| Thu 19 Jul 2007, 8:06 | | ASO - Austro Group Limited - Acquisition of three |
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ASO
ASO
ASO - Austro Group Limited - Acquisition of three new businesses
Austro Group Limited
(Incorporated in the Republic of South Africa)
(Registration number 2001/029771/06)
Share code: ASO & ISIN: ZAE000090882
("Austro" or "the group")
ACQUISITION OF THREE NEW BUSINESSES
1. INTRODUCTION
Shareholders are referred to the further cautionary announcement on
10 July 2007 and are advised that Austro has concluded agreements to
acquire ("the acquisitions"):
1.1 the shares in and claims against Generator and Plant Hire (SA)
(Proprietary) Limited ("Generator Hire") which has been in operation since
1990. Generator Hire hires out diesel powered generators to the
construction and mining industry, parastatals and local authorities, cell-
phone companies, shipping lines and other commercial and industrial
customers. Generator Hire has grown to become one of the major operations
in the generator hire business and offers long and short term rentals and
hires as well as direct sales of generators;
1.2 the shares in and claims against Neptune Plant (Proprietary) Limited and
Neptune Plant Hire (Proprietary) Limited (collectively the "Neptune Group")
which has been in operation since 1997. The Neptune Group hires out
industrial generators to commerce and industry primarily in the Western
Cape. The dynamic nature of this business has seen Neptune generators
travelling to all seven continents; and
1.3 the business of Gearing Moss Supplies (Proprietary) Limited ("Gearing Moss)
a supplier of mobile sawmills and small log-processing equipment to the
sawmilling industry and tooling to the industrial woodworking industry.
Gearing Moss has agencies for a number of leading brands including Wood-
Mizer, a world leader in portable saw-mills as well as its own range of
sawmilling equipment.
2. RATIONALE FOR THE ACQUISITIONS
The strategy of the group is to be the major player in strategic niche
markets in the construction and construction related sectors. Each of
Generator Hire, Neptune Group and Gearing Moss are long-standing,
profitable, owner formed and run businesses which are highly regarded in
their respective markets and are complimentary with the group`s existing
business.
The group currently has two main areas of business. The Austro business
(including blade and tool sharpening services). New Way Motor & Diesel
Engineering ("New Way"), the acquisition of which is still subject to the
securing of Competition Authority approval, which is the leading supplier
of commercial generator and diesel engines in South Africa.
The acquisition of Generator Hire and Neptune Group will add an additional
lucrative component to the group`s generator business in terms of which, in
addition to selling generators, it is in a position to hire them out. The
hiring out of generators will allow the group to take full advantage of
what are often temporary or short-term requirements for generators and
further enhances the group`s ability to exploit the growing need for back-
up power supply to industry and commerce.
The acquisition of Gearing Moss complements Austro`s woodworking machinery
business by giving the group entry into the sawmilling machinery market.
Gearing Moss will prove a significant additional source of revenue for the
group both from the supply of sawmilling machines and from ongoing
maintenance and tool sharpening. In addition, with logging rights in many
African countries now requiring some form of timber benefication, there is
potential to provide woodworking machinery and generators alongside mobile
sawmilling equipment to allow loggers to meet their beneficiation
requirements.
3. THE ACQUISITIONS
3.1 THE GENERATOR HIRE ACQUISITION
Austro will acquire the shares in and claims against Generator Hire from
the Anthony Michael Muller Family Trust, the Dave Pretorius Family Trust,
the Bill Muller Family Trust and the GJM Family Trust (collectively "the
Generator Hire vendors") with effect from 1 September 2007 for a maximum
aggregate purchase consideration of R70 000 000.
The purchase consideration is subject to profit warranties and is payable
in three tranches as follows:
3.1.1 The first tranche of the purchase price will be R60 000 000 payable in
cash on the third business day following the fulfilment of the
conditions precedent to the Generator Hire acquisition (the "Generator
Hire implementation date") together with interest at 10% per annum
calculated from 1 December 2007 until the Generator Hire
implementation date.
3.1.2 The second tranche of the purchase price will be R5 000 000, provided
that if the PAT for the 12 months ending 31 August 2008 (the "2008
PAT") is:
3.1.2.1 less than R11 132 800, the second tranche will be Rnil;
3.1.2.2 less than R13 916 000 but greater than R11 132 800, the second
tranche will be reduced in terms of an agreed formula.
3.1.3 The third tranche of the purchase price will be R5 000 000, provided
that if the PAT for the 12 months ending 31 August 2009 (the "2009
PAT) is:
3.1.3.1 less than R15 585 920, the third tranche will be Rnil;
3.1.3.2 less than R19 482 400 but greater than R15 585 920, the second
tranche will be reduced in terms of an agreed formula.
The second and third tranche of the purchase price will be
payable 10 business days after the determination of the PAT in
question and will be discharged, at the election of the
Generation Hire vendors, either in cash (together with interest
at 10% per annum calculated from 1 September of the year in
question if the second tranche and/or third tranche of the
purchase price (as the case may be) has not been paid by 30
November of that year) or in Austro shares issued at a price of
R3 per share.
