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Disposal by Esorfranki of the business carried on by Esorfranki Construction - under Esorfranki Geotechnical
ESORFRANKI LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1994/000732/06)
JSE code: ESR
ISIN: ZAE000133369
(“Esorfranki” or “the Company”)
DISPOSAL BY ESORFRANKI OF THE BUSINESS CARRIED ON BY ITS WHOLLY-OWNED
SUBSIDIARY, ESORFRANKI CONSTRUCTION PROPRIETARY LIMITED AND CERTAIN OF ITS
SUBSIDIARIES, UNDER THE NAME AND STYLE OF ESORFRANKI GEOTECHNICAL, TO
KELLER HOLDINGS LIMITED, PROPOSED CHANGE OF NAME AND WITHDRAWAL OF THE
CAUTIONARY ANNOUNCEMENT
THE TRANSACTION:
1. INTRODUCTION
Further to the cautionary announcements, dated 6 August 2013 and 20 September 2013,
shareholders are advised that Esorfranki has entered into a Sale Agreement, dated 8 October
2013, between Keller Holdings Limited (“Keller”), Esorfranki Construction Proprietary Limited
(“Esorfranki Construction”), Esor Africa Proprietary Limited and Business Venture
Investments No 1592 (“Sale Agreement”) in terms of which Keller Holdings (“the Purchaser”)
will acquire the business carried on by Esorfranki Geotechnical for a cash consideration of
R500 million (“the Transaction”).
2. BACKGROUND INFORMATION
2.1 Information relating to Keller
Keller is a limited liability company registered in England and Wales and a wholly-owned
subsidiary of Keller Group plc whose securities are listed on the London Stock Exchange.
The Keller Group is the world’s largest independent ground engineering specialist, renowned
for providing technically advanced and cost-effective foundation solutions. Its services are
used across the construction sector in infrastructure, industrial, commercial, residential and
environmental projects.
2.2 Information relating to Esorfranki Geotechnical
The sale of Esorfranki Geotechnical encompasses the sale of the business conducted by
Esorfranki Construction (“the SA Business”) as well as the sale of the shares of 10 of its
subsidiaries (“the Sale Subsidiaries”) and the sale of the business conducted by Esorfranki
Construction in Angola and Frankipile Mauritius International Limited in the Indian Ocean
Islands.
Esorfranki Geotechnical is the largest geotechnical contractor in South Africa and well-
established in the Southern African region.
2.3 Features of the Sale Agreement
The Sale Agreement does not contain any warranties that are unusual in respect of a
transaction of this nature.
In terms of the Sale Agreement, Esorfranki and Esorfranki Construction have agreed to
change their respective names so as not to include the word “Franki” and have undertaken to
rename and rebrand their remaining businesses to exclude this word in combination with any
other name.
Both Esorfranki and Esorfranki Construction are subject to a 60 month restraint of trade in
respect of any business services currently rendered by Esorfranki Construction –
Geotechnical division and/or the Sale Subsidiaries as well as the supply of any goods or
products by those entities which are similar to or sold in competition to the goods and
products sold by the Purchaser excluding pipe, culvert and bridge jacking. These restraints
apply to various territories as set out in the Sale Agreement.
3. EFFECTIVE DATE
The effective date of the Transaction will be the date which is 3 business days after the day
on which the last of the conditions precedent (refer paragraph 6 below) are fulfilled or waived.
4. RATIONALE FOR THE TRANSACTION
The Geotechnical market in South Africa, and Esorfranki’s share of that market, has been
relatively flat over the last number of years. Esorfranki has been exploring ways to increase
the market share as well as the geographical footprint and an association with the Keller
Group, the world's largest independent ground engineering specialist, renowned for providing
technically advanced and cost-effective foundation solutions, positions the Geotechnical
business to grow and realise its true potential.
Given the opportunity and the purchase consideration, the board considered it to be in the
best interest of shareholders to enter into the Sale Agreement.
Esorfranki’s strategy is to maintain growth in the existing construction area of Pipelines, with
further expansion into selective African countries where it will have a competitive advantage
as well as the Developments division where it anticipates further growth in the social housing
market in particular. The Civils division is being right-sized to take advantage of the
anticipated Government Growth initiatives and is currently well-placed for work at Kusile
Power Station and Integrated Housing projects.
5. PURCHASE CONSIDERATION
The purchase consideration is R500 million, payable in cash on the Effective Date.
The purchase consideration is subject to adjustments in terms of formulae contained in the
Sale Agreement but which in aggregate will not exceed an additional payment of R150 million,
payable based on the results of the 3-year period on which this contingent consideration
payment is based.
6. CONDITIONS PRECEDENT
The Transaction is subject, inter alia, to:
. the approval thereof by Esorfranki shareholders; and
. the necessary approval being obtained from the Financial Services Commission of
Mauritius.
