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Proposed sale by Sabvest Capital Hldgs Ltd of its 40% interest in Flowmax Hldgs Ltd and claims to SA Bias Securities
SABVEST LIMITED
(Incorporated in the Republic of South Africa)
Registration number 1987/003753/06
ISIN: ZAE000006417 ordinary shares
ISIN: ZAE000012043 "N" ordinary shares
Share code: SBV ordinary shares
Share code: SVN "N" ordinary shares
("Sabvest") or ("the Company")
ANNOUNCEMENT REGARDING THE PROPOSED SALE BY SABVEST CAPITAL HOLDINGS
LIMITED (BVI) ("SABVEST CAPITAL"), WHOLLY OWNED BY SABVEST FINANCE AND
GUARANTEE CORPORATION LIMITED (RSA), WHICH IN TURN IS A WHOLLY OWNED
SUBSIDIARY OF SABVEST, OF ITS 40% INTEREST IN FLOWMAX HOLDINGS LIMITED
(BVI) ("FLOWMAX") AND CLAIMS TO SABIAS SECURITIES UK LIMITED (BVI) ("SABIAS
SECURITIES")
1. INTRODUCTION
Shareholders are advised that Sabvest and Sabvest Capital have entered into a sale
agreement dated 11 September 2012 ("the Agreement") with the current shareholders of
Flowmax being Sabias Securities, Graham Ernest Nel ("Nel") and Détente Limited (In its
capacity as trustee for the time being of the Columbus Trust) (collectively "Flowmax
Shareholders"), in terms of which Sabvest Capital ("the Seller") will dispose of its 40% interest
in Flowmax, being 40 shares ("Sold Shares") and approximately GBP373 000 claims ("Sold
Claims") to Sabias Securities ("the Purchaser"), subject to the fulfilment of the conditions
precedent in paragraph 6 below ("the Transaction). The effective date of the Transaction is
midnight on 30 November 2012 or such later date as may be agreed in writing between the
Purchaser and the Seller before the aforesaid date ("the Effective Date").
Détente Limited (as trustee for the time being of the Columbus Trust) and Nel have waived
any pre-emptive rights, options or similar rights to acquire the Sold Shares and Sold Claims.
2. BACKGROUND INFORMATION ON FLOWMAX
Flowmax is an industrial holding company engaged in the distribution of fluid handling
equipment. The operations of Flowmax comprise nine business units in the United Kingdom
in which Flowmax has controlling or joint controlling interests, and which supply and service
customers mostly in the United Kingdom and Europe.
3. RATIONALE
3.1 Continued Indirect Ownership of Flowmax by Sabvest
a. Sabvest Capital has been a 40% shareholder in Flowmax since 1999. Sabvest has a
57% economic interest and a 48,5% voting interest in SA Bias Industries (Pty)
Limited ("SA Bias"), a company registered in the Republic of South Africa and shares
joint voting control with the Philip Coutts-Trotter Family who have a 31% economic
interest in SA Bias.
b. Nel is the Chairman, CEO and Founder of Flowmax and he and The Columbus Trust
(collectively the "Nel Family") own 40% of Flowmax. The remaining 20% was owned
by an unrelated European investor. The Nel Family are Sabvest's operating partners
in Flowmax. As Nel is now 65 years of age, it is probable that he will wish to retire in
the next 5 8 years and the Nel Family will wish to realize its interests in Flowmax.
Sabvest would have to acquire the Nel Family interests or sell its interests together
with the Nel Family. Sabvest regards Flowmax as an excellent investment in terms of
returns and potential and it also provides offshore diversification for Sabvest's
portfolio. However Sabvest is an investor partner not an operating partner. SA Bias
on the other hand is an industrial group with the majority of its operations abroad,
including the UK where it is also seeking to diversify its interests.
c. Sabvest Capital and SA Bias accordingly agreed in principle that it suited the
strategies of both groups for SA Bias to negotiate to acquire joint control of Flowmax
with the Nel Family.
d. SA Bias accordingly concluded an agreement to acquire 20% of Flowmax from the
aforesaid third shareholder for a price of GBP2,1m on 1 May 2012 and agreed with
the Nel Family that if it acquired the Sabvest interest in Flowmax, the Nel Family and
SA Bias would have joint control and Nel would continue as Chairman and CEO.
