| Thu 5 Jun 2003, 10:46 | | ACQUISITION BY OMNIA OF THE BUSINESSES OF PROCHEM |
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ACQUISITION BY OMNIA OF THE BUSINESSES OF PROCHEM (PROPRIETARY) LIMITED AND
DURAVIN CHEMICALS (PROPRIETARY) LIMITED ("PROCHEM") AND FURTHER CAUTIONARY
ANNOUNCEMENT
1. Introduction
Further to the cautionary announcement dated 13 May 2003, Omnia shareholders are
advised that on 3 June 2003, Omnia entered into an agreement with Prochem ("the
agreement") to acquire the business, as a going concern, of Prochem ("the
acquisition") for a cash consideration of R541 770 000 together with the
assumption of an estimated R 76 million in interest bearing debt.
2. Background information
The purchase consideration of R 541 770 000 will be settled as follows:
* R187 973 000 from Omnia"s existing cash resources;
* R35 631 625 by the issue of new Omnia shares, which shares will be distributed
to the existing Prochem management shareholders and the participants in the
Prochem share trust.
* R300 000 000 via long-term debt raised from a consortium of banks; and
* R18 165 375 from existing short term banking facilities.
3. The acquisition
In terms of the agreement, Omnia will acquire the business assets and business
liabilities of Prochem. The shareholders of Prochem are Standard Corporate and
Merchant Bank Capital Investments Division and Prochem management.
4. Effective date
The acquisition will become effective once all suspensive conditions have been
fulfilled which is expected to be 1 September 2003.
5. Rationale
Omnia is a specialised manufacturer and distributor of chemicals, explosives and
fertilizer products.
Omnia has for many years given consideration to the best method of expanding its
chemical interests in South Africa. Although its industrial chemicals business
has been steadily gaining momentum, it has lacked critical mass. Much of the
business is concentrated on marketing chemicals produced or handled by the Group
to industrial chemical clients.
Omnia conducted a strategic evaluation process, which identified that the
acquisition of a strong service-based chemical distribution business focused on
the customer interface, would be the best method of expansion due to the
immediate low-risk access it would provide to in-depth knowledge of chemical
markets. Prochem was identified as an entity that would provide Omnia with the
desired means to fulfil its expansion plans.
Prochem is the largest distributor and trader of chemicals in South Africa and
the major distributor for a number of domestic and international companies, many
of them amongst the world"s leading chemical companies. Prochem has a diverse
range of customers, products and suppliers, with no disproportionate
contribution from any one customer or supplier.
Prochem has a number of well-known brands in its stable, namely Protea
Chemicals, Chempro, Montan Chemicals and Duravin Chemicals. Prochem also owns
50% of a chemical distribution business in Zimbabwe.
Prochem brings with it a very experienced management team with a strong focus on
service and a reputation for rapid delivery. Prochem has developed an excellent
and competitive national distribution infrastructure, with 12 points of presence
throughout South Africa.
Prochem has grown organically over its 40 years in existence and has invested in
warehousing, bulk storage, transportation, laboratories and its people. Prochem
has consistently delivered strong results, with current turnover in excess of R
1.5 billion, and compounded turnover growth over the last five years in excess
of 20% per annum.
The acquisition will provide Omnia with a more diversified portfolio of
businesses, with a better balance between the agricultural and chemical
interests. Although Omnia has proven its ability to manage risk in the
fertilizer industry despite the effects of weather phenomena like El Nino, the
new balance will strengthen this ability further by continuing to reduce
earnings and cash flow volatility and limiting weather-related risk.
The acquisition establishes a new platform for growth for Omnia, bringing with
it a host of synergistic benefits that will enhance Omnia"s business model of
adding value to customers by leveraging its intellectual capital and technology.
It provides an established chemical distribution network across South Africa and
serves to strengthen Omnia"s interface with customers in this market.
6. Future prospects
The acquisition represents a carefully considered and decisive move to position
the Group for sustainable profitable growth into the future. Although the
acquisition is large relative to Omnia"s market capitalisation and will increase
debt levels in the short term, it substantially alters the profile of the Group
and achieves a much improved balance across its interests, resulting in a lower
relative exposure to Southern African agriculture.
Having paid in full for Prochem, but without receiving a full year"s worth of
cash flow, Omnia"s gearing will increase to moderate levels by the end of the
financial year to March 2004. However, with the strong cash flow generation of
both Omnia and Prochem, the debt is expected to reduce quickly, aided by
expected lower interest rates in the foreseeable future.
As a result of the critical mass the acquisition provides to Omnia"s industrial
chemicals business, the Group is appropriately positioned to generate further
opportunities in this area.
7. Conditions precedent
The acquisition is conditional upon, inter alia, the following conditions
precedent:
- the approval of Omnia shareholders in general meeting;
- the granting of the requisite regulatory approvals, including the Competition
Commission;
- Omnia securing funding arrangements for payment of part of the purchase price
to the reasonable satisfaction of the parties;
- the approval of Prochem shareholders in general meeting;
- the acceptance by Omnia of the results of its due diligence investigation;
- Omnia entering into service agreements with the key executives of Prochem.
8. Financial effects
As Omnia is expected to release its results for the year ended 31 March 2003 on
or about 12 June 2003, the pro forma financial effects of the acquisition ("the
pro forma financial effects") will be published simultaneously with those
results.
9. Circular to shareholders
A circular containing full details of the transaction and convening a general
meeting of shareholders to be held on or about 15 August 2003 will, subject to
the approval of the JSE, be posted to shareholders on or about 31 July 2003.
10. Further cautionary announcement
Omnia shareholders are advised to continue to exercise caution when dealing in
their Omnia shares until such time as the pro forma financial effects have been
published.
