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Amendment to the announcement sent at 8h34 Specific issues of shares for cash, share consolidation and odd-lot offer
ALERTSTEEL
(Incorporated in the Republic of South Africa)
(Registration number 2003/005144/06)
JSE code: AET ISIN: ZAE000092847
("Alert Steel" or "the Company")
Amendment to announcement sent at 8h34 - SPECIFIC ISSUES OF SHARES FOR CASH, SHARE CONSOLIDATION AND ODD-LOT
OFFER
1. INTRODUCTION
The board of directors of Alert Steel ("the Board") wishes to announce various proposed
corporate actions, the details of which are set out below.
2. EARLY SETTLEMENT OF CAS SHAREHOLDER LOAN
2.1 Background information
Alert Steel currently owes R24,784,696 to its biggest shareholder, Capital Africa Steel
(Proprietary) Limited (registration number 2003/008668/07) ("CAS") ("CAS Loan Account"), a
related party to Alert Steel with a 38.6% interest in the ordinary share capital of Alert Steel.
The CAS Loan Account arose as a result of the acquisition by Alert Steel of Alert Steel
Northwest (Pty) Limited (registration number 2011/000561/07) ("ASNW") ("the ASNW
Acquisition"), which acquisition was approved by shareholders of Alert Steel
("Shareholders") at a general meeting held on 27 September 2011. On or about
27 June 2012, the Company, CAS, the JC Family Trust (Master's reference number
IT 5581/96) (represented by Johan du Toit, the Chief Executive Officer of Alert Steel and a
related party to Alert Steel) and ASNW concluded an addendum ("the ASNW Second
Addendum") to the agreements pertaining to the ASNW Acquisition ("the ASNW Acquisition
Agreements"), in terms of which it was agreed by such parties that, subject to the approval of
Shareholders, the ASNW Acquisition Agreements would be amended to, inter alia, allow for
the early settlement of the CAS Loan Account by the issue of ordinary shares in the share
capital of Alert Steel ("Shares") to CAS at a subscription price of 2.8 cents per Share
("ASNW Early Settlement") in terms of a specific issue of shares for cash. This is the same
price at which the rights offer to Shareholders, which closed on 29 June 2012, was
concluded and represents a premium of 0.5 cents per Share to the 30-day weighted average
Share price to Monday, 1 October 2012 of 2.3 cents per Share.
2.2 Rationale for the ASNW Early Settlement
It is the Board's opinion that the ASNW Early Settlement has, inter alia, the following benefits
to Alert Steel:
- the CAS Loan Account will be converted at an earlier date, resulting in a saving for
Alert Steel of the interest (calculated at the prime rate plus 2%) that would have
accrued on the CAS Loan Account until the future conversion date in terms of the
ASNW Acquisition Agreements;
- the ASNW Early Settlement will strengthen the balance sheet of Alert Steel due to
the conversion of a liability into equity; and
- as a result of the ASNW Early Settlement, Nedbank Limited ("Nedbank"), Alert
Steel's banker, will convert a further portion of the debt owed by Alert Steel to
Nedbank into equity (as discussed in more detail in paragraph 3 below).
2.3 Conditions precedent
The ASNW Early Settlement is conditional upon obtaining Shareholders' approval of the
provisions of the ASNW Second Addendum on or before 31 October 2012.
2.4 Fairness opinion
In terms of section 10.1(b)(i) of the Listings Requirements, the ASNW Early Settlement is
classified as a Related Party Transaction as CAS is a major shareholder of Alert Steel and
Johan du Toit is a trustee and beneficiary of the JC Family Trust. Accordingly, an
independent opinion relating to the fairness of the new terms of the ASNW Early Settlement
is required in terms of section 10.1(a) of the Listings Requirements of the JSE. The Board
has obtained such opinion from BDO Corporate Finance (Pty) Ltd ("BDO")as independent expert,
the text of such opinion is set out in the Circular referred to in paragraph 7 below. BDO
has concluded that the ASNW Early Settlement is fair.
