| Tue 4 Mar 2003, 9:44 | | SET POINT Technology Holdings Limited - Acquisitio |
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SET POINT Technology Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1996/014334/06)
Share code: STO ISIN: ZAE000013629
("Sethold" or the "Company")
Acquisition by Sethold of Flowmax Investments (Proprietary) Limited ("Flowmax")
1.Introduction
Further to the cautionary announcement published by Sethold on
4 November 2002, and the subsequent renewals of such, Standard Corporate and
Merchant Bank is authorised to announce that, subject to the fulfilment of
certain conditions precedent, Sethold has entered into an agreement ("the
acquisition agreement") to acquire 100% of the issued share capital of Flowmax
from the shareholders of Flowmax ("the proposed transaction"), being Sabvest
Investments (Proprietary) Limited ("Sabvest"), The Grason Financial Trust ("the
Grason Trust") and The Haroon Habib Family Trust ("the Haroon Trust").
2. Flowmax
Flowmax supplies medium technology fluid handling equipment and service back-
up to the petrochemical, mining and general industries of southern Africa.
Flowmax has four key subsidiaries, namely Letaba Holdings Limited ("Letaba"),
Meter Systems Trading (Proprietary) Limited ("Meter Systems"), Pneumax Southern
Africa (Proprietary) Limited ("Pneumax SA") and Gellina Properties (Proprietary)
Limited ("Gellina Properties"). The combined turnover of the Flowmax and its
subsidiaries is in excess of R90 million per annum.
Letaba
Letaba is the holding company for six subsidiary companies, specialising in
the supply of high quality specialised pumps. The pump types include double-
diaphragm, magnetic drive, sewage, submersible, dewatering and hose pumps. The
major industries supplied are the pharmaceutical, food, mining, chemical and
agricultural industries. In addition, Letaba hires out dewatering pumps to the
mining, construction and chemical industries and is a leader in this field in
southern Africa.
Meter Systems
Meter Systems and its wholly-owned subsidiary, Imex Industrial Products
(Proprietary) Limited ("Imex"), are the two main suppliers of lubrication and
fuel pumping and measuring equipment in South Africa. Larger customers include
Total, Shell and the South African Air Force. While Imex and Meter Systems are
principally involved in the industrial lubrication and pumping sector, they are
currently pursuing opportunities in the retail sector of the fluid supply
market.
Pneumax SA
Pneumax SA supplies pneumatic control equipment, fittings, actuators, valves
and accessories to the general process control and manufacturing industries of
southern Africa. It has a division, Pro-Flow, which specialises in orifice
plates and other flow measurement and instrumentation equipment. Orifice plates
are used to measure the flow of gases. Pro-Flow`s larger customers include Sasol
and other refineries.
Gellina Properties
Gellina Properties is the property owning company of Flowmax.
3. Rationale for the proposed transaction
Sethold is an investment holding company. The Company is South Africa`s pre-
eminent supplier of specialised industrial, analytical and allied technologies
crucial to a wide spectrum of industries ranging from petrochemical and power
generation to food and agriculture.
Increased profitability at Sethold has recently been attained through focused
efforts on internal processes and the organic growth of existing operations.
Following this improvement in operating performance and organic growth, Sethold
has been considering opportunities to develop the Company through acquisitions.
As discussed in paragraph 2 above, Flowmax is the holding company of a group
that imports, manufactures and distributes products to the flow and fluid
handling industries of southern Africa. Following its due diligence
investigations, Sethold is satisfied that the critical success factors sought
when evaluating an acquisition are present. In Flowmax, Sethold sought a
business with an allied product focus, healthy profit margins, positive cash
flows and a strong management team. Flowmax was found to meet these criteria.
Sethold and Flowmax serve similar industries without overlapping in their
operations. By acquiring the operations of Flowmax, complimentary expertise and
management resources will be brought to Sethold and the enlarged group will be
able to capitalise on certain synergies. In addition, the acquisition of Flowmax
will result in a certain amount of risk diversification for the Company.
4. Management
Subsequent to the implementation of the proposed transaction, management from
both Sethold and Flowmax, including Flowmax management with minority
shareholdings in the operating subsidiaries of Flowmax, will continue in their
executive positions as before.
Graham Nel, the Chairman and Chief Executive Officer of Flowmax, will be
appointed as a director of Sethold with executive responsibilities.
5. The purchase consideration
The purchase consideration of R18 million, subject to any downward adjustment
in terms of the acquisition agreement, shall be discharged by way of the
allotment and issue by Sethold of 60 million shares in the issued share capital
of Sethold (issued as fully paid up) at 30 cents per share ("the consideration
shares"). The consideration shares will be issued on the later of the closing
date and the date of final determination of any adjustments and will rank parri
passu with all other existing Sethold shares.
6. Financial effects of the proposed transaction
The pro forma financial effects of the proposed transaction have been
prepared for illustrative purposes only, to provide information about how the
proposed transaction might have affected the financial information presented
and, because of its nature, may not give a true reflection of the financial
position of Sethold.
The table below sets out the pro forma financial effects of the transaction
on the earnings, headline earnings, net asset value and tangible net asset value
per share of Sethold.
