ART - Argent Industrial Limited - Acquisition By Argent Of The Entire Issued
Mon, 10 Nov 2008
ART
ART
ART - Argent Industrial Limited - Acquisition By Argent Of The Entire Issued
Share Capital Of And Shareholder Claims Against Tricks Wrought Iron Services
(Proprietary) Limited And Burbage Iron Craft Limited
ARGENT INDUSTRIAL LIMITED
(Registration number 1993/002054/06)
Share code: ART & ISIN: ZAE000019188
("Argent" or "the company")
ACQUISITION BY ARGENT OF THE ENTIRE ISSUED SHARE CAPITAL OF AND SHAREHOLDER
CLAIMS AGAINST TRICKS WROUGHT IRON SERVICES (PROPRIETARY) LIMITED AND BURBAGE
IRON CRAFT LIMITED
1. INTRODUCTION
The directors of Argent
are pleased to announce that Argent has concluded
an agreement to acquire the entire issued share capital of and shareholders
claims against Tricks Wrought Iron Services (Proprietary) Limited
("Tricks") and Burbage Iron Craft Limited ("Burbage") with effect from 10
November 2008 and 2 January 2009 respectively (the "Acquisition"). The
purchase of Tricks is for a total consideration of R 58 million to be
settled by way of a cash payment. The transaction with Burbage includes a
performance warranty over a period of two years after the effective date.
The aggregate purchase consideration is GBP 600 000 minimum (R9 420 000 at
the prevailing exchange rate on the 7 November 2008 of 15.70), to a maximum
of GBP 1 800 000 (R28 260 000 at the prevailing exchange rate on the 7
November 2008 of 15.70) on meeting all of the performance criteria, which
will be settled fully in cash.
2. NATURE OF BUSINESS OF TRICKS AND BURBAGE
Tricks is a private company involved in the manufacture of driveway gates,
security gates and enclosures, burglar guards, balustrades, infill panels,
industrial gates, palisade fencing, automation and access control, and
mezzanine floors and staircases. A number of these products are
manufactured for export to the United Kingdom (about 30% by value) and are
not sold locally. Customers overseas include wholesalers and retailers,
while local customers are primarily contractors and construction
businesses, as well as industrial companies. The Tricks manufacturing
business is based in Durban from where it serves the national and
international markets. Burbage is a manufacturer, importer and wholesaler
of gate and fencing products, based in Leicestershire, United Kingdom, with
one of their suppliers
being Tricks.
The two businesses have a combined turnover of over R 120 million, with net
margins similar to those of the Argent Group. It is anticipated that the
acquisition will add approximately 5.3% to the headline earnings of Argent.
3. RATIONALE FOR THE ACQUISITION
Argent views the acquisition as an opportunity to grow its business by
further diversifying its portfolio of companies. The acquisition is also an
opportunity to expand internationally into the United Kingdom, and once
there, be in a position to distribute products from its various
subsidiaries (e.g. Jetmaster, Xpanda Security and Castor and Ladder
products), which together with the weakening Rand will generate substantial
earnings growth. On the supply side, Tricks will source its steel from
Phoenix, where it currently is supplied by a competitor to
Argent in the
order of 500 tons per month. Tricks in turn will be able to utilise the
extensive distribution network of Argent and will also be able to extract
synergies on the sales and distribution front by supplying its products
locally alongside that of Xpanda. Further, manufacturing synergies can be
optimized by Tricks utilising the extensive manufacturing capability within
Argent`s subsidiaries to compliment its own.
4. TERMS OF THE ACQUISITION
4.1 Shareholders of Tricks
The shareholders of Tricks together with their shareholdings are set out in
the table below:
Shareholder name Shareholding
(%)
Donald Robert Speirs 47.5
Wendy Trickett 47.5
Raymond Kent Ingham 5.0
Total 100.00
4.2 Shareholders of Burbage
The shareholders of Burbage together with their shareholdings are set out
in the table below:
Shareholder name Shareholding
(%)
Donald Robert Speirs 80.0
Wendy Trickett 20.0
Total
100.00
4.3 Effective date
The effective date of the transaction for the purchase of Tricks is 10
November 2008, while the effective date for the purchase of Burbage is 2
January 2009.
