| Wed 8 Feb 2006, 17:22 | | Faritec - Acquisition and withdrawal of cautionary |
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FRT
FRT
Faritec - Acquisition and withdrawal of cautionary announcement
Faritec Holdings Limited
(Registration number 1998/004872/06)
Share code: FRT
ISIN: ZAE000016838
("Faritec")
Enterprise Connection (Proprietary) Limited
(Registration number 1997/004104/07)
("Enterprise Connection")
ACQUISITION BY FARITEC OF THE BUSINESS OWNED BY ENTERPRISE CONNECTION
(PROPRIETARY) LIMITED ("ENTERPRISE CONNECTION") AS A GOING CONCERN AND
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
INTRODUCTION
Shareholders are referred to the announcement dated 15 December 2005 in which
they were advised that Faritec had reached consensus on the basis on which it
would acquire the business of Enterprise Connection as a going concern subject
to the conclusion of a formal binding agreement and necessary regulatory
approval. Shareholders are now advised that Faritec has concluded an agreement
dated 7 February 2006 with Enterprise Connection, its controlling black economic
empowerment ("BEE") shareholder Canal Square (Proprietary) Limited ("Canal
Square") and key management shareholders in terms of which Faritec, through its
operating subsidiary Faritec (Proprietary) Limited, will acquire the business of
Enterprise Connection (excluding certain claims against and liabilities of
Enterprise Connection) as a going concern ("the acquisition").
RATIONALE
Enterprise Connection is a national technology solutions provider concentrating
on small to medium enterprises and the public sector. These solutions are
primarily focussed around Microsoft"s set of solutions and Hewlett Packard"s
infrastructure. Enterprise Connection also represents many other leading
technology solution brands such as Hansen, Citrix, AXSone and Symantec.
Enterprise Connection provides a structured rental finance option to its
customer base as an alternative financing option. Enterprise Connection has
revenues in excess of R300 million per annum and a skilled and motivated
workforce of approximately 180.
Faritec has traditionally focused on IBM infrastructure, business integration,
service delivery and managed security services. Faritec remains committed to
these areas of business while expanding its technology portfolio.
The acquisition of Enterprise Connection is in line with Faritec"s strategy to
provide customer-focused technology solutions to the market. Through this
acquisition Faritec adds all of the above to its already significant position
with IBM, Symantec, Microsoft and SAP, as well as adding exposure to the SME and
public sectors to Faritec"s corporate market footprint.
In addition to the benefits of having a larger technology portfolio and skills
base to offer customers, Faritec expects the larger national footprint,
economies of scale and the larger size of the combined organisatons to benefit
it as well.
The combined and integrated business of Faritec and Enterprise Connection will
be one of the largest empowered JSE listed technology solutions providers in
South Africa. Following the acquisition Faritec"s BEE shareholding will
increase to above 40%. By bringing J&J (Faritec"s current BEE shareholder) and
Canal Square together as the significant shareholders of Faritec, Faritec will
also obtain a more diversified BEE shareholder base.
TERMS OF THE ACQUISITION
The effective date of the acquisition is 1 July 2005.
The purchase price payable in respect of the acquisition is R54 100 000, which
will be discharged as follows:
- 50% in cash; and
- 50% by way of Faritec issuing 46 637 931 shares to Enterprise Connection at
a fully paid up issue price of 58 cents each.
CONDITIONS PRECEDENT
The acquisition is subject to the following conditions precedent:
- by no later than 8 April 2006 and in so far as may be required, the
acquisition is unconditionally approved by the JSE Limited;
- by no later than 7 June 2006 and in so far as may be required, the
acquisition is unconditionally approved by the competition authorities;
- by no later than 15 February 2006, Faritec and Enterprise Connection
exchange agreed indices of documents made available by them in relation to
the respective due diligence investigations conducted by them;
- by no later than 8 April 2006, Faritec"s shareholders approve the
acquisition in general meeting;
- by no later than 21 March 2006, counterparties to certain contracts with
Enterprise Connection consent to the transfer of those contracts to
Faritec; and
- by no later than 8 April 2006, counterparties to certain specified
guarantees, suretyships, indemnities and the like agree to release the
shareholders of Enterprise Connection from any liability which they may
have thereunder.
FINANCIAL EFFECTS OF THE ACQUISITION
The pro forma financial effects presented below are the responsibility of the
board of directors of Faritec and are presented for illustrative purposes only
to provide information on how the acquisition would have impacted the reported
financial information of Faritec if it had been implemented in the year ended 30
June 2005. Because of their nature, the pro forma financial effects may not
give a fair reflection of Faritec"s pro forma financial position at 30 June 2005
or the pro forma results for the year then ended. The pro forma financial
effects presented below have been prepared in accordance with GAAP.
Year end Pro forma year Percentage
results before end results change
the acquisition after the (%)
of Enterprise acquisition of
Connection (1) Enterprise
(cents) Connection (2)
(cents)
Headline earnings per share (3) 2.6 6.0 130.7
Earnings per share (3) 4.5 7.4 64.4
Net asset value per share (4) 63.0 61.6 (2.2)
Net tangible asset value per 22.8 5.8 (74.5)
share (4)
Number of ordinary shares in 129 628 602 176 266 533 36.0
issue and to be issued (2)
Notes:
The figures in the first column are extracted from the audited annual results of
Faritec for the year ended 30 June 2005.
The figures in the second column are based on the consolidated annual results of
Faritec and Enterprise Connection for the year ended 30 June 2005, assuming
that:
* the acquisition had been implemented on 1 July 2004 and control of
Enterprise Connection passed to Faritec on the same date for earnings
purposes. For asset value purposes it was assumed that the acquisition had
been implemented on 30 June 2005;
* 46,637,931 Faritec ordinary shares had been issued as part payment of the
acquisition price;
* interest bearing funding of R27,05 million had been secured and utilised
for payment of the balance of the acquisition price. The funding is assumed
to be subject to a variable interest rate commencing at 10.5% per annum;
* transaction costs of R700,000 were incurred and treated as part of the
cost of acquisition;
* goodwill arising on the acquisition of R44,555,000, being the excess of the
cost of acquisition over the fair value of the net identifiable assets,
liabilities and contingent liabilities of the business acquired, has been
treated in accordance with Faritec"s accounting policy and therefore
recognised/stated at cost, less any impairment losses, and is not
amortised.
CIRCULAR TO SHAREHOLDERS
A circular providing full details of the acquisition and enclosing notices
convening a general meeting of shareholders of Faritec will be posted to
Faritec"s shareholders within 28 days.
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
In light of this announcement, Faritec withdraws its advice to shareholders to
exercise caution when dealing in Faritec shares.
Woodmead
8 February 2006
Sponsor to Faritec
Java Capital (Proprietary) Limited
Legal advisor to Faritec
Read Hope Phillips
Auditors to Faritec
Charles Orbach & Company
Corporate advisor to Enterprise Connection
Metier Advisory (Proprietary) Limited
Date: 08/02/2006 05:22:04 PM Produced by the JSE SENS Department
