| Mon 23 Jun 2003, 14:36 | | Acuity Group Holdings Limited - Announcement Regar |
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Acuity Group Holdings Limited - Announcement Regarding A Proposed Transaction
Encompassing
ACUITY GROUP HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1998/011074/06)
Share Code: ACY ISIN: ZAE000018149
("Acuity" or "the company" or "the Group")
ANNOUNCEMENT REGARDING A PROPOSED TRANSACTION ENCOMPASSING:
THE DISPOSAL OF THE EXISTING SUBSIDIARIES AND INVESTMENTS;
THE ACQUISITION OF THE BUSINESSES CONDUCTED BY AVONDALE (PTY) LTD AND S ROUX AND
THE CPM TRUST, TRADING AS CREAM STAR ICE CREAM;
THE DEFERRED CONDITIONAL PURCHASE OF LONG LIFE DAIRY PRODUCTS (PTY) LTD;
A CHANGE OF NAME TO MILKWORX LIMITED;
A MOVE FROM THE MAIN BOARD OF THE JSE SECURITIES EXCHANGE SOUTH AFRICA ("JSE")
TO THE DEVELOPMENT CAPITAL MARKET;
A CHANGE OF CONTROL AND WAIVER OF MANDATORY OFFER; AND
THE RECONSTITUTION OF THE BOARD OF DIRECTORS
1. Introduction
Further to the cautionary announcements published on 17 April 2003 and 3 June
2003, Radagast Capital (Proprietary) Limited is authorised to announce that
Acuity has entered into an indivisible agreement in terms of which it will
acquire, as going concerns with effect from 1 July 2003, the ice cream
manufacturing, packaging and trading businesses conducted by Avondale (Pty) Ltd
("Avondale") and S Roux and the CPM Trust trading as Cream Star Ice Cream
("Cream Star") (collectively, "the acquisition"). The consideration for the
acquisition of the Avondale business is R5,181,814, to be settled by the issue
to Avondale of 172,727,129 ordinary shares in the company at an issue price of 3
cents per share ("cps") and the consideration for the acquisition of the Cream
Star business is R6,595,036, to be settled by the issue of 219,834,527 ordinary
shares in the company at an issue price of 3cps. The effect of the acquisition
is that Acuity will be acquiring net assets with a minimum value of R20 million
for a total consideration of R11,776,850.
The company has also entered into a deferred conditional purchase agreement with
Long Life Dairy Products (Pty) Ltd ("Long Life") ("the Long Life agreement"), a
company that is expected to commence production of a range of long life dairy
products, earmarked mainly for export into Africa, within two months. The
consideration for the purchase of Long Life is R4 million, which will be settled
by the issue of 80,000,000 ordinary shares in the company at 5cps, subject to
Long Life meeting, inter alia, a Net Asset Value warranty of R4 million and a 3-
month annualised Earnings Before Interest, Tax and Amortisation ("EBITA")
warranty of R1.5 million within 18 months. In the event that the EBITA warranty
is not met, the Long Life agreement will be cancelled unless a minimum 3-month
annualised EBITA of R750,000 is achieved during the last three months of the 18-
month period, in which case the purchase consideration (and the number of shares
to be issued) will be reduced on a pro-rata basis. The Long Life agreement is
subject to shareholder approval and does not constitute an indivisible part of
the transaction.
The agreements between Acuity and Avondale, Cream Star and Long Life are
subject, inter alia, to the conditions set out in paragraph 7 below.
Shareholders are advised that approval of the acquisition will entail a transfer
from the Main Board to the Development Capital Market of the JSE. Shareholders
are, however, further advised that the continued listing of the company is in
the discretion of the JSE and contingent upon the JSE"s assessment of the
suitability for listing of the company after the proposed acquisition.
2. Rationale for the acquisition
Acuity listed on the `Support Services" sector of the JSE in 1999, its primary
business being that of an investment management and holding company of
subsidiaries involved in the advertising, media and consulting environment.
