| Tue 27 Feb 2007, 13:23 | | ADR - Adcorp - Acquisition of Capital Outsourcing |
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ADR
ADR
ADR - Adcorp - Acquisition of Capital Outsourcing Group (Pty) Limited
and further cautionary announcement
Adcorp Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1974/001804/06)
Share Code: ADR & ISIN:ZAE000000139
("Adcorp" or "the group")
Announcement to shareholders of Adcorp regarding the acquisition of Capital
Outsourcing Group (Pty) Limited ("COG") ("the acquisition") by Adcorp and
further cautionary announcement
1. Introduction
Further to the cautionary announcement of Adcorp published in the press on 23
January 2007, Investec Corporate Finance is authorised to announce that Adcorp
has entered into an agreement with the current shareholders of COG to acquire
the entire issued share capital of COG in consideration for cash and a vendor
placement of Adcorp shares.
2. Details of the acquisition
2.1 The vendors of COG
The vendors are Medu Capital ("Medu") who owns 66.03%, Messrs Andy Fenn and
Shaun McCormack (individuals) who own 28.30% and a management consortium who
owns 5.66%.
2.2 Effective date
The effective date of the transaction will be on or about Tuesday, 1 May 2007
being the expected date of the fulfillment of all conditions precedent.
2.3 Purchase consideration
Adcorp will acquire the entire issued share capital of COG for a purchase
consideration of R238 000 000 (two hundred and thirty eight million rand). The
purchase consideration will be discharged as follows:
An issue of new Adcorp shares up to an amount of R166 600 000 by way of a vendor
placement which will comprise of:
- 218 750 shares (109 375 each to Messrs Andy Fenn and Shaun McCormack) at an
issue price of R32.00 per share; and
- a further issue of the remaining shares to selected institutions with
reference to a 30 day Volume Weighted Average Price ("VWAP") on the JSE
Limited ("JSE") on or about Tuesday, 1 May 2007, being the expected date of
the fulfillment of all conditions precedent ("the vendor shares"); and
- internal cash resources to the amount of R71 400 000 (seventy one million
four hundred thousand rand).
2.4 Conditions precedent
The acquisition is subject to the following conditions precedent:
- Adcorp being satisfied with its due diligence investigation into the
business and affairs of COG;
- Approval in general meeting by shareholders to place the unissued shares
("vendor shares") under the control of directors;
- Approval of the acquisition by the Competition Commission and the JSE,
including the approval by the JSE of the required documentation to be
distributed to Adcorp shareholders; and
- conclusion of employment agreements between Adcorp and the key employees of
COG, including appropriate restraint undertakings.
3. COG - nature of business
COG is one of the largest independent, temporary and permanent employment
service providers in South Africa. The business specialises in supplying
outsourced staffing, recruitment and human resource solutions. The company was
founded in 1985 and has a well-established branch network. It covers all major
centres in South Africa and some Southern African countries (including
Mozambique and Angola). The business has long-standing relationships with an
impressive list of blue-chip clients across a wide range of industry sectors.
Whilst COG has its roots in the industrial sector, its current expertise covers
technical, project, offshore, retail, hospitality, promotion and other sectors.
Some of the sectors COG operates in are as follows:
- Fast Moving Consumer Goods
- Pharmaceuticals
- Printing and Packaging
- Retail
- Hospitality
- Local and international Petrochemical and Oil and Gas
- Projects
COG employs over 14 000 temporary staff at any time and has an annual turnover
that exceeds R 600 million. It supplies predominantly blue-collar and high-end
technical staff. COG`s centralised administration division consistently achieves
industry leading pay accuracy and constantly develops its systems to maintain
this competitive edge. The business has an excellent track record in supplying
quality staff and prides itself on providing staff that improve productivity and
service to enhance the profitability of its clients. The company has experienced
good growth in recent years and has a strong management team.
4. Rationale for the acquisition
Adcorp currently employs in excess of 38 000 contract workers and the
acquisition of COG and its 14 000 strong temporary workforce will add scale to
the existing business activities of Adcorp and providing the business with a
wider geographic reach. The acquisition of COG will reinforce Adcorp as a market
leader in the supply of blue collar staff and will allow Adcorp to penetrate
markets it previously did not supply into.
5. Financial effects on Adcorp shareholders
The unaudited pro forma financial effects of the acquisition are the
responsibility of the directors of Adcorp and are presented for illustrative
purposes only to provide information about how the acquisition might have
impacted on the financial position and results of Adcorp had the acquisition
occurred at an earlier date.
