| Mon 12 Dec 2005, 10:00 | | Set Point Technology Holdings Limited - Prepayment |
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Set Point Technology Holdings Limited - Prepayment Of A Portion Of The Purchase
Consideration
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")
PREPAYMENT OF A PORTION OF THE PURCHASE CONSIDERATION FOR THE ACQUISITION OF THE
BUSINESS OF SERAN ENGINEERING & SUPPLIES (PROPRIETARY) LIMITED ("SERAN") AND
AMENDMENT TO THE TERMS OF THE ACQUISITION AGREEMENT RELATING THERETO.
1. Introduction
With effect from 1 July 2005, Setpoint purchased the business of Seran. Seran
is trading well and has been successfully integrated into the Sethold group.
Sethold and the sellers of Seran have agreed to invoke the prepayment clause in
the acquisition agreement and amend the terms of the acquisition agreement to
give effect thereto.
2. Terms of the Seran acquisition agreement
In terms of the acquisition agreement signed on 9 May 2005, and approved by
Sethold shareholders on 30 June 2005, the purchase consideration (estimated to
be about R80 million) was to be calculated and settled as follows:
* R13 million to be settled in cash on the completion date; and
* An additional amount, estimated at R67 million, based on an amount equal to
the profit after tax ("PAT") multiplied by 4.5, less R13 million.
The PAT referred to above would be determined by averaging the after tax profits
generated by the Seran business over a 3 year period from 1 September 2005 until
31 August 2008. This amount will be settled within 10 days after the
determination of the PAT upon which the additional amount is based.
The agreement allowed for the additional amount to be settled in cash.
Alternatively, at the election of Sethold, an amount equal to the PAT multiplied
by 3 less R13 million, would be settled in cash and the balance in Sethold
shares. The price at which these shares would be issued by Sethold would be the
weighted average closing price of Sethold"s shares for the 90 day period
preceding the final determination of the additional amount, rounded to the
nearest Sethold share.
In terms of clause 7.3.6 of the acquisition agreement, which was available for
inspection by shareholders, Sethold was entitled to prepay part of the
acquisition consideration before the completion of the calculation period, which
runs from 1 September 2005 to 31 August 2008. In addition, clause 7.3.3 allows
for part of the purchase consideration to be settled in shares.
The directors wish to invoke the authority conferred on them by clause 7.3.6 of
the acquisition agreement and issue 30 million Sethold shares to the seller.
This has been encapsulated in the Addendum to Sale of Business Agreement.
3. Terms of addendum to Seran acquisition agreement
In terms of the Addendum to Sale of Business Agreement, the following amendments
have been made ("the amendments"):
* The additional amount will be calculated by multiplying PAT by 3.5 (and not
4.5).
* In terms of its ability to prepay part of the acquisition price, Sethold will
issue 30 million shares to the seller. The shares will be issued ex-dividend,
at 85 cents per share. The target issue date is 16 January 2006.
* These shares may not be sold or otherwise alienated until 30 November 2008 as
Sethold retains a claw back should the profits be insufficient to support the
value of shares issued.
4. Rationale for the amendments
Sethold"s directors are of the opinion that amending the terms of the agreement
is in shareholders best interests for the following reasons:
* The seller, by sharing in the future upside or downside of the Sethold share
price, will be further motivated to grow the Seran business for the benefit of
all shareholders,
* Issuing the shares now will
- strengthen the Sethold balance sheet by improving the
company"s debt equity ratio,
- remove some of the uncertainty relating to the deferred
purchase consideration, and
- will result in a reduction of the total estimated
purchase price from R80 million to R62 million.
5. Unaudited pro forma financial effects and balance sheet of the amendment to
the Seran transaction
The table below sets out the unaudited pro forma financial effects and balance
sheet of the amendment to the Seran transaction on Sethold. The unaudited pro
forma financial effects and balance sheet 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 amendment
to the Seran transaction. It has been assumed for purposes of the pro forma
financial effects and balance sheet that the amendment to the Seran transaction
took place with effect from 1 July 2005 (the effective date) for income
statement purposes and 31 August 2005 for balance sheet purposes. The directors
of Sethold are responsible for the preparation of the unaudited pro forma
financial effects and balance sheet.
The unaudited pro forma financial effects and the unaudited pro forma balance
sheet set out below are based on the following assumptions:
1. Sethold management"s best estimate of the total liability payable following
the amendment to the Seran transaction is 62 million, comprising R13 million in
cash, R25.5 million in ordinary shares and an estimated R17 million contingent
purchase consideration.
2. The contingent purchase consideration of the total liability payable
following the amendment to the Seran transaction has been net present valued
using 11.02% for the two months ended 31 August 2005 as the discount rate in
accordance with AC 133: Financial Instruments: Recognition and Measurement.
