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IPL - Imperial Holdings Limited - Acquisition by Imperial of 100% of the
issued shares of Lehnkering Holding GmbH and withdrawal of cautionary
Imperial Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1946/021048/06)
JSE share code: IPL
ISIN: ZAE000067211
("Imperial")
Acquisition by Imperial of 100% of the issued shares of Lehnkering Holding
GmbH ("Lehnkering or "the Company") and withdrawal of cautionary
1. Introduction
Shareholders are hereby advised that Imperial has entered into an agreement,
through its wholly owned subsidiary Imperial Mobility Deutschland GmbH & Co
KG, in terms of which it will acquire 100% of the issued share capital of
Lehnkering, a company incorporated in Germany from Lukas Sweden AB (a
subsidiary of Triton) and management ("the vendors"), subject to the
fulfilment of the conditions precedent referred to in paragraph 7 below ("the
acquisition").
2. History and nature of business of Lehnkering
Lehnkering is headquartered in Duisburg (Germany) and employs c. 2,700
people. It operates in similar industries to those served by Imperial
Logistics International, the group`s European logistics business. It is one
of Europe`s leading full-service specialist logistics companies that
primarily serves the chemical, agricultural, petrochemical and steel
industries. The Company offers a complete range of logistics solutions,
including inland waterway shipping of gas, liquid and dry bulk cargo; road
transportation; warehousing and distribution services across Central and
North Western Europe.
In addition, it provides complementary specialist value-added services, such
as the preparation, mixing and bagging of agricultural chemicals, onsite
contract logistics, port logistics services and tank cleaning. Due to the
extent of its value-added services and specialisation in hazardous goods, the
Company can take advantage of attractive growth opportunities in niche
markets.
The Company has a strong track record and reputation in terms of quality and
safety, which are important pre-requisites in its target customer base. As a
result, Lehnkering has successfully operated within its markets and has
established long-standing relationships with blue-chip customers.
The Company offers services which form the backbone of Germany`s powerful
manufacturing and export industries, and plays a key role in trade flows in
and out of Germany. The historical earnings performance of the business has
been remarkably stable through the cycles, mainly due to the resilience of
the German steel and auto industries and its exposure to defensive industries
such as agro - chemicals. Profitability levels in terms of EBITDA have
increased consistently over the last 8 years.
In its financial year ended December 2010, Lehnkering generated c.Euro500m in
revenue, EBITDA of c.Euro44m and operating profit of c.Euro28m. It has fixed
assets of c.Euro103m which includes Euro53m land and buildings and Euro49m
plant, equipment, ships and vehicles.
3. Imperial`s rationale for the acquisition
Growth and diversification of our international logistics business is a key
strategic intent of Imperial. Imperial has been invested in Germany for many
years and it is its second "home" market. The management team of Imperial
Logistics International is highly experienced and competent players in the
European logistics market, and as a result, our base in Germany is ideally
suited to be the hub of our international activities outside Africa. Our
German operations have traditionally delivered excellent returns on capital
for the group.
Lehnkering provides Imperial with an ideal opportunity to expand into global
emerging markets which are served by German exports. It operates in defensive
customer industries, mainly focused around chemicals. We wish to increase our
presence in this industry based on the know-how and experience we have in
shipping, contract logistics, distribution and warehousing.
As a result of a strategy to enhance profitability, through value added
services, Lehnkering also provides outsourced services where it synthesises,
mixes and packages chemical products on behalf of its clients. Imperial has
experienced a similar evolution in its contract logistics business, Panopa,
which started as purely a logistics service provider and over the years
became more entrenched in its customer base through sub-assembly on behalf of
motor manufacturers.
The trend to outsourcing in the chemicals industry is expected to grow as
chemicals suppliers tend to focus on their core business of product
development and marketing.
The Lehnkering acquisition will further improve Imperial`s competitive
position in European inland shipping, ports and terminals operations,
warehousing and distribution and contract logistics.
4. Imperial`s acquisition criteria
The acquisition meets Imperial`s internal acquisition criteria. Based on the
pro forma information, the acquisition is earnings enhancing to Imperial`s
headline earnings (before the amortisation of intangibles, if any) and it is
also aligned to Imperial`s required return on invested capital in Europe.
Lehnkering`s historic three year average return on invested capital (pre-
goodwill ROIC) is in excess of 20%. Based on its financial results for 2010,
the return on invested capital on the acquisition price which includes
goodwill is 7,3%. The business is also highly cash flow generative.
The pro forma EBITDA and price earnings ratio multiple is 6.1 times (based on
the Enterprise Value) and 11.2 times (based on the Purchase Consideration),
respectively.
Imperial has proven experience in related logistics sectors across Europe.
The core skills of the existing management team of Lehnkering will be
retained in the business and will add significant depth to Imperial`s
existing management in Europe.
