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Pinnacle -- repurchase of shares & cautionary
Further to the cautionary announcement released on SENS on Friday, 14 October 2011 and in the press on Monday, 17 October 2011, shareholders are advised that Pinnacle was notified by Amabubesi on 12 October 2011 of its intention to dispose of its entire shareholding in Pinnacle, comprising 17 281 647 ordinary shares, which represents 10.4% of the issued shares in Pinnacle (net of treasury shares). In accordance with the provisions of the subscription agreement concluded between Amabubesi and Pinnacle on 3 March 2006 (in terms of which Amabubesi originally acquired its Pinnacle shares), (the "subscription agreement"). Amabubesi is required first to offer any such shares to Pinnacle under the pre-emptive rights that Pinnacle has under that agreement. Amabubesi has accordingly offered these shares to Pinnacle at a minimum price of R7.50 per share (the "Offer"). The board of the company has resolved that Pinnacle will accept this offer and will repurchase 11 482 801 of its own ordinary shares at R7.50 per share out of its available share premium and Pinnacle Holdings Limited, a subsidiary of Pinnacle will acquire 5 798 846 ordinary shares in Pinnacle at R7.50 per share, both from Amabubesi, amounting to a total of 17 281 647 ordinary shares purchased for and on behalf of the Pinnacle Group of Companies ("the Group") (the "Repurchase") by means of a scheme of arrangement in terms of Section 114 of the Companies Act (Act 71 of 2008 as amended) ("the Act") as read with Section 115 of the Act ("the Scheme"). The effective date of the Repurchase will be the third business day after the fulfilment of all the conditions precedent in paragraph 4 below. The special resolution needed for the Scheme is expected to be tabled at a shareholders` meeting to be held on or about 6 January 2012.
Rationale for the repurchase
Amabubesi is desirous of selling its entire holdings of 17 281 647 ordinary shares in Pinnacle due to the fund in which these shares were owned having reached its investment horizon. As detailed above Pinnacle holds a pre-emptive right over these shares giving it an effective right of first refusal should Amabubesi decide to sell these shares. Amabubesi has offered a price of R7.50 per share which is 18.4% below its average traded price over the 30 business days prior to Pinnacle accepting the Offer. If the Group were to have completed the Repurchase on 1 July 2010 the resultant reduction in issued shares (net of treasury shares) would have had the effect of increasing the pro-forma earnings per share by 6.0% for the year ended 30 June 2011. The Board decided to accept the Offer subject to shareholder approval, and to repurchase the full 17 281 647 shares offered, after reviewing the statement of financial position, income statement and cash flow forecasts prepared for the period ending 12 months after the Repurchase date for this purpose, and after ensuring that the solvency and liquidity tests specified in Section 4 of the Act are met by the Company after the Repurchase. The Board also decided to retain so much of the shares as treasury shares as will increase the quantity of shares in Pinnacle that the Group will own to 10% of Pinnacle's issued share capital after the Repurchase and to cancel the remainder out of share premium. The treasury shares so acquired will be retained for strategic purposes.
Terms of the repurchase
The purchase consideration for the Repurchase amounts to R129 612 352.50. A repurchase price offered of R7.50 per ordinary share has been accepted by Pinnacle, which represents a discount of 18.4% to the 30 business day volume weighted average price of 919.1 cents per share up to and including 24 October 2011, being the last business day prior to the acceptance of the Offer. It is intended that the Repurchase will be funded out of a financing structure to be developed specifically for the Repurchase with the Company’s bankers. Details of the structure will be provided in the circular that will be distributed to all shareholders together with the notice of meeting of shareholders to approve the Repurchase. Following the conclusion of the Repurchase, application will be made to the JSE Ltd ("the JSE") for the cancellation and delisting of the 11 482 801 shares repurchased by Pinnacle. Pinnacle Holdings Ltd and the Group-controlled Pinnacle Share Purchase Scheme Trust will hold a total of 16 987 365 shares in Pinnacle as treasury shares after the Repurchase. At that point in time this will represent 10% of the reduced number of issued shares in Pinnacle, after the Repurchase and cancellation of the 11 482 801 shares repurchased by Pinnacle.
