| Wed 4 Apr 2012, 8:00 | | ARH - ARB Holdings Limited - Acquisition of 100% of Industrial Cable Suppliers |
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ARH
ARH
ARH - ARB Holdings Limited - Acquisition of 100% of Industrial Cable Suppliers
(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 ELECTRICAL WHOLESALERS (PROPRIETARY) LIMITED ("ARB
ELECTRICAL") OF 100% OF THE EQUITY INTEREST IN INDUSTRIAL CABLE SUPPLIERS
(PROPRIETARY) LIMITED ("ICS") AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
1. Introduction
1.1 Further to the cautionary announcement first published on 17 January
2012 and subsequently renewed on 28 February 2012, shareholders are
advised that ARB Electrical (a major subsidiary of ARB) has
concluded a sale of shares agreement ("the Sale Agreement") with DSC
Investment (Proprietary) Limited ("DSC"), Sasfin Private Equity
Investment Holdings (Proprietary) Limited ("Sasfin") and Neville
Nathan Kobrin ("Kobrin") (collectively, "the ICS Vendors") to
acquire all of their ordinary shares and any claims on shareholders`
loan accounts in ICS ("the ICS Acquisition").
1.2 The purchase price, payable in cash, is based on a premium of
approximately 14.7% to the Net Tangible Asset Value ("NTAV") of ICS
as at the effective date of the ICS Acquisition ("the Effective
Date") being the first business day of the month immediately
following the month in which all the suspensive conditions have been
satisfied or waived ("Share Purchase Price") plus the face value of
the claims on shareholders` loan accounts ("Total Purchase Price").
1.3 ARB Electrical and the ICS Vendors ("the Parties") have agreed that
the Share Purchase Price will not exceed R55 million and, taking
into consideration the current claims on shareholders` loan accounts
of R3,33 million, the ICS Acquisition is categorised as a Category 2
transaction in terms of the Listings Requirements of the JSE
Limited ("JSE").
1.4 Kobrin, the incumbent managing director, of ICS, has entered into an
employment and/or consultancy agreement with ICS from the Effective
Date for a period not exceeding 12 months in order to facilitate a
smooth handover of the operations to ARB Electrical ("the Service
Agreement"). The Service Agreement incorporates appropriate
restraint of trade, confidentiality and intellectual property
undertakings by Kobrin.
As ICS will become a subsidiary of ARB from the Effective Date, ARB
will confirm in writing to the JSE that ICS` memorandum of
incorporation has been amended to conform to Schedule 10 of the
Listings Requirements of the JSE.
2. Nature of the ICS business
2.1 ICS, established in 1979, is an independent specialist distributor
of low, medium and high voltage power cables and electric wire
products. Through its two strategically located branches, in central
Johannesburg and in Rustenburg, ICS supplies the mining sector,
local industry, electrical contractors and other electrical
wholesalers.
2.2 ICS owns two properties in Johannesburg comprising Erf 101, Reuven
Ext 1 and Erf 102, Reuven Ext 1, Johannesburg, which form part of
the ICS Acquisition. The premises from which ICS`s Rustenburg
branch operates is currently leased by ICS, however, the ARB board
of directors has in principle agreed to purchase this property from
the current third-party owner for a cash consideration of
R2,427,600.
3. Rationale for the Acquisition
ICS is a natural fit for ARB Electrical given its strong reputation,
operational similarity and strategic geographic footprint. Furthermore,
the ICS Acquisition presents several value enhancing opportunities
including:
* accessing new geographic markets and further establishing ARB
Electrical within the mining sector;
* extending ARB Electrical`s national branch network to 17 branches
across South Africa through the addition of ICS`s central
Johannesburg and Rustenburg branches;
* significantly augmenting ARB Electrical`s purchasing power through
the addition of ICS`s cable and wire volumes;
* expanding ICS`s existing wire and cable product offering through the
introduction of cable accessories and general low voltage electrical
products into ICS`s branches;
* leveraging ARB Electrical`s existing BEE status to support ICS in
its targeting of certain strategic customers and market sectors;
* bolstering ARB Electrical`s operational management team by retaining
ICS`s experienced staff; and
* leveraging ARB Electrical`s centralised back-office to improve
operational efficiencies.
ARB is of the view that the ICS Acquisition will be earnings and value
enhancing from the outset.
