AEL: ALLIED ELECTRONICS CORPORATION LIMITED - Cautionary announcement relating to the potential demerger and separate listing of Bytes Technology Group
Cautionary announcement relating to the potential demerger and separate listing of Bytes Technology Group
ALLIED ELECTRONICS CORPORATION LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1947/024583/06)
Share code: AEL ISIN: ZAE000191342
("Altron" or "the Company")
NOT FOR DISTRIBUTION, PUBLICATION OR RELEASE, DIRECTLY OR INDIRECTLY, IN WHOLE OR
IN PART, IN, INTO OR WITHIN THE UNITED STATES OR ANY OTHER JURISDICTION IN WHICH
THE DISTRIBUTION, PUBLICATION OR RELEASE OF THIS ANNOUNCEMENT WOULD BE
UNLAWFUL.
CAUTIONARY ANNOUNCEMENT RELATING TO THE POTENTIAL DEMERGER AND SEPARATE LISTING OF BYTES TECHNOLOGY GROUP
1 INTRODUCTION
Altron announced on Thursday, 2 April 2020 that as part of its FY2020 strategic review the Altron board of
directors ("Altron Board") had assessed each of the business units within Altron, to identify opportunities
which have the potential to create value for Altron shareholders ("Altron Shareholders"). The Altron Board
identified Bytes Technology Group Limited ("Bytes UK") as not being ascribed fair value by the market. In
order to unlock value for Altron Shareholders the Altron Board resolved to apply for admission of the entire
issued and to be issued share capital of Bytes UK, via a newly established holding company, Bytes
Technology Group plc, to the premium listing segment of the Official List of the United Kingdom ("UK")
Financial Conduct Authority ("FCA"), to trading on the Main Market of the London Stock Exchange ("LSE")
and to the Main Board of the Johannesburg Stock Exchange ("JSE") by way of a secondary inward listing,
to pursue an offer for subscription for new Bytes Technology Group plc shares ("Offer"), and a distribution
of Altron´s remaining interest in Bytes UK to Altron Shareholders (the "Proposed Transaction"). This
announcement is intended to provide an update to the market on the progress of the Proposed Transaction.
2 SALIENT TERMS OF THE PROPOSED TRANSACTION
The Proposed Transaction anticipates the listing of Bytes UK, via a newly established holding company,
Bytes Technology Group plc, on the LSE and JSE with ordinary Altron Shareholders ("Altron Ordinary
Shareholders") retaining an interest in Bytes UK pursuant to the composite, inter-conditional, indivisible
transaction consisting of the Distribution, the Offer, Admission, the Disposal, the Redemption and the
Conversion as defined in section 5 below. The diagram below provides a high-level overview of the
Proposed Transaction steps.
SIMPLIFIED PROPOSED TRANSACTION STRUCTURE
The Proposed Transaction structure diagram can be viewed in the pdf version of the announcement which
will be available on Altron´s website from today.
SIMPLIFIED PROPOSED TRANSACTION STEPS
Simplistically the Proposed Transaction is being implemented through a three-step process:
Step 1: Altron sells Bytes UK to a wholly owned subsidiary of a newly incorporated UK company
("Bytes Technology Group plc")
o Altron sells its shares in Bytes UK to a wholly owned subsidiary of Bytes Technology Group plc,
Bytes Technology Holdco Limited ("Bytes Technology Holdco"), at market value (market value is
by reference to the Offer price ultimately achieved).
o Altron (through its various subsidiaries) receives interest-free, unsecured, redeemable, convertible
loan notes ("Convertible Notes") issued by Bytes Technology Group plc in consideration for its
shares in Bytes UK.
Step 2: Altron distributes Bytes Technology Group plc Convertible Notes
o Altron distributes Convertible Notes received in step 1 as a distribution in specie to Altron
Shareholders, subject to Altron and Altron Finance Proprietary Limited, a wholly owned subsidiary
of Altron ("Altron Finance"), retaining some Convertible Notes to cover costs, taxes and settle a
portion of its loan obligations.
