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TORRE INDUSTRIAL HOLDINGS LIMITED - Terms re acquisition of TGS Group, private placement, odd-lot offer, specific offer, withdrawal of cautionary

Release Date: 05/04/2013 17:38
Code(s): TOR     PDF:  
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Terms re acquisition of TGS Group, private placement, odd-lot offer, specific offer, withdrawal of cautionary

TORRE INDUSTRIAL HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number: 2012/144604/06)
Share code: TOR
ISIN: ZAE000169322
(“Torre” or “the Company”)

TERMS REGARDING THE ACQUISITION OF THE TGS GROUP, A PRIVATE
PLACEMENT OF SHARES, AN ODD-LOT OFFER, SPECIFIC OFFER AND
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT

Torre, which listed on the Alternative Exchange (“AltX”)
during November 2012, has two wholly-owned subsidiaries namely
SA French Limited (“SA French”), a sales and rental business
focussed on heavy lifting solutions, and Forktech (Pty) Ltd
(“Forktech”), a Cape Town based company engaged in forklift
rentals, sales and repairs.

For purposes of this announcement, Torre, SA French and
Forktech, are collectively referred to as the “Torre Group”.

Torre’s strategy is to build a diversified portfolio of
quality businesses in the plant and equipment, engineering
services and trade and asset finance sectors via both
acquisitive and organic growth. To this end, the Company is
pleased to announce the details of its first acquisition since
listing on the AltX.

ACQUISITION

INTRODUCTION
Further to the cautionary announcement published on SENS on 25
February 2013, the Company is pleased to announce that Torre
has entered into an acquisition agreement with Mateba
(“Mateba” or the “Seller”), Tractor and Grader Supplies (Pty)
Ltd (“TGS”), Tractor and Grader Supplies Swaziland (Pty) Ltd
(“TGS Swaziland”), Tsindi Investments No 15 (Pty) Ltd
(“Tsindi”), Barry Cunningham (“Cunningham”) and Mark Raymond
Scott (“Scott”) on 5 April 2013 (the “Acquisition Agreement”).

In terms of the Acquisition Agreement Torre will, subject to
the fulfilment of the conditions precedent thereto, acquire
from the Seller 100% of the shares in and claims against TGS
(save for the Mateba Claim referred to below), 100% of the
shares in and claims against Tsindi, 50% of the shares in and
claims against TGS Swaziland, and (indirectly through the
acquisition of TGS) 50% of the shares in and claims against
Tractor   and   Grader   Supplies  (Private)   Limited   ("TGS
Zimbabwe"), 75% of the shares in and claims against Tractor
and Grader Supplies Copperbelt Limited (Zambia) ("TGS Zambia")
(collectively, such shares and claims are referred in this
announcement as the “Sale Equity”)(the “Acquisition”) with
effect from the last day of the month immediately preceding
the closing of the Acquisition Agreement ("Effective Date").

None of the parties to the Acquisition Agreement are related
to Torre.

For purposes of this announcement, TGS, Tsindi, TGS Swaziland,
TGS Zambia and TGS Zimbabwe, are collectively referred to as
the “TGS Group”.

NATURE OF THE BUSINESS OF THE TGS GROUP
The TGS Group was established in 1994 in Kempton Park and has
served the aftermarket earthmoving industry for over 15 years.
It specializes in repair parts and components for Mining and
Construction   earthmoving   equipment,   including  wear   and
undercarriage solutions. The TGS Group has a Rebuild Centre
which is fully equipped for complete machine rebuilds and
component repairs and has several strategically positioned
branches   in  Southern   Africa   and  boasts   ISO  9001:2008
certification.

RATIONALE FOR THE ACQUISITION
The rationale for the Acquisition is as follows:

• Provides immediate scale and earnings power for Torre;
• Consistent with Torre’s strategy of building a diversified
  portfolio of quality industrial business via both acquisitive
  and organic growth;
• Significantly earnings accretive from day 1;
• Results in a more defensive bias in the Torre portfolio; and
• Provides the platform for a distribution network for Torre.

