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Category 1 disposal by Andulela of Pro Roof, a related party, a specific repurchase and withdrawal of cautionary
ANDULELA INVESTMENT HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1950/037061/06)
JSE share code: AND ISIN: ZAE000172870
(“Andulela” or “the company”)
CATEGORY 1 DISPOSAL BY ANDULELA OF ITS WHOLLY OWNED SUBSIDIARY PRO-ROOF
STEEL MERCHANTS PROPRIETARY LIMITED (“PRSM”) TO A RELATED PARTY, A
SPECIFIC REPURCHASE OF ANDULELA SHARES AND WITHDRAWAL OF CAUTIONARY
ANNOUNCEMENT
1. INTRODUCTION
Andulela shareholders are referred to the cautionary announcement dated 18 September 2013 and the
renewal of cautionary announcement dated 30 October 2013 and are advised that Andulela has
concluded an agreement with Steelmin Investment Holdings Proprietary Limited (“Steelmin”) and
The Rafik Mohamed Family Trust (“RM Family Trust”) (collectively, “the purchasers”) dated 3
December 2013 (the “disposal agreement”), in terms of which, inter alia:
- with effect from the effective date, as defined below, Andulela, as the seller, will sell to the
purchasers, which will purchase, all of the issued shares of PRSM (the “sold shares”), a major
and wholly owned subsidiary of Andulela, for an aggregate purchase price of R104 732 829.50
(the “purchase price”) in the following proportions:
o 46.08% of the sold shares to the RM Family Trust; and
o 53.92% of the sold shares to Steelmin;
- the purchasers will settle the purchase price by delivering to Andulela in aggregate 16 112 743
Andulela ordinary shares (the “consideration shares”) whereafter the consideration shares will
be repurchased and cancelled by the company in terms of section 48 of the Companies Act, 2008
(“Companies Act”) and paragraph 5.69 of the JSE Listings Requirements,
(the “transaction”).
Rafik Mohamed is currently the sole director of PRSM.
Each of Steelmin and the RM Family Trust as well as Newshelf 1005 Proprietary Limited, Andulela’s
controlling shareholder, is an associate of Mr Mohamed and accordingly the transaction is regarded as
a large related party transaction in terms of section 10 of the JSE Listings Requirements and as such is
conditional upon the approval of a simple majority of Andulela shareholders being obtained therefor
(other than Mr Mohamed and his associates and any other shareholder excluded from voting in respect
of such resolution in terms of the JSE Listings Requirements).
In addition, since the purchase price is to be settled by the delivery by the purchasers to Andulela of
the consideration shares (the “buy-back”), the JSE Listings Requirements pertaining to a specific
repurchase of shares will be applicable to the settlement of the purchase price. As such, the buy-back
will require the approval of shareholders by way of a special resolution (excluding the votes of each of
the purchasers and its associates and any other shareholder excluded from voting in respect of such
resolution in terms of the JSE Listings Requirements and/or the Companies Act).
Mazars Corporate Finance Pty Ltd (the “independent expert”) has been appointed by the company to
provide a report in terms of section 114(3) of the Companies Act and paragraphs 10.4(f) and 5.69(e) of
the JSE Listings Requirements to advise the board of directors of Andulela (“board”) on whether the
terms of the transaction are fair and reasonable insofar as shareholders are concerned. The independent
expert is of the opinion that the transaction is fair and reasonable to the shareholders of Andulela.
The board of Andulela has considered the terms of the transaction, as well as the report from the
independent expert, and is of the opinion that the transaction is fair and reasonable to the shareholders
of Andulela.
2. BUSINESS OF PRSM
PRSM is a wholly owned subsidiary of Andulela.
PRSM is one of the largest and most prominent steel processors and merchants in South Africa with
its main processing plant in Vereeniging, as well as plants in Pretoria and Cape Town. PRSM’s
product range consists of the most commonly used steel products including welded universal columns
or beams and T-beams, a range of roofing solutions (corrugated, inverted box rib, and wide-span);
fencing and wire products; tubing and cold formed flat and long products; and value-added services
(slitting, cut-to-length, blanking, de- and recoiling, guillotine and tube saw).
3. RATIONALE FOR THE TRANSACTION
PRSM was acquired by Andulela with effect from 1 September 2011 for a purchase price of R172
million, being its confirmed and audited net asset value on that date. The purchase price of R172
million was settled on 1 September 2011 by the issue of 431.6 million Andulela ordinary shares to the
purchasers at an issue price of 40 cents per share being the closing price of Andulela’s shares on the
day prior to the release of the announcement relating to that acquisition dated 10 December 2010. This
equates to 8.6 million ordinary shares post the implementation of a consolidation of the company’s
share capital on a 50 to 1 basis, which consolidation was implemented on 29 April 2013.
The rationale for the transaction is supported by the following key factors:
3.1 market analysts and economic commentators do not forecast world steel demand and outputs
to recover within the short to medium term, contrary to the views expressed at the time of the
acquisition of PRSM;
3.2 it will require a disproportionate involvement of senior management’s time and resources to
turn the investment in PRSM around;
3.3 extensive rationalisation initiatives have not yielded the expected results;
3.4 PRSM will in all likelihood require significant further working capital injections with a
diminished capacity to provide sureties and securities, and will in all likelihood be looking to
Andulela to provide further risk capital or funding;
3.5 PRSM has undesirably high debt-to-equity and liabilities-to-assets gearing ratios;
3.6 senior management’s resources and expertise will be freed-up to pursue more profitable
acquisition targets; and
3.7 senior management will be able to focus on further enhancing Kilken’s capacity to contribute
positive cash flows and profits to the company.