3.2 The Generator Hire acquisition is subject to the following conditions
precedent:
3.2.1 the unconditional approval of the acquisition by the Competition
Authorities by no later than 26 October 2007;
3.2.2 the conclusion of new executive service and restraint of trade
agreements between Austro (or a member of the Austro group) and
certain key employees of Generator Hire by no later than 17 August
2007;
3.2.3 Austro furnishing the vendors with written confirmation that it is
satisfied with the outcome of its due diligence exercise by no later
than 17 September 2007; and
3.2.4 each of Absa Bank Limited and Imperial Bank Limited agreeing that, on
the Generator and Plant Hire agreement becoming unconditional in
accordance with its terms, Anthony Michael Muller, William Patrick
Muller, Glenton James Muller and David Howard Pretorius will be
released from any liability which they may have beyond the effective
date under the guarantees, suretyships and indemnities in favour of
Absa Bank Limited and Imperial Bank Limited by no later than 17 August
2007.
3.3 The Generator Hire acquisition is subject to terms and warranties usual for
a transaction of the nature contemplated.
3.4 Subject to the implementation of the Generator Hire acquisition, Generator
Hire`s articles of association will be amended to conform with the articles
of association of a listed company as required in terms of the JSE Listings
Requirements.
4. THE GEARING MOSS AND NEPTUNE GROUP ACQUISITIONS
4.1 Austro will acquire the business of Gearing Moss as a going concern with
effect from 1 March 2007 for a purchase price of R30 000 000 payable on
third business day following the fulfilment of the conditions precedent to
the Gearing Moss acquisition (the "Gearing Moss implementation date") as
follows:
4.1.1 R17 920 000 in cash on the Gearing Moss implementation date;
4.1.2 the balance by the issue of 3 733 333 Austro shares (at an issue price
of R3.24 per share).
4.2 Austro will acquire the shares in and claims against Neptune Plant
(Proprietary) Limited ("Neptune Plant"), Neptune Plant Hire (Proprietary)
Limited ("Neptune Plant Hire") and from Holger T Heye and the Diesel Share
Trust (collectively the "Neptune vendors") respectively with effect from 1
March 2007 (the "Neptune acquisition"):
4.2.1 The aggregate maximum purchase price is R30 500 000 (apportioned as to
83% to Neptune Plant and 17% to Neptune Plant Hire) of which:
4.2.2 R26 500 000 (the "base purchase price") will be discharged on the
third business day following the fulfilment of the conditions
precedent to the Neptune Group acquisition (the "Neptune Group
implementation date") as follows:
4.2.2.1 R13 500 000 in cash, which may be raised (in whole or in part) by
way of a vendor placement of Austro shares pursuant to the JSE
Listings Requirements; and
4.2.2.2 the balance by the issue of 4 193 548 Austro shares at R3.10 per
share to the sellers on the Neptune Group implementation date;
4.2.3 R4 000 000 is subject to certain profit warranties and is payable in
cash as follows:
4.2.3.1 R2 000 000 provided that the earnings before interest tax
depreciation and amortisation of the Neptune Group ("EBITDA") for
the 12 months ending 29 February 2008 ("2008 EBITDA") is at least
R6 020 250;
4.2.3.2 R2 000 000 provided that the EBITDA for the 12 months ending
29 February 2009 ("2009 EBITDA") is at least R6 923 288;
4.2.3.3 if the 2008 EBITDA is less than R6 150 000 but the aggregate 2008
EBITDA and 2009 EBITDA is at least R12 943 538, then the Neptune
vendors shall be entitled to the R4 000 000 deferred price less
the aggregate of any amounts paid to the Neptune vendors in terms
of 4.2.3.1 and 4.2.3.2 above.
4.3 The Gearing Moss and Neptune Group acquisitions are subject to terms,
warranties and conditions usual for transactions of the nature
contemplated. Conditions include the conclusion of restraint of trade
agreements between Austro and the key executives of each of Gearing Moss
and the Neptune Group and Austro confirming that it is satisfied with the
outcome of the due diligence exercises conducted by it in respect of each
of Gearing Moss and Neptune Group.
5. FINANCIAL EFFECTS
Only the Generator Hire acquisition constitutes a categorisable transaction
in terms of the JSE Listings Requirements. Accordingly, only the pro forma
financial effects of the Generator Hire acquisition on Austro`s historical
earnings per share ("EPS") and headline earnings per share ("HEPS") for the
6 months ended 28 February 2007, and net asset value ("NAV") per share and
net tangible asset value ("NTAV") per share at 28 February 2007, are set
out in the table below.
The pro forma financial effects have been prepared for illustrative
purposes only, to provide information on how the Generator Hire acquisition
may have impacted on the historical results and financial position of
Austro, before and after incorporating the financial effects of the New Way
acquisition. Because of their nature, they may not give a fair reflection
of Austro`s financial position after the acquisition of Generator Hire on
Austro`s future earnings. The pro forma financial effects are the
responsibility of the directors of Austro.
