| Fri 23 Nov 2001, 0:00 | | Business Assistance Agreement Entered Into Between |
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Business Assistance Agreement entered into between Iscor and LNM
1. Introduction
The Board of Directors of Iscor is pleased to announce the signature of a
Business Assistance Agreement with LNM, a leading global steel producer with
worldwide steelmaking operations. The Board has consistently stated its
objective of establishing a relationship with a major global steel producer
in order to secure a strategic equity partner and access to technology,
skills and markets, factors which will become increasingly important in an
environment of continuing consolidation in the global steel industry. The
signature of the Business Assistance Agreement represents an important step
in fulfilling this strategy and the Board is of the view that significant
benefits will be unlocked as a result with Iscor strategically positioned to
meet any future volatility in the global steel markets.
2. An introduction to LNM
The LNM group is the world's 4th largest steel producer, based on crude
steel production of 22.4 million metric tonnes in 2000, with 10 vertically
integrated steelmaking facilities in 9 countries producing both flat and
long products.
LNM has a controlling interest in Ispat International NV, a company listed
on the New York and Amsterdam stock exchanges, together with a number of
direct steel investments in various countries around the world, including
Romania and Algeria as a result of privatisations of the national steel
industries during 2001 and Ispat Karmet, which was privatised by the
Government of Kazakhstan in 1995. Following the acquisitions in Romania and
Algeria, the LNM group has an annual liquid steel capacity of 29.7 million
metric tonnes.
3. Salient terms of the Business Assistance Agreement
In terms of the Business Assistance Agreement ("BAA"), subject to the
fulfilment of the conditions precedent reflected in paragraph 6 hereunder:
* LNM will provide business, technical, purchasing and marketing assistance
to Iscor with effect from 1 January 2002 (the "effective date") and for a
three year period thereafter (the "contract period");
* to the extent that the provision of such assistance over the contract
period results in a minimum of R350 million and a maximum of R700 million of
sustainable actual cost savings per annum in Iscor, determined with
reference to specific stipulated benchmarks within 60 (sixty) days of the
end of each consecutive six month period commencing on the first anniversary
of the effective date, Iscor will issue from 5% up to 10% of its entire
issued share capital to LNM, pro rata, as consideration therefor (the
"remuneration shares");
* accordingly, if LNM achieves a minimum of R350 million in sustainable
actual cost savings it will be issued with 5% of the issued share capital of
Iscor and if LNM achieves sustainable actual cost savings of R700 million or
more it will receive a maximum of 10% of Iscor's issued share capital, with
pro rata issues of Iscor shares to the extent the quantum of the sustainable
actual cost savings achieved falls within such minimum and maximum amounts.
All monetary amounts will be determined in January 2002 money terms;
* the maximum annual award of Iscor shares issued to LNM will be equal to
4.9% (four point nine percent) in which case any additional entitlement will
be allotted and issued, subject to an annual maximum award of 4.9% (four
point nine percent), in the following year; and* the remuneration shares may
not be sold or otherwise disposed of by LNM for the duration of the BAA.
In addition, LNM has undertaken to invest at least US$75 million in the
acquisition of Iscor shares, at a price calculated against the ruling
ZAR:US$ exchange rate at the time of each acquisition, by no later than 31
March 2003, whether by way of market purchases, the exercise of call
options, through the sub-underwriting of the R1,67 billion rights issue to
be undertaken by Iscor and underwritten by the Industrial Development
Corporation of South Africa Limited ("IDC"), or otherwise.
4. The specific issue of ordinary shares
The remuneration shares shall:
* be allotted and issued in compliance with the rules of the JSE Securities
Exchange South Africa ("JSE") and section 92 of the Companies Act 1973(Act
61 of 1973) as amended;
* be considered as a specific issue for the extinction and settlement of an
actual liability incurred by Iscor; and
* only be allotted and issued once the remuneration payable to LNM is
actually due, owing and payable and the services giving rise to the
obligation to issue the remuneration shares have actually been rendered and
accounted for.
5. Financial effects
The financial effects of the transaction on the audited results of Iscor for
the year ended 30th June, 2001, are set out below.
Before After the Increase/
(cents) initial share (decrease)
(1 ) issue (%)
(cents)
(2)
Net asset value per share 28.33 27.28 (3.7%)
Earnings per share (4.35) (2.43) 44.1%
Headline earnings per share (0.37) 1.19 421.6%
Notes:
1. The calculation is based on:
* Pro-forma Iscor results (post unbundling of Kumba Resources Limited and
assuming the acquisition of 100% of Saldanha Steel (Proprietary) Limited)
for the year ended 30 June 2001, on the assumption that the BAA had been
effective from 1 July 2000; and
* 293 million Iscor shares in issue.
2. The calculation assumes savings of R700 million, taxed at 30%, and the
issue of 29.3 million Iscor shares to LNM in terms of the BAA.
6. Conditions precedent
The coming into effect of the BAA is subject to the fulfilment of the
following conditions precedent namely:
- the provision of a fair and reasonable opinion on the terms of the BAA
from an independent financial advisor by no later than 26 November 2001;
- the recommendation of the BAA to Iscor shareholders by the Board of
Directors of Iscor;
- the approval of the relevant regulatory authorities including the JSE and
the South African Reserve Bank by no later than 1 January 2002;
- the acquisition by LNM of not less than 10% of the issued share capital of
Iscor by no later than 16 January 2002; and
- the independent shareholders of Iscor approving, in general meeting, the
terms of the BAA by no later than 16 January 2002.
7. Related party transaction
Shareholders are referred to an announcement made by IDC and by LNM on 9
November 2001 which stated that LNM has:
* been granted a call option in respect of 9,4% of the Iscor shares held by
IDC, following the unbundling by Iscor of its entire shareholding in Kumba
Resources Limited (the "unbundling");
* been assigned the rights to a call option in respect of the Iscor shares
held by Stimela Mining Limited, again following the unbundling (the "Stimela
call option"); and
* entered into an agreement with the IDC in terms of which it will sub-
underwrite the forthcoming R1,67 billion rights issue in Iscor.
The Stimela call option, if exercised, will fulfill one of the conditions
precedent to which the BAA is subject, namely, the acquisition by LNM of not
less than 10% of the entire issued share capital of Iscor. Accordingly, LNM
is a related party in relation to Iscor and the Board of Directors of Iscor
have therefore requested JPMorgan to prepare a fair and reasonable opinion
on the terms of the BAA, from a financial point of view, to the shareholders
of Iscor.
In addition, the coming into effect of the BAA is subject to the approval
of the shareholders of Iscor, other than LNM, in general meeting.
8. Documentation
A circular giving full details of the BAA and convening a general meeting
of shareholders at which the special and ordinary resolutions necessary to
give effect to the BAA will be proposed, is in the course of preparation and
will be despatched to shareholders in due course.
Pretoria
23 November 2001
Financial adviser and sponsor to Iscor
JP Morgan
Financial adviser to LNM
Credit Suisse First Boston
Legal adviser to Iscor
CLS Consulting Services (Proprietary) Limited
Legal adviser to LNM
White and Case LLP
Reporting accountants to Iscor
KPMG Inc