3 NEDBANK DEBT CONVERSION
3.1 Background information
With a view to strengthening the balance sheet of Alert Steel, Nedbank has agreed,
conditional upon and subsequent to the implementation of the ASNW Early Settlement, to
convert a further portion of the debt owed by the Alert Steel group to Nedbank into Shares,
to be issued at a subscription price of 2.8 cents per Share ("the Nedbank Conversion"). The
amount of debt to be so converted is the lesser of R6 million and such amount as will,
subsequent to the implementation of the conversion contemplated in this clause, result in
Nedbank holding not more than 19.9% ("the Nedbank Conversion Amount"). Nedbank is a
related party to Alert and currently holds an interest of 19.9% in the Company. The Nedbank
Conversion will be possible as a result of the ASNW Early Settlement, as Nedbank will then,
as a result of the issue of further Shares as contemplated in the ASNW Early Settlement, be
able to convert a further portion of the debt owed by the Alert Steel group to Nedbank into
equity, subject to the proviso that Nedbank shall never hold more than 19.9% of all issued
Shares.
3.2 Rationale for the Nedbank Conversion
It is the Board's opinion that the Nedbank Conversion has the benefit of strengthening the
Alert Steel balance sheet due to the conversion of debt into equity.
3.3 Conditions precedent
The Nedbank Conversion is conditional upon, inter alia:
- obtaining Shareholders' approval to the ASNW Early Settlement; and
- obtaining Shareholders' approval to the Nedbank Conversion.
4 SHARE CONSOLIDATION
4.1 Introduction
The Board has proposed a restructuring of the authorised and issued share capital of Alert
Steel by the consolidation of every 100 Shares into one Share ("Share Consolidation"). As a
result of the Share Consolidation, the authorised share capital in Alert Steel would be
reduced from 10 billion Shares to 100 million Shares and the current issued share capital of
Alert Steel would be reduced from 4 092 550 566 Shares to 40 925 506 Shares (taking into
account the rounding of fractions).
4.2 Rationale for the Share Consolidation
The Board has proposed the Share Consolidation for the following reasons:
- Shares have been and are currently trading at levels of below 5 cents per Share. In
addition, the Company has an issued share capital of 4 092 550 566 ordinary shares,
which the Board believes to be an excessively high number of shares in issue. The
proposed Share Consolidation at a ratio of 1 Share for every 100 Shares currently
held will reduce the issued share capital of the Company to 40 925 506 Shares
(taking into account the rounding of fractions). Accordingly, the Directors anticipate a
corresponding increase in the trading price per Share and believe that this increased
share price may assist in an improvement in the perception of the Company.
- It is expected that by consolidating the number of Shares, there will be a narrowing of
the spread between the bid-to-buy price and the offer-to-sell price, resulting in a more
stable market capitalisation of the Company. It is the opinion of the Board that shares
that trade below R1.00 on the JSE have a much higher spread between the bid-to-
buy price and the offer-to-sell price, which can result in significant movements in the
share price on small volumes traded. The Directors have proposed the Share
Consolidation as they believe that the current volatility in the price of Shares is often
unrelated to underlying trading conditions, and often relates more to the fact that the
denomination of the share price is comparatively low. While there are no guarantees
in relation to movements in the share price, the Board does, however, believe that
the proposed Share Consolidation will assist in reducing the current volatility in the
share price of Alert Steel and potentially lead to a better correlation between the net
asset value of Alert Steel and its share price.
- The instability in the market capitalisation of the Company, as explained above,
ultimately affects Shareholder value, which, in turn, may discourage potential
investors. As a result, the Board believes that the proposed Share Consolidation
would not only provide additional confidence to existing Shareholders, but also
increase the attractiveness of Alert Steel to other potential investors.
It should be noted that the proposed Share Consolidation will not dilute a Shareholder's
economic interest in Alert Steel.
