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Pinnacle/Amabubesi - Pinnacle introduces a BEE shareholder
Pinnacle Technology Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1986/000334/06)
Share code: PNC & ISIN code: ZAE000022570
("Pinnacle" or "the company")
Amabubesi Investments (Proprietary) Limited
(Incorporated in the Republic of South Africa)
(Registration number 2002/007019/07)
("Amabubesi")
PINNACLE INTRODUCES A BLACK ECONOMIC EMPOWERMENT SHAREHOLDER
1. Introduction
Further to the cautionary announcements dated 8 September 2005 and 24
October 2005, Bishop Corporate Finance (Proprietary) Limited is authorised
to announce that Pinnacle has reached agreement with Amabubesi in terms of
which Amabubesi will be introduced as a Black Economic Empowerment ("BEE")
equity partner to Pinnacle. Amabubesi will acquire and subscribe for 20% in
aggregate of the total issued share capital of Pinnacle at a subscription
price of 100 cents per share, subject to the fulfilment of the suspensive
conditions set out in paragraph 5 below ("the ordinary share issue"). The
negotiations with Amabubesi have been ongoing since June 2005, when the
share price was below 80 cents per share, which formed the initial basis
for discussions.
2. Background to Amabubesi
Amabubesi is a BEE company owned and controlled by historically
disadvantaged South Africans and premised on sound business principles.
Amabubesi"s Board of Directors consists of prominent businessmen led by
Bulelani Ngcuka, Sango Ntsaluba, Thabiso Tlelai, Peter Moyo and other
executive directors. Amabubesi sees itself as a new generation player in
the BEE arena and focuses on making investments in sectors where it has
relevant expertise, including the tourism & leisure, transport & logistics,
technology, healthcare and property industries. Amabubesi"s investments
include Growth Point Limited, Consolidated African Technologies, Stallion
Holdings, Basil Read Holdings, Bayview Hospital, Edwil Property Group,
Communicom Technologies, Medipost Pharmacy, City Couriers, Crontrans
Holdings, Crystal Resources, Amabubesi Broking Services, Amabubesi Motor
Trading Group, Amabubesi Entertainment, amongst others. The acquisition in
Pinnacle is funded through an investment fund of Old Mutual Life Assurance
Company of South Africa, managed by Amabubesi.
3. Rationale for the BEE transaction
As a leading player in the South African information technology market, it
is Pinnacle"s intention to be at the forefront of embracing change with
regard to BEE in South Africa. Pinnacle believes that BEE initiatives
should address the discrimination and imbalances of the past, improve the
lives of a wide range of historically disadvantaged people and bring long-
term economic benefits to the country. As such Pinnacle proposes to issue
the ordinary shares on the terms set out in paragraph 4 below.
In addition, the terms and conditions relating to the issue of the ordinary
shares are designed to preserve Pinnacle"s future business opportunities in
the sectors of the economy in which it operates and to generate enhanced
future business opportunities from the BEE status that Pinnacle will
achieve following the ordinary share issue to Amabubesi. Such terms and
conditions also serve to align the goals of Amabubesi with those of
Pinnacle"s shareholders and to provide an incentive to Amabubesi to add
value to the business of Pinnacle.
4. Terms of the ordinary share issue
Subject to the suspensive conditions set out in paragraph 5 below, the
ordinary shares will be issued to Amabubesi as follows:
Ordinary share issue and put option
* Amabubesi will subscribe for 37 281 647 ordinary shares at 100 cents per
ordinary share, which will result in it obtaining a 20% shareholding in
the company following the ordinary share issue.
* In order to assist the company to realise the full economic benefit of
BEE, Amabubesi will undertake not to sell any of their ordinary shares
in the company for a period of four years from the date of issue (other
than up to 50% of their shareholding to another BEE company as approved
by Pinnacle), provided that should Amabubesi decide to sell its Pinnacle
ordinary shares after this four year period, Pinnacle will have a right
of first refusal to buy back these ordinary shares at a price to be
agreed between the parties.
* The company will grant Amabubesi a put option in terms of which
Amabubesi will have the right to sell the 20% ordinary shareholding back
to the company by way of a share buy-back mechanism if a minimum
cumulative audited headline earnings per ordinary share of 110 cents in
respect of the 2006, 2007, 2008 and 2009 financial years, and a minimum
audited headline earnings per ordinary share of 33 cents in respect of
the 2009 financial year, is not achieved. The warranted earnings as set
out above will be calculated before taking account of any accounting
entries in respect of the ordinary share issue that may be required as a
result of the application of the International Financial Reporting
Standard 2 ("IFRS 2").
* Amabubesi may exercise the put option at any time during the six-month
period following the public release of the audited results of the
company in respect of the 2009 financial year.
* Amabubesi will decide, at its sole discretion, on the number of ordinary
shares to sell to the company under the put option on the basis as set
out above.
* The price per ordinary share payable by the company if the put option is
exercised will be calculated as follows: the original cost of 100 cents
per ordinary shares plus one half of Amabubesi"s cumulative funding
costs less any dividends received from Pinnacle.
Further issue of ordinary shares
* Amabubesi will furthermore, for a period of five years from 1 July 2005,
have a right of first refusal to increase its shareholding by way of an
issue of new ordinary shares for cash at a future price to be agreed
between the parties, if the need to issue more ordinary shares for cash
in the company arises. Amabubesi may subscribe for such number of
additional ordinary shares which after such subscription will amount to
Amabubesi (including black women and black designated groups) holding up
to 34.9% of the issued share capital of the company at that point in
time. Amabubesi and the company will jointly ensure that, included in
the additional shareholding, are black women and black designated groups
and at participation ratio"s as currently required (or as may be
required in the future) by the relevant BEE charters and/or codes.
