| Fri 27 May 2005, 11:03 | | Acquisition of the business of Seran |
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Sethold - Acquisition of the business of Seran and introduction of a BEE
Shareholder
Set Point Technology Holdings Limited
(`Sethold`)
(Incorporated in South Africa)
(Registration number 1996/014334/06)
JSE Share Code: STO
ISIN Number: ZAE000013629
Acquisition of the business of Seran Engineering & Supplies (Proprietary)
Limited (`Seran`) by Set Point Industrial Technology (Proprietary) Limited
(`SIT`) and the introduction of a Black Economic Empowerment (`BEE`) shareholder
1. Introduction
Shareholders are advised that SIT has entered into an agreement with Seran
which will result in SIT acquiring the business of Seran as a going concern
(`the Acquisition`). SIT is a wholly owned subsidiary of Sethold. The
Acquisition will be completed on the last business day of the month in
which the last of the suspensive conditions is fulfilled or waived
(`Completion Date`), and will be effective from the first day of the month
following the month in which the Completion Date falls (`the Effective
Date`).
2. Nature of the business of Seran
The business conducted by Seran comprises primarily the manufacture and
supply of overburden recovery technology, equipment and services used in
underground mining activities. The assets and technology used are patented
and the relevant patents form part of the Acquisition by SIT.
3. Rationale for the Acquisition
Sethold is a technology and services group. The company currently has two
areas of operation:
* Analytical Services and Instrumentation which offers expert analysis
through specialised laboratories for precious metals exploration, for the
mining industry and for the condition monitoring of fluids as well as the
supply of specialised instrumentation to the petrochemical industry and
academic organisations; and
* Fluid Handling which supplies medium technology fluid handling equipment
and solutions to the mining, petrochemical and other industries.
The Acquisition offers Sethold the opportunity to take advantage of the
outsourcing growth in the mining industry which continues gather momentum.
The target industries of Sethold and Seran complement each other and there
is no product conflict with Seran. The Acquisition will enlarge the
customer base of Sethold`s present operations, enabling the group to
capitalise on joint expertise and inherent synergies.
4. Suspensive conditions relating to the Acquisition
The Acquisition is subject to the fulfilment of the following suspensive
conditions by 31 August 2005 or such later date as may be agreed between
the parties:
4.1 the approval of the terms of the Acquisition by Sethold shareholders in
general meeting;
4.2 the approval of the terms of the Acquisition by the Seran shareholders in
general meeting, pursuant to section 228 of the Companies Act, 1973;
4.3 the written consent to the assignment of material contracts from Seran to
SIT being obtained from the counter parties to each such material contract;
4.4 the approval of the merger resulting from the Acquisition by the relevant
competition authorities;
4.5 any other regulatory approvals as may be required; and
4.6 key management entering into a service contract with SIT commencing on the
Effective Date and terminating not earlier than 31 August 2008.
5. Purchase consideration
The consideration to be paid to Seran over a period is estimated to be R80
million and will be settled as follows:
5.1 R13 million in cash on the Completion Date; and
5.2 an additional amount, estimated at R67 million, based on the average
audited annual profit, excluding interest revenue, after taxation of the
Acquisition for the period commencing on 1 September 2005 and terminating
on 31 August 2008 (`Calculation Period`), multiplied by 4.5 less R13
million, plus an amount equal to the after tax interest earned on cash
balances during the Calculation Period (`Additional Amount`). The
additional amount will be settled within 10 days after the determination of
the Additional Amount.
The Additional Amount may be settled in cash. Alternatively, at the
election of SIT, an amount equal to the average audited annual after tax
profit for the Calculation Period multiplied by 3 less R13 million, will be
settled in cash and the balance in Sethold shares.
The purchase price will also be adjusted by an upfront amount equal to
after tax profits from the effective date to 31 August 2005, if the
Effective Date is prior to 31 August 2005.
Sethold has received a commitment to fund the R13 million to be settled in
cash on the Completion Date from Sabvest Finance and Guarantee Corporation
Limited, pending the conclusion of the BEE transaction referred to below.
6. BEE transaction and Specific Issue
After exploring a number of alternatives, the Sethold board of directors
has decided to offer 35 million Sethold ordinary shares to the Haroon Habib
Family Trust (`HHFT`) at 40c per share in cash (`Specific Issue`). This
represents a 10.9% discount to the weighted average traded price of a
Sethold ordinary share on the JSE Securities Exchange South Africa for the
30 business days immediately preceding 14 March 2005, being the date on
which the parties agreed, in principle, the terms of the BEE transaction.
No funding is required from Sethold or Sethold shareholders. This will
increase the shareholding of HHFT in Sethold to 47 million shares which
will be equal to 16.96% of the Sethold shares then in issue.
Mr Haroon Habib, a trustee of HHFT, is expected to join the Sethold board
of directors as a non-executive director. Mr Habib is the independent non-
executive chairman of Sabvest Limited, a material shareholder of Sethold,
but he is not a shareholder of Sabvest Limited.
7. Suspensive conditions relating to the Specific Issue
The Specific Issue is subject to the fulfilment of certain suspensive
conditions, by 30 September 2005 or such later date as may be agreed
between the parties, including that:
7.1 the approval of the terms of the Specific Issue by Sethold shareholders in
general meeting is obtained; and
7.2 all regulatory approvals, consents and rulings as may be required in
respect of the Specific Issue, are obtained.
