| Mon 13 Dec 2004, 16:21 | | Proposed Merger, Proposed Rights Offer And Further |
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AST - Proposed Merger, Proposed Rights Offer And Further Cautionary Announcement
AST Group Limited
(Incorporated in the Republic of South Africa)
(Registration number 1998/021790/06)
Share code: AAA
ISIN: ZAE000049441
(`AST` or `the Company`)
PROPOSED MERGER, PROPOSED RIGHTS OFFER AND FURTHER CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
Further to the cautionary announcements dated 29 September 2004 and 10 November
2004 respectively, the board of directors of AST (`the board`) is pleased to
announce that AST has entered into agreements, subject to the fulfilment of
certain conditions precedent, in terms of which:
AST-A Holdings (Proprietary) Limited (`AST-A`), a wholly owned subsidiary of
- AST, will acquire certain Information Technology (`IT`) businesses and
interests from Gijima Support Services (Proprietary) Limited (`Gijima Support
Services`), Gijima Technologies (Proprietary) Limited (`Gijima Technologies`)
and Gijima Technologies Group (Proprietary) Limited (`GTG`) (collectively `the
sellers`) respectively, which are owned and controlled by Gijima Info
Technologies Afrika (Proprietary) Limited (`Gijima`), for a purchase
consideration to be settled by way of an issue of ordinary shares in AST (`the
proposed merger`); and
- AST will undertake a partially underwritten rights offer for an amount of
R160 million, of which a maximum amount of R116.75 million will be underwritten
by existing lenders to AST (`the proposed rights offer`)
(collectively, `the proposed transaction`).
2. THE PROPOSED MERGER
2.1 Background
Gijima, a leading wholly black-owned provider of solutions and services in the
Information and Communication Technology (`ICT`) industry, was founded in 1996
by Robert Wellington Gumede and Nhlanhla Innocent Mhlongo. Gijima`s operations
focus on:
* ICT, which includes developing solutions and providing services to the
State Information Technology Agency (`SITA`), inter alia, the Criminal Justice
System, the Department of Home Affairs, local governments, the Department of
Education and the South African Police Service, and the telecommunications
sector;
* IT infrastructure, which includes providing support, maintenance and
network services, value added resale of hardware and infrastructure rollout
and system integration in the telecommunications sector;
* manufacturing and supply of smart cards; and
* electronic transactional switching.
Gijima employs over 450 staff throughout the country and is represented through
24 regional offices, servicing clients at national, provincial and local
government level, as well as the private sector and parastatals.
Gijima has a number of alliances with South African and international companies
to provide best-of-breed solutions to its client base, which includes SITA,
Telkom SA Limited (`Telkom`), the South African Police Service, the Department
of Justice and Constitutional Affairs, the Department of Education, the
Department of Correctional Services, the Department of Home Affairs, Cell C, MTN
and numerous parastatal and municipal bodies. Three of Gijima`s subsidiaries are
ISO 9001-2000 certified.
Gijima received the following accolades in recent years:
* Black Achiever in ICT Award;
* Most Admired Black ICT Company of the Year in 2001 as chosen by its peers,
the Department of Communications and Forge Ahead BMI-T; and
* Best Black ICT Company in 2002 as chosen by the Industrial Development
Corporation.
2.2 Businesses and interests to be acquired by AST-A
AST-A will acquire:
* the businesses belonging to Gijima Support Services and Gijima
Technologies; and
* GTG`s rights and obligations in the partnership between GTG and Huawei
Tech. Investment Company Limited, a Chinese telecommunications equipment
supplier (`Huawei`) (`the Huawei partnership`).
Gijima Support Services provides real time support services for mission critical
systems and equipment, based on service level agreements. Gijima Support
Services focuses on providing a variety of technology services. Gijima Support
Services is part of the consortium led by Mustek Limited that has been approved
as a supplier to SITA on the SEAT Management Services tender.
Gijima Technologies, formerly known as Phambili Information Technologies
(Proprietary) Limited, develops, implements and supplies electronic document
systems solutions for the control of case docket systems to the South African
Police Service, the Department of Justice and Constitutional Affairs and the
Department of Correctional Services.