SALIENT TERMS OF THE ACQUISITION
Torre will purchase from Mateba the Sale Equity for a sum of
R55 090 909 (“Closing Consideration”) and the Earn-out
Consideration, determined as set out below (collectively the
“Purchase Consideration”).

The Closing Consideration will be settled by way of payment of
an amount R50 600 000 in cash (“Closing Cash Consideration”)
and the issue of 4 082 645 Torre shares at an issue price of
R1.10 per share (“Closing Consideration Shares”).

The Earn-out Consideration (subject to a maximum     aggregate
amount of R 64 909 091) comprises:

  the First Earn-out Consideration (defined below), payable
  after the expiry of the period commencing on the effective
  date of the Acquisition and ending on the later of 30 June
  2014 or the first anniversary of the closing date of the
  Acquisition (“First Earn-out Period”); and

  the Second Earn-out Consideration (defined below), payable
  after the expiry of the period commencing at the end of the
  First Earn-out Period and ending on 12 months thereafter
  (“Second Earn-out Period”), and

will be determined and payable as follows:

  In respect of the First Earn-out Period:

  - If the audited headline earnings before tax of the TGS
     Divisions (being those business divisions and assets of
     the TGS Group which constitute divisions and assets of
     Torre after the implementation of the Acquisition)
     (“Actual PBT”) equals or exceeds R19 360 000 ("First
     Target PBT"), an amount equal to R22 954 545 multiplied
     by the ratio of Actual PBT to the First Target PBT will
     be payable to the Seller on expiry of the First Earn-Out
     Period.

  - If the Actual PBT is less than the First Target PBT, an
     amount equal to the difference between (i) R22 954 545
     multiplied by the ratio of Actual PBT to Target PBT, and
     (ii) two times the ratio of Actual PBT to the First
     Target PBT will be payable to the Seller on expiry of
     the First Earn-Out Period,

  (the “First Earn-out Consideration”).

  In respect of the Second Earn-out Period:

   - If the Actual PBT equals or exceeds R21 296 000 ("Second
     Target PBT"), an amount equal to R22 954 545 multiplied
     by the Actual PBT divided by the Second Target PBT will
     be payable to the Seller on expiry of the Second Earn-
     Out Period.

  - If the Actual PBT is less than the Second Target PBT for
     the Second Earn-out Period, an amount equal to the
     difference between i) R22 954 545 multiplied by the
     ratio of Actual PBT to Target PBT, and (ii) two times
     the ratio of Actual PBT to the Second Target PBT will be
     payable to the Seller on expiry of the Second Earn-Out
     Period,

  (the “Second Earn-out Consideration”).

The First and Second Earn-Out Consideration shall be settled
as follows:

  in cash to the extent that such cash payment will result in
  the aggregate of the Closing Consideration and the Earn-out
  Consideration paid to be equal to 60% of the total Purchase
  Consideration paid; and

  as to the balance, by way of the allotment and issue to the
  Seller of such number of Torre shares as is equal to 40% of
  total Purchase Consideration paid to-date value at the 30-
  day VWAP as at the trading day immediately preceding the
  last day of the relevant Earn-out Period (“Earn-out
  Consideration Shares”), less any shares to be issued
  directly to the seller's adviser as part of the Earn-out
  Consideration,

provided that:

  the maximum cash amount in respect of each of the First and
  the Second Earn-out Consideration shall be an amount of
  R5 000 000; or

  should the total Purchase Consideration be more than the
  Closing Purchase Consideration but less than R84 500 000,

then the balance of the total Earn-out Consideration owing in
either instance shall therefore be settled by the issue of
Torre shares at the 30-day VWAP as at the trading day
immediately preceding the last day of the relevant First Earn-
out Period or Second Earn-out Period.

