| Thu 24 Apr 2008, 14:01 | | MML - Metmar Limited - Proposed Acquisition By Met |
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MML
MML
MML - Metmar Limited - Proposed Acquisition By Metmar Of The Businesses
Conducted By West African International (Proprietary) Limited And West African
Ventures (Proprietary) Limited
Metmar Limited
Incorporated in the Republic of South Africa
Registration number: 1998/007269/06
Share code: MML
ISIN code: ZAE000078747
("Metmar" or "the company")
Proposed acquisition by Metmar of the businesses conducted by West African
International (Proprietary) Limited and West African Ventures (Proprietary)
Limited
1. Introduction
Further to the Cautionary Announcements published on 15 February and 3
April 2008, Metmar has entered into an agreement with West African
International (Proprietary) Limited ("WAI") and West African Ventures
(Proprietary) Limited ("WAV") (collectively "the Sellers") to acquire
specific current and non-current assets as well as specific current
liabilities and certain of the contracts and intellectual property used by
the Sellers to conduct their businesses, as going concerns (collectively
"the Acquisition") on 1 May 2008 ("the Effective Date").
The fulfilment date of the Acquisition is the date upon which the last of
the conditions precedent set out in paragraph 6 below have been fulfilled
("Fulfilment Date").
2. Nature of the Acquisition
WAI and WAV are South African companies. WAI supplies the South African
market with a range of virgin polymers and chemicals which it imports from
primary offshore manufacturers and suppliers.
WAV is principally involved in the marketing of natural and synthetic
rubber in South Africa and the Southern African region. The natural rubber
is imported from Africa and the Far East and synthetic rubber from the
Middle East and Europe.
3. Rationale
The trading of plastics and chemicals is a large component of Metmar`s
current activities. The proposed Acquisition expands these trading
activities and provides the company with the opportunity to realise
synergistic benefits.
4. Purchase consideration
The interest free purchase consideration of R80 million is payable as
follows:
- R25 million on the later of 30 June 2008 or fifteen days after the
Fulfilment Date ("Initial Payment"). R5 million of this sum is to be
held in escrow and will become payable on 30 June 2011 provided all of
the obligations of the Sellers have been fully met;
- R25 million on or before 30 June 2009;
- R25 million on or before 30 June 2010;
- R5 million on or before 30 June 2011.
For each payment the Sellers can elect to be paid in Metmar ordinary shares
in lieu of cash or a combination of Metmar shares and cash. The first
election shall be made on or before 30 April 2008 in respect of the Initial
Payment, the value of these shares shall be calculated using the volume
weighted average price ("VWAP") of the Metmar shares for the 90 days prior
to 30 April 2008. The elections in respect of the subsequent payments shall
be calculated using the VWAP of the Metmar shares for the 90 day period
prior to 30 March of each of the respective payment periods. The purchase
consideration is subject to the profit warranty detailed below.
An additional amount, equal to the net value of the trade and other
receivables, inventory and property, plant and equipment less trade and
other payables being acquired at the Effective Date, will be paid to the
Sellers in equal instalments over the three months, commencing 15 days
after the Fulfilment Date.
5. Profit warranty
The Sellers have warranted that the net profit after taxation of the
Acquisition, calculated in terms of International Financial Reporting
Standards ("IFRS"), for each of the financial years ending 28 February 2009
(a ten month period), 2010 and 2011 will not be less than R16 million ("the
warranted earnings").
Should the Sellers not reach the profit forecast in the first year they
shall be paid the proportionately reduced purchase price but may claw back
the amount lost if they exceed their profits in the second or third year.
Should the Sellers not reach their profit forecasts in the second year they
shall be paid the proportionately reduced purchase price but may claw back
the amount lost in the third year.
In the event that the warranted earnings are exceeded, there will be no
increase in the purchase consideration.
6. Conditions precedent to the offer
The proposed Acquisition is subject to, inter alia, the fulfilment of the
following conditions precedent:
- obtaining the approval of the Competition Authorities; and
- the necessary consents and approvals from the South African Reserve
Bank.
