| Fri 4 Dec 2009, 11:50 | | BRT/BRN - Brimstone - Announcement Regarding The Acquisition Of 49% Of Each Of |
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BRT BRN
BRT
BRT/BRN - Brimstone - Announcement Regarding The Acquisition Of 49% Of Each Of
Fifth Element Marketing (Proprietary) Limited ("Fifth Element") And Its
Subsidiaries And O`Neill (SA) (Proprietary) Limited ("O`Neill") ("The
Acquisitions")
Brimstone Investment Corporation Limited
(Registration number 1995/010442/06)
(Incorporated in the Republic of South Africa)
ISIN Number: ZAE000015277 Share Code: BRT
ISIN Number: ZAE000015285 Share Code: BRN
("Brimstone" or the "Company")
ANNOUNCEMENT REGARDING THE ACQUISITION OF 49% OF EACH OF FIFTH ELEMENT MARKETING
(PROPRIETARY) LIMITED ("FIFTH ELEMENT") AND ITS SUBSIDIARIES AND O`NEILL (SA)
(PROPRIETARY) LIMITED ("O`NEILL") ("THE ACQUISITIONS")
1. Background
In amplification of the information contained in the annual financial
statements of Brimstone for the year ended 31 December 2008 and the
announcement dated 30 January 2009, holders of ordinary shares and "N"
ordinary shares in Brimstone ("Brimstone shareholders") are advised that on
or about 23 July 2008 Brimstone entered into an agreement ("the Agreement")
with the trustees for the time being of the Shanda Trust and the trustees
for the time being of the SDS Investment Trust to acquire the remaining 49%
of:
- Fifth Element (whose wholly-owned subsidiaries included Canterbury
International South Africa (Proprietary) Limited ("CISA") and Lakeside
City Trading 137 (Proprietary) Limited) ("Lakeside")); and
- O`Neill,
that it did not already own (collectively "the Companies"), through its
wholly-owned subsidiary House of Monatic (Proprietary) Limited ("Monatic").
At the time of the conclusion of the Agreement, Fifth Element and O`Neill
were designers and marketers of leisurewear while CISA was a designer and
marketer of sportswear. Lakeside was a property owning entity.
The Acquisitions were effective from 15 August 2008.
During January 2009, Brimstone decided to liquidate the Companies in order
to protect the interests of all stakeholders, when it became apparent that
certain financial irregularities may have been perpetrated in the Companies
and that the Companies were no longer viable. Details of the liquidation
were provided in the announcement dated 30 January 2009. The liquidation
process is ongoing.
2. Rationale for the Acquisitions
The Acquisitions were made in line with Brimstone`s broader strategy for
its clothing cluster investments by diversifying beyond manufacturing of
traditional men`s formal wear, as previously disclosed to the shareholders.
Brimstone also believed that the brands associated with the Companies,
particularly Canterbury, offered significant growth prospects and
underlying value which value could be unlocked. Brimstone, through Monatic,
had at this point concluded that having a minority shareholder in the
Companies was an impediment to the implementation of its clothing cluster
investments strategies and therefore agreed to acquire the 49% in the
Companies not already owned by Monatic.
3. Consideration for the Acquisitions
The purchase consideration for the Acquisitions was R6 million ("the
Consideration") and was paid in cash. At the time the Agreement was entered
into, the Consideration comprised 0.48% of Brimstone`s total market
capitalisation.
4. JSE Listings Requirements in respect of the Acquisitions
4.1 Small related party transactions
The Acquisitions, at the time of entering into the Agreement, would
have been classified as a "small related party transaction" in terms
of the JSE Limited Listings Requirements (`Listings Requirements") as:
- David Anthony Linder, at the time an interested party in the SDS
Investment Trust and the Shanda Trust, was a director of the
Companies; and
- Brimstone was transacting with material shareholders (as defined
in the Listings Requirements) of subsidiary companies.
4.2 Implications for small related party transactions
It was only recently discovered that the requirements for "small
related party transactions" relating to the Acquisitions, which should
have been complied with at the time of signature of the Agreement in
July 2008, had not been met in terms of the Listings Requirements.
In terms of the Listings Requirements, should an issuer enter into a
small related party transaction, the terms thereof should be announced
and an independent expert appointed to determine whether the terms and
conditions of the transaction are fair to the issuer`s shareholders.
Should the terms of the transaction be found to be unfair, then
shareholder approval for the transaction should be sought.
Brimstone therefore sought to comply with such requirements through
the appointment of Mazars Moores Rowland Corporate Finance
(Proprietary) Limited (`Mazars") who have provided Brimstone
shareholders with a fairness opinion (see clause 4.3 below) and
further, through the publication of this announcement.
4.3 Fairness opinion and implications
Brimstone appointed independent professional expert, Mazars to review
the terms and conditions of the Acquisitions to determine whether they
were fair to Brimstone shareholders around the time of entering into
the Agreement.
Mazars have concluded that the terms and conditions of the
Acquisitions were unfair to Brimstone shareholders as at 30 June 2008
(based on quantitative issues). Accordingly, in terms of the Listings
Requirements, shareholder approval for the Acquisitions would have
been required.
Notwithstanding Mazars` conclusion that the Acquisitions were unfair
to Brimstone shareholders as at 30 June 2008 at the time, Brimstone`s
directors considered that the Acquisitions were fair and in the
interests of shareholders as they believed there was considerable
value attached to the brands that resided in the Companies
(particularly the Canterbury brand). This value could only be unlocked
if Brimstone controlled 100% of the Companies therefore making it
necessary for Brimstone to buy out the minority shareholder. Although
the Companies were loss making, technically insolvent and with little
intrinsic value, the parties arrived at a consideration at which the
minority shareholder agreed to exit and which would allow Brimstone to
continue its long-term strategy for the Companies. At the time, the
Acquisitions were considered immaterial relative to the other
opportunities that were being pursued by Brimstone.
As all suspensive conditions relating to the Acquisitions were
fulfilled by 15 August 2008, and as the Acquisitions have been
implemented and the Companies have subsequently been placed in
liquidation, the obtaining of shareholder approval for the
Acquisitions, as required in terms of the Listings Requirements, would
at this stage, serve no practical purpose.
5. Financial effects of the Acquisitions
Based on the interim consolidated results of Brimstone for the period ended
30 June 2008 (the latest published results prior to the Acquisitions being
effected), the pro forma financial effects of the Acquisitions on
Brimstone`s earnings, headline earnings, net asset value ("NAV") and
tangible NAV per share were not significant and therefore have not been
disclosed.
Cape Town
04 December 2009
Investment bank and sponsor Independent expert
- LOGO - - LOGO -
Nedbank Capital Mazars Moores
Rowland Corporate
Finance
(Proprietary)
Limited
Date: 04/12/2009 11:50:01 Produced by the JSE SENS Department.
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