The Huawei partnership was awarded a two-year contract in 2004, with the option
to extend for another year, to supply and install MiniDSLAM equipment to Telkom.
MiniDSLAM equipment will allow Telkom customers to access ADSL services.
2.3 Sale of businesses
Gijima Support Services and Gijima Technologies will sell their respective
businesses to AST-A as going concerns.
Gijima will procure the cession and assignment of GTG`s rights and obligations
in the Huawei partnership in favour of AST-A.
The sale of the businesses of Gijima Support Services and Gijima Technologies
and the cession and assignment of GTG`s interest in the Huawei partnership will
constitute one indivisible transaction.
2.4 Rationale
Implementation of the proposed merger is expected to have the following benefits
for AST:
- substantial enhancement of AST`s black economic empowerment (`BEE`) profile,
thereby giving AST greater access to public sector tenders and bolstering
contract retention;
- the introduction of BEE leadership in undertaking the important process of
transforming AST`s businesses at an equity, board, management and staff level;
- the provision of access to Gijima`s substantial public sector client and
contract base; and
- the enhancement of AST`s net asset value and tangible net asset value as well
as the introduction of new cash flow streams into AST`s business.
2.5 Purchase consideration
The purchase consideration will be settled by AST through an issue of 308 758
999 AST ordinary shares (`the consideration shares`) to Gijima. The
consideration shares will be issued to Gijima at the same price per share at
which AST shares are issued in terms of the proposed rights offer.
Accordingly, the purchase consideration will be R108 065 649.65.
Should the minimum of the underwritten amount of R116.75 million be raised by
way of the proposed rights offer, Gijima will directly or indirectly hold 36.7%
of AST`s issued share capital after the proposed transaction. Should the maximum
of R160 million be raised by way of the proposed rights offer, Gijima will
directly or indirectly hold approximately 32% of AST`s issued share capital
after the proposed transaction.
2.6 Conditions precedent relating to the proposed merger
The proposed merger is subject to the following conditions precedent:
* both AST and the sellers obtaining from their respective key clients or
third parties, as the case may be, the necessary consents, in writing, to
the cession of the sellers` key client contracts to AST-A or, in the case
of AST-A, to the implementation of the proposed merger, as the case may be;
* Gijima acquiring 100% of the shares in and claims against Gijima Support
Services and Gijima Technologies;
* the Competition Authorities unconditionally approving the proposed merger;
* the necessary resolution being passed by independent AST shareholders to
waive any requirement that Gijima and/or its subsidiaries make a mandatory
offer to AST shareholders in terms of the Securities Regulation Panel
(`SRP`) Code on Takeovers and Mergers (`the Code`) by virtue of the
implementation of the proposed merger and the proposed rights offer and the
SRP granting dispensation from any requirement to make such a mandatory
offer to AST shareholders;
* the SRP and the Listings Division of the JSE Securities Exchange South
Africa (`JSE`) approving the proposed transaction, to the extent necessary;
* AST shareholders, in general meeting, approving the necessary resolutions
to effect the proposed transaction, to increase the authorised share
capital of AST for the purposes of implementing the proposed rights offer
and the proposed merger and to place sufficient shares under the control of
the board for the purposes of implementing the proposed transaction;
* the underwriting agreement being signed on terms reasonably acceptable to
the sellers and Gijima and becoming unconditional save in respect of any
condition wherein reference is made to the merger agreement becoming
unconditional;
* the proposed rights offer being implemented; and
* such notices of the proposed transaction being published as contemplated in
Section 34 of the Insolvency Act, 1936 (as amended) and the sellers confirm
to AST-A, in writing, that no notice of any claim has been made and that
none of the assets of the sellers has been attached by any creditor since
the date of publication of the insolvency notice or alternatively if such
claim has been made or assets has been attached, that such claim has been
settled or that such assets have been released from attachment.
2.7 Warranties
Gijima and AST have provided each other with warranties that are usual in such
transactions.
2.8 Independent adviser
AST has appointed KPMG Services (Proprietary) Limited as independent adviser to
give an opinion as to the fairness and reasonableness of the proposed merger and
the proposed transaction to AST shareholders, whose opinion will be made
available in due course.
