| Tue 8 Apr 2008, 17:31 | | MMG - MICROmega - Acquisition of Kolbenco (Proprie |
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MMG
MMG
MMG - MICROmega - Acquisition of Kolbenco (Proprietary) Limited ("Kolbenco") and
withdrawal of cautionary announcement
MICROmega HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1998/003821/06)
(Share code: MMG ISIN: ZAE000034435)
("MICROmega" or "the group")
ACQUISITION OF KOLBENCO (PROPRIETARY) LIMITED ("Kolbenco") AND WITHDRAWAL OF
CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
Further to the cautionary announcements published on 28 March 2008,
14 February 2008 and 11 January 2008, MICROmega shareholders are
advised that MICROmega has entered into an agreement with John
Newbury Investments (Proprietary) Limited ("Vendor") to acquire 90% of the
issued share capital of Kolbenco and its related businesses,
with effect from 1 March 2008, for a total consideration of R8
million as detailed in paragraph 4 ("the Acquisition") below.
2. NATURE OF BUSINESS OF KOLBENCO
Kolbenco was established in 1968 and is the largest manufacturer of
superior quality pistons in Africa, operating under license of KB
Kolbenschmidt GmbH who are leading international suppliers of
automotive pistons. Kolbenco utilises a combination of technology
supplied from international partners and in house product
development to facilitate the introduction of new types of pistons
into the market, pursuing the entrepreneurial objectives of growing
its markets. Kolbenco`s current manufacturing facility comprises
a 7 230m2 building with state of the art equipment. This includes
automatic and manual casting facilities, fully upgraded machine
lines, surface treatment and molydag coating plants, a fully
automated washing plant as well as a world class final inspection
facility. Kolbenco currently employs in the region of 350 people,
including many individuals with over 25 years experience.
3. RATIONALE FOR THE ACQUISITION
Kolbenco is a highly regarded tier one supplier to the original
equipment market ("OEM").
Our automotive division has to date focused at supplying product to
the parts and accessories, and aftermarket and consequently this
acquisition complements our strategy of diversification across all
market sectors. We have deliberately adopted a strategy of
diversification to ensure that the group`s earnings are shielded
against an event risk within a particular sector of the market or a
"change in shape" in either the domestic or global economy.
Kolbenco brings with it a reputation of being one of South Africa`s
highest quality automotive component manufacturers with 58% of its
annual production exported to Europe.
The financial effects of the acquisition (as noted below)
demonstrate that upon acquisition there is an immediate enhancement
of R14.6 million to 56 cents per share in attributable earnings.
This is a result of the negative goodwill (the difference between
the book value of assets acquired and the purchase price paid for
these assets) achieved on consolidation of this business into the
group. Further, on the effective date, there is an increase in net
asset value of R16.7 million to 214 cents per share and an increase
in tangible net asset value of R16.7 million to 153 cents per
share.
The decline in headline earnings per share is a result of the
business showing trading losses in 2007 of R2.1 million. These
losses were attributed to the investment program the company had
adopted some six years ago. We are confident that the impact cost
of the investment program was fully absorbed prior to our
acquisition, and we are further confident that we will earn
sustainable cash based earnings from Kolbenco in the current
financial year.
We are confident in Government`s continued commitment to the motor
industry development program ("MIDP") and this together with
prospects of significant domestic investment in the industry will
undoubtedly ensure sustainable growth not only in this business but in the
sector as a whole.
4. TERMS OF THE ACQUISITION
4.1 Acquisition, consideration and settlement terms
The acquisition consideration of R8 million will be settled
as follows:
4.1.1 First payment
- R5 million in cash will be paid to the Vendor of Kolbenco
on the closing date, which date shall be 3 (three) business
days after fulfilment of the conditions precedent referred
to in paragraph 5 below.
4.1.2 Second payment
- R1 million in cash will be paid to the Vendor of Kolbenco
on the anniversary date of the closing meeting provided
that the tangible net asset value as at the 30 September
2008 is not less than the tangible net asset value of the
company as per the financial statements on the effective
date of the agreement.
4.1.3 Third payment
- R1 million in cash will be paid to the Vendor of Kolbenco
on the anniversary date of the closing meeting provided
that the tangible net asset value as at the 31 September
2009 is not less than the tangible net asset value of the
company as at the 30 September 2008.
4.1.4 Forth payment
- R1 million in cash will be paid to the Vendor of Kolbenco
on the anniversary date of the closing meeting provided
that the tangible net asset value as at the 31 September
2010 is not less than the tangible net asset value of the
company as at the 30 September 2009.
5. CONDITIONS PRECEDENT
The implementation of the acquisition is subject to approval by the
board of MICROmega and the Competition Commissioner. We confirm that all other
conditions precedent have been fulfilled.
6. FINANCIAL EFFECTS OF THE ACQUISITION
The table below shows the per share effect of the acquisition of
Kolbenco for the year ended 31 December 2007. The pro forma
financial effects, which are the responsibility of the directors of
MICROmega, have been prepared for illustrative purposes only and,
because of their nature, may not fairly present MICROmega`s
financial position as at 31 December 2007, or the effect of future
earnings.
Notes Audited Pro forma Change
(%)
At At
31 December 31 December
2007 2007
After
Kolbenco
Acquisition
Earnings per share 3 41.45 56.40 36.07
(cents)
Headline earnings per
share (cents) 4 41.91 39.77 -5.11
Net asset value per
share (cents) 5 197.34 214.32 8.60
Net tangible asset 6 136.45 153.43
value per share (cents) 12.44
Weighted average number 7 97 464 97 464
of shares
Total number of shares 7 98 145 98 145
in issue
Notes:
1.The figures in the "Audited" column are extracted from the
published audited abridged results of MICROmega for the year
ended 31 December 2007.
2.The figures in the "After acquisition" column are adjusted
for the inclusion of the audited results of Kolbenco for
their last completed year ended 30 September 2007.
3.Earnings per share calculations in the "After acquisition"
column are based on the following assumptions:
-The acquisition was effective 1 January 2007
-The net loss after tax of Kolbenco for the year ended 31
December 2007 was (R2 090 639).
-The excess of the fair value of the assets of Kolbenco over
the acquisition price would be accounted for as negative
goodwill with immediate effect.
4.Headline earnings per share calculations in the "After
acquisition" column have been based on the following
assumptions:
-None of the earnings of Kolbenco are to be excluded for
Headline Earnings calculations except for negative
goodwill taken into account on Business Combinations.
5.The increase in net asset value is calculated on the
assumption that Kolbenco had a total net asset value of
R24 663 486 on 31 December 2007. A R3 000 000 liability
has been raised for future Vendor payments together with a
R5 000 000 cash reduction on the settlement date.
6.The increase in net asset value is calculated on the
assumption that Kolbenco had a total net asset value of
R24 663 486 on 31 December 2007. A R3 000 000 liability
has been raised for future Vendor payments together with a
R5 000 000 cash reduction on the settlement date.
7.The weighted average number of shares and the actual number
of shares in issue have not been changed as securities of the
company do not form part of the purchase consideration.
8. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Shareholders are referred to the cautionary announcements as detailed in
paragraph 1 above and are advised that as a result of the successful
negotiations to acquire Kolbenco, caution is no longer required to be exercised
by shareholders when dealing in the company`s securities.
Johannesburg, South Africa
08 April 2008
Sponsor: Investec Bank Limited
Date: 08/04/2008 17:31:01 Produced by the JSE SENS Department.
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