Safika. The percentage of the
stake acquired upfront will amount to 1.51% of DDSA.
5.2.4 The remaining 23.5% interest in DDSA will be issued as A
ordinary shares to the BEE Consortium at their par value of
10 cents each. The A ordinary shares will not receive any
dividends but instead will accrue 23.5% of the headline
earnings of DDSA, on a notional basis, throughout the
Empowerment Period.
5.2.5 A calculated number of A ordinary shares will rank pari
passu with the ordinary shares at the end of the Empowerment
Period.
5.2.6 The following calculation will be applied during the
Empowerment Period to determine the number of A ordinary
shares that will rank pari passu with the ordinary shares at
the end of the Empowerment Period:
5.2.6.1 The notional vendor finance amount will be increased at
a rate of 18% per annum and reduced, on an annual
basis, by 23.5% of the headline earnings of DDSA to
provide a minimum annual value for the 23.5% stake in
DDSA (`Annual Hurdle Value`).
5.2.6.2 The value of DDSA and accordingly the value of the A
ordinary shares will be determined as at 30 September
of each year, on a consistent basis, during the
Empowerment Period to ensure the BEE Consortium
receives any benefit from earnings growth on an annual
basis independent of market fluctuations. In respect of
the final year of the Empowerment Period, an
independent expert will determine the value of DDSA.
5.2.6.3 Any excess in the value of the A ordinary shares over
the Annual Hurdle Value will be deemed to be the value
that is attributable to the BEE Consortium at the end
of each year during the Empowerment Period (`the Annual
Attributable Value`).
5.2.6.4 The Annual Attributable Value (expressed as a
percentage of DDSA based on the value of the Company
determined above) less the cumulative percentage that
has vested in previous years, will vest in the BEE
Consortium, subject to a maximum of 5% of DDSA vesting
in any particular year (`the Annual Vesting
Percentage`), other than in the final year of the
Empowerment Period, where no maximum percentage shall
apply.
5.2.7 At the end of the Empowerment Period, that number of A
ordinary shares that corresponds to the sum of all of the
Annual Vesting Percentages will rank pari passu with the
ordinary shares. The remaining A ordinary shares, if any,
will be repurchased at their par value of 10 cents each by
DDSA.
5.2.8 At the end of the Empowerment Period, should the BEE
Consortium elect to sell any of its shares in DDSA,
Dimension Data shall have a pre-emptive right to acquire the
shares in DDSA at fair value, as determined by the
independent expert, either for cash or for Dimension Data
shares, at Dimension Data`s election.
5.2.9 At any point during the Empowerment Period, provided that
the cumulative Annual Vesting Percentage is at least equal
to 7.5%, the BEE Consortium will be entitled to pay
Dimension Data the current Annual Hurdle Value in cash, upon
which all of the A ordinary shares will rank pari passu with
the ordinary shares but will still be subject to the lock-in
period discussed in 5.6.
5.3 Financial information on DDSA
DDSA`s profit before tax for the year ended 30 September 2003 and the
value of its net assets as at that date were R59.4 million and R697.8
million respectively. DDSA`s profit before tax includes net interest
income of R18.9 million which was added to operating profit of R40.5
million ($5.4 million reflected in the 2003 Dimension Data Annual
Report translated at an average Rand : Dollar exchange rate of
R7.484).
5.4 Covenants in favour of the BEE Consortium
In order to safeguard the BEE Consortium`s rights in relation to DDSA,
the BEE Consortium and DDSA have concluded an agreement, the most
important provisions of which include:
5.4.1 The right of the BEE consortium to vote its full 25.01%
interest in DDSA from the outset of the proposed
transaction;
5.4.2 The BEE Consortium will be entitled to appoint 3 directors
to the DDSA board, which will result in the BEE Consortium
having 25% board representation;
5.4.3 The BEE Consortium shall be entitled to appoint a director
to the board of each major subsidiary of DDSA;
5.4.4 All material transactions between Group companies shall
continue be done on an arm`s length basis; and
5.4.5 Should Dimension Data accept an offer for its entire
shareholding in DDSA, the BEE Consortium shall have the
right to dispose of its interest on the same terms.
5.5 Non-compete agreements
Each member of the BEE Consortium irrevocably undertakes in favour of
DDSA and the Group for the longer of:
- the duration of the Empowerment Period; and
- such period as the BEE Consortium either directly or indirectly
hold shares,
not to compete with the businesses of Dimension Data and its
subsidiaries in the ICT industry except for Safika`s current ICT
interests, which operate in a different sector of the ICT industry.
In addition, Dimension Data has undertaken to conduct all business in
Africa through DDSA to ensure that the BEE Consortium benefits from
any value which they may add to the African operations.
5.6 Lock in period
It is the BEE Consortium`s intention to be a long-term investor in
DDSA. Accordingly, the BEE Consortium has undertaken that its entire
stake in DDSA (i.e. the ordinary shares and the A ordinary shares)
will be subject to a lock in provision until the end of the
Empowerment Period, irrespective of whether or not the BEE Consortium
has settled the Annual Hurdle Value.
5.7 Effective date
The transaction shall be of full force and effect from 1 April 2004.
Johannesburg
1 September 2004
Merchant bank and structuring advisor to Dimension Data
Rand Merchant Bank (a division of FirstRand Bank Limited) Corporate Finance
Financial advisor and joint sponsor to Dimension Data
Cazenove South Africa (Pty) Ltd
Joint sponsor to Dimension Data
Merrill Lynch
Legal advisor to Dimension Data
Routledge - Modise
Joint financial advisors to the BEE Consortium
Nedbank Capital, a division of Nedbank Limited
AMB Advisory Services Limited
Legal advisor to the BEE Consortium
Edward Nathan & Friedland (Pty) Limited
Reporting accountants and auditors
Deloitte.