2.9 Proposed name change
The board proposes changing the Company`s name from AST to Gijima AST Group
Limited, or such other name as may be mutually agreed to by AST and Gijima, in
order to reflect its newly acquired BEE status, the demographics of its
shareholder base and the constituent parts of the enlarged AST (`the proposed
name change`). The special resolution required to authorise the proposed name
change will be put to AST shareholders at the general meeting to be convened to
approve the proposed transaction.
3. THE PROPOSED RIGHTS OFFER
3.1 Rationale
The creation of a financially stable and black empowered AST requires an
underwritten rights offer to reduce AST`s debt prior to implementing the merger
agreement, to position the merged business to focus on growth.
AST proposes to undertake a rights offer of R160 million, of which R116.75
million will be underwritten by the Iscor Pension Fund, Kumba Resources Limited,
Cadtech (Proprietary) Limited and The Standard Bank of South Africa Limited
(`the underwriters`), who are all presently lenders to AST-A. AST will engage
with other parties in order to increase the underwritten portion of the proposed
rights offer.
3.2 Terms and conditions
AST shareholders will be offered rights shares at a price per share of 35 cents.
The rights shares will, upon allotment and issue, rank pari passu in all
respects with the AST shares that are currently in issue.
3.3 Conditions precedent relating to the proposed rights offer
The proposed rights offer is subject to the approval by the requisite majorities
of AST shareholders in general meeting of the resolutions necessary to:
- increase the authorised share capital of the Company;
- place under the control of the board sufficient unissued AST shares for the
purposes of implementing the proposed transaction;
- approve the proposed merger; and
- waive any requirement that may arise under the Code for any mandatory offer
to be extended as a consequence of the proposed transaction.
3.4 Underwriting of the proposed rights offer
It has been agreed between AST and the underwriters that the first R43.25
million of capital raised from shareholders other than the underwriters in terms
of the proposed rights offer will be retained by AST to fund working capital.
The remaining R116.75 million that has been underwritten by the underwriters
will be used to repay debt. In terms of the underwriting agreement, no
underwriting commission is payable by the Company to the underwriters.
4. FINANCIAL EFFECTS OF THE PROPOSED TRANSACTION
The financial effects of the proposed transaction will be announced as soon as
possible and will be included in the circular to AST shareholders referred to in
paragraph 5 below.
5. GENERAL MEETING AND CIRCULARS TO AST SHAREHOLDERS
A circular containing full details of the proposed transaction and convening a
general meeting of AST shareholders to approve the proposed merger, to approve
the increase in the authorised share capital of AST, to place sufficient
unissued AST shares under the control of the directors to implement the proposed
transaction, to approve the proposed name change and to waive any requirement
for a mandatory offer in connection with the proposed transaction will, subject
to the approval of the JSE and the SRP, be posted to AST shareholders in January
2005.
A circular relating to the proposed rights offer will be sent to AST
shareholders when the underwriting agreement is unconditional.
6. FURTHER CAUTIONARY ANNOUNCEMENT
AST shareholders are advised to continue to exercise caution when dealing in AST
shares until the financial effects of and detailed timetable for the proposed
transaction have been announced.
Samrand
13 December 2004
Investment bank and transactional sponsor
Standard Bank
Sponsor
Cazenove South Africa (Proprietary) Limited
Attorneys to AST
Routledge Modise Moss Morris Inc
Corporate advisers to Gijima
PricewaterhouseCoopers Corporate Finance (Proprietary) Limited
Regiments Capital (Proprietary) Limited
Corporate law advisers and consultants to Gijima
Edward Nathan & Friedland (Proprietary) Limited
Joint attorneys to Gijima
Chuene Kwinana Motsatse Inc
Independent adviser to AST
KPMG Services (Proprietary) Limited
Reporting accountants on Gijima
KPMG Inc.
Underwriters to the proposed rights offer
Cadtech (Proprietary) Limited
Iscor Pension Fund
Kumba Resources Limited
The Standard Bank of South Africa Limited
