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MMG - MICROmega - Acquisition of Kolbenco (Proprietary) Limited ("Kolbenco") and withdrawal of cautionary announcement MICROmega HOLDINGS LIMITED (Incorporated in the Republic of South Africa) (Registration number 1998/003821/06) (Share code: MMG ISIN: ZAE000034435) ("MICROmega" or "the group") ACQUISITION OF KOLBENCO (PROPRIETARY) LIMITED ("Kolbenco") AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT 1. INTRODUCTION Further to the cautionary announcements published on 28 March 2008, 14 February 2008 and 11 January 2008, MICROmega shareholders are advised that MICROmega has entered into an agreement with John Newbury Investments (Proprietary) Limited ("Vendor") to acquire 90% of the issued share capital of Kolbenco and its related businesses, with effect from 1 March 2008, for a total consideration of R8 million as detailed in paragraph 4 ("the Acquisition") below. 2. NATURE OF BUSINESS OF KOLBENCO Kolbenco was established in 1968 and is the largest manufacturer of superior quality pistons in Africa, operating under license of KB Kolbenschmidt GmbH who are leading international suppliers of automotive pistons. Kolbenco utilises a combination of technology supplied from international partners and in house product development to facilitate the introduction of new types of pistons into the market, pursuing the entrepreneurial objectives of growing its markets. Kolbenco`s current manufacturing facility comprises a 7 230m2 building with state of the art equipment. This includes automatic and manual casting facilities, fully upgraded machine lines, surface treatment and molydag coating plants, a fully automated washing plant as well as a world class final inspection facility. Kolbenco currently employs in the region of 350 people, including many individuals with over 25 years experience. 3. RATIONALE FOR THE ACQUISITION Kolbenco is a highly regarded tier one supplier to the original equipment market ("OEM"). Our automotive division has to date focused at supplying product to the parts and accessories, and aftermarket and consequently this acquisition complements our strategy of diversification across all market sectors. We have deliberately adopted a strategy of diversification to ensure that the group`s earnings are shielded against an event risk within a particular sector of the market or a "change in shape" in either the domestic or global economy. Kolbenco brings with it a reputation of being one of South Africa`s highest quality automotive component manufacturers with 58% of its annual production exported to Europe. The financial effects of the acquisition (as noted below) demonstrate that upon acquisition there is an immediate enhancement of R14.6 million to 56 cents per share in attributable earnings. This is a result of the negative goodwill (the difference between the book value of assets acquired and the purchase price paid for these assets) achieved on consolidation of this business into the group. Further, on the effective date, there is an increase in net asset value of R16.7 million to 214 cents per share and an increase in tangible net asset value of R16.7 million to 153 cents per share. The decline in headline earnings per share is a result of the business showing trading losses in 2007 of R2.1 million. These losses were attributed to the investment program the company had adopted some six years ago. We are confident that the impact cost of the investment program was fully absorbed prior to our acquisition, and we are further confident that we will earn sustainable cash based earnings from Kolbenco in the current financial year. We are confident in Government`s continued commitment to the motor industry development program ("MIDP") and this together with prospects of significant domestic investment in the industry will undoubtedly ensure sustainable growth not only in this business but in the sector as a whole. 4. TERMS OF THE ACQUISITION 4.1 Acquisition, consideration and settlement terms The acquisition consideration of R8 million will be settled as follows: 4.1.1 First payment - R5 million in cash will be paid to the Vendor of Kolbenco on the closing date, which date shall be 3 (three) business days after fulfilment of the conditions precedent referred to in paragraph 5 below. 4.1.2 Second payment - R1 million in cash will be paid to the Vendor of Kolbenco on the anniversary date of the closing meeting provided that the tangible net asset value as at the 30 September 2008 is not less than the tangible net asset value of the company as per the financial statements on the effective date of the agreement. 4.1.3 Third payment - R1 million in cash will be paid to the Vendor of Kolbenco on the anniversary date of the closing meeting provided that the tangible net asset value as at the 31 September 2009 is not less than the tangible net asset value of the company as at the 30 September 2008. 4.1.4 Forth payment - R1 million in cash will be paid to the Vendor of Kolbenco on the anniversary date of the closing meeting provided that the tangible net asset value as at the 31 September 2010 is not less than the tangible net asset value of the company as at the 30 September 2009. 5. CONDITIONS PRECEDENT The implementation of the acquisition is subject to approval by the board of MICROmega and the Competition Commissioner. We confirm that all other conditions precedent have been fulfilled. 6. FINANCIAL EFFECTS OF THE ACQUISITION The table below shows the per share effect of the acquisition of Kolbenco for the year ended 31 December 2007. The pro forma financial effects, which are the responsibility of the directors of MICROmega, have been prepared for illustrative purposes only and, because of their nature, may not fairly present MICROmega`s financial position as at 31 December 2007, or the effect of future earnings. Notes Audited Pro forma Change (%) At At 31 December 31 December
2007 2007 After Kolbenco Acquisition
Earnings per share 3 41.45 56.40 36.07 (cents) Headline earnings per share (cents) 4 41.91 39.77 -5.11 Net asset value per share (cents) 5 197.34 214.32 8.60 Net tangible asset 6 136.45 153.43 value per share (cents) 12.44 Weighted average number 7 97 464 97 464 of shares Total number of shares 7 98 145 98 145 in issue Notes: 1.The figures in the "Audited" column are extracted from the published audited abridged results of MICROmega for the year ended 31 December 2007. 2.The figures in the "After acquisition" column are adjusted for the inclusion of the audited results of Kolbenco for their last completed year ended 30 September 2007. 3.Earnings per share calculations in the "After acquisition" column are based on the following assumptions: -The acquisition was effective 1 January 2007 -The net loss after tax of Kolbenco for the year ended 31 December 2007 was (R2 090 639). -The excess of the fair value of the assets of Kolbenco over the acquisition price would be accounted for as negative goodwill with immediate effect. 4.Headline earnings per share calculations in the "After acquisition" column have been based on the following assumptions: -None of the earnings of Kolbenco are to be excluded for Headline Earnings calculations except for negative goodwill taken into account on Business Combinations. 5.The increase in net asset value is calculated on the assumption that Kolbenco had a total net asset value of R24 663 486 on 31 December 2007. A R3 000 000 liability has been raised for future Vendor payments together with a R5 000 000 cash reduction on the settlement date. 6.The increase in net asset value is calculated on the assumption that Kolbenco had a total net asset value of R24 663 486 on 31 December 2007. A R3 000 000 liability has been raised for future Vendor payments together with a R5 000 000 cash reduction on the settlement date. 7.The weighted average number of shares and the actual number of shares in issue have not been changed as securities of the company do not form part of the purchase consideration. 8. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT Shareholders are referred to the cautionary announcements as detailed in paragraph 1 above and are advised that as a result of the successful negotiations to acquire Kolbenco, caution is no longer required to be exercised by shareholders when dealing in the company`s securities. Johannesburg, South Africa 08 April 2008 Sponsor: Investec Bank Limited Date: 08/04/2008 17:31:01 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.
