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PNC
PNC
PNC - Pinnacle Technology Holdings Limited - Acquisition of 100% of the Equity
of Axiz Technology (Proprietary) Limited and Withdrawal of Cautionary
Announcement
Pinnacle Technology Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1986/000334/06)
Share code: PNC ISIN: ZAE000022570
("Pinnacle" or "the Company")
ACQUISITION OF 100% OF THE EQUITY OF AXIZ TECHNOLOGY (PROPRIETARY) LIMITED AND
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
1. Introduction
Further to the cautionary announcements published by Pinnacle
("Pinnacle") on 14 May 2010 and 23 June 2010, shareholders are advised
that Pinnacle has entered into an agreement to acquire 100% of the issued
equity of Axiz Technology (Proprietary) Limited ("Axiz") ("the
transaction").
2. Background on Axiz
Axiz is a leading IT infrastructure distributor that provides technology
intelligence to its business partners through the supply of world class
products.
Axiz is recognized as a market leader as result of employee empowerment
and innovative CSI initiatives such as its Ledibogo Business Partner
Programme and Qhubeka.
Axiz is headquartered in Gauteng with regional offices in Eastern Cape,
Western Cape, Free State, KwaZulu Natal, Botswana, Namibia and Zambia.
3. Rationale for the acquisition
- The acquisition will improve return on equity for Pinnacle
shareholders, as the purchase consideration is materially matched by
the Net Tangible asset value of Axiz as at 31 December 2009. Axiz`s
historical audited results, if realized in successive years, are
expected to outperform the finance and associated costs of the
transaction. In compliance with the JSE Limited Listing`s
Requirements stakeholders are advised that this general forecast has
not been reviewed nor audited by the Company`s auditors.
- Axiz and Workgroup IT (Pty) Ltd, a wholly owned subsidiary of
Pinnacle will over time, merge facilities, operations and eventually
systems to leverage off a combined infrastructure.
- This combination will facilitate growth in distribution volume as
new brands and brand segments are made available to an extended
customer base.
4. The acquisition
a. Axiz Capital Structure
Axiz shares are held in three significant blocks, being the
Principal Sellers, Unallocated Employee Shares and Treasury Shares.
b. Principal Sellers
The Principal sellers of the Axiz shares are:
Brunsden, Craig John
The Brandy Trust
de Vos, David Blundell
Herbst, Werner
The Shumba Investment Trust
Porter, Clayton
Rabe, Stefan
Reeves, Patrick
Axiz Employee Ownership Limited
The Fitzhenry Family Trust.
c. Unallocated Employee Shares
Additional shares held by the Axiz Employee Ownership Limited
and Axiz Employee Ownership Trust will be acquired.
d. Treasury shares
Axiz (Pty) Limited, a wholly owned subsidiary of Axiz holds 1 175
000 shares in Axiz.
5. Structure
In terms of the agreement, Pinnacle will acquire the shares held by the
Principal Sellers as well as the Unallocated Employee Shares (together
referred to as the sale shares), thereby procuring 100% of the issued
share capital of Axiz, excluding the Treasury Shares held by Axiz (Pty)
Ltd.
6. Consideration
The purchase consideration for the acquisition of the sale shares amounts
to R170 890 400. In terms of the agreement, R19 690 400 of the purchase
consideration shall be paid to Axiz (Pty) Ltd to settle outstanding
liabilities owed to Axiz (Pty) Ltd, on behalf of the Axiz Employee
Ownership Limited and Axiz Employee Ownership Trust. These funds will
therefore remain within the group.
R 10 423 905 shall be paid to the Axiz Employee Ownership Limited and the
balance of the purchase consideration shall be paid in two equal tranches
to the principal sellers, the first tranche immediately after the closing
date and the balance on 1 July 2011.
The Principal sellers have the option of discounting the second tranche
at prime to facilitate early payment and may elect to receive up to 3 000
000 Pinnacle shares at volume weighted average price measured over the 10
trading days preceding the signature of the agreement, in lieu of such
early settlement.
