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Update on Control Instruments and detailed cautionary
TORRE INDUSTRIAL HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number: 2012/144604/06)
Share code: TOR
ISIN: ZAE000169322
(“Torre” or “the Company”)
UPDATE ON CONTROL INSTRUMENTS, DETAILED CAUTIONARY RELATED TO
THE ACQUISITIONS OF KANU AND BEECH AS WELL AS THE PROPOSED
PRIVATE PLACEMENT AND VOLUNTARY TERMS ANNOUNCEMENT ON THE
ACQUISITION OF POWER PARTS AND THE ESTABLISHMENT OF TORRE
INTERNATIONAL
1. UPDATE ON CONTROL INSTRUMENTS AND RENEWAL OF CAUTIONARY
Further to the cautionary announcement published on SENS on 12
December 2013 related to the acquisition of an additional
interest in Control Instruments Group Limited (“CI”),
shareholders are advised that this transaction remains under
consideration.
At this stage Torre is contemplating a scheme of arrangement
(“the Scheme”) in terms of section 114 of the Companies Act
No. 71 of 2008 (“Companies Act”). If successfully implemented
the Scheme would result in Torre owning 100% of the shares in
CI. The anticipated transaction price of the Scheme is R1.40
per CI share, but at this stage remains subject to the
conclusion of a due diligence exercise. This process is
expected to be completed on or before 31 January 2014.
Torre will notify shareholders as soon as further information
is available. In the meantime, shareholders are reminded to
continue to exercise caution when dealing in Torre’s
securities until a full announcement hereon is made.
2. DETAILED CAUTIONARY ANNOUNCEMENT OF THE ACQUISITIONS
2.1. KANU
2.1.1 Introduction
In an announcement made on SENS on 12 December 2013, Torre
advised shareholders that it was in advanced discussions to
acquire an equipment and spare parts business in West Africa.
Torre is pleased to announce that those discussions have been
successfully concluded and have resulted in the Torre group
signing a term sheet to acquire 85% of the issued ordinary
share capital of Kanu Equipment Limited (“Kanu Ltd”) and Kanu
Equipment Congo S.A. (“Kanu Congo”) (collectively “Kanu”) as
well as 100% of Kanu Equipment (Pty) Ltd (“Kanu SA”) (the
“Kanu Acquisition”) from a consortium of shareholders on terms
detailed in paragraph 2.1.4 below. The Kanu Acquisition is
expected to be effective from 1 March 2014.
2.1.2 Nature of the business of Kanu
Kanu is the authorised dealer for Bell, Liebherr (Liebherr
Earthmoving and Liebherr Mobile Cranes), the Wirtgen Group,
Deutz, and Tech King tyres in the Republic of Congo (“Congo”);
the authorised dealer for Bell in Cameroon and Equatorial
Guinea; and also has access to various dealer agreements in
other West African countries. Kanu sells and rents capital
equipment and spare parts and also provides workshop and
rebuild services to its customers in the agricultural,
construction and mining sectors in the Congo through its fully
equipped workshop facility in Pointe Noire.
2.1.3 Rationale for the Kanu Acquisition
This rationale for the Kanu Acquisition is as follows:
- Growth into Africa, with further regional expansion
potential;
- Exclusive, world class agencies;
- High quality management;
- Strong growth expected in mining and infrastructure spend
in Congo; and
- A defensive revenue business with a good mix between
equipment, rental and recurring parts sales.
2.1.4 Salient terms of the Kanu Acquisition
The total consideration payable for the Kanu Acquisition will
comprise a Subscription (“the Subscription”), an initial
payment ("Initial Purchase Consideration") and a deferred
payment ("Deferred Purchase Consideration"), subject to a
maximum total consideration of EUR 4,675,000.
The Subscription will be paid for in cash in South African
denominated currency of ZAR 15,500,000 (“ZAR Subscription”)
and in Euro denominated currency of EUR 1,000,000 (“EUR
Subscription”).
The Initial Purchase Consideration, payable in cash, will be
an amount equal to EUR 2,750,000 less the ZAR Subscription
(converted to EUR at the ruling EUR/ZAR exchange rate on the
closing date (“Closing Date”) as published by Standard Bank of
South Africa) less the EUR Subscription.
The Deferred Purchase Consideration, to be settled by the
issue of Torre shares (or in cash if Torre is no longer listed
on the JSE or applies for business rescue as defined in the
Companies Act at that time), will be an amount equal to a
value of 85% of 5x the average annual consolidated headline
earnings of Kanu for the 2 years from the Closing Date, less
the Initial Purchase Consideration less the aggregate of the
ZAR Subscription and the EUR Subscription.
