DTC
DTC
DTC - Datatec Limited - Creation of leading Latin American network integrator
through $77.2 million investment in merger with Brazil`s largest Cisco partner
DATATEC LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1994/005004/06)
ISIN: ZAE000017745
Share Code: DTC
CREATION OF LEADING LATIN AMERICAN NETWORK INTEGRATOR THROUGH $77.2 MILLION
INVESTMENT IN MERGER WITH BRAZIL`S LARGEST CISCO PARTNER
Logicalis Group Limited, a wholly owned subsidiary of Datatec Ltd ("Datatec",
"the Group", JSE and LSE: DTC), the international Information & Communications
Technology (ICT) group, has agreed to merge its Latin American operations with
the leading Brazilian network integration businesses of Promon Tecnologia ("PT")
(the "transaction").
Under the terms of the transaction, Logicalis will pay PT`s owner, Promon S.A,
up to $77.2 million in cash and new Datatec shares ("the consideration") for a
70% equity holding in the combined business. Promon S.A will have a 30% equity
interest in the business.
Information on PT
PT is the leading independent Brazilian network integrator and Cisco`s largest
partner in Brazil. PT generated over $140 million of revenue in the year ended
31 December 2007 and pro-forma EBITDA of $18.3 million. As part of the
transaction, net tangible assets of $11.6 million will be acquired, including
approximately $15 million of net cash.
PT`s product and service offering encompasses Cisco Advanced Technology
offerings (Unified Communications, Security, and Wireless solutions), with
strong consulting and service offerings. PT has over 200 employees, including
140 highly skilled technical engineers and project managers, based in Sao Paulo
and Rio de Janeiro.
PT enjoys a market leading position in the Brazilian service provider and telco
market. Its customers include most of the major service providers and telcos
operating in Brazil, but more recently the business has started diversifying
into other vertical markets including energy (oil and gas), financial,
manufacturing and public sector markets.
Strategic rationale for the transaction
The ICT solutions market in Latin America is growing strongly. Brazil is Latin
America`s largest market, the world`s fifth-most populous country and the
world`s tenth-largest economy in GDP terms.
The transaction will provide Logicalis with a platform for further growth in the
region as there is considerable opportunity for an integrator with a national
and international presence and capabilities to provide ICT solutions across the
continent. The transaction is also in line with Datatec`s strategy of increasing
the proportion of revenues and profits generated from developing countries and
emerging markets.
The combination of Logicalis` Latin American businesses in Argentina, Uruguay,
Chile, Peru and Paraguay with PT in Brazil will create the largest network
integrator in Latin America, with almost 500 employees. In addition, Logicalis`
local operation in Brazil, the largest economy in South America, will be
transformed. PT`s telco and service provider expertise will complement
Logicalis` existing Latin American operation and commercial sector experience.
The enlarged business is expected to have annual revenues in excess of $250
million.
Jens Montanana, Chief Executive of Datatec, commented:
"This is a key strategic transaction for Datatec as it catapults Logicalis into
becoming the leading independent integrator, not only in Brazil but across the
whole of Latin America. It also adds a significant new geographic revenue and
profits stream to Logicalis in the largest economy in South America.
"We believe Brazil has the best corporate governance of any of the BRIC
countries as well as having the most advanced economy in the region. We have
been operating in the country for over ten years and merging with PT is a rare
opportunity to secure a market leading business with a strong management team.
Significantly, this transaction gives both Logicalis and PT access to new skills
which will enable the enlarged business to target new markets and customer
verticals across the continent.
"This earnings enhancing transaction also fits well with our Group strategy to
widen our geographical footprint and comes shortly after Westcon, our global
distribution business, also significantly increased its presence in Brazil."
The consideration
The consideration payable comprises an initial cash consideration of $25.0
million from the Group`s existing cash resources and Datatec shares to the value
of $25.0 million (comprising 6,674,312 shares at an issue price of 185.33 pence,
being the 30-day VWAP on 12 March 2008) which will be issued to Promon S.A. on
completion of the transaction. Deferred cash consideration of up to $27.2
million is also payable over the next two years contingent upon the future
financial performance of PT and the Datatec share price.
