| Thu 11 May 2006, 14:39 | | UCS Group Limited - Announcement |
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UCS
UCS
UCS Group Limited - Announcement
UCS GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1993/002253/06)
JSE code: UCS
ISIN: ZAE000016150
("UCS")
BEE TRANSACTION FOR UCS SOLUTIONS HOLDINGS (PROPRIETARY) LIMITED ("UCS
SOLUTIONS") A WHOLLY OWNED SUBSIDIARY OF UCS, BY WAY OF THE ACQUISITION OF 100%
OF THE SHARE CAPITAL IN QUADRANT CONSULTING GROUP (PROPRIETARY) LIMITED
("NEWCO") AND 60% OF THE SHARE CAPITAL IN TSS MANAGED SERVICES (PROPRIETARY)
LIMITED ("TSS MS")
1. Introduction
Further to the cautionary announcements dated 17 March 2006 and 26 April 2006,
shareholders are advised that on 10 May 2006, UCS and UCS Solutions entered into
an agreement with Tactical Software Systems (Proprietary) Limited ("TSS") and
the shareholders thereof to acquire 100% of the share capital of Newco and 60%
of the share capital of TSS MS in exchange for a 25.1% shareholding in UCS
Solutions ("the transaction").
2. The transaction
The acquisition of 100% of the share capital of Newco effectively represents the
acquisition of 100% of the businesses known as Quartet as well as TSS Business
Services. These businesses provide training and SAP implementation services. 60
% of the share capital of TSS MS is also being acquired which business provides
workplace infrastructure deployment and management services. The total purchase
consideration amounts to R 58,076,498 and is being settled through the issue of
shares in UCS Solutions. This will result in TSS becoming a 25.1% BEE
shareholder in UCS Solutions.
Although 60% of the equity of TSS MS is to be held by UCS Solutions the parties
have agreed to enter into a three year management agreement which requires TSS
to continue to manage the TSS MS business. This management control together with
the effective 55% shareholding of TSS in TSS MS (i.e. 40% direct holding and
25.1% of 60% indirect holding) means that TSS MS remains a "black owned" entity
as defined in the DTI Codes of good BEE practice. The remaining UCS Solutions
subsidiaries viz. UCS Solutions (Proprietary) Limited and CEB Maintenance Africa
(Proprietary) Limited ("CEB"), become "black empowered" entities with an
indirect 25.1% black shareholding.
TSS has undertaken to subscribe for UCS ordinary shares worth R 5-million at a
price of 179 cents being the 30 day weighted average traded price prior to the
date of signature of the sale of shares agreement, less a 10% discount.
TSS and UCS have entered into a shareholders" agreement simultaneously with the
abovementioned sale of shares agreement. Included in the shareholders" agreement
is the acknowledgement that TSS may convert its 25.1% shareholding in UCS
Solutions to a UCS shareholding after five years from the effective date at the
discretion of TSS, or at any stage after the effective date at the discretion of
UCS. If this option is exercised, it would be subject to shareholder approval,
if applicable.
The transaction has been concluded at commercial values on a relative basis and
there is no discount or debt funding behind the structure.
3. Rationale
UCS is a provider of software and associated implementation and support services
to the retail sector. TSS is an established group of diversified technology
based businesses. The target companies viz. Newco and TSS MS are well aligned
with UCS Solutions.
Newco, which houses the SAP consulting and training businesses of TSS Business
Services and Quartet, complements the UCS Solutions Business Solutions division
and TSS MS, which deploys and manages workplace IT infrastructure, complements
the CEB business.
UCS"s stated BEE strategy is to implement BEE equity deals at operating
subsidiary level with a particular focus on acquisition / mergers, synergies and
mutual value-add. The strategy is designed to address all aspects of BEE, not
just equity ownership.
Taking the above into account the key rationale of the transaction are:
* The combining of UCS Solutions and the respective TSS businesses creates a
strong IT services market participant.
* UCS"s market positioning and current client base creates significant
synergy and business opportunity for the TSS Business Services and Quartet
business units.
* TSS MS broadens the base of infrastructure services and introduces new
markets.
* It broadens TSS"s market and service exposure
* TSS becomes the material Black Empowerment Equity partner to UCS Solutions
4. Purchase consideration and settlement
The equity purchased in Newco and TSS MS amounts to an aggregate purchase
consideration of R 58 076 498. This purchase consideration will be settled in
full through the issue of 3 357 023 ordinary shares in UCS Solutions at a par
value of 1 cent each and a share premium of R17.29 per share which will
represent 25.1% of the total issued share capital of UCS Solutions upon
implementation of the transaction.
Newco will not be subject to any profit warranties as it is the intention to
integrate the businesses of Newco into the Business Solutions division of UCS
Solutions (Pty) Ltd within a reasonably short period of time post the effective
date of the transaction.
