News
Advance Synergy Berhad (ASB Or The Company) Proposed Acquisition Of: - 70% Equity Interest Comprising 700,140 Ordinary Shares In Unified Communications Sdn Bhd For A Cash Consideration Of Approximately RM23.5 Million - 70% Equity Interest Comprising 42,000 Ordinary Shares In Unified Communications Pte Ltd For A Cash Consideration Of Approximately RM85.5 Million (Proposed Acquisitions)
BackMay 26, 2001
| General Announcement Reference No MM-010526-42615 |
| Submitting Merchant Bank | : | PERDANA MERCHANT BANKERS BERHAD |
| Company Name | : | ADVANCE SYNERGY BERHAD |
| Stock Name | : | ASB |
| Date Announced | : | 26/05/2001 |
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| Type | : | Announcement |
| Subject | : | ADVANCE SYNERGY BERHAD (ASB or the Company) Proposed Acquisition of: - 70% equity interest comprising 700,140 ordinary shares in Unified Communications Sdn Bhd for a cash consideration of approximately RM23.5 million - 70% equity interest comprising 42,000 ordinary shares in Unified Communications Pte Ltd for a cash consideration of approximately RM85.5 million (Proposed Acquisitions) |
Contents :
1. INTRODUCTION
Perdana Merchant Bankers Berhad, on behalf of the Board of Directors of ASB, wishes to announce that the Company's wholly owned subsidiary, Worldwide Matrix Sdn Bhd (WMSB), has on 26 May 2001 entered into a Sale and Purchase Agreement (SPA) to acquire 70% equity interest in each of the following companies:
? Unified Communications Sdn Bhd (UCSB); and
? Unified Communications Pte Ltd (UCPL),
(together referred as the Acquiree Companies or the UC Group) for a total purchase consideration of RM109,000,000 from Mr. Wong Tze Leng (the Vendor).
2.1 The Proposed Acquisitions
ASB proposed to acquire 70% of the respective issued and paid-up share capital of UCSB and UCPL for a total purchase consideration of RM109 million as follows:
Please refer to Table A.
The shares of the Acquiree Companies will be acquired free from all claims, liens, charges and encumbrances thereto and will include all rights attaching thereto with effect from the date of sale and purchase agreement for the Proposed Acquisitions.
2.2. Information on the Acquiree Companies
The UC Group provides communication technology that enables enhanced communication solutions for telecom companies (telcos) as well as enterprises.
The UC Group was established in 1998 by Mr Wong Tze Leng and is currently operating with 2 member companies namely UCSB and UCPL. Information on the UC Group's business are set out in Appendix I.
Based on the latest audited accounts as at 31 December 2000, the Acquiree Companies' proforma net tangible assets is approximately RM5,175,000.
UCSB is a company incorporated in Malaysia under the Companies Act, 1965 on 24 March 1998. Its authorised share capital is RM5,000,000 out of which RM1,000,200 comprising 1,000,200 ordinary shares of RM1.00 each have been issued and fully paid-up.
UCSB is principally the research and development centre based in Kuala Lumpur. In December 2000, UCSB was granted MSC Status (an investment incentive status granted by the Multimedia Development Corporation) with various tax incentives, amongst others include, Pioneer Status. The Pioneer Status will exempt profits of UCSB in excess of RM790,000 per annum from income tax for 5 years from year 2001 to 2005.
Based on the latest audited accounts as at 31 December 2000, UCSB's net tangible assets is approximately RM2,363,121 or RM2.36 per share.For the financial year ended 31 December 2000, UCSB generated a profit after taxation of RM743,335.
2.2.2 UCPL
UCPL is a company incorporated in Singapore on 28 May 1998. Its authorised share capital is SGD100,000 out of which SGD60,000 comprising 60,000 ordinary shares of SGD1.00 each have been issued and fully paid-up.
UCPL is essentially the marketing and customer services arm of the UC Group.
Based on the latest audited accounts as at 31 December 2000, UCPL's net tangible assets is SGD1,326,370 (or approximately RM2,811,904 at the rate of RM2.12 per every SGD1.00) or SGD22.11 (or RM46.86) per share. For the financial year ended 31 December 2000, UCPL generated a profit after taxation of SGD1,232,432 (or RM2,612,756 at the rate of RM2.12 per every SGD1.00).