Step 3: Bytes Technology Group plc Offer
o Admission of the Bytes Technology Group plc shares to the premium listing segment of the Official
List of the FCA and to trading on the Main Market of the LSE and on the Main Board of the JSE by
way of a secondary inward listing.
o Bytes Technology Group plc uses proceeds from the Offer to: i) redeem 100% of the Convertible
Notes beneficially owned by Altron and Altron Finance; and ii) redeem a minimum of 25% of the
Convertible Notes beneficially owned by Altron Ordinary Shareholders (excluding Convertible
Notes retained by Altron and Altron Finance as described in step 2), plus such number of such
Convertible Notes, up to 100%, as are the subject of Altron Ordinary S hareholder elections for
additional cash (in each case subject to investor demand in the Offer). Each Convertible Note which
is redeemed will be redeemed for cash at the Offer Price.
o Remaining Convertible Notes held by Altron Ordinary Shareholders convert automatically into
Bytes Technology Group plc shares.
3 RATIONALE FOR THE PROPOSED TRANSACTION
A fundamental and strategic goal of the Altron Board has been to maximise value for Altron Ordinary
Shareholders. This resulted in driving a strategy, which successfully delivered the disposal of non -core
assets, the rationalisation of operations and the execution of targeted acquisitions in high-growth areas.
This positioned Altron as a leading IT Services organisation in Africa and achieved a total shareholder
return of 26% per annum over three years with the return on capital employed increasing from 6.3% to
20.8% over the same period.
The Altron Board has assessed each of the business units within A ltron, to identify opportunities which have
the potential to unlock further value for Altron Ordinary Shareholders and to streamline operations. Post
this review, the Altron Board concluded that the true value of Bytes UK is not reflected in the Company´s
share price. Bytes UK has increasingly developed a growth trajectory and strategic levers that are different
to the rest of the Altron group of companies and operates in a different geographical capital market with a
highly rated peer group. In addition, Bytes UK is independently managed by the Bytes UK management
team and has limited functional support from Altron.
Consequently, and after due consideration as to whether the long-term prospects of Bytes UK would be
enhanced by a separate listing on the LSE and secondary listing on the JSE, the Altron Board resolved to
pursue the Proposed Transaction. The Proposed Transaction will enable Bytes UK to operate in a more
focused and efficient manner, allow Bytes UK to achieve its strategic goals and unlock value for Altron
Ordinary Shareholders over the long term.
The Altron Board has carefully considered the unprecedented market conditions resulting from the Covid -
19 pandemic. The Altron Board believes that the terms and construct of the Proposed Transaction are still
in the best interests of Altron Shareholders and other Altron stakeholders.
4 HIGH LEVEL OVERVIEW OF BYTES UK
Bytes UK is one of the UK's leading providers of IT software offerings and solutions, with a focus on cloud
and security products. Bytes UK enables effective and cost-efficient technology sourcing, adoption and
management across software services, including in the areas of security and cloud services. It aims to
deliver the latest technology to a diverse and embedded customer base and has a long track record of
delivering strong financial performance.
Bytes UK´s software offering includes working with customers to identify their software needs, selecting and
deploying appropriate software products, managing licence compliance and, ultimately, seeking to optimise
their software assets. This offering is delivered through licensing and subscription agreements. The
reselling of software in the form of licensing agreements, permits Bytes UK´s customers to install the
software on a specified number of IT devices, such as desktop computers, mobile devices or servers .
Software is also delivered through the cloud in the form of subscription agreements that allow access to the
software for a specified number of users over a period of time, which is known as Software-as-a-Servic e.
Examples include Microsoft Azure and Microsoft 365.
Beyond the reselling of software, Bytes UK provides tailored IT solutions to its customers, including the
products and services required to implement and manage such solutions. These solutions, which are
provided both on premise and in the cloud, include professional and managed services as well as hardware
sales.
5 DETAILS OF THE PROPOSED TRANSACTION
In relation to the Proposed Transaction, neither Altron nor Bytes Technology Group plc has a firm intention
to make an offer as contemplated in paragraph 101(1) of the regulations issued in terms of section 223 of
the Companies Act, 71 of 2008 ("Companies Act"). If the Proposed Transaction proceeds, and if Altron and
Bytes Technology Group plc agree the terms of, and execute a share purchase agreement in respect of,
the Disposal (as defined below), Altron will release a firm intention announcement .
