| Tue 27 Feb 2001, 0:00 | | Hudaco/elsec - Offer To Purchase |
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Hudaco Industries Limited Elvey Security Technologies Limited
(Incorporated in the Republic of (Incorporated in the Republic of South
Africa) South Africa)
(Registration number 1985/004617/06) (Registration number 1998/010220/06)
("Hudaco") ("Elsec")
FIRM INTENTION TO MAKE AN OFFER BY HUDACO TO THE SHAREHOLDERS OF ELSEC TO
ACQUIRE THEIR SHARES
1. Introduction
Grant Thornton Kessel Feinstein Corporate Finance (Proprietary) Limited is
authorised to announce that Hudaco or its nominated subsidiary, proposes to
make an offer in terms of Section 440 of the Companies Act, No. 61 of 1973, as
amended ("the Act"), to the shareholders of Elsec ("Elsec shareholders"), to
acquire all of their shares in Elsec ("Elsec shares") on the terms and
conditions set out below ("the offer").
Based on 52 158 600 Elsec shares in issue and on the basis that all Elsec
shareholders accept the cash offer referred to in 3.1.1 below, the total
purchase consideration will amount to R46,943 million.
2. Rationale for the offer and overview of Elsec
Hudaco is a South African industrial group focussed on the distribution of
leading international brands of industrial and automotive consumable products.
Hudaco's current distribution businesses serve the South African mining,
agricultural, manufacturing and construction sectors which have been
experiencing difficult operating conditions. Exposure to these mature or
declining markets has made it difficult for Hudaco to achieve sales and
earnings growth over the last few years.
Elsec and its subsidiaries ("the Elsec group") are the leading distributors to
the southern african security industry of electronic security systems and
software including monitoring equipment, access control and intruder detection
products with an annual turnover in excess of R100 million. The Elsec group's
customer base consists of businesses which install electronic security, CCTV,
access control and fire detection equipment and monitoring companies. Through
the recent acquisition of Video Options its offering has been expanded into
local and remote surveillance. Equipment is sourced from various leading
international manufacturers under exclusive distribution agreements.
Significant technological advances in recent years have increased the
applications, reliability and ease of use of security and surveillance systems.
These advances and the enormous challenges that South Africa faces in the
areas of physical security and theft control, mean that Elsec is well
positioned to benefit from continued growth in the future. Hudaco's financial
strength, expertise in distribution and its extensive branch network are also
expected to enhance Elsec's growth prospects.
3. Salient information of the offer
3.1 Terms
Each Elsec shareholder that accepts the offer shall have the right to receive,
in consideration for the sale of the Elsec shares, either:
3.1.1 90 cents per Elsec share ("the cash offer"); or
3.1.2 at the election of an Elsec shareholder, an earn out offer comprising of
the following:
3.1.2.1 In respect of two thirds of the shareholding in Elsec, 90 cents per
Elsec share; plus
3.1.2.2 in respect of the remaining one third shareholding in Elsec:
1 cent; plus
an additional amount calculated by way of a table ("the table") based on the
average annualised headline earnings per share ("HEPS") of the Elsec group for
the financial periods ending 30 November 2001, 2002 and 31 May 2003.
both 3.1.2.1 and 3.1.2.2 collectively referred to as "the earn out offer".
Based on the table, full details of which will be included in the offer
circular to Elsec shareholders, the additional amount will be as follows:
HEPS Additional amount per remaining Elsec share
10,9 cents 60 cents
15 cents 90 cents
20 cents 120 cents
24,9 cents 193,3 cents
This additional amount is subject to a minimum of 35 cents per Elsec share.
3.2 Interest
In the event of any delays in obtaining regulatory approvals, the consideration
payable to Elsec shareholders referred to in 3.1.1 and 3.1.2.1 above will earn
interest at the daily call rate for deposits in excess of R1 million calculated
from 27 April 2001 until the date on which the consideration is paid.
