| Tue 4 Apr 2006, 13:21 | | Telkom/BCX- Joint announcement- Firm intention and |
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TKG BCX
TKG BCX
Telkom/BCX- Joint announcement- Firm intention and withdrawal of cautionary
Telkom Limited
(Registration number 1991/005476/06)
ISIN: ZAE000044897
JSE and NYSE Share Code: TKG
("Telkom")
Business Connexion Group Limited
(Registration number: 1988/005282/06)
ISIN: ZAE000054631
JSE Share Code: BCX
("BCX")
JOINT ANNOUNCEMENT OF A FIRM INTENTION BY TELKOM TO MAKE AN OFFER TO
ACQUIRE THE ENTIRE ISSUED SHARE CAPITAL OF BCX AND WITHDRAWAL OF BCX
CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
Further to the Telkom and BCX announcements on 22 March 2006, Telkom
announces its firm intention to make an offer to acquire the entire issued
share capital of BCX (the "Offer"), other than the BCX shares held as
treasury shares and, if the trustees of the BCX share incentive trust so
agree, the BCX shares held by the BCX share incentive trust ("excluded
parties") (the "Offer Shares"). Telkom will acquire the outstanding options
in BCX on the same terms and conditions as the Offer. The Offer will be
implemented by way of a scheme of arrangement ("the Scheme") in terms of
section 311 of the Companies Act ("the Act"), to be proposed by Telkom
between BCX and its shareholders, other than the excluded parties ("Scheme
Members"). BCX is supportive of the process set out herein.
2. RATIONALE
The transaction will advance Telkom"s ongoing data strategy. In particular,
Telkom believes that the transaction will enhance Telkom"s ability to offer
its customers end-to-end solutions across the ICT value chain. Telkom"s
strength has to date been on ICT services relevant to its core connectivity
proposition, managed network and internet access and BCX offers a
complementary service offering. The transaction will enable Telkom to have
a meaningful presence in the IT services market extending its value chain
with BCX"s proven capabilities in business application & support
management, business process outsourcing and other IT related complementary
lines of business.
BCX has defined a strategy to expand into the communication arena and has
been considering a relationship with a communications company to that
effect. If the Offer is successful, BCX will continue to operate as a
standalone or separate business unit within Telkom. BCX will retain and
expand its service offering and always service its clients with ongoing
commitment.
3. OFFER CONSIDERATION
Telkom will acquire the entire issued share capital of BCX for a cash
consideration per Offer Share of R9.00 ("the Offer Consideration"). Telkom
will furthermore agree to BCX paying a dividend of R0.25 per BCX share post
the Scheme meeting but prior to the implementation of the Scheme. Telkom
does not hold any shares in BCX at present and will not increase the Offer
Consideration. Furthermore, BCX will continue paying dividends in the
ordinary course of business in line with its current policy to maintain a
3x dividend cover ratio (excluding exceptional items) provided such
dividends do not materially alter the net cash position of BCX as at 30
November 2005 unless such diminution in cash occurred due to an increase in
assets in BCX.
The Offer Consideration is at a premium to the current market price and a
substantial premium to the long-term share price as set out in the
financial effects attributable to BCX shareholders below. The Offer
Consideration is also higher than the all-time high share price of R8.95
prior to the announcement of the potential offer on 22 March 2006.
The Securities Regulation Panel (the "SRP") has been given appropriate
confirmation in terms of its requirements that Telkom has sufficient
resources available to meet its obligations to satisfy full acceptance of
the Offer.