7. Effective and completion date
The effective date of the transaction is 1 July 2010. The completion date
is the second business day after the date of fulfillment of the last
conditions precedent.
8. Conditions precedent
The transaction is conditional upon, inter alia, the fulfillment of the
following suspensive conditions
a. Axiz and Pinnacle Board approval;
b. Obtaining tacit approval from the major Axiz distribution agencies
for the transaction;
c. The completion of a due diligence investigation by Pinnacle on Axiz
to the satisfaction of Pinnacle;
d. The completion of employment addenda to ensure a minimum service
period of 18 months for certain key employees; and
e. Obtaining the approval of the Competition Commission with regards to
the acquisition.
9. Restraint
Comprehensive restraint, non-compete and non-solicitation undertakings
have been provided by each of the vendors and exiting employees who are
shareholders in, or members or beneficiaries of, any of the vendors.
10. Warranties
The vendors have provided standard warranties for a transaction of this
nature.
11. Pro forma Financial Effects
The table below sets out the unaudited pro forma financial effects of the
Axiz acquisition on Pinnacle.
These pro forma financial effects are the responsibility of the company`s
directors and are presented for illustrative purposes only to show how
the Axiz acquisition may have affected Pinnacle`s financial performance
and position for the six months ended 31 December 2009.
The pro forma financial effects which, due to their nature, may not
provide a fair reflection of Pinnacle`s financial performance or position
after the Axiz acquisition, are based on the assumptions that:
- For the purpose of calculating earnings per share and headline
earnings per share, the Axiz acquisition was implemented on 1 July
2009; and
- For the purpose of calculating net asset value per share and net
tangible asset value per share, the Axiz acquisition was implemented
on 31 December 2009.
Before After %
Change
Earnings per share (cents per 29.6 33.3 12.5%
share)
Headline earnings (cents per 34.3 37.6 9.6%
per share share)
Net asset value (cents per 252.5 257.3 1.9%
per share share)
Net tangible asset (cents per 222.2 220.1 -0.9%
value per share share)
Number of shares (`000) 181 184 1.7%
in issue 660 660
Weighted average (`000) 181 184 1.6%
shares in issue 837 837
Notes
a. The "Before" information has been extracted, without adjustment,
from Pinnacle`s published unaudited results for the six months ended
31 December 2009.
b. The "After" information was determined using information for the
Axiz extracted from its audited financial statements for the year
ended 31 December 2009.
c. Approximately 70% of the Principal sellers will elect to receive
early payment on the second tranche, thereby discounting the second
tranche payment at 10% over the number of days between the early
payment date and 1 July 2010.
d. Existing cash resources of R30 000 000 will be utilised for the
purpose of discharging the purchase consideration.
e. Principal sellers will take up 100% of the 3 000 000 Pinnacle shares
(in lieu of cash) that have been made available for the transaction.
f. The balance of the transaction will be financed by way of a
preference share structure and other facilities entered into between
Pinnacle and its financiers.
g. Approximately R1 300 000 has been provided as transaction costs for
the acquisition, which are once off by nature.
12. Transaction Categorisation
The Axiz acquisition represents a Category 2 transaction in terms of the
JSE Limited`s Listings Requirements and therefore does not require
Pinnacle shareholder approval.
13. Withdrawal of Cautionary announcement
Further to the cautionary announcements published by Pinnacle on 14 May
2010 and 23 June 2010, Shareholders are advised that caution is no longer
required to be exercised when dealing in their Pinnacle shares.
Midrand
Tuesday, 20 July 2010
Legal Advisor
Tugendhaft Wapnick Banchetti and Partners
Sponsor
Deloitte & Touche Sponsor Services (Pty) Limited
(Registration number: 1996/000034/07)
Date: 20/07/2010 07:05:07 Produced by the JSE SENS Department.
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