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ABK - African Brick Centre - A firm intention, withdrawal of associated

Release Date: 03/11/2011 12:48
Code(s): ABK
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ABK - African Brick Centre - A firm intention, withdrawal of associated cautionary and issue of further cautionary. AFRICAN BRICK CENTRE LIMITED (Incorporated in the Republic of South Africa) (Registration Number: 1999/006214/06) (Share Code: ABK) (ISIN: ZAE000105169) ("African Brick" or "the Company") ANNOUNCEMENT OF A FIRM INTENTION TO MAKE AN OFFER TO ACQUIRE THE REMAINING ISSUED SHARE CAPITAL OF AFRICAN BRICK NOT HELD BY ITS SUBSIDIARY AND BY YAKANI INFRACO PROPRIETARY LIMITED ("FIRM INTENTION ANNOUNCEMENT") AND WITHDRAWAL OF ASSOCIATED CAUTIONARY ANNOUNCEMENT AND ISSUE OF FURTHER CAUTIONARY. 1. INTRODUCTION African Brick is pleased to announce that it has received an offer from Yakani Infraco Proprietary Limited ("Yakani") to acquire the remaining issued share capital of African Brick not held by African Brick`s subsidiary and Yakani ("the Offer"), by way of a scheme of arrangement in terms of section 114 of the Companies Act, No. 71 of 2008, as amended, ("Companies Act") to be proposed by the board of directors of African Brick between African Brick and its shareholders. 2. TERMS OF THE OFFER 2.1 It is recorded that African Brick has 708,517,039 shares in issue, of which 3,000,000 are treasury shares held by a subsidiary company of African Brick ("Treasury Shares"), resulting in a net of 705,517,039 African Brick shares held by shareholders of African Brick other than its subsidiary. Of the aforementioned 705,517,039 shares, 501,610,284 shares (constituting 71,1%) of the net issued share capital of African Brick are held by Yakani and the balance of 203,906,755 shares are held by other African Brick shareholders. 2.2 Accordingly, the Offer will be to acquire 203,906,755 ordinary shares in the issued share capital of African Brick (the "Scheme Shares"), which shares exclude the shares held by Yakani and the Treasury Shares. 2.3 The Offer will be implemented by way of a scheme of arrangement ("the Scheme") in terms of section 114 of the Companies Act to be proposed by the board of directors of African Brick between African Brick and the holders of Scheme Shares ("Scheme Members") pursuant to which holders of Scheme Shares on the Scheme Consideration Record Date, being the date on which such Scheme Members must be recorded in the share register of African Brick in order to participate in the Scheme and receive the Scheme Consideration (the "Scheme Participants"). 2.4 The Offer will be made at 4.6 cents per Scheme Share (the "Scheme Consideration"), which is equivalent to an aggregate cash price of R9,379,710.73 based on the number of Scheme Shares. 2.5 The Scheme will result in the application to the JSE Limited ("JSE") for the termination of the listing of the shares of African Brick and the Scheme will comply with the Companies Act. 2.6 The Scheme Consideration represents a premium per African Brick share of: - 53% to the closing price of African Brick shares on the JSE as at 12 September 2011, being the last business day immediately prior to the date of the first cautionary announcement ("Publication
Date"); - 35.9% to the volume weighted average price ("VWAP") of African Brick shares on the JSE for the 30 days up to and including the Publication Date;
- 32.3% to the VWAP of African Brick shares on the JSE for the 6 months up to and including the Publication Date; - 11.7% to the VWAP of African Brick shares on the JSE for the 12 months up to and including the Publication Date;
3. RATIONALE FOR THE SCHEME The recessionary conditions in the building industry during the last three years have severely impacted the business operations and performance of African Brick, leading to the incurrence of losses for the last three financial years ended 28 February 2009, 2010 and 2011 of R76,8 million, R15,4 million and R11,5 million, respectively. Management implemented a stringent programme to right size the business and adapt the operations to suit the current economic climate by, inter alia, closing the Lenasia plant, disposing and closing its retail stores, implementing energy saving measures within African Brick`s plants and generally reducing overhead costs where possible. During August 2010, African Brick effected a renounceable rights offer at 3 cents per African Brick share, through which it raised R11.9 million to recapitalise its balance sheet, provide improved measures of liquidity and attempt to sustain its turnaround strategy. However, the failure of a successful and sustainable turnaround of the business and continued losses for the year ended 28 February 2011, eventually led to the auditors of African Brick issuing a qualified report based on the existence of a material uncertainty which may cast significant doubt on the Company`s ability to continue as a going concern and therefore it may be unable to realise its assets