The Kanu vendors shall warrant average headline earnings of
EUR 1,100,000 per annum for the 12 months ended 31 December
2014 and 31 December 2015.
The Kanu vendors have granted Torre exclusivity with respect
to the Kanu Acquisition.
2.1.5 Categorisation of the Kanu Acquisition
The Kanu Acquisition is a Category 2 acquisition in terms of
the JSE Listings Requirements and does not require approval
from Torre shareholders.
2.2. BEECH
2.2.1 Introduction
Torre has also entered into an agreement to acquire 100% of
the issued shares (“Sale Shares”) of Beech Finance Limited
(“Beech”) from Beech Holdings Limited (“Seller”) (the “Beech
Transaction"). The Beech Transaction will become effective on
or about 1 February 2014.
2.2.2 Nature of the business of Beech
Beech is a provider of trade finance and foreign exchange
services to primarily industrial customers in the Southern
African region. Following the completion of the Beech
Transaction, Beech will be renamed Torre Capital Limited
(“Torre Capital”). Looking forward, Torre Capital intends to
build off its core competencies in trade finance and foreign
exchange and over time provide other financing solutions,
advisory and treasury services to Torre group companies and
selected customers of the Group.
2.2.3 Rationale for the Beech Transaction
Torre believes the Beech Transaction will benefit the Group
for the following reasons:
- It will provide Torre with the ability to “internalise” the
margins on import finance and foreign exchange
transactions; and
- It provides a platform for future diversification in the
provision of in-house financial solutions to Torre group
companies.
2.2.4 Salient terms of the Beech Transaction
The Beech Transaction will be concluded for a total purchase
consideration (“Purchase Consideration”) consisting of:
- An amount equal to the net cash value of Beech (the
existing loan book will be ring-fenced and excluded from
the transaction)plus R500 000 (“Initial Consideration”);
and
- the lesser of (a) an amount equal to six times the average
annual headline earnings for the 24 months commencing on
the effective date of the Beech Transaction (“Initial
Period”), less the Initial Consideration; and (b) an amount
equal to R30 000 000 less the Initial Consideration (“Earn-
out Consideration”).
The Initial Consideration shall be payable in cash to the
Seller on the closing of the Beech Transaction. The Earn-out
Consideration (if any) shall be settled following the Initial
Period by way of the issue of Torre shares. Any regulatory
approvals (including shareholder approvals), to the extent
required, for the issue of Torre shares in respect of the
Earn-out Consideration will be sought at the relevant time.
The maximum possible Purchase Consideration for the Beech
Transaction is R30 000 000.
The Seller has granted Torre a put option (the "Option") to
require the Seller to repurchase the Sale Shares (in whole but
not in part) during the Initial Period at a price calculated
in accordance with a pre-determined formula. Torre shall be
entitled (but not obliged) to exercise the Option prior to the
expiry of the Initial Period.
2.2.5 Categorisation of the Beech Transaction
The Beech Transaction is a Category 2 acquisition in terms of
the JSE Listings Requirements and does not require approval
from Torre shareholders.
3. POWER PARTS
Torre has entered into an agreement to acquire 51% of the
issued shares in and claims against Power Parts CC (Namibia)
(“Power Parts”) (the “Power Parts Transaction"). It is
expected that the effective date of the Power Parts
Transaction will be 1 March 2014.
Power Parts is a close corporation incorporated in Namibia,
and has been a provider of spare parts and components to
various mining and industrial businesses in Windhoek and the
Namibian west coast region for over 20 years. Power Parts has
a strong management team, deep client relationships and a
track record of consistent profitability.
The Power Parts Transaction is consistent with Torre’s
strategy of increasing its distribution network and broadening
its customer base, with a focus on Africa.
The completion of the Power Parts Transaction remains subject
to approval by the Namibian Competition Commission and the
relevant approvals to enable the conversion of Power Parts
from a close corporation to a private company. Following the
completion of the Power Parts Transaction, Power Parts will
form part of the Tractor and Grader Supplies (“TGS”) division
of Torre, and report into the TGS management team.
The Power Parts Transaction falls below the threshold of the
categorisation of transactions which require disclosure in
terms of the JSE Listings Requirements. Nevertheless, due to
the strategic importance and likely future benefit of the
Power Parts Transaction, the directors of Torre deemed it
appropriate to inform shareholders thereof.
4. PRIVATE PLACEMENT
4.1. Introduction
In order to facilitate the payment of the cash portions of the
purchase considerations of the various acquisitions detailed
in this announcement and to provide balance sheet capacity to
Torre, Torre intends to raise capital by way of a private
placement (the “Private Placement”).
