| Tue 7 May 2002, 0:00 | | Astrapak Limited - Acquisition Of Master Plastics |
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ASTRAPAK LIMITED
(Registration number 1995/09169/06)
Share code: APK ISIN Code ZAE000030938
("Astrapak")
ACQUISITION OF MASTER PLASTICS (PTY) LIMITED
INTRODUCTION
Pursuant to the latest cautionary announcement dated 19 April 2002, holders
of linked units ("linked units") in Astrapak ("unitholders") are advised
that the board of directors of Astrapak ("the board") and Global Capital
Fund 1 Trust ("Global"), Gary Wolman, Capital Africa Limited ("Capital
Africa") and South African Private Equity Trust III ("SAPET") (collectively
"the vendors"), in their capacity as shareholders of Master Plastics
(Proprietary) Limited ("Master Plastics"), the holding company for a group
of companies which include Cinqplast Plastop (Pty) Limited ("Cinqplast") and
Plastops KwaZulu Natal (Pty) Limited ("Plastops"), have reached agreement on
terms whereby Astrapak will acquire 75% of the issued share capital of
Master Plastics from the vendors for a consideration of R123.75 million
("the acquisition").
The remaining 25% of the issued share capital of Master Plastics will be
retained by Gary Wolman and Global (collectively, "the remaining
shareholders"). The remaining shareholders have established a close
association with Master Plastics and will continue to provide meaningful
input. Furthermore, the remaining shareholders are of the opinion that the
acquisition will enhance the business of Master Plastics and welcome
Astrapak's involvement.
During July 2000 Astrapak announced that it was pursuing a transaction which
would result in it acquiring the business of Master Plastics ("the proposed
purchase"). The proposed purchase was not concluded after mutual agreement
by the board and the board of directors of Master Plastics ("Master Plastics
board"). The reason for this was as a result of an unexpected slowdown in
the economy and a considerable decrease in demand for consumer goods in the
latter part of the year 2000. The board, however, is now of the opinion that
market conditions and prospects have improved significantly since the
proposed purchase.
THE ACQUISITION
Nature of the business of Master Plastics
Master Plastics' core business is the manufacture and decoration of high-
quality plastic bottles and jars for the pharmaceutical, cosmetic, toiletry,
food, beverage and household markets. Master Plastics employs in excess of
1 100 people and has manufacturing facilities in Denver, Bronkhorstspruit
and Durban.
Master Plastics is the result of the merger in 1998 between Cinqplast, a
manufacturer and distributor of specialised plastic bottles, jars and
closures for the food, beverage and household markets, and Plastops, a
similar operation supplying the pharmaceutical, cosmetic and toiletry
markets. The origins of Cinqplast and Plastops, both well-established and
reputable businesses, date back to 1980 and 1966, respectively. Since the
merger, production capacities have been substantially enhanced and an ultra-
modern PET injection blow-moulding plant has been commissioned.
The principal processes employed by Master Plastics all utilise state-of-the-
art moulding and decorating technology. Master Plastics has an exclusive
agency technology agreement for Southern Africa with USA-based Algroup
Wheaton Inc. for the use of leading edge technology in injection blow-
moulding and swingplate injection moulding.
Rationale for the acquisition
In line with the strategy of Astrapak of achieving organic growth and
investing in companies with specialised technology operating in growth
markets, the board considers the acquisition to be appropriate for the
following reasons:
Master Plastics is a highly efficient and well managed plastic blow-moulding
manufacturer being the leader in its chosen market segment and has excellent
growth prospects;
a substantial portion of Master Plastics' revenue is derived from its PET
injection blow-moulding plant. PET is recognised to be the plastic packaging
medium with the highest growth rate world-wide;
Astrapak wishes to expand its Rigids division to achieve a more appropriate
balance between its Films, Rigids and Speciality divisions and diversify its
revenue streams;
the management of Astrapak has extensive experience and expertise in blow-
moulding and injection moulding which will be applied at Master Plastics;
the technology developed by Algroup Wheaton Inc. is considered to be the
leading technology world-wide, giving Master Plastics a competitive
advantage; and
the acquisition is of strategic importance and provides a sound platform for
growth.
Terms of the acquisition
The purchase consideration for the acquisition is R123.75 million ("the
purchase consideration") and will be settled in cash. The purchase
consideration will become payable five days after the fulfillment of all of
the conditions precedent ("payment date"). The effective date of the
acquisition will be 1 March 2002 and the purchase consideration attracts
interest at prime between the effective date and the payment date.
Funding of the acquisition
Astrapak will raise the purchase consideration through interest bearing debt
at market-related rates ("the debt"). The board is of the opinion that:
current market conditions and the relatively low value at which Astrapak
linked units trade on the JSE Securities Exchange South Africa ("the JSE"),
implies too high a cost of equity relative to the cost of debt;
the debt will increase gearing from 27% prior to the acquisition to 128% for
the enlarged Astrapak; and
given the anticipated cash flow generation of Astrapak, the levels of
gearing will reduce rapidly.