4. FINANCIAL EFFECTS ATTRIBUTABLE TO BCX SHAREHOLDERS
The table below sets out the pro forma financial effects of the Scheme for
a BCX shareholder which have been prepared in accordance with IFRS, based
on the published unaudited results of BCX for the six month period ended 30
November 2005, assuming that all the BCX shareholders receive the cash
consideration for 100% of their Offer Shares. These financial effects are
provided for illustrative purposes only, are the responsibility of the
directors of BCX and, because of its historical nature, may not be a true
reflection of the impact of the Scheme on earnings or asset values into the
future:
Before Scheme After Scheme Percentage
assuming R9.00 Change
cash
consideration
per share is
paid
1 BCX share To BCX To BCX
shareholder shareholder
Attributable market value:
20 March 2006 (cents) (1) 804 900 11,9
15 November 2005 (cents) (2) 635 900 41.7
30-day volume weighted average 770 900 17,0
(cents) (3)
60 day volume weighted average 776 900 16,0
(cents) (4)
Earnings (cents) 21.5 23.0 7.0
Headline earnings (cents) 21.6 23.0 6.5
Net asset value (cents) 471.3 900 91.0
Notes:
(1) The closing market price of 804 cents per BCX share on 20 March 2006,
being the last date prior to Telkom"s announcement of the Offer.
(2) The closing market price of 635 cents per BCX share on 15 November
2005, being the last trading day prior to the cautionary announcement
released on 16 November 2005.
(3) The volume weighted average traded price per BCX share over the 30
trading days up to and including 20 March 2006, being the date prior
to Telkom"s announcement of the Offer.
(4) The volume weighted average traded price per BCX share over the 60
trading days up to and including 20 March 2006, being the date prior
to Telkom"s announcement of the Offer.
The financial effects are indicative only and have been based on the
assumptions set out below.
For purposes of calculating earnings, headline earnings and net asset value
per share "after the scheme", it was assumed that:
- the Scheme became operational and was effected in full with effect
from 31 May 2005; and
- the cash consideration of 900 cents per Offer Share had been invested
by BCX shareholders to earn an after tax return of 5.1% per annum for
the six months ended 30 November 2005.
5. CONDITIONS PRECEDENT TO THE OFFER
The Offer is subject to the fulfillment, by no later than 15 December 2006,
of the following conditions precedent:
- the approval of the Scheme by a majority representing not less than
three-fourths of the votes exercisable by Scheme Members present and
voting either in person or by proxy at a meeting of Scheme Members;
- the sanctioning of the Scheme by the High Court of South Africa in
terms of the Act;
- a certified copy of the Order of Court sanctioning the Scheme being
registered by the Registrar of Companies in terms of the Act;
- the approval of the Offer by the Competition Authorities, in terms of
the Competition Act, either unconditionally or subject to such
conditions as may be acceptable to Telkom; and
- the approval of the Scheme by all regulatory authorities if and to the
extent necessary, including the South Africa Reserve Bank, the SRP,
JSE Limited and the Independent Communications Authority of South
Africa.
The period for fulfillment of the conditions precedent may be extended by
agreement between Telkom and the board of BCX.
6. BCX SHAREHOLDER SUPPORT
Telkom has approached five of the largest shareholders of BCX holding in
excess of 50% of the issued share capital of BCX. Telkom has received a
combination of written and in-principle support from these shareholders to
proceed with the Offer.
Telkom has also signed a heads of agreement with Gadlex (Proprietary)
Limited, the 25% Black Economic Empowerment shareholders in BCX"s operating
subsidiary, regulating its future participation in BCX.
7. RECOMMENDATION AND FAIR AND REASONABLE OPINION
The BCX board ("the Board") will consider the Offer and make a
recommendation to the BCX shareholders in the appropriate documentation.
The Board is not precluded from entertaining any other bona fide offers
during the process.The Board is in the process of appointing an independent
adviser to consider the Offer and make a recommendation to the Board.
8. FURTHER ANNOUNCEMENT AND DOCUMENTATION
A further announcement setting out the detailed terms, salient dates and
times of the Scheme will be made to BCX shareholders and a circular
containing the final terms of the Offer will be posted to the shareholders
of BCX in due course.
9. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
The BCX cautionary announcement dated 22 March 2006 is hereby withdrawn.
Johannesburg
4 April 2006
Financial adviser and sponsor to Telkom: UBS
Attorneys to Telkom: Werksmans Inc.
Financial adviser to BCX: Investec
Attorneys to BCX: Cliffe Dekker
Sponsor to BCX: Rand Merchant Bank (A division of FirstRand Bank Limited)
Date: 04/04/2006 01:22:00 PM Produced by the JSE SENS Department
