| Tue 13 Nov 2001, 0:00 | | Highveld Steel And Vanadium Corporation Limited - |
|
Highveld of 64% of its one-third share in the Columbus Joint
Venture
(Incorporated in the Republic of South Africa)
(Registration No. 1960/001900/06)
("Highveld")
Share Code: HVL
ISIN Code: ZAE000003422
A member of the Anglo American plc group
Disposal by Highveld of 64% of its one-third share in the Columbus
Joint Venture
Withdrawal of Cautionary Announcement
1. INTRODUCTION
Further to the cautionary announcement dated 24 July 2001,
shareholders of Highveld are advised that Highveld, Samancor
Limited ("Samancor") and the Industrial Development Corporation of
South Africa Limited ("IDC"), collectively the "Partners" in the
Columbus Joint Venture ("Columbus"), have reached agreement,
subject to the fulfilment of certain conditions precedent, with
Acerinox, S.A. ("Acerinox") on the sale by the Partners to
Acerinox of a 64% interest in the business of Columbus with effect
from 1 January 2002 ("the effective date") and the subscription by
the Partners for an aggregate of 5 800 000 new shares in the share
capital of Acerinox ("Acerinox shares").
Columbus owns and operates a stainless steel flat products
integrated mill in Middelburg, Mpumalanga. Highveld, Samancor and
the IDC each have an undivided one-third interest in Columbus.
2. THE TRANSACTION
Salient terms
In terms of the transaction, all aspects of which are indivisible,
the Partners will subscribe for the Acerinox shares at an agreed
price of Euro40 per share, equivalent to Euro232 000 000 in the
aggregate, and the Partners will sell to Acerinox 64% of the
business of Columbus for Euro232 000 000 in the aggregate.
The transaction will be implemented by:
- the Partners subscribing for the Acerinox shares at Euro40 per
share for an aggregate subscription price of Euro232 000 000;
the Partners subscribing for 1 770 new shares and renounceable
entitlements to 3 200 new shares in a new company to be named
Columbus Stainless (Pty) Ltd ("Columbus Stainless"), all of which
will be credited as fully paid, for a total consideration of R2,5
billion.
Columbus Stainless acquiring, for cash, the business of Columbus
as a going concern, including all fixed assets valued at R2,0
billion and net current assets (including short term loans) of
R0,5 billion; and
- the Partners renouncing their entitlements to be allotted 3 200
shares in Columbus Stainless in favour of Acerinox in
consideration for payment by Acerinox of the sum of Euro232 000
000.
After implementation of the transaction:
- each of the Partners will hold approximately 2,9% of Acerinox's
share capital and 12% of Columbus Stainless whilst Acerinox will
hold 64% of Columbus Stainless;
- unless Acerinox otherwise agrees, the Partners will be obliged
to hold at least 50% of their Acerinox shares for a period of 3
years from the effective date and the remaining 50% of their
Acerinox shares for a period of 5 years from the effective date;
and
- each of the Partners will be entitled to be represented on the
Board of Columbus Stainless.
Warranties
The Partners have given warranties and indemnities to Acerinox as
are normal for a transaction of this nature. In particular, the
Partners have undertaken to ensure that, as at the effective date,
the net asset value of Columbus Stainless will not be less than
R2,5 billion.
Conditions precedent
The implementation of the transaction is conditional upon, amongst
other things:
- the requisite approvals from the JSE Securities Exchange South
Africa ("the JSE"), the South African Reserve Bank and the United
Kingdom Treasury;
the approval of the transaction by the Competition Authorities in
terms of the South African Competition Act;
Columbus Stainless obtaining various licences, permits, consents
and other approvals from authorities regulating environmental
matters;
the passing of an ordinary resolution by the shareholders of
Highveld in general meeting approving the transaction;
consents from certain third party lenders to Columbus;
Columbus Stainless securing adequate facilities for the funding of
its working capital requirements; and
approval by the Spanish regulatory authorities for the increase of
the share capital of Acerinox.
Financial effects
For illustrative purposes, the pro forma financial effects of the
transaction on Highveld's headline earnings per share for the six
months ended 30 June 2001, as set out in the table below, have
been calculated as if the transaction had become effective on 1
January 2001 and on the accounting basis referred to in the next
paragraph.
