| Thu 23 Oct 2008, 10:22 | | EXL - Excellerate Holdings - Acquisition And Withdrawal Of Cautionary |
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EXL
EXL
EXL - Excellerate Holdings - Acquisition And Withdrawal Of Cautionary
Announcement
Excellerate Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1997/009884/06)
Share code: EXL ISIN: ZAE000026092
("Excellerate" or "the Company")
ACQUISITION BY EXCELLERATE OF 50% OF AN ENTITY WHICH HAS ACQUIRED THE BUSINESS
OF DLJ INTERIORS CC ("DLJ") CARRIED ON UNDER THE NAME "DELAWOOD DESIGNS", AND
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
Further to the cautionary announcement dated 12 September 2008, shareholders
are advised that -
- On 30 May 2008 Excellerate acquired 100% of the issued share capital of
Delawood Designs (Proprietary) Limited ("Delawood"), a new company with no
trading history, for a nominal value of R100;
- Delawood`s share capital is being restructured ("the Restructuring") by
the conversion of the the existing 100 issued ordinary shares into 100 A
ordinary shares with a par value of R1 each ("A shares") and the creation of
100 B ordinary shares with a par value of R1 each ("B shares");
- Delawood has entered into a sale of business agreement with DLJ ("the
Sale Agreement") in terms of which Delawood has agreed, subject to the
fulfilment of the suspensive conditions stipulated in paragraph 9 below, to
acquire the business conducted by DLJ as a going concern ("the Business") in
exchange for the purchase consideration stipulated in paragraph 4 below
("Purchase Consideration"), which includes an issue of the B shares in
Delawood, which shares will constitute 50% of the entire issued share capital
of Delawood;
- Excellerate has simultaneously entered into a Shareholders Agreement with
DLJ and Delawood ("the Shareholders` Agreement") in terms of which, subject to
the Sale Agreement becoming unconditional and being implemented, and following
the implementation thereof (including the Restructuring), Excellerate will own
the A shares in Delawood (constituting the remaining 50% of the entire issued
share capital in Delawood), and will lend and advance to Delawood the amount
necessary to enable Delawood to discharge the cash portion of the Purchase
Consideration,
("the Transaction" or "the Acquisition"); and
- the entire membership interest in DLJ is held by Mr. Dean Jacobs
("Jacobs"), and Mr. Larry Mankowitz ("Mankowitz"). Jacobs and Mankowitz will,
after the implementation of the Transaction, be the joint Managing Directors
of Delawood.
2. BACKGROUND INFORMATION
Excellerate is listed on the Consumer Services Sector of the licensed exchange
operated by the JSE Limited ("JSE") and is focused on consumer services,
trading and distribution, and light manufacturing. Over the past 2 financial
years Excellerate has experienced significantly improved financial
performance, as well as both organic and acquisitive growth. It is
Excellerate`s stated intention to continue to seek acquisition opportunities
that fit well within Excellerate`s underlying structure and culture, and where
Excellerate can make a substantial contribution to further developing the
prospects of these new acquisitions.
The Business specializes in the design, manufacture and installation of
bespoke furniture and cabinetry solutions for the high end residential,
corporate and hospitality sectors. The Business has been in existence for over
a decade and is primarily focused on the South African market, but has
recently made successful in-roads in the growing export market, and has
completed contracts in many African countries, as well as the United Kingdom
and Middle East.
The Business has a manufacturing facility located in Johannesburg, and
operates three showrooms in Gauteng.
3. RATIONALE FOR THE TRANSACTION
The Business is primarily a light manufacturing business with a strong service
delivery aspect, and highly entrepreneurial management. The Business has a
strong cash generative business model, as well as good prospects for both
domestic and export oriented growth. Consequently, the Business fits the
acquisition profile and strategy of Excellerate.
4. PURCHASE CONSIDERATION
The Purchase Consideration payable by Delawood to DLJ in respect of the
Acquisition will be constituted by an issue of shares in Delawood and cash
payments, as set out below.
4.1 Issue of Delawood shares
On the third business day after fulfilment (or waiver) of the suspensive
conditions contained in the Sale Agreement as stipulated in paragraph 9 below
("Closing Date"), the B Shares (constituting 50% of the entire issued share
capital of Delawood) will be issued by Delawood to DLJ at a premium of R271
394.35 per share.
4.2 Cash payments
- R3 750 000 will be paid in cash by Delawood to DLJ on the Closing Date.
- Further amounts ("the Deferred Amounts") will be paid in cash by Delawood
to DLJ in two tranches, the Deferred Amounts being calculated by way of
formulae linked to the achievement of profit after tax of Delawood for the
periods indicated below. The maximum amounts payable in respect of the
Deferred Amounts are also indicated below.
Relevant Period Profit Maximum
after tax Payments
achieved
Closing R3 750 000
Date
1st Year ending 1 R9 000 000 R 6 420 000
Anniversary November 2009
2nd Year ending 1 R12 000 000 R16 950 000
Anniversary November 2010
Total R27 120 000
The aggregate maximum cash amount payable by Delawood to DLJ is accordingly
R27 120 000 which amount Excellerate shall lend and advance to Delawood (or
pay to DLJ on behalf of Delawood) as and when required by Delawood, subject to
the terms and conditions of the Sale Agreement and the Shareholders Agreement.
Excellerate has adequate cash and borrowing facilities available to fund these
advances.
