| Thu 21 Oct 2004, 13:48 | | Introduction Of Direct Black Equity Ownership |
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MGX - Introduction Of Direct Black Equity Ownership Into Metrofile (Proprietary)
Limited
MGX Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1983/012697/06)
Share code: MGX
ISIN code: ZAE000009262
(`MGX`)
INTRODUCTION OF DIRECT BLACK EQUITY OWNERSHIP INTO METROFILE (PROPRIETARY)
LIMITED
1. INTRODUCTION
Further to the cautionary announcement dated 23 September 2004,
shareholders of MGX are advised that MGX has entered into an agreement with
Mineworkers Investment Company (Proprietary) Limited (`MIC`) to sell 25% of
MGX`s shareholding in Metrofile (Proprietary) Limited (`Metrofile`), a
wholly-owned subsidiary of MGX, to MIC to introduce direct black equity
ownership into Metrofile (`the BEE transaction`).
2. RATIONALE FOR THE BEE TRANSACTION
MGX and Metrofile are firmly committed to black economic empowerment
(`BEE`) in South Africa. MGX and Metrofile accept that meaningful
participation by black people in the mainstream economy is essential to
successfully sustain South Africa`s economic structures. By entering into
the BEE transaction, MGX and Metrofile are endeavouring to ensure that they
abide by their commitment to the principle of BEE, whilst at the same time
endeavouring to ensure that they comply with the ownership provisions of
the pending Information and Communication Technology Empowerment Charter.
The board of directors of MGX is of the view that the BEE transaction will
place Metrofile in a position to retain and grow its corporate business and
compete more effectively for government and parastatal business and will
thereby enhance Metrofile`s earnings in the medium- to long-term.
3. MIC
MIC is a broad-based empowerment investment company that was incorporated
in June 1995 as the wholly-owned subsidiary of the Mineworkers Investment
Trust (`MIT`). The beneficiaries of the MIT are the JB Marks Bursary Trust
and the Mineworkers Development Agency (a company constituted in terms of
Section 21 of the Companies Act 1973 (Act 61 of 1973), both of whom
represent groups of broad-based black beneficiaries.
MIC is in agreement with MGX`s and Metrofile`s rationale for the BEE
transaction and is accordingly prepared to invest considerable time and
effort in growing the business of Metrofile, notwithstanding Metrofile`s
current level of gearing.
MIC is incentivised to facilitate the growth of Metrofile and the meeting
of its loan obligations in that if Metrofile`s `B` and `C` interest-bearing
notes in Metrofile which total R223 million plus interest, are not repaid
or refinanced by 4 March 2009 and either or both of the series of notes are
converted to equity in Metrofile, MIC`s effective shareholding will
automatically reduce from 25% to 10%. MGX`s stakeholders have a vital
interest in ensuring that this conversion does not take place as it would
remove MGX`s equity interest in Metrofile. MIC`s commitment to achieving
growth in Metrofile to assist with the growth of the business is essential
to MGX and Metrofile.
4. IMPORTANT TERMS AND CONDITIONS OF THE BEE TRANSACTION
4.1 Sale
With effect from the first business day after the fulfilment of the
last of the conditions precedent set out in paragraph 4.5 below, MGX
will sell to MIC sufficient ordinary shares in Metrofile so as to
constitute MIC as the holder of 25% of the total issued ordinary share
capital of Metrofile (`the sale shares`).
4.2 Price
The selling price of the sale shares is R25 000.
It should be noted that the net asset value of Metrofile at 30 June
2004 was negative R7.8 million which is calculated after including
R187.8 million of trademarks and goodwill on the balance sheet at 30
June 2004. Metrofile`s interest-bearing debt at that date was R358
million.
4.3 Warranties
MGX and MIC have provided such warranties as are normal in a
transaction of this nature. In addition, MIC has warranted that it
qualifies as a historically disadvantaged South African (`HDSA`).
4.4 Effective date
The effective date of this transaction will be the first business day
after the fulfilment or waiver of the last of the conditions precedent
set out in paragraph 4.5 below (`the effective date`).
It is expected that that the effective date will be 1 February 2005.
4.5 Conditions precedent
The BEE transaction is subject to, inter alia:
- MGX obtaining the written approval of its capital providers;
MGX procuring the release of the sale shares from all
encumbrances;
all regulatory approvals and consents necessary in respect of the
BEE transaction being obtained from the JSE Securities Exchange
South Africa (`JSE`) and the shareholders of MGX in general
meeting as contemplated in the Listings Requirements of the JSE;
- the shareholders` agreement, as detailed in paragraph 5 below,
becoming unconditional; and
- the conclusion of a service level agreement, as detailed in
paragraph 6 below, between MIC and Metrofile and that agreement
becoming unconditional.