4. Purchase Price and related settlement
4.1 The Total Purchase Price will be settled in cash as follows:
a. 50% of the Share Purchase Price plus the full face value of the
claims on shareholders` loan accounts is payable to the ICS
Vendors on the 3rd business day following the finalisation of
the unaudited management accounts of ICS as at the Effective
Date;
b. 25% of the Share Purchase Price is payable to the ICS Vendors
on the 3rd business day following the delivery of a certificate
by an independent firm of auditors appointed by the Parties
reflecting the NTAV of ICS for purposes of calculating the
Total Purchase Price; and
c 25% of the Share Purchase Price will be held in an escrow
account by ARB`s attorneys, payable to the ICS Vendors after
the expiry of nine months from the Effective Date and subject
to any warranty and indemnity claims by ARB Electrical.
5. Conditions precedent
5.1 The Sale Agreement contains warranties, indemnities and restraint of
trade undertakings which are normal for a transaction of this nature
and remains subject to, inter alia:
a. obtaining the approval of the Competition Commission for the
change in control in ICS without conditions or, if approved
subject to one or more conditions, the unconditional acceptance
of such conditions by the Parties; and
b. ARB Electrical receiving written confirmation from ICS`s
bankers, First National Bank - a division of FirstRand Bank
Limited ("FNB"), consenting to the disposal by the ICS Vendors
of their shares in ICS to ARB Electrical and confirming that
ICS is not in breach of any of its obligations in respect of
the general banking facility letters and funding agreements
entered into between ICS and FNB.
5.2 Shareholders will be advised once the ICS Acquisition has become
unconditional.
6. Pro forma financial effects
Shareholders are referred to the announcement released on SENS on 25
October 2011 whereby ARB acquired 60% of the issued ordinary share
capital and claims on shareholders` loan accounts in Eurolux
(Proprietary) Limited ("Eurolux") from the shareholders of Eurolux ("the
Eurolux Vendors")("the Eurolux Acquisition"). The effective date of the
Eurolux Acquisition was 3 January 2012 and therefore no financial results
pertaining to Eurolux were included in ARB`s unaudited consolidated
interim financial statements for the six months ended 31 December 2011
(other than the transaction costs pertaining to the Eurolux Acquisition).
As such, the unaudited pro forma financial effects below firstly reflect
the pro forma effects of the Eurolux Acquisition followed by the effects
of the ICS Acquisition.
In terms of the ICS Acquisition, the maximum Share Purchase Price of R55
million plus the claims on shareholders` loan accounts of R3,33 million
has been assumed for purposes of the unaudited pro forma financial
effects below.
The unaudited pro forma financial effects, for which the directors are
responsible, are provided for illustrative purposes only to show the
effect of the ICS Acquisition on the earnings, headline earnings, diluted
earnings and diluted headline earnings per share of ARB (including its
60% interest in Eurolux) as if the ICS Acquisition had taken effect on 1
July 2011 and on the net asset value and net tangible asset value per
share of ARB (including its 60% interest in Eurolux) as if the ICS
Acquisition had taken effect on 31 December 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
unaudited consolidated interim financial statements of ARB for the six
months ended 31 December 2011 and the unaudited management accounts of
Eurolux and ICS for the six months ended 29 February 2012 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 After Note Chang After Notes Chang Combine
the the s e (%) the ICS Change e (%) d
Eurolux Eurolux Acquisi-(%) change
Acquisi- Acquisi- tion (%) of
tion tion (Note 5 the
and ICS (Note 2 and 6) Eurolux
Acquisi- and 3) Acquisi-
tion tion
(Note and ICS
1) Acquisi-
tion
(Note
10)
Basic 15,70 17,76 4,9 13,1 18.52 7,8,9 4,3 18,0
earnings
per share
(cents)
Diluted 15,66 17,72 4,9 13,1 18.48 7,8,9 4,3 18,0
earnings
per share
(cents)
Headline 15,69 17,75 4,9 13,1 18.51 7,8,9 4,3 18,0
earnings
per share
(cents)
Diluted 15,65 17,71 4,9 13,1 18.47 7,8,9 4,3 18,0
headline
earnings
per share
(cents)
Net asset 227,84 227,84 9 - 227.84 8,9 - -
value per
share
(cents)
Net 226,46 209,13 9 -7,7 203.91 8,9 -2,5 10,0
tangible
asset
value per
share
(cents)
Shares in 235 000 235 000 - 235 000 - -
issue
(`000)
Weighted 235 000 235 000 - 235 000 - -
average
number of
shares in
issue
(`000)
Diluted 235 480 235 480 - 235 480 - -
weighted
average
number of
shares in
issue
(`000)
Notes:
1. The "Before the Eurolux Acquisition and ICS Acquisition" column
reflects the unaudited consolidated interim results of ARB for the
six months ended 31 December 2011.