5. PRICE ADJUSTMENT
Should the aggregate profit after tax of Delawood for the two years ended 31
October 2010 be less than R18 000 000, and the profit after tax of Delawood
for the year ended 31 October 2011 be less than the profit after tax for the
year ended 31 October 2010, then DLJ will be required to repay to Delawood a
portion of the Purchase Consideration, limited to a maximum amount of R2 260
000.
6. ECONOMIC INTEREST
The Shareholders Agreement stipulates the terms and conditions of the funding
to be advanced by Excellerate to Delawood, as well as the rights attaching to
the A Shares and the B Shares. These terms and conditions, inter alia:
- allow Excellerate to receive dividends of up to R 2 904 691; and
- provide that thereafter the holders of the A shares and the B shares
shall have essentially equivalent after tax economic interests in Delawood.
7. EFFECTIVE DATE
The effective date of the Transaction is 1 July 2008, subject to the
successful fulfilment (or waiver) of the respective suspensive conditions
contained in the Sale Agreement and the Shareholders Agreement, as stipulated
in paragraph 9 below.
8. WARRANTIES
The Transaction is subject to the usual warranties and indemnities associated
with transactions of this nature.
9. SUSPENSIVE CONDITIONS
The Sale Agreement is conditional upon the fulfilment (or waiver) of the
following suspensive conditions on or before 31 December 2008 -
- the satisfactory conclusion by Delawood of a due diligence investigation
of the Business;
- the adoption by the board of directors of Excellerate of a resolution
approving the Sale Agreement and the sale pursuant thereto;
- the passing of a special resolution ("the Special Resolution") providing
for the Restructuring to give effect to the provisions of the Sale Agreement
and the Shareholders` Agreement, and the registration of the Special
Resolution by the Registrar of Companies;
- the signature by Jacobs of a service agreement with Delawood; and
- if required in terms of the leases in respect of each of the premises
from which the business is conducted, the lessors of such premises consenting
in writing to the assignment of the leases in respect of the premises or to
the subletting of the premises by DLJ to Delawood
All the suspensive conditions to which the Sale Agreement is subject, other
than the registration of the Special Resolution and the last suspensive
condition referred to above, have been fulfilled.
The Shareholders` Agreement is subject to the suspensive condition that, on or
before 31 December 2008, the Sale Agreement becomes unconditional and is
implemented in accordance with its terms.
10. PRO FORMA FINANCIAL EFFECTS
The unaudited pro forma financial effects as out below have been prepared for
illustrative purposes only to assist the shareholders of Excellerate to assess
the impact of the transaction on the earnings per share ("EPS"), headline
earnings per share ("HEPS"), net asset value per share ("NAVPS") and tangible
net asset value per share ("TNAVPS") of Excellerate had the transaction
occurred on 1 July 2007 for income statement purposes and 30 June 2008 for
balance sheet purposes.
These unaudited pro forma financial effects have been disclosed in terms of
the Listing Requirements of the JSE and because of their nature may not fairly
present Excellerate`s financial position, changes in equity, results of
operations or cash flows.
The unaudited pro forma financial effects are the responsibility of the
directors of Excellerate.
Unaudited Pro forma
before after
transaction transaction
Change
(%)
EPS (cents) 13.2 13.9 5.3
HEPS (cents) 13.2 13.9 5.3
NAVPS (cents) 83.1 83.1 0.0
TNAVPS (cents) 49.4 46.2 (6.5)
Weighted average 219 004 219 004
number of shares in
issue (`000)
Shares in issue at 219 045 219 045
year end (`000)
Notes:
The EPS and HEPS, as set out in the "before" column of the table, are based on
Excellerate`s reviewed provisional results for the year ended 30 June 2008.
EPS and HEPS effects are based on the following assumptions and information:
a. except to the extent that surplus cash would have been available within the
Excellerate group, the initial cash advanced to Delawood together with the
estimated transaction costs, would have been financed through borrowings
bearing interest at prevailing interest rates; and
b. the costs of this transaction are estimated to be R380 000.
c. the total earnings attributable to the 50% interest in Delawood acquired
by Excellerate is based on the unaudited management accounts of DLJ for the
year ended 30 June 2008. Excellerate accordingly confirms its comfort with
these unaudited management accounts.
The NAVPS and TNAVPS, as set out in the "before" column of the table, are
based on Excellerate`s reviewed provisional results for the year ended 30 June
2008.
NAVPS and TNAVPS effects are based on the following assumptions and
information:
a. except to the extent that surplus cash would have been available within
the Excellerate group, initial cash advanced to Delawood together with the
estimated transaction costs, would have been financed through borrowings
bearing interest at prevailing interest rates; and
b. the value of the assets attributable to the 50% interest in Delawood
acquired by Excellerate is based on the unaudited management accounts of DLJ
as at 30 June 2008.
11. CATEGORISATION
In terms of the Listings Requirements of the JSE, the Acquisition is
categorised as a Category 2 transaction.
12. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Shareholders are advised that the cautionary announcement dated 12 September
2008 is hereby withdrawn and accordingly shareholders are no longer required
to exercise caution when dealing in their Excellerate securities.
Johannesburg
23 October 2008
Sponsor
Barnard Jacobs Mellet Corporate Finance (Pty) Limited
Legal advisors
Werksmans Incorporated
Date: 23/10/2008 10:22:11 Produced by the JSE SENS Department.
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