Altron expects that the Proposed Transaction, will be implemented in accordance with the following
transaction steps:
5.1 Altron, through Bytes Technology Group Proprietary Limited ("Bytes SA"), will dispose of all of its
interest in Bytes UK (the "Disposal") to Bytes Technology Holdco, a wholly owned subsidiary of Bytes
Technology Group plc, with Bytes Technology Group plc being subject to the listing as described in
the Introduction above;
5.2 management of Bytes UK will also sell their interest in Bytes UK to Bytes Technology Group plc,
such that the Bytes Technology Group plc group of companies will own the entire issued share capital
of Bytes UK with effect from Admission (as defined below);
5.3 the initial shareholders of Bytes Technology Group plc are Neil Murphy and Keith Richardson, the
Chief Executive Officer and Chief Financial Officer, respectively, of Bytes Technology Group plc;
5.4 Bytes Technology Group plc on behalf of Bytes Technology Holdco will settle the purchase
consideration due to Bytes SA for the Disposal through the issue of Convertible Notes to Bytes SA;
5.5 Bytes SA and certain intermediate subsidiaries of the Company will distribute the Convertible Notes
to Altron as a distribution in specie in terms of section 46 of the Companies Act. Altron will in turn
distribute the beneficial interest in 91% of the Convertible Notes to Altron Ordinary Shareholders by
way of a distribution in specie in terms of section 46 of the Companies Act ("Distribution"). Altron will
retain 9% of the Convertible Notes in order to settle dividends tax arising from the Distribution. Altron
has estimated that the proceeds of the redemption of 9% of the Convertible Notes will be sufficient
to settle dividends tax, however, the actual liability for dividends tax will be determined after Altron
Ordinary Shareholders submit declarations to Altron in terms of section 64FA of the Income Tax Act;
5.6 the Convertible Notes will either be redeemed for cash out of the proceeds raised in the Offer
("Redemption") and any remaining Convertible Notes not redeemed shall automatically convert into
shares in Bytes Technology Group plc ("Conversion");
5.7 Altron Finance which holds treasury shares in the Company equal to 8.0%, and Altron Shareholders
in jurisdictions in which it is unlawful to deliver shares in Bytes Technology Group plc ("Restricted
Shareholders") will have 100% of their Convertible Notes redeemed for c ash at the price per Bytes
Technology Group plc share realised in the Offer ("Offer Price");
5.8 Altron will use the redemption proceeds received through Altron Finance in step 5.7 above to reduce
Altron group debt;
5.9 Altron will have 100% of the 9% of the Convertible Notes which it retained redeemed for cash at the
Offer Price so that it can settle the dividends tax obligation arising on the Distribution;
5.10 after redemption of the Convertible Notes retained by Altron to settle its dividends tax and held by
Altron Finance and Restricted Shareholders, subject to demand in the Offer for not less than 36.9%
of the enlarged share capital of Bytes Technology Group plc, Altron Ordinary Shareholders who do
not make an election will have 25% of their Convertible Notes redeemed for cash at the Offer Price
per Convertible Note and the remaining 75% of their Convertible Notes will be automatically
converted into Bytes Technology Group plc shares (the "Default Ratio");
5.11 to the extent there is insufficient demand for Bytes Technology Group plc shares in the Offer to
redeem Convertible Notes in the Default Ratio, the Default Ratio will be adjusted proportionately;
5.12 Altron Shareholders who wish to have more than 25% of their Convertible Notes redeemed for cash
may submit an election to do so, and such elections will be satisfied to the extent of investor demand
for Bytes Technology Group plc shares in the Offer in excess of the demand required to redeem
Convertible Notes in the Default Ratio;
5.13 the Bytes Technology Group plc shares will be admitted to the premium listing segment of the Official
List of the FCA and to trading on the LSE's Main Market for listed securities and to the Main Board
of the JSE by way of a secondary inward listing ("Admission"); and
5.14 all underwriting commissions, fees, expenses and taxes payable in respect of the Offer and the issue
of the new Bytes Technology Group plc shares will be borne by Bytes Technology Group plc. The
Offer will therefore also raise sufficient funds for Bytes Technology Group plc to enable it to satisfy
the above obligations.