Before After
(cents per (cents per Percentage
share) share) change
Earnings per share 9,67(1) 9,40(2) (2,79)
Headline earnings per share 6,53(1) 7,61(3) 16,54
Net asset value per share 22,11(1) 24,12(4) 9,10
Net tangible asset value
per share 19,46(1) 11,78(5) (39,46)
Notes:
1 The "before" financial information has been extracted, without adjustment,
from the published audited results of Sethold for the year ended 31 August 2002.
2 The "after" earnings per share was calculated using a weighted average of
234,9 million shares in issue after the issue of 60 million shares in terms of
the proposed transaction and by adjusting the "before" earnings per share to
include the annualised reviewed earnings of Flowmax for the six months ended 31
October 2002, less the amortisation, over a 20-year period, of goodwill arising
on the acquisition.
3 The "after" headline earnings per share has been calculated by adjusting the
"before" headline earnings per share for the adjustments described above,
excluding the amortisation of goodwill arising from the acquisition and the
amortisation of the goodwill included in Flowmax`s earnings.
4 The "after" net asset value per share has been calculated by including the net
assets of Flowmax, the goodwill arising on the acquisition and the issue of the
60 million consideration shares.
5 The "after" net tangible asset value per share has been calculated by
excluding the goodwill included in the calculation of the "after" net asset
value per share.
7. Prospects
With all operations profitable, a significantly stronger balance sheet and
positive cash flow, Sethold is well positioned to follow an acquisitive growth
strategy, and the acquisition of Flowmax is in line with this strategy. As
stated previously, the board of directors and management are confident that the
year ahead will show a continuing improvement in profitability and an
enhancement in shareholder value. The proposed transaction should further
improve the prospects of Sethold.
8. Related party transaction
Sabvest is a 40% shareholder of Flowmax. Sabvest owns 25 026 211 of the
issued shares of Sethold. As a consequence of this shareholding Sabvest is
considered to be a related party in terms of the JSE Securities Exchange South
Africa ("JSE") Listings Requirements. Accordingly, neither Sabvest or any of its
associates will vote on the resolutions to approve or ratify the proposed
transaction or form part of the quorum at the general meeting at which the
relevant resolutions are to be proposed.
As a further consequence of the related party status of Sabvest and in terms of
the JSE Listings Requirements, the board of directors of Sethold has appointed
KPMG Services (Proprietary) Limited ("KPMG") to advise the shareholders of
Sethold as to whether the terms of the acquisition are fair and reasonable. The
opinion of KPMG is commented on in paragraph 9 below.
Christopher Seabrooke as a director of Sethold and Flowmax and as a director
and controlling shareholder of Sabvest, has recused himself from voting on any
resolutions in relation to the proposed transaction.
9. Independent adviser`s opinion
KPMG, acting as an independent adviser to the board of directors of Sethold,
has considered the terms and conditions of the proposed transaction and is of
the opinion that they are fair and reasonable to the shareholders of Sethold.
The board of directors of Sethold has been advised accordingly and a copy of
this opinion will be included in the circular to Sethold shareholders referred
to in paragraph 12 below.
10. Conditions precedent
The proposed transaction is subject to the fulfilment of the following
conditions precedent:
10.1 the securing by 30 April 2003, of the approval of a simple majority of
Sethold shareholders, excluding Sabvest and its associates, to the conclusion
and implementation of the proposed transaction;
10.2 the securing by 10 April 2003 of the approval of the JSE to the issue of
an acquisition circular and revised listing particulars in connection with the
proposed transaction as well as the approval of the issue and listing of the
consideration shares;
10.3 the securing by 10 April 2003 of the approval of the Securities
Regulation Panel ("SRP") to the conclusion and implementation of the proposed
transaction; and
10.4 the securing by 31 May 2003 of the approval of the Competition
Authorities to the conclusion and implementation of the proposed transaction.
The dates for the fulfilment of the various conditions are capable of extension
by way of written agreement between the parties to the acquisition agreement.
11. Important dates and times
The important dates and times with regard to the proposed transaction are
set out below.
2003
Last day to lodge forms of proxy for the
general meeting, by 10:00, on Friday, 11 April
General meeting of shareholders at 10:00,
at the office of the Company, Pin Mill Farm,
Block F, Ground Floor, 164 Katherine Street,
Sandown, on Tuesday, 15 April
Results of the general meeting published on
the Securities Exchange News Service ("SENS") Tuesday, 15 April
Results of the general meeting published in the
press, on Wednesday, 16 April
Note:
The above dates and times are subject to amendment. Any such amendment will be
published on SENS and in the press.
12. Documentation
Subject to the approval of the regulatory authorities, a circular detailing the
proposed transaction and incorporating revised listing particulars and a notice
of general meeting to shareholders of Sethold for the purpose of considering,
and if deemed fit, passing the necessary resolutions required to give effect to
the proposed transaction, will be posted to shareholders on or about 27 March
2003.
Johannesburg
4 March 2003
Merchant bank and sponsor
SCMB
Standard Corporate and Merchant Bank
(A division of the Standard Bank of South Africa Limited)
(Registration number 1962/000738/06)
Independent advisers to the board of Sethold
KPMG Services (Proprietary) Limited
Chartered Accountants (SA)
Registered Auditors and Accountants
(Registration number 1999/012876/07)
Corporate advisers
Corpcapital
Corporate Finance
Corporate legal adviser
Cliffe Dekker
Date: 04/03/2003 09:04:00 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