Conditions precedent to the scheme
The Scheme will be subject to the fulfilment of the following conditions precedent by not later than 8 January 2012, which date is 75 calendar days from the date of acceptance of the Offer as specified in the subscription agreement: 4.1 The approval of the Scheme by the requisite majority of Shareholders, as contemplated in section 115(2) of the Act;
- To the extent required, the approval of the implementation of such resolution by the court; and if applicable, Pinnacle not treating the aforesaid resolution as a nullity, as contemplated in section 115(5)(b) of the Act;
- The unconditional written approval of the Scheme as set out in the circular (or if such approval is conditional, such conditions being satisfactory to Pinnacle) having been obtained from the Takeover Regulation Panel ("TRP") (in terms of a compliance certificate to be issued in terms of the Act) and the JSE; and
- The independent expert appointed by the Pinnacle Board, ("Independent Expert") as required in terms of section 114(3) of the Companies Act and the Takeover Regulations, confirming in its report that the Repurchase is fair and reasonable.
Category
The repurchase is classified as a specific repurchase of securities in terms of Section 5.67 of the JSE Listings Requirements from a related party as defined in Section 10.1(b) of the JSE Listings Requirements, as Amabubesi is a material shareholder holding 10.4% of the issued share capital of the Company (net of treasury shares) before the Repurchase. As the price at which the securities are purchased is not at a premium to the average traded price over the 30 days prior to accepting the Offer, a fairness opinion is not required in terms of the JSE Listings Requirements. A fair and reasonable opinion is however required in terms of the Takeover Regulations and Section 114 (3) of the Act. Accordingly, the Board will appoint an Independent Expert acceptable to the TRP, to provide it with a fair and reasonable opinion relating to the Scheme. The substance of the external advice received from the Independent Expert and the views of the Board will be detailed in the circular to shareholders.
Circular
A circular, providing further information on the Repurchase, the Scheme and containing a notice of general meeting and a form of proxy, subject to approval by the JSE and the TRP, will be posted to shareholders on or about 5 December 2011.
Withdrawal of cautionary
As details of the Repurchase have been provided in this announcement, shareholders are advised that they no longer need to exercise caution when dealing in their Pinnacle securities.
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Pinnacle update on acquisition
Shareholders are referred to the terms announcement released on SENS on Monday, 17 October 2011 and in the press on Tuesday, 18 October 2011 regarding the acquisition of Explix, (previously Moyahabo Digital Solutions Pty Ltd) from Sebmat Investment Group Pty Ltd and Blade Financial Services Pty Ltd, ("the transaction"). Shareholders were advised that the independent expert, Mazars Corporate Finance (Pty) Ltd has concluded that the terms of the transaction are fair and the fairness opinion has been approved by the JSE. The fairness opinion is available for inspection at the company's registered office for 28 days from the date of this announcement.
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Pinnacle -- change statement & notice of AGM
The integrated annual report, containing the audited annual financial statements for the company for the year ended 30 June 2011, has been dispatched to shareholders on 21 October 2011 and contains the following modifications to the reviewed results published on SENS and in the press on Friday, 16 September 2011:
Statement of cash flows, before & after:
- Net profit before tax: 309 638 & 309 638
- Non cash flow items: 10 661 & 7 475
- Cash from operations: 320 299 & 317 113
- Cash from working capital: (78 009) & (80 707)
- Taxation paid: (103 556) & (103 176)
- Cash flow from operations: 138 734 & 133 230
- Cash utilised in investing activities: (207 927) & (202 422)
- Cash flows from financing activities: 7 133 & 7 132
- Decrease in cash and cash equivalents: (62 060) & (62 060)
The differences were due to reallocations that arose out of the final audit. The annual financial statements were audited by the company's auditors, BDO South Africa Inc and their unmodified report is available for inspection at the company's registered office.
The annual report contains a notice of annual general meeting for the company, which will be held on Friday, 18 November 2011 at 10:00 (or at any adjournment or postponement thereof) in the boardroom of the registered offices of Pinnacle, at The Summit, 269, 16th Road, Randjespark, Midrand, to transact the business as stated in the annual general meeting notice forming part of the integrated annual report.
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Pinnacle -- cautionary
Pinnacle issued a cautionary announcement on 14 October 2011 advising that the company has entered into negotiations which, if successfully concluded, may have a material effect on the price of the company's securities. The acquisition of Explix Business Solutions (Pty) Ltd, is unrelated to the cautionary announcement which remains in effect until further notice.
