| Fri 4 Nov 2005, 15:45 | | FrontRange Limited - Detailed cautionary announcem |
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FrontRange Limited - Detailed cautionary announcement
FrontRange Limited
(Incorporated in the Republic of South Africa)
(Registration number 1997/009928/06)
Share code: FRO & ISIN: ZAE000035325
Detailed cautionary announcement regarding the proposed disposal of the
underlying assets of FrontRange to Ferrari Holding, Inc. in terms of section 228
of the Companies Act
1. Introduction
Ernst & Young Sponsors (Pty) Ltd is authorised to announce that FrontRange
Limited ("FrontRange") has concluded a definitive disposal agreement ("the
disposal agreement"), further details of which are outlined below, in terms of
which and subject to the fulfilment or waiver of the conditions precedent set
out in paragraph 5 below ("conditions precedent"), FrontRange will dispose or
procure the disposal of its three underlying core business subsidiaries, namely
its shares in FrontRange Solutions, Inc., Cayo Communications, Inc. and
FrontRange Solutions South Africa (Pty) Ltd ("the disposed assets" or "the
disposal"), in accordance with section 228 of the Companies Act, 1973 (Act 61 of
1973), as amended.
The FrontRange board has unanimously approved the proposed transaction, and
subject to a satisfactory opinion on the fairness and reasonableness of its
terms from an appropriate independent advisor, will recommend this transaction
for approval by its shareholders. The directors of FrontRange intend to propose
that subsequent to the approval and implementation of the disposal, the proceeds
of the disposed assets will be distributed to shareholders as a capital payment
and a dividend distribution.
2. Rationale for the disposal
The board of FrontRange has been examining various ways of extracting the
maximum value for its shareholders and to this end engaged a US Investment Bank,
Jefferies Broadview, to conduct a strategic evaluation of the various options
available to FrontRange given the offshore nature of its business and the
exchange control rules applicable to South African shareholders.
3. The disposal consideration and application of such proceeds
As part of the above initiative, FrontRange has received an offer from Ferrari
Holding, Inc. ("the purchaser"), a Delaware company wholly-owned by a
California-based private equity fund named Francisco Partners L.P. to purchase,
for cash, the disposed assets.
Effect on FrontRange shareholders
The Board intends, after the closing of the disposal and any related matter/s,
to distribute the maximum amount to the company"s shareholders (recognising any
constraints contained within existing laws and/or the JSE"s Listings
Requirements).
The transaction is structured in a way that will provide shareholders with a
distribution estimated at $0.93 per share, or R6.18 (at an assumed rate of R6.65
= $1) before the Secondary Tax on Companies (STC) that will be payable on the
distribution.
Depending on the exact number of FrontRange shares in issue at the deal close,
the disposal consideration available to FrontRange for distribution to its
shareholders, before the deduction of STC, is estimated to be in the region of
$150-million.
It is expected that the distribution net of STC (at an assumed rate of R6.65 =
$1) will be in the region of R5.64 per FrontRange share. Of this, it is
expected that around R1.24 will be a return of capital, and R4.40 a dividend as
defined.
Effect on FrontRange option holders
In line with the terms of the underlying share trust, FrontRange"s share options
will all vest. In a separate inter-dependent transaction, the option holders
will in lieu of their vested rights be entitled to receive $0.93 per share
option less the applicable strike prices of their options, and such holders
will, in their individual capacities, be responsible for meeting their
associated taxes.
Total consideration
Including costs, the total consideration payable by the purchaser will therefore
approximate $185,2-million dependent primarily upon:
- the satisfactory fulfilment or waiver of the warranties which have been
granted by FrontRange to the purchaser, which are all considered usual to a
disposal transaction where the purchaser is based in the United States;
- adjustment in respect of the aggregate amount of fees payable to the
advisors of FrontRange, for investment banking, accounting, legal and other
professional services, all of which will be paid by the purchaser; and
- the aggregate amount required to settle payments to the FrontRange share
option holders in accordance with the disposal agreement, which records
that such holders will receive the same pre-tax consideration as the
holders of FrontRange shares.
FrontRange intends to hedge the risk of currency fluctuations on the disposal
consideration in order to gain certainty as to the eventual distribution to its
shareholders.
4. Effective / closing date
The effective date of the disposal will be no later than within three days of
the business day on which the last of the suspensive conditions set forth in the
disposal agreement is satisfied or waived. It is anticipated that the closing
date will be in early January 2006. Upon closing, all remaining warranties
granted by FrontRange will be waived.
5. Conditions precedent
The proposed sale of the disposed assets is subject in its entirety to the
fulfilment or waiver of inter alia the following conditions precedent:
- the disposal agreement not being validly terminated in accordance with the
terminations provisions;
- FrontRange shareholders passing a resolution in terms of section 228 of the
Companies Act, thereby ratifying and approving the disposal of the disposed
assets;
- the approval, to the extent necessary, of regulatory and governmental
entities including, but not being limited to, the approval of the Exchange
Control Department of the South African Reserve Bank, the Securities
Regulation Panel ("SRP"), the JSE Limited ("JSE"), and approvals under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (as amended); and
- other customary conditions for a transaction of this nature.
6. Break up fee
The disposal agreement contemplates that if the FrontRange Board accepts a
competing offer or bid from an alternative purchaser within 6 months of
termination of the Ferrari disposal agreement, then FrontRange shall be required
to pay Ferrari Holding a termination fee equal to $3,000,000.
7. Further announcements and documentation
In accordance with the requirements of the Securities Regulation Code and the
JSE"s Listings Requirements, a detailed circular will be published within 30
days of this announcement and certain salient contents therefrom will be
published in due course. Such announcement will include full details regarding
the General Meeting to be convened to approve the disposal. FrontRange
shareholders are accordingly advised to refer to and acquaint themselves with
the contents of that circular and related announcements as soon as they are
issued.
8. Cautionary announcement
Given the need to timeously publish this announcement, certain fundamental
aspects important to shareholders and /or option holders, including the exact
consideration/s to be received as part of the distribution referred to in 3.
above, as well as the pro-forma financial effects, have not been finalised
and/or published. Furthermore, as representations are being made to the SRP
regarding both the treatment of FrontRange option holders and the break fee
provisions as set out in 6 above, FrontRange shareholders are advised to
exercise caution when dealing in the company"s securities until a fuller
announcement can be made.
Johannesburg
4 November 2005
List of advisors:
Investment bank and sponsor
Nedbank Capital
Transactional sponsor and corporate advisor
Ernst & Young Sponsors (Pty) Ltd
Legal advisors/Attorneys
Webber Wentzel
Date: 04/11/2005 03:45:07 PM Produced by the JSE SENS Department