Following the company"s severe financial problems, the controlling shareholders
considered it in the best interests of the company to negotiate a change in
control to ensure the survival of Acuity. Accordingly, on 18 March 2002, it was
announced that corporate restructuring specialists, Gandalf Trust, had acquired
control of the company and reconstituted the board of directors. As reported in
the annual financial statements for the 15 months ended 31 March 2002, the
board, in consultation with Gandalf Trust, immediately began implementing a
process of restructuring the business activities of the Group, with the
intention of refocusing the business operations, seeking new opportunities and
unlocking value for shareholders.
3. Disposal of subsidiaries and indirect investments
Following extensive investigations as to the suitability of Snelco PRO (Pty) Ltd
("Snelco"), the Group"s only remaining operating subsidiary, as the future core
business of the listed entity, a decision was taken to sell the shares and loan
accounts of Snelco to its management team for a combined nominal amount of R200.
A further amount of R239,800 will be paid to the company in settlement of
Snelco"s loan account. The decision to dispose of Snelco was based, inter alia,
on the fact that the investment was failing to generate the profits expected at
the time that Gandalf Trust assumed control of the company (mostly due to
increased competitiveness in the advertising industry).
The company has also disposed of its dormant subsidiaries, SBBW Holdings (Pty)
Ltd and Acuity Investments (Pty) Ltd, to Gandalf Trust at their combined book
value amount of R2,960. The financial effects of both disposals are illustrated
in paragraph 6 below.
4. New nature of business of Acuity
Acuity, which will change its name to Milkworx Limited ("Milkworx") should the
suspensive conditions governing the acquisition be fulfilled, will operate as a
manufacturing, packaging and trading entity, producing ice-cream and related
products for distribution into the catering and retail markets and contract
packing ice cream for various leading market suppliers. It is envisaged that,
through the purchase of Long Life, the company will start to expand into other
dairy-related fields including the manufacturing and export of long life
yoghurts, milk blends and flavourings that do not require refrigeration either
in the transport or storage thereof.
The revenue models of the business units that will constitute Milkworx are well-
diversified, supplying ice cream across a broad market spectrum. Cream Star
manufactures high-volume, lower-margin products for the emerging market, whilst
Avondale supplies lower-volume, higher-margin products for the high-income
market. Both business units generate additional income through their contract
packaging operations. The Long Life operation will focus on marketing its
products directly to the larger retailers with existing operations in African
countries.
The existing shareholders actively participate in the management of both
Avondale and Cream Star and their skills and technical expertise have
contributed to substantial benefits being realised as a result of the design and
adaptation of world-leading technology to meet the needs of local market
conditions. This has enabled the companies to set up more flexible and cost-
efficient product lines and a distribution network that is close to the markets
they supply.
The board, as advised by Gandalf Trust in its capacity as controlling
shareholder of the company, has negotiated the acquisition and is confident that
the fortunes of the company will be restored thereby.
5. Reconstitution of the board of directors
It is intended that the board of directors will be reconstituted to reflect the
change in control, with four new directors from Avondale and Cream Star being
appointed. Mr Stephan Roux will join the board with effect from 1 July 2003,
being the effective date of the transaction. Messrs Tomas Dajcar and Gareth
Mole and Ms Catharina Bradshaw will join the board in executive capacities with
effect from the approval by shareholders of the resolutions required to
implement the acquisition, at which time Mr Jan Nel will resign.
6. Financial effects of the proposed disposals and acquisition
The table below illustrates the pro forma effects of the disposals and
acquisition on the unaudited financial statements of Acuity for the six months
ended 30 September 2002. The pro forma earnings figures illustrate the possible
financial effects if the transactions had been undertaken on 1 April 2002,
whereas the pro forma net asset value figures illustrate the possible financial
effects if the transactions had been effected on 30 September 2002. Due to
their nature, the pro forma financial effects may not give a fair reflection of
Acuity after the transaction.
Six-month Unaudi Pro % Pro %
period ended ted forma Change forma Change
30 Sep 2002 before after (Col. after (Col.
dispos dispos B dispos C
als als vs als vs
and and Col. and Col.
before before A) after B)
acquis acquis acquis
ition ition ition
(Col. (Col. (Col.
