| Tue 22 Sep 2009, 16:07 | | ERB - Erbacon Investment Holdings Limited - Acquisition of Civcontract Civils |
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ERB
ERB
ERB - Erbacon Investment Holdings Limited - Acquisition of Civcontract Civils
(PTY) Limited and the subscription by Medu Capital (PTY) Limited of preference
shares in Erbacon
Erbacon Investment Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 2007/014490/06)
Share code: ERB & ISIN: ZAE000111571
("Erbacon" or "the company")
ACQUISITION OF CIVCONTRACT CIVILS (PTY) LIMITED AND THE SUBSCRIPTION BY MEDU
CAPITAL (PTY) LIMITED OF PREFERENCE SHARES IN ERBACON
1 INTRODUCTION
1.1 Shareholders are referred to the SENS announcement of 2 June 2009 whereby
shareholders were informed, inter alia, that Erbacon had entered into an
agreement with Civcontract Civils (Pty) Limited ("Civcon") and G4 Civils
(Pty) Limited ("G4") in terms of which Erbacon would seek to acquire Civcon
and G4 and introduce Medu Capital (Pty) Limited as a BEE equity shareholder
in the company, who will invest capital to support the company`s
acquisition strategy. G4 has subsequently withdrawn from the aforementioned
proposed transaction.
1.2 Shareholders are hereby accordingly advised that Erbacon has entered into a
sale of shares agreement with the vendors of Civcon, dated 21 September
2009, to acquire the entire issued share capital of and all claims on
shareholders` loan account against Civcon ("the Civcon acquisition").
1.3 Erbacon has also entered into a preference share subscription agreement
("subscription agreement") with Medu Capital Fund (Pty) Limited ("Medu
Capital") in terms of which Medu Capital, on behalf of its funds under
management, will subscribe for 67 410 000 fully paid-up convertible,
redeemable and participating preference shares at an issue price of R1.68
per preference share ("the Erbacon preference share issue"). Immediately
following the Erbacon preference share issue, Medu Capital as the BEE
partner will have an economic interest of approximately 29.41% in Erbacon
which will enhance Erbacon`s overall BEE ownership status.
(the "Civcon acquisition" and "Erbacon preference share issue" hereinafter
collectively referred to as "the transaction")
1.4 The acquisition referred to in 1.1 above constitutes a category 1
transaction in terms of the Listings Requirements ("LR") of the JSE Limited
("JSE").
1.5 Furthermore in terms of the JSE LR, as the total consideration payable for
the Civcon acquisition when measured against the market capitalisation of
Erbacon, immediately prior this announcement, was calculated to be greater
than 100%, the Civcon acquisition is deemed to be a reverse take-over and
therefore Erbacon is required to prepare and distribute revised listing
particulars, as set out in paragraph 7 below, as though Erbacon post the
implementation of the transaction was a new applicant.
2 DETAILS OF THE BUSINESS OF CIVCON AND MEDU CAPITAL
2.1 Civcon commenced business as a civils contractor in 1980 in the Free State
Goldfields. Civcon operates in the mining construction and heavy industrial
markets with its client base covering majority of the mining houses,
fertiliser and petro chemical companies and heavy industry. Civcon`s key
services include general civil engineering construction, industrial and
process plants, mining (surface and underground), mining infrastructure and
design and construction of turnkey industrial projects.
2.2 Medu Capital is a professional investment management company with a focus
on private equity. Its principal activities include sourcing and evaluation
of investment opportunities, execution of investments, active involvement
and realisation of investments. Medu Capital is majority owned and managed
by black South Africans and embraces the spirit of a scorecard approach to
BEE. Medu Capital generally partners established businesses that require
equity risk capital and/or BEE partners.
3 RATIONALE FOR THE TRANSACTION
It has been Erbacon`s stated strategic objective to build a sustainable
business to participate in South Africa`s infrastructural development over
the next decade and beyond. The conclusion of the transaction will result
in Erbacon diversifying into the private construction (mining) sector,
obtaining geographic diversification, obtaining sufficient critical mass to
be able to tender and be more competitive for larger and more profitable
contracts and to obtain a much needed strategic BEE partner by the
introduction of Medu Capital.