MATEBA CLAIM
TGS declared a dividend in an amount of R7 100 000 to Mateba
before the entering into of the Acquisition Agreement, which
dividend has been credited as a shareholder loan claim of
Mateba against TGS. Pursuant to the conclusion of the
Acquisition Agreement Mateba will also have a claim of
R255,581 against TGS on the closing date (collectively, such
shareholder loan claims are referred to herein as the "Mateba
Claim").

In terms of the Acquisition Agreement, the Mateba Claim shall
be repayable by 28 February 2014.

The Mateba Claim shall be reduced if and to the extent that
TGS fails to achieve certain warranted earnings, working
capital and net asset values as at the Effective Date of the
Acquisition.
WARRANTIES, ARRANGEMENTS AND UNDERTAKINGS IN RELATION TO THE
ACQUISITION
The warranties given in respect of the Acquisition are as
detailed in the Acquisition Agreement and are usual for a
transaction of this nature.

Employment agreements will be signed with the two key
executives of Mateba, namely Cunningham and Scott (“Key
Executives”). These individuals bring a wealth of experience,
industry expertise and enthusiasm to Torre and will be a
valuable addition to the senior management team of the Company
going forward.

In addition, Mateba will enter into an agreement whereby it
undertakes not to sell any Closing Consideration Shares or
Earn-out Consideration Shares for a period of 1 year from the
closing date of the Acquisition and any of the First Earn-out
Consideration Shares for a period of 1 year from the date of
issue thereof.

To the extent that any warranty claim is finally resolved in
favour of Torre during the Earn-out Period, a relevant portion
of the Earn-out Shares will be transferred by the Seller back
to Torre.

CONDITIONS PRECEDENT OF THE ACQUISITION
The following conditions are required to be met by no later
than 31 May 2013:

1.   Torre has approved the disclosure schedule provided by the
     Seller in respect of the warranties provided under the
     Acquisition Agreement;
2.   Approval from Mateba shareholders of all such resolutions
     as may be required in terms of section 112 read with
     section 115 of the Companies Act to approve and implement
     the Acquisition;
3.   Torre board of directors approve the Acquisition;
4.   Torre confirming that it is satisfied with the results of
     its due diligence investigation in respect of the TGS
     Group;
5.   Torre enters into an assignment and service level
     agreement with Symbioses, the developer of the stock
     management system used by the TGS Group in the operation
     of its business;
6.   Torre enters into lease agreements with each of the
     counterparties to the leases in respect of the TGS Group's
     leased property;
7.   Torre obtains, to the extent necessary, consent from each
     of the counterparties to the material contracts in
     relation to the businesses of the TGS Group;
8.   the Seller prepares and resubmits amended annual tax
      returns for 2011 and 2012 for the TGS Group and submits
      annual tax returns for 2013 for the TGS Group;
9.    the shareholders of each of TGS Swaziland, TGS Zambia and
      TGS Zimbabwe provide their consent to the Acquisition and
      waive any pre-emptive or similar rights which they may
      have arising from the Acquisition and the Restructure;
10.   Torre enters into employment agreements with each of the
      Key Executives;
11.   the Seller and its adviser to which shares are to be
      issued in terms of Acquisition Agreement agree not to
      dispose of (i) any of the Closing Consideration Shares for
      a period of 1 year after the Closing Date and (ii) any of
      the First Earn-Out Consideration Shares for a period of 1
      year after the date of issue thereof, and grant AfrAsia
      Corporate Finance a pre-emptive right on the sale of the
      Closing Consideration Shares and First Earn-out Shares for
      the duration of the above lock-in period;
12.   Terence Cunningham assigns his loan claims against TGS to
      Mateba;
13.   all claims of TGS against affiliates of the Warrantors
      being distributed in specie to Mateba; and
14.   the Seller delivers a complete list of TGS employees to
      the Purchaser.