4.3 Conditions precedent
The implementation of the Share Consolidation is subject to Shareholders' approval as set
out in the notice of general meeting attached to the circular referred to in paragraph 7 below.
4.4 Share Capital
The expected salient dates and times of the Share Consolidation are set out below and are
subject to proof of filing of the relevant resolutions with CIPC subsequent to the general
meeting (details of which is set out in paragraph 7 below) being delivered to the JSE by no
later than Thursday, 8 November 2012. All dates are subject to amendment and any
amendments will be released on SENS.
2012
Last date to trade in Shares before the Share Consolidation Friday, 16 November
Consolidated Shares trade under new ISIN: ZAE000170395 Monday, 19 November
Record date to determine those Shareholders whose Shares will be
subject to the Share Consolidation ("Record Date") Friday, 23 November
Dematerialised shareholders accounts at CDSP's or brokers
updated in respect of the Share Consolidation Monday, 26 November
Replacement share certificates posted to certificated shareholders
provided their existing share certificates are
surrendered by 12:00 on the Record Date (otherwise within five
business days after receipt of such existing share certificates),
on or about Monday, 26 November
Notes:
1. The above dates and times are subject to amendment and any amendment made will be released on SENS.
2. All times given are South African local times.
3. Shareholders may not dematerialise or rematerialise their pre-consolidated Share after Friday, 16 November
2012.
5. ODD-LOT OFFER BY WAY OF A SPECIFIC REPURCHASE
5.1 Introduction
In order to reduce the substantial recurring costs of administration connected with the
current large number of small Shareholders, the Board also proposes the implementation of
an odd-lot offer to Shareholders holding fewer than 100 Shares subsequent to the Share
Consolidation ("the Odd-lot Offer") ("Odd-lot Holders") to facilitate the reduction in the
number of small Alert Shareholders in an equitable manner. The Odd-lot Offer will be
implemented by way of a specific repurchase of shares by the Company. The Odd-lot Offer
will enable Shareholders who qualify and wish to participate to dispose of their shareholding
in a cost-effective manner. Alert Steel's existing cash resources will be utilised to satisfy any
requirements arising out of the Odd-lot Offer. The implementation of the Odd-lot Offer is
subject to Shareholders' approval.
The Odd-lot offer will be implemented on the basis that Odd-lot Holders may elect to:
(a) sell their Shares; or
(b) retain their Shares.
The Shares of Odd-lot Holders who do not make an election will be automatically purchased
by Alert Steel.
5.2 Offer Price
The offer price pertaining to the Odd-lot Offer ("Offer Price") will be determined by using the
three-day volume weighted average price of Shares traded on the JSE up to the close of
business on the day prior to the date of the finalisation announcement pertaining to the Odd-lot Offer, which
is expected to be Friday, 23 November 2012, plus a 5% premium. An announcement will be
released on SENS once the Offer Price has been finalised.
5.3 Salient dates and times
The expected salient dates and times of the Odd-lot Offer are set out below and are subject
to proof of filing of the relevant resolutions with CIPC subsequent to the general meeting
(details of which is set out in paragraph 7 below) being delivered to the JSE by no later than
Thursday, 8 November 2012. All dates are subject to amendment and any amendments will
be released on SENS.
2012
Offer Price finalised and released on SENS Friday, 23 November
Last day to trade in Shares in order to be eligible to participate in the
Odd-lot Offer Friday, 30 November
Shares trade "ex" rights to participate in the Odd-lot Offer Monday, 3 December
Forms of election and surrender for the Odd-lot Offer to be received Friday, 7 December
by the Transfer Secretaries by 12:00 on
Odd-lot Offer closes at 12:00 on Friday, 7 December
Record date for the Odd-lot Offer to determine the Shareholders
entitled to participate in the Odd-lot Offer ("Offer Record Date") Friday, 7 December
Implementation of the Odd-lot Offer takes effect at commencement
of business on Monday, 10 December
Odd-lot Holders with dematerialised shares have their accounts
held at their CSDP or broker credited with the cash amount unless Monday, 10 December
Odd-lot Holders have elected to retain their holdings
Cheques posted to eligible Shareholders who accepted, at the risk
of such holders, on or about Monday, 10 December
Results of the Odd-lot Offer released on SENS on Monday, 10 December
Notes:
