| Mon 30 Oct 2006, 15:05 | | Control Instruments - Acquisition of the business |
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CNL
CNL
Control Instruments - Acquisition of the business of Pi Technology
from Pi Group Limited
CONTROL INSTRUMENTS GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1964/003987/06)
Share code: CNL & ISIN: ZAE000001665
("Control Instruments" or "the Group")
ACQUISITION OF THE BUSINESS OF PI TECHNOLOGY FROM PI GROUP LIMITED
1. INTRODUCTION
Investec Bank Limited is authorised to announce that agreement has
been reached between Control Instruments and Pi Group Limited ("Pi
Group"), whereby Control Instruments will acquire Pi Technology, a
business in the automotive original equipment market, from Pi Group.
The agreement is subject to the fulfillment of certain conditions
precedent.
2. NATURE OF BUSINESS OF PI TECHNOLOGY
Pi Technology is based in Cambridge, England and specialises in the
design of a wide range of electronic products for the automotive
industry, specifically in the areas of engine control systems,
infotainment and information displays, alternative fuel applications
(including hybrid technology), and body and suspension control
electronics.
Pi Technology also provides consulting services to the OEM
automotive industry and its Tier1 suppliers and has considerable
experience in development projects such as systems engineering,
advanced technology demonstrators, production designs and fast-track
projects where time-scales are tight and milestones important.
Having grown rapidly from a start-up business approximately 14 years
ago, Pi Technology now has satellite offices in Detroit, USA and
Frankfurt, Germany. It currently employs 90 engineers, the majority
of whom have high-grade technical degrees as well as many years of
experience in systems engineering, and hardware, software and
electronic design for the automotive industry.
One in four US heavy trucks use engine control systems designed by
Pi Technology and numerous motor vehicles worldwide incorporate
architectures, electronics and software designs from Pi Technology.
3. RATIONALE FOR THE ACQUISITION
Control Instruments serves selected niche markets in the automotive
and transportation industries. The Group"s strategy is to globalise
its businesses.
In March 2005 Control Instruments announced that it was sending Rod
Forrester, Group executive director and the then managing director
of Control Instruments Shurlok, to investigate and oversee the
establishment of a UK based European sales, engineering and
purchasing operation.
Arising out of this, Control Instruments decided to expand its
existing relationship with Pi Group, rather than start a new
operation. This enables Control Instruments to capitalise on Pi
Technology"s excellent reputation and working relationship with all
the major international OEMs.
The partnership between Control Instruments Shurlok and Pi
Technology has been tested and is proving to be attractive to
customers and potential customers throughout the world. Orders for
new products (instrument and information displays and engine control
units) have already been received from two major international OEMs
and additional business is in the pipeline.
The acquisition of Pi Technology is the next logical step in the
process of cementing the relationship between the two companies and
allows the Group to expand its OEM operation from a solid and well
regarded international base that is profitable and cash positive.
Control Instruments Shurlok and Pi Technology will be run as one
business with the management and staff of both companies being
retained. Sales, marketing, new business and product development
will be managed out of the UK, the USA and Europe, while
manufacturing, certain engineering facilities and customer support
for South African OEMs will continue to be based in South Africa.
This aligns the combined business with the trend in the
international motor industry whereby the OEMs are consolidating
their product development and purchasing decisions near to their
major markets.
The acquisition is expected to result in a long-term increase in
manufacturing, exports and employment opportunities for Control
Instruments" South African based operations whilst allowing the
Group to expand its international revenue streams.
4. 4. SALIENT TERMS OF THE ACQUISITION
4.1 The purchase consideration of GBP5 million ("the
consideration") will be settled by the payment in cash on
the seventh business day after the date on which the
suspensive conditions have been fulfilled ("the effective
date"). This is expected to be on or around 30 November
2006.
4.2 Warranties and indemnities normal in transactions of this
nature have been provided by Pi Group.
4.3 The acquisition will be effective from the effective date.
4.4 Control Instruments will use term loan facilities and
internal resources to finance the acquisition, but also
has the option to use a vendor placement of shares to
finance part or all of the transaction.