3.3 Payment in terms of the offer
The consideration payable to Elsec shareholders referred to in 3.1.1, 3.1.2.1
and the 1 cent referred to in 3.1.2.2 will be paid to Elsec shareholders within
7 days of the later of:
the date on which the suspensive conditions of the offer are fulfilled; or
the date on which Elsec share certificates or other documents of title
(accompanied by a form of acceptance, election, transfer and surrender) are
lodged with the transfer secretaries.
The consideration payable to Elsec shareholders based on the HEPS of the Elsec
group, referred to in 3.1.2.2 above, will be paid within sixty days of Hudaco
publishing its interim results for the period ending 31 May 2003.
3.4 Period of the offer
This offer, subject to the fulfilment of the suspensive conditions, opens for
acceptance from 09h00 on or about Thursday, 22 March 2001 and will remain open
for a period of at least 14 days from the date upon which the offer becomes
unconditional ("the closing date").
Hudaco reserves the right to extend the closing date, in which event all
amended dates relating to the offer will be published in the press.
3.5 Suspensive conditions
The offer is conditional upon the fulfilment of the following suspensive
conditions:
such approvals as may be required in terms of the Competition Act 89 of 1998,
as amended;
the necessary regulatory approvals of the JSE Securities Exchange South Africa
("JSE"), the South African Reserve Bank and the Securities Regulations Panel
("SRP");
that there are no material breaches of the warranties referred to in 9 below
prior to the fulfilment of the last of the other suspensive conditions;
the JSE confirming that Elsec may be delisted pursuant to the JSE Listings
Requirements; and
the offer being accepted by not less than 90% of Elsec shareholders.
Hudaco reserves the right to waive the last two suspensive conditions mentioned
above.
4. Cash confirmation
The SRP has been provided with confirmation by Nedcor Bank Limited that Hudaco
has sufficient financial resources available to satisfy full acceptance of the
offer.
5. Compulsory acquisition of Elsec shares
In the event that the offer is accepted by Elsec shareholders holding not less
than 90% of the issued share capital of Elsec, Hudaco intends to invoke section
440K of the Act, to compulsorily acquire the Elsec shares held by Elsec
shareholders who have not, at the closing date, accepted the offer. The terms
of the compulsory acquisition will be identical to those of the cash offer.
6. Delisting of Elsec
Hudaco intends to apply to the JSE for the delisting of Elsec as soon as
practically possible after the closing date, whether or not the provisions of
Section 440K of the Act are invoked, in accordance with the Listings
Requirements of the JSE.
7. Irrevocable undertakings
The controlling shareholders, being Paul Wainstein, Bellaire Investments
Limited, Ryton Limited, The Hyman Ralph Wainstein Will Trust, The Jacob Edery
Family Trust, Andrew Stead, The Elsec Share Incentive Trust and Jack Edery, who
collectively own 86,8% of the issued share capital of Elsec, have irrevocably
undertaken to accept the offer in respect of their own shareholdings.
Paul Wainstein and Jack Edery, being the chief executive officer and chief
financial officer of Elsec respectively, The Jacob Edery Family Trust and
Andrew Stead have undertaken to accept the earn out offer.
8. Management of Elsec
The executive senior management of Elsec including Paul Wainstein and Jack
Edery, have entered into service contracts for a period of two and a half years
and restraint of trade agreements for a period of three years after employment
ceases with the Elsec group.
9. Special arrangements and cancellation
Certain of the controlling shareholders have given warranties and indemnities
in respect of the Elsec group, which relate inter alia to the financial
position of Elsec and to its operations.
Paul Wainstein has entered into an agreement with Elsec and Hudaco governing
the operation and management of the Elsec group during the period relating to
the earn out offer, which contains purchase price adjustment provisions in
favour of the Elsec shareholders which are standard in agreements containing
earn out provisions. The agreement provides for a mechanism to adjust the HEPS
referred to in 3.1.2.2 above in circumstances where certain transactions are
implemented which will have a material negative effect on the HEPS.
