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RLF - Rolfes - Acquisition Of Triangle Solvents
ROLFES TECHNOLOGY HOLDINGS LIMITED
(Registration number 2000/002715/06)
Share Code: RLF & ISIN: ZAE000096202
("Rolfes" or "the Company")
ACQUISITION OF TRIANGLE SOLVENTS
1. Introduction
PSG Capital is authorised to announce that with effect from 1 July 2008
("the effective date"), Rolfes Chemicals (Pty) Limited ("Rolfes
Chemicals"), a wholly owned subsidiary of Rolfes, acquired the entire
issued share capital of New Heights 390 (Pty) Limited trading as Triangle
Solvents ("Triangle Solvents"), for a maximum consideration of R60 million
payable in cash ("the Transaction").
2. Background to Triangle Solvents
Triangle Solvents was formed during 2001 primarily to supply quality
solvents to the Gauteng market and has since become a major distributor and
reseller of solvents, waxes and creosotes primarily in drums and smaller
containers. Triangle Solvents is also a leading blender and supplier of
paint thinners with over 1500 active and loyal customers primarily in
Gauteng, but also with customers in the Free State, Mpumalanga and Eastern
Cape. A new export division has been established during the year with
regular sales to Mauritius and African countries. The business`s products
are also supplied to smaller distributors who service areas throughout
South Africa. Cyril Raymond Gebhardt, the sole owner and seller of Triangle
Solvents ("the Seller"), has longstanding relationships with the suppliers
of Triangle Solvents` products (being Sasol, Engen and BP) and these key
supply relationships and arrangements will continue after the conclusion of
the Transaction.
3. Rationale for the Transaction
Rolfes Chemicals is currently involved in the manufacturing of resins, the
trading of bulk solvent and lacquer thinners, as well as, limited
distribution of speciality chemicals. The acquisition of Triangle Solvents
will allow Rolfes Chemicals to enter the large reseller market for
solvents, lacquer thinners, waxes and black products (creosotes) and will
also provide a competitive and large distribution platform to aggressively
grow its speciality chemicals business. Furthermore, it is the firm
intention of Rolfes Chemicals to expand the business of Triangle Solvents
into other areas of the country where Triangle Solvents does not currently
operate, ie. Kwazulu Natal and the Western Cape.
4. Details pertaining to the key terms and funding of the Transaction
4.1 On 29 October 2008, Rolfes, Rolfes Chemicals, Triangle Solvents and the
Seller entered into a Sale of Shares Agreement in terms of which Rolfes
Chemicals acquired the entire issued share capital of Triangle Solvents
from the Seller, from the effective date, for a maximum consideration of
R60 million ("the Purchase Consideration"), payable in cash.
4.2 The key terms of the Purchase Consideration are as follows:
4.2.1 The Purchase Consideration will be calculated as the audited
profit after tax ("PAT") of Triangle Solvents for the financial
year ending 30 June 2009 multiplied by a factor of five, limited
to a minimum consideration of R20 million and a maximum
consideration of R60 million.
4.2.2 The Purchase Consideration will be adjusted downwards (not
upwards) on a pro rata basis if the PAT for the year ended 30
June 2010 is less than the PAT for the year ended 30 June 2009
plus a growth factor of 30%.
4.2.3 The Purchase Consideration will be paid in cash as follows and on
the following dates:
a) The first payment, on the closing date of the transaction
(the date when all the suspensive conditions have been
fulfilled) totalling an amount of R14 million.
B) The second payment, on 30 September 2009 (subject to the
audit of the PAT of Triangle Solvents for the year ending 30
June 2009 being completed) calculated as to 60% of the
Purchase Consideration as determined in terms of point 4.2.1
above, less the first payment of R14 million.
c) The third payment, on 30 September 2010 (subject to the
audit of the PAT of Triangle Solvents for the year ending 30
June 2010 being completed) based on the Purchase
Consideration as potentially adjusted downwards and
calculated in terms of point 4.2.2 above, less the first and
second payments.
d) The payment structure provides for claw back provisions in
the event of excess payments.
4.2.4 The second and third payments due to the Seller will not attract
any interest from the effective date to the date of payment.
Furthermore, in the event of any claw back of any payments made
by Rolfes Chemicals as a result of the payment formula used, the
Seller will be responsible in his personal capacity for the
repayment of any such claw back payable, including interest
thereon calculated at the prime overdraft rate.
4.2.5 The Transaction will be funded by Rolfes Chemicals by way of
external debt and from internal resources.
5. Warranties
Warranties and indemnities normal to a transaction of this nature are
included in the Sale of Shares Agreement entered into between the parties.