1. The specified dates and times are subject to change. Any changes will be released on SENS.
2.Shareholders may not dematerialise or rematerialise their Shares between Friday, 30 November 2012 and
Friday, 7 December 2012, both dates inclusive.
3. Cheques will be posted, at the risk of the Shareholder, on or about Monday, 10 December 2012 or within five
business days after the receipt of such Document of Title by the Transfer Secretaries, whichever is the later.
4. Certificated Shareholders who wish to retain their Odd-lot Holdings must lodge the form of election and
surrender for the Odd-lot Offer (blue) by 12:00 on the Offer Record Date expected to be Friday,
7 December 2012, failing which their Shares will be purchased by Alert Steel.
5.4 Dividends Tax
The repurchase of Shares in terms of the Odd-lot Offer will be funded out of existing income
reserves of Alert Steel. As a result, and due to the fact that the specific repurchase of shares
in terms of the Odd-lot Offer will not constitute a general repurchase of securities as
contemplated in subparagraph (b) of paragraph 5.67(B) of Section 5 of the Listing
Requirements, the purchase consideration payable to Shareholders will constitute a dividend
as defined in section 1 of the Income Tax Act, No. 58 of 1962. The effect thereof for
Shareholders is that Dividends Tax at the rate of 15% will be required to be withheld from
the repurchase consideration in accordance with the requirements of sections 64E and 64H
of the Income Tax Act, No. 58 of 1962. No STC credits will be utilised.
Assuming a post Share Consolidation share price of 200 cents per Share, the:
- gross local dividend will amount to 210 cents per Share for Shareholders exempt
from the dividends tax;
- net local dividend will amount is 178.50 cents per Share for Shareholders liable to
pay the dividends tax; and
- local dividend withholding tax will amount to 31.50 cents per Share for Shareholders
liable to pay the dividend withholding tax.
Alert Steel currently has 4 092 550 566 Shares in issue and its income tax reference number
is 9175/531/15/2.
5.5 Conditions precedent
The implementation of the Odd-lot Offer is subject to Shareholders' approval as set out in
the notice of general meeting attached to the circular referred to in paragraph 7 below.
6. PRO FORMA FINANCIAL EFFECTS
The unaudited pro forma financial effects of the ASNW Early Settlement, the Nedbank
Conversion and the Odd-lot Offer (collectively, "the Transactions") are provided, for
illustrative purposes only, to indicate the effect of the Transactions on the loss per share,
fully diluted loss per share, headline loss per share and fully diluted headline loss per share
of Alert Steel, calculated as if the Transactions took effect on 1 July 2011, and to show the
effect of the Transactions on the net asset value per share and tangible net asset value per
share of Alert Steel, calculated as if the Transactions took effect on 31 December 2011.
Because of their nature, the unaudited pro forma financial effects may not fairly present Alert
Steel's financial position, changes in equity, results of operations or cash flows. The
unaudited pro forma financial effects have been compiled from Alert Steel's published
reviewed results for the six months ended 31 December 2011 and are presented in a
manner consistent with the format and accounting policies adopted by Alert Steel and have
been adjusted as described in the notes below. The Directors are responsible for the
preparation of the pro forma financial effects as set out below.