8. Unaudited pro forma financial effects
The table below sets out the unaudited pro forma financial effects of the
Specific Issue and the Acquisition on Sethold. The unaudited pro forma
financial effects are presented for illustrative purposes only and because
of their nature may not give a fair reflection of Sethold`s results,
financial position and changes in equity after the Specific Issue and the
Acquisition. It has been assumed for purposes of the unaudited pro forma
financial effects that the Specific Issue and the Acquisition took place
with effect from 1 September 2004 for income statement purposes and 28
February 2005 for balance sheet purposes. The directors of Sethold are
responsible for the preparation of the unaudited pro forma financial
effects.
Before After Note After the Note After the Note
(1) the s Acquisition s Specific Issue s Chang
Specifi and e
c Issue Acquisition
EPS (cents) 2.8 2.6 (2) 3.0 (3) 3.0 (4) 7.1%
HEPS 3.0 2.8 (2) 3.2 (3) 3.2 (4) 6.7%
(cents)
NAV per 26.6 28.1 (5) 26.3 (6) 28.1 (7) 5.6%
share
(cents)
TNAV per 15.0 17.9 (5) -6.1 (6) -0.3 (7) -
share 102.0
(cents) %
Weighted 242 109 277 109 242 109 277 109
average
number and
number of
shares in
issue
(`000s)
Assumptions:
i. Sethold management`s best estimate of the total liability payable is
R80 million, comprising R13 million in cash and an estimated R67
million deferred Additional Amount.
ii. The Effective Date has been assumed to be 1 September 2005, and hence
no upfront amount has been taken into account.
iii. The deferred Additional Amount of the total liability payable, has
been net present valued using the prime rate after tax of 7.7% for the
six months ended 28 February 2005 as the discount rate in accordance
with AC 133: Financial Instruments: Recognition and Measurement.
iv. The effects of IFRS 2 (AC 139): Share-Based Payment has not been taken
into account as this statement only affects periods commencing on or
after 1 January 2005.
v. The excess of the total purchase price payable of R80 million over the
net asset value of the acquisition will mainly relate to patents.
vi. The pro forma financial effects have been prepared on a `stand alone
basis` for the Specific Issue and the Acquisition. The `After the
Specific Issue and the Acquisition` column has been adjusted to show
the effect of the Specific Issue and the Acquisition happening
simultaneously.
Notes
1. The `Before` financial information has been extracted, without adjustment
from the unaudited interim results of Sethold for the six months ended 28
February 2005.
2. The `After the Specific Issue` earnings per share (`EPS`) and headline
earnings per share (`HEPS`) has been adjusted to include the notional
interest expense reduction at an after tax rate of 7.7% assuming that the
R14 million to be raised in terms of the Specific Issue, less the payment
of the estimated transaction costs, was used to reduce interest bearing
liabilities.
3. The `After the Acquisition` EPS and HEPS has been adjusted to include the
after taxation earnings of Seran for the six months ended 28 February 2005,
the amortisation of the patent which has been calculated based on
assumption 5, the notional interest charge of R2 million arising as a
result of the net present valuing of the deferred Additional Amount, the
estimated transaction costs and the raising of an interest expense at an
after tax rate of 7.7% assuming that the cash payment of R13 million was
funded through a loan.
4. The `After the Specific Issue and Acquisition` EPS and HEPS has been
adjusted as for note 3 above, except that the interest and transaction
costs adjustments have been reversed as the Acquisition has been funded by
the cash raised from the Specific Issue.
5. The `After the Specific Issue` net asset value (`NAV`) and tangible net
asset value (`TNAV`) per share has been adjusted for the R14 million to be
raised from the Specific Issue less the estimated transaction costs, which
have been written off against the share premium account.
6. The `After the Acquisition` NAV and TNAV per share has been adjusted for
the assets and liabilities of Seran at 28 February 2005, the cash payment
of R13 million, the payment of the estimated transaction costs, the loan
raised to fund the cash payment of R13 million, the raising of the net
present valued deferred Additional Amount and the patents and goodwill
arising as a result of the Acquisition. The TNAV per share excludes the
patents and goodwill arising as a result of the Acquisition.
7. The `After the Specific Issue and Acquisition` NAV and TNAV per share has
been adjusted as per notes 5 and 6 above except that the cash received in
terms of the Specific Issue has been reversed out of cash and cash
equivalents and used to settle the loan. The TNAV per share excludes the
patents and goodwill arising as a result of the Acquisition.
9. Documentation
A circular providing further information on the Specific Issue and the
Acquisition and containing, inter alia, a notice of general meeting of
shareholders and a form of proxy, will be posted to Sethold shareholders
during June 2005.
10. Withdrawal of cautionary announcement
Shareholders are referred to the cautionary announcement published on 21
April 2005 and are advised that, as negotiations have been successfully
concluded, caution is no longer required by Sethold shareholders when
dealing in Sethold shares.
Johannesburg
27 May 2005
Lead Sponsor: KPMG
Sponsor: Standard Bank
Legal Adviser: Webber Wentzel Bowens
Date: 27/05/2005 10:59:23 AM
Produced by the JSE SENS Department