Hudaco reserves the right to cancel the offer should a material breach of the
warranties occur before fulfilment of the suspensive conditions referred to in
paragraph 3.5 above (other than the suspensive condition relating to a breach
of warranty). Hudaco shall not be obliged to compensate Elsec shareholders in
any manner, save to return all share certificates or other documents of title
surrendered by Elsec shareholders pursuant to the offer. It is a term of the
offer that Elsec shareholders who accept the offer agree to the cancellation
and waive any rights that they may otherwise have against Hudaco arising out of
such cancellation.
10. Independent opinions
The board of directors of Elsec has appointed PSG Investment Bank Limited to
advise them regarding the terms and conditions of the offer. Their opinion
will be included in the offer circular to shareholders, referred to in 13 below
11. Financial effects of the offer on Elsec shareholders
11.1 The table below sets out the pro forma financial effects on an Elsec
shareholder who accepts the cash offer:
Before After
acceptance of acceptance of
the offer the offer %
(cents) (cents) change
Market value per share (1) 57,0 90,0 57,9%
Market value per share (2) 70,0 90,0 28,6%
Net asset value per share (3) 57,1 90,0 57,6%
Earnings per share (4) 14,9 4,7 (68,5%)
Notes:
1. Based on the closing price of Elsec shares on the JSE on 15 January 2001,
being the day prior to the publication of the first cautionary announcement.
2. Based on the closing price of Elsec shares on the JSE on 26 February 2001,
being the last practicable date prior to the publication of this announcement.
3. Based on the net tangible asset value of Elsec at 31 December 2000.
4. Based on the pro forma earnings per Elsec share for the twelve months ended
31 December 2000 and on the proceeds of the offer being invested at current
call rates of 9,0% per annum for the twelve months ended 31 December 2000, less
the maximum individual tax rate.
12. Financial effects of the acquisition on Hudaco shareholders
The table below sets out the pro forma financial effects of the acquisition on
a Hudaco shareholder, based on the assumptions listed below:
Before After
acceptance of acceptance of
the offer the offer %
(cents) (cents) change
Headline earnings per share 171,1 181,5 6,1%
Earnings per share 171,1 175,2 2,4%
Diluted earnings per share 166,9 170,8 2,4%
Net asset value per share 1 012,4 1 012,4 -
Tangible net asset value per
share 1 012,4 944,6 (6,7%)
Assumptions:
1. The amounts in the "Before" column are based on the audited financial
results of Hudaco for the year ended 30 November 2000.
2. The amounts in the "After" column have been calculated utilising the pro
forma results of Elsec for the twelve months ended 31 December 2000 and the
balance sheet at that date and on the basis that the cash offer referred to in
3.1.1 is accepted by all shareholders.
3. The amounts in the "After" column have been adjusted to take into account a
notional interest cost on funds amounting to R46,943 million which will be
utilised to effect the acquisition, borrowed at 13,5% per annum less taxation
thereon.
4. The earnings per share and the tangible net asset value per share in the
"After" column have been adjusted to take into account estimated goodwill
amounting to R18,876 million, arising on the acquisition calculated with
reference to the tangible net asset value of Elsec at 31 December 2000 and
estimated transaction costs to be amortised over ten years.
5. Earnings per share and headline earnings per share effects have been
calculated utilising the weighted average number of Hudaco shares in issue for
the year ended 30 November 2000, being 29 682 000 Hudaco shares. Net asset
value per share and tangible net asset value per share effects have been
calculated based on the shares in issue at 30 November 2000, net of those held
by a Hudaco subsidiary, being
27 865 000 Hudaco shares.
13. Documentation
Subject to the approvals of the necessary regulatory authorities, a circular
containing full details of the offer will be posted to Elsec shareholders on or
about Thursday, 22 March 2001.
Johannesburg
28 February 2001
Transaction facilitators and Corporate advisors
Grant Thornton Kessel Feinstein Corporate Finance (Proprietary) Limited
Registration number 2000/002649/07
Attorneys to Elsec Attorneys to Hudaco
Fluxman Rabinowitz Raphaely Weiner Werksmans
Sponsor to Elsec Investment bank and Sponsor to Hudaco
Appleton Limited NIB
