| Mon 25 Jun 2007, 11:11 | | SOH - South Ocean - Acquisition of by South Ocean |
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SOH
SOH
SOH - South Ocean - Acquisition of by South Ocean and withdrawal of cautionary
South Ocean Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 2007/002381/06)
Share Code: SOH
ISIN: ZAE000092748
("South Ocean" or "the company")
Announcement to shareholders of South Ocean regarding the acquisition of Radiant
Group (Pty) Limited ("Radiant") ("the acquisition") by South Ocean and
withdrawal of cautionary announcement
1. Introduction
Further to the cautionary announcement of South Ocean published in the press on
6 June 2007, Investec Corporate Finance is authorised to announce that South
Ocean has entered into an agreement with the current shareholders of Radiant to
acquire the entire issued ordinary share capital of Radiant, subject to the
conditions precedent set out below in paragraph 2.4, to be settled in cash and a
vendor placement of South Ocean shares.
2. Details of the acquisition
2.1 The vendors of Radiant
The current shareholders and vendors of Radiant are:
* HS Family Trust, represented by Hanan Schwartz (Chief Executive Officer);
* LS Family Trust, represented by Laurence Sarakinsky (Managing Director);
* Gary Stein (Chief Financial Officer);
* GKP Share Trust, represented by Gerard Pillay (Director); and
* Trevor Woolfson (Senior Manager)
(collectively referred to as "the vendors")
2.2 Effective date
The effective date of the transaction is 1 March 2007 and all conditions
precedent is expected to be fulfilled by Friday, 3 August 2007.
2.3 Purchase consideration
South Ocean will acquire the entire issued ordinary share capital of Radiant for
a purchase consideration of R485 000 000 ("purchase consideration"). The
purchase consideration will be discharged as follows:
- An issue of new South Ocean ordinary shares up to an amount of R280 250 000
(two hundred and eighty million two hundred and fifty thousand Rand) by way of a
vendor placement which will comprise of:
* 24 691 781 ordinary shares to the vendors at an issue price of R7.30 per
share; and
* a further issue of South Ocean shares to selected institutions at a price
with reference to a 30 day Volume Weighted Average Price ("VWAP") as traded on
the JSE Limited ("JSE"); and
- a combination of debt and internal cash resources to the amount of R204 750
000.
2.4 Conditions precedent
The acquisition is subject to the following conditions precedent:
- Approval in general meeting by the South Ocean shareholders of the
acquisition;
- Approval of the acquisition by the Competition Commission and the JSE,
including the approval by the JSE of the required documentation to be
distributed to South Ocean shareholders; and
- The listing of the South Ocean shares to be issued.
3. Radiant - nature of business
Radiant is an importer and distributor of lighting products and was established
in 1987. At the time, it was involved in the assembly of light fittings, with a
monthly turnover of R75 000. The current CEO, Hanan Schwartz bought the business
in 1990 and gradually started importing lighting products and selling them in
the local South African market. Radiant today is involved in three principal
markets, viz:
* Decorative light fittings
* Lamps and bulbs
* Electrical products
The company today has an annual turnover in excess of R300 million and has
established itself as a major player in its core markets. It operates through
warehouses in Johannesburg and Cape Town and its customers include electrical
wholesalers, lighting retailers and lighting consultants. Radiant therefore does
not supply directly to the public and its products are used in residential,
commercial and industrial projects and buildings.
The business has shown consistent growth since it was started and is well
positioned to benefit from the current buoyant building and construction
industry. Through its distributors it has recently started a projects division,
which has been set up to target specific building and infrastructure projects,
e.g. Gautrain and projects leading into the 2010 Soccer World Cup.
4. Rationale for the acquisition
The proposed acquisition will allow South Ocean to:
* Leverage off its existing customer base
- A significant proportion of the customer base of Radiant and South Ocean is
mutual; and
- it allows both businesses to extract synergies by supplying the same
customer base.