50% of the shares issued to Promon S.A. will be subject to a one-year selling
restriction and the remainder will be subject to a two-year selling restriction.
Following the transaction, Logicalis South America Limited will be renamed
PromonLogicalis Latin America Limited ("PLLAL") and Promon S.A. will have a 30%
interest in PLLAL. Promon S.A. will have a put option to sell its 30% interest
in PLLAL to Logicalis Group Limited at a price to be determined between Promon
S.A. and Logicalis Group Limited at the time. The put option expires in
September 2012 and can be exercised annually commencing in September 2009,
subject to a maximum sale in any one year of a 15% interest in PLLAL.
Financial Effects
The financial effects have been prepared for illustrative purposes only and
because of its nature may not fairly present the issuer`s financial position,
changes in equity, results of operations or cash flows. The financial effects
are the responsibility of the directors.
The transaction would have had the following effect on Datatec`s earnings per
share, headline earnings per share, underlying earnings per share, net asset
value ("NAV") and net tangible asset value ("NTAV") per share for the six months
ended 31 August 2007, based on the assumptions set out below:
(US cents) Before Pro-Forma after %
transaction transaction change
Earnings per Share 16.80 16.82 0.12
Headline Earnings per Share 16.75 16.78 0.14
Underlying Earnings per 18.89 20.84 10.31
Share
NAV per Share 362 356 -1.69
NTAV per Share 172 121 -29.91
The pro-forma earnings per share, headline earnings per share, underlying
earnings per share NAV and NTAV have been prepared on the following assumptions:
Figures before the transaction are the unaudited interim results of Datatec for
the six months ended 31 August 2007;
169.0 million Datatec shares in issue at 31 August 2007;
funds are invested at an interest rate of 4.75%;
the results of PT are the pro-forma unaudited results for the six months ended
31 December 2007;
intangible fixed assets will be recognized on completion and amortised in
accordance with Logicalis` existing accounting policies;
a tax rate of 34.0% in Brazil and 29.0% in South Africa;
the NAV and NTAV pro-forma assumes the transaction was concluded effective 31
August 2007 and uses PT`s projected un-audited balance sheet at the transaction
date;
All contingent and deferred consideration has been included in the calculations
as having been paid at the transaction date; and
Underlying earnings per share is calculated after adding back the amortisation
of intangibles that are created upon the transaction.
Conditions precedent
Completion of the transaction is expected to take place in late April or early
May 2008 and is subject to the satisfactory fulfilment of the following
conditions precedent:
regulatory approvals from the relevant Brazilian federal and state authorities;
material customer and supplier consents; and
various other conditions relating to the effective administration of the
transfer of the business.
Enquiries:
Datatec Limited (www.datatec.co.za) +44 1753 777353
Jens Montanana, Group Chief
Executive
Dresdner Kleinwort
Simon Russell/James Rudd +44 (0) 20 7623 8000
Investec
Erik Anderson/Andrew Pinder +44 (0) 20 7597 4000
College Hill
Adrian Duffield/Jon Davies (UK) +44 (0) 20 7457 2020
Nick Williams/Fred Cornet (SA) +27 (0) 11 447 3030
Note to editors
Datatec is an international Information & Communications Technology (ICT) group
focused on the supply of advanced ICT and the delivery of professional services
into the higher growth segments of the global market. The Group`s main lines of
business comprise the global distribution of advanced networking and
communications convergence products (Westcon), IT infrastructure solutions and
network integration (Logicalis) and strategic telecommunications consulting
(Analysys Mason Group). Datatec is registered in South Africa and its shares are
listed in Johannesburg and London. The Group has over 3,000 employees around
the world.
In the year to 28 February 2007, the Group reported an increase in revenue of
17% to $3,168 million (2006: $2,715 million), operating profit increased 45% to
$100 million (2006: $69 million), and headline earnings per share grew to 40.80
cents (2006: 26.9 cents).
17 March 2008
Date: 17/03/2008 08:59:49 Produced by the JSE SENS Department.
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