BTG and Kagiso, a subsidiary of Kagiso Trust Investments (Pty) Limited (KTI), have reached agreement in terms of which, subject to the fulfilment of the conditions precedent, Kagiso will become BTG`s BEE partner of choice through a 27% shareholding in BTG`s South African operations ("the transaction").
The operations included in the transaction are, inter alia, Bytes Document Solutions (Xerox), National Data Systems (to be renamed Bytes Specialised Solutions), Bytes Communication Systems, Bytes Technology Networks, Bytes Business Solutions and Bytes Software (collectively "South African operations"), which will be housed in a new subsidiary, Bytes Technology Group South Africa (Proprietary) Limited ("Bytes SA"). BTG`s minority investment of 39.1% in Digital Healthcare Solutions is not included in the transaction.
Rationale
BTG has for some time stated its intention to introduce a BEE shareholder and to this end has held discussions with various parties. BTG and Kagiso have entered into this transaction as a proactive measure, prior to the implementation of a BEE Charter for the ICT industry.
Kagiso is the investment banking arm of KTI. KTI is in turn the commercial arm of the Kagiso Trust, a broad-based charitable organisation set up by the SA Council of Churches in the mid-1980s. The Kagiso Trust was established to provide assistance to underprivileged communities, with a focus on education, healthcare and general poverty alleviation. KTI was formed with the primary objective of providing the Kagiso Trust with a sustainable source of income in order to fulfil its objectives. The ultimate beneficiaries of the Kagiso Trust are the BEE projects and communities that it supports. KTI is generally recognised as one of SA`s leading broad-based BEE groups. Given Kagiso`s area of focus, Kagiso chose to invest only in BTG`s South African operations.
KTI provides strategic and operational support to its partners. It adopts a proactive approach to investments, with a strong emphasis on business development and strategic positioning. BTG and Kagiso are confident that Kagiso`s shareholding will result in operational and financial benefits to Bytes SA. The parties also believe that the transaction will result in Bytes SA being more competitive in its respective market niches.
Terms of the transaction
The South African operations have been transferred into Bytes SA with effect from 1 March 2004.
Kagiso will subscribe for ordinary shares in Bytes SA, which will represent 5% of the increased issued share capital of Bytes SA, for a total cash subscription price of R30 million. In addition, BTG will sell 220 000 "B" shares in Bytes SA, representing 22% of the voting rights in Bytes SA, to a wholly-owned subsidiary of Kagiso ("Kagiso Sub"), at their par value. Kagiso will thereafter control 27% of the voting rights in Bytes SA, with BTG controlling the remaining 73%.
Kagiso Sub will simultaneously advance to Bytes SA a loan of R198 million bearing interest at the higher of a normal commercial rate and a rate derived from Bytes SA`s effective dividend yield, repayable after five years. Factored into the transaction is the fact that Bytes SA will assume approximately R309 million of BTG`s existing debt.
Bytes SA will grant Kagiso Sub the option to subscribe for 220 000 ordinary shares in Bytes SA at R900 per Bytes SA ordinary share ("share options"), exercisable over a period of five years. On exercise of any share options, BTG SA will simultaneously re-purchase and cancel a corresponding number of "B" shares at their par value. The term of the Kagiso loan and the exercise period of the share options may be extended to 10 years in certain circumstances. Including the share options, the total value of the transaction is R228 million.
Conditions precedent
The transaction is subject to the fulfilment of, inter alia, the following conditions precedent:
* The final approval of the Kagiso Investment Committee;
* The conclusion of detailed legal agreements; and
* The obtaining of the requisite approvals of the JSE Securities Exchange South Africa ("JSE"), the shareholders of BTG in general meeting and any other relevant regulatory authorities (to the extent necessary).
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