| Tue 13 Apr 2010, 10:35 | | ELI - Ellies - Acquisition option and financial effects in respect of the |
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ELI
ELI
ELI - Ellies - Acquisition option and financial effects in respect of the
proposed acquisition of Power Line Africa (Proprietary) Limited ("PLA") and
withdrawal of cautionary announcement
Ellies Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 2007/007084/06)
Share code: ELI
ISIN for: ZAE000103081
("Ellies" or "the company")
ACQUISITION OPTION AND FINANCIAL EFFECTS IN RESPECT OF THE PROPOSED
ACQUISITION OF POWER LINE AFRICA (PROPRIETARY) LIMITED ("PLA") AND WITHDRAWAL
OF CAUTIONARY ANNOUNCEMENT
INTRODUCTION
Shareholders are referred to the announcement dated 30 March 2010 and are
advised that the company has reached agreement with Power Line Holdings
(Proprietary) Limited (the "seller"), the sole shareholder of PLA, on the
basis on which Ellies has an option (the "option") to acquire all the issued
shares of PLA.
RATIONALE FOR A TRANSACTION
PLA is a long-established Namibian company, which manufactures and installs
high voltage transmission lines in Namibia, Mozambique, The Democratic
Republic of Congo, Tanzania and Zimbabwe. Megatron Federal, which is housed in
the Ellies Power division of the company, has worked and works with PLA on
projects in Africa outside South Africa. The acquisition of PLA would offer
Ellies cross-selling opportunities and synergies in the streamlining of
engineering, site establishment and project management costs on various power
related projects in Africa.
AGREED TERMS AND CONDITIONS
Ellies may exercise the option at any time in the next 15 business days, in
which event it shall have agreed to purchase 100% of the issued shares in PLA
for a base price of R250 million, subject to increase or decrease based on a
formula related to future earnings, but capped at a maximum price of R300
million. The price would be payable in three instalments of approximately
R83,33 million each (before adjustments), the first on closing after
fulfilment of all conditions and further instalments in approximately July
2011 and 2012, after finalisation of earnings to give effect to any price
adjustments. The price would be settled half in cash and half in Ellies shares
at R2 per shares. Any transaction would be subject to various conditions
including a due diligence by Ellies and all required regulatory and other
approvals. Further details of the agreed terms and conditions will be
announced if Ellies exercises the option.
FINANCIAL EFFECTS
The pro forma financial effects of the transaction on Ellies` earnings share,
headline earnings per share, net asset value and net tangible asset value per
share for the interim period ended 31 October 2009 are set out below.
The pro forma financial effects are the responsibility of the directors of
Ellies and have been prepared for illustrative purposes only, to provide
information on how the transaction may have impacted on the historical
financial results of Ellies for the interim period ended 31 October 2009. The
pro forma financial effects have not been reviewed or reported on by Ellies`
auditors.
Due to its nature, the pro forma financial effects may not give a fair
reflection of Ellies` financial position, changes in equity, results of
operations and cash flows subsequent to the transaction.
The table below reflects the pro forma financial effects of the transaction on
an Ellies shareholder in respect of:
Before the Pro- Pro-forma
rights forma after the
offer after the rights offer
rights and the
offer transaction
Basic earnings per share (cents) 14.47 13.53 16.09
Headline earnings per share (cents) 14.47 13.53 16.12
Net asset value per share (cents) 156.92 161.08 167.43
Net tangible asset value per share 76.54 93.23 53.54
(cents)
Notes and assumptions:
1. The "Before the rights offer" column was extracted from the unaudited
results of Ellies for the six months ended 31 October 2009.
2. The "Pro-forma after the rights offer" column was extracted from the pro
forma financial information of Ellies set out in the rights offer
circular to Ellies shareholders which was issued on 29 March 2010.
3. The transaction is assumed to be effective from 1 May 2009 for income
statement purposes and 31 October 2009 for balance sheet purposes.
4. The amounts set out in the "Pro-forma after the rights offer and the
transaction" column were calculated by consolidating the unaudited
results of Ellies for the six months ended 31 October 2009 (after
adjusting for the effects of the rights offer) and the unaudited
management accounts of PLA for the year ended 28 February 2010, subject
to the assumptions and adjustments set out below.
5. The "Pro-forma after the rights offer and transaction" column has been
based on the following income statement assumptions:
5.1. The base purchase price of R250 million is payable in three equal
instalments, 50% of which will be settled in cash and 50% of which will
be settled by the issue of shares.
5.2. Estimated transaction costs of R0.5 million were expensed in accordance
with IFRS 3 (Business Combinations).
5.3. The deemed interest adjustment in respect of the deferred consideration
was assumed to be recognised at Ellies` weighted average cost of debt of
10% and amounts to approximately R3.7 million.
5.4. The first instalment will be largely settled out of the capital raised
through the rights offer, and will reduce the interest expense, at a rate
of 10.5% per annum, by R2.2 million.
5.5. A loss on sale of property, plant and equipment of approximately R107,000
(net of taxation) was added back to basic earnings for purposes of the
headline earnings calculation.
6. The "Pro-forma after the rights offer and transaction" column has been
based on the following balance sheet assumptions:
6.1. The base purchase price of R250 million is payable in three equal
instalments, 50% of which will be settled in cash and 50% of which will
be settled by the issue of shares.
6.2. Deferred consideration in respect of the second and third instalments
amounts to R83 million. The deferred consideration which has been
present valued to R71.9 million over a two-year period using Ellies`
weighted average cost of debt of 10%, has been raised as a liability in
compliance with IAS 32 (Financial Instruments: Disclosure and
Presentation).
6.3. An amount of R218.8 million was recognised in goodwill. The allocation
between goodwill and identifiable intangible assets as a result of the
excess of the cost of acquisition over the fair value of the net tangible
assets acquired will be performed in terms of the revised IFRS 3 in the
first reporting period subsequent to the transaction. Consequently, no
deferred taxation has been recognised in respect of the excess which is
attributable to being goodwill and an intangible asset.
6.4. For purposes of calculating the fair value of the purchase consideration,
in respect of the shares to be issued, it has been assumed that the fair
value of Ellies shares is R2.00 per share, being the issue price of a
rights offer share.
6.5. Estimated transaction costs of R0.5 million were accrued and expensed in
accordance with IFRS 3 (Business Combinations).
WITHDRAWAL OF CAUTIONARY
The cautionary announcement dated 30 March 2010 is withdrawn. In due course
shareholders will be informed whether or not Ellies has exercised the option
and, if it does, of more detail of the resulting transaction.
13 April 2010
Corporate advisor, legal advisor and designated advisor
Java Capital (Proprietary) Limited
Date: 13/04/2010 10:35:01 Produced by the JSE SENS Department.
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