6. Suspensive conditions of the Transaction
6.1 As at the date of this announcement, the Transaction is subject to the
fulfilment of the following suspensive conditions on or before 30 November
2008:
6.1.1 The conclusion of a two year employment and three year restraint
agreement with Cyril Raymond Gebhardt, the Seller, and five other
key employees of Triangle Solvents;
6.1.2 The approval of the transaction by the Board of Directors of
Rolfes;
6.1.3 The conclusion of a lease agreement between Rolfes Chemicals and
Triangle Solvents in respect of the property from which Triangle
Solvents operates;
6.1.4 The approval of the transaction by the Competition Authorities;
and
6.1.5 Approval by the JSE Limited ("JSE"), where relevant.
6.2 In the event that the suspensive conditions are not fulfilled by 30
November 2008, Rolfes Chemicals will have the right to extend the date by a
further sixty days through written notice to the Seller.
7. Unaudited pro forma Financial effects of the Transaction
7.1 The unaudited pro forma financial effects on Rolfes and its subsidiaries
before and after the transaction, set out in the table below, are the
responsibility of the company`s directors and have been prepared for
illustrative purposes only to show how the transaction may have affected
Rolfes results for the 12 month period ended 30 June 2008, based on the
assumptions that:
7.1.1 for the purpose of calculating earnings per share (basic and
diluted) and headline earnings per share (basic and diluted), the
transaction was effected on 1 July 2007; and
7.1.2 for the purpose of calculating net asset value and net tangible
asset value per ordinary share, the transaction was effected on
30 June 2008.
Due to their nature, the unaudited pro forma financial effects may not
fairly reflect Rolfes financial performance and position after the
transaction.
It should be noted that as the purchase consideration is based on Triangle
Solvent`s future expected profits (and not historic profits), the unaudited
pro forma financial effects using Triangle Solvent`s historic earnings to
February 2008 illustrate a dilutive effect on earnings per share (basic and
diluted) and headline earnings per share (basic and diluted) which in
management`s view is unlikely.
7.2 The unaudited pro forma financial effects of the Transaction on the
earnings per share (basic and diluted), headline earnings per share (basic
and diluted), net asset value and net tangible asset value per share of
Rolfes, are as follows:
Notes Before After %
(cents) (cents) change
Earnings per share 1 and 2 28,8 27,5 -4,5
(basic and diluted)
Headline earnings 1 and 2 29,2 27,9 -4,5
per share (basic and
diluted)
Net asset value per 3 and 4 109,1 109,1 0,0
share
Net tangible asset 3 and 4 95,4 80,7 -15,4
value per share
Notes:
1. The earnings per share and headline earnings per share in the before
column are extracted from the annual report of Rolfes for the
financial year ended 30 June 2008 which was based on 103 102 744
weighted average number of ordinary shares and fully diluted number of
ordinary shares in issue.
2. The financial effects of the Transaction on the earnings per share and
headline earnings per share have been calculated on the basis of a R50
million purchase consideration taking into account the IFRS 3
requirements relating to deemed interest and the present value of the
best estimate of the Purchase Consideration, and assuming 103 102 744
weighted average number of ordinary shares and fully diluted number of
ordinary shares in issue. The income statement used in respect of
Triangle Solvents in calculating these financial effects was extracted
from their audited annual financial statements for the period ended 29
February 2008. In calculating the interest payable on the debt to
finance the Purchase Consideration of R50 million, a prime rate of
15,5% before taxation has been assumed.
3. The net asset value per share and net tangible asset value per share
in the before column are extracted from the annual report of Rolfes
for the financial year ended 30 June 2008 which was based on 103 609
467 ordinary shares in issue.
4. The financial effects of the Transaction on the net asset value per
share and net tangible asset value per share have been calculated on
the basis of a R50 million purchase consideration taking into account
the IFRS 3 requirements relating to deemed interest and the present
value of the best estimate of the Purchase Consideration, and assuming
103 102 467 ordinary shares in issue. The balance sheet used in
respect of Triangle Solvents in calculating these financial effects
was extracted from the unaudited effective date management accounts as
at 30 June 2008 attached as an appendix to the Sale of Shares
Agreement. Fair value adjustments pertaining to property, plant and
equipment were made to these effective date management accounts.
Goodwill is allocated in individual cash-generating units based on
business activity. Impairment testing is done on a regular basis by
comparing the net carrying value of the cash-generating units to the
estimated value in use. As a result of the transaction, R15.2 million
will be classified as goodwill as stated above and R8.7 million will
be classified as a financial asset in terms of IFRS 3.
8. JSE requirements
The Transaction is categorised as a category 2 transaction in terms of the
JSE rules and regulations and therefore no shareholder approval is
required. As a result of Triangle Solutions becoming a subsidiary of
Rolfes, the articles of association of Triangle Solutions will be amended
to conform to schedule 10 of the JSE`s Listings Requirements and such will
be confirmed to the JSE in writing.
9. Withdrawal of cautionary announcement
As a result of the signature of the final agreement in respect of the
Transaction, the cautionary announcement published on SENS on Thursday, 2
October 2008, is hereby withdrawn.
Johannesburg
30 October 2008
Designated adviser PSG Capital (Pty) Ltd
Date: 30/10/2008 12:00:04 Supplied by www.sharenet.co.za
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