Latest results as published on 12 January 2007. These results were based on the
6 months to June 2006 adjusted for the acquisition of Funerary Management
Service (Pty) Limited ("FMS")
Before (cents) After (cents) change %
(1,4) (2,5,6,7)
Per Adcorp share
Earnings 62.4 64.6 3.5
Headline earnings (3) 107.4 107.5 0.1
Net asset value 677.4 934.9 38.0
Tangible net asset value 489.9 462.8 -5.5
Cash flow per share (8) 77.3 79.2 2.5
Number of shares in issue (`000) 45,793 50,999 11.4
Weighted issue number of shares (`000) 45,545 50,751 11.4
Notes:
1. The earnings and headline earnings per share, as set out in the Before
column, is based on the latest pro forma financial information, as
published by Adcorp, following the acquisition of FMS announced on 12
January 2007. This announcement was based on Adcorp`s interim results as
at 30 June 2006.
2. The earnings and headline earnings per share, as set out in the After
column, is based on the latest pro forma financial information, as
published by Adcorp, following the acquisition of FMS as at 12 January
2007 and six months apportioned for COG (based on audited 28 February 2006
Income Statement, i.e. 12 months` earnings divided by 2).
3. For this calculation, the purchase consideration has been considered in
terms of the requirements of IFRS 3 and R60 million of the purchase price
in excess of the net asset value of COG has been allocated to Intangible
Assets. The remainder of the purchase consideration is regarded as
Goodwill. This allocation is based on management`s best estimate at this
stage. The allocation of the purchase consideration to tangible and
intangible assets, liabilities and goodwill is a process requiring a
detailed identification and valuation exercise. This will be completed once
the acquisition process is confirmed and the effective date for the
transaction identified. If this results in the allocation being materially
different to management`s estimates, shareholders will be advised thereof.
As a result of the allocation of R60 million of the purchase price to
Intangible Assets, we have included an amortisation charge in the
calculation of Earnings and Headline earnings in the After column. An
amortisation period of five years was assumed for the calculation. The
headline earnings of Adcorp would have increased 6.4%, if, for this
calculation, the purchase price in excess of the net asset value of COG has
been allocated entirely to Goodwill.
4. The net asset value and tangible asset value per share, as set out in the
Before column, is based on the latest pro forma financial information, as
published by Adcorp, following the acquisition of FMS announced on 12
January 2007. This announcement was based on Adcorp`s interim results as
at 30 June 2006.
5. The net asset value and tangible net asset value per share, as set out in
the After column, is based on the latest pro forma financial information,
as published by Adcorp following the acquisition of FMS as at 12 January
2007 and balance sheet of COG as at 28 February 2006 and the assumptions
that:
5.1. the number of new shares issued were based on an Adcorp share price
of R32;
5.2. the 5 206 250 vendor shares (based on an Adcorp share price of R32)
were issued at 1 January 2006;
5.3. the cash consideration was paid at 30 June 2006.
6. An interest rate of 12.5% (prime) was assumed on the funding required of
R71 400 000 of the purchase consideration.
7. Transaction costs were included.
8. The cash flow per share calculation is based on the cash generated by
operations before any distribution to shareholders. The Before column is
based on the latest published results of Adcorp, following the acquisition
of FMS as at 12 January 2007. The After column includes the cash flow from
operating activities of COG apportioned for six months based on the audited
Cash Flow Statement for the year ended 28 February 2006 and the interest
incurred on the debt assumed by Adcorp for the acquisition of COG.
The articles of association of COG will be changed in line with that of Adcorp
in due course.
6. Documentation
Due to the approval required by shareholders to place the unissued shares under
the control of the directors as described in 2.4 above, a notice of the general
meeting to be held including the ordinary resolution to be passed will be posted
to Adcorp shareholders in due course.
7. Further cautionary announcement
Shareholders are advised that Adcorp has entered into negotiations with BEE
parties regarding a Black Empowerment ("BEE") transaction. These negotiations
are at an advanced stage and Adcorp expects to make an announcement regarding
the potential BEE transaction shortly. Accordingly, shareholders are advised to
continue exercising caution when dealing in the company`s securities until a
full announcement is made.
Bryanston
27 February 2007
Corporate advisor and transaction sponsor to Adcorp
Investec Corporate
Attorneys to Adcorp
Roodt Inc.
Date: 27/02/2007 13:23:10 Produced by the JSE SENS Department.
