| Thu 18 Sep 2008, 8:10 | | OLI - O-line Holdings - Acquisition by O-Line of the business and loan accounts |
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OLI
OLI
OLI - O-line Holdings - Acquisition by O-Line of the business and loan accounts
of The Armco Galvanising, Construction, Road Safety and Nameplates Businesses
O-line Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 2006/034685/06)
JSE share code: OLI
ISIN Number: ZAE000110730
("O-line")
Acquisition by O-line of the business and loan accounts of the ARMCO
galvanising, construction, road safety and nameplates businesses
1. Introduction
Further to the Cautionary Announcements published on 29 May, 8 July and 19
August 2008, O-line Support Systems (Proprietary) Limited ("O-line Support
Systems"), a wholly owned subsidiary of O-line, has entered into the following
agreements:
1.1 to acquire the galvanizing and construction products businesses conducted
by ARMCO including the ARMCO Superlite name and brand from Steelwood Africa
(Proprietary) Limited ("Steelwood"), specific assets, specific liabilities,
the contracts and intellectual property of the ARMCO business, as a going
concern ("the ARMCO Business");
1.2 to acquire immovable property used by the ARMCO Business, together with all
permanent improvements thereon, situated at 131 Anvil Road, Isando ("the
Property"), as a going concern from Steelwood; and
1.3 to acquire the entire ARMCO road safety products business from Steelwood
Industrial Holdings (Proprietary) Limited ("SIH"), including assets,
liabilities, the contracts and intellectual property as a going concern
("the ARMCO RSP Business") accompanied by the Name Plates business
purchased by SIH with effect from 1 July 2008, as a going concern ("the
ARMCO NPS Business") (collectively "the ARMCO RSP and NPS Businesses");
The ARMCO Business, the Property, the ARMCO RSP and NPS Businesses collectively
comprise the entire business of the ARMCO Group and are collectively referred to
as the ARMCO Acquisition.
2. Effective dates
All the risks and rewards of the ARMCO Business, the Property and the ARMCO RSP
Business are transferred to O-line with effect from 1 June 2008 and the ARMCO
NPS Business with effect from 1 July 2008 ("Effective Dates"). The fulfilment
date of the ARMCO Acquisition is the first business day succeeding the date upon
which the last of the conditions precedent set out in paragraph 5 below have
been fulfilled ("Fulfilment Date").
3. ARMCO products and operations
ARMCO`s products can be broadly categorized into three separate business units,
ARMCO Construction Products, Road Safety Products and Galvanizing.
3.1 ARMCO Construction Products Division
The ARMCO Construction Products Divisions produces a range of corrugated
steel products which are used in various applications, including, culverts,
stream enclosures, service ducts, bridges and water tanks. The ARMCO
Construction Products Divisions mainly services the mining and road
construction industries and its major clients are local and international
mining houses and consulting engineers.
The application of the products in the mining sector is perfectly suited to
be utilised as stockpile tunnels, haul road crossings, conveyor crossings
and drainage culverts for access roads. Besides the mining sector, the
products are also extensively used in the construction of roads with the
core application being storm water drainage (culverts).
80% of the ARMCO Construction Products Division`s turnover is derived from
exports to other African countries. This market is expected to grow
exponentially over the coming years as mining and road infrastructure spend
in the African continent continues to grow. The ARMCO Construction
Products Division currently sells into numerous African countries including
the Democratic Republic of Congo, Angola, Madagascar, Zambia, Malawi,
Mozambique, Ghana and Botswana.
3.2. ARMCO Galvanizing Division
The ARMCO Galvanizing Division consists of two plants situated in Isando
(13 meter bath) an Dunswart (5.2 and 3.0 meter baths). The ARMCO
Galvanizing Division is one of the largest in South Africa and services the
fabricators, mining, mast and towers, piping and lighting industries. The
local and international galvanizing industry is expected to be extremely
active for the next seven years due to infrastructure spend by the mining
industry, petrochemical industry, power stations and telecommunications.
3.3 ARMCO Road Safety Division and Name
The ARMCO RSP Business comprises of the ARMCO Road Safety Division which
produces a range of products which include guardrails, wire rope safety
barriers, road cones, speed ramps and bases. Major clients are SANRAL,
major contractors, municipalities, shopping centres and road marking
companies. ARMCO RSP is the official representative of Quixote (USA), Blue
System (Sweden) and Highway Care (UK). All of the products supplied by
ARMCO RSP conform to international standards.
The ARMCO NPS Business is a signage business which complements the ARMCO RSP
Business and the ARMCO Business providing products to the roads, mining,
petrochemical and all construction related industries.
All the ARMCO Road Safety Division products supplied for use by the ARMCO RSP
Business conform to international standards, namely, CEN1317 or NCHRP350.
Approximately R70 billion has been put aside by the South African Government for
the maintenance and upgrading of the road infrastructure over the next three
years. A further R3 billion has been allocated for the Expanded Public Works
Program for access roads. The Department, through SANRAL, has invested about R55
billion into the Gauteng Freeway Improvement Scheme. This investment is divided
into three phases, of which the first phase, costing about R12 billion, is due
to be completed in 2010.
4. Rationale
The combination of the O-line and the ARMCO Group Businesses creates a group
with combined forecast revenue for the year ending 30 June 2009 of approximately
R500 million with average profit after taxation margins in excess of 10%. The
consolidation of the respective businesses of the ARMCO Group and O-line ("the
New Group") will maximise the economic benefits of selling a bigger basket of
goods, rationalising the production processes and thereby increase shareholder
value.