5. Salient terms of the acquisition
Imperial will acquire 100% of the issued shares in Lehnkering from the
vendors for a Purchase Consideration of Euro173m. It will also assume the
net debt in the business of Euro97m translating into a total enterprise value
of Euro270m ("Enterprise Value").
The vendors have given limited warranties which are customary for a
transaction of this nature. Imperial has committed to pay a break fee of
Euro7,5m should the conditions precedent to the transaction not be met in
certain respects.
The Purchase Consideration will be adjusted by interest of 500 bps above the
German base rate (0.37%) per annum from 1 April 2011 until the payment date.
Net profit after tax of the company from 1 April 2011 will form part of the
net asset value acquired by Imperial.
6. Funding of the acquisition
The acquisition will be funded from new Euro denominated banking facilities
secured for the acquisition for a period of five years at a pre-tax interest
rate of approximately 4.25%, guaranteed by Imperial Holdings Limited and
Imperial Mobility International BV. Imperial has, in addition obtained
permission from the South African Reserve Bank to fund a portion of the
acquisition from its South African operations.
7. Conditions precedent
The acquisition is subject to merger control clearance from the European
Commission as well as approval under the German Foreign Trade Act.
8. Effective date of the acquisition
The effective date of the acquisition is expected to be at the end of 2011 or
in the first quarter of 2012, on the fulfilment of the above conditions
precedent, which have to be fulfilled on or before 30 April 2012.
9. Financial effects of the acquisition
The table below sets out the unaudited pro forma financial effects of the
acquisition based on Imperial`s most recently published audited financial
results for the twelve month period ended 30 June 2011. The financial effects
have been determined using Lehnkering`s audited financial statements for the
12 months ended 31 December 2010, which have been prepared in terms of
International Financial Reporting Standards.
The pro forma financial effects have been prepared for illustration purposes
only, to provide information about the impact of the acquisition and due to
their nature, may not fairly present Imperial`s results and financial
position.
The preparation of the unaudited pro forma financial effects is the
responsibility of the directors of Imperial.
Before After % Increase /
(Decrease)
Earnings per share (cents) 1346 1406 4.41
Headline earnings per 1370 1430 4.33
share (cents)
Net asset value per share 6137 6137 0.00
(cents)
Net tangible asset value 5202 4005 -23.01
per share (cents)
Weighted shares in issue 190.3 190.3 0.00
(m)
Shares in issue (m) 195.1 195.1 0.00
The pro forma "After" column assumes that:
- The acquisition was implemented
- with effect from 1 July 2010 to determine the earnings and headline
earnings financial effects; and
- at 30 June 2011 to determine the net asset value and tangible net
asset value financial effects;
- Legal and advisory costs of approximately R93m (after tax) have not been
taken into account in the above table. Should this once off cost be
taken into account, the earnings and headline earnings per share after
the pro-forma financial effects is 1356 cents (0,74% increase) and 1381
cents(0,80% increase) respectively;
- No cost benefits from any synergies post the acquisition have been taken
into account;
- An exchange rate of R11 / Euro1 was applied to convert the financial
results of Lehnkering to Rand;
- The acquisition has been funded 100% by debt at an average interest rate
of 4.25% per annum before tax for the 12 months ended 30 June 2011;
- The entire portion of the Purchase Consideration has been added to the
deficit in the net asset value of Lehnkering and has been allocated to
Goodwill. This amount of R2,3bn is taken into account in calculating the
impact on the net tangible asset value per share;
- The calculation above assumes no fair value adjustment for the take on
balance sheet of Lehnkering. The total goodwill of R2,3bn still has to
be allocated between other intangibles and goodwill. Other intangibles
with a definite life will have to be amortised over its useful life and
this could have an impact on both earnings and headline earnings per
share; and
- There are no post balance sheet events which require adjustments to the
pro forma financial effects.
10. Categorisation of the acquisition
The acquisition is classified as a Category 2 transaction in terms of the
Listings Requirements of the JSE Limited ("JSE Listings Requirements")
In addition, in terms of paragraph 9.16 of the JSE Listings Requirements, the
acquisition will result in Lehnkering becoming a subsidiary company of
Imperial and accordingly the Memorandum of Incorporation of Lehnkering will
be amended to conform to schedule 10 of the JSE Listings Requirement.
11. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Following the release of this detailed acquisition announcement, the
cautionary announcement published on SENS on 11 July 2011 and renewed on 22
August 2011 is withdrawn and caution is no longer required to be exercised by
shareholders when dealing in Imperial`s shares.
30 September 2011
Transaction advisor to Imperial: Lazard and Commerzbank
Lead Debt Arranger and Funders: Commerzbank, Barclays Capital and ABSA
Capital
Sponsor to Imperial: Merrill Lynch SA (Proprietary) Limited
Legal advisors to Imperial: TaylorWessing
Communication advisor to Imperial: Brunswick Group LLP
Date: 30/09/2011 08:00:01 Supplied by www.sharenet.co.za
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