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Pinnacle buys Explix
Shareholders were advised that Pinnacle entered into a sale of shares agreement on 14 October 2011 ("the agreement"), whereby the sellers will dispose of their 49% stake in Explix ("the sale shares") and their claim against their loan accounts with Explix amounting to R115 483 to Pinnacle for a total purchase price of R3 500 000 ("the purchase price") ("the sale transaction").
The effective date of the sale transaction is the completion date being the first business day following the day of fulfilment of the suspensive condition as set out below ("effective date"). The business of Explix is the marketing, distribution, installation and provisioning of Sharp branded multi-function printers ("MFPs") to both commercial and public sector entities. Explix is currently one of two distributors appointed by Sharp for MFPs. Pinnacle already owns 51% of Explix.
Salient terms
In terms of the agreement, the sellers shall, for the purchase price, dispose of 49% of the issued ordinary share capital in Explix held by it to Pinnacle plus their loan account claims against Explix, which the Sellers warrant amounts to R115 483.
The sellers warrant in terms of the agreement that they are the registered and beneficial owners of the sale shares and that the sale shares are not subject to any prior rights or encumbrances of any nature and no person has any right, title, interest in or option in and to the Sale Shares as of the Effective Date. The Sellers also warrant that they have jointly and/or individually disclosed to the Purchaser all facts and circumstances or knowledge that may be in their collective or individual possession, which may be material to the Sale Transaction and/or to any purchaser of the Sale Shares. The Sellers have indemnified the purchaser against any loss that it may incur as a result of any breach of the warranties referred to above. Pinnacle shall make payment of the purchase price to the sellers in cash within two business days of the effective date.
Pinnacle Technology Shared Management Services (Pty) Ltd, a subsidiary of Pinnacle ("PTSMS") has entered into a related and interdependent Enterprise Development and Co-operation Agreement with Sebtech Technologies (Pty) Ltd ("Sebtech") ("the Enterprise Development Transaction"), a company that has substantially the same ownership as Sebmat, and is a black owned, controlled and managed office automation and telecommunications operating company in that grouping of companies. In terms of this Enterprise Development and Co-operation Agreement, PTSMS will make a grant within seven working days of the completion of the agreement to be known as the "Enterprise Development Contribution" amounting to R5 446 667 (inclusive of VAT) to Sebtech for the purposes of assisting and accelerating the development of Sebtech so that Sebtech may achieve sustainable financial and operational independence from the Company as a non-exclusive reseller. In terms of this agreement the Pinnacle group of companies (including Explix) and Sebtech will cooperate in the future to attract business to Sebtech for its benefit and for the benefit of Explix and the Pinnacle group of companies as one of their accredited resellers. PTSMS considers that the payment will qualify under Series 600 of the Codes of Good Practice as gazetted on 9 February 2007 and issued under section 9 of the BEE Act as Enterprise Development expenditure.
Suspensive conditions
As of the date of publication of this announcement there were no unfulfilled suspensive conditions, save for the approval by the JSE Ltd ("JSE") of the fairness opinion referred to below.
Pro forma financial effects
The combined pro forma financial effects of the sale transaction and the Enterprise Development Transaction (collectively "both transactions") on Pinnacle's financial results for the six months ended 30 June 2011 are not significant.
Independent opinion
The board has appointed Mazars Corporate Finance (Pty) Ltd, an independent expert to provide the company with a fairness opinion on the combined effect of both transactions. The appointment of the independent expert has been approved by the JSE and the independent expert has issued a fairness opinion which is currently with the JSE for approval.
Small related party transaction
Explix and Sebmat share a common director as do Explix and Blade. In addition Sebmat is material shareholder in Explix. The purchase price together with the Enterprise Development Contribution amount to 0.50% of the market capitalisation of Pinnacle calculated as at close of business on 14 October 2011 and therefore both Transactions are together classified to be a small related party transaction in terms of Section 10.7 of the Listings Requirements of the JSE.
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Pinnacle -- cautionary announcement
Shareholders were advised that Pinnacle has entered into negotiations which, if successfully concluded, may have a material effect on the price of the company's securities. Accordingly, shareholders were advised to exercise caution when dealing in the company's securities until a full announcement was made.
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| Closing price data source: JSE Ltd. All other statistics calculated by ProfileData. |
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