4 PARTICULARS OF THE CIVCON ACQUISITION
4.1 Subject matter of the acquisition
The subject matter of the acquisition is the entire issued share capital
("Civcon shares") of and all claims on shareholders` loan account against
Civcon ("Civcon claims").
4.2 The vendors
The vendors of Civcon are Alexis Hertzog Henning ("Henning"), the trustees
for the time being of the Ramsay Family Trust, Andre de Graaf, Johannes
Jacobus Loock, Innes Louw, Geoffrey Norman Sproule, Wiebe Top and Burgerd
Christiaan van der Merwe (hereinafter collectively referred to as the
"Civcon" vendors).
4.3 The effective date
The effective date of the transaction is the 20th business day after the
fulfilment or waiver, as the case may be, of all the suspensive conditions
as stipulated in the Civcon acquisition agreement.
4.4 Purchase consideration
4.4.1 The purchase price payable by Erbacon in terms of the Civcon
acquisition is an aggregate maximum amount of R 266 804 410 which
shall be settled by Erbacon in the following manner:
4.4.1.1 51.5% of the purchase consideration on the effective date against
delivery of the Civcon shares and the Civcon claims to Erbacon:
* by payment to the Civcon vendors of an aggregate cash amount of
R95,418,260; and
* by the allotment and issue to the Civcon vendors of an aggregate
of 25,020,876 Erbacon ordinary shares at an issue price of
R1.6807 per share;
4.4.1.2 approximately 30% of the purchase consideration on achievement by
Civcon of a profit after tax of R 64,8 million for the year ended 28
February 2010, by the allotment and issue to the Civcon vendors of an
aggregate of a maximum of 46,171,072 Erbacon ordinary shares at an
issue price of R1.6807,
4.4.1.3 and the remaining purchase consideration on achievement by Civcon of a
profit after tax of R64,8 million for the year ended February 2011, by
the allotment and issue to the Civcon vendors of an aggregate of a
maximum of 30,780,714 Erbacon ordinary shares at an issue price of
R1.6807 per share
4.4.6 Erbacon shall procure the listing of the Erbacon consideration shares
to be issued to the Civcon vendors, as set out above, on Altx.
4.5 Suspensive conditions
The Civcon acquisition agreement is subject, inter alia, to the fulfilment
of following remaining suspensive conditions:
4.5.1 the subscription agreement becoming unconditional in accordance with
the terms thereof save for any condition relating to the Civcon
acquisition agreement becoming unconditional, on or before 15 December
2009;
4.5.2 the required approval of the Civcon acquisition (including the issue
of the Erbacon ordinary shares in settlement of the purchase
consideration) by the requisite majority of Erbacon shareholders, on
or before 15 December 2009;
4.5.3 that David Boyd Erskine, David Graham Armstrong, Wayne Michael Ric-
Hansen, Frans Petrus Boraine and Paladin Capital Limited, irrevocably
undertake in writing in favour of Erbacon that, subject to the
declaration by Erbacon of dividends in the aggregate amount of R
30,000,000 prior to the effective date, they will vote in favour of
the Civcon acquisition, within 5 business days after the signature
date of the Civcon acquisition agreement;
4.5.4 the required approval of the Civcon acquisition by the Competition
Authorities, on or before 15 December 2009;
4.5.5 the obtaining of any other regulatory approvals necessary to implement
the Civcon acqusition, including but not limited to the necessary
approvals from the JSE and the Securities Regulation Panel ("SRP"), on
or before 15 December 2009;
4.5.6 the Altx granting a listing of the Erbacon ordinary shares to be
issued to the Civcon vendors in terms of the provisions of paragraph
4.4.1.1, on or before 15 December 2009;
4.5.7 to the extent required, the consent of ABSA Bank Limited (in terms of
the ABSA Bank Limited facility letter dated 30 September 2008) and
Nedbank Limited (in terms of the Nedbank Limited facility letter dated
7 February 2008) in respect of the change of control of Civcon as
contemplated in the Civcon acquisition agreement, within 20 business
days after the signature date of the Civcon acquisition agreement;
If the suspensive conditions referred to in 4.5.1, 4.5.2, 4.5.4, 4.5.5 and
4.5.6 above are not fulfilled or waived on or before 15 December 2009, the
date/s for fulfilment shall be extended to 31 January 2010, subject to the
written consent of Erbacon and certain of the Civcon vendors.