* Diversify from its existing business
- South Ocean is heavily exposed to fluctuations in the copper price;
- The acquisition diversifies the business away from the volatility in this
market and should improve the sustainability of its earnings base; and
- it allows South Ocean to diversify into its existing customer base.
* Expand its existing business and enter into new markets
- Radiant`s exposure to infrastructure and building projects through its
projects division, will allow South Ocean to gain access in supplying its
products into these projects;
- Radiant is a cash flow generative business. This will allow South Ocean to
use it as a source of funding future expansions and partner Radiant in exploring
new markets, e.g. export market into Africa.
5. Financial effects on South Ocean shareholders
The unaudited pro forma financial effects of the acquisition are the
responsibility of the directors of South Ocean and are presented for
illustrative purposes only to provide information about how the acquisition
might have impacted on the financial position and results of South Ocean had the
acquisition occurred at an earlier date.
Per South Ocean share Before1 After2 change
(cents) %
Earnings (3,5) 50.97 62.23 22.1%
Headline earnings (3,5) 50.97 62.09 21.8%
Net asset value (4,5) 208.11 337.18 62.0%
Tangible net asset value (4,5) 208.11 62.48 (70.0%)
Number of shares in issue (`000) 118,700 156,379
Weighted issue number of shares (`000) 118,700 156,379
Notes:
1. Based on the audited results of South Ocean for the 12 months ended 31
December 2006.
2. The effects set out in the After column are based on the audited results of
South Ocean for the 12 months ended 31 December 2006 and the audited results of
Radiant for the year ended 28 February 2007.
3. Earnings and headline earnings effects have been calculated based on the
following assumptions:
* the acquisition was effective 1 January 2006;
* interest on cash reserves foregone at an average deposit rate of 7% before
tax;
* the debt funding was raised at the current prime rate of lending of 13%
before tax; and
* intangibles arising on the acquisition are assumed to be amortised over a
period of 20 years.
4. Net asset and net tangible asset value per share effects have been
calculated based on the following assumptions:
* the acquisition was effective 31 December 2006;
* an adjustment of R46 000 000 in respect of a dividend and capital repayment
was made for the purposes of this calculation, as this amount will be paid prior
to the date all conditions precedent have been fulfilled.
* the purchase consideration was settled as follows:
* Vendor placement of 24,692,000 shares at R7,30 per share
* Private placement of 12,987,000 shares at an assumed share price of R7,70
per share
* Utilisation of cash reserves of R80 000 000
* Debt raised of R124,750,000
5. The difference between the purchase consideration and the carrying value of
the tangible assets acquired is assumed to be allocated to goodwill (80%) and
intangibles (20%). A purchase price allocation exercise in terms of IFRS 3:
Business Combinations will be required as at the effective date of the
acquisition, which may result in different values being assigned to the tangible
and intangible assets and goodwill acquired.
The articles of association of Radiant will be changed in line with that of
South Ocean in due course.
6. Documentation
Due to the approval required by the South Ocean shareholders for the acquisition
as described in 2.4 above, a circular incorporating the notice of the general
meeting to be held will be posted to South Ocean shareholders, subject to the
JSE approval.
7. Withdrawal of cautionary announcement
Shareholders are referred to the cautionary announcement dated 6 June 2007 and
are advised that as a result of the conclusion of the agreements between South
Ocean and the vendors to acquire the entire issued ordinary share capital of
Radiant, caution is no longer required to be exercised by shareholders when
dealing in their securities.
Alrode
25 June 2007
Corporate advisor and sponsor to South Ocean
(Investec Corporate Finance)
Reporting accountants
(Pricewaterhousecoopers)
Legal advisor to South Ocean
(Roodt Inc.)
Legal advisor to Radiant
(Edward Nathan Sonnenbergs)
Date: 25/06/2007 11:11:01 Produced by the JSE SENS Department.
