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Howden Africa Holdings Limited - Proposed Merger Howden Africa Holdings Limited (Incorporated in the Republic of South Africa) (Registration number 1996/002982/06) Share code: HWN ISIN: ZAE000010583 ("HAHL" or "the Company") PROPOSED MERGER 1. Introduction Shareholders are referred to the cautionary announcements dated 1 September 2003 and 14 October 2003, respectively, regarding the proposed merger ("proposed merger") of certain of the pump related businesses of HAHL and its subsidiaries ("Howden Group") with those of Liquid Movers Holdings N.V. ("LMH") and its subsidiaries ("Orbit Group"). 2. The proposed merger The Howden Group and the Orbit Group have entered into a number of agreements recording the terms and conditions of the proposed merger. In terms of these agreements: * Clidet No 478 (Proprietary) Limited ("Mergeco") will acquire all the shares in and claims on loan account against Howden Pumps (Proprietary) Limited ("Howden Pumps") from HAHL; * Mergeco will acquire all the shares in and claims on loan account against Orbit Pump Manufacturing (Botswana) (Proprietary) Limited from LMH; * Howden Pumps will acquire the property on which its business is currently conducted ("related property") from Gertrude Holdings Limited (a wholly owned subsidiary of HAHL); and * Howden Pumps will acquire the business of Orbit Pump Manufacturing (Proprietary) Limited (including all the assets and certain defined liabilities) as a going concern, in consideration for which the Howden Group will be issued 50% of the entire issued share capital of Mergeco, receive cash in an amount of R6,1 million and be credited with loan accounts in an amount of R8,332 million, while the Orbit Group will be issued 50% of the entire issued share capital of Mergeco. 3. Rationale The past decade has witnessed vigorous consolidation in the international pump market and South African companies in the pump industry require critical mass to compete in this changed environment. The proposed merger is therefore a logical and necessary development to achieve sustainability and competitiveness. Mergeco is likely to attain benefits as follows: * increased buying power as a consequence of combined volumes in the purchasing of raw materials; * the existing research and development capabilities will be used in a more efficient and effective manner with usage of skills from the combined businesses; * a focused and more cost effective coverage of both domestic and export markets; * a more even balance between various market segments; and * improved process efficiencies resulting in additional gross margins. The consolidation of the local manufacturing facilities of the businesses into Mergeco will result in: * increased volume throughput; * manufacturing synergies; * rationalisation of stockholding and improved working capital utilisation; * economies of scale in the production of specific types of pumps; and * the manufacture by Mergeco of many of the components in respect of which manufacture is presently outsourced. 4. Conditions precedent The proposed merger is conditional upon the following conditions precedent: * the approval of HAHL shareholders in general meeting; and * the granting of the requisite regulatory approvals. 5. Unaudited pro forma financial effects of the proposed merger Set out in the table below are the unaudited pro forma financial effects on earnings, headline earnings and net asset/tangible asset value per share of the proposed merger based on HAHL"s unaudited interim results for the six months ended 30 June 2003. The unaudited pro forma financial effects have been prepared for illustrative purposes only to provide information of how the proposed merger may have impacted on the results and financial position of HAHL. Because of their nature, the unaudited pro forma financial effects may not give a fair reflection of HAHL"s financial position at 30 June 2003 after the proposed merger or the effect on future earnings. After the % Before1 proposed merger2 change Basic earnings per share (cents)4 10,67 13,23 24,0 Headline earnings per share (cents)4 15,49 15,29 (1,3) Net asset/tangible asset value per share (cents)6 166,11 173,65 4,5 Number of shares in issue ("000) 65 729 65 729 Assumptions and adjustments: 1. Extracted from the interim consolidated financial results of HAHL for the six months ended 30 June 2003. 2. Pro forma financial effects of the proposed merger, resulting in Mergeco being accounted for as an associate. 3. The result of the proposed merger is that HAHL"s interest in Mergeco will be equity accounted in future and no longer consolidated, as was the case historically where HAHL held a 100% interest in Howden Pumps. 4. In relation to the pro forma earnings and headline earnings per share, it is assumed that the proposed merger was effective on 1 January 2003. 5. No account has been made for any Capital Gains Tax which may arise on the disposal of HAHL"s interest in Howden Pumps and the related property. 6. In relation to the net asset/tangible asset value per share, it is assumed that the proposed merger was effective 30 June 2003. 6. Circular to shareholders A document containing full details of the proposed merger and convening a general meeting of shareholders to be held on or about 12 December 2003 will, subject to the approval of the JSE Securities Exchange South Africa, be posted to shareholders on or about 27 November 2003. Johannesburg 18 November 2003 Corporate adviser and sponsor PricewaterhouseCoopers Corporate Finance (Pty) Ltd (Registration number 1970/003711/07) Attorneys CLIFFE DEKKER Independent reporting accountants PricewaterhouseCoopers Inc. Chartered Accountants (SA) Registered Accountants & Auditors (Registration no. 1998/012055/21) Date: 18/11/2003 07:44:04 AM Supplied by www.sharenet.co.za Produced by the JSE SENS Department