In addition, by no later than 28 June 2013, the following
conditions are required to be fulfilled in order to implement
the Acquisition:

1.    Approval of the Acquisition from the JSE Limited and the
      Takeover Regulation Panel (if required);
2.    Torre shareholder approval of all resolutions required to
      implement the Acquisition;
3.    Torre confirms that it has obtained sufficient funding for
      the payment of the Closing Cash Consideration;
4.    Torre concludes a restructuring agreement in terms of
      which it restructures its holding of the TGS Group within
      the Torre Group;
5.    Torre concludes shareholders agreements in respect of TGS
      Swaziland, TGS Zimbabwe and TGS Zambia; and
6.    Torre approves the unaudited financial statements of the
      TGS Group in respect of the period from 1 March 2013 up to
      and   including  the   Effective   Date  (“Effective  Date
      Accounts”).

CATEGORISATION OF THE ACQUISITION
The Acquisition is categorised as a Category 1 acquisition in
terms of the JSE Listings Requirements and will be subject to
the approval of Torre shareholders by way of an ordinary
resolution and accordingly a circular to shareholders will be
required.
In addition, given that the maximum possible number of shares
to be issued as Closing Consideration Shares and Earn-out
Consideration Shares will exceed 30%, the issue of the
Consideration Shares will also require the approval of
shareholders by way of a special resolution.

PRIVATE PLACEMENT
In order to facilitate the payment of the Closing Cash
Consideration and to provide balance sheet capacity to Torre,
Torre intends to raise capital by way of a private placement
(the “Private Placement”).

Torre intends to raise a maximum of R80 000 000 equity funding
by way of a private placement of 72 727 272 new Torre shares
at an issue price of R1.10 per share to pre-identified
investors.

The Private Placement is not an offer to the public as
contemplated   in  the   Companies  Act  and   accordingly  no
prospectus will be issued or registered in respect thereof.
The details of the Private Placement will be contained in the
circular and revised listing particulars to be posted to Torre
shareholders in due course.

The investors include a combination of existing shareholders
and new investors.

To the extent that any identified investor is deemed non-
public in terms of the JSE Listings Requirements, required
disclosure and approvals will be detailed in the circular to
shareholders.

CONDITIONS PRECEDENT TO THE PRIVATE PLACEMENT
The Private Placement is subject to the following conditions
precedent being achieved:

  Torre entering into subscription agreements with the pre-
  identified investors;
  Approval from the JSE of the circular and revised listings
  particulars to shareholders;
  Torre shareholder approval of the Acquisition;
  Torre shareholder approval of the special resolutions
  required (to the extent applicable and required) in terms of
  section 41(1) and (3) of the Companies Act to the extent
  required; and
  The listing of the Private Placement shares by the JSE.

CATEGORISATION OF THE PRIVATE PLACEMENT
The Private Placement is deemed a specific issue of shares for
cash in terms of the JSE Listings Requirements. This issue of
shares will require Torre shareholder approval. To the extent
that the pre-identified investors are deemed related parties
as defined in the JSE Listings Requirements, a fairness
opinion will likely not be required as the issue price for
these shares will not be at a discount to the 30-day VWAP.

The number of shares to be issued in terms of the Private
Placement will exceed 50% of the issued share capital of Torre
and accordingly will require the incorporation of revised
listing particulars.

In addition, the number of shares in terms of the Private
Placement will also exceed 30% of the issued share capital of
Torre and will require the approval of shareholders by way of
a special resolution in terms of the Companies Act.

WAIVER OF A MANDATORY OFFER
At this stage, no investor has indicated that it would
subscribe for shares in excess of 35% of the issued share
capital of Torre, thereby triggering a mandatory offer. Should
this occur, then, to the extent required, a waiver for a
mandatory offer in terms of the Takeover Regulations will be
considered and the required announcements, disclosures and
approvals will be included in the circular to shareholders.

ODD-LOT OFFER AND SPECIFIC OFFER
In order to reduce the costs of administration connected with
a large number of small shareholders, the Torre Board has
proposed the implementation of an odd-lot offer and a specific
offer to facilitate a reduction in the number of small Torre
shareholders in an equitable manner.

