| Tue 21 Nov 2006, 12:27 | | Group Five Limited - The acquisition by Group Five |
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GRF
GRF
Group Five Limited - The acquisition by Group Five of Quarry Cats
(Proprietary) Limited and withdrawal of cautionary announcement
Group Five Limited
(Incorporated in the Republic of South Africa)
(Registration number 1969/000032/06)
Share code: GRF ISIN: ZAE000027405
("Group Five" or "the company")
THE ACQUISITION BY GROUP FIVE OF QUARRY CATS (PROPRIETARY) LIMITED
AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
1. Introduction
Further to the cautionary announcement dated 3 November 2006,
Nedbank Capital is authorised to announce that Group Five has
entered into an agreement to acquire 100% of Quarry Cats ("Quarry
Cats") from Cobblers Limited ("the vendor") ("the transaction").
2. Nature and business of Quarry Cats
Quarry Cats is involved in the supply of construction materials
and crushing services to the construction and mining industries.
The structure of the business is set out below:
(Diagram removed)
Quarry Cats -
Commercial Aggregates (Gauteng):
* Ekurhuleni Dolomite Quarry
* Zimbiwa Sand and Stone Quarry
Contract Crushing (National):
* Kathu (3 contracts)
* Secunda
* Middleburg
* Cato Ridge
* Letseng (Lesotho)
Ready Mixed Concrete "Afrimix" (Gauteng):
* Chloorkop
* Jet Park
* Midrand
* Benoni
* Johannesburg City
* Honeydew
2.1 Commercial aggregates
The Ekurhuleni Dolomite quarry ("Ekurhuleni quarry") is
located in the Modderfontein mining area to the east of
Benoni and the Zimbiwa Sand and Stone quarry ("Zimbiwa
quarry") is located in Laezonia to the west of Midrand and
Centurion. Each supplies a full range of aggregates to
concrete product manufacturers, the ready mixed concrete
industry and the construction industry.
The Ekurhuleni quarry"s reserves include both dolomite and
dolerite with minimal overburden removal required to expose
the high quality blue rock. Exploitable reserves on Quarry
Cats" property are currently estimated to exceed 40 years of
production.
The Zimbiwa quarry is a granite quarry with reserves
estimated to be in excess of 25 years of production.
Separate plants process weathered granite and clean "blue"
unweathered material.
A full range of road building materials, concrete stone,
washed crusher sand and unwashed "super sands" are produced
from both quarries. The two facilities have two parallel
high output crushing plants capable of exceeding current
market demand levels. Both facilities are well located in
relation to major growth nodes in Gauteng with competitive
haulage distances to market. The current annual sales from
the quarries are approximately three million tons.
2.2 Contract crushing
Quarry Cats provides contract crushing solutions to a number
of clients in the basic resources sector. The company
designs, fabricates, commissions and operates its own plants,
which gives the company a strong competitive advantage in
this market. Experience has been gained in recovering,
crushing and screening for iron ore, manganese, chrome, and
coal. Commercial aggregates are also produced from mine
waste dumps. Some seven million tons of material are
processed per annum under long-term contracts.
2.3 Ready mixed concrete
Afrimix operates in Gauteng and supplies ready mixed concrete
and mortars to the building and civil engineering industries.
As indicated previously, Afrimix currently operates from six
locations. Afrimix is a member of the South African Ready
Mix Association (SARMA) and focuses on providing high quality
products and services. Afrimix currently produces
approximately 400 000 m3 of ready mixed concrete per annum.
3. Rationale for the transaction
Quarry Cats was identified as a business of strategic importance
to Group Five for the following reasons:
- its business compliments Group Five"s expansion and growth
strategy in the infrastructure sector;
- the transaction assists in mitigating the risk of future
materials shortages with respect to key building and infrastructure
projects undertaken by Group Five in its Gauteng market;
- Quarry Cats operates at higher margins than Group Five"s
overall group margin; and
- Group Five has prior ownership experience, and key senior
management with prior direct operating experience, in the crushing
and ready mixed concrete sectors.
