ALT - ALLIED TECHNOLOGIES LIMITED - Disposal of East Africa Operations and Withdrawal of Cautionary
28 January 2013Disposal of East Africa Operations and Withdrawal of Cautionary
ALLIED TECHNOLOGIES LIMITED
Member of the Altron Group
Incorporated in the Republic of South Africa
(Registration number 1946/020415/06)
Share code: ALT
ISIN Number: ZAE000015251
("Altech" or "the company")
TRANSACTIONS RELATING TO ALTECH'S TELECOMMUNICATIONS NETWORK INTERESTS IN EAST
Further to the cautionary announcement released on SENS on 19 September 2012, and the
subsequent renewal of cautionary announcements dated 29 October 2012 and 10 December 2012,
respectively, Altech shareholders are advised that Altech has concluded agreements relating to
various transactions involving Liquid Telecommunications Holdings Limited ("Liquid"), in terms of
which Altech will become a strategic minority shareholder in Liquid, holding an initial 8.6% of
Liquid's issued share capital, with shareholder voting rights amounting to 10% and representation on
the board of the Liquid group.
Altech will contribute its interests in its East African network assets and will subscribe for the issue of
new shares in Liquid for cash. Liquid's controlling shareholders have indicated that Altech may be
afforded the opportunity to increase its shareholding in Liquid, in the future, in order to enhance the
strategic partnership between Liquid and Altech.
Liquid was established in 1997 as an independent telecommunications provider for international,
voice, internet and data traffic, and other related services based on satellite communication
Liquid has since become a supplier of fibre, satellite, international carrier services and infrastructure
to fixed and mobile telecommunications operators, internet service providers (ISPs) and enterprises
in developing countries - particularly in central and southern Africa.
Liquid operates and owns one of Africa's most extensive fibre optic networks which provides
services to customers in South Africa, Botswana, Lesotho, Zimbabwe, Zambia andthe Democratic
Republic of Congo ("DRC"). Operations in a further two countries are under development. It has
constructed a substantial fibre optic network across the region which is currently commercially
operational. Liquid has also extended its international network footprint through the use of third
party fibre networks, including undersea cable, through Indefeasible Rights of Use ("IRU's") and
lease option arrangements.
Since its formation in 1997, Liquid has shown strong and consistent growth.
3. Altech's East African interests
In 2007, Altech formed Altech Stream Rwanda Limited ("ASR"). In 2008, Altech acquired controlling
shareholdings in the companies now known as Altech Kenya Data Networks Limited ("KDN"), Altech
Swift Global Limited ("ASG"), and Altech Infocom Limited ("Infocom"). KDN had earlier established
Africa Digital Networks Limited ("ADN") in the Democratic Republic of Congo ("DRC"), currently a
wholly-owned subsidiary of KDN.
Collectively, these companies operate as network service providers and ISPs in East and Central
Altech's current shareholdings are as follows - KDN (60.8%); ASG (51%); Infocom (51%). ADN and
ASR are now held 100% and 90%, respectively, by KDN, which has also acquired a 10% shareholding
in the company owning the TEAMS undersea cable operation. Certain of the minority shareholdings
in these companies which are currently held by local parties in the countries concerned, will also be
acquired by Liquid simultaneously.
In 2009, Altech incorporated Altech Data International Limited ("ADI"), which is currently owned
60.8% byAltech. ADI acquired IRU's on the SEACOM undersea cable for on-sale to KDN and other
clients. KDN, Swift, ASR, Infocom, ADI and ADN are collectively hereinafter referred to as "AEA".
Post transaction, Liquid will own the following percentages in the various companies - KDN (80%),
ASG (100%), Infocom (80%), ASR (75%), ADI (100%), ADN (100%). Liquid intends transferring ASG to
KDN post the transaction. This places Liquid in a sound position to further develop these businesses.
AEA owns and operates fibre networks, WiMax, Microwave, WiFi and satellite facilities throughout
East Africa and in the DRC. AEA also provides ISP services to clients in the countries in which it
operates. In 2011, KDN built a co-location data centre in Nairobi, which is the largest facility of its
kind in East Africa.
4. Rationale for the transactions
Altech operates in the Telecommunications, Multimedia and Information Technology ("TMT")
sector, through a focused range of activities.
Altech believes that its AEA network would benefit considerably from becoming part of a larger,
specialist network and ISP operator with more extensive experience in building, maintaining and
operating networks in Africa. The combination of Liquid's southern and central African network
facilities with those of AEA in East Africa will create a formidable pan-African entity which will be
able to offer unparalleled communications, access and support services to major international
corporate clients, in particular.
The combination of Liquid's and AEA's network will create the African continent's largest single
terrestrial fibre network connecting more African countries than any other single terrestrial network.
The efficiencies which this will create will be considerable and will enable the interconnectivity of
the continent in a manner previously unachievable. Enterprises will, in many cases for the first time,
be able to obtain point to point connectivity between a virtually unprecedented number of African
Certain of Altech's other activities, for example in the Multimedia sector, offer strategic and
complementary products to Liquid's triple play technologies and services which will benefit the
enlarged Liquid group as it extends its reach into the wider, mass communications market, involving
converged internet, VOIP, IPTV and video-on-demand services in high-growth African markets.
