| Mon 22 Sep 2008, 16:10 | | ESR - ESOR - Acquisition of Patula Construction (Proprietary) Limited ("Patula") |
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ESR
ESR
ESR - ESOR - Acquisition of Patula Construction (Proprietary) Limited ("Patula")
and further cautionary announcement
ESOR LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1994/000732/06)
JSE code: ESR ISIN: ZAE000078408
("Esor" or "the company")
ACQUISITION OF PATULA CONSTRUCTION (PROPRIETARY) LIMITED ("PATULA") AND FURTHER
CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
Shareholders are referred to the cautionary announcements dated 9 July 2008
and 20 August 2008 and are advised that Esor entered into agreements on 19
September 2008 to acquire the entire issued share capital of and
shareholders claims in Patula, the minority interests in Patula Plant
(Proprietary) Limited, (a subsidiary of Patula) and the entire issued share
capital of Brookmay Properties (Proprietary) Limited ("Brookmay")
(collectively "the Patula Group") from Andrew Charles Brookstein,
Malemadutje Briss Mathabathe, Richard Maynard and Mark Gavin Rippon ("the
Patula vendors") (either "the Patula acquisition" or "the Patula
transaction").
2. BACKGROUND INFORMATION TO THE PATULA GROUP
Patula was founded in 1997 by Andrew Brookstein, initially to service
mining contracts and later to also service all civil engineering type
contracts. Over the last seven years, Patula has operated as a civil
engineering construction company.
Patula has completed construction projects in:
- Road building;
- Bridge building;
- Township infrastructure work;
- Water reticulation schemes;
- Sewer reticulation;
- Structural work in mining infrastructure; and
- Bulk earthmoving.
Patula has a 9 Civil Engineering ("CE") certificate of contractor
registration granted by the Construction Industry Development Board (the
highest possible grading), thereby qualifying it to tender for very large
construction projects.
3. RATIONALE FOR THE TRANSACTION
3.1 Esor is the largest specialist geotechnical and civil engineering
contractor in South Africa and the only one-stop geotechnical
provider. Esor provides the mining, civil engineering and
construction industries with pipe-jacking, piling, soil improvements,
dynamic compaction, marine services and lateral support services
needed to construct the sub-surface foundations for all major non-
residential buildings, mines, infrastructure and marine construction
projects. Esor also offers field investigation, design and testing
capabilities.
3.2 Patula is a civil engineering company that focuses on road building,
mining infrastructure work, township infrastructure work and concrete
projects for Government, mining houses and the private sector.
The Patula acquisition will contribute towards Esor increasing its
participation in the overall large infrastructural spend anticipated by
Government and the private sector.
Furthermore:
- the Patula acquisition will expand Esor`s product and service
offerings, diversify revenue streams and add critical mass to Esor;
- Patula is an established profitable operation with a presence and
track record and can operate as a stand-alone and self-sufficient
business unit; and
- Patula has experienced management with a track record, who will bring
further depth and diversity of management to the Esor group and who
will also become Esor shareholders.
4. PURCHASE CONSIDERATION
Subject to the provisions set out below, the purchase consideration payable
by Esor in terms of the Patula transaction is the aggregate of:
4.1 An initial amount ("initial payment") of R233.55 million; and
4.2 R6.45 million for the acquisition of Brookmay, the property company;
4.3 A final maximum payment ("final payment") of R190 million determined
as follows:
- If the Patula Group`s headline earnings for the year ending 28
February 2009 ("2009 headline earnings") are less than R62.3
million, then no further payment will be made;
- If the Patula Group`s 2009 headline earnings exceed R62.3
million, the final payment will be an amount equal to R4.18 for
every R1.00 by which the 2009 headline earnings shall exceed the
sum of R62.3 million, provided that such final payment shall not
exceed R190 million.
5. PAYMENT OF PURCHASE CONSIDERATION
5.1 The purchase consideration as set out above will be discharged in the
following manner:
5.1.1 40% of the initial payment and the amount payable in terms
of 4.1 and 4.2. will be discharged on the closing date (as
described in 6 below) by the issue and allotment by Esor to
the Patula vendors of Esor ordinary shares at an issue price
of R6.00 per ordinary share;
5.1.2 the balance of the initial payment and the amount payable in
terms of 4.1 and 4.2. will be payable in cash, which cash
payment will be financed through borrowings, on the closing
date;
5.1.3 40% of the final payment will be discharged on the later of
1 September 2009 or the date upon which the 2009 headline
earnings are finally determined, by the issue and allotment
by Esor to the Patula vendors of Esor ordinary shares at an
issue price equal to the higher of R6.00 per ordinary share
or the 30 day volume weighted average price per ordinary
share on the date preceding the date upon which the 2009
headline earnings are finally determined;
5.1.4 the balance of the final payment will be payable in cash at
the same time as the issue of the ordinary shares in terms
of 5.1.3.
