| Mon 21 Apr 2008, 7:06 | | ADR - Adcorp Holdings - Announcement To Shareholde |
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ADR
ADR
ADR - Adcorp Holdings - Announcement To Shareholders Of Adcorp Regarding The
Acquisition And Withdrawal Of Cautionary Announcement
Adcorp Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1974/001804/06)
Share Code: ADR & ISIN: ZAE000000139
("Adcorp" or "the group")
Announcement to shareholders of Adcorp regarding the acquisition of the
businesses of Staff U Need (Proprietary) Limited ("SUN") and Dithomo Labour
Services (Proprietary) Limited ("Dithomo") ("the acquisition") by Adcorp
Staffing Solutions (Proprietary) Limited, a subsidiary of Adcorp, and withdrawal
of cautionary announcement
1. Introduction
Further to the cautionary announcement of Adcorp published in the press on 4
April 2008, Investec Corporate Finance is authorised to announce that Adcorp
Staffing Solutions (Proprietary) Limited, a subsidiary of Adcorp, has entered
into an agreement with the current shareholders of SUN and Dithomo to acquire
the businesses of SUN and Dithomo as going concerns for an aggregate cash
consideration of R210 million. The cash consideration is split between a R200
000 000 (two hundred million Rand) purchase price payment to SUN and Dithomo and
a R10 000 000 (ten million Rand) payment to key employees of SUN and Dithomo by
way of retention bonuses and consideration for the acceptance of restraints.
2. SUN and Dithomo - nature of the businesses
SUN and Dithomo specialise in providing labour solutions to the metal and
engineering industries and have a specific focus in providing both skilled and
semi-skilled labour to the power generation industry including Eskom and certain
of its subsidiary companies involved in the maintenance and construction of
power stations.
SUN and Dithomo focus on providing the following skilled, semi-skilled and
unskilled staff:
- Engineers;
- Artisans;
- Manufacturing staff;
- Electrical semi-skilled and unskilled;
- Mechanical semi-skilled and unskilled; and
- Office support staff.
The business of SUN was started in 1995 by two entrepreneurs, Ben Visagie and
Michael Chapman. The business has grown from strength to strength and has a good
reputation for quality and service delivery.
3. Rationale for the acquisition
The acquisition of SUN and Dithomo further entrenches Adcorp`s position as the
leading provider of staffing solutions in the South African market and benefits
the group greatly given SUN`s particular niche industry and skills focus. SUN
and Dithomo will add specialised industry knowledge in a high growth environment
due to the acute need for additional power generation capacity as well as the
ongoing need for turbine maintenance. The acquisition will increase Adcorp`s
existing 65 000 contract employee workforce by an additional 3 200 contract
employees.
The key advantages that SUN has in the markets it serves and the areas of
attraction of the proposed acquisition for Adcorp are as follows:
- specialised industry knowledge in a high growth environment given the
acute
- need for additional power generation capacity as well as turbine
maintenance;
- a valuable database of qualified and tested artisans;
- the ability to source scarce skills internationally; and
- an on-site training capability in scarce skills.
4. Details of the acquisition
4.1 The shareholders of SUN
The shareholders of SUN together with their shareholdings are set out in the
table below:
Shareholder name Shareholding
(%)
B.C. Visagie 12.5
M.J. Chapman 12.5
Zondo Family Trust 27.5
Themba Family Trust 27.5
Dithomo Labour Services 20.0
Total 100.00
4.2 The shareholders of Dithomo
The Shareholders of Dithomo together with their shareholdings are set in
the table below:
Shareholder name Shareholding
(%)
N. Govender 50.0
G.M. Mthambama 50.0
Total 100.00
4.3 Effective date
The effective date of the transaction will be Tuesday, 1 July 2008.
4.4 Purchase consideration
4.4.1 Adcorp will acquire the assets and assume certain designated
liabilities of SUN and Dithomo for a cash consideration of R200
million; and
4.4.2 In addition to the cash consideration payable to SUN and Dithomo,
Adcorp will become obliged to pay up to R10 million to key employees
by way of retention bonuses and consideration for the acceptance of
restraints.
The total cash consideration will be discharged in cash to the amount
of R210 000 000 (two hundred and ten million rand) to be funded by
either a vendor placement of new Adcorp shares to third parties or by
the raising of debt or by a combination of the above.
4.4.3 Adjustments to the purchase consideration
The Purchase Price shall be reduced by an amount equal to:
4,5 (four comma five) times the amount by which EBITDA for the year
to:
- 30 June 2008 is less than R47,387,000.00 (forty seven million
three hundred and eighty seven thousand Rand) ; and/or
- 30 June 2009 is less than R51,240,000.00 (fifty one million two
hundred and forty thousand Rand); and/or
4,5 (four comma five) times the amount by which the Debtors of the SUN and
Dithomo businesses, net of provisions for bad debts, as reflected in:
- the effective date accounts should be uncollected in an amount in
excess of R1,000,000.00 (one million Rand) as at 31 October 2008;
and/or
- the audited financial statements for the Business as at 30 June 2009,
should be uncollected in an amount in excess of R1,000,000.00 (one
million Rand) as at 31 October 2009.