7. Financial effects
The unaudited pro forma financial effects of the proposed Acquisition on
Metmar shareholders are set out below and are based on the following
assumptions:
- the proposed Acquisition took place with effect from 1 March 2007 for
income statement purposes and 31 August 2007 for balance sheet
purposes;
- the total consideration (including the deferred portion) being paid in
cash creating a long-term liability of R43.6 million at 31 August
2007. The pro forma balance sheet has been prepared at 31 August 2007
and, therefore, it does not take cognisance of the net income after
taxation of WAV and WAI. Shareholders attention is drawn to the fact
that although a liability for R43.6 million has been raised, the
deferred purchase consideration of R55.0 million is subject to profit
warranties, as detailed in paragraph 5 above. The working capital
requirements for WAV and WAI are minimal and, therefore, the R16.0
million contribution to the net income after taxation of the Metmar
group by WAV and WAI for the 2009, 2010 and 2011 financial years will
be available as cash and will be used to settle the deferred portion
of the purchase consideration; and
- the estimated transaction costs being expensed;
The table below sets out the unaudited pro forma financial effects of
the proposed Acquisition on Metmar. The unaudited pro forma financial
effects are presented for illustrative purposes only and because of
their nature may not give a fair reflection of Metmar`s financial
position or results of operations after the proposed Acquisition has
been implemented. The unaudited pro forma financial effects are the
responsibility of the directors of Metmar. Shareholders are further
advised that Metmar is expecting to achieve synergistic benefits in
respect of the acquisition which have not been included in the pro
forma financial effects calculations below.
Before 1 After % Change
Published Pro forma
Basic Earnings per share 18.1 19.6 2 8.28
(cents)
Headline earnings per 18.2 19.7 2 8.22
share (cents)
Headline earnings per
share excluding IFRS 18.2 20.9 3 14.8
charges
Net asset value per share 76.85 76.85 4 -
(cents)
Tangible net asset value 73.51 36.48 4 (50.37)
per share (cents)
Number of shares in issue 185 362 185 362 -
(000`s)
Weighted average number of 182 029 182 029 -
shares in issue (000`s)
Notes:
1. The "Before" financial information has been extracted without adjustment
from the published interim results of Metmar for the six months ended 31
August 2007.
2. Earnings and headline earnings per share have been adjusted to include the
following:
a) income and expenditure relating to WAI and WAV, extracted from the
audited financial statements for the year ended 30 June 2007, pro-
rated for six months. The combined after taxation profit of WAI and
WAV for the six-month period was R5.7 million;
b) interest charged in unwinding the deferred purchase consideration
amounting to R2.2 million (net of taxation and assuming a purchase
price based on the historical earnings);
c) Reduction in interest received as a result of the payment of the
initial purchase consideration of R25 million amounting to R0.7
million (net of taxation); and
d) Transaction costs amounting to R0.5 million (net of taxation).
3. Headline earnings per share excluding the IFRS adjustments referred to
under 2 (b) above amounting to R2.2 million.
4. The net asset and net tangible asset values per share have been adjusted to
include the following:
a) the tangible assets and liabilities of WAI and WAV acquired at fair
value;
b) the initial and deferred purchase considerations at fair value
amounting to R25.0 million and R43.6 million respectively;
c) short-term liability in respect of the amount owed by Metmar to the
Sellers in respect of the net of the current and non-current assets
less the current liabilities acquired amounting to R41.4 million; and
d) the estimated goodwill arising amounting to R68.6 million. The
allocation of the purchase price in terms of IFRS 3: Business
Combinations will be undertaken by Metmar within the next 12 months
and may result in the amount allocated to goodwill, in terms of these
pro forma financial effects, being split between goodwill and
intangible assets if any are identified. This will result in an
increase in intangible assets which will be amortised over their
estimated useful lives.
8. JSE requirements
The proposed Acquisition is classified as a Category 2 transaction in terms
of the JSE Listings Requirements and, accordingly, no further documentation
or shareholder approval is required for implementation of the proposed
transaction.
9. Withdrawal of cautionary announcements
Shareholders are advised that caution is no longer required when dealing in
the shares issued by Metmar.
Bryanston
24 April 2008
Sponsor
QuestCo Sponsors (Pty) Ltd
Date: 24/04/2008 14:01:01 Produced by the JSE SENS Department.
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