Sabvest and SA Bias then negotiated the sale of 40% of Flowmax to SA Bias at an
arms-length price for cash. This Transaction is now being proposed by the Sabvest
Board to Sabvest shareholders for approval. Philip Coutts-Trotter, Carl Coutts-Trotter
and Nel, who are also directors of Sabvest, recused themselves from the
deliberations of the Sabvest Board relating to this Transaction.
e. As a result of the aforegoing and if the Transaction is also approved by Sabvest
shareholders in general meeting, SA Bias will own 60% of Flowmax and have joint
control with the Nel Family. Sabvest's interest in Flowmax will have changed from a
40% direct interest to a 34,2% indirect interest in Flowmax through its 57% economic
interest in SA Bias. Of this indirect interest, 22,8% is a result of the purchase by SA
Bias of 40% from Sabvest and 11,4% is a result of the purchase of 20% by SA Bias
from the third shareholder.
3.2 Funds for Portfolio Investments Abroad
Sabvest Capital is Sabvest's offshore investment arm which has been managed in
Monaco from joint offices with SA Bias since 1996. Its portfolio over the years has
comprised listed and unlisted equities and bonds. Part of its strategy has been to expand
its listed share and bond portfolios which it is also able to gear, as opposed to unlisted
investments. This Transaction will facilitate that strategy by injecting about GBP4m into
its free funds for investment. It is currently the intention to invest most of the receipt into a
bond and share portfolio comprising already identified bonds and shares. The bonds will
be primarily high yield second tier bank bonds from highly rated issuers. The shares will
initially comprise Nasdaq listed technology stocks and UK listed high yield stocks in a
spread portfolio. Sabvest Capital is projecting that the portfolio will yield satisfactory cash
returns and capital growth.
4. TERMS OF THE TRANSACTION
4.1 The purchase price is the aggregate purchase price of the Sold Shares and the Sold
Claims, determined in accordance with the following formula ("Purchase Price"):
PP = [(Maintainable Earnings x 8) (actual Net Debt + Mechtronic Liability)] x 0.4
where PP = Purchase Price;
Maintainable Earnings means Normalized NOPAT of GBP1,500,000 (one million
five hundred thousand Pounds Sterling) per annum, which amount has been
agreed between the parties to the Agreement ("Parties");
Net Debt means the net on balance sheet debt of the Flowmax Group on the
Effective Date, as reflected ex facie on the Effective Date Accounts, calculated
by:
(i) adding long term and short term interest bearing debt and current taxation
payable; and
(ii) deducting cash; and
(iii) adjusting the resultant balance for any anomalies at the end of the month
ending on the Effective Date, such adjustments being made taking into
consideration:
the end of the months within the current financial year (being 1 May 2012
to the Effective Date); and
as projected at the Effective Date,
due to unusual movements in working capital,
which Net Debt, it is recorded is projected at the Date of Signature of the
Agreement to be GBP1,300,000 (one million three hundred thousand
Pounds Sterling);
Mechtronic Liability means a fixed amount of GBP500,000 (five hundred
thousand Pounds Sterling) which has been agreed by the Parties as being the
present and probable value of an off-balance sheet contingent liability of
GBP600,000 (six hundred thousand Pounds Sterling) of the Group, to the
vendors to the Group, of 60% (sixty per cent) of Mechtronic Limited, which shall
increase the purchase consideration of Mechtronic Limited;
Normalized NOPAT means the consolidated net profit of the Flowmax Group
after taxation and minority interests adjusted by:
(i) adding back interest payable;
(ii) adding and/or subtracting, as applicable non-recurring costs, income and
revenues;
(iii) adding and/or subtracting, as applicable, taxation to the extent that the interest
payable and other like items resulted in the variation to the Group taxation
charge;
(iv) adding and/or subtracting as applicable, any effects on minority interests
(originally deducted in calculating Flowmax profit after tax) as a result of the
aforegoing adjustments referred to in (i) (iii); and
Effective Date Accounts means the unaudited consolidated management
accounts of the Flowmax Group for the period which commenced on 1 May 2012
up to the Effective Date, to be prepared in accordance with the provisions of the
Agreement.
4.2 Notwithstanding the calculation of the Purchase Price in accordance with the
formula contained in 4.1 above, it is recorded and agreed in the Agreement that
the final Purchase Price shall not exceed GBP4,080 000 (four million and eighty
thousand Pounds Sterling).
4.3 Of the Purchase Price, so much as does not exceed the face value of the Sold
Claims shall be allocated in respect of the Sold Claims and the balance shall be
allocated in respect of the Sold Shares.
4.4 The Purchase Price shall not bear interest.
4.5 The Seller gave to the Purchaser warranties that are usual for a transaction of
this nature and having regard to the context in which the Transaction is taking
place.