Column A Column B Column C Column D
Actual Pro forma Pro forma Pro forma Pro forma
Percentage
Before the Adjustments Adjustments Adjustments after the
change
Transactions relating to the relating to the relating to the Transactions
ASNW Early Nedbank Odd-lot Offer
Settlement Conversion
Loss per share (cents) (2.00) 0.85 0.23 (0.00) (0.91)
54.2%
Headline loss per share (cents) (2.01) 0.86 0.24 (0.00) (0.92)
54.2%
Fully diluted loss per share (cents) (1.98) 0.84 0.23 (0.00) (0.91)
54.1%
Diluted headline loss per share (cents) (1.99) 0.85 0.23 (0.00) (0.92)
54.0%
Net asset value per share (cents) (0.63) 0.97 0.27 (0.00) 0.60
195.8%
Net tangible asset value per share (cents) (0.95) 1.06 0.29 (0.00) 0.40
141.5%
Weighted average number of
shares in issue (000) 915 425 776 750 214 286 (1 860) 1 904 600
108.1%
Fully diluted weighted average
number of shares in issue (000) 923 025 776 750 214 286 (1 860) 1 912 200
107.2%
Shares in issue at period end
(including 7 600 000 treasury
shares) (000) 1 763 580 776 750 214 286 (1 860) 2 752 756
56.1%
Notes:
The pro forma financial effects set out above are based on the following assumptions:
1. The information as reflected in column A has been extracted without adjustment from the Company's
published reviewed consolidated results for the six months ended 31 December 2011.
2. The effects as reflected in column B on the loss per share, fully diluted loss per share, headline loss per
share and fully diluted headline loss per share are based on the following assumptions and information:
a. the CAS Loan Account of R22.249 million is settled in terms of the ASNW Early Settlement on
1 July 2011;
b. as the purchase consideration as detailed in paragraph (a) above was set off against the CAS
Loan Account, it resulted in an interest saving of R541 000, being the actual interest incurred
for the period. This is calculated at an actual effective interest rate of 11% per annum as
stipulated in the agreement, for the period 1 July 2011 to 31 December 2011. The interest
saving will have a continuing effect on Alert Steel's financial information subsequent to the
ASNW Early Settlement;
c. 776.750 million new Shares were issued to CAS at an issue price of 2.8 cents per share with
effect from 1 July 2011; and
d. transactions costs amounting to R500 000 pertaining to the ASNW Early Settlement were
incurred and adjusted for against share premium.
3. The effects as reflected in column B on the net asset value and tangible net asset value are based on the
following assumptions and information:
a. the ASNW Early Settlement was effective 31 December 2011;
b. 776.750 million new Shares were issued to CAS at an issue price of 2.8 cents per share with
effect from 31 December 2011; and
c. transactions costs amounting to R500 000 pertaining to the ASNW Early Settlement were
incurred and adjusted for against share premium.
4. The effects as reflected in column C on the loss per share, fully diluted loss per share, headline loss per
share and fully diluted headline loss per share are based on the following assumptions and information:
a. the Nedbank Conversion amounting to R6 million occurred on 1 July 2011 resulting in an
interest saving of R340 000 calculated at an interest rate of 11% as stipulated in the agreement.
This adjustment will have a continuing effect on the financial information of Alert Steel;
b. 241.286 million new Shares were issued to Nedbank at an issue price of 2.8 cents per share
with effect from 1 July 2011;and
c. no transactions costs pertaining to the Nedbank Conversion were incurred.
5. The effects as reflected in column C on the net asset value and tangible net asset value are based on the
following assumptions and information:
a. the Nedbank Conversion was effective 31 December 2011;
b. 241.286 million new Shares were issued to Nedbank at an issue price of 2.8 cents per share
with effect from 31 December 2011; and
c. no transactions costs pertaining to the Nedbank Conversion was incurred.
6. The effects as reflected in column D on the loss per share, fully diluted loss per share, headline loss per
share and fully diluted headline loss per share are based on the following assumptions and information:
a. the Odd-lot Offer was finalised on 1 July 2011 resulting in an interest expense of R2 000
calculated at an interest rate of 11%. This adjustment will have a continuing effect on the
financial information of Alert Steel;
b. 1.860 million Shares were repurchased at 2 cents per share with effect from 1 July 2011;and
c. no transactions costs pertaining to the Odd-lot offer were incurred.