Torre wishes to extend an odd-lot offer to shareholders
holding less than 100 Torre shares (“Odd-Lot Shareholders”),
amounting to a total of 25 shareholders, holding a total of 1
217 shares (which represent approximately 0.001% of the total
issued share capital of Torre) (the “Odd-Lot Offer”) and a
specific offer to Torre shareholders holding 100 or more Torre
shares but fewer than 2 001 Torre shares (“Specific Offer
Shareholders”), amounting to a total of 185 213 shares (which
represents 0.18% of the total issued share capital of Torre)
(“Specific Offer”). The Odd-Lot Offer and the Specific Offer
will be made at an offer price to be determined using the 5-
day VWAP of Torre shares traded on the JSE up to the close of
business of the day prior to this announcement plus a 2.5%
premium (the “Offer Price”).

The Odd-Lot Offer and the Specific Offer will provide for a
two-way election in terms of which the Odd-Lot Shareholders
and Specific Shareholders may:
  elect   to   retain   their   odd-lot   or   Specific   Offer
  shareholding; or

               elect to sell their odd-lot or Specific Offer
  shareholding.

The Odd-Lot Offer and Specific Offer will enable Odd-Lot
Shareholders and Specific Offer Shareholders who wish to
participate in the Odd-lot Offer and Specific Offer to dispose
of their shareholding in a cost-effective manner. Those who
choose to sell their Torre shares will be afforded the
opportunity of realising the maximum possible proceeds from
the sale of their shareholdings.

On completion of the Odd-Lot Offer and Specific Offer, the
Company intends to repurchase the shareholdings of the Odd-lot
Offer Shareholders and the Specific Offer Shareholders
amounting to a total of 186 430 Torre shares which will be
regarded as a specific repurchase of shares in terms of
section 48 of the Companies Act as well as in terms of the JSE
Listings Requirements. Shareholder approval of a special
resolution in this regard will be required.

The repurchase of shares in terms of the Odd-lot Offer and the
Specific Offer will be funded out of existing reserves of
Torre. As a result the purchase consideration payable to Torre
shareholders will constitute a dividend as defined in section
1 of the Income Tax Act, No. 58 of 1962. Dividends tax in
respect of the purchase consideration payable by Torre will be
applicable to those shareholders who are not exempt.

CATEGORISATION OF THE ODD-LOT OFFER AND THE SPECIFIC OFFER
By virtue of the Company implementing the Odd-Lot Offer and
the Specific Offer and repurchasing the odd-lot and specific
offer shareholdings, Torre shareholder approval of a specific
repurchase in terms of the JSE Listings Requirements will be
required. However, as the specific repurchase will not be from
any related party, even though the repurchase price is at a
slight premium to the 30-day VWAP, a fairness opinion will not
be required.

The details of and resolutions to approve the Odd-Lot Offer,
the Specific Offer and specific repurchase will be included in
the same circular to shareholders as the Acquisition and
Private Placement.

IRREVOCABLE UNDERTAKINGS
Torre intends to procure irrevocable undertakings from certain
of its shareholders to vote in favour of the resolutions in
relation to the Acquisition, Private Placement, Odd-Lot Offer
and   Specific  Offer.   The  detail   of  these   irrevocable
   undertakings will be included in the circular to shareholders
   to the extent that they are obtained.

   PRO FORMA FINANCIAL EFFECTS
   The unaudited pro forma financial effects of the Acquisition,
   Private   Placement,   Odd-Lot   Offer  and   Specific   Offer
   (collectively herein “the Transactions”) on Torre shareholders
   are the responsibility of the Torre directors and have been
   prepared for illustrative purposes only to provide information
   about how the Transactions may affect the financial position
   and results of Torre and, because of its nature, may not give
   a fair reflection of Torre’s financial position and results
   after the Transactions.