2. The "After the Eurolux Acquisition" column reflects what the results
would have been had the Eurolux Acquisition been effective for the
full six month period ended 31 December 2011 for statement of
comprehensive income purposes, and as at 31 December 2011 for
statement of financial position purposes.
3. Eurolux`s results for the six months ended 29 February 2012 have
been extracted from Eurolux`s unaudited management accounts. The
Eurolux results have been adjusted in respect of:
a. the 40% shareholding in Eurolux which ARB did not acquire;
b. the reorganisation of the Eurolux 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 of the
Eurolux Acquisition;
c. the terms of the new property leases entered into by Eurolux in
respect of the Cape Town and Johannesburg premises from which
Eurolux operates;
d. the cancellation of the Hollard policy held by Eurolux and
recognition of the subsequent receipt of proceeds; and
e. tax has been provided for using a rate of 28%.
4. The ongoing interest income foregone in respect of the Eurolux
Acquisition (as ARB settled the purchase price pertaining to the
Eurolux Acquisition from its own cash resources) has been provided
for using a rate of 6% per annum (pre-tax).
5. The "After the ICS Acquisition" column reflects what the results
would have been had both the Eurolux Acquisition and ICS Acquisition
been effective for the full six month period ended 31 December 2011
for statement of comprehensive income purposes, and as at 31
December 2011 for statement of financial position purposes.
6. ICS`s results for the six months ended 29 February 2012 have been
extracted from ICS`s unaudited management accounts. The ICS results
have been adjusted in respect of:
a. the impairment of the intangible assets of ICS prior to the
Effective Date and reversal of the amortisation charge in
respect thereof;
b. the reversal of the net rentals paid by ICS in respect of
property leases which expire prior to the Effective Date and
which will not be renewed as well as the impairment of
leasehold improvements and the reversal of the related
depreciation charge in respect of one of the aforementioned
property leases; and
c. tax has been provided for using a rate of 28%.
These adjustments are in addition to the adjustments referred to in
note 3 above.
7. The ongoing interest income foregone in respect of the ICS
Acquisition (as ARB is settling the purchase price pertaining to the
ICS Acquisition from its own cash resources) has been provided for
using a rate of 6% per annum (pre-tax). This is in addition to the
ongoing interest foregone assumed in note 4 above.
8. ARB`s share of the once-off transaction costs in respect of the ICS
Acquisition amounting to approximately R237 000 (pre-tax) have been
expensed in full.
9. Based on the unaudited management accounts of Eurolux and ICS for
the six months ended 29 February 2012, after adjusting for the
abovementioned items, ARB`s share of the net assets and attributable
earnings of Eurolux and ICS is as follows:
Net assets Attributable
earnings
Eurolux (net of the 40% R39,0 million R6,6 million
minority shareholders in
Eurolux`s interests)
ICS (net of the 26% minority R32,1 million R3,0 million
shareholder in ARB
Electrical`s interest)
10. This percentage calculation is based on the difference between the
"After the ICS Acquisition" column and the "Before the Eurolux
Acquisition and ICS Acquisition" column.
Shareholders should note that the results of Eurolux and ICS have been
extracted from the unaudited management accounts of Eurolux and ICS for
the six months ended 29 February 2012. ARB is, however, satisfied with
the quality of both these sets of management accounts and the related
procedures adopted by Eurolux and ICS in preparing these management
accounts.
7. Withdrawal of cautionary announcement
ARB shareholders are advised that the cautionary announcement which was
last renewed on 28 February 2012 is hereby withdrawn.
Durban
4 April 2012
Sponsor to ARB:
Grindrod Bank Limited
Legal adviser to ARB:
Brink Cohen Le Roux Incorporated
Date: 04/04/2012 08:00:02 Produced by the JSE SENS Department.
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