The purchase consideration of RM109,000,000 was arrived at on a willing buyer-willing seller basis and shall be satisfied entirely by cash in the following manner: ? First 20%, upon execution of the SPA (Deposit); ? Next 40% payable upon obtaining all the relevant approvals or within 6 months of the date of SPA, whichever is the earlier; and ? The last 40% payable within 3 months or such extended period not exceeding six (6) months from the date of the last condition precedent being fulfilled.
Should WMSB subsequently fail to settle the balance payments for any reason other than for the failure or non-fulfilment of any condition precedent as set out in the SPA, then there will be no cash refund of the Deposit, and the Deposit shall be refunded by way of a proportionate number of shares in UCSB and UCPL, representing 14% equity interest in UCSB and UCPL, transferred to WMSB.
The Vendor has warranted the aggregate audited profit after tax of the Acquiree Companies for 3 financial years ending 31 December 2001, 2002 and 2003 to be at least RM63,000,000 (i.e. average of RM21,000,000 per annum) (Profit Warranty). The Vendor further warranted that audited profit after tax of the Acquiree Companies for the financial year ending 31 December 2001 shall be at least RM16,500,000 (2001 Profit Warranty) and the audited profit after tax of the Acquiree Companies for the financial year ending 31 December 2002 to be least RM21,000,000 (2002 Profit Warranty).
In the event that, there is a shortfall in achieving the 2001 Profit Warranty and/or 2002 Profit Warranty, the Vendor shall make good 70% of the shortfall upon confirmation of the assessment by paying a cash sum equal to 70% of the shortfall to WMSB. Assessment of profit warranty for each financial year shall be confirmed within 3 months of the respective financial year end.
For the purpose of assessing compliance of the Profit Warranty (i.e. for 3 financial years ending 31 December 2003, which shall be at least RM63,000,000 in aggregate and which include 2001 Profit Warranty and 2002 Profit Warranty), the surplus of actual profit after tax achieved over profit after tax warranted for any year shall be carried forward to set off any shortfall in the subsequent years.
The Vendor shall deposit a cash amount of RM14,700,000 with a local financial institution to be operated by WMSB as security for the Profit Warranty.
The Vendor shall enter into a service contract with UCSB to serve as Chief Executive Officer for a period of five (5) years from the date of completion of the SPA.
Neither WMSB nor the Group is required to assume any liability pursuant to this Proposed Acquisition.
The Vendor has warranted the aggregate audited profit after tax of the Acquiree Companies for 3 financial years ending 31 December 2001, 2002 and 2003 to be at least RM63,000,000 (i.e. average of RM21,000,000 per annum) (Profit Warranty). The Vendor further warranted that audited profit after tax of the Acquiree Companies for the financial year ending 31 December 2001 shall be at least RM16,500,000 (2001 Profit Warranty) and the audited profit after tax of the Acquiree Companies for the financial year ending 31 December 2002 to be least RM21,000,000 (2002 Profit Warranty).
In the event that, there is a shortfall in achieving the 2001 Profit Warranty and/or 2002 Profit Warranty, the Vendor shall make good 70% of the shortfall upon confirmation of the assessment by paying a cash sum equal to 70% of the shortfall to WMSB. Assessment of profit warranty for each financial year shall be confirmed within 3 months of the respective financial year end.
For the purpose of assessing compliance of the Profit Warranty (i.e. for 3 financial years ending 31 December 2003, which shall be at least RM63,000,000 in aggregate and which include 2001 Profit Warranty and 2002 Profit Warranty), the surplus of actual profit after tax achieved over profit after tax warranted for any year shall be carried forward to set off any shortfall in the subsequent years.
The Vendor shall deposit a cash amount of RM14,700,000 with a local financial institution to be operated by WMSB as security for the Profit Warranty.
The Vendor shall enter into a service contract with UCSB to serve as Chief Executive Officer for a period of five (5) years from the date of completion of the SPA.