* The further issue of ordinary shares is subject to the company complying
with the relevant Listings Requirements of the JSE Limited ("JSE") and
provisions of the Companies Act, 1973 (Act 61 of 1973), as amended.
Other terms
* Amabubesi will have the right to appoint two non-executive directors to
the Board of the company. In addition to participating at board level,
Amabubesi intends to actively participate and support management in
adding value to the company"s operations, and actively support
management in efforts to brand the company as a leading BEE player in
its field.
5. Conditions of the ordinary share issue
The ordinary share issue is subject to the fulfilment of the following
suspensive conditions by no later than 31 January 2006:
- A subscription agreement containing all the terms and conditions of
the ordinary share issue being entered into between Pinnacle and Amabubesi;
and
- Approval of the terms and conditions relating to the issue of the
ordinary shares and the put option by shareholders of Pinnacle in general
meeting.
6. Pro forma financial information
The unaudited pro forma financial effects of the ordinary share issue on
the headline earnings, earnings, net asset value and net tangible asset
value per Pinnacle share, before and after the ordinary share issue, are
set out below. The unaudited pro forma financial information provided is
the responsibility of the directors of Pinnacle. The pro forma information
is to provide investors with information about the impact of the ordinary
share issue. The unaudited pro forma financial information has been
prepared for illustrative purposes only and, because of its nature, may not
fairly reflect the financial position of Pinnacle, or the results of its
operations, after the ordinary share issue.
Notes 1 2
Before After Change
(cents) (cents) (%)
Basic and headline earnings
- Basic earnings per ordinary 15,1 14,9 (1,3)
share
- Headline earnings per ordinary 15,1 14,9 (1,3)
share
Net asset value and net tangible
asset value
- Net asset value per ordinary 75,0 82,5 10,0
share
- Net tangible asset value per 68,2 75,7 11,0
ordinary share
Weighted average number of shares 148 446 148 446
in issue (`000)
Number of shares in issue (`000) 141 819 141 819
Notes:
1.The amounts in the "Before" column are based on the earnings and
headline earnings per share as reported in the audited financial results
of Pinnacle for the year ended 30 June 2005. The amounts in the "after"
column represent the earnings and headline earnings per share that would
have accrued for the year ended 30 June 2005 based on the following
assumptions:
* The cash issue was effective 1 July 2004;
* The proceeds from the cash issue of R37,3 million were placed on
deposit at an interest rate of 6,5% p.a.;
* The present value of the expected cash outflow, should the put option
be exercised in the future, has been raised as a liability in the
balance sheet and amounts to R26,7 million. Interest has been accrued
for on this liability in accordance with the effective interest rate
method at an interest rate of 10,5% p.a.;
* The taxation expense has been adjusted to take account of the increase
in the net interest expense as a result of the adjustments discussed
above; and
* If IFRS 2 had been applied in the audited financial results of
Pinnacle for the year ended 30 June 2005, as adjusted for the cash
issue, it would have resulted in an expense of approximately R16,1
million, being the difference between the proceeds of the cash issue
and the fair value of the shares being issued. The application of IFRS
2 will become compulsory for the year ending 30 June 2006, but will
have no impact on the company"s cash flow. The application of IFRS 2
to BEE transactions is however subject to ongoing debate. The outcome
of these discussions may have an impact on the treatment described
above.
2.The amounts in the "Before" column are based on the net asset value and
net tangible asset value per share as reported in the audited financial
results of Pinnacle for the year ended 30 June 2005. The amounts in
the"after" column represent the net asset value and net tangible asset
value per share at 30 June 2005 based on the following assumptions:
* The cash issue was effective 30 June 2005;
* The proceeds from the cash issue of R37,3 million were credited to
capital and reserves. The present value of the expected cash outflow,
should the put option be exercised in the future, has been raised as a
liability by debiting capital and reserves with an amount of R26,7
million; and
* The weighted average number of shares in issue has not been adjusted
to take account of the cash issue as these shares are contingently
returnable due to the put option issued against them.
7. Independent financial advice
The JSE has requested the company to obtain independent financial advice
regarding the ordinary share issue. Grant Thornton Corporate Finance
(Proprietary) Limited has been appointed by the Board as the independent
expert, and their opinion will be made available to shareholders as part of
the circular to shareholders referred to in paragraph 8 below.
8. Notice of general meeting and withdrawal of cautionary announcement
A circular containing full details of the ordinary share issue, including a
notice to shareholders convening a general meeting to be held to enable
shareholders to consider and if deemed fit to approve, with or without
modification, the resolutions required to implement the ordinary share
issue, will be posted to shareholders in January 2006.
Shareholders are referred to the cautionary announcement dated 24 October
2005 and are advised that, as full disclosure of the transaction referred
to therein has been made in this announcement, caution in the dealing of
the company"s securities is no longer required.
Midrand
28 November 2005
Corporate Adviser
Bishop Corporate Finance
Independent Expert
Grant Thornton Corporate Finance
Sponsor
Deloitte&Touche Sponsor Services
Attorneys
TWB
Date: 28/11/2005 05:10:06 PM Produced by the JSE SENS Department
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