TIDMTCM
RNS Number : 5213U
Telit Communications PLC
13 July 2018
13 July 2018
Telit Communications PLC
Sale of automotive division for $105 million
Telit Communications PLC ("Telit", "the Group", AIM: TCM), a
global enabler of the Internet of Things (IoT), has agreed to sell
its automotive division to TUS International Limited ("TUS") for a
cash consideration of $105 million (subject to adjustments on
completion and an overall cap of $125 million). The transaction is
expected to complete by the end of 2018, subject to conditions
being satisfied.
As previously announced, Telit considered the future of a number
of product lines which may not fit the Group's long-term strategy.
Although the automotive division saw significant growth in 2017 as
a result of several design wins with its 4G product offering
achieved in the North America and APAC regions, its sale will
enable the Group to focus on its industrial IoT capabilities and
innovation. It will also provide additional resources to invest in
its premier end-to-end IoT solutions capabilities.
The transaction requires a reorganisation of the automotive
division within the Group and transfer of the assets and employees
who support the automotive business in R&D and sales offices in
several countries. On an unaudited proforma basis, the automotive
division generated approximately $63.2 million in revenue with an
adjusted EBITDA (excluding allocated overhead costs) of $10.1
million in the year ended 31 December 2017.
Following completion of the transaction, cash proceeds will be
used to reduce the Group's debt (net debt at 30 June 2018: $25
million) and strengthen the Group's cash position.
TUS is a leading provider of camera-based advanced
driver-assistance system (ADAS) solutions and is one of the 12
founding members of the National Intelligent and Connected Vehicle
Innovation Center of China. TUS is a pioneer in developing China
national ICV cloud control platform and is dedicated to providing
cutting-edge V2X and 5G connectivity solutions for ADAS and
autonomous drive (AD).
TUS's single largest shareholder is Tus-Holdings Co. Ltd, a
company established by Tsinghua University, which holds over 800
listed and non-listed investments.
TUS has today published an announcement (available on its
website http://www.tus-i.com/en/ir_circulars.php) which sets out
details regarding the transaction including further information on
the automotive division, the break fees payable to Telit in certain
circumstances should the transaction not proceed, the financing
that TUS will be required to seek for the transaction, the basis of
calculation of the consideration payable and the conditions to
which the transaction is subject. Telit shareholders are advised to
read this document in full. Extracts of this announcement are set
out below. The TUS announcement has not been subject to independent
verification and extracts are provided by Telit in this
announcement for information purposes only.
Yosi Fait, CEO at Telit, said:
"This transaction will significantly reduce our debt and provide
us with the financial flexibility to focus our resources and
accelerate the integration of our hardware and IoT services product
lines in order to strengthen our leading position in the end-to-end
IoT solutions space."
The information contained within this announcement is deemed by
the Company to constitute inside information under the Market Abuse
Regulation (EU) No. 596/2014.
Enquiries
Telit Communications PLC Tel: +44 203 289
Yosi Fait, Chief Executive Officer 3831
Yariv Dafna, Finance Director
Tel: +44 20 7220
finnCap (Nomad and joint broker) 0500
Henrik Persson/Giles Rolls (corporate finance)
Tim Redfern/Richard Chambers (corporate
broking)
Berenberg (Joint Broker) Tel: +44 20 3465
Chris Bowman/Mark Whitmore/Ben Wright 2722
Instinctif Partners Tel: +44 20 7457
2020
Adrian Duffield/Chantal Woolcock
Rothschild & Co (Sole financial adviser) Tel: +44 20 7280
Vikas Sehgal/Doron Gurevitz/Martin Bauhuber/Noah 5000
Gringarten
Notice related to financial adviser
N M Rothschild & Sons Limited ("Rothschild & Co "),
which is authorised and regulated by the Financial Conduct
Authority in the United Kingdom, is acting exclusively for Telit
and for no one else in connection with the subject matter of this
announcement and will not be responsible to anyone other than Telit
for providing the protections afforded to its clients or for
providing advice in connection with the subject matter of this
announcement.
Extracts from the circular to TUS shareholders posted/published
today. References to the "Company" should be read to be references
to TUS, references to "Vendors" to Telit and "Target Group" to be
Telit's automotive division. The TUS announcement has not been
subject to independent verification and Telit takes no
responsibility for the contents of such announcement.
THE ACQUISITION
The Board is pleased to announce that, on 12 July 2018, the
Company, the Vendors and the Target Company entered into the
Acquisition Agreement, pursuant to which the Company conditionally
agreed to buy and the Vendors conditionally agreed to sell all the
issued shares of the Target Company at the aggregate consideration
of US$105 million (equivalent to approximately HK$824.25 million),
subject to adjustments with reference to the aggregate cash, debt
and working capital of the Target Group at Completion and the
Transfer Costs.
THE ACQUISITION AGREEMENT
Date
12 July 2018
Parties
(i) the Company;
(ii) the Vendors; and
(iii) the Target Company.
To the best of the Directors' knowledge, information and belief
having made all reasonable enquiries, the Vendors and the Target
Company are independent of the Company and connected persons of the
Company.
Subject matter of the Acquisition Agreement
Pursuant to the Acquisition Agreement, the Vendors conditionally
agreed to sell and the Company conditionally agreed to buy the Sale
Shares, representing all the issued shares of the Target Company at
Completion. The Vendors shall implement the Reorganisation so that
the Target Company will be the holding company of the Target Group
at Completion.
Consideration
The Consideration for the acquisition of the Sale Shares is
US$105 million (equivalent to approximately HK$824.25 million),
subject to adjustments at Completion as follows and an overall cap
of US$125 million (equivalent to approximately HK$981.25
million):
Consideration = A + B - C + D - E + F Where:
"A" means US$105 million;
"B" means the Completion Cash;
"C" means the Completion Debt;
"D" means the Completion Working Capital;
"E" means the Target Working Capital; and
"F" means the Transfer Costs.