4.6 Other salient terms
4.6.1 Prior to the effective date, Civcon shall be entitled to declare and
pay dividends, make distributions, make payments in terms of section
90 of the Companies Act 61 (Act 61 of 1973) as amended, and/or effect
repayments of loan accounts to the Civcon vendors out of its cash
resources to a maximum aggregate amount of R25,000,000 on the basis
that the Civcon vendors are satisfied, acting reasonably, that after
such payments Civcon shall be able to meet its future 12 month working
capital requirements to enable Civcon to achieve the warranted profits
as set out on 4.4.1.2 and 4.4.1.3.
4.6.2 In terms of the said agreement, Erbacon shall also be entitled to
declare and pay dividends to its shareholders registered as such prior
to the effective date of a maximum aggregate amount of
R30,000,000,with a payment date within one month after the effective
date, provided that Erbacon shall not be entitled to declare, subject
to the implementation of the transaction, any further dividends prior
to the issue of Erbacon ordinary shares to the Civcon vendors in terms
of paragraph 4.4.1.2 above, which date of issue shall not be later
than 10 business days after 31 August 2010.
4.7 Warranties and restraints
Civcon and Erbacon have given warranties, which are normal for a
transaction of this nature.
Restraints of trade have been entered into by Charles Henry Alan Ramsay and
Henning in respect of the Civcon acquisition.
5 THE ERBACON PREFERENCE SHARE ISSUE
5.1 PARTICULARS OF THE ERBACON PREFERENCE SHARE ISSUE
5.1.1 On 21 September 2009, Erbacon concluded the subscription agreement,
subject to certain suspensive conditions as set out in paragraph 5.5
below.
5.1.2 In terms of such agreement, Medu Capital will subscribe for 67 410 000
fully paid-up convertible, redeemable and participating preference
shares of R0.01 each in Erbacon at a price of R1.68 per preference
share ("issue price").
5.1.3 The issue of the preference shares to Medu Capital will result in the
capitalisation of Erbacon to the extent of R 113 248 800. R 85 368 040
of such subscription amount will be utilised as part of the total cash
consideration payable to Civcon vendors as set out in paragraph
4.4.1.1 above.
5.2 SALIENT TERMS OF THE PREFERENCE SHARES
5.2.1 Save as set out in terms of the subscription agreement the preference
shares shall rank pari passu in all respects with the ordinary shares
in Erbacon. The preference shareholders shall be repaid the issue
price in preference to the repayment of any amounts to Erbacon
ordinary shareholders in the event of the de-registration, winding-up
or judicial management of Erbacon. The preference shares will be
entitled to its proportionate share of any ordinary dividends declared
by Erbacon but will not be entitled to any specific pre-determined
preference share dividend rate.
5.2.2 In respect of any matter where Erbacon shareholders are required to
vote in terms of the LR, each holder shall, unless and until the JSE
rules otherwise, in respect of the preference shares held by it, be
entitled to that proportion of votes in the company which the
aggregate par value of the preference shares held by it bears to the
aggregate amount of the par value of all shares issued by the company
but will be limited to a maximum of 25% less one vote.
5.2.3 Each preference share shall, at the election of the preference
shareholder, be convertible into the equivalent of one ordinary share
of Erbacon at the date thereof (taking into account any share splits
and share consolidations as may have occurred).
5.2.4 If the preference shares have not been converted into Erbacon ordinary
shares at the end of 5 years from their date of issue, Erbacon shall
be obliged to immediately redeem such preference shares at the issue
price.
