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Rainbow - Terms announcement in respect of the proposed acquisition by Rainbow
of Vector Logistics (Proprietary) Limited (`Vector`) (`the transaction`)
RAINBOW CHICKEN LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1966/004972/06)
Share code: RBW ISIN number: ZAE000019063
(`Rainbow`)
Terms announcement in respect of the proposed acquisition by Rainbow of Vector
Logistics (Proprietary) Limited (`Vector`) (`the transaction`)
1. Introduction
Pursuant to the announcement by Rainbow published on SENS on 7 September 2004,
shareholders are advised that Rainbow has reached agreement to acquire the
entire issued share capital of Vector. The terms of the transaction are set out
below.
2. The sellers
AVI Limited (`AVI`) and its wholly owned subsidiaries (`the sellers`) hold 100%
of the issued ordinary share capital of Vector.
3. Rationale for the transaction
Vector is a specialist third-party logistics service provider for the food and
food-related industries within Southern Africa across the retail, wholesale and
foodservice sectors.
Vector was originally the distribution division of Irvin & Johnson (a subsidiary
of AVI) that has been providing distribution services to Rainbow for some 34
years. When Vector was formed, as a subsidiary of AVI, the distribution
agreement between I&J and Rainbow was ceded by I&J to Vector. Vector currently
distributes approximately 70% of Rainbow products and Vector`s business is made
up of approximately 60% of Rainbow distribution. Vector is, however, a stand-
alone business that will continue to provide a world-class service to its other
principals in terms of the agreements with them.
The acquisition is seen as a key enabler towards achieving Rainbow`s customer
driven strategy by providing a customer focused, integrated, outbound supply
chain that is flexible and based on current FMCG market trends and business
models which will benefit Rainbow as well as Vector`s other principals.
4. Terms of the transaction
4.1 Purchase consideration and mechanism
Rainbow will purchase the Vector shares from the sellers for a cash
consideration of R454.9m. The cash consideration will be paid to the sellers
within 24 hours of signature of the sale agreement.
4.2 Effective and implementation date
The effective date of the transaction is 1 July 2004 and all the benefits and
risks in respect of the Vector shares shall be deemed to have passed to Rainbow
on the effective date. The implementation date of the transaction is on
signature of the sale agreement which was 2 December 2004. It is anticipated
that Rainbow will consolidate Vector with effect from 1 October 2004.
4.3 Conditions precedent
The transaction was subject to the fulfilment of certain conditions precedent,
including the approval of the transaction by the competition authorities, all of
which have been fulfilled as at the time of signature of the agreement.
5 Description of Vector
Vector is a specialist third party logistics provider, focused on the frozen and
chilled supply chain. Vector was incorporated as a stand-alone business on 1
July 2002 and has 13 facilities throughout South Africa and Namibia with its
head office in Durban. Vector currently employs 1610 people.
6. Pro forma financial effects on Rainbow
The pro forma financial effects of the transaction have been prepared for
illustrative purposes only and are set out below:
Column 1 Column 2
Before the After the Change (%)
transaction transactio
(cents) n (cents)
Earnings per share 85.2 87.4 2.5%
Headline earnings per share 85.2 93.0 9.2%
Net asset value per share 438.6 438.6 0.0%
Net tangible asset value per share 437.9 316.7 -27.7%
Number of shares in issue (`000) 269,384
Weighted average number of shares 266,973
in issue (`000)
Notes:
1. The audited earnings and headline earnings per share for the 12 months
ended 31 March 2004 are reflected in Column 1. The effective earnings and
headline earnings per share for the 12 months ended 31 March 2004, based on the
following principal assumptions, are reflected in Column 2:
- the transaction was effective 1 April 2003;
- the purchase consideration was funded out of available cash resources,
which earned interest at an average after tax interest rate of 5.8%; and
- the excess of the purchase consideration over the book asset value of
Vector at 1 July 2004 resulting from the acquisition, of R328.5 million, assumed
to represent intangibles, is amortised over a period of 20 years and is adjusted
for headline earnings purposes. The excess still needs to be allocated to the
fair value of the underlying assets of Vector.
2. The audited net asset value and net tangible asset value per share at
31 March 2004 is reflected in Column 1. The effective net asset value and net
tangible asset value per share on 31 March 2004 assuming the transaction was
effected on 31 March 2004 are reflected in Column 2.
3. The net asset value attributable to Vector as at 30 June 2004 was R113.4
million. The net profit after taxation for the year ended 30 June 2004
attributable to Vector was R59.9 million, which includes an amount of
approximately R10.8 million earned on cash distributed to shareholders after
year end, but prior to the implementation of the acquisition.
7. Documentation
A circular providing full details of the transaction will be posted to
shareholders by no later than 10 February 2005.
Rainbow Chicken Limited
Durban
2 December 2004
Merchant bank to the transaction and Sponsor to Rainbow
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
CORPORATE FINANCE
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