On Completion, the Shareholder Debt will be repaid by the Target
Company in full.
The Consideration will be payable by the Company to the Vendors
in cash upon Completion and is expected to be funded by a
combination of the internal resources of the Group and possible
debt and/or equity financing from banks and/or other investors
based on the available fund raising options, pertinent terms
thereof as well as the prevailing market conditions. As at 31
December 2017, the assets of the Group included, among other
things, (i) cash and cash equivalent of approximately HK$126.6
million; (ii) current portion of finance lease receivables of
approximately HK$95.2 million; and (iii) available-for-sale
investments of approximately HK$357.6 million.
As at the date of this announcement, the Company has engaged in
discussions with several banks on potential term loan financing for
the Acquisition. The Company is currently contemplating term
loan(s) in the aggregate principal amount of US$30 million to US$35
million (equivalent to approximately HK$235.50 million and
approximately HK$274.75 million respectively) to finance the
Acquisition.
Taking into account the Company's available internal resources
and possible debt financing, the Company is contemplating an equity
financing of not more than US$50 million (equivalent to
approximately HK$392.50 million) to finance the Acquisition.
Considering (i) the regular dialogue maintained by the Company with
potential financial investors; (ii) the Company's current market
capitalisation of approximately HK$1.5 billion on a fully diluted
basis, assuming all convertible securities issued by the Company as
at the date of this announcement has been converted in full; and
(iii) the shareholder's support as evidenced by the irrevocable
undertaking given by the Relevant Shareholders, the Company is
confident to raise not more than US$50 million (equivalent to
approximately HK$392.50 million) through share placement or rights
issue. The proceeds from the Subscription will not be applied to
settle the Consideration.
As at the date of this Announcement, the Company has not yet
entered into any legally binding agreements in respect of such
possible financing and fund raising transactions and will continue
to explore different fund raising options as the Acquisition
proceeds towards Completion. The Company is confident that it will
be able to carry out the necessary fund raising activities
(including the debt and equity fund raising mentioned above) for
meeting its payment obligations upon Completion and does not expect
there would be a change in control of the Company as a result of
the fund raising.
Conditions Precedent
Completion of the Acquisition Agreement is conditional upon the
satisfaction or (if applicable) the waiver of the following
conditions precedent on or before 5:30 p.m. on the Long Stop
Date:
(a) the passing at a duly convened and held general meeting of
the Company (or an adjournment thereof) of the necessary
resolutions to approve the Acquisition Agreement and the
transactions contemplated thereunder; and
(b) completion of the Reorganisation.
The condition set out in paragraph (a) above may not be waived
by any party and the condition set out in paragraph (b) may be
waived by the Company. As the Reorganisation involves various steps
and corporate actions to be undertaken by different entities across
several jurisdictions (details of which are set out in the section
headed "Reorganisation" below), the Company considers that it is
beneficial for the Company to have the right and flexibility to
give waiver as the necessity may arise including, if necessary,
allowing an extension of the time for satisfaction of the relevant
condition and imposing other conditions in the waiver. The Company
will only consider giving any waiver for immaterial matters which
do not materially affect the independent operations, financial
performance or business of the Target Group and do not prejudice
the interests of the Company and its Shareholders, or if, following
the waiver, the Company would remain in materially the same
economic position as the Company would have been in had the
relevant condition(s) been fulfilled.
The Company will seek approval from the Shareholders if it
intends to give any waiver for the condition set out in paragraph
(b) that would constitute a material change in terms of the
Acquisition. If (i) the Circular is not despatched to the
Shareholders on or before 5:30 p.m. on the Circular Long Stop Date
or (ii) the Reorganisation Agreement is not entered into on or
before 5:30 p.m. on the Circular Long Stop Date, the Acquisition
Agreement will terminate and the parties will have no further
rights or obligations under the Acquisition Agreement, other than
accrued rights and obligations at that time.
Escrow Fund
On the date of the Acquisition Agreement, the Company, Telit
Communications and the Escrow Agent entered into an escrow
agreement, pursuant to which (i) the Company deposited an amount of
US$7.5 million (equivalent to approximately HK$58.9 million) into
an escrow account maintained by the Escrow Agent as an escrow fund
(the "Escrow Fund"), which comprises (i) a break fee of US$5.0
million (equivalent to approximately HK$39.3 million) and (ii) a
reorganisation fee of US$2.5 million (equivalent to approximately
HK$19.6 million).
At Completion, an amount equal to the Escrow Fund will be
deducted from the amount of Consideration payable by the Company to
the Vendors, and the Company shall cause to be released an amount
equal to the Escrow Fund to the Vendors.
The Company shall forfeit its right to the Escrow Fund and the
parties shall release or cause to be released the Escrow Fund to
the Vendors if the Acquisition Agreement terminates in the
following circumstances:
(a) the Circular is not despatched to the Shareholders by 5:30
p.m. on the Circular Long Stop Date and condition (a) under
"Conditions Precedent" above is not fulfilled by 5:30 p.m. on the
Long Stop Date, other than where such termination arises from or in
connection with the Vendors' failure to provide to the Company such
information relating to the Business as the Company may reasonably
require for the purposes of preparation of the Circular;
(b) the Reorganisation Agreement is not entered into by 5:30
p.m. on the Circular Long Stop Date or condition (b) under
"Conditions Precedent" above is not fulfilled by 5:30 p.m. on the
Long Stop Date, where such termination arises from or in connection
with the Company's failure to comply with its obligations in the
Acquisition Agreement in respect of the Reorganisation; or
(c) the Company fails to fulfill any of its material obligations
set out in the Acquisition Agreement at the time when Completion is
due to take place.