Torre intends to raise a minimum of R175 000 000 of new equity
by way of a private placement of a maximum 79 545 454 new
Torre shares.
The Private Placement is not an offer to the public as
contemplated in the Companies Act and accordingly no
prospectus will be issued or registered in respect thereof.
The details of the Private Placement will be contained in the
circular to be posted to Torre shareholders in due course.
The investors in the Private Placement are expected to include
a combination of existing shareholders and new investors. To
the extent that any selected investor is deemed non-public in
terms of the JSE Listings Requirements, required disclosure
and approvals will be detailed in the circular to
shareholders.
Torre will conduct a road show to potential investors during
January 2014 and will announce further details, together with
pro forma financial effects, of the Private Placement in due
course.
4.2. Conditions Precedent to the Private Placement
The Private Placement is subject to the following conditions
precedent being achieved:
- Approval from the JSE of the circular to Torre
shareholders;
- Torre shareholder approval of the special resolutions
required (to the extent applicable and required) in terms
of section 41(1) and (3) of the Companies Act; and
- The listing of the Private Placement shares by the JSE.
4.3. Categorisation of the Private Placement
The Private Placement will be deemed a specific issue of
shares for cash in terms of the JSE Listings Requirements.
This issue of shares will require Torre shareholder approval.
To the extent that any investors are deemed related parties as
defined in the JSE Listings Requirements, a fairness opinion
will not be required as the issue price will not be at a
discount to the 30-day VWAP.
The number of shares to be issued in terms of the Private
Placement will not exceed 50% of the issued share capital of
Torre. The number of shares may however exceed 30% of the
issued share capital of Torre and accordingly will require the
approval of shareholders by way of a special resolution in
terms of the Companies Act.
4.4. Waiver of Mandatory Offer
At this stage, no investor has indicated that it would
subscribe for shares in excess of 35% of the issued share
capital of Torre, thereby triggering a mandatory offer. Should
this occur, then, to the extent required, an application will
be made to the Takeover Regulation Panel for the waiver of a
mandatory offer in terms of the Takeover Regulations and the
required announcements, disclosures and approvals will be
included in the circular to shareholders.
5. PRO FORMA FINANCIAL EFFECTS, CONDITIONS PRECEDENT AND
OTHER ARRANGEMENTS
The pro forma financial effects, conditions precedent and
other arrangements in relation to the Kanu and Beech
Transactions will be published in due course. Until such time
as these details have been published, shareholders are
reminded to continue to exercise caution when dealing in
Torre’s securities.
6. TORRE INTO AFRICA AND INTERNAL RESTRUCTURE
Following the completion in June 2013 of the TGS acquisition,
and the imminent completion of the above-mentioned
transactions, Torre’s footprint into Africa will be greatly
expanded with a physical presence in 5 African countries in
addition to South Africa, namely Swaziland, Zimbabwe, Zambia,
Congo and Namibia.
In light of its growing African reach, Torre has decided to
establish a wholly-owned, Mauritian based, entity namely Torre
International Holdings Limited (“Torre International”). Torre
International will acquire the African operations of Torre,
including the African businesses of the TGS Group (TGS
Zimbabwe, TGS Swaziland and TGS Zambia), Kanu, Beech and Power
Parts. Torre International will provide enhanced co-ordination
of the Torre African operations through a single holding
company structure and will also facilitate the raising of cost
effective working capital and expansion funding for these
entities, in US Dollars and Euros.
The South African operations will all be housed in the wholly-
owned subsidiary Torre Holdings (Pty) Ltd (previously SA
French Limited) (“Torre Holdings”).
It is expected that the above restructure will be concluded by
30 May 2014.
7. ALIGNMENT OF MOI, FURTHER DOCUMENTATION AND SALIENT DATES
Torre will ensure that the provisions of the MOIs of Kanu,
Beech and Power Parts do not frustrate nor relieve Torre in
any way from compliance with its obligations in terms of the
Listings Requirements.
A circular to shareholders incorporating the terms of the
Private Placement and a notice of general meeting will be
submitted to the JSE for approval in due course.
The Company will keep shareholders informed of progress made,
the expected date of posting of the above-mentioned circular
and the salient dates in terms of the Private Placement
detailed in this announcement.
Johannesburg
13 January 2014
Corporate adviser: AfrAsia Corporate Finance Proprietary
Limited
Designated adviser: PSG Capital Proprietary Limited
Date: 13/01/2014 05:18:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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