TSS are however warranting the cumulative net profit before tax of the TSS MS
business over three years from the effective date of no less than R 62 891 000
as well as adequate working capital for the first six months after the effective
date.
In terms of the TSS management agreement with UCS Solutions and TSS MS any
profits generated by TSS MS in excess of the warranted profits tabled above,
over the initial three year period from the effective date will be paid to TSS
as a management fee incentive in settlement of such services.
4. Effective date
The transaction will become effective on 1 July 2006 subject to the successful
fulfilment of the conditions precedent set out below.
6. Conditions precedent
The transaction is conditional upon:
* The conclusion and implementation of the TSS agreements to position Newco
and TSS MS with the respective components that make up the substance of the
defined targeted businesses, in accordance with the terms and conditions of
the TSS agreements;
* The conclusion and implementation of the subscription agreement in
accordance with the terms and conditions of the subscription agreement
discussed above;
* The conclusion and implementation of the management agreement, in
accordance with the terms and conditions of the management agreement
discussed above;
* The conclusion and implementation of the shareholders agreement between UCS
Solutions and TSS with regard to the shareholding in TSS MS in accordance
with the terms and conditions of such shareholders agreement;
* The unconditional approval of the Competition Authorities to the
transaction contemplated in this agreement in terms of the applicable
provisions of the Competition Act, No 89 of 1998;
* The written approval of the board of directors of UCS to UCS being a party
to this transaction, which is subject to the successful conclusion of a due
diligence investigation of TSS MS, TSS Business Services and Quartet to the
satisfaction of the board of UCS.
* The cession and assignment by Quartet, TSS and TSS Business Services of the
material customer contracts to Newco and TSS MS as contemplated in the
respective sale of business agreements.
The parties shall use their respective best endeavours so as to procure the
fulfilment of the conditions precedent by not later than 30 June 2006.
7. Financial effects
The unaudited pro forma financial effects, for which the directors are
responsible, are provided for illustrative purposes only to show the effect of
the transaction on earnings, headline earnings, net asset value and net tangible
asset value per share as if the transaction had taken effect on 1 October 2004.
Because of their nature, the unaudited pro forma financial effects may not give
a fair representation of the Group"s financial position and performance. The
unaudited pro forma financial effects have been compiled from the audited
consolidated financial statements for the financial year ended 30 September
2005, adjusted as described in the notes below.
Movement
Before After (cents) (%)
the the
transacti transact
on ion
Headline earnings 16.1 18.6 2.5 15.
per share (cents) 5
Earnings per share 16.1 29.7 13.6 84.
(cents) 4
Net asset value 92.5 106.4 13.9 15.
per share (cents) 0
Net tangible asset 23.8 22.1 (1.7) (7.
value per share 1)
(cents)
Weighted average 239,975 242,768 2,793 1.2
number of shares %
in issue (000"s)
Notes:
1. The before transaction column reflects the audited results of UCS for the
12 months ended 30 September 2005 as well as the inclusion of the
previously announced CEB acquisition (based on warranted PBIT of R9
million) as if it had been effective from 1 October 2004 for the purposes
of the earnings and 30 September 2005 in respect of the asset values.
2. The financial information reported for the UCS year ended 30 September 2005
was not IFRS compliant. These pro-forma financial effects therefore exclude
the impact of IFRS.
3. The financial information used in respect of the target companies or
businesses is as follows:-
* TSS MS 12 months audited income statement for the period ended 28 February
2006.
* TSS Business Services audited income statement for the 12 months ended 28
February 2006.
* Quartet reviewed management accounts income statement for the 12 months
ended 31 March 2006.
* Warranted balance sheets for the respective target companies and businesses
as at the effective date.
4. The pro forma financial effects in the "After the transaction" column are
based on the following assumptions:
* The realisation of 25.1% of UCS"s initial goodwill raised on acquisition of
UCS Solutions in return for the relative valuations of businesses acquired
* The payment of the TSS MS management incentive fee in terms of the
management agreement of the profit achieved by TSSMS in the period under
review in excess of the warranted net profit before tax for the first 12
months subsequent to the effective date.
* The allocation of 25.1% of the consolidated profit generated by UCS
Solutions and its subsidiaries to minority shareholders.
* No account has been taken of any earnings on the cash received for shares
issued.
* The effective tax rate of the target company and businesses is 29%
8. Withdrawal of cautionary announcement
The cautionary announcement is hereby withdrawn.
Johannesburg
11 May 2006
Sponsor
Barnard Jacobs Mellet Corporate Finance
(Pty) Limited
Legal advisors
Mallinicks
Transaction advisor to TSS
Ian Dry
Date: 11/05/2006 02:39:44 PM Produced by the JSE SENS Department