The Vendors shall forfeit their right to the Escrow Fund and the
parties shall release or cause to be released the Escrow Fund to
the Company if the Acquisition Agreement terminates in the
following circumstances:
(a) the Company elects not to complete the Acquisition where (i)
there is a material breach of warranties or obligations and such
breach has not been remedied within a given time period or (ii) a
matter arises at any time between the signing of the Acquisition
Agreement and the Completion that has a material adverse effect and
such effect has not been remedied within a given time period;
(b) the Reorganisation Agreement is not entered into by 5:30
p.m. on the Circular Long Stop Date or condition (b) under
"Conditions Precedent" above is not fulfilled by 5:30 p.m. on the
Long Stop Date, other than where such termination arises from or in
connection with the Company's failure to comply with its
obligations in the Acquisition Agreement in respect of the
Reorganisation;
(c) the Circular is not despatched to the Shareholders by 5:30
p.m. on the Circular Long Stop Date and condition (a) under
"Conditions Precedent" above is not fulfilled by 5:30 p.m. on the
Long Stop Date, where such termination arises from or in connection
with the Vendors' failure to provide to the Company such
information relating to the Business as the Company may reasonably
require for the purposes of preparation of the Circular; or
(d) the Vendors fail to fulfill any of their material
obligations set out in the Acquisition Agreement at the time when
Completion is due to take place.
The above arrangements in respect of the forfeiture of the
Escrow Fund have been determined by the parties after arm's length
negotiations and are considered to be normal commercial terms. The
Company considers that it is fair and reasonable for the Escrow
Fund to be subject to forfeiture against the Company under certain
specific circumstances as stated above, given that (i) the Escrow
Fund represents approximately 7% of the Consideration, which is
comparable to the deposit payment of about 5% to 10% of the total
consideration commonly seen in commercial transactions; (ii) the
Acquisition is expected to have a long completion timeframe and the
Vendors would have incurred costs in complying with their
obligations under the Acquisition Agreement pending Completion,
including the costs and expenses to be incurred for implementing
the Reorganisation; (iii) the forfeiture against the Company would
occur if the Company is the party in default other than where such
default is caused by the Vendors; and (iv) the Circular Long Stop
Date and the Long Stop Date, being the date falling on five and six
months after the date of the Acquisition Agreement respectively,
can provide a buffer period for the Company to procure for
compliance with its obligations under the Acquisition Agreement to
avoid forfeiture of the Escrow Fund.
Reorganisation
As the Assets and the Business are currently held by the Target
Company, Telit France and Reorganisation Sellers, pursuant to the
Acquisition Agreement, the Vendors and the Target Company shall
undertake and complete the Reorganisation prior to Completion. The
Reorganisation involves, among other things, the following
procedures:
(a) the incorporation and registration of the New Subsidiaries
in Israel, Korea and Germany respectively as wholly-owned
subsidiaries of the Target Company;
(b) the entering into and completion of the Reorganisation Agreement; and
(c) the entering into of the IP Licence Agreement, the
Transitional Services Agreement and other documents relating to the
Reorganisation.
It is envisaged that under the Reorganisation Agreement, each of
the Reorganisation Sellers will agree to transfer to the Target
Company and the New Subsidiaries the Business, the Assets and the
Transferring Employees not already owned by the Target Group,
excluding the Excluded Business, the Excluded Assets and certain
excluded contracts, employees and liabilities of each relevant
Reorganisation Sellers.
In the event that the Reorganisation cannot be fully implemented
in the manner as contemplated in the Acquisition Agreement, the
Vendors shall propose alternative arrangement that would put the
Company in materially the same economic position. The
Reorganisation shall be deemed completed upon full implementation
of such alternative arrangement except as provided in the
Acquisition Agreement.
The Target Group has been established and operated as a business
unit within Telit Communications since the Telit Group acquired
such business from NXP Semiconductors N.V. to enter into the
automotive-grade communication module market in 2014. The Excluded
Assets and the Excluded Business mainly relate to the IoT business
of Telit Group. The Target Group will have, post Reorganisation, a
distinct group of customers. In addition, it will have its own
R&D facilities and R&D staff for automotive-grade
communication modules, customer support functions and management
team.
The Target Group will have access to suppliers upon completion
of the Reorganisation and will be able to operate independently of
the Vendors after completion of the Reorganisation with the benefit
of the Transitional Services Agreement and the IP Licence
Agreement. The historical intra-group transactions, which involve
intra-group loans and certain intra-group R&D services, will be
terminated upon completion of the Reorganisation in all material
aspects.
Upon completion of the Reorganisation, the Target Company will
be the holding company of the Target Group and the Target Group
will own the Business, the Assets and the Transferring
Employees.
Details of the finalised terms of the Reorganisation and the
alternative arrangements (if any) will be set out in the
circular.
IP Licence Agreement and the Transitional Services Agreement
Pursuant to the Acquisition Agreement, the Vendors shall deliver
or make available to the Company copies of the IP Licence Agreement
and the Transitional Services Agreement on Completion Date.
The IP Licence Agreement will set forth the terms of (i) the
licensing of certain intellectual property rights by certain
Reorganisation Sellers to the Company and its affiliates and (ii)
the licensing of certain technology by the Target Company to the
Reorganisation Sellers and their respective affiliates.
The intellectual property rights ("IPR") under the arrangements
pursuant to the IP Licence Agreement and the Acquisition Agreement
can be categorised as follows:
(a) transferring IPR ("Transferring IPR"), being IPR owned by
any Reorganisation Sellers and exclusively used by the Target
Company or any Reorganisation Sellers in connection with the
Business which will be transferred to the Target Group;
(b) retained IPR ("Retained IPR"), being IPR retained by the
Reorganisation Sellers and mainly used in the existing business of
the Vendors (other than the Business) but will also be shared with
the Business, which will be retained by the relevant Reorganisation
Sellers and licensed to the Company and its affiliates pursuant to
the IP Licence Agreement; and
(c) reverting IPR ("Reverting IPR"), being IPR held by the
Target Group and mainly used for the Business but will also be
shared with the Vendors, which will be licensed to the Telit
Communications, the Reorganisation Sellers and their respective
affiliates pursuant to the IP Licence Agreement.