5. PAYMENT OF THE PURCHASE PRICE
5.1 The Purchase Price shall be payable by the Purchaser to the Seller as follows:
5.1.1 the Provisional Purchase Price, which is an agreed amount of GBP3,800,000
(three million eight hundred thousand Pounds Sterling), calculated to be
approximately 95% (ninety five per cent) of the expected Purchase Price, based
on the Purchase Price formula and the projected Net Debt, shall be paid on the
Implementation Date, against compliance by the Seller with its obligations in
terms implementation clause, as set out in the Agreement. The implementation
date is the 3rd (third) Business Day following the Effective Date ("the
Implementation Date");
5.1.2 if the Purchase Price, when finally determined, is greater than the Provisional
Purchase Price, then the balance of the Purchase Price, following the payment of
the Provisional Purchase Price, shall be paid on the latest of:
5.1.2.1 30 (thirty) days after the Effective Date; and
5.1.2.2 the 3rd (third) Business Day after the date on which the Effective Date
Accounts are delivered to the Seller and the Purchaser; and
5.1.2.3 the 3rd (third) Business Day after the date on which the 2012 Audited
Accounts are delivered to the Seller and the Purchaser.
5.1.3 If the Purchase Price, when finally determined, is less than the Provisional
Purchase Price, then the Seller shall reimburse the Purchaser to the extent of
any overpayment on the latest of the dates set out in clause 5.1.2.1 to 5.1.2.3
above.
6. CONDITIONS PRECEDENT
6.1 The Transaction is subject to the fulfilment of the following Conditions Precedent, namely
that:
6.1.1 within 30 (thirty) Business Days after the date of signature of Agreement ("Signature
Date") (or such later date as may be agreed in writing between the relevant Parties
before the aforesaid date), to the extent required, the Purchaser, the Seller and
Sabvest obtain such regulatory approvals as may be required in terms of the Listings
Requirements of the JSE Limited ("Listings Requirements"), the Currency and
Exchanges Act, 1933, the Companies Act, 2008 and any other relevant legislation;
6.1.2 by 29 November 2012, to the extent required, the requisite consent of the
shareholders of Sabvest is obtained in respect of the Transaction, as contemplated in
the Companies Act, 2008 and/or the Listings Requirements;
6.1.3 within 10 (ten) Business Days after the Signature Date (or such later date as may be
agreed in writing between the relevant Parties before the aforesaid date), a new
shareholders' agreement is entered into between Détente Limited (as trustee for the
time being of the Columbus Trust), Nel, the Purchaser and Flowmax, and such
agreement becomes unconditional in accordance with its terms, save for a condition
relating to the unconditionality of the Agreement;
6.1.4 within 10 (ten) Business Days after the Signature Date (or such later date as may be
agreed in writing between the relevant Parties before the aforesaid date), to the extent
required, the board of directors of Sabvest obtain a fairness opinion prepared by an
independent expert acceptable to the JSE Limited, indicating that the Transaction is
fair to the shareholders of Sabvest;
6.1.5 within 15 (fifteen) Business Days after the Signature Date (or such later date as may
be agreed in writing between the relevant Parties before the aforesaid date), the board
of directors of Sabvest adopt a resolution approving the Transaction; and
6.1.6 within 10 (ten) Business Days after the Signature Date (or such later date as may be
agreed in writing between Seller and the Purchaser before the aforesaid date), the
Purchaser confirms in writing that it is satisfied with the terms and conditions of the
subsidiary shareholder agreements, being the agreements between Flowmax or any
of its subsidiaries and each of the operating subsidiaries or associates of Flowmax in
which Flowmax is not the sole shareholder.
7. PRO FORMA FINANCIAL EFFECTS
The table below summarises the pro forma financial effects of the Transaction. The financial
effects are the responsibility of the directors and have been prepared for illustrative purposes
only, to provide the possible financial effects on the Transaction as if the Transaction had
taken place from 01 January 2012 for the period of 6 months until 30 June 2012 for income
statement purposes and as at 30 June 2012 for balance sheet purposes. The pro forma
financial effects, because of their nature, may not give a true reflection of the financial
position, the cash flow position, the results of operations or the changes in equity of Sabvest.
The accounting policies of Sabvest as at 30 June 2012 have been used in the preparation of
the pro forma financial effects. The pro forma financial effects are prepared in terms of the
Listings Requirements of the JSE and guidelines issued by the South African Institute of
Chartered Accountants. In terms of these rules and guidelines, income is not imputed on the
proceeds arising from the sale of Flowmax for the six months ended 30 June 2012. However
as indicated in 3.2 above, it is the intention that GBP3,5m of the proceeds will be immediately
invested in a portfolio of listed equities and bonds.