Neither WMSB nor the Group is required to assume any liability pursuant to this Proposed Acquisition.
3. BASIS OF THE PURCHASE CONSIDERATION
The purchase consideration shall be satisfied entirely by cash and to be paid entirely in Ringgit Malaysia and will be financed by funds to be generated via the proposed disposal of ASB's assets to be identified.
It was arrived at on a willing buyer willing seller basis, after taking into account of the following:
? The Acquiree Companies' past and projected performance;
? The price earnings ratio of the purchase consideration over the average warranted yearly profit after tax of RM21,000,000;
? The warranty of the aggregate profits after tax of the Acquiree Companiesfor 3 financial years ending 31 December 2003; and
? The established and niche business advantage of the Acquiree Companies.
4. RATIONALE FOR THE PROPOSED ACQUISITIONS
It was arrived at on a willing buyer willing seller basis, after taking into account of the following:
? The Acquiree Companies' past and projected performance;
? The price earnings ratio of the purchase consideration over the average warranted yearly profit after tax of RM21,000,000;
? The warranty of the aggregate profits after tax of the Acquiree Companiesfor 3 financial years ending 31 December 2003; and
? The established and niche business advantage of the Acquiree Companies.
This is an opportune time for the ASB Group to venture into the Information Technology (IT) and communications sector which could emerge to be the Group's new flagship business. The Acquiree Companies are poised to be a market leader in its field of expertise and with the rapid development of the IT and communications sector, the income stream expected will greatly enhance the earnings base of the ASB Group.
5.1 Share Capital
The Proposed Acquisitions will have no effect on the issued and paid-up share capital of the Company.
The Proposed Acquisitions are expected to be completed in early 2002 and therefore will not have any impact on the ASB Group's earnings for the financial year ending 31 December 2001.
However, the Proposed Acquisitions are expected to contribute significantly to the Group's earnings for the subsequent financial years ending 31 December 2002 and 2003 by an average of at least RM14.7 million per annum, based on 70% of the profit guarantee provided by the Vendor.
However, the Proposed Acquisitions are expected to contribute significantly to the Group's earnings for the subsequent financial years ending 31 December 2002 and 2003 by an average of at least RM14.7 million per annum, based on 70% of the profit guarantee provided by the Vendor.
5.3 Net Tangible Assets (NTA)
For illustration purposes only, the proforma effects of the Proposed Acquisitions on the audited consolidated balance sheet of ASB as at 31 December 2000 and based on the audited accounts of the Acquiree Companies as at the same date are as follows:
Please refer to Table 1.
5.4 Substantial stockholding
Please refer to Table 1.
As the Proposed Acquisitions will be satisfied entirely by cash, there will be no effects on the substantial stockholding of ASB.
The Proposed Acquisitions are conditional on the following approvals to be obtained:
? the approval of the Securities Commission, if required;
? the approval of the stockholders of ASB;
? the approval of the loan stock holders of ASB; and
? any other relevant approvals.
None of ASB's Directors or substantial stockholders or any persons connected to them have any interest, direct or indirect, in the Proposed Acquisitions.
8.0 DIRECTORS' RECOMMENDATION
The Directors of ASB, after having considered the proposed terms of the Proposed Acquisitions, are of the opinion that the Proposed Acquisitions are fair and reasonable and will be in the best interest of the Company.
Perdana Merchant Bankers Berhad has been appointed as the advising merchant bank for the Proposed Acquisitions.
Stockholders who wish to inspect the SPA may do so at the registered office of ASB at Level 29, Menara Shahzan Insas, 30 Jalan Sultan Ismail, 50250 Kuala Lumpur between 9.00 a.m. and 5.00 p.m. from Mondays to Fridays (except for public holidays) for a period of one (1) month from the date of this announcement.
