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Acquisition of W.M. shipping limited and withdrawal of cautionary announcement
SANTOVA LIMITED
(Registration Number: 1998/018118/06)
("Santova")
Share Code: SNV
ISIN: ZAE000159711
ACQUISITION OF W.M. SHIPPING LIMITED AND WITHDRAWAL OF CAUTIONARY
ANNOUNCEMENT
INTRODUCTION
Further to the cautionary announcement published on SENS on 31
August 2012 and renewed on 12 October 2012, River Group is
authorised to announce that, subject to the conditions precedent set
out below, Santova has acquired 100% of W.M. Shipping Limited
(“WMS”) from Andrew Fletcher and Pamela Fletcher (“the Sellers”) for
an amount of GBP4,500,000 with effect 01 September 2012.
THE ACQUISITION OF W.M. SHIPPING LIMITED ("the Transaction")
WMS is a company incorporated and registered in accordance with the
laws of England and Wales, which operates as a freight forwarder,
line agent and non-vessel operating container carrier from
Birmingham, West Midlands, United Kingdom.
BACKGROUND AND RATIONALE
Santova’s strategy is to develop further its international
presence by acquiring well-established logistics businesses in the
United Kingdom and Europe. The acquisition of WMS will enhance
further the Group’s current capability in the United Kingdom,
which currently constitutes two offices at Heathrow and Essex
servicing primarily air and sea freight shipments from South
Africa to the United Kingdom. With this acquisition Santova gains
a strategic presence in the Midlands and surrounding areas, from
which the majority of British based industrial businesses
manufacture and export to the rest of the world.
WMS was established in 1989 and arranges the shipping of cargo for
a wide variety of United Kingdom based clients. The company
primarily offers deep-sea routes between the United Kingdom and
the Middle East, Caribbean, Far East and Africa and has an
enviable relationship with clients and shipping lines alike.
WMS offers Santova the opportunity to:
• Participate in the supply chain logistics of these Midlands based
businesses on routes not currently serviced by existing Santova
offices;
• Access a quality client base generating long-term repeat business;
• Invest in a company with significant growth opportunities, whilst
generating good cash flows;
• Utilise its valuable experience and expertise, particularly in
ship chartering, throughout all the other Santova Group
operations;
• Gain a well-respected, reputable brand capable of generating new
leads and new business without reliance on agents; and
• Obtain access to favourable facilities and terms with the various
shipping lines, which are not normally available to the market in
general.
All of the above will result in the immediate growth in the earnings
and capability of the Santova Group as a whole.
SETTLEMENT OF PURCHASE PRICE
On fulfillment of the conditions precedent, Santova will settle the
purchase price out of internally generated cash flows, in cash as
follows:
• GBP3,700,000 increased or decreased by the Cash Differential
on the third business day after all the conditions precedent
have been met;
• GBP400,000 in cash within 60 days of 31 August 2013 subject to
the net profit before tax for the period 1 September 2012 to
31 August 2013 exceeding GBP750,000; and
• GBP400,000 in cash within 60 days of 31 August 2014 subject to
the net profit before tax for the period 1 September 2013 to
31 August 2014 exceeding GBP750,000.
The Cash Differential is the difference between actual cash on hand
at the time of fulfillment of the conditions precedent and the
amount of GBP1,397,882.
In the event that the net profit before tax is less than the
warranted amount of GBP750,000 during either of the 2 specified
periods, then the second and third payments detailed above will be
reduced by GBP1 for every GBP1 that the net profit before tax is
below the warranted amount.
In addition:
• Should the combined profit before tax for the two warranty
periods exceed GBP1,500,000 then the payment to the Sellers
will be increased with a fourth payment of 15.8% of so much of
the net profit before tax as exceeds GBP1,500,000; and
• If the combined profit before tax for the two warranty periods
exceeds GBP1,700,000 and WMS meets certain other additional
conditions, the Sellers will receive an additional once off
purchase price payment of GBP406,989. This event will also
result in the threshold for the additional 15.8% fourth
payment as detailed above, increasing to GBP1,700,000 from
GBP1,500,000.
Both these additional amounts are payable within 60 days after 31
August 2014.
CONDITIONS PRECEDENT
The Transaction is subject, inter alia, to the fulfillment of the
following conditions precedent:
• The shareholders of Santova approving the proposed acquisition
of WMS in terms of the concluded sale agreement;
• WMS entering into an executive service agreement for a period of
not less than 2 years after the completion date of the
acquisition, which contains confidentiality and two year
restraint of trade provisions with Andrew Fletcher and one
other strategic employee; and
• Santova obtaining the approval for the proposed acquisition
from the JSE and the South African Reserve Bank.
FINANCIAL EFFECTS
The table below sets out the pro forma financial effects of the
above transaction, based on Santova`s unaudited interim results for
the six months ended 31 August 2012. The financial effects are
presented for illustrative purposes only and because of their nature
may not give a fair reflection of the Group`s results, financial
position and changes in equity after the transaction. It has been
assumed for the purposes of the pro forma financial effects that the
above transaction took place as at 31 August 2012 for the statement
of financial position and for the period 1 March 2012 to 31 August
2012 for the statement of comprehensive income. The directors of
Santova are responsible for the preparation of the financial
effects:
1 2 3 4
Before Acquisition Pro Forma Percentage
Acquisition of WM After Change
Unaudited Shipping 6 Acquisition
six months months to Unaudited
to 31 August 31 August six months
2012 2012 to 31
August 2012
Weighted average 136,987 - 136,987 0%
number of shares
(000’s shares)
Shares for net 136,459 - 136,459 0%
asset value
calculation
(000’s shares)
Basic earnings per 8.12 2.98 11.10 37%
share (cents)
Basic headline 7.61 2.98 10.59 39%
earnings per
share (cents)
Net asset value 100.16 - 100.16 0%
per share
(cents)
Tangible net 55.44 (29.25) 26.19 (53%)
asset value
per share (cents)
Column notes:
1. This column represents the "before" financial information, which has
been extracted, without adjustment, from the published unaudited
abridged group results of Santova for the six months ended 31 August
2012.
2. This column reflects the effects of the acquisition of WMS. The
information has been extracted, from the audited annual financial
statements of WMS for the year ended 31 March 2012.
3. This column reflects the "after" financial information, including the
effects of the acquisition of WMS by Santova.
4. This column reflects the percentage change that the above transaction
has on the performance per ordinary share of Santova.
The assumptions used above are:
- Historical earnings remain constant;
- All income statement amounts have been converted at the average exchange
rate for the six month period and all balance sheet amounts at the
closing exchange rate, both of which agree to the rates used to convert
GBP amounts in the published Santova Group Interim Results as at 31
August;
- The initial purchase price payment due upon completion in terms of the
sale agreement has been included as having been paid in cash, converted
at the closing exchange rate applicable to the published Santova Group
Interim Results as at 31 August; and
- The two warranty payments have been present valued and reflected as
financial liabilities.
CATEGORISATION AND OTHER JSE REQUIREMENTS
This transaction is a category 1 transaction as defined by the JSE
Listings Requirements and will require shareholder approval at a
General Meeting. The circular to shareholders is being prepared and
will be dispatched to shareholders in due course.
WITHDRAWAL OF CAUTIONARY
Shareholders are referred to the cautionary announcement dated 12
October 2012, and are advised that caution is no longer required to
be exercised by shareholders when dealing in their securities.
23 November 2012
Durban
Sponsor and Corporate Advisor
River Group
Date: 23/11/2012 03:41:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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