and discharge its liabilities in the normal course of business.. It is worth noting that of the R11.9m raised through the rights offer, more than 85% was contributed by Yakani (being a 51% shareholder at that time) which further indicated lack of support from other shareholders. Despite concerted efforts to stem the losses, African Brick has been unable to achieve a break-even situation and continues to make cash losses on a monthly basis. As African Brick has drawn down the maximum of its funding facilities and has been unable to secure further support from its commercial lenders, Yakani stepped in with the advancement of a shareholder`s loan facility of R5 million on 3 August 2011 in order to enable the Company to meet its trading obligations. It is clear that without a critical intervention, African Brick has reached the point of being unable to continue as a going concern and faces liquidation. It only be able to recover in an unlisted environment where it is saving the direct and indirect continuing costs related to being listed and has continued access to funding support from a strong shareholder. The board further believes that the net proceeds of a liquidation of the Company will not serve the interests of shareholders in receiving optimal value. Yakani is willing to take a longer-term view of the prospects of African Brick and following the poor take-up of the last rights offer, it is evident that Yakani is one of the few shareholders with the desire to continue to support the financial requirements of the Company`s needs, but subject to the delisting and conversion of African Brick to a private company. The Scheme, if it becomes operative, will result in the delisting of African Brick as detailed in paragraph 8. The Scheme will give shareholders a cash exit opportunity at an attractive premium to the historical market prices of African Brick shares on the JSE. 4. CONDITIONS PRECEDENT TO THE POSTING OF THE CIRCULAR The posting of the circular to Scheme Members (which will include the notice convening a general meeting of African Brick`s shareholders (the "Shareholders Meeting") to consider and if thought fit, to pass the resolutions necessary to approve the Scheme) is subject to the fulfilment or waiver (in whole or in part), by Yakani of the following conditions precedent: 4.1 the independent expert appointed by the Independent Board confirming in writing to the Independent Board of African Brick and Scheme Members that the Scheme Consideration offered by Yakani is fair and reasonable; 4.2 the Independent Board recommending to Scheme Members that they vote in favour of the Scheme; and 4.3 the consents necessary in respect of the Scheme being obtained from all material service providers to the Company. 5. CONDITIONS PRECEDENT TO THE SCHEME 5.1 The implementation of the Scheme is subject to the fulfilment or, if appropriate, waiver, of the following conditions precedent, which must be fulfilled, or where appropriate waived, on or before the date which is 150 days from publication of this Firm Intention Announcement, or such later date as may be agreed in writing between African Brick and Yakani: 5.1.1 all regulatory approvals and consents necessary in respect of the Scheme being obtained, including, but not limited to, approvals and consents from the JSE, the Takeover Regulation Panel established in terms of the Companies Act ("TRP") and the
Financial Surveillance Department of the South African Reserve Bank; 5.1.2 the special resolution for the approval of the Scheme (the "Special Resolution") being proposed at the Shareholders Meeting
and adopted by a majority representing not less than 75% of the votes exercised by shareholders present and entitled to vote, either in person or by proxy; 5.1.3 the Special Resolution not being opposed by 15% or more of the voting rights exercised on such resolution, or, should the Special Resolution be opposed by 15% or more of the voting rights exercised on it, no shareholder who voted against the Special Resolution requiring the Company to seek the approval of the
court in terms of section 115(3) of the Companies Act. This condition may be waived by Yakani; 5.1.4 if the Special Resolution is opposed by 15% or more of the voting rights exercised on such resolution, a shareholder who voted
against the Special Resolution requires the Company to seek the approval of the court in terms of section 115(3) of the Companies Act and Yakani waives the condition precedent referred to in paragraph 5.1.3, the Company does not elect to treat the Special
Resolution as a nullity in terms of section 115(5) of the Companies Act. This condition may be waived by Yakani on condition that the Company does not elect to treat the Special Resolution as a nullity and the court approves the Special
Resolution in terms of section 115(3) of the Companies Act; 5.1.5 no leave is granted by the court, on an application within 10 business days after the vote on the Special Resolution, to any person who voted against the Special Resolution and who applied