In calculating the pro forma headline earnings, Highveld's
interests in Columbus Stainless and Acerinox have been accounted
for as investments as opposed to the previous proportional
consolidation of Highveld's one-third share in Columbus.
6 months to 30 June 2001 Increase
Actual Pro forma
(Cents) (Cents) (Cents)
Headline (loss)/earnings (27) 1 28 cents
per share
Notes:
Columbus' operating loss of R27 million (SA 19 cents per Highveld
share after tax) has been excluded from Highveld's results.
Net interest paid has been reduced by the net interest on the net
short-term debt of R598 million, which would have been assumed by
Columbus Stainless based on Columbus' balance sheet as at 1
January 2001. The average interest rate on such net short-term
debt was 11,93% (before tax) resulting in a saving of SA 9 cents
per Highveld share (after tax).
Highveld will participate in the profits of Acerinox with effect
from 1 January 2002. Dividends declared by Acerinox in the period
1 January 2001 to 30 June 2001 were from profits earned in the
previous financial year. Accordingly, no dividends from Acerinox
have been included in the pro forma headline earnings of Highveld
for the six months ended 30 June 2001. However, based on the
total dividends declared by Acerinox in respect of the year ended
31 December 2000, converted at R8,64 : Euro1,00 (as at 12 November
2001), Highveld could expect to receive dividends on an annual
basis of some SA 13 cents per Highveld share (after tax).
The weighted average number of Highveld shares in issue for the
period 1 January 2001 to 30 June 2001 was 97 560 574.
As provision for the loss on the disposal of 64% of its interest
in the business of Columbus was made in the interim results of
Highveld for the period to 30 June 2001, the transaction will have
no material effect on Highveld's net asset value.
3. RATIONALE
Columbus has for some years now incurred losses as a result of
depressed product prices mainly arising from industry over-
capacity and an inability to participate in industry
consolidation, which allowed competitors to rationalise costs and
operate profitably. In addition, the Partners have not been able
to provide Columbus with access to new technology.
Acerinox, listed on the Madrid Stock Exchange, is arguably the
most successful stainless steel producer in the world and has
already expanded internationally. Acerinox is widely acknowledged
as the benchmark stainless steel producer regarding productivity
and cost of production. Its operations are profitable with strong
cash flows. As such, Acerinox is regarded as an ideal controlling
shareholder for Columbus Stainless in an industry now
characterised by massive global producers.
Based on the historical success of Acerinox and its exclusive
focus on the stainless steel industry, it is believed that the
operational and financial performance of the business of Columbus
will be turned around faster and to a larger extent than under the
management of the Partners. It is expected that, under the
control of Acerinox, Columbus Stainless will become profitable on
a sustainable basis with consequent benefits for its shareholders
and the South African economy in general.
The benefits of the transaction for Highveld and its shareholders
include the following:
- Columbus Stainless will -
be part of a much larger, successful group which is focused
exclusively on stainless steel;
have access to new technology and to an existing global
distribution network; and
have the potential to exploit better its chrome-based advantages;
- Highveld, through its 12% interest in Columbus Stainless,
should benefit from the expected improvements in the financial
performance of the business of Columbus;
- Columbus has not made a positive contribution to Highveld's
earnings for the last five years whereas Acerinox has been
consistently profitable and Highveld should therefore benefit from
its 2,9% interest in Acerinox.
4. GENERAL MEETING AND DOCUMENTATION
A general meeting of shareholders of Highveld will be convened to
consider and, if deemed fit, pass a resolution approving the
subscription by Highveld for its share of the Acerinox shares and
the disposal by Highveld of 64% of its interest in Columbus
Stainless to Acerinox. A circular, subject to the approval of the
JSE, containing full details of the transaction as well as a
notice convening the general meeting will be posted to
shareholders of Highveld within 28 days hereof.
5. WITHDRAWAL OF CAUTIONARY
The cautionary announcement dated 24 July 2001 and subsequent
further cautionary announcements are hereby withdrawn.
Witbank
13 November 2001
Sponsor: Cazenove Corporate law advisers:
Tabacks