7. FINANCIAL EFFECTS OF THE TRANSACTION
The pro forma financial effects of the Transaction, for which the directors are responsible, are
provided for illustrative purposes only to show the effect of the Transaction on earnings,
headline earnings, diluted earnings and diluted headline earnings as if the Transaction had
taken effect on 1 March 2012 and on net asset value and net tangible asset value per share
as if the Transaction had taken effect on 28 February 2013. Because of their nature, the pro
forma financial effects may not give a fair presentation of Esorfranki’s financial position and
performance subsequent to the Transaction. The pro forma financial effects of the
Transaction are presented in a manner consistent with the format and accounting policies
adopted by Esorfranki and and have been adjusted as described in the notes below:
Audited Pro forma
Before the After the %
Transaction Transaction Change
Basic and diluted earnings per share (cents)
23.5 30.7 30.7%
Headline and diluted headline earnings per
share (cents) 20.5 11.8 (42.4%)
Net asset value per share (cents) 280.3 298.0 6.3%
Tangible net asset value per share (cents) 205.2 246.3 20.0%
Weighted average and diluted average
number of shares in issue (000’s) 375 289 375 289
Actual number of shares in issue (000’s) 395 185 395 185
Proposed special dividend per share (cents)
- 38.0 100%
Net asset value per share (cents) after 280.3 260.0 (7.2%)
proposed special dividend
Tangible net asset value per share (cents)
after proposed special dividend 205.2 208.3 1.5%
Notes:
1. The financial information set out in the “Before the Transaction” column has been
extracted, without adjustment from the published, audited results of Esorfranki for the
year ended 28 February 2013.
2. The “Pro forma After the Transaction” column incorporates the effects of the Transaction
as follows:
2.1 The profit on disposal has been calculated as the difference between the
sale proceeds of R500 million and the carrying value of net assets sold.
Proceeds have been adjusted for management’s best estimate of the
discounted contingent consideration of R59 million and further adjusted for
debt and net working capital.
2.2 Goodwill attributable to the acquisition of Franki will be impaired immediately
following the Transaction.
2.3 Cash proceeds of R500 million will be used for payment of transaction costs
of R875 000, taxation of R60 million, settlement of debt, including the
Domestic Medium Term Note Program Asset finance and overdrafts totalling
R285 million and the proposed special dividend of R150 million.
2.4 Finance costs have been reduced due to applying a portion of the proceeds
of the sale consideration to the settlement of the Domestic Medium Term
Note Program. This has been calculated based on the rates applicable to the
different pricing supplements.
2.5 The Taxation expense comprises the recoupment on disposal of South
African, Angolan and Mauritian assets, interest saving and interest income
and is taxed at tax rates in the jurisdiction where the gain is made. There is
no taxation effect on the disposal of shares in foreign subsidiaries.
3. The basic earnings per share and basic headline earnings per share figures are
calculated based on a weighted average number of 375 288 905 shares in issue at 28
February 2013.
4. The diluted earnings per share and diluted headline earnings per share figures are
calculated based on a weighted average number of 375 288 905 shares in issue at 28
February 2013.
5. Net Asset Value per share and Tangible Net Asset Value per share are calculated based
on 375 703 084 shares in issue at 28 February 2013.
8. APPLICATION OF THE SALE PROCEEDS
The net proceeds of the purchase consideration will be applied towards:
Repayment of the Domestic Medium Term Note Programme R210 million
Repayment of secured borrowings relating to the Geotechnical business R40 million
unit
Taxation payable on the proceeds from the Transaction R60 million
Proposed special dividend to shareholders R150 million
Expansion of working capital for the remaining business units R40 million
9. CLASSIFICATION OF THE TRANSACTION AND CIRCULAR TO SHAREHOLDERS
The Transaction is classified as a Category 1 disposal in terms of the Listing Requirements of
the JSE Limited (“JSE”). Accordingly a circular prepared in terms of the Listings Requirements
of the JSE, containing a notice of general meeting of shareholders, will be dispatched to
shareholders on or about 22 October 2013.
THE CHANGE OF NAME:
In terms of the Sale Agreement, Esorfranki will in future not be able to use the name “Franki” and
accordingly the directors propose that the company revert to its original listed name of Esor Limited.
The salient dates relating to this change of name will be announced in due course.
WITHDRAWAL OF THE CAUTIONARY ANNOUNCEMENT:
Having regard to the information set out above, the cautionary announcement is hereby withdrawn.
Germiston
9 October 2013
Sponsor
Vunani Corporate Finance
Corporate Adviser
Reign Capital
Independent reporting accountants
KPMG Inc
Date: 09/10/2013 08:51:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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