5.2 Restrictions on the disposal of the ordinary shares to be issued to
the Patula vendors
None of the Patula vendors shall be entitled to sell:
- more than 50% of the Esor ordinary shares issued to them in terms
of 5.1.1. prior to the first anniversary of the effective date;
- more than 75% of the Esor ordinary shares issued to them in terms
of 5.1.1. prior to the second anniversary of the effective date.
Similar restrictions will apply to the shares to be issued to the
Patula vendors in terms of 5.1.3.
5.3 Pre-emptive rights in favour of Esor
Subject to the restrictions in 5.2 and the JSE Limited ("JSE")
Listings Requirements, should any of the Patula vendors wish to sell
their Esor ordinary shares, they shall be obliged to first offer such
shares to Esor. Esor shall be entitled to cede its rights in terms of
the pre-emptive.
6. EFFECTIVE DATE AND CLOSING DATE
The Patula transaction will become effective on the first day of the month
following the month in which all of the conditions precedent (as set out in
7) have been fulfilled or waived. The closing date of the transaction will
be the later of 21 business days after the effective date or the 5th
business day after the date upon which the effective date net tangible
asset value ("NTAV") and effective date headline earnings have been finally
determined.
7. CONDITIONS PRECEDENT
The Patula acquisition is conditional, inter alia, upon:-
7.1 all necessary regulatory approvals being obtained, including approval
in terms of the Competition Act 89 of 1998;
7.2 Patula`s bankers to confirm that their existing banking facilities
shall continue in existence following the implementation of the Patula
transaction;
7.3 the effective date NTAV being not less than R48.5 million plus the
effective date headline earnings (with the effective date headline
earnings being not less than R8 million multiplied by the number of
months leading up to the effective date);
7.4 the unconditional written consent being obtained, to the extent
required, from other parties with regard to material contracts; and
7.5 a shareholders` agreement being entered into between Patula other
shareholders governing their relationship as shareholders of Balekane
Construction (Pty) Limited, in which Patula currently owns 50% of the
issued share capital.
8. OTHER MATTERS
8.1 Warranties and indemnities as are normal in transactions of this
nature have been provided for in respect of the aforementioned
agreements.
8.2 Key employees of the Patula Group have entered into standard service
agreements.
8.3 All the Patula vendors, with the exception of Briss Mathabathe, have
entered into restraint of trade agreements in favour of Patula.
8.4 To ensure the retention of second tier management, Esor will make 3
500 000 Esor share options available to certain Patula employees in
terms of the Esor Share Incentive Scheme.
8.5 Esor has successfully completed a due diligence review on the Patula
Group.
9. APPOINTMENT TO THE ESOR BOARD
Once the Patula transaction becomes unconditional, Mr Briss Mathabathe will
be appointed as a non-executive director to the Esor board.
10. FINANCIAL EFFECTS
The financial effects of the Patula transaction are in the process of being
finalised and will be released on or before 29 September 2008.
11. CLASSIFICATION OF THE TRANSACTION
The transaction is classified as a Category 2 transaction in terms of the
JSE Listings Requirements.
12. FURTHER CAUTIONARY ANNOUNCEMENT
Shareholders are advised that negotiations unrelated to the above
announcement are still in progress, which, if successfully concluded, may
have a material effect on the price of the company`s securities.
Shareholders are therefore advised to continue exercising caution in
dealing in the company`s securities on the JSE until such time as both the
financial effects of the Patula transaction and the results of the
aforementioned negotiations are announced.
Johannesburg
22 September 2008
Designated Adviser
Exchange Sponsors
Transaction Adviser
Vunani Corporate Finance
Legal Advisers to Esor
Fluxmans Inc.
Competition Law Advisers
Brink Cohen Le Roux Inc.
Date: 22/09/2008 16:10:01 Produced by the JSE SENS Department.
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