Based on the above arrangements, the Transferring IPR will be
transferred to the Target Group, and as the Retained IPR, which is
mainly used in the existing business of the Vendors and which is
also used in the Business, will be licensed to the Company and its
affilitates under the IP Licence Agreement, the Target Group will
also gain access to the Retained IPR pursuant to the IP Licence
Agreement. Pursuant to the IP Licence Agreement, the licenses for
the Retained IPR will be granted to the Company and its affiliates
on a non-exclusive, perpetual, non-assignable (except as specified
therein), sub-licensable (except as specified therein), worldwide
and royalty-free basis. The IP Licence Agreement may not, according
to its terms, be terminated by any party thereto after the
Completion Date. Based on the Acquisition Agreement and the
licensing arrangements under the IP Licence Agreement, the IPR
owned by the Vendors and essential to the Business will be
transferred to or licensed to the Target Group.
The Retained IPR mainly consists of software, database and
know-how (including certain generic software source codes and
know-how) which are unregistered rights held in copyright and
rights to confidential information and trade secrets, which are
mainly used by the existing businesses of the Vendors (other than
the Business), but may be used by the Target Group for the Business
in the "design-in" phase relating to the development of new
products from time to time.
Pursuant to the IP Licence Agreement, (i) the Company will be
given copies of the Retained IPR (to the extent not otherwise
delivered in connection with the transactions contemplated by the
Acquisition Agreement) at or prior to Completion; (ii) the Company
will be granted a perpetual and irrevocable licence to use such
Retained IPR; and (iii) the Company shall take all necessary steps
to record itself and its affiliates as the licensee of any
registered Retained IPR at the relevant intellectual property
registries around the world, if and as required under the
applicable rules, and the Reorganisation Sellers should provide
assistance as may be reasonably necessary to the Company for such
registration.
Further, the Company considers that:
(i) the parties to the IP Licence Agreement will have the
commercial interests to comply with the terms of the IP Licence
Agreement with a view to enjoying their respective rights as
licensee of the Retained IPR or the Reverting IPR (as the case may
be) thereunder;
(ii) as the Retained IPR will be mainly used by the
Reorganisation Sellers, the Reorganisation Sellers will have the
commercial interests to maintain and defend their rights under the
Retained IPR where necessary;
(iii) the Company understands that it is a common industry
practice for different market stakeholders which engage in R&D
activities to share the use of relevant IPR through licensing
arrangements, usually involving the payment of royalty fee; and
(iv) the Target Group may continue to enjoy the use and benefit
of the Retained IPR without having to pay any royalty fee or to
incur extra costs and efforts that may be required to maintain and
defend the Retained IPR as the registered owner.
Based on the above, the Company understands that the risk that
it will cease to have access to any of the Retained IPR will be
minimal; and it considers that the licensing arrangements set out
above are commercially fair and reasonable and the Target Group can
operate independently after Completion.
The Transitional Services Agreement will set forth the terms in
relation to the provision of certain information technology
services and other transitional services by certain Reorganisation
Sellers to the Target Group.
Completion
Completion will take place on the Business Day after the
satisfaction or (if applicable) waiver of all the conditions
precedent to the Acquisition Agreement as set out under "Conditions
Precedent" above.
Upon Completion, the Target Company and its subsidiaries will
become wholly-owned subsidiaries of the Company, and the financial
statements of the Target Group will be consolidated into the
financial statements of the Group.
The Vendors shall ensure that a draft of the Completion Accounts
("Draft Completion Accounts") is prepared and delivered to the
Company on or before the date falling 15 Business Days after
Completion. The Draft Completion Accounts will be deemed to be
agreed by the Company on the date falling 30 days after the
Company's receipt of the Draft Completion Accounts unless during
such period it gives a disagreement notice ("Disagreement Notice")
to the Vendors. If the Company and the Vendors are unable to
resolve the matters raised in the Disagreement Notice and agree a
final form of the Draft Completion Accounts within 12 Business Days
after the date on which the Vendors receive the Disagreement
Notice, the Company and the Vendors shall appoint an independent
chartered accountant ("Independent Accountant") to deliver a
determination of the outstanding matters in the Disagreement Notice
and a revised Draft Completion Accounts. The Draft Completion
Accounts as agreed or deemed agreed between the Company and the
Vendors, or as revised and determined by the Independent Accountant
will be final and binding on the parties and will constitute the
Completion Accounts for the purposes of the Acquisition
Agreement.
Voting undertakings
As requested by the Vendors, under the Acquisition Agreement,
the Company is required to procure for the irrevocable undertakings
from the Relevant Shareholders (the "Undertakings") to the effect
that each of the Relevant Shareholders will, among other matters,
exercise or procure the exercise of all voting rights in respect of
all the Shares of which such Relevant Shareholder is the registered
holder and/or beneficial owner as at the record date for
determining Shareholder's entitlement to vote at the EGM in favour
of the relevant resolution(s) at the EGM for approving the
Acquisition Agreement and the transactions contemplated
thereunder.
As at the date of this announcement, the Relevant Shareholders
hold in aggregate 573,208,802 Shares, representing approximately
46.9% of the issued share capital of the Company. Subject to
completion of the subscription of in aggregate 100,000,000 new
Shares by Mr. Shen and Sumchi (or its wholly-owned subsidiary) as
set out in the Company's announcements dated 17 April 2018 and 21
June 2018 before the record date for Shareholders' entitlement to
attend and vote at the EGM, and assuming no other change in the
shareholding interests of the Relevant Shareholders in the Company
or the issued share capital of the Company, the Relevant
Shareholders will hold in aggregate 673,208,802 Shares,
representing approximately 50.9% of the issued share capital of the
Company as enlarged by the 100,000,000 new Shares to be subscribed
by Mr. Shen and Sumchi (or its wholly-owned subsidiary).
