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Torre - Amendment to the TGS earn-out consideration
TORRE INDUSTRIES LIMITED
Incorporated in the Republic of South Africa
(Registration number: 2012/144604/06)
Share code: TOR
ISIN: ZAE000188629
(“Torre” or “the Company” or “the Group”)
AMENDMENT TO THE TGS EARN-OUT CONSIDERATION
1. INTRODUCTION AND BACKGROUND
Torre shareholders are referred to the SENS announcement dated
5 April 2013 which detailed the transaction terms in relation
to Torre’s acquisition of 100% of Tractor and Grader Supplies
(Pty) Ltd ("TGS") (“TGS Acquisition SENS”).
Capitalised terms used in this SENS will bear the same
meanings provided in the TGS Acquisition SENS.
Torre has negotiated certain proposed amendments to the terms
of the Acquisition Agreement (which agreement was approved by
Torre shareholders at a general meeting held on 13 June 2013).
These proposed amendments will allow the Company to settle 50%
of the Second Earn-out Consideration earlier than originally
proposed and on preferential terms to the Company (“the
Amendment”).
2. ORIGINAL TERMS
In summary, the Purchase Consideration for TGS, as detailed in
the Acquisition Agreement, was payable by way of:
- an upfront payment, being the Closing Consideration of
R55 090 909; and
- deferred payments, being the First Earn-out
Consideration of R22 954 545 (assuming Actual PBT for the
First Earn-out Period equalled or exceeded R19 360 000) and
the Second Earn-out Consideration of R22 954 545 (assuming
Actual PBT for the Second Earn-out Period would equal or
exceed R21 296 000), subject to adjustment in the event that
the Actual PBT is higher or lower and subject to a maximum
aggregate amount of R64 909 091. The deferred payments were
to be settled partly through the issue of Torre shares and
partly in cash, with a maximum cash amount of R5 million in
respect of each Earn-out Consideration (R10 million in
total).
3. AMENDED TERMS
In terms of the Amendment, the Earn-out Consideration is
proposed to be settled as follows:
- an early settlement of 50% of the total Earn-out
Consideration by way of the allotment and issue of 6,500,000
Torre shares to the Seller, at the 30-day VWAP; and
- the balance (i.e. 50%) of the Earn-out Consideration to be
calculated and settled in accordance with the Acquisition
Agreement (i.e. on the same basis as the deferred payment
terms detailed in paragraph 2 above).
4. RATIONALE FOR THE AMENDMENT
The rationale for the Amendment is:
- One of the ultimate beneficiaries of the Seller, and an
employee of the Torre group, will reduce his involvement in
the TGS business going forward. This provides an opportunity
for Torre to seek a mutually beneficial early settlement
agreement with this individual; and
- The amendment provides Torre with the opportunity to
deleverage and simplify its balance sheet by eliminating a
significant portion of its deferred purchase consideration
liabilities.
5. EFFECT ON TORRE AND ITS SHAREHOLDERS
The Company will realise an income statement gain of
R4 411 203 as a result of the Amendment. In addition the
Company will remove a potential maximum R5 million cash
outflow over the next 12 months.
The unaudited pro forma financial effects of the Amendment on
Torre shareholders are the responsibility of the Torre
directors and have been prepared for illustrative purposes
only to provide information about how the Amendment affects
the financial position and results of Torre and, because of
its nature, may not give a fair reflection of Torre’s
financial position, changes in equity, and results of
operations or cash flows after the Amendment.
The pro forma financial information has been prepared using
the most recently published results of the Group for the
interim period ended 31 December 2013 in terms of the Listings
Requirements and guidelines issued by the South African
Institute of Chartered Accountants. The accounting policies of
Torre have been used in calculating the pro forma financial
effects. The accounting policies used are consistent with
previous accounting policies used by Torre and the accounting
policies have been applied on the same basis.
Before the Amendment After the %
Amendment Adjustments Amendment change
Profit for the
period (R’000) 12 735 4 411 17 146 34.6%
Headline earnings
for the period
(R’000) 11 909 4 411 16 320 37.0%
Net asset value per
share (cents) 103.61 -1.25 102.36 -1.2%
Net tangible asset
value per share
(cents) 66.08 0.06 66.14 0.1%
Basic earnings per
share (cents) 7.06 2.12 9.18 30.0%
Headline earnings
per share (cents) 6.60 2.14 8.74 32.4%
Weighted average
number of shares in
issue during the
period (000) 180 316 6 500 186 816 3.6%
Actual shares in
issue at the end of
the period (000) 180 316 6 500 186 816 3.6%
Notes and assumptions:
1. The amounts set out in the “Before the Amendment” column
above have been extracted from the Torre unaudited interim
financial results for the six months ended 31 December 2013.
2. The Amendment relates to the revision of the Earn-out
Consideration as detailed in paragraph 3 above.
3. It has been assumed that the Amendment was implemented on
31 December 2013 for purposes of compiling the statement of
financial position and on 1 July 2012 for purposes of
compiling the statement of comprehensive income.
4. Tax consequences and transaction fees in relation to the
Amendment have been taken into account.
5. All adjustments, other than transaction fees, will have a
continuing effect.
6. APPROVAL
Approval from Torre shareholders will be required in order to
implement the Amendment. Details of the Amendment will be
incorporated in Torre’s annual report for the year ended 30
June 2014 and the relevant resolutions will be presented at
Torre’s next annual general meeting.
Salient dates will be published in due course.
Johannesburg
11 September 2014
Corporate Finance Adviser and Designated Adviser to Torre
AfrAsia Corporate Finance (Pty) Ltd
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