| Mon 29 Sep 2008, 8:00 | | SAP - Sappi Limited - Proposed acquisition by sappi of m-real corporation`s |
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SAP
SAVVI
SAP - Sappi Limited - Proposed acquisition by sappi of m-real corporation`s
("m-real") coated graphic paper business
Sappi Limited
(Reg No 1936/008963/06)
(Incorporated in the Republic of South Africa)
JSE Share Code : SAP
ISIN Code : ZAE000006284
("Sappi")
This document is not an offer of securities for sale in
the United States. Securities may not be offered or sold
in the United States absent registration with the United
States Securities and Exchange Commission or an exemption
from registration. There will be no public offering of
any securities in the United States. This document is not
for distribution in the United States, Japan, Australia
or Canada.
PROPOSED ACQUISITION BY SAPPI OF M-REAL CORPORATION`S ("M-real") COATED GRAPHIC
PAPER BUSINESS
Introduction
Sappi, a leading producer of coated fine paper and chemical cellulose, hereby
announces that it has entered into an agreement to acquire the coated graphic
paper business of M-real (the "Acquisition"), as outlined in section 2, for Euro
750 million (US$ 1,1 billion; R 8,9 billion) (the "Purchase Consideration"). The
Acquisition will be financed through a combination of equity, assumed debt, the
cash proceeds from a rights offering and a vendor note.
M-real has announced plans to discontinue the production of coated woodfree
paper at its Hallein and Gohrsmuhle mills, located in Austria and Germany
respectively (approximately 0.6 million tons of capacity per annum).
Description of acquisition
Sappi is acquiring the know-how, brands, order books, customer lists,
intellectual property and goodwill of the coated graphic paper business (other
than in respect of M-real`s South African business) of M-real, a Finnish-
domiciled company listed on the OMX Nordic Exchange, Helsinki and a leading
producer of paperboard and paper. The business is Europe`s third and fourth
largest coated woodfree and coated magazine paper producer respectively and in
2007 it generated revenues of Euro 1,333 million. The Acquisition also includes
the purchase of the following assets:
Four graphic paper mills with a total production capacity of 1,9 million tons
per annum, namely:
the Kirkniemi Mill in Finland which has an annual paper capacity of 740,000
tons;
the Kangas Mill in Finland which has an annual paper capacity of 210,000 tons;
the Stockstadt Mill in Germany which has an annual paper capacity of 420,000
tons, via the acquisition of 100% of the share capital of M-real Stockstadt
GmbH; and
the Biberist Mill in Switzerland which has an annual paper capacity of 505,000
tons, via the acquisition of 100% of the share capital of M-real Biberist AG.
All of the shares in CN Papiervertriebs GmbH in Germany.
(together the "Acquisition Assets")
As part of the Acquisition, Sappi has also entered into the following
arrangements:
i. Long term supply agreements for pulp and other services with M-real and a
long term wood supply agreement with MetsAliitto.
ii. Transitional supply agreements with M-real for the output of Husum Mill
PM8, located in Sweden, and AAnekoski Mill PM2, located in Finland, which will
both remain under M-real`s ownership.
Transaction rationale
The Acquisition meets Sappi`s strategic and financial criteria for acquisitions
as it enhances Sappi`s global presence, provides an opportunity to increase
Sappi`s customer base, improves Sappi`s strategic flexibility in regards to
capacity utilization, increases the range of products offered and provides
anticipated growth and cost synergies. Sappi also expects benefits from
increased profitability and returns and improved cash flows for the group.
The Acquisition allows Sappi to strengthen its competitive position in the
coated graphic paper industry in Europe and globally. The Acquisition has been
identified as a good fit with the Sappi coated graphic paper business. Sappi`s
European production capacity is expected to increase from 2.6 million tons per
annum to 4.5 million tons per annum. The Acquisition Assets will enhance Sappi`s
position in the market by expanding its geographical footprint in Europe to
include Finland and Switzerland. Through this acquisition Sappi would
significantly increase its exposure to coated magazine paper and as a result the
combined group would be the largest coated fine paper company in Europe with
strong positions in both coated woodfree and coated magazine grades.
