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ACQUISITION OF INTEREST - AECI

Release Date: 12/12/1997 13:12
Code(s): AFE AFEPAED5
Wrap Text

ACQUISITION OF INTEREST IN AECI EXPLOSIVES FROM ICI 1. INTRODUCTION
AECI IS PLEASED TO ADVISE THAT AN AGREEMENT HAS BEEN CONCLUDED WITH IMPERIAL CHEMICAL INDUSTRIES PLC ("ICI") OF THE UK IN TERMS OF WHICH AECI WILL PURCHASE ICI EXPLOSIVES HOLDINGS (PTY) LTD. ("IEH"), WHICH HOLDS ICI'S 51% INTEREST IN THE AECI EXPLOSIVES PARTNERSHIP, AND WILL OBTAIN EXCLUSIVE MANUFACTURING RIGHTS TO THE USE IN AFRICA OF ICI'S EXPLOSIVES TECHNOLOGY. THE PURCHASE WILL BE EFFECTED EARLY IN JANUARY 1998 AND THE PURCHASE CONSIDERATION OF US$117 MILLION WILL BE SETTLED IN CASH. 2. BACKGROUND
AECI EXPLOSIVES IS A JOINT VENTURE BETWEEN AECI AND ICI IN THE COMMERCIAL EXPLOSIVES AND ACCESSORIES BUSINESS AND REPRESENTS THE AFRICAN COMPONENT OF ICI'S GLOBAL EXPLOSIVES BUSINESS. FURTHER TO ICI'S INTENTION TO RE-POSITION ITS BUSINESS PORTFOLIO, IT RECENTLY EXITED FROM A PORTION OF THE GLOBAL EXPLOSIVES BUSINESS BY VIRTUE OF THE SALE OF ITS INTEREST IN ICI AUSTRALIA LTD. SUBSEQUENT DISCUSSIONS BETWEEN AECI AND ICI HAVE LED TO THIS AGREEMENT WHEREBY AECI BY PURCHASING ICI'S INTEREST IN THE PARTNERSHIP WILL SECURE ITS POSITION IN THE AFRICAN EXPLOSIVES MARKET. 3. RATIONALE
FOLLOWING ITS RE-POSITIONING AS THE AFRICAN REGIONAL COMPONENT OF ICI'S GLOBAL EXPLOSIVES BUSINESS, AFTER THE RESTRUCTURING OF AECI IN 1994, AECI EXPLOSIVES HAS DEVELOPED FROM A MAINLY SOUTH AFRICAN OPERATION TO A BUSINESS SERVING THE MINING INDUSTRY THROUGHOUT AFRICA. AECI EXPECTS MINING OF LARGELY
UNDERDEVELOPED MINERAL RESOURCES IN AFRICA TO EXPAND CONSIDERABLY IN FUTURE AS THE SOCIO-POLITICAL ENVIRONMENT IMPROVES. WITH MANUFACTURING SITES IN GHANA AND ZAMBIA, AECI EXPLOSIVES WILL BE WELL POSITIONED TO BENEFIT FROM THESE
DEVELOPMENTS, AND ACQUISITION OF ICI'S INTEREST IN IEH PRESENTS AN ATTRACTIVE INVESTMENT OPPORTUNITY FOR AECI. 4. PURCHASE CONSIDERATION
THE PURCHASE CONSIDERATION AGREED WITH ICI IS $111 MILLION FOR THE INTEREST IN IEH AND $6 MILLION FOR THE RIGHTS TO INTELLECTUAL PROPERTY, REPRESENTING A 10,7 PRICE EARNINGS MULTIPLE ON FORECAST 1997 RESULTS. WITH RESERVE BANK APPROVAL, THE PURCHASE CONSIDERATION WILL BE PAID IN CASH TO ICI EARLY IN JANUARY 1998. AECI HAS OFFSHORE FACILITIES IN PLACE TO PROVIDE THE FUNDS FOR THE PURCHASE. IT IS AECI'S INTENTION TO ACQUIRE DIRECT OWNERSHIP OF THE EXPLOSIVES BUSINESS AND ASSETS AND TO THIS END IEH WILL BE PLACED IN VOLUNTARY LIQUIDATION IMMEDIATELY AFTER ACQUISITION. 5. FINANCIAL EFFECTS OF THE ACQUISITION
5.1 ON THE ASSUMPTION THAT THE ACQUISITION HAD BEEN EFFECTED ON 1 JANUARY 1997 AND AT THE INTEREST RATES PREVAILING IN THE FIRST HALF OF 1997 AND THE EXCHANGE RATE RULING ON 5 DECEMBER 1997 (R4,8735/$), THE EFFECT ON AECI'S EARNINGS PER SHARE FOR THE FIRST HALF OF THE 1997 FINANCIAL YEAR WOULD HAVE BEEN A DECREASE FROM 103 CENTS PER SHARE TO 98 CENTS PER SHARE AND A DECREASE IN NET ASSETS PER SHARE AT 30 JUNE 1997 FROM 1917 CENTS PER SHARE TO 1659 CENTS PER SHARE. 5.2 IT IS PROJECTED THAT THE ACQUISITION WILL RESULT IN A SLIGHT INCREASE IN HEADLINE EARNINGS DURING THE 1998 FINANCIAL YEAR WITH MORE SIGNIFICANT BENEFITS TO EARNINGS IN SUBSEQUENT YEARS. 6. STRATEGIC CONSIDERATIONS
AECI EXPLOSIVES' STRATEGIC DIRECTION WILL INCREASINGLY INVOLVE OPERATIONS AND INVESTMENT IN AFRICA WITH THE NEED FOR ON-GOING TECHNOLOGY DEVELOPMENT TO SUPPORT THOSE OPERATIONS. IN TERMS OF THE AGREEMENT WITH ICI, AECI EXPLOSIVES WILL HAVE EXCLUSIVE MANUFACTURING RIGHTS TO THE USE IN AFRICA OF EXISTING ICI EXPLOSIVES TECHNOLOGY AND CERTAIN DEVELOPMENTS OF THAT TECHNOLOGY. AECI EXPLOSIVES WILL ALSO SEEK NEW TECHNOLOGY AND BUSINESS ALLIANCES INCLUDING POSSIBLE JOINT VENTURES. JOHANNESBURG 12 DECEMBER 1997

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