4. Conditions precedent to the transaction
4.1 The transaction is subject to various regulatory approvals,
including the Competition Authorities, which conditions need to be
fulfilled by no later than 30 June 2007.
4.2 The transaction agreement contains terms, conditions and
warranties which are standard for an agreement of this nature.
5. Effective date of the transaction
The effective date of the transaction will be the fifth business
day following the day on which the last condition precedent is
fulfilled, which is expected at the end of February 2007.
6. Purchase consideration
The purchase consideration for the transaction is R750 million.
It is envisaged that, subject to further negotiation with the
vendors and taking market conditions into consideration, that the
purchase consideration will be discharged as follows:
- approximately R500 million through the issue of Group Five
ordinary shares ("shares") to the vendor ("vendor placement"); and
- approximately R250 million in cash.
The cash component will be sourced from third party debt
providers.
7. Financial effects of the transaction on Group Five shareholders
The table below sets out the pro forma financial effects of the
transaction on Group Five shareholders. These financial effects
are for illustrative purposes only, to provide information about
how the transaction might have affected the financial information
presented by Group Five and, because of their pro forma nature,
may not give a true reflection of Group Five"s financial
position. These financial effects are the responsibility of the
board of directors of Group Five.
Before the After the %
transaction transaction change
Revenue (R"000) 5,864,721 6,237,328 6.4%
Operating profit margin 4.11% 5.36% 30.4%
(%)
Earnings per share (R) 1.95 2.17 11.2%
Headline earnings per 1.93 2.15 11.5%
share (R)
Net asset value per 9.27 13.52 45.9%
share (R)
Number of shares in 73,918 87,076
issue ("000)
Weighted average number 73,496 86,654
of shares in issue
("000)
Notes:
1. The "Before the transaction" column has been extracted, without
adjustment, from the audited results of Group Five for the year
ended 30 June 2006.
2. The revenue, operating profit margin %, earnings per share and
headline earnings per share figures as reflected in the "After the
transaction" column are based on the assumption that the transaction
was implemented on 1 July 2005.
3. The earnings per share and headline earnings per share figures
as reflected in the "After the transaction" column are adjusted for
the after tax interest incurred at approximately 7% per annum (after
tax) on the third party debt raised to fund the purchase
consideration.
4. The net asset value per share figure as reflected in the "After
the transaction" column is based on the assumption that the
transaction was implemented on 30 June 2006 and adjusted for:
the R250 million of assumed third party debt raised to
discharge the cash component of the purchase consideration; and
the R500 million assumed vendor placement calculated at R38.00
per share for purposes of this announcement.
5. The "After the transaction" column reflects the consolidated
results of the company incorporating Quarry Cats" unaudited results
for the eight months ended 30 October 2006 annualised to reflect a
full 12 month period, as only eight months of comparable financial
information is available for Quarry Cats.
6. The "After the transaction" number of shares in issue and
weighted average number of shares in issue are adjusted for the
vendor placement.
8. Categorisation of the transaction in terms of the JSE Limited"s
("JSE") Listings Requirements and withdrawal of cautionary
announcement
The transaction is a Category Three transaction in terms of
Section 9.5 of the JSE Listings Requirements and no action is
required by Group Five shareholders.
Group Five shareholders are no longer advised to exercise caution
when trading their Group Five shares.
Sandton
21 November 2006
Investment bank, corporate adviser and sponsor to Group Five
Nedbank Capital, a division of Nedbank Limited
Legal adviser to Group Five
Prinsloo, Tindle and Andropoulos Inc
Legal adviser Cobblers Limited
Hofmeyr Herbstein & Gihwala Inc
Legal adviser in respect of mining legislation
Werksmans Attorneys
Date: 21/11/2006 12:27:25 PM Produced by the JSE SENS Department