to the court, to apply to court for a review of the Scheme in terms of section 115(7) of the Companies Act. This condition may be waived by Yakani on condition that the court review the Scheme, approves the Special Resolution in terms of section
115(3) of the Companies Act; 5.1.6 no material adverse change having occurred, by no later than two business days prior to the Shareholders Meeting, where a material adverse change is defined as:
5.1.6.1 any adverse effect, circumstance or any potential adverse effect, fact or circumstance which has, (alone or together with any other such actual or potential adverse effect, fact or circumstance) arisen or occurred, or might, (alone or together
with any other such actual or potential adverse effect, fact or circumstance) reasonably be expected to arise or occur, and which is or might reasonably be expected (alone or together with any other such actual or potential adverse effect, fact or
circumstance) to be material with regard to the operations, revenues or net asset value of African Brick and/or any member of African Brick`s Group (whether as a consequence of the Scheme or not). For the purposes of this paragraph, to be material there
should be an adverse effect or potential adverse effect of R10 million or more upon the revenues or net asset value of African Brick, which for the purposes hereof will be calculated in a manner consistent with that used in the most recent published
audited results of African Brick as at 28 February 2011, using the assumptions contained in such annual financial statements. For the purposes of this definition, "value" shall include the value of assets and/or revenues and/or reserves without double
counting where a single matter affects more than one measure of value; and/or 5.1.6.2 there has not occurred and continue to occur any suspension or limitation of trading in securities generally (for reasons other
than information technology or administrative disruptions) on the JSE; and/or 5.1.6.3 there has not been declared any general banking moratorium by the Republic of South Africa authorities; and/or
5.1.6.4 a state of national emergency has not been declared by the Republic of South Africa; and/or 5.1.6.5 there has not been a declaration of war by the Republic of South Africa, or a declaration of war against the Republic of South
Africa; and/or 5.1.6.6 the Department of Environmental Affairs has not issued the Compliance Notice or further Directives in terms of the Notice of Intention served on African Brick on 27 October 2011 (see
paragraph 13. ISSUE OF FURTHER CAUTIONARY); the effect of which (individually or in aggregate) has, or is reasonably likely to have, a material adverse effect on the implementation of the Scheme and/or the funding thereof. 5.2 An announcement will be released on SENS as soon as possible after the fulfilment, waiver or non-fulfilment, as the case may be, of the conditions precedent. 5.3 To the extent that any condition precedent is capable of waiver, Yakani will be entitled to waive, at its discretion, any of the conditions precedent (in whole or in part) upon written notice to the Independent Board prior to the date required for fulfilment of the relevant condition precedent. 5.4 African Brick and Yakani have undertaken in favour of one another to use their respective reasonable commercial endeavours to do all things and take all steps as may be reasonably necessary or desirable in order to procure, insofar as it is lawfully able, the fulfilment of the above conditions. 6. UNDERTAKINGS African Brick has received irrevocable undertakings and letters of intent from certain African Brick shareholders holding between them 125,981,576 African Brick shares, to vote in favour of the Scheme and the resolutions to be proposed at the Shareholders Meeting, representing in aggregate 17.8% of the existing issued ordinary share capital of African Brick and 61.8% of the Scheme Members entitled to vote at the Shareholders Meeting. 7. GUARANTEES AND CONFIRMATIONS TO THE TAKEOVER REGULATION PANEL Mervyn Taback Inc, attorneys of Johannesburg, on behalf of Yakani, has provided African Brick and the TRP with an irrevocable written confirmation in compliance with the TRP requirements to the effect that it holds an amount of R9,379,710.73 in its trust account in favour of African Brick. The written confirmation is sufficient for the purpose of fully satisfying the Scheme Consideration payable in terms of the Scheme. 8. TERMINATION OF AFRICAN BRICK LISTING Following implementation of the Scheme, application will be made to the JSE to terminate the listing of African Brick shares on the JSE. 9. SHAREHOLDING IN AFRICAN BRICK OF YAKANI Yakani is the owner of 501,610,284 African Brick shares, comprising 70.8% of the issued share capital of African Brick, i.e. 71.1% of the net issued share capital excluding the Treasury Shares. 