Before 1 After the % Change
amendment
to the
Seran
transaction
Published Pro forma
Earnings per share (cents) 7.3 7.4 (2) 1%
Diluted earnings per share 7.2 7.3 (2) 1%
(cents)
Headline earnings per share 7.5 7.5 (2) 0%
(cents)
Diluted headline earnings 7.3 7.4 (2) 1%
per share (cents)
Net asset value per share 31.3 36.8 (3) 18%
(cents)
Net tangible asset value per (8.6) 3.7 (3) 143%
share (cents)
Number of shares in issue 277 619 307 619 11%
(millions)
Weighted average number of 242 619 247 619 2%
shares in issue (millions)
Fully diluted weighted
average number of shares in 246 814 251 814 2%
issue (millions)
Notes:
1. The "Before" financial information is based on Sethold"s audited, published
results for the year ended 31 August 2005 which include the Seran transaction
with effect from the effective date (1 July 2005) prior to the amendment.
2. The "After the amendment to the Seran transaction" earnings, diluted
earnings, headline earnings and diluted headline earnings per share have been
adjusted to amend the notional interest expense arising as a result of net
present valuing the contingent purchase consideration and to include the effects
of the issue of the 30.0 million ordinary shares as part of the purchase
consideration for the two months ended 31 August 2005.
3. The "After the amendment to the Seran transaction" net asset value and net
tangible asset value per share have been adjusted to amend the contingent
purchase consideration and goodwill arising as a result of the Seran
transaction, to include the issue of the 30.0 million ordinary shares at 85
cents per share in terms of the amendment to the Seran transaction and the
estimated transaction costs of R100 000 which have been written off against
share premium.
Unaudited pro forma balance sheet
Before Adjustments After the
(1) amendment
to the
Seran
transaction
Published Pro forma
R"000 R"000 R"000
ASSETS
Non-current assets 136 382 (9 051) 127 331
Property, plant and 25 586 0 25 586
equipment
Goodwill and 100 060 (9 051) (2) 91 009
intangibles
Deferred taxation 10 736 0 10 736
Current assets 98 698 0 98 698
Inventories 36 759 0 36 759
Trade and other 59 385 0 59 385
receivables
Cash and cash 2 554 0 2 554
equivalents
Total assets 235 080 (9 051) 226 029
EQUITY AND LIABILITIES
Equity and reserves 86 964 26 414 113 278
Share capital and 2 777 300 (3) 3 077
share premium
Share premium 52 179 25 100 (4) 77 279
Premium on minority (4 945) 0 (4 945)
equity transactions
Retained earnings 36 953 914 (5) 37 867
Minority interest 724 0 724
Non-current interest 70 706 (33 624) 37 082
bearing liabilities
Interest bearing 14 402 0 14 402
liabilities
Contingent purchase 56 304 (33 624) 22 680
consideration (6)
Current liabilitiy 76 686 (1 741) 74 945
Interest bearing 6 246 100 (7) 6 346
liabilities
Taxation liability 5 233 0 5 233
Payables 65 207 (1 841) (8) 63 366
Total equity and 235 080 (9 051) 226 029
liabilities
Net asset value per 31.3 36.8
share (cents)
Net tangible asset (8.6) 3.7
value per share
(cents)
Number of shares in 277 619 307 619
issue (`000)
Notes:
1. The "Before" financial information is based on Sethold"s audited, published
results for the year ended 31 August 2005 which include the Seran transaction
with effect from the effective date (1 July 2005) prior to the amendment.
2. Goodwill and intangibles has been adjusted to amend the goodwill due to the
reduction in the contingent purchase consideration following the amendment to
the Seran transaction.
3. Share capital has been adjusted to include the 30.0 million ordinary
shares at the par value of 1 cent each.
4. Share premium has been adjusted to include the share premium on the 30.0
million ordinary shares of 84 cents per share less the payment of the estimated
transaction costs which have been written off against share premium.
5. Retained earnings have been adjusted to exclude the notional interest
expenses for the two months from the effective date until 31 August 2005 raised
in the audited financial statements.
6. Contingent purchase consideration has been adjusted to amend the
contingent purchase consideration following the amendment to the Seran
transaction.
7. Interest bearing liabilities have been adjusted for the estimated transaction
costs payable.
8. Payables have been adjusted for the reversal of the current portion of the
contingent purchase consideration raised in the audited financial statements.
Johannesburg
12 December 2005
Lead sponsor Sponsor
KPMG Standard Bank
KPMG Services Standard Bank
Auditors and Reporting Legal advisor
accountants
KPMG
KPMG Inc Webber Wentzel Bowens
Date: 12/12/2005 10:00:23 AM Produced by the JSE SENS Department