Before After % Change
Earnings per ordinary share (cents) 116.2 121.1 4.2
Headline earnings per ordinary share (cents) 116.3 112.1 (3.6)
Weighted average shares in issue ('000) 46 165 46 165 -
Shares in issue at period end ('000) 46 160 46 160 -
Net asset value per share (cents) 1 231 1 240 0.7
Net asset value per share with investments in
associates at directors' valuation (intrinsic
value) (cents) 1 662 1 669 0.4
Notes & Assumptions:
i) The earnings and headline earnings per Sabvest share, as set out in the "Before" column
of the table, are based on the published unaudited interim financial results of Sabvest for the
six months ended 30 June 2012.
ii) The earnings and headline earnings per Sabvest share, as set out in the "After" column of
the table, are based upon the published unaudited interim financial results of Sabvest for the
six months ended 30 June 2012 and 46,165 million weighted average number of Sabvest
shares in issue and the assumptions that:
The sale of Flowmax is concluded for a consideration of GBP4 080 000 and the profit on
sale is converted using an average exchange rate of ZAR 12.508 : GBP 1;
The attributable 40% equity accounted earnings of Flowmax for the six months ended 30
June 2012 is removed from the group results and replaced by the attributable 57% of
40% equity accounted earnings of Flowmax for the six months ended 30 June 2012 that
would be earned given that Flowmax would be an associate of SA Bias (a 57% equity
accounted investment). The weighted average exchange rate for accounting for the
equity accounted income is ZAR 12.508: GBP 1 for the period;
The transaction costs are estimated to be R850 000;
Sabias Securities has reduced interest income given that its available funds would be
used to purchase the holding in Flowmax; and
In accordance the Listings Requirements and guidelines issued by the South African
Institute of Chartered Accountants dealing with pro-forma financial information, no
income has been imputed on the proceeds of GBP4 080 000 arising from the sale of
Flowmax for the six months ended 30 June 2012.
iii) The net asset value per share and the net asset value per share with investments in
associates at directors' valuation (intrinsic value), as set out in the "Before" column of the
table, are based upon the unaudited balance sheet of Sabvest at 30 June 2012 and 46,160
million Sabvest shares in issue.
iv) The net asset value per share, net asset value per share with investments in associates
at directors' valuation (intrinsic value) as set out in the "After" column of the table, are based
upon the published unaudited Balance Sheet of Sabvest at 30 June 2012 and 46,160 million
Sabvest shares in issue and the assumptions that:
The sale of Flowmax is concluded for a consideration of GBP4 080 000 at an exchange
rate of ZAR 12.867 : GBP 1 at 30 June 2012; and
The transaction costs are estimated to be R850 000 and are incurred in cash on 30 June
2012.
8. CATEGORISATION
SA Bias is jointly controlled by Sabvest and the Coutts-Trotter Family. Christopher Seabrooke,
Philip Coutts-Trotter, Carl Coutts-Trotter and Nel are directors of Sabvest and both Coutts-
Trotters are executive directors of SA Bias. Christopher Seabrooke and Haroon Habib, the
independent chairman of Sabvest are non-executive directors of SA Bias representing Sabvest
on the SA Bias Board.
In terms of the Listings Requirements, the Transaction is classified as a related party transaction
and accordingly requires a fairness opinion by an independent expert and Sabvest shareholder
approval. The Transaction is also a category 2 transaction in terms of Listings Requirements.
The Board of directors of Sabvest has appointed BDO Corporate Finance (Pty) Limited ("BDO")
as the independent expert to determine if the terms and conditions of the Transaction are fair to
the Sabvest shareholders. BDO's opinion will be included in the circular to be posted to
shareholders, as per paragraph 9 below.
The Board's opinion and recommendation after taking into account inter alia the opinion of BDO
will also be included in the circular to Sabvest shareholders.
9. CIRCULAR
A circular providing further information on the Transaction, which will contain a notice of general
meeting and a form of proxy, will be posted to shareholders in due course.
Sandton
12 September 2012
Transaction Sponsor:
Deloitte & Touche Sponsor Services (Pty) Limited
Attorneys
Edward Nathan Sonnenbergs
Reporting Accountants
Deloitte & Touche
Independent expert
BDO Corporate Finance (Pty) Limited
Sponsor
RMB (a division of FirstRand Bank Limited)
Date: 12/09/2012 02:15:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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