5.2.5 In order to protect preference share investor capital, the preference
shareholders shall be entitled upon the occurrence of an actionable
event, details of which will be contained in the circular to
shareholders as set out in paragraph 7 below, to procure Erbacon to
redeem the preference shares at the redemption amount, which amount
shall be the greater of the issue price of the preference shares and
the 90 day volume weighted average price at which the Erbacon ordinary
shares trade on the JSE prior to the redemption date, or procure the
conversion of the preference shares into ordinary shares as set out in
paragraph 5.2.3 above. All the terms of the subscription agreement are
subject to dispute resolution and remedy as set out in terms of such
agreement.
5.2.7 The preference shareholders shall be entitled to appoint 2 directors
to the board of Erbacon and remove and/or replace any directors so
appointed.
5.3 Warranties and restraints
Erbacon has given warranties, which are normal for a transaction of this
nature.
5.4 The effective date of the Erbacon preference share issue
The effective date of the Erbacon preference share issue is the 15th
business day after the fulfilment or waiver, as the case may be, of all the
suspensive conditions as stipulated in the subscription agreement.
5.5 Suspensive conditions to Erbacon preference share issue
The subscription of the Erbacon preference shares by Medu Capital is
subject, inter alia, to the fulfilment of the following suspensive
conditions on or before 15 December 2009 (or such later date being not
later than 31 January 2010 as may be consented to in writing by all the
parties to this agreement):
5.5.1 the approval of the requisite majority of Erbacon shareholders to
create the preference shares, amend the memorandum and articles of the
company to prevent the amendment, variation or alteration of the
preference share terms without the approval of at least 75% of the
preference shareholders and to conclude and implement the Civcon
acquisition agreement and the subscription agreement
5.5.2 the Civcon acquisition agreement will have become unconditional in
accordance with its terms (save to the extent that the agreement is
conditional upon the conclusion and becoming unconditional of the
subscription agreement);
5.5.3 all such regulatory approvals as may be necessary in order to conclude
and implement the Civcon acquisition agreement and the subscription
agreement will have been obtained, including the approval, if
necessary, of the Competition Authorities, the JSE and the SRP;
5.5.4 on or before 31 October 2009, the JSE will have granted its written
approval to the preference share terms and to the voting of the
preference shares in respect of all matters where shareholders of the
company are required to vote in terms of the JSE LR;
5.5.5 on or before the 20th business day after the signature date of the
subscription agreement, the FSB will have furnished Medu Capital with
written confirmation that it will not, in terms of Chapter VIII of the
Securities Services Act, proceed against Medu Capital in relation to
its involvement in the transaction contemplated in the subscription
agreement; and
5.5.6 confirmation by Erbacon that no unremedied (if possible) breach of any
obligation, representation and/or warranty contained in the Civcon
acquisition agreement and the subscription agreement, and any material
adverse change, will have occurred as at the date and time of the last
of the other suspensive conditions to be fulfilled.
6 FINANCIAL EFFECTS OF THE TRANSACTION AND RENEWAL OF CAUTIONARY
Erbacon shareholders are referred to the latest cautionary announcement
dated 27 August 2009, and are advised to continue to exercise caution in
the trading in Erbacon shares until a further announcement is made in due
course, setting out the pro forma financial effects on Erbacon of the
Civcon acquisition and the Erbacon preference share issue, as detailed in
this announcement.
7 FURTHER DOCUMENTATION
Erbacon shareholders are advised that in accordance with the JSE LR, a circular
to shareholders incorporating revised listings particulars, together with a
notice of a general meeting of Erbacon shareholders, will be issued in due
course containing further details of the transaction.
Glen Anil
22 September 2009
Designated Adviser
Questco Sponsors (Pty) Limited
Corporate adviser
PSG Capital (Pty) Limited
Legal adviser to Erbacon
Cliffe Dekker Hofmeyr Inc.
Legal adviser to Medu Capital
Read Hope Phillips Thomas & Cadman Inc.
Legal adviser to Civcon
Fluxmans Inc.
Date: 22/09/2009 16:07:01 Produced by the JSE SENS Department.
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