10. RECOMMENDATION AND FAIRNESS OPINION The Independent Board intends, based on the information currently available to it, to make a unanimous recommendation to African Brick Shareholders to vote in favour of the resolutions to be proposed at the Shareholders Meeting to approve the Scheme, provided that the Independent Board receives an opinion from the Independent Expert referred to below to the effect that the Scheme Consideration is fair and reasonable. The Independent Board has appointed BDO Corporate Finance Proprietary Limited, an independent advisor acceptable to the TRP, to provide it with an external opinion in relation to the Scheme. The substance of the Independent Expert`s opinion and the views of the Independent Board will be detailed in the circular to be sent to African Brick shareholders in relation to the Scheme. 11. DOCUMENTATION Further details of the Scheme will be included in the circular to be sent to African Brick shareholders, containing, inter alia, a notice of the meeting of African Brick shareholders, a form of proxy and a form of surrender and transfer. The circular is expected to be posted to African Brick Shareholders on or about 8 November 2011. The salient dates in relation to the Scheme will be published prior to the posting of the circular. 12. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT Following the release of this Firm Intention Announcement, the cautionary announcement originally published by African Brick on 13 September 2011 is hereby withdrawn. 13. ISSUE OF FURTHER CAUTIONARY Shareholders are advised that on 27 October 2011, African Brick received a Notice of Intention ("Notice of Intention") by the Department of Environmental Affairs ("DEA") to issue a compliance notice in terms of Section 31L of the National Environmental Management Act, 1998 (Act 107 of 1998)("NEMA"), a directive in terms of section 28(4) of NEMA and a directive in terms of Section 31A of the Environment Conservation Act (Act 73 of 1989)("ECA"),in respect of its alleged failure to comply with the provisions of the Law. The DEA holds that there are reasonable grounds to believe that the activities which are taking place on the site at Luipaardsvlei, Krugersdorp are being undertaken in the absence of the necessary authorisations, have caused significant pollution or environmental degradation and will continue to do so if decisive action is not taken. The Company has been given two working days, after receipt of the Notice of Intention, to make representations to the DEA as to why the compliance notice should not be given, which would, inter alia, have the effect of ceasing all brick production operations at the site at Luipaardsvlei with immediate effect. Immediately, pursuant to the receipt of the DEA`s letter, African Brick: - appointed a radiation protection specialist to ensure that it adequately addresses its radiation related environmental protection obligations, if any; - took samples of its inputs materials, that is slime, clay, topsoil and coal dust to analyse for the total radioactivity activity content; and - took samples of all types of its finished products, being the Green Brick, Dark Brick and Light Brick, for analysis as above. On 31 October 2011, African Brick responded to the DEA in writing with its representations not to issue the Compliance Notice and further directives requested a meeting with the DEA and the National Nuclear Regulator ("NNR"), to elucidate the issues raised. African Brick believes that the interpretation of the analysis done by the DEA`s advisors is not in line with the NNR Safety Standards and Regulatory Practices. African Brick is also of the view that based on analytical test results concluded by its own experts on 29 March 2011, the radioactive content of its products are below the thresholds stated in the Safety Standards and, therefore, that African Brick is exempted / excluded from regulatory control by the NNR and accordingly is not required to have a nuclear authorisation in terms of the NNR Act. However, if the Notice of Intention is implemented by the DEA, this may have a material effect on the operations of the Company and the price of the Company`s securities and could trigger a material adverse change as defined in the Offer (see paragraph 5.1.6). Accordingly, shareholders are advised to exercise caution when dealing in the Company`s securities, until a further announcement is made. 14. RESPONSIBILITY STATEMENT Yakani and the Independent Board accept responsibility for the information contained in this Firm Intention Announcement. To the best of their respective knowledge and belief, the information contained in this announcement is true and nothing has been omitted which is likely to affect the import of the information. Johannesburg 3 November 2011 Corporate advisor and Designated Advisor to African Brick Grindrod Bank Limited Independent expert to African Brick BDO Corporate Finance Proprietary Limited Corporate law advisor to Yakani Taback and Associates Proprietary Limited Date: 03/11/2011 12:48:38 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.

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