5. Salient features of the agreements
In terms of the agreements relating to these transactions:
• Altech will in consideration for receiving an equity interest in Liquid, sell its shares and
claims on loan account in AEA, on a net debt-free and cash-free basis to Liquid;
• Altech will be entitled to pursue litigation debtors of AEA existing as at the effective date
and to receive any proceeds therefrom;
• Subsequent to the transaction, debtors exceeding 30 days at the effective date, collected by
Liquid, will be shared equally between Liquid and Altech;
• Altech will also subscribe for additional new ordinary shares in Liquid, for a cash
consideration of US$ 16.5 million;
• as a result of the above, Altech will hold 8.6% of the entire issued share capital of Liquid,
which it will hold as a strategic minority interest shareholding;
• in regard to the ordinary shares in Liquid referred to above:
o these will be a separate class of ordinary shares and for so long as Altech holds all of
them it will be entitled to 10% of all votes capable of being cast at general meetings of
ordinary shareholders of Liquid;
o for so long as Altech holds not less than 5% of the total issued share capital of Liquid,
Altech will be allowed to appoint one director on the board of Liquid;
o Altech shall not be entitled to receive any dividends during the period commencing on
the effective date and ending eighteen months thereafter;
• Altech and Econet Wireless Global Limited ("EWG"), the majority shareholder of Liquid, will
have mutual put/call rights in respect of the shares constituting Altech's interest in Liquid. If
either party exercises this right to acquire or dispose of the shares concerned this will be at
an independently-determined fair market value, provided that if such right is exercised prior
to the first anniversary of the effective date, the fair market value of the shares shall be the
greater of US$50 million or the independently-determined fair market value;
• any Liquid holding company will be allowed to purchase Altech's interest in Liquid in
exchange for shares in the holding company concerned, in the event of that company listing
on a stock exchange, at an independently-determined fair market value, provided that this
will be the greater of that value or $50 million (i.e. approximately R450 million), should the
listing occur on or prior to the first anniversary of the effective date;
• standard minority shareholder protections, requiring Altech's approval for certain decisions
of Liquid, are applicable, as well as usual pre-emptive rights, come-along, tag-along and
change of control provisions. The agreements also contain standard vendor warranties and
disclosures, together with Liquid shareholder restraints in favour of Liquid; and
• the transaction is subject to certain conditions precedent, including requiring approval by
the board of Altech, the board of Altech's listed holding company Allied Electronics
Corporation Limited ("Altron"), the board of Liquid and approval by any applicable
6. Unaudited pro forma financial effects of the transactions
The table below sets out the unaudited pro-forma financial effects of the transactions on Altech's
headline earnings per share, diluted headline earnings per share, basic loss per share and diluted
basic loss per share for the six months ended 31 August 2012. The unaudited pro-forma financial
effects are presented for illustrative purposes only and because of their nature, may not give a fair
reflection of the company's results of operations, financial position and changes in equity after the
It has been assumed for purposes of the unaudited pro-forma financial effects that the transactions
took place with effect from 1 March 2012 for headline earnings per share, diluted headline earnings
per share, basic loss per share and diluted basic loss per share purposes.
The directors of Altech are responsible for the preparation of the unaudited pro-forma financial
effects. The accounting policies of Altech have been applied in calculating the pro-forma financial
The pro-forma financial information is prepared in terms of the Listings Requirements of the JSE and
guidelines issued by the South African Institute of Chartered Accountants.
Before the After the
6 months ended 31 August 2012 Change
(Cents) (Cents) (%)
Headline earnings per share 127 157 23%
Diluted headline earnings per share 123 152 23%
Basic loss per share -309 -573 86%
Diluted basic loss per share -300 -555 85%
Altech's pro-forma net asset value ("nav") per share will decrease from R11.22 as at 31 August 2012,
to R7.61 (i.e. by 32%) and its pro-forma tangible nav will decrease from R6.91 to R3.32 (i.e. by 52%),
as a result of the transactions.
AEA was substantially profitable for the two year period following the acquisitions of KDN, Infocom
and ASG. Overall, however, it has been significantly loss-making recently, due to a number of
adverse factors. These include the simultaneous connection of several new undersea cables to East
Africa, leading to substantial over-capacity in wholesale bandwidth and resulting in price decreases
of over 80%.
AEA has also been adversely affected by depreciating and volatile values of certain East African
currencies, by network instability and reliability issues, as well as the loss of certain important
customers due to developing trends towards self-provisioning of network infrastructure and
independence from third party network service providers.
Notes and assumptions:
1. The numbers presented in the "Before the transaction" column were extracted, without
adjustment, from the unaudited consolidated interim financial statements of Altech for the six
months ended 31 August 2012.
2. The transaction is assumed to be effective from 1 March 2012 for statement of comprehensive
3. The transaction is assumed to be effective as at 31 August 2012 for statement of financial position
The exchange rates at the closing date is assumed at ZAR9.00 = USD1.00.
4. The "After the transaction" headline earnings per share and basicloss per share have been
adjusted for the following items:
- the de-recognition of the AEA losses from the group;
- once-off transaction costs of R5 million;
- an estimated finance expense of R40 million, based on a weighted interest rate of the
South African prime bank overdraft interest rate less 1.5% per annum and the interest rate
of existing East African borrowings assumed in the transaction, on borrowings to fund the
- No dividends from the investment in Liquid were included as Altech shall not be entitled to
receive any dividends during the period commencing on the effective date and ending
eighteen months thereafter. However, future dividend income is expected from the
5. The "After the transaction" basic loss per share has been adjusted for the recognition of a loss on
disposal of R666 million attributable to Altech shareholders.
6. The nav and tangible nav have been adjusted for the following:
- The de-recognition from the group of net assets of R361 million and net tangible assets of
R369 million, attributable to the investment in AEA.
- The investment in Liquid.
The aggregated transactions are classified as a category 2 transaction in terms of the JSE Listings
8. Withdrawal of cautionary announcement
Following the publication of this announcement, shareholders are advised that caution is no longer
required to be exercised when dealing in Altech securities.
28 January 2013
Financial Advisor and Sponsor to Altech
Investec Bank Ltd
Date: 28/01/2013 05:15:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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