In order to provide additional certainty in relation to the Proposed Transaction as described above the Altron
Board has determined a minimum Offer Price below which the Proposed Transaction will not be
implemented ("Minimum Offer Price"). It has been set by reference to the currently prevailing global
macroeconomic and stock market volatility. As such, it should not be taken as a guide to the actual Offer
Price which may be achieved and/or the Altron Board's assessment of the actual value of Bytes UK. The
Altron Board are entitled in their absolute discretion to increase the Minimum Offer Price until the publication
of the prospectus, the timing of which will be communicated to Altron Shareholders once it is finalised.
When assessing whether to increase the Minimum Offer Price, the Altron Board will take all relevant factors
at that time into consideration in exercising their fiduciary duties The Minimum Offer Price has been put in
place to ensure the Proposed Transaction will only be implemented on terms which create value for Altron
Shareholders. The Minimum Offer Price will result in a minimum market capitalisation of £450 million for
Bytes Technology Group plc at Admission. This represents 110% of Altron´s current market capitalisation
as at close of business on 21 October.
6 SHAREHOLDER APPROVALS REQUIRED
In connection with the Proposed Transaction, Altron expects to publish a circular setting out the detailed
terms of the Proposed Transaction ("Altron Circular") and to convene an extraordinary general meeting of
the Altron Shareholders ("General Meeting") at which the Altron Shareholders will be asked to consider,
and, if deemed fit, pass the following resolutions required to implement the Proposed Transaction:
6.1 approval by special resolution of the Altron Shareholders in accordance with section 112 and
115(2)(a) of the Companies Act for the Distribution;
6.2 approval by special resolution of the Altron Shareholders in accordance with section 112 and
115(2)(b) of the Companies Act for the Disposal; and
6.3 approval by more than 50% of the total voting rights exercised by Altron Shareholders for the
Disposal because it is a Category 1 Transaction in terms of the JSE Listings Requirements,
(collectively, the "Proposed Transaction Resolutions")
7 SUSPENSIVE CONDITIONS TO THE PROPOSED TRANSACTION
The Proposed Transaction will be subject to fulfilment or waiver by Altron, where capable of waiver, of a
number of suspensive conditions. The key suspensive conditions are expected to be:
7.1 the delivery of an independent expert´s opinion on the Proposed Transaction;
7.2 the adoption of the Proposed Transaction Resolutions at the General Meeting;
7.3 the relevant transaction agreements being agreed and becoming unconditional in accordance with
their terms;
7.4 the receipt of the requisite regulatory and lender approvals;
7.5 a minimum subscription of not less than 25% of the enlarged issued share capital of the Company
immediately following Admission;
7.6 the Minimum Offer Price, as determined by the Altron Board, being achieved; and
7.7 Admission occurring.
8 TIMING
Altron is in the process of finalising the terms of the share purchase agreement for the Proposed
Transaction. Once the terms have been finalised, and the necessary regulatory approvals for publication
have been obtained, Altron will publish a further announcement setting out further details of the Proposed
Transaction, including the financial effects of the transaction for Altron Shareholders and will thereafter post
the Altron Circular and notice of General Meeting to Altron Shareholders.
Subject to obtaining the necessary regulatory approvals, the Bytes Technology Group plc Offer is expected
to commence post Altron Shareholders adopting the Proposed Transaction Resolutions at the General
Meeting. It is anticipated that the Bytes Technology Group plc Offer will be concluded during December
2020.
9 CAUTIONARY ANNOUNCEMENT
The Proposed Transaction, if successfully concluded, may have a material effect on the price of Altron´s
shares. Accordingly, Altron Shareholders are advised to exercise caution when dealing Alton´s shares until
the further announcement is made.
Johannesburg
22 October 2020
Financial Advisor and Transaction Sponsor
Rand Merchant Bank, a division of FirstRand Bank Limited
IMPORTANT NOTICE
This announcement is an advertisement and does not constitute a prospectus in connection with an offering
of securities. These materials may not be published, distributed or transmitted by any means or media,
directly or indirectly, in whole or in part, in, into or within the United States. These materials do not constitute
an offer to sell, or a solicitation of an offer to buy, securities in the United States. Securities may not be
offered or sold in the United States absent (i) registration under the U.S. Securities Act of 1933, as amended
(the "Securities Act"), or (ii) an available exemption from registration under the Securities Act. The securities
mentioned herein have not been, and will not be, registered under the Securities Act and will not be offered
to the public in the United States.
Date: 22-10-2020 07:20:00
Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
