| Wed 23 Jun 2010, 14:00 | | HDC - Hudaco - Announcement regarding the acquisition of Filter and Hose |
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HDC
HDC
HDC - Hudaco - Announcement regarding the acquisition of Filter and Hose
Solutions (Pty) Ltd ("FHS")
HUDACO INDUSTRIES LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1985/004617/06)
Share code: HDC & ISIN: ZAE000003273
("Hudaco")
ANNOUNCEMENT REGARDING THE ACQUISITION OF FILTER AND HOSE SOLUTIONS (PTY) LTD
("FHS")
1. INTRODUCTION
Shareholders are advised that Hudaco has entered into a binding Heads of
Agreement with Corvest 6 (Proprietary) Limited and Shalamuka Capital
(Proprietary) Limited ("the Sellers") as well as Messrs M Peterson, B
Fieldgate, P Venter, F Venter and J van Zyl ("the Management Sellers") to
acquire 100% of the issued share capital and shareholders` loans of FHS
with effect from 1 September 2010 ("the Transaction").
2. RATIONALE FOR THE TRANSACTION
Hudaco is a South African group of companies specialising in the
importation and distribution of selected high quality engineered and
security products in the southern African region. One of Hudaco`s key
strategies is to apply its strong cash flows to acquire new businesses in
similar fields of activity when the opportunity arises.
FHS imports, purchases and distributes quality branded filter products used
in open cast mining and other earthmoving equipment in southern Africa. FHS
employs 110 people in a single location and generates sales of R220 million
per annum.
The business of FHS is an ideal fit for Hudaco in that it focuses on
selling branded consumables to the engineering aftermarket, which is an
area of core competency for Hudaco. Hudaco will be able to utilise its
experience and expertise in that market to enhance FHS`s position,
resulting in long term benefits to shareholders.
3. DETAILS OF THE TRANSACTION
3.1 Purchase consideration
The purchase consideration will be a multiple of the average profit
after tax (but before interest received) of FHS for the three years
ending 31 August 2013, subject to a maximum consideration of R350
million, settled out of Hudaco`s available cash resources as follows:
- an initial amount of R182 million payable in cash on 1 September
2010; and
- three tranches payable in cash on 31 October 2011, 2012 and 2013,
based on actual levels of average profitability achieved in each
of those years.
If the business grows profits at 12% per annum, the total
consideration will be R272 million.
3.2 Management
The Management Sellers, who include the managing director and
financial director, will enter into service contracts for a minimum
period of three years and restraint of trade agreements in favour of
Hudaco for a period of three years after their employment ceases.
3.3 Suspensive conditions
The Transaction is conditional upon the following:
- such approvals as may be required by the Competition Authorities;
- satisfactory due diligence of the business of FHS;
- consent by the major suppliers of FHS to continue their supply
arrangements; and
- transfer of the lease over FHS`s property in Boksburg.
4. PRO FORMA FINANCIAL EFFECTS
The table below sets out the unaudited pro forma financial effects of the
Transaction on Hudaco`s earnings per share ("EPS") , headline earnings per
share ("HEPS"), fully diluted earnings per share ("FDEPS"), net asset value
per share ("NAV") and net tangible asset value per share ("NTAV"). The
unaudited pro forma financial effects and the preparation thereof, which is
the responsibility of the directors of Hudaco, has been prepared for
illustrative purposes only, and because of its nature, may not give a fair
reflection of Hudaco`s financial position and results of operations, nor
the effect and impact of the Transaction on Hudaco going forward.
Before the After the
Transaction Transaction Change
(cents)1 (cents)2,3,7
HEPS 801 848 5.9%
EPS 784 831 6.0%
FDEPS 785 831 5.9%
NAV 3 681 3 678 -0.1%
NTAV 3 250 2 760 -15.1%
Notes:
1. The amounts in the "Before" column are based on the audited financial
results for Hudaco for the year ended 30 November 2009.
2. The amounts in the "After" column have been calculated using the
audited results of FHS for the year ended 31 August 2009.
3. The amounts in the "After" column have been adjusted to take into
account notional interest forfeited on the initial purchase
consideration of R182 million at 7% per annum, less taxation thereon.
The level of profitability of FHS for the year ended 31 August 2009 as
used for these pro forma financial effects would not result in any
additional payments and therefore no notional interest has been
imputed on any deferred payments that may become payable if the actual
profits of FHS are higher during the first three years after the
transaction.
4. For the purposes of calculating HEPS, EPS and FDEPS, it was assumed
that the Transaction was effective on 1 December 2008.
5. For the purposes of calculating NAV and NTAV, it was assumed that the
Transaction was effective on 30 November 2009.
6. Per share earnings have been calculated using the weighted average
number of shares in issue for the year ended 30 November 2009, being
31 023 025 shares for HEPS and EPS and 31 643 744 shares for FDEPS.
NAV and NTAV have been calculated based on the 31 239 951 shares in
issue at 30 November 2009 net of those held by a Hudaco subsidiary.
7. Estimated transaction costs of a non-recurring nature amounting to R1
million (net of taxation) relating to the Transaction have been
included in the determination of all the amounts in the "After"
column.
8. As no purchase price allocation has yet been conducted, no account has
been taken of amortisation of intangible assets that may be
identified.
5. CATEGORISATION
The Transaction has been classified as a category 2 transaction in terms of
Section 9 of the JSE Limited Listing Requirements and accordingly,
shareholder approval is not required.
Johannesburg
23 June 2010
Investment Bank and Sponsor
Nedbank Capital
Date: 23/06/2010 14:00:02 Produced by the JSE SENS Department.
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