7. The effects as reflected in column D on the net asset value and tangible net asset value are based on the
following assumptions and information:
a. the Odd-lot Offer was effective 31 December 2011;
b. 1.860 million Shares were repurchased at 2 cents per share with effect from 31 December
2011; and
c. no transactions costs pertaining to the Odd-lot Offer was incurred.
The table below sets out the unaudited pro forma financial effects of the Transactions and
the Share Consolidation for illustrative purposes only on the assumption that the Share
Consolidation took place at 1 July 2011 for purposes of the statement of comprehensive
income and at 31 December 2011 for purposes of the statement of financial position.
Column A Column B Column C Column D
Before the Pro forma Pro forma Pro forma Pro forma
Percentage
Transactions Adjustments Adjustments Adjustments after the
change
relating to the relating to the relating to the Transactions
ASNW Early Nedbank Odd-lot Offer
Settlement Conversion
After the consolidation:
Loss per share (cents) (199.61) 85.03 23.46 (0.21) (91.33) -
54.2%
Headline loss per share (cents) (200.93) 85.57 23.61 (0.21) (91.96) -
54.2%
Fully diluted loss per share
(cents) (197.97) 84.03 23.18 (0.21) (90.96) -
54.1%
Diluted headline loss per
share (cents) (199.27) 84.56 23.33 (0.21) (91.59) -
54.0%
Net asset value per share (cents) (62.96) 96.82 26.71 (0.24) 60.33 -
195.8%
Net tangible asset value per
share (cents) (95.40) 105.97 29.23 (0.26) 39.55 -
141.5%
Weighted average number of
shares in issue (000) 9 154 7 768 2 143 (19.00) 19 046
108.1%
Fully diluted weighted
average number of shares in
issue (000) 9 230 7 768 2 143 (19.00) 19 122
107.2%
Number of shares in issue (000) 17 636 7 768 2 143 (19.00) 27 528
56.1%
Notes:
1. The information as reflected in Colum A has been extracted from the Company's published reviewed
consolidated results for the six months ended 31 December 2011 and adjusted for the Share
Consolidation.
2. The information as reflected in Colum B, C and D have been adjusted for the assumptions detailed
above and on the assumption that the Share Consolidation had already occurred.
7. CIRCULAR TO SHAREHOLDERS
A circular setting out the information pertaining to the Transactions and the Share
Consolidation and enclosing, inter alia, a notice of general meeting was posted to
Shareholders on Tuesday, 2 October 2012.
8. GENERAL MEETING
Notice is hereby given that a general meeting of Shareholders will be held at the corner of
Engelbrecht and Lanham Streets, East Lynne, Pretoria at 10:00 on Wednesday,
31 October 2012, for purposes of obtaining the necessary approvals to give effect to the
Transactions and the Share Consolidation ("the General Meeting"). The salient dates and
times pertaining to the General Meeting are set out below:
2012
Last day to trade to be on the Register to be able to participate and Friday, 12 October
vote at the General Meeting
Record date to be able to participate and vote at the General Friday, 19 October
Meeting
Last day to lodge Forms of Proxy for the General Meeting By 10:00 on Monday,
29 October, or they
may be handed to
the Chairman of the
General Meeting at
any time prior to the
commencement of
voting on the
Resolutions tabled at
the General Meeting
as contemplated by
the Act
General Meeting of Shareholders to be held at 10:00 on Wednesday, 31 October
Results of General Meeting released on SENS on Wednesday, 31 October
Notes:
1. All times given are South African local times.
Pretoria
2 October 2012
Designated Advisor
QuestCo (Pty) Limited
Legal adviser
Prinsloo, Tindle & Andropoulos Inc.
Indepedent Expert
BDO Corporate Finance (Pty) Limited
Independent Reporting Accountants
KPMG Inc.
Date: 03/10/2012 12:51:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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