Simultaneously with the raising of the debt, Astrapak has taken the
opportunity of refinancing its existing facilities.
FINANCIAL EFFECTS
The financial effects of the acquisition on Astrapak's earnings ("EPLU"),
headline earnings ("HEPLU"), net asset value ("NAV") and net tangible asset
value ("NTAV") per linked unit ("the financial effects") are set out below:
Per linked Before After Change After Change
unit (cents) acquisit (%) alignment (%)
ion of
(cents) accounting
policies
(cents)
EPLU 54.7 46.8 (14.4) 52.5 (4.0)
HEPLU 56.5 51.7 (8.5) 57.5 1.8
NAV 203.3 203.3 - 203.3 --
NTAV 193.8 158.2 (18.4) 158.2 --
The financial effects were calculated having had regard to the
following:
* the "before" column uses the latest audited results of Astrapak for the
year ended 28 February 2002;
* the "after acquisition" column assumes that the acquisition was effective
from 1 March 2001 and uses the audited results of Master Plastics for the 11
months ended 28 February 2002;
* the effective NTAV acquired amounts to R106.5 million;
* goodwill of R20.2 million arising on the acquisition is amortised over a
period of ten years;
* goodwill of R8.3 million previously amortised in Master Plastics audited
results for the 11 months ended 28 February 2002 was reversed;
* costs associated with the acquisition are estimated at R3 million;
* the debt, which will attract interest at one percentage point below the
weighted average prime rate applicable at the time, prior to applying a tax
rate of 30%, will be repaid over a period of 5 years ;
* the "after alignment of accounting policies" column reflects the "after
acquisition" column after differences between the accounting policies of
Astrapak and Master Plastics, as set out below, have been aligned;
* plant and equipment acquired was depreciated over periods of between
5 and 10 years and such depreciation was included in Master Plastics audited
results whilst Astrapak depreciated plant and equipment over a period of 8
years; and
* similarly, Astrapak did not amortise manufacturing buildings during
the year ended 28 February 2002 whilst the manufacturing buildings acquired
from Master Plastics were depreciated over a period of 20 years.
SUBORDINATION OF THE DEBENTURES
The financial institutions providing the debt require that the debenture
component of the linked units ("debentures") be subordinated in their
favour. In terms of the relevant debenture trust deed governing the terms of
the debentures, a special resolution at a general meeting of the debenture
holders is required to vary any rights of the debenture holders.
CONDITIONS PRECEDENT
The acquisition is subject to, inter alia, the following conditions
precedent:
* the approval of the acquisition by unitholders in general meeting; and
* the approval of the JSE and other regulatory authorities, insofar as such
approvals are required.
The subordination of the debentures is conditional upon:
* the passing of a special resolution of debenture holders; and
* the approval of the acquisition by the necessary regulatory authorities.
RELATED PARTY
SAPET and Capital Africa (collectively "SAPET III") are significant
shareholders in Master Plastics. South African Private Equity Fund I and
Tarkus Holding B.V. (collectively "Private Equity Funds") are significant
shareholders of Astrapak. SAPET III and the Private Equity Funds are managed
by the Brait S.A. group of companies and their affiliates and as such the
Private Equity Funds are classified as a related party in terms of the JSE
Listings Requirements and in terms of the rules of the Private Equity Funds.
Consequently, the approval by a majority of unitholders excluding the
Private Equity Funds will be required to approve the acquisition. The board
has also appointed an independent advisor to advise unitholders whether the
terms of the acquisition are fair and reasonable and their report will be
included in the circular to unitholders referred to in 8 below.
In addition, the non-executive directors appointed to the board by the
Private Equity Funds have declared their interests in the acquisition and
have recused themselves from voting at meetings of the board with respect to
the acquisition.
UNITHOLDERS' APPROVAL IN GENERAL MEETING
Unitholders' approval for the acquisition and the subordination of the
debentures will be sought at a general meeting to be held on the date to be
advised in the circular referred to in 8 below.
DOCUMENTATION
Further details of the acquisition will be included in a circular subject to
JSE approval incorporating a notice of a general meeting which will be
posted to unitholders in due course.
Johannesburg
7 May 2002
Corporate advisor to Astrapak Corporate advisor to Global
Global Capital (Proprietary)
Limited
(Registration number
1998/022057/07)
Sponsor Reporting accountants
HSBC Deloitte & Touche
Legal advisor to Gary Wolman Reporting accountants on Master
Plastics
Kallmeyer & Strime Fisher Hoffman PKF
Legal advisor to Global Independent advisor to Astrapak
unitholders
Fluxman Rabinowitz Deloitte & Touche corporate
finance
