| Tue 25 Oct 2011, 8:00 | | ARH - ARB Holdings Limited - Acquisition of 60% of Eurolux (Proprietary) |
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ARH
ARH
ARH - ARB Holdings Limited - Acquisition of 60% of Eurolux (Proprietary)
Limited
ARB HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration Number 1986/002975/06)
Share Code: ARH ISIN: ZAE000109435
("ARB" or "the ARB Group")
Acquisition by ARB of a controlling equity interest in Eurolux
(Proprietary) Limited ("Eurolux") and withdrawal of cautionary announcement
1. Introduction
Further to the cautionary announcement first published on 12 August
2011 and subsequently renewed on 29 September 2011, shareholders are
advised that ARB has concluded a sale of shares agreement ("the Sale
Agreement") with the Trustees of the Happy Light Bulb Trust, the SARMS
Trust, Peter Willig ("Willig"), Shaun Kelly Bouchier ("Bouchier"),
Steven John Palframan ("Palframan") and Sandra Lynn Palframan
(collectively, "the Vendors") to acquire60% of the issued ordinary
share capital and any claims on shareholders` loan accounts in Eurolux
from the Vendors for a cash purchase consideration of R81 million
("the Acquisition").
Willig, Bouchier and Palframan ("the Executives") are retained as the
executive management team in Eurolux and have entered into new service
and restraint contracts with Eurolux. The Vendors will continue to
hold a 40% equity interest in Eurolux.
2. Nature of Eurolux`s business
Eurolux was founded in 1991 and acquired by the Vendors during 2002.
Eurolux is one of the leading importers and distributors of:
* incandescent, energy saving, LED and fluorescent lamps;
* a broad range of light fittings, comprising ceiling and wall
lights, chandeliers, pendants, spot lights and down lights, desk
and floor lamps, outdoor and security lights; and
* ancillary electrical products including fans and electrical
lighting components.
The business currently operates out of 2 custom designed and built
warehouses (accompanied by showrooms) situated in Milnerton, Cape Town
("the Cape Town premises") and Linbro Business Park, Johannesburg
("the Johannesburg premises").
Eurolux does not sell directly to the public but focuses on selling
and distributing its products to specialised lighting shops,
independent electrical wholesalers and major retail chain stores in
South and southern Africa. To the extent required, all products
imported by Eurolux either bear the South African Bureau of Standards
mark or comply with the requirements set out by the National Regulator
for Compulsory Specifications.
The Executives have identified the commercial and industrial lighting
markets as areas of growth potential and have recently sourced their
first range of products to sell into these markets.
3. Rationale for the Acquisition
The Acquisition forms part of ARB`s long-term strategy to offer a
diversified range of electrical and related industrial products to a
wide range of industries and customers. As a trading and distribution
business, Eurolux is strategically aligned with ARB`s core
competencies and provides ARB with a unique opportunity to leverage
its existing share of the lighting sector. The well-branded range of
high quality lamps and lighting products offered by Eurolux augments
ARB`s extensive range of electrical products and is sold into a
complementary, rather than overlapping, customer base.
The Acquisition provides an opportunity to leverage:
* ARB`s distribution network to accelerate growth within certain of
Eurolux`s product categories and market segments including the
commercial and industrial lighting markets;
* Eurolux`s international procurement expertise and relationships
to source other related products for ARB; and
* ARB`s and Eurolux`s export strategies into the SADC region.
The Executives, who are young, dynamic and highly experienced, will
remain significantly invested in Eurolux and will continue to manage
Eurolux as a stand-alone business within the ARB group.
The board of ARB expects the Acquisition to be earnings-enhancing and
value-creating for ARB shareholders from the outset.
4. Salient features of the Acquisition
The effective date of the Acquisition ("the Effective Date") is the
first business day of the month immediately following the month in
which all the suspensive conditions have been satisfied or waived.
In terms of the Sale Agreement, ARB will acquire 60% of the issued
ordinary share capital and any claims on shareholders` loan accounts
in Eurolux for a cash consideration of R81 million ("the Purchase
Price") on the Effective Date. An amount of R8.1 million (10% of the
Purchase Price) will be held in an escrow account for a period of five
months from the Effective Date to account for any potential warranty
claims by ARB. The Sale Agreement with the respective Vendors further
incorporates restraint of trade undertakings and other warranties that
are standard for a transaction of this nature.
The Vendors are precluded from disposing of their remaining 40% equity
interest in Eurolux during the first three years from the Effective
Date ("Lock-in Period"). Subsequent to the Lock-in Period, standard
pre-emptive rights apply whereby the Vendors are obliged to offer
their remaining shares to ARB first upon receipt of a third party
offer at any time during the two-year period post the Lock-in Period.
The Vendors have been granted a put option ("the Put Option")in terms
of which they can sell their remaining 40% equity interest in Eurolux
to ARB after five years from the Effective Date (subject to the
Vendors giving ARB six months` notice of their intention to exercise
their Put Option) based on a price equal to 60% of ARB`s price
earnings multiple ("PE multiple") determined using ARB`s 120-day
volume weighted average price at the time (and further subject to a
maximum PE multiple of 7.5 and a minimum PE multiple of 4) multiplied
by Eurolux`s average annualised consolidated profit after tax for the
thirty-six months immediately preceding ARB`s most recent reporting
date (whether interim or full year). To the extent required, the Put
Option is subject to the approval of ARB shareholders in terms of the
JSE Limited`s ("JSE") Listings Requirements ("the Listings
Requirements") and any other regulatory and statutory requirements, as
applicable at such time.
In the event that any Vendor`s employment with Eurolux is terminated
for any reason whatsoever,ARB has been granted a call option to
acquire such Vendor`s shares and claims in Eurolux utilising the same
valuation methodology as per the Put Option above.