The Company has been a participant in a competitive multi-stage
tendering process held by the Vendors in respect of the Acquisition
for multiple months since December 2017. On 17 April 2018, the
Company entered into a subscription agreement with the Relevant
Shareholders (other than Tuspark Venture) in relation to the
subscription of new Shares and convertible bonds as set out in the
Company's announcement dated 17 April 2018 and the Company's
circular dated 23 May 2018 (the "Subscription"). On 7 June 2018, an
extraordinary general meeting of the Company was convened and the
Shareholders approved, among others, the Subscription. Up to that
stage, the pertinent terms of the Acquisition were open to ongoing
non-exclusive negotiations between the Company and the Vendors and
there was no indication, knowledge nor certainty that the Company
would be invited to the final bidding process.
After the Acquisition was approved by the Board on 21 June 2018,
the Relevant Shareholders were approached by the Company in
relation to the Undertakings on a confidential basis.
The Company confirms that the provision of the Undertakings had
not been contemplated at the time when the Subscription was entered
into by the Company and the applicable Relevant Shareholders.
As at the date of this announcement, the Company has obtained
the Undertakings from all of the Relevant Shareholders. Save for
providing the Undertakings to facilitate the Acquisition, none of
the Relevant Shareholders is involved in or has material interest
in the Acquisition, and none of them has received any benefit from
the Group in relation to the Undertakings. To the best of the
Directors' knowledge, information and belief, after having made all
reasonable enquiries, (i) the Relevant Shareholders are independent
of and do not have any relationships (business or otherwise) with
the Vendors and the Target Group, and the Relevant Shareholders are
not required to abstain from voting at the EGM; and (ii) the
Relevant Shareholders have agreed to provide the relevant
Undertakings because they consider that the Acquisition will be in
the interest of the Company and the Shareholders.
INFORMATION ON THE TARGET GROUP
The Target Group is a one of the major suppliers of
automotive-grade wireless connectivity modules. The Business was
launched by Telit Communications as a separate business unit in
2014, along with the acquisition of Automotive Telematics On-board
unit Platform (ATOP) business, being R&D and sale of
automotive-grade communication modules from NXP Semiconductors
N.V.. Its product portfolio covers different network technologies
from 3G to LTE-A and offers various matching regional requirements
and frequency bands. The Target Group has a growing, diversified
blue-chip customer base of global leading car OEMs and Tier-1
suppliers of car manufacturers ("Tier-1 Suppliers").
Similar to the business model of the Group's ADAS business, at
the prospect and proposal phases, the Target Group maintains
relationship with OEMs and Tier-1 Suppliers, to identify new
business opportunities, follow up on prospects that mature into
Request for Quotations (RFQs), respond to specific RFQ for a
specific product as defined by a Tier-1 Supplier/OEM for a specific
project. Once a specific project is awarded to the Target Group,
the project becomes a "design-win", where detailed specifications
and terms of the project will be agreed between the Target Group
and the Tier-1 Supplier/OEM. The project will then progress into
the "design-in" phase, where extensive interaction and support will
be required to assure that the module is developed, certified and
qualified. The project will thereafter progress into the "Start of
Production (SOP)" phase, where mass production will commence. It
typically takes around three years to turn a RFQ into a SOP for
mass production.
The Target Group does not have its own production facilities and
outsources the electronic manufacturing process to a leading
semiconductor packaging and testing services provider. Other major
suppliers of the Target Group include suppliers of chipsets and
auto-parts components, which are key raw materials procured by the
Target Group for use by the outsourced electronic manufacturing
service provider in the manufacturing process.
The Target Group has a track record of successful product
implementation with over 5 million total product shipments of
automotive-grade communication modules as of the end of 2017. From
2015 to 2017, the Target Company has successfully won various new
programmes from existing and new customers. The business of the
Target Group has penetrated into the Asia- Pacific region. As a
result, the Target Group incurred R&D expenses for the new wins
during the design-in phase as the product samples and prototypes
have to be developed, certified and qualified in 2016 and 2017. The
Target Company recorded a higher revenue for the year of 2017 as
such new wins only commenced mass production in 2017. Based on the
unaudited combined management accounts of the Target Group for the
year ended 31 December 2017, the Target Group recorded revenue of
approximately US$63.2 million (equivalent to approximately HK$496.1
million) in 2017, representing a CAGR of approximately 42.1% from
2015, and total net assets as at 31 December 2017 of approximately
US$30.5 million (equivalent to approximately HK$239.4 million). The
Target Group currently has a total of 110 employees, and has
R&D centers in France, Belgium and Israel, and five sales
centers in Germany, France, the USA, the PRC and Korea. The Target
Group has superior in-house R&D capabilities and strong
technology competence in cellular modules with an experienced
R&D team which accounts for more than 75% of the employees of
the Target Group.
In terms of licences and regulatory approvals, the Target Group
is required to obtain product certification on wireless
communication modules in different regions. The Target Group has
obtained the certification from regulatory bodies including without
limitation, (i) Global Certification Forum (GCF) and Radio
Equipment Directive (RED) in Europe, (ii) Personal Communications
Service Type Certification Review Board (PTCRB) in North America,
(iii) China Compulsory Certification (CCC) and State Radio
Regulatory Commission of PRC (SRRC) in China, (iv) Japan Approvals
Institute for Telecommunications Equipment (JATE) and Telecom
Engineering Center (TELEC) in Japan and (v) Korea Communications
Commission (KCC) in Korea.
