| Tue 26 Feb 2008, 8:00 | | BDM - Buildmax Limited - Acquisition of diesel power and renewal of cautionary |
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BDM
BDM
BDM - Buildmax Limited - Acquisition of diesel power and renewal of cautionary
Buildmax Limited
(Registration No. 1995/012209/06)
Share Code: BDM ISIN Code: ZAE000011250
("Buildmax")
ACQUISITION OF DIESEL POWER AND RENEWAL OF CAUTIONARY
INTRODUCTION
On 6 December 2007 Buildmax announced the acquisition of companies comprising
the Buildco group. Shareholders were also advised that Buildmax was in
discussions relating to certain further substantial acquisitions complementary
to Buildco`s business.
In this regard shareholders are advised that Buildmax has concluded an agreement
to acquire Diesel Power Open Cast Mining (Pty) Ltd ("Diesel Power").
Diesel Power, founded in the mid 1980`s, is one of the largest open cast mining
and earthmoving contractors in the country and is an approved and registered
contractor to all the major mining and construction groups in South Africa.
RATIONALE FOR THE ACQUISITION
The acquisition of Diesel Power enhances Buildmax`s Equipment & Services
division by:
- significantly enlarging the size and scope of open cast coal mining and
rehabilitation services; and
- adding civils and bulk earthworks to its operations.
Diesel Power strongly positions Buildmax to service the highgrowth mining and
construction industries.
The redressing of South Africa`s historic underinvestment in power generation
offers sustainable growth opportunity over the long term. Eskom`s immediate
demand for coal to meet their existing requirements, raise coal reserves, cope
with increased demand from recommissioning of mothballed power stations and the
increased needs of industrial consumers, will continue to drive local activity.
In addition a number of new power stations will be built over the next 20 years,
the majority of which will be coal fired.
These factors and the continued high level demand for coal and commodities
globally will drive growth in coal and other mining activities. However, the
shortage of equipment remains a constraint to growth in both large mining and
construction groups. As a leading purchaser of equipment in South Africa for the
past 20 years and an established provider of equipment and services, Diesel
Power is ideally positioned.
TERMS OF THE DIESEL POWER ACQUISITION
Buildmax has agreed to acquire all of the shares in and shareholders claims
against Diesel Power from Michael Watson with effect from 1 September 2007.
The purchase price which is a maximum of R565 million comprises:
- a first tranche of a maximum of R490 million based on the profit after tax
of Diesel Power ("PAT") for the 12 months ending 31 August 2007 (the "2007
PAT");
- a second tranche (limited to R37.5 million) calculated with reference to
the amount by which the PAT for the 12 months ending 31 August 2008 (the
"2008 PAT") exceeds 115% of the 2007 PAT; and
- a third tranche (limited to R37.5 million) calculated with reference to the
amount by which the PAT for the 12 months ending 31 August 2009 (the "2009
PAT") exceeds 132.25% of the 2007 PAT.
The first tranche will be settled as follows: R105 million will be settled on
the implementation date by the issue of 40 384 615 Buildmax shares; R330 million
will be settled in cash on the implementation date; and R55 million will be
payable in cash on the first anniversary of the implementation date. The second
and third tranches of the purchase price will be payable in cash on the
determination of the 2008 PAT and 2009 PAT respectively. Any portion of the
purchase price payable in cash can, at the election of Buildmax, be discharged
instead by way of a vendor placement of Buildmax shares.
In addition to the profit warranties set out above, Michael Watson has given
warranties normal for a transaction of this kind.
The acquisition of Diesel Power is conditional on:
- all requisite regulatory and Buildmax shareholder approvals;
- the conclusion of service and restraint agreements by the key executives of
Diesel Power.
Diesel Power will continue to be managed by its current managing director and
founder Michael Watson who has more than 25 years` experience in open cast
mining and bulk earthworks. Michael Watson will have a significant interest in
Buildmax as a result of the transaction. He will enter into a five year service
agreement with Buildmax and is restrained from competing with the business of
Diesel Power for a period of five years after the termination date.
The cash portion of the consideration payable in respect of the Diesel Power
acquisition will be settled out of the group`s internal cash resources and the
proceeds of a proposed capital raising to be undertaken by Buildmax ("the
capital raising"), further details of which will be announced on SENS and in the
press in due course.
THE DIESEL FEE
The Diesel Power transaction was initially entered into with Westbrooke and
Interactive on 19 October 2007 acting as purchasers, however the agreement
included the right to nominate another party as purchaser. Westbrooke and
Interactive nominated Buildmax who accepted such nomination with the effect that
Buildmax became the purchaser in terms of the agreement.
Buildmax has agreed to pay Westbrooke and Interactive a fee equivalent to 3.5%
of the purchase price payable in respect of the Diesel Power acquisition as
consideration for them having taken transactional risk in respect of the Diesel
Power acquisition as well as having secured, negotiated and implemented the
Diesel Power transaction. The fee, which equates to a maximum of R9 887 500
(excluding VAT), to each of Westbrooke and Interactive is payable as follows:
- R8 575 000 on the implementation date;
- R1 312 500 on and subject to achievement of the warranted 2008 PAT and 2009
PAT of Diesel Power,
by the issue of Buildmax shares to each of Westbrooke and Interactive at the
price at which shares are issued in terms of the capital raising.
Given that Westbrooke and Interactive are both associates of material
shareholders of Buildmax, the payment of the fees constitutes a related party
transaction and is subject to approval by Buildmax shareholders (other than
Westbrooke, Interactive and their associates) at the general meeting being
convened to approve the transaction. The board of Buildmax has appointed Sasfin
to provide an independent opinion on the fairness to Buildmax shareholders of
the acquisition of Diesel Power including the fee. Sasfin has concluded that the
total consideration payable including the fee are fair to Buildmax shareholders
and their final report will be included in the category 1 circular.
FURTHER DOCUMENTATION AND RENEWAL OF CAUTIONARY
The financial effects of the Diesel Power acquisition and the Buildco
acquisitions on the historical results of Buildmax are in the process of being
finalised and a further announcement will be published in due course.
Shareholders are advised to continue to exercise caution when trading in
Buildmax shares until the publication of a further announcement or announcements
in this regard. A circular incorporating a notice of general meeting and revised
listing particulars containing more detail in relation to the transactions will
be sent to Buildmax shareholders on or about 29 February 2008.
Johannesburg
26 February 2008
Corporate and legal advisors and sponsor
Java Capital (Proprietary) Limited
Investor & corporate relations
Envisage
Independent expert
Sasfin Corporate Finance
Date: 26/02/2008 08:00:57 Produced by the JSE SENS Department.
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