                                          After Odd-
                                  After    Lot Offer      After
                  Before the    Private          and     Acqui-    % change
                      Trans-     Place-     Specific     Sition
                   actions(1)   ment(2)     Offer(3)        (4)

Profit for the
                       59.00      1 075        1 075      6 098 10 235.71%
period (R’000)
Headline
earnings              -3 014     -1 998       -1 998      3 026    200.40%
(R’000)
Net asset
value per              86.49      92.67        92.44      93.32      7.89%
share (cents)
Net tangible
assets value
                       79.83      88.76        88.53      56.10    -29.73%
per share
(cents)
Basic earnings
per share               0.09       0.76         0.76       4.19     4 828%
(cents)
Headline
earnings per           -4.35      -1.41        -1.41       2.08     147.9%
share (cents)
Weighted and
actual number
of shares in
                  69 307 984 142 035 257 142 243 257 145 398 815
issue at the
end of the
period
Shares in
issue at the
                 103 681 389 176 408 662 176 616 662 179 772 220
end of the
period

   Notes and assumptions:
1. The amounts set out in the “Before the Transactions” column
   above have been extracted from the unaudited consolidated
   interim results of Torre for the six months ended 31
   December 2012.
2. The Private Placement is for an amount of R80 million in
   respect of 72 727 273 Torre shares issued at R1.10 each. The
   effect of the Private Placement is presented net of
   transaction fees of approximately R6.2 million. These costs
   have been capitalised.
3. The Odd-lot Offer takes into account a repurchase of 1 217
   shares (represented by 25 shareholders) by the Group to the
   value of R1 306. The Specific Offer takes into account a
   repurchase   of  185   213   shares   (represented   by   251
   shareholders) by the Group to the value of R206 929.
4. The Acquisition takes into account an initial cash outlay
   of R50 600 000, an issue of 4 082 645 Torres shares at R1.10
   per share and a contingent payment in respect of the Earn-
   out Consideration on the assumption that the targeted
   profits are achieved. The TGS financial information has been
   extracted   from   the  unaudited,   un-reviewed   management
   accounts for the six month period ended 28 February 2013. No
   fair value adjustments have been assumed as the TGS assets
   are deemed fairly valued.
5. It has been assumed that the Transactions had been
   implemented on 31 December 2012 for purposes of compiling
   the statement of financial position and on 1 July 2012 for
   purposes of compiling the statement of comprehensive income.
6. It has been assumed that a portion of the proceeds from the
   Private Placement are utilised to settle debt resulting in
   an interest saving at the prime lending rate.
7. Tax consequences in relation to the Transactions have been
   taken into account.
8. All adjustments, other than transaction fees, will have a
   continuing effect.

FURTHER DOCUMENTATION AND SALIENT DATES
A circular to shareholders incorporating the terms of the
Transactions, revised listing particulars and a notice of
general meeting will be submitted to the JSE for approval in
due course.

The Company will keep shareholders informed of progress made,
the expected date of posting of the above-mentioned circular
and the salient dates in terms of the Transactions detailed in
this announcement.

WITHDRAWAL OF CAUTIONARY
Given that the full terms including pro forma financial
effects of the Transactions have been disclosed above, the
cautionary announcement is accordingly withdrawn.
Johannesburg
5 April 2013

Directors
PJ van Zyl (Chairman)*, CE Pettit (Chief Executive Officer),
SR Midlane (Financial Director), QCA van Breda (Business
Development & Technical Director), S Swana#^, JWLM Fizelle#,
CWJ Lyons#, Alan Keschner#
*Non-executive
^Lead independent director
#Independent, non-executive

Company secretary
Neil Esterhuysen & Associates Inc

Registered office
Office 202, Cape Quarter, The Square, 27 Somerset Road, Green
Point, Cape Town, South Africa

Corporate Adviser to Torre
AfrAsia Corporate Finance (Pty) Limited

Designated Adviser
PSG Capital (Pty) Limited

Attorneys to Torre
Cliffe Dekker Hofmeyr Inc

Adviser to Mateba
Grant Thornton

Attorneys to Mateba
Bernadt Vukic Potash & Getz

Transfer secretaries
Link Market Services South Africa (Pty) Limited

Date: 05/04/2013 05:38:00 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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