Though IoT and automotive grade modules are both broadly based
on wireless communication technologies, communication modules for
line-fit automotive use, i.e. automotive grade modules, have its
unique design and functioning features that meet various automotive
specific standards, including without limitation, the ability to
function properly in extremely low and high temperatures, the
reliability of communication and the integration of other functions
and features such as positioning, security function and eCall
(being a system that provides an automated message to the emergency
services following a road crash which includes the precise crash
location).
Based on information provided by the Vendors, as compared to the
automotive grade modules of the Target Group, the IoT services of
Telit Group serve the needs of other industries and markets such as
retail, healthcare and hospitality, manufacturing, logistics and
utilities. Consumer IoT relates to connected devices in the
consumer market such as security and surveillance, smart homes and
smart building and energy systems, whereas industrial IoT enhances
manufacturing and industrial processes by linking machines and
devices. Based on information provided by the Vendors, the Target
Group also has a distinct group of customers, its own R&D
facilities and R&D staff, separate management team, and a
distinct set of automotive application specific IPRs, patents and
know-hows.
The Company plans to continue expanding the Target Group's
customer base, in particular in China, being the world's largest
vehicle sales market, and strengthen the R&D and promotion of
new LTE/V2X/5G modules and solutions. The Company expects that main
capital expenditure to be incurred by the Target Group will be the
testing equipment to be placed onto the contracted manufacturer's
site. Notwithstanding the above, the Company does not expect the
Target Group to incur significant capital expenditure in 2019 and
2020 in relation to the above strategies/plans and anticipates that
the Target Group's free cash flow would be able to support the
operating expenditure required for carrying out the above
strategies/plans.
The Target Company is a company incorporated in the Kingdom of
Belgium with limited liability in February 2014 and is principally
engaged in the development, manufacture and sale of line-fit
wireless connectivity modules that are supplied to global leading
car OEMs and Tier 1 Suppliers.
Telit France is a company incorporated in France with limited
liability in March 2006 and is principally engaged in the
development of linefit wireless connectivity modules that are
supplied to global leading car OEMs and Tier 1 suppliers of car
manufacturers. Telit France is a wholly-owned subsidiary of the
Target Company as at the date of this announcement.
Set out below is certain financial information of the Target
Group based on the unaudited combined management accounts of the
Target Group which have been prepared based on International
Financial Reporting Standards (IFRS):
For the year ended 31 December
2015 2016 2017
(Unaudited) (Unaudited) (Unaudited)
equivalent equivalent equivalent
US$ million HK$ million US$ million HK$ million US$ million HK$ million
Revenue (Note 1) 31.3 245.7 31.9 250.4 63.2 496.1
Gross profit (Note
1) 9.7 76.1 9.6 75.4 17.7 138.9
EBITDA (Note 1) 2.6 20.4 2.0 15.7 10.1 79.3
Net profit/(loss)
before taxation
(Note 2) 0.7 5.5 (1.9) (14.9) 2.1 16.5
Net profit/(loss)
after taxation
(Note 2) 0.6 4.7 (1.9) (14.9) 2.1 16.5
As at 31 December
2017
(Unaudited)
equivalent
US$ million HK$ million
R&D assets (Notes 1 and 3) 20.2 158.6
Property, plant and equipment (Note 1) 5.9 46.3
Inventories (Note 1) 2.9 22.8
Registered Intellectual Property Rights
(Note 1) 1.2 9.4
Net asset value (Note 1) 30.5 239.4
Notes:
1. Such information has been examined by the accountants
appointed by Telit Communications (the "Vendors' Accountants"). An
accountants' report on the Target Group prepared in accordance with
the requirements under the Listing Rules will be included in the
Circular.
2. Such information has not been reviewed by the Vendors'
Accountants. An accountants' report on the Target Group prepared in
accordance with the requirements under the Listing Rules will be
included in the Circular.
3. The R&D assets are the capitalised R&D expenses
relating to staff costs and direct development costs attributable
to specific products that have entered the "Design-In" phase but
have not entered the "SOP" phase which are eligible to be
capitalised under IFRS. The R&D assets are amortised on
straight-line basis based on the useful life of the products upon
the commencement of the "SOP" phase.
Based on the information provided by the Vendors,
(i) the unaudited revenue increased by 1.9% from US$31.3 million
(equivalent to approximately HK$245.7 million) in 2015 to US$31.9
million (equivalent to approximately HK$250.4 million) in 2016,
which was mainly due to the increased volume of more advanced
automotive connectivity modules based on 3.5G and LTE under mass
production, which was offset by the declined sales volume of
modules based on 2.5G and 3G;
(ii) the unaudited gross profit of the Target Group decreased
from US$9.7 million (equivalent to approximately HK$76.1 million)
in 2015 to US$9.6 million (equivalent to approximately HK$75.4
million) in 2016 due to the change in mix of products toward 3.5G
and above technology which led to an increase in royalties
payments;
(iii) the unaudited net profit of the Target Group decreased by
approximately US$2.5 million (equivalent to approximately HK$19.6
million) from unaudited net profit of approximately US$0.6 million
(equivalent to approximately HK$4.7 million) for the year ended 31
December 2015 to unaudited net loss of approximately US$1.9 million
(equivalent to approximately HK$14.9 million) for the year ended 31
December 2016. Such decrease was due to the increased R&D
spending, as the Target Group had won various new programs from
existing and new customers and incurred R&D expenditure for
product development, certification and qualification, which had not
yet entered into the mass production phase;
(iv) the unaudited revenue of the Target Group increased by
approximately 98.1% from approximately US$31.9 million (equivalent
to approximately HK$250.4 million) for the year ended 31 December
2016 to approximately US$63.2 million (equivalent to approximately
HK$496.1 million) for the year ended 31 December 2017. The increase
was primarily due to the additional demand of products from
customers and the start of mass production of modules with customer
orders won by the Target Group in 2015 and 2016 in commercial
quantities;
(v) the unaudited gross profit of the Target Group increased by
approximately 84.4% from approximately US$9.6 million (equivalent
to approximately HK$75.4 million) for the year ended 31 December
2016 to approximately US$17.7 million (equivalent to approximately
HK$138.9 million) for the year ended 31 December 2017, while the
gross profit margin decreased from 30.1% in 2016 to 28.0% in 2017,
mainly due to the volume discount provided by the Target Group to
its major customers to achieve greater scale of operation. The
increase in gross profit was primarily due to the increase in
product volumes sold; and
(vi) the Target Group turned around the loss-making position in
2016 and recorded an unaudited net profit before and after taxation
of approximately US$2.1 million (equivalent to approximately
HK$16.5 million); the increase in net profit in 2017 was driven by
significant revenue growth, which was partially offset by the
decrease in gross margin and the increase in R&D expenses.