Eurolux will enter into nine-year and eleven-month leases,based on
market related rentals and escalations with the property holding
company which owns the Cape Town premises ("CT Propco") and also the
property holding company which owns the Johannesburg premises ("JHB
Propco"). CT Propco and JHB Propco are both owned by the Vendors.
ARB has been granted a call option to acquire the Cape Town premises
and/or the Johannesburg premises at their fair market values after
five years from the commencement of the relevant lease periods
("Property Call Option"). In addition, ARB has a right of first
refusal to acquire the Cape Town premises and/or the Johannesburg
premises from the Vendors should they wish to dispose of either these
premises or their shares in CT Propco and/or JHB Propco prior to ARB
exercising the Property Call Option.
5. Conditions precedent
The Sale agreement remains subject to, inter alia,obtaining the
approval of the Competition Commission for the change in control in
Eurolux without conditions or if approved subject to one or more
conditions, the unconditional acceptance of such conditions by ARB and
the Vendors.
ARB shareholders will be advised once the Acquisition has become
unconditional.
As Eurolux will become a subsidiary of ARB from the Effective Date,
ARB will confirm in writing to the JSE that Eurolux`s memorandum of
incorporation has been amended to conform to Schedule 10 of the
Listings Requirements.
6. Pro forma financial effects
The unaudited pro forma financial effects, for which the directors are
responsible, are provided for illustrative purposes only to show the
effect of the Acquisition on the earnings, headline earnings, diluted
earnings and diluted headline earnings per share as if the Acquisition
had taken effect on 1 July 2010 and on the net asset value and net
tangible asset value per share as if the Acquisition had taken effect
on 30 June 2011. Because of their nature, the unaudited pro forma
financial effects may not give a fair presentation of ARB`s financial
position and performance. The unaudited pro forma financial effects
have been compiled from the audited consolidated financial statements
of ARB for the twelve months ended 30 June 2011 and the unaudited
management accounts of Eurolux for the twelve months ended 31 August
2011 and are presented in a manner consistent with the format and
accounting policies adopted by ARB and have been adjusted as described
in the notes below.
Before the After the Notes Change
Acquisition Acquisition (%)
(Note 1) (Note 2 and 3)
Basic earnings per 30.65 32.67 4,5,6 6.6
share (cents)
Diluted earnings per 30.58 32.60 4,5,6 6.6
share (cents)
Headline earnings 30.64 32.66 4,5,6 6.6
per share (cents)
Diluted headline 30.57 32.60 4,5,6 6.6
earnings per share
(cents)
Net asset value per 224.39 223.70 5,6 (0.3)
share (cents)
Nettangible asset 223.20 198.94 5,6 (10.9)
value per share
(cents)
Shares in issue 235 000 235 000 -
(`000)
Weighted average 235 000 235 000 -
number of shares in
issue (`000)
Diluted weighted 235 480 235 480 -
average number of
shares in issue
(`000)
Notes:
1. The "Before the Acquisition" column reflects the audited
consolidated results of ARB for the twelve months ended 30 June
2011.
2. The "After the Acquisition" column reflects what the results
would have been had the Acquisition been effective for the full
twelve-month period ended 30 June 2011 for income statement
purposes, and as at 30 June 2011 for balance sheet purposes.
3. Eurolux`s results for the twelve months ended 31 August 2011 have
been extracted from Eurolux`s unaudited management accounts. The
Eurolux results have been adjusted in respect of:
a. the 40% shareholding in Eurolux that ARB is not acquiring;
b. the reorganisation of the Vendors` interests in Cathay
Lighting International (Pty) Ltd ("Cathay"), a sister
company of Eurolux, resulting in Cathay becoming a wholly-
owned subsidiary of Eurolux prior to the Effective Date;
c. the terms of the property leases entered into by Eurolux in
respect of the Cape Town and Johannesburg premises; and
d. the cancellation of the Hollard policy held by Eurolux and
recognition of the subsequent receipt of proceeds.
4. The ongoing interest income which has been lost (as ARB is
settling the purchase price from its own cash resources) has been
provided for using a rate of 6% per annum (pre-tax) in respect of
the facilities to be utilised to fund the Acquisition.
5. Once-off transaction costs in respect of the Acquisition of R1.8
million (pre-tax) have been expensed in full.
6. Tax has been provided for using a rate of 28%.
7. Based on the unaudited management accounts of Eurolux for the
twelve months ended 31 August 2011 after adjusting for the
abovementioned items,ARB`s share (i.e. 60%) of the net assets of
Eurolux that are the subject of the Acquisition amounts to R30
million and R10 million in respect of its attributable earnings.
Shareholders should note that the results of Eurolux have been
extracted from the unaudited management accounts of Eurolux for the
twelve months ended 31 August 2011. ARB is, however, satisfied with
the quality of these accounts and the related procedures adopted by
Eurolux in preparing these accounts.
7. Categorisation of the Acquisition
In terms of the Listings Requirements, the Acquisition is categorised
as a Category 2 transaction.
8. Withdrawal of cautionary announcement
ARB shareholders are advised that the cautionary announcement which
was last renewed on 29 September 2011 is hereby withdrawn.
Durban
25 October 2011
Corporate adviser and sponsor to ARB:
Grindrod Bank Limited
Legal adviser to ARB:
Brink Cohen Le Roux Incorporated
Corporate adviser to Eurolux:
Mazars Corporate Finance (Pty) Limited
Legal adviser to Eurolux:
John Taylor & Associates Incorporated
Date: 25/10/2011 08:00:02 Produced by the JSE SENS Department.
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