In addition, the Acquisition adds to Sappi`s product range a number of well
known brands which will complement Sappi`s existing products and provide access
to an enlarged customer base.
Furthermore, the integration of the Acquisition with the existing Sappi
operations is expected to strengthen the profitability of Sappi`s European
operations through increased coated graphic paper production, benefiting from
the economies of scale and the ability to optimise production and maximize
capacity utilisation. Other expected annual synergies coming from distribution,
the integration of sales and administration, and the rationalization of
manufacturing across the Sappi group will further enhance the performance of
Sappi`s European business.
Sappi estimates total annual synergies of approximately Euro 120 million from
the Acquisition which should be realisable in full within three years and
without material capital investments. This synergy estimate is not a profit
forecast or a profit estimate and should not be treated as such nor relied on by
shareholders or prospective investors to calculate the likely level of profits
or losses for Sappi for the financial year ended 30 September 2008 or beyond.
This synergy estimate has not been included in the pro forma financial effects
referred to in section 6 below. The reporting of the synergy estimate complies
with the accounting policies of Sappi.
Purchase consideration
The proposed Purchase Consideration for the Acquisition is based on the cash and
debt free enterprise value of the Acquisition Assets of Euro 750 million. The
Purchase Consideration will be adjusted by the deduction of net debt and an
adjustment for the difference between the target working capital and the actual
working capital at closing. The Purchase Consideration will consist of Euro 50
million of newly issued ordinary Sappi shares (the "Settlement Shares"), assumed
debt of at least Euro 50 million, Euro 400 million of cash paid out of the
proceeds from a rights offering of Euro 450 million, and the balance a vendor
note of a maximum of Euro 250 million. The Settlement Shares will be listed on
the JSE. The price at which each Settlement Share will be issued is Euro 7.16
(R82.39) per share, which was determined based on the volume weighted average
share price of Sappi shares on the JSE during the 30 trading days prior to the
date of this announcement and the average Euro / Rand daily exchange rate for
the same period.
The vendor note will be issued by a Sappi subsidiary to M-real and will be
guaranteed by Sappi and certain of its subsidiaries. It will be repaid over a
period of 48 months with an interest rate of 9% that steps up after 6 months to
12% and steps up after 12 months to 14% and again after 18 months to 15%.
Sappi does not expect the Acquisition to affect its Ba2/BB credit ratings.
The Acquisition will close on the closing of the rights offering. The effective
date for the Acquisition will be the date on which it closes.
Conditions precedent
The Acquisition is subject to the fulfilment of a number of conditions precedent
including; inter alia,
the Sappi shareholders, in general meeting, passing the resolutions necessary to
effect the Acquisition and the financing of the Acquisition;
relevant anti-trust and competition authority approvals;
obtaining other regulatory approvals necessary for implementing the Acquisition
and the financing of the Acquisition;
approval of the JSE for the listing of the Settlement Shares on the JSE; and,
the rights offering having closed and settled in accordance with its terms.
The Acquisition will lapse if the conditions precedent have not been fulfilled
or waived by 30 April 2009 or if a rights offering has not been announced by 30
April 2009 or made by 30 June 2009.
Pro forma financial effects of the acquisition on Sappi
The unaudited pro forma financial effects set out below have been prepared to
assist Shareholders to assess the impact of the Acquisition and financing
thereof on the EPS, HEPS, NAV and TNAV per share of Sappi. These pro forma
financial effects illustrate how the Acquisition might affect the reported
financial information of Sappi if the completion date of the Acquisiton had
occurred on 30 June 2008 for balance sheet purposes and on 1 October 2006 (for
the twelve months ended September 2007) and 1 October 2007 (for the nine months
ended 30 June 2008) for income statement purposes.
The pro forma financial effects have been prepared in accordance with the
Listings Requirements of the JSE and the Guide on Pro Forma Financial
Information issued by The South African Institute of Chartered Accountants.