DEFINITIONS
In this announcement, unless the context otherwise requires, the
following expressions shall have the following meanings:
"Acquisition" the proposed acquisition of the Sale Shares as
contemplated under the Acquisition Agreement
"Acquisition Agreement" the agreement dated 12 July 2018 entered
into between the
Company, the Vendors and the Target Company in relation to the
Acquisition
"ADAS" advanced driving assistance system
"Assets" all specified property, rights and assets of the
Reorganisation Sellers or the Target Company or Telit France (owned
directly or indirectly) exclusively used in connection with the
Business
"Board" the board of Directors
"Business" the development, manufacture and sale of auto grade
cellular modules to car OEMs or to Tier 1 suppliers for
installation in cars in the assembly line and V2X modules, as
carried on collectively by the Target Company, Telit France and the
Reorganisation Sellers or the New Subsidiaries immediately prior to
the Completion Date
"Business Day" a day that is not a Friday or Saturday or Sunday
or a public holiday in England, Hong Kong or Israel
"CAGR" compound annual growth rate
"CCID" CCID Consulting Company Limited, being a company listed
on the GEM of the Stock Exchange (stock code: 8235) which engages
in the provision of, among other things, consultancy and data
information management services
"Circular" a circular required to be despatched by the Company
in relation to, among other things, the Acquisition Agreement and
the transactions contemplated thereunder pursuant to the Listing
Rules
"Circular Long Stop Date" the date falling on five months after
the date of the
Acquisition Agreement
"Company" TUS International Limited , a company incorporated in
the Cayman Islands with limited liability and the Shares of which
are listed on the Main Board of the Stock Exchange (stock code:
872)
"Completion" the completion of the sale and purchase of all the
issued shares of the Target Company pursuant to and in accordance
with the Acquisition Agreement
"Completion Accounts" the Completion Cash, the Completion Debt
and the Completion Working Capital of the Target Group on a
consolidated basis as at the Completion Date, as agreed or
determined in accordance with the Acquisition Agreement
"Completion Cash" the aggregate amount of cash (if any) held by
or on behalf of the Target Group as at the Completion Date as
derived from the Completion Accounts
"Completion Date" the date on which Completion takes place
"Completion Debt" the aggregate amount of debts (if any) of the
Target Group and the Shareholder Debt at the Completion Date as
derived from the Completion Accounts
"Completion Working Capital" the aggregate value of the current
assets of the Target Group excluding items which are part of
Completion Cash as at the Completion Date, less the aggregate value
of the current liabilities of the Target Group excluding the items
which are part of Completion Debt as at the Completion Date, as
derived from the Completion Accounts
"connected person(s)" has the meaning ascribed to it under the
Listing Rules
"Consideration" the aggregate consideration of US$105 million
(equivalent to approximately HK$824.25 million), subject to
adjustments at Completion pursuant to the Acquisition Agreement
"Dawin" Dawin (H.K.) Limited , a company incorporated in Hong
Kong with limited liability, and a Shareholder holding 50,000,000
Shares, representing approximately 4.09% of the issued share
capital of the Company, as at the date of this announcement
"Director(s)" director(s) of the Company
"EBITDA" earnings before interest, tax, depreciation and
amortisation
"EGM" an extraordinary general meeting of the Company to be
convened and held for the Shareholders to consider, and if thought
fit, to approve the ordinary resolution(s) in respect of the
Acquisition Agreement and the transactions contemplated
thereunder
"Enlarged Group" the Group as enlarged by the Acquisition
"Escrow Agent" ABN Amro Bank N.V.
"Excluded Assets" all assets belonging to the Reorganisation
Sellers other than the Assets
"Excluded Business" all businesses belonging to the
Reorganisation Sellers or the Target Company or Telit France other
than the Business
"GPRS" an acronym for General Packet Radio Service, which is a
packet oriented mobile data service on the 2G and 3G cellular
communication system
"Group" the Company and its subsidiaries
"HK$" Hong Kong dollars, the lawful currency of Hong Kong
"Hong Kong" the Hong Kong Special Administrative Region of the
People's Republic of China
"Hong Kong Ben Ling" Hong Kong Ben Ling International Industrial
Limited , a company incorporated in Hong Kong with limited
liability, whose wholly-owned subsidiary is a Shareholder holding
40,000,000 Shares, representing approximately 3.27% of the issued
share capital of the Company, as at the date of this
announcement
"IoT" an acronym for Internet of Things, which is the
interconnection via the internet of computing devices embedded in
everyday objects, enabling them to send and receive data
"IP Licence Agreement" the intellectual property licence and
licence back agreement (in the agreed form) to be entered into by
and among the Reorganisation Sellers, the Target Company, Telit
France and the Company as part of the Reorganisation
"Listing Rules" the Rules Governing the Listing of Securities on
the Stock Exchange
"Long Stop Date" the date falling on six months after the date
of the Acquisition Agreement
"LTE-A" an acronym for Long Term Evolution Advanced, which is a
mobile communication standard used on 4G cellular communication
systems
"Mr. Cen" Mr. Cen Gangqi, a Shareholder holding 60,000,000
Shares, representing approximately 4.91% of the issued share
capital of the Company, as at the date of this announcement
"Mr. Ma" Mr. Ma Chi Kong Karl, the Chairman of the Board and an
executive Director, and a Shareholder holding 210,718,000 Shares,
representing approximately 17.23% of the issued share capital of
the Company, as at the date of this announcement
"Mr. Shen" Mr. Shen Xiao, an executive Director and the
president of the Company
"New Subsidiaries" the corporate entities to be newly
incorporated in Germany, Korea and Israel each as a direct
wholly-owned subsidiary of the Target Company and each as the
receiving entity for the transfer of assets and employees from the
relevant Reorganisation Sellers in the corresponding jurisdiction,
in each case pursuant to the Reorganisation
"OEMs" an acronym for original equipment manufacturers
"PRC" or "China" the People's Republic of China, which for the
purpose of this announcement, excludes Hong Kong, Macau Special
Administrative Region of the People's Republic of China and
Taiwan
"R&D" research and development
"Relevant Shareholders" Mr. Ma, Tuspark Venture, Mr. Shen, Mr.