Appendix I
BUSINESS OF UC GROUP
The business of the UC Group can be categorized into 2 main segments : -
Telcos & xSP (various service providers)
Fixed lines, International carriers (Tier 1 operators)
Mobile operators
Internet service providers, application service providers and Tier 2 telecommunication service providers
Enterprises
Multinational corporations, government sector and financial service sector
For the telcos and xSPs, the UC Group enables them with enhanced solutions to provide value added services (fixed and wireless) to their subscribers, eg. prepaid mobile services, prepaid/postpaid calling services, least cost routing, VoIP gateway, audio conferencing, voice portal and network switching applications etc. For the enterprises, the UC Group provides them with enhanced communication solutions to boost business productivity and efficiency, eg. UC Group messaging, fax servers, interactive voice response, VoIP gateway, call centers etc.
Solutions developed for its clients are designed around proprietary applications developed in house by the UC Group which include: -
? USP - Universal Switching Platform
To enable value added systems such as, prepaid/postpaid calling services, prepaid mobile, international simple resale and tandem switching/least cost routing.
In strategic alliance with an Australia public listed mobile solution enabler to enable mobile phone management system for corporate users.
To enable systems like, voice portal, audiotex systems, interactive voice response and fax servers.
To enable other value added systems, eg. audio conferences and data collaboration via Internet.
The UC Group also enables the Telcos & xSPs in network switching application, the UC Group messaging solutions for Telcos to extend such services to subscribers, telephone network monitoring & surveillance, mobile applications (such as short messaging services (SMS), location-based services etc), in setting up call centers and data centers. The clientele of the UC Group span across the Asia Pacific region, with main presence in Singapore, Malaysia, Indonesia, Philippines, Brunei, Saudi Arabia and Pakistan.
The UC Group generates its revenue via several business models, with the objective of enforcing greater tie-up:
(a) Direct sales
Systems are developed according to clients' needs. Once the client has embarked actively in the new value added services, subsequent expansions will generate much greater profit margin as development cost were already incurred in the first round of installations.
(b) Revenue sharing
This model is effective in the case of new value added services and new xSPs entrants. The UC Group provides the systems at its own cost and share revenue from the operators when the system is put to commercial operation.
In addition to providing the systems, the UC Group "holds the clients' hands" after sale to ensure they have all the technical support needed. Such services include, providing consultancy & training, platform testing, on-site testing & installation, technical support & maintenance and technical outsourcing.
THE VENDOR AND THE MANAGEMENT The UC Group was founded and spearheaded by its chief executive officer, Mr Wong Tze Leng, who is the Vendor. He is a technologist specialising in telecommunication for more than 12 years. Mr Wong, aged 37, started his career in IT with the Singapore Institute of Standards & Industrial Research (SISIR) in design and development center. SISIR, now part of Productivity and Standard Board of Singapore, was then a government statutory board for improving the research competence for local industry. He started specialising in computer telephony in 1992, with Federal Computer Services as Software Manager, responsible for all computer telephony integrated software product development. In 1993 he was employed by Dialogic, a US based (formerly listed on NASDAQ, delisted after being acquired by Intel for USD780 million in 1999) telecommunication technology company that is the worldwide supplier of Computer Telephony components. As the Marketing Engineer of Dialogic, he handled the entire sales and support for Dialogic in South East Asia. During his career with Dialogic, he established close rapport and working relationship with numerous big IT companies and telcos in South East Asia. In 1998, he left Dialogic and founded the UC Group.
The UC Group has offices in Malaysia, Singapore and Philippines with some 80 employees, comprises mostly technical personnel.