5. UNAUDITED PRO FORMA FINANCIAL EFFECTS OF THE ACQUISITION
The unaudited pro forma financial effects set out below have been
prepared for illustrative purposes only to assist Control
Instruments shareholders to assess the impact of the acquisition on
the earnings per share ("EPS"), headline earnings per share
("HEPS"), net asset value ("NAV") per share and tangible net asset
value ("TNAV") per share of Control Instruments. The unaudited pro
forma financial effects have been prepared for a six month period
and are based on Control Instruments" unaudited results for the six
months ended 30 June 2006 and Pi Technology"s unaudited results for
six months ended 30 June 2006.
These unaudited pro forma financial effects have been disclosed in
terms of the JSE Limited ("JSE") Listings Requirements and because
of their nature may not fairly present Control Instruments"
financial position, changes in equity, results of operations or cash
flows. The unaudited pro forma financial effects are the
responsibility of the directors of Control Instruments and are
provided for illustrative purposes only.
Before the After the Change
acquisition acquisition
Cents Cents %
EPS 32.8(i) 34.6(ii) 5.5
HEPS 17.4(i) 19.1(ii) 9.8
NAV per share 310.8(iii) 310.6(iv) (0.1)
TNAV per share 99.1(iii) 58.0(iv) (41.5)
Notes:
(i) The EPS and HEPS, as set out in the "Before the acquisition"
column of the table, are based on the unaudited income statement of
Control Instruments for the six months ended 30 June 2006 and 90 190
118 weighted average number of shares in issue.
(ii) The EPS and HEPS, as set out in the "After the acquisition"
column of the table, are based on the combined unaudited income
statements of Control Instruments and Pi Technology for the six
months ended 30 June 2006; 90 190 118 weighted average number of
shares in issue; a Rand/GBP exchange rate of 14.5; and the
assumptions that the acquisition became effective at the beginning
of the six month period; the consideration was paid at the beginning
of the six month period; and an interest rate of 12.0% nominal
annual compounded monthly is applicable on the term loan facilities.
(iii) The NAV and TNAV per share, as set out in the "Before the
acquisition" column of the table, are based on the unaudited balance
sheet of Control Instruments at 30 June 2006 and 95 623 008 shares
in issue.
(iv) The NAV and TNAV per share, as set out in the "After the
acquisition" column of the table, are based on the combined
unaudited balance sheets of Control Instruments and Pi Technology at
30 June 2006; 95 623 008 shares in issue; a Rand/GBP exchange rate
of 14.5; and the assumptions that the acquisition became effective
at the end of the six month period; and the consideration was paid
at the end of the six month period.
(v) The difference between the consideration, including directly
attributable transactions costs of R2.00 million, and the net asset
value of R35.28 million has provisionally been treated as goodwill.
Post completion of the acquisition Control Instruments may identify
fair value adjustments on assets and recognise other intangible
assets, as required by IFRS 3: Business Combinations, which would
reduce the goodwill.
(vi) Transaction costs of approximately R2.24 million were assumed
to have been paid in cash at the end of the six month period. Of
these costs, R2.00million was capitalised and R0.24 million was
expensed.
6. CONDITIONS PRECEDENT TO THE ACQUISITION
The acquisition is subject to South African Reserve Bank approval
being obtained on or before 30 November 2006, which date may be
extended by a further 20 business days.
The last day upon which the conditions precedent are capable of
being fulfilled is 2 January 2007, failing which the acquisition
agreement shall lapse and cease to have any force or effect.
7. CATEGORISATION OF THE ACQUISITION
The acquisition has been categorised as a category 3 transaction in
terms of section 9.5(b) of the JSE Listings Requirements.
Cape Town
27 October 2006
Sponsor: (INVESTEC BANK)
Attorneys: (JAN S DE VILLIERS)
Date: 30/10/2006 03:05:09 PM Produced by the JSE SENS Department