It is anticipated that the last of the conditions precedent will be
fulfilled on or before 31 January 2005.
5. IMPORTANT TERMS AND CONDITIONS OF THE SHAREHOLDERS` AGREEMENT
MGX, Metrofile and MIC have entered into a shareholders` agreement
regulating the relationship amongst the shareholders in their capacities as
such and between Metrofile and its shareholders. The shareholders`
agreement provides for, inter alia, the following:
- MIC may not dispose of its interest in Metrofile to:
any third party, other than MGX or Metrofile, at any time prior to the
date on which any and all obligations of Metrofile to MGX`s capital
providers have been settled finally and in full; and
- thereafter, only to an HDSA approved by the board of directors of
Metrofile.
If a bona fide third party makes an offer to purchase all of the ordinary
shares in Metrofile and all claims on loan account against Metrofile from
all of the shareholders on identical terms and, provided that shareholders
holding not less than 50.01% of the issued share capital of Metrofile
accept such offer in respect of their shares after first having offered the
shares to the remaining shareholders and the remaining shareholders have
declined the offer made to them, then the remaining shareholders shall be
obliged to and shall be deemed to have accepted the offer of the third
party in respect of all their shares in and claims against Metrofile.
If a bona fide third party makes an offer to purchase at least 50.01% of
the entire issued share capital in Metrofile, such shareholders shall not
be entitled to sell their ordinary shares to such third party, unless the
same pro rata offer is made to the remaining shareholders who have
indicated that they wish to dispose of their ordinary shares.
In the event of the occurrence of a material adverse event, which includes,
inter alia, a change of control in MIC or, if MIC no longer qualifies as an
HDSA, MIC has irrevocably granted to MGX the right to acquire, at its sole
discretion, all of the ordinary shares in Metrofile held by MIC. This call
option shall be exercisable within 120 days after MGX becomes beware of
such an event. Provided that in certain circumstances, including if MIC no
longer qualifies as an HDSA, purchase price per share payable to MIC shall
be 80% of the fair market value of such ordinary shares.
MIC`s interest in Metrofile will automatically reduce to 10% if the:
- `B` and `C` interest-bearing notes in Metrofile, created as part of
the restructuring of MGX completed in January 2004, are not repaid or
refinanced by MGX`s capital providers by 3 March 2009; and
- `C` and/or the `B` interest-bearing notes are converted into equity in
Metrofile.
6. SERVICE LEVEL AGREEMENT
Metrofile and MIC have entered into a service level agreement (`the service
level agreement`), the key terms of which are set out below.
The service level agreement will commence on the effective date and will
endure for as long as MIC is a shareholder of Metrofile.
MIC will be involved in, inter alia, assisting Metrofile with all matters
that may aid Metrofile in retaining and growing its corporate customer base
and in increasing its business from provincial and local governments and
parastatals in South Africa, and in due course, in other African countries.
As remuneration for the performance of the services rendered, Metrofile
will pay to MIC a monthly fee of:
- R50 000, plus value added tax (`VAT`) thereon, during the first year;
and in respect of each 12 month period thereafter, an amount equal to:
- in respect of the second year, R50 000 increased by the annual
increase in consumer price index (`CPI`) over the first year, plus VAT
thereon; and
- for each 12-month period thereafter, the monthly amount payable in
respect of the immediately preceding 12 month period, increased by the
annual increase in CPI over the said immediately preceding 12 month
period, plus VAT thereon.
7. FAIR AND REASONABLE OPINION
Although the BEE transaction is not a related party transaction as defined
by the Listings Requirements of the JSE, in the interests of promoting
transparency, Deloitte & Touche Corporate Finance has been appointed by the
board of directors of MGX to act as an independent adviser and advise it on
whether the terms and conditions of the BEE transaction are fair and
reasonable to MGX. The substance of such advice will be included in a
circular to MGX shareholders.
8. FINANCIAL EFFECTS
An additional announcement relating to financial effects and important
dates and times will be published on or before 15 November 2004.
9. NOTICE OF GENERAL MEETING AND CIRCULAR
A circular providing additional information relating to the BEE transaction
and containing, inter alia, a notice of general meeting and a form of
proxy, will be posted to shareholders on or about 30 November 2004.
Sandton
21 October 2004
Investment bank and sponsor
Standard Bank
Independent experts
Deloitte & Touche Corporate Finance
Attorneys to MGX
Webber Wentzel Bowens
Attorneys to MIC
MJ King Incorporated
