| Fri 16 Nov 2001, 0:00 | | Zarara: Acquisition Of The Lysine Manufacturing Bu |
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ZARARA ENERGY LIMITED
(Formerly Mawenzi Resources Limited)
(Incorporated in the Republic of South Africa)
(Registration number 1895/001078/06)
Share code: ZRR ISIN: ZAE000003277
("Zarara")
ACQUISITION OF THE LYSINE MANUFACTURING BUSINESS OF AECI AND THE IDC
("BIOPRODUCTS")
1. INTRODUCTION
Further to the cautionary announcements dated 3 September 2001 and 18
October 2001, Zarara and a consortium comprising certain senior managers of
Bioproducts ("Management") have agreed, subject to the fulfilment of certain
suspensive conditions, to acquire the lysine manufacturing business of AECI
Limited ("AECI") and the Industrial Development Corporation of South Africa
Limited ("IDC") and the entire issued share capital and claims of AECI
Bioproducts (Pty) Limited (collectively "Bioproducts").
The acquisition shall be deemed to take effect from the commencement of
business on 1 July 2001.
2. HISTORY AND NATURE OF BUSINESS
During 1993, AECI and the IDC entered into a joint venture partnership to
establish a South African capability in the emerging field of industrial
biotechnology, and to create a business in downstream fine chemical
manufacturing for animal nutrition. This resulted in the commissioning of an
amino acid plant in KwaZulu-Natal.
As part of its strategy of focusing on core operations, a decision was
recently taken by AECI to divest its interest in Bioproducts.
Bioproducts suffered losses during 1999 and 2000 due to the collapse of
the lysine market in the wake of the Asian financial crisis. The demand for
meat and consequently animal feeds containing lysine in Asia fell
substantially at a time when new capacity was being commissioned, triggered
by high lysine prices in previous years. Locally, Bioproducts suffered
further from dumping by major lysine producers.
Bioproducts has recently returned to profitability as a result of export
lysine prices recovering to their long-term averages and anti-dumping
legislation and import tariff protection being promulgated. The plant, which
was designed to produce 11 500 tons of lysine per year, is currently
operating at full capacity, with exports accounting for approximately 50% of
total sales.
3. PURCHASE CONSIDERATION
The purchase consideration payable shall be:
* an initial consideration of R23,5 million ("initial consideration"), which
will be settled in cash, seven days after the fulfilment of the suspensive
conditions referred to in 7 below (except for Competition Authorities
approval) or on 31 December 2001, whichever is the earlier; plus
* a royalty equal to 50% of the difference between the average Posted
European Lysine Price between 1 July 2001 and 30 June 2003 and 4
Deutschemark per kilogram on a deemed production of 23 000 tons of lysine,
which shall be paid on 1 August 2003.
4. STRUCTURE OF THE ACQUISITION
Subsequent to the acquisition, Bioproducts will be owned 71,5% by Zarara
and Management with the IDC having agreed in principle to acquire the
remaining 28,5% after reinvesting R9,5 million, being its portion of the
initial consideration, in Bioproducts.
5. RATIONALE FOR THE ACQUISITION
Over the last two years, Zarara has been restructured to focus on
investments in the chemicals and energy field. Zarara has also taken
measures to transfer its listing to the non-mining resources sector of
chemicals, oils and plastics. This investment in the rapidly growing
biochemicals sector will be a significant step towards achieving this
objective.
Apart from Bioproducts' competitive advantage in the local lysine market,
a decision has been taken to modify the plant and switch some of its
capacity away from lysine manufacturing to the manufacture of higher value,
lower tonnage amino acids. A long-term supply agreement has been concluded
with an international distributor for the supply of specialist amino acids.
This conversion will be financed through a combination of internal cash
flows, the additional equity from the IDC and commercial loans which are
being negotiated with local and offshore financial institutions.
The plant conversion and accompanying supply agreement will have a
positive effect on the business risk profile of Bioproducts by reducing its
exposure to international lysine price volatility.
Furthermore, the board of directors of Zarara ("directors") are of the
opinion that the acquisition presents Zarara with a unique opportunity of
gaining a foothold in an adjacent high growth industry.
The directors are also of the opinion that the considerable human
capital, skills and resource base acquired should provide positive and
sustainable earnings growth.
6. FINANCIAL EFFECTS
The financial effects of the acquisition on the loss per share ("LPS"),
headline loss per share ("HLPS") net asset value ("NAV") and tangible net
asset value ("TNAV") are illustrated in the table below:
Before After Change
Per Zarara share (cents) (cents) (%)
LPS (19,1) (27,6) (44,5)
HLPS (19,1) (27,6) (44,5)
NAV 886,9 878,4 (0,9)
TNAV 749,5 741,9 (1,0)
The financial effects were calculated having had regard to the following:
* the "before" column uses the latest published unaudited interim accounts
of Zarara for the six months ended 31 March 2001;
* the "before" column assumes that the 10 for 1 consolidation of Zarara's
issued and authorised share capital, which was implemented on 3 September
2001, was effective for the interim reporting period;
* the "after" column assumes that the acquisition of Bioproducts was
effective from 1 October 2000 but uses the unaudited reviewed results of
Bioproducts for the six months ended 30 June 2001;
* the "after" column does not ascribe any value to the plant which reflected
a carrying value of R164 million at 30 June 2001, but includes the
depreciation of the plant for the respective period; and
* interest paid on the initial consideration was calculated at a rate of
9,5% as Zarara was in a net interest received position and taxed at a tax
rate of 30%.
7. SUSPENSIVE CONDITIONS
The acquisition of Bioproducts is subject to the fulfilment of the following
suspensive conditions:
* obtaining the necessary approvals from the JSE Securities Exchange South
Africa and such other regulatory bodies as may be required;
* approval by the shareholders of Zarara in general meeting; and
* approval by the Competition Authorities.
8. CIRCULAR AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
A circular containing full details of the acquisition including, inter
alia, the date of the general meeting will be forwarded to shareholders in
due course.
Shareholders are advised that caution no longer need be exercised when
dealing in the company's shares.
Illovo
16 November 2001
Corporate advisor and sponsor
Brait