A) B) C)
Note 3 4 5,6
s:
Earnings/ 1 (0.04) (1.11) - 0.00 100%
(loss) per 2 (0.04) (1.01) 2,557% 0.00 100%
share (cents) -
2,557%
Headline 1 (0.44) (0.40) 10% 0.06 116%
earnings/ 2 (0.40) (0.36) 10% 0.06 117%
(loss) per
share (cents)
Net asset 1 (0.30) (0.03) 91% 4.09 15,263
value per 2 (0.27) (0.02) 91% 4.00 %
share (cents) 16,495
%
Tangible net 1 (0.30) (0.03) 91% 4.09 15,263
asset value 2 (0.27) (0.02) 91% 4.00 %
per share 16,495
(cents) %
Average and 1 98,140 98,140 - 490,71 400%
weighted 2 108,31 108,31 - 1 362%
average 5 5 500,87
number of 7
ordinary
shares (`000)
Notes:
1. Based on an average and weighted average number of
ordinary shares of 98,140,414, which reflects the
cancellation of 10,175,000 treasury shares approved at the
annual general meeting of shareholders held on 20 August
2002, but for administrative reasons not registered by the
Registrar of Companies. Shareholders will again be asked
to vote in favour of a resolution to cancel these shares at
the forthcoming AGM.
2. Based on the current issued share capital of the
company of 108,315,414 ordinary shares.
3. Based on the unaudited interim consolidated financial
statements of the Acuity group of companies for the six
months ended 30 September 2002.
4. No revenue was taken into account as the holding
company"s sole source of income has been from its
subsidiaries. Expenses relate to head-office
administration costs and the loss arising from the
settlement of Snelco"s loan account. Net asset values have
been adjusted for the disposals as per paragraph 3.
5. The losses as indicated in column B were adjusted,
firstly, by adding the respective audited profit figures of
Avondale and Cream Star for the 12 months ended 28 February
2002 (which were halved to adjust for the six-month
comparative period). Secondly, negative goodwill was
written back for the six-month period (on the basis of a 10-
year amortisation policy). The net asset value
calculations have been based on the combined audited net
asset values of the two businesses to be acquired.
6. Excluding Acuity costs not associated with the future
operations of Milkworx, earnings and headline earnings per
share were calculated at 0.45cps and 0.37cps, respectively.
7. Conditions precedent
The transaction is subject to the normal conditions precedent that would be
applicable to a transaction of this nature, which conditions are indivisible and
include, inter alia, the following:
Approval of the JSE, the Securities Regulation Panel ("SRP"), the South African
Reserve Bank and any other regulatory authorities to the extent required;
The approval of resolutions relating, inter alia, to the disposal of the Group"s
existing subsidiaries, the acquisition of Cream Star and Avondale, the Long Life
agreement, an increase in the authorised and issued share capital, the change of
name of the company and reconstitution of the board of directors, by the
requisite majority of Acuity shareholders at a general meeting convened for this
purpose.
8. Change of control and waiver of mandatory offer
Approval and implementation of the acquisition will result in a change of
control of Acuity, which would, in the normal course give rise to a mandatory
offer to the minority shareholders of the company in terms of the Rules of the
Securities Regulation Panel ("SRP"). The SRP has agreed to dispense with this
requirement provided that a majority of independent shareholders waive their
rights to a mandatory offer in terms of Rule 8.7 of the Code and a resolution to
this effect will be included in the resolutions to be proposed at the general
meeting of the company called to approve the acquisition.
9. Opinion and recommendation
The directors of Acuity are unanimously of the opinion that the terms of the
acquisition are fair and reasonable to the shareholders of the company and
recommend that shareholders vote in favour of the special and ordinary
resolutions required to implement the acquisition. Those directors of Acuity
who have beneficial interests in the share capital of the company intend to vote
in favour of the resolutions required to implement the acquisition.
10. Circular to shareholders
A circular, which is subject to the approval of the JSE and the SRP, containing
full details of the acquisition and incorporating revised listing particulars
and a notice of general meeting of Acuity shareholders, is in the process of
being prepared and will be posted to Acuity shareholders in due course.
11. Withdrawal of cautionary
Following the publication of this announcement, the cautionary announcement has
been withdrawn and shareholders need no longer exercise caution when dealing in
the company"s securities on the JSE.
Pretoria
23 June 2003
Corporate Advisors Sponsor
Radagast Capital (Proprietary) Limited LPC Manhattan Sponsors (Pty) Ltd
Date: 23/06/2003 11:01:37 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