These unaudited pro forma financial effects are the responsibility of the Board
and are provided for illustrative purposes only. The material assumptions on
which the pro forma financial effects are based are set out in the notes
following the table.
Pro forma information at at 30 June 2008
Sappi as Pro Forma as at
reported 30 June 2008
as at 30 June
2008
US$ US$
Net asset value per share 7.29 8.04
Net tangible asset value per share 7.25 7.53
Ordinary shares in issue 229.1 302.1
(millions)
Weighted average number of 228.7 301.7
ordinary shares in issue
(millions)
Pro forma information for the nine months ended June 2008
Sappi as Pro Forma for the
reported for nine months ended
nine months June 2008
ended June 2008
US cents US cents
Earnings per share 59 62
Headline earnings per share 58 18
Ordinary shares in issue 229.1 302.1
(millions)
Weighted average number of 228.7 301.7
ordinary shares in issue
(millions)
Pro-forma information for the twelve months ended September 2007
Sappi as Pro Forma for the
reported for twelve months
twelve months ended September
ended September 2007
2007
US cents US cents
Earnings per share 89 98
Headline earnings per share 82 51
Ordinary shares in issue 228.5 301.5
(millions)
Weighted average number of 227.8 300.8
ordinary shares in issue
(millions)
Notes and assumptions
1. The pro forma financial effects reflect the Acquisition and related financing
as outlined in section 4.
2. The number of shares in issue and the weighted average number of shares
have been adjusted by 73 million shares representing the number of shares
to be issued as consideration for the Acquired Assets and the proposed
rights offering of Euro 450 million. The number of Settlement Shares has
been determined by reference to the volume weighted average share price of
Sappi shares on the JSE during the 30 trading days prior to the date of
this announcement. The number of rights offering shares was calculated
using the Sappi closing share price at 26 September 2008 of R81.50. The
actual number of shares issued will be based on the relevant variable
components of the financing and of the relevant agreements and,
accordingly, the number of shares will change.
3. The pro forma financial effects exclude:
anticipated synergies from the Acquisition; and
movements in the US Dollar / Euro exchange rate.
4. Financial information for the Acquired Assets has been extracted from the
financial statements for the Acquired Assets provided to Sappi by M-real.
These financial statements have been prepared on a full carve-out basis in
accordance with IFRS as issued by the IASB and are presented in Euros. Such
financial information has been converted from Euros to US Dollars for the
income statement, using the average exchange rate for the year ended 31
December 2007 of EUR1 to US$1.3755, the three months ended 31 December 2007
of EUR1 to US$1.4556, for the six months ended June 2008 of EUR1 to
US$1.5315 and for the balance sheet as at 30 June 2008 using the period end
rate of EUR1 to US$1.5795.
5. The allocation of the Purchase Consideration reflected in the pro forma
financial effects is preliminary based on estimated fair values and the
estimated Purchase Consideration. It will eventually be adjusted based on a
complete assessment of the fair value of the net Assets Acquired and the
final Purchase Consideration. The final Purchase Consideration allocation is
dependent on, among other things, the finalisation of asset and liability
valuations. Any final adjustment will change the allocations of the Purchase
Consideration, which will affect the fair value assigned to the assets and
liabilities and could result in a material change to the pro forma financial
effects, including a change to goodwill.
6. The pro forma financial effects are presented for information purposes only,
and do not purport to represent what Sappi`s actual results of operations or
financial condition would have been had the Acquisition and financing
occurred on the dates indicated, nor are they necessarily indicative of
future results of operations or financial condition.
7. The pro forma headline earnings per share for the nine months ended June 2008
and the twelve months ended September 2007 exclude a net asset impairment
reversal of EUR 111 million recorded by M-real. The impact thereof for the
nine months ended June 2008 and the twelve months ended September 2007 is 51
US cents and 54 US cents respectively.