Historical Pro forma Change after
before the after the the Generator
Generator Generator Hire
Hire Hire acquisition
acquisition acquisition (%)
(cents) (cents)
EPS and diluted EPS 4.2 3.7 (11.9)
HEPS and diluted HEPS 3.9 3.4 (12.8)
NAV per share 16.4 16.9 3.0
NTAV per share 13.1 (4.9) (137.4)
Weighted average shares in 309 928 309 928 -
issue (`000)
Weighted average shares in 309 928 310 249 321
issue used for diluted EPS
and HEPS calculations
(`000)
Shares in issue at 328 261 328 261 -
28 February 2007(`000)
Pro forma Pro forma Change after
after the after the the Generator
New Way Generator Hire and New
acquisition Hire and New Way
(cents) Way acquisitions
acquisitions (%)
(cents)
EPS and diluted EPS 6.9 6.4 52.3
HEPS and diluted HEPS 6.6 6.1 56.4
NAV per share 50.4 50.9 210.3
NTAV per share 2.2 (13.8) (205.3)
Weighted average shares in 350 428 350 428 40 500
issue (`000)
Weighted average shares in 350 428 350 749 40 821
issue used for diluted EPS
and HEPS calculations
(`000)
Shares in issue at 368 761 368 761 40 500
28 February 2007(`000)
Notes and assumptions:
1. The amounts set out in the "Historical before the Generator Hire
acquisition" column have been extracted from the unaudited financial
statements of Austro for the 6 months ended 28 February 2007.
2. EPS and HEPS, as set out in the "Pro forma after the Generator Hire
acquisition" column, reflect the effects of the Generator Hire
acquisition on EPS and HEPS for the 6 months ended 28 February 2007
based on the following assumptions:
2.1. the acquisition was effective 1 September 2006 and control of
Generator Hire passed to Austro on the same date for earnings
purposes;
2.2 the inclusion of Generator Hire`s results for a 6-month period based
on the audited results of Generator Hire for the year ended 31 August
2006 on the assumption that the profit was earned evenly over the 12-
month period;
2.3 interest-bearing funding of R60 000 000 had been secured and utilised
on 1 September 2006 for settlement of the first tranche payment. The
funding is assumed to be subject to a variable before taxation
interest rate commencing at 11.0% per annum; and
2.4 interest has been recognised on the second and third tranche payments
("the deferred payments"), calculated using the third party funding
rate of 11% per annum.
3. Diluted EPS and HEPS, as set out in the "Pro forma after the Generator
Hire acquisition" column, have been calculated according to the
assumptions referred to above, save for the adjustment to the weighted
average shares in issue. Weighted average shares in issue has been
increased by the number of shares that would need to be issued to
account for the value of the difference between the current market
value, according to the 30-day volume weighted average price of an
Austro share at 13 July 2007 of R3.32, and issue price of R3.00,
multiplied by the number of shares to be issued in terms of the
deferred payment.
4. NAV per share and NTAV per share, as set out in the "Pro forma after
the Generator Hire acquisition" column, reflect the effect of the
Generator Hire acquisition on NAV per share and NTAV per share at
28 February 2007 based on the following assumptions:
4.1 the acquisition was effective 28 February 2007;
4.2 the inclusion of Generator Hire`s NAV based on Generator Hire`s
audited balance sheet at 31 August 2006;
4.3 a cost of acquisition of R71 121 000 based on:
4.3.1 the first tranche payment of R60 000 000;
4.3.2 the present value of the deferred payments of R9 404 000, which
has been calculated as the greater of the cash option and the value of
the share option using the 30-day volume weighted average price of an
Austro share at 13 July 2007 of R3.32, discounted at the third party
funding rate of 11% per annum; and
4.3.3 the value of the option awarded to the vendors to elect to
receive the deferred payments either in cash or in shares, which has
been calculated using the Black-Scholes option pricing model, of
R1 717 000;
4.4 a purchase price allocation exercise will need to be performed at the
effective date in terms of IFRS3 (Business Combinations). For the
purposes of the pro forma financial effects, the difference between
the cost of acquisition and the carrying value of the assets and
liabilities acquired of approximately R59 585 000 has been allocated
to goodwill; and
4.5 costs relating to the Generator and Plant Hire acquisition of
approximately R200 000 were capitalised to the cost of the investment
and results in further goodwill of such amount on consolidation.
5. The amounts set out in the "Pro forma after the New Way acquisition"
column have been extracted from the circular to Austro shareholders
relating to the New Way acquisition dated 11 July 2007.
6. The amounts set out in the "Pro forma after the Generator Hire and New
Way acquisitions" column reflect the effects of the Generator Hire and
New Way acquisitions on EPS, HEPS, diluted EPS and diluted HEPS for
the 6 months ended 28 February 2007 and NAV per share and NTAV per
share at 28 February 2007, based on the assumptions as set out in
notes 2 to 4 above.
6. Withdrawal of cautionary
In light of the aforegoing, Austro shareholders are advised that caution is
no longer required to be exercised by them when dealing in Austro shares.
Johannesburg
19 July 2007
Corporate advisor, legal advisor and sponsor
Java Capital (Proprietary) Limited
Date: 19/07/2007 08:06:23 Produced by the JSE SENS Department.