4.4 Purchase consideration
The aggregate purchase consideration for Tricks is R 58 million, which will
be settled fully in cash.
The transaction with Burbage includes a performance warranty over a period
of two years after the effective date. The aggregate purchase consideration
is GBP 600 000 minimum, to a maximum of GBP 1 800 000 on meeting all of the
performance criteria. The purchase consideration will be settled fully in
cash with GBP 600 000 to be paid on 9 January 2009 and the balance at the
end of the warranty period of two years. The performance criteria are as
follows:
- Calculate the average profit after tax for the two years from 1
January 2009 to 31 December 2010
- Multiply this value by 5.5 (being the agreed forward multiple)
- This result is the amount to be paid in full for Burbage up to a
maximum consideration of GBP 1 800 000, less the GBP 600 000 already
paid for the company. Should this number be less than GBP 600 000 no
further payment will be made.
5. PRO FORMA FINANCIAL EFFECTS
The unaudited pro forma financial effects of the acquisition are the
responsibility of the directors of Argent and are presented for
illustrative purposes only to provide
information about how the acquisition
might have impacted on the financial position and results of Argent.
The figures in the "Before acquisition" column have been extracted from
Argent`s interim results for the period ended 30 September 2008. The
figures in the "After acquisition" column reflect the financial position
after the acquisition of Tricks and Burbage on the assumption that the
acquisition had come into effect at the beginning of the interim period,
using Trick`s and Burbage`s interim results as at 30 September 2008 and 30
June 2008 respectively.
These pro forma financial effects are based on Argent`s published
interim results for the six months to 30 September 2008 and
adjusted for the effect of the Acquisition
Before After Percent
(cents) (cents) age
(1) (2,3,4,5, change
6,7,8)
Per Argent share
Earnings 107.1 112.7 5.3%
Headline earnings 106.9 112.6 5.3%
Net asset value 1,310.9 1,310.9 0.0%
Tangible net asset value 1,029.6 974.7 -5.3%8
Number of shares in issue (`000) 88,798 88,798
Weighted average number of shares 88,798 88,798
(`000)
Notes:
1. The information set out in the Before column, has been extracted from
the interim results of Argent as at 30 September 2008.
2. The information set out in the After column, has been extracted from
the interim results of Argent and Tricks for the six months ended 30
September 2008, and the interim results of Burbage for the six months
ended 30 June 2008.
3. The maximum purchase consideration for Burbage of GBP 1 800 000 (R28
260 000) has been utilised in the above calculations.
4. The full purchase consideration of R86.3 million is funded by debt;
5. An interest rate of 13.5% (prime less 2%) was assumed on the debt
raised to fund the transaction.
6. It is assumed that the acquisition became effective at the beginning
of the six month period for income
statement purposes and on the last
day of the period for balance sheet purposes.
7. For this calculation, the purchase consideration has been considered
in terms of the requirements of IFRS 3. Based on management`s best
estimate at this stage, the excess of the cash payment to shareholders
over the net asset value of R37.5 million has been allocated to
Goodwill to the value of R48.8 million. 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 finalised. If this results in the allocation being
materially different to management`s estimates, shareholders will be
advised thereof.
8. The
financial results and position of Burbage have been translated at
an exchange rate of 1 British Pound = R15.70 South African Rands.
6. SUSPENSIVE CONDITIONS
There are no suspensive conditions.
7. CATEGORISATION
This transaction has been categorised as a category two transaction in
terms of the JSE listings requirements.
Roodepoort
10 November 2008
Investment Bank and Sponsor
INVESTEC BANK LIMITED
Date: 10/11/2008 16:54:10 Produced by the JSE SENS Department.
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