Cen, Hong Kong Ben Ling, Dawin, and Sumchi (and, in respect of Hong
Kong Ben Ling and Sumchi, their respective wholly-owned
subsidiaries which are or will be holding Shares, as the case may
be)
"Reorganisation" the reorganisation in respect of the Target
Group as required under the Acquisition Agreement, a summary of
which is set out the section headed "Reorganisation" of this
announcement
"Reorganisation Agreement" the reorganisation agreement to be
entered into by and among the Target Company, the New Subsidiaries
and the Reorganisation Sellers in relation to the
Reorganisation
"Reorganisation Sellers" certain subsidiaries of Telit
Communications, which collectively hold certain of the Assets and
the Business as at the date of this announcement
"RMB" Renminbi, the lawful currency of the PRC
"Sale Shares" all the issued shares of the Target Company at
Completion
"Share(s)" ordinary share(s) of HK$0.01 each in the share
capital of the Company
"Shareholder(s)" the holder(s) of Share(s)
"Shareholder Debt" any financial indebtedness owing, accrued or
payable by the Target Group to a member of the Telit Group (other
than a member of the Target Group)
"Stock Exchange" The Stock Exchange of Hong Kong Limited
"Sumchi" Sumchi International Co., Limited , a company
incorporated in Hong Kong with limited liability
"Target Company" Telit Automotive Solutions N.V., a company
incorporated and registered in the Kingdom of Belgium, which is
held as to approximately 99.35% by Telit Communications and
approximately 0.65% by Telit Wireless as at the date of this
announcement
"Target Group" the Target Company, Telit France and the New Subsidiaries
"Target Working Capital" US$0, being the amount agreed by the
parties to be the target working capital of the Target Group at
Completion
"Telit Group" Telit Communications and its subsidiaries which,
for the avoidance of doubt: (a) prior to Completion, includes the
Company, Telit France and the New Subsidiaries (to the extent
incorporated/owned); and (b) following Completion, excludes the
Company, Telit France and the New Subsidiaries
"Telit Communications" Telit Communications PLC, a public
limited company incorporated in England and Wales, the shares of
which are listed on the AIM market of the London Stock Exchange
(stock code: TCM)
"Telit France" Telit Automotive Solutions S.a.r.l., a company
incorporated in France with limited liability
"Telit Wireless" Telit Wireless Solutions S.R.L, a company
incorporated and registered in Italy, which is a subsidiary of
Telit Communications
"Transfer Costs" any taxes up to a maximum of US$500,000
relating to the Reorganisation to the extent that such taxes would
normally fall to the Company; and any amounts incurred by the
Target Company, Telit France or the Reorganisation Sellers at the
request or with the consent of the Company
"Transferring Employees" certain employees of the Reorganisation
Sellers who will commence employment with the Target Company, Telit
France or a New Subsidiary in connection with the
Reorganisation
"Transitional Services Agreement" the transitional services
agreement (in the agreed form) to be entered into by certain
Reorganisation Sellers and the Target Company in relation to the
provision of certain information technology services and other
transitional services by such Reorganisation Sellers to the Target
Group
"Tuspark Venture" Tuspark Venture Investment Ltd. , a company
incorporated in the British Virgin Islands with limited liability,
and a Shareholder holding 212,490,802 Shares, representing
approximately 17.37% of the issued share capital of the Company, as
at the date of this announcement
"US" the United States of America
"US$" United States dollars, the lawful currency of the US
"V2X" an acronym for vehicle-to-everything communication
technology, which is a form of wireless technology that allows the
passing of information from a vehicle to any entity that may affect
the vehicle, or vice versa
"Vendors" Telit Communications and Telit Wireless
"2G" an acronym for Second-Generation Cellular technology, being
the second generation of wireless mobile telecommunication
technology
"3G" an acronym for Third-Generation Wireless System, being the
third generation of wireless mobile telecommunication
technology
"3.5G" an enhanced 3G mobile communications protocol, being an
interim mobile communication system between 3G and 4G
"4G" an acronym for Fourth-Generation Wireless System, being the
fourth generation of broadband cellular network technology
succeeding 3G
"5G" an acronym for fifth generation of mobile communication
standards, the proposed next communications standard beyond 4G
"%" per cent.
In this announcement, for illustration purposes only, US$ has
been converted into HK$ at the rate of US$1.00: HK$7.85 and RMB has
been converted into HK$ at the rate of RMB1.00: HK$1.19. No
representation is made that any amounts of US$ or HK$ have been,
could have been or could be converted at the above rate or at any
other rate or at all.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
MSCLFFIIDTIFLIT
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July 13, 2018 02:00 ET (06:00 GMT)
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