Expected benefits include:
4.1 utilising O-line`s and ARMCO`s strategic relationships with local and
global mining, construction and engineering houses in order to offer
package deals to larger blue chip companies consisting of both galvanized
structural steel and cable racking accompanied with mechanical support
steel. This will result in increased revenue and profit margins for the New
Group and strengthen the New Group`s competitive position in the local and
international market;
4.2 combining the established marketing and selling networks of the Armco Group
and O-line thereby enhancing their local and international footprint;
4.3 combining the expertise and capabilities of the Armco Group and O-line
resulting in the development and rollout of numerous new products;
4.4 combining the two entities` buying power;
4.5 utilising O-line`s new premises in Maputo to promote the ARMCO RSP Business
and make its products more readily available in other African countries;
4.6 maximising the benefits of O-line`s welding lines by installing the
equipment closer to the galvanising plant thereby increasing manufacturing
capabilities and efficiencies; and
4.7 maximising logistical savings, utilise space more efficiently and maximise
transport cost savings and savings from a straight line manufacturing
process in line with international trends.
5. Purchase consideration
5.1 The ARMCO Business
The purchase consideration in respect of the ARMCO Business comprises an
aggregate amount of R110 522 550 plus interest from 1 August 2008 to 14
August 2008 in an amount of R250 000 ("the ARMCO Business Purchase
Consideration").
Steelwood shall on or before 31 December 2008, reimburse O-line in an
amount of R1 385 690 together with interest thereon, calculated at the
prime rate from 1 November 2008 to the date of payment, in respect of
moneys received in advance by Steelwood in relation to the ARMCO Business
and in respect of which steel has not been purchased by Steelwood as at 31
May 2008.
The ARMCO Business Purchase Consideration will be settled as follows:
- R40.25 million, in cash, on or before 4 September 2008 ("the Signature
Date");
- R33.02 million, in cash, on the Fulfilment Date;
- R11.58 million on the Fulfilment Date to be settled by O-line
delivering to the Seller four renounceable letters of allocation
collectively pertaining to 11 583 750 ordinary shares in the issued
share capital of O-line at R1 per share ("O-line Shares"); and
- R25.92 million on the Fulfilment Date to be settled by O-line
delivering to the Seller one renounceable letter of allocation
pertaining to 25 916 250 O-line shares.
In the event of late payment of the ARMCO Business Purchase Consideration, O-
line will be liable to pay interest to the Seller at the prime rate plus 2%.
5.2 The Property
The purchase price in terms of the Property is an amount of R14 477 450 to
be paid to Steelwood on the date of registration of transfer of the
Property into the name of O-line Support Systems.
5.3 The ARMCO RSP and NPS Businesses
The purchase consideration in respect of the ARMCO RSP and NPS Businesses
amounts to R16.7 million plus interest on an amount of R2.2 million at the
prime rate from the date of payment by Steelwood of this amount to the
Thathe Trust and the Barbarians Trust (in relation to the acquisition by
Steelwood of these two trusts shares in SIH), to the date of payment of
this amount by O-line to Steelwood ("the ARMCO RSP and NPS Businesses
Purchase Consideration").
The ARMCO RSP and NPS Businesses Purchase Consideration will be settled as
follows:
- An amount of R14 796 000 shall be paid by O-line to SIH in four equal
six-monthly instalments, payable on 6 January 2009, 1 July 2009, 5
January 2010 and 1 July 2010. The outstanding balance in respect of
this amount shall accrue interest at the prime rate less 2% until the
full balance has been settled, which interest shall be payable
together with the payment to be made on 1 July 2010; and
- An amount of R2.2 million (together with the interest referred to
above) shall be paid by O-line to SIH on or before 31 December 2008.
(The payments to be made on 31 December 2008, 6 January 2009, 1 July
2009, 5 January 2010 and 1 July 2010 are collectively referred to as
the "Deferred Purchase Consideration").
6. Conditions precedent to the ARMCO Acquisition
The ARMCO Acquisition is subject to, inter alia, the fulfilment of the
following conditions precedent:
- obtaining all regulatory consents and approvals with regards to the
ARMCO Acquisition on or before 1 December 2008, including but not
limited to, the Competition Authorities and the JSE Limited ("JSE");
- O-line obtaining the necessary bank funding or raising the required
equity to finance the ARMCO Acquisition; and
- O-line shareholders approving the ARMCO Acquisition in general meeting
and all special resolutions required to implement the ARMCO
Acquisition be registered where required on or before 1 December 2008.
7. Financial effects
The table below sets out the unaudited pro forma financial effects of the ARMCO
Acquisition on O-line. The unaudited pro forma financial effects are presented
for illustrative purposes only and because of their nature may not give a fair
reflection of O-line`s financial position or results of operations after the
ARMCO Acquisition has been implemented. It has been assumed for purposes of the
unaudited pro forma financial effects that the ARMCO Acquisition took place with
effect from 1 July 2007 for income statement purposes and on 30 June 2008 for
balance sheet purposes. The unaudited pro forma financial effects are the
responsibility of the directors of O-line.
Date: 18/09/2008 08:10:01 Produced by the JSE SENS Department.
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