4.4.4 Settlement of the purchase consideration
The purchase price will be settled as follows:
- The payment of R120 000 000 (one hundred and twenty million Rand) once
all the suspensive conditions have been fulfilled, which will accrue
interest at the prime rate of interest from 1 July 2008 to the actual
date of payment;
- The payment of R10 000 000 (ten million Rand) to key employees by way
of retention bonuses and consideration for the acceptance of
restraints once all the suspensive conditions have been fulfilled,
- The payment of R50 000 000 (fifty million Rand) less any adjustment as
detailed in paragraph 4.4.3 above on the earlier of 31 October 2008
and the date when all outstanding Debtors per the effective date
accounts are collected;
- The payment of R30 000 000 (thirty million Rand) less any adjustment
as detailed in paragraph 4.4.3 on the earlier of 31 October 2009 and
the date when all outstanding Debtors per the audited financial
statements as at 30 June 2009 of SUN and Dithomo are collected.
4.5 Suspensive conditions
The acquisition is subject to the following suspensive conditions:
- a resolution by the shareholders of SUN and Dithomo in terms of
Section 228 of the Companies Act, approving the transaction;
- Adcorp being satisfied with its due diligence investigation into the
business and affairs of SUN and Dithomo;
- approval of the acquisition by the Competition Commission; and
- conclusion of employment agreements between Adcorp and the key
employees of SUN and Dithomo, including appropriate restraint
undertakings.
5. Financial effects on Adcorp shareholders
The unaudited pro forma financial effects of the acquisition are the
responsibility of the directors of Adcorp and are presented for
illustrative purposes only to provide information about how the acquisition
might have impacted on the financial position and results of Adcorp had the
acquisition occurred at an earlier date.
These pro forma financial effects are based on Adcorp`s published
interim results for the eight months to 31 August 2007 and adjusted
for the acquisition of SUN and Dithomo
Before After Percentage
(cents) (1,3) (cents) change
(2,4,5,6,7)
Per Adcorp share
Earnings 127.1 133.6 5.1%
Core headline earnings 190.7 204.8 7.4%
Headline earnings 65.0 75.0 15.4%
Diluted earnings 124.9 131.5 5.3%
Diluted core headline 187.5 201.6 7.5%
earnings
Diluted headline earnings 63.9 73.9 15.6%
Net asset value 1,227.6 1,328.5 8.2%
Tangible net asset value 8 46.0 -124.0 -369.6%
Number of shares in issue 50,795 53,712 5.7%
(`000)
Weighted average number of 49,076 51,993 5.9%
shares (`000)
Diluted weighted average 49,911 52,828 5.8%
number of shares (`000)
Notes:
1. The earnings, headline earnings, core headline earnings, diluted earnings,
diluted core headline earnings and diluted headline earnings per share, as
set out in the Before column, are based on the published interim results of
Adcorp for the eight months ended 31 August 2007.
2. The earnings, headline earnings, core headline earnings, diluted earnings,
diluted core headline earnings and diluted headline earnings per share, as
set out in the After column, are based on the interim results of Adcorp for
the eight months ended 31 August 2007, and the six month results for SUN
and Dithomo based on the management accounts to 31 December 2007. These
results have been adjusted pro rata for eight months by dividing by six and
multiplying by eight. Interest on the portion of the purchase consideration
funded by debt, and amortisation of intangibles recognised on acquisition,
based on an expected useful life of five years, are taken into account for
the eight months. It is assumed that the payment of R10 million to key
employees by way of retention bonuses has been amortised in the income
statement over two years.
3. The net asset value and tangible net asset value per share, as set out in
the Before column, are based on the latest published financial information
of Adcorp, being the interim balance sheet as at 31 August 2007.
4. The net asset value and tangible net asset value per share, as set out in
the After column, is based on the latest published interim balance sheet of
Adcorp as at 31 August 2007 and the take-on balance sheet of SUN and
Dithomo as specified in the signed sale of business agreement, and the
following assumptions:
4.1. the purchase consideration of R200 million and the R10 million
payment to key employees is funded by debt to an amount of R120
million and by Adcorp issuing new shares to the value of R90 million;
4.2. the number of new shares issued is based on an Adcorp 30 day
volume weighted average price as at 17 April 2008.
5. It is assumed that the acquisition became effective at the beginning of the
eight month period for income statement purposes and on the last day of the
period for balance sheet purposes.
6. An interest rate of 15% (prime) was assumed on the debt raised to fund the
transaction.
7. For this calculation, the purchase consideration has been considered in
terms of the requirements of IFRS 3. Based on management`s best estimate at
this stage, the excess of the cash payment to shareholders over the net
asset value of R180 million has been allocated to intangible assets to the
value of R60 million with the balance of R120 million being recognised as
Goodwill. The allocation of the purchase consideration to tangible and
intangible assets, liabilities and goodwill is a process requiring a
detailed identification and valuation exercise. This will be completed once
the acquisition process is finalised. If this results in the allocation
being materially different to management`s estimates, shareholders will be
advised thereof.
8. The nature of staffing businesses is that they have low tangible net asset
values. As a result, the proportion of intangibles and goodwill acquired on
an acquisition of a staffing business is a significant component of the
purchase consideration.
6. Categorisation
This is a category two transaction per the categorisation rules contained
in the JSE Listing Requirements.
7. Withdrawal of cautionary announcement
Shareholders are referred to the cautionary announcement dated 4 April 2008
and are advised that as a result of the conclusion of the agreements
between Adcorp and the shareholders to acquire the businesses of SUN and
Dithomo, caution is no longer required to be exercised by shareholders when
dealing in their securities.
Bryanston
21 April 2008
Investment Attorneys to Attorneys to Joint Corporate Advisor
Bank, Lead Adcorp SUN and to Adcorp
Corporate Dithomo
Advisor and
Transaction
Sponsor to
Adcorp
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Date: 21/04/2008 07:06:04 Produced by the JSE SENS Department.
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