OUTLOOK OF THE COMMUNICATIONS TECHNOLOGY MARKET IN ASIA PACIFIC
The following aspects are amongst the catalysts driving the boundless prospect of the communication technology industry
(a) The future of voice over data
International Data Corporation (IDC), an international IT research and analyst group estimated the IP Telephony markets in Asia Pacific to be some USD 213 million in year 2000, and this is expected to grow to USD6.9 billion at a compounding annual growth rate (CAGR) of 104% by 2005. The accelerators in this market place would include the opportunities for value-added services like video conferencing and the demand for low cost calls. IDC further estimated the IP Telephony solution market to be just under USD 300 million for 1st half of 2000. (Source : IDC press release of 8 December 2000, titled "Voice over data - is IP Telephony the answer for free long distance calls in the future")
Frost & Sullivan, another international firm of IT analysts, says the prospects are bright for VoIP in the Asia Pacific region as telecom deregulation increases and internet penetration still low in many countries - i.e. growing. The Asia Pacific VOIP services market will thrive in 2001 and beyond. In 2006 it expects the regional VoIP market to reach 600 billion minutes of traffic, generating some USD 48 billion in service revenue. This will represent an average CAGR of 150% from 1999, when 325 million minutes of VOIP traffic generated USD 78 million of revenue. In 2000, VoIP traffic is estimated at 3.15 billion minutes (USD 630 million of revenue) with a further leap in 2001 to USD 14.5 billion minutes (USD 2.5 billion). (Source : FTIT December 2000/Asian IT & Telecoms "Easier, cheaper calls as bandwidth grows" - specials.ft.com)
(b) Worldwide demand for mobile phones
Gartner Dataquest Worldwide, a worldwide research house on electronic industry, says mobile phone sales are projected to exceed 506.5 million units in 2001, up 23% over 2000 sales. The market for mobile phone is expected to continue to have steady growth through 2005, when worldwide mobile phone sales reaches 740 million units. The Asia Pacific and Japan region will continue to lead worldwide sales in 2005 when shipments are projected to reach 280 million units. (Source : Gartner Dataquest press release on 20 March 2001 - Gartner Dataquest says worldwide mobile phone sales to surpass a half billion units in 2001)
(c) Internet Protocol - Virtual Private Network (IP-VPN) IDC predicts the Asia pacific IP-VPN services market to grow by 300% to reach at least USD 700 million by 2004. In terms of revenue potential of this market, although Australia is expected to remain the largest market across the Asia Pacific region, the PRC's growth rate is projected to be the highest (share of the region's IP-VPN revenue from 0% in 2000 to close to 20% by end 2004). (Source : FT Telecoms March 2001/Telecom Services for SMEs - special.ft.com); and (IDC press release on 30 March 2001 - IDC predicts Asia Pacific IP-VPN services market to grow by 300% to reach at least USD 700 million by 2004).
(d) Call centers
IDC predicts that the Asia Pacific call centers services market to grow from USD 1.2 billion in 2000 to exceed USD 4 billion in 2005. (Source : IDC press release of 15 March 2001, titled "IDC Says call centers set for rapid growth in Asia Pacific")
IDC also reported that the amount of money organizations spend on call center services will jump from USD 23 million in 1998 to USD 58.6 million in 2003. (Source : Article from InternetWeek Online of 2 August 1999, titled "Call Center breakthrough" - www.internetwk.com)
(e) Data centers/colocations
Adventis Corporation, an international data center operator estimated data center square footage will need more than double by 2003, increasing from 20 million square feet in 2000 to 45 million in 2 years. It expects the market worth to turn from USD 4 billion last year to a projected USD 19 billion market in 2003. Data centers built in Europe and Asia Pacific are poised for biggest growth, however with only 3.5 million square feet of data center available today in Europe, the Middle East and Africa and 1 million in Asia pacific. (Source : teledotcom "Does Dotcom Crash Mean Data Center Cash?" - 20 February 2001")
Table A
Acquiree companies
| Acquiree Companies |
No of shares to be acquired
|
Equity interest
% |
Consideration
RM |
| UCSB |
700,140
|
70
|
23,451,000
|
| UCPL |
42,000
|
70
|
85,549,000
|
| Total | |
|
109,000,000
|
Table B
Effects on NTA
|
Audited as at 31 December 2000
RM'000 |
After Proposed Acquisition
RM'000 |
| Share capital |
337,794
|
337,794
|
| Share premium |
430,451
|
430,451
|
| Accumulated losses |
(364,420)
|
(364,420)
|
| Other reserves |
53,453
|
53,453
|
| Stockholders' funds |
457,278
|
457,278
|
| Goodwill on consolidation |
(94,535)
|
(199,913)
|
| Purchased goodwill |
(1,459)
|
(1,459)
|
| Intangible Assets |
(1,497)
|
(1,497)
|
| NTA |
359,787
|
254,409
|
| NTA per stock unit (RM) |
1.07
|
0.75
|