7. Shareholder support
Allan Gray Limited and RMB Asset Management (Proprietary) Limited which both
currently act as investment managers for clients holding, in aggregate,
approximately 34% of Sappi`s issued ordinary shares, have agreed to vote the
shares over which they have voting rights (representing, in aggregate,
approximately 10% of Sappi`s issued ordinary shares) in favour of the
resolutions required to implement the Acquisition and the financing of the
Acquisition and to recommend to their clients having the voting rights over the
remaining shares (representing, in aggregate, approximately 24% of Sappi`s
issued ordinary shares) to vote in favour of such resolutions.
8. Further announcements
Sappi shareholders will be notified of progress in the fulfilment of the
conditions precedent.
9. Category 1 Circular
The Acquisition will be a Category 1 transaction in terms of the JSE`s Listings
Requirements. Accordingly, a circular to Sappi shareholders containing, inter
alia, all information pertaining to the Acquisition, as is required in terms of
the JSE`s Listings Requirements, and a Notice of General Meeting containing all
resolutions proposed to be passed by Sappi shareholders is expected to be posted
to shareholders on or about 7 October 2008.
10. Forward looking statements
Certain statements in this release that are neither reported financial results
nor other historical information, are forward-looking statements, including but
not limited to statements that are predictions of or indicate future earnings,
savings, synergies, events, trends, plans or objectives. Undue reliance should
not be placed on such statements because, by their nature, they are subject to
known and unknown risks and uncertainties and can be affected by other factors,
that could cause actual results and company plans and objectives to differ
materially from those expressed or implied in the forward-looking statements (or
from past results). Such risks, uncertainties and factors include, but are not
limited to, the risk that the Acquired Business will not be integrated
successfully or such integration may be more difficult, time-consuming or costly
than expected, expected revenue synergies and cost savings from the Acquisition
may not be fully realized or realized within the expected time frame, revenues
following the Acquisition may be lower than expected, any anticipated benefits
from the consolidation of the European paper business may not be achieved, the
ability to obtain governmental or regulatory approvals of the Acquisition on the
proposed terms and schedule, the failure of shareholders of Sappi to approve the
Acquisition or the related financings, the highly cyclical nature of the pulp
and paper industry (and the factors that contribute to such cyclicality, such as
levels of demand, production capacity, production and pricing), adverse changes
in the markets for the group`s products, consequences of substantial leverage,
changing regulatory requirements, unanticipated production disruptions, economic
and political conditions in international markets, the impact of investments,
Acquisitions and dispositions (including related financing), any delays,
unexpected costs or other problems experienced with integrating acquisitions and
achieving expected savings and synergies and currency fluctuations. The company
undertakes no obligation to publicly update or revise any of these forward-
looking statements, whether to reflect new information or future events or
circumstances or otherwise. Morgan Stanley & Co. Ltd in conjunction with one or
more of its affiliates ("Morgan Stanley") is acting for Sappi in connection with
this Acquisition and no one else and will not be responsible to anyone other
than Sappi for providing the protections offered to clients of Morgan Stanley
nor for providing advice in relation to this Acquisition.
Johannesburg
29 September, 2008
Financial adviser to Sappi
Morgan Stanley & Co. Ltd.
Acquisition transaction sponsor
Morgan Stanley South Africa (Proprietary) Limited
Investment bankers to Sappi
Citigroup Global Markets Limited
JP Morgan Securities Ltd
South African legal adviser to Sappi
Bowman Gilfillan
English legal adviser to SappiLinklaters LLP
US legal adviser to Sappi
Cravath, Swaine & Moore LLP
Financial adviser to M-real
Goldman Sachs International
South African legal adviser to M-real
Werksmans
English legal adviser to M-realSlaughter and May
Sponsor to Sappi
UBS South Africa (Proprietary) Limited
This document is not an offer of securities for sale in the United States.
Securities may not be offered or sold in the United States absent registration
with the United States Securities and Exchange Commission or an exemption from
registration. There will be no public offering of any securities in the United
States. This document is not for distribution in the United States, Japan,
Australia or Canada.
Date: 29/09/2008 08:00:09 Produced by the JSE SENS Department.
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