4. TERMS OF THE DISPOSAL
Andulela is disposing of all of the issued shares in PRSM to the purchasers for a purchase price of
R104 732 829.50 with effect from the first business day following the date of fulfilment or waiver, as
the case may be, of the last of the suspensive conditions set out in paragraph 5 below (“effective
date”).
The purchase price for the sold shares is to be settled by the delivery of in aggregate 16 112 743
Andulela ordinary shares. Both in terms of the Companies Act and the JSE Listings Requirements, this
is regarded as a repurchase and as such is subject to the provisions of the JSE Listings Requirements
applicable to a specific repurchase and the provisions of the Companies Act applicable to a repurchase
generally.
5. SUSPENSIVE CONDITIONS
The transaction is conditional upon, inter alia, the fulfilment or waiver, where appropriate, of the
following suspensive conditions by no later than 31 March 2013, or such later date as the parties may
agree to in writing:
5.1 an independent opinion in terms of the JSE Listings Requirements and the Companies Act in
respect of the implementation of the transaction is obtained from the independent expert;
5.2 an addendum to the loan agreement entered into between Kinlela Proprietary Limited
(Registration No. 2012/103995/07) (a wholly-owned subsidiary of Kilken Platinum, which
in turn is a majority owned subsidiary of Andulela) (“Kinlela”) on or about 6 July 2012 in
terms of which Kinlela advanced an amount of R191 213 815 to PRSM (the “Kinlela loan”,
further details of which are set out below), the outstanding amount of which as at 31 October
2013 is R169 973 604, is entered into between Kinlela and PRSM;
5.3 additional security documents in respect of the Kinlela loan are signed in a form and
substance acceptable to Andulela and become unconditional in accordance with their terms
save for reference therein to the conditionality of the disposal agreement;
5.4 resolutions by the board of directors of Andulela in accordance with the provisions of section
46 and section 48 of the Companies Act for the repurchase of the consideration shares from
the purchasers are adopted;
5.5 any third party consent required for the change in control of PRSM and/or for purposes of
the transaction is obtained in writing from such third party or such third party waives its
rights in writing;
5.6 all requisite regulatory consents and/or authorisations required for purposes of the
transaction and the implementation thereof are obtained, including, inter alia:
5.6.1 the JSE;
5.6.2 the Takeover Regulation Panel;
5.6.3 the adoption of special resolutions by the shareholders of Andulela approving
and/or ratifying the buy-back in terms of the disposal agreement in accordance with
the provisions of section 48(8) of the Companies Act and paragraph 5.69 of the JSE
Listings Requirements;
5.6.4 the adoption of a resolution by the shareholders of Andulela approving and/or
ratifying the transaction under paragraph 10.4 of the JSE Listings Requirements;
and
5.6.5 if applicable, the written approval of the transaction by the Competition Authorities
in terms of the Competition Act and to the extent that any such approvals are
granted subject to any condition/s, the purchasers and the company having
accepted such conditions in writing;
5.7 written confirmation is supplied by the seller to the purchasers that within the period
prescribed under section 164(7) of the Companies Act, no valid demands have been received
by the company in terms of such section in respect of ordinary shares representing more than
0.50% (nought point five percent) of the total issued shares in the company.
The date for the fulfilment of the suspensive conditions may be extended by Andulela and the
purchasers until such later date as may be agreed to in writing between Andulela and the purchasers.
6. KINLELA LOAN
6.1 The current Kinlela loan bears interest at the prime interest rate plus 0.5% compounded
monthly. The current Kinlela loan is repayable in stipulated monthly instalments, with the
final payment due in December 2017.
6.2 The company and the purchasers have agreed pursuant to an addendum to the agreement
regulating for the Kinlela loan dated 6 July 2012 (“Kinlela loan agreement”) that the loan
will be settled on an accelerated amortisation schedule. The Kinlela loan will bear interest
based on the interest rates payable by Kilken to Absa Bank Limited (“Absa”). The Kinlela
loan will be repayable as stipulated in the addendum to the Kinlela loan agreement in
monthly instalments, and a final balloon payment of the outstanding balance (capital and
interest that may be due) will be made on 31 March 2015. In terms of the addendum to the
Kinlela loan agreement, an amount of R5 million, being the original raising fee paid by
Kinlela to Absa plus interest thereon is repayable by PRSM to Kinlela by not later than 31
March 2015.
6.3 PRSM provided Kinlela with security in terms of the Kinlela loan agreement, which consists
of a reversionary cession of book debts, subordinated to the security provided to Reichmans
Capital Proprietary Limited (“Reichmans”). PRSM has in addition given positive and
negative undertakings to Kinlela, which includes providing Kinlela with financial
information on its affairs for as long as it is indebted to Kinlela.
6.4 The disposal agreement provides for additional security/undertakings to secure the Kinlela
loan until such time that the Kinlela loan has been repaid. The additional security includes
the following:
6.4.1 a deed of suretyship by each of the RM Family Trust and Mr Mohamed in favour
of Kinlela; and
6.4.2 a pledge in securitatem debiti by PRSM in favour of Kinlela in favour of all
reversionary rights to the stock and debtors secured in terms of a general notarial
bond to Reichmans;
6.4.3 cession of a loan in the amount of R86 004 703 by Steelmin as security for the
obligations of Steelmin and/or Mr Rafik Mohamed and/or the RM Family Trust
and/or PRSM to Kinlela.
6.5 A subordination agreement has been entered into between Thunder Rate Investments
Proprietary Limited (“TRI”), a company indirectly owned and controlled by Mr Mohamed
through a trust, and PRSM and Kinlela in terms of which TRI has subordinated its loan to
PRSM (R44 143 652 as at 31 October 2013) in favour of the Kinlela loan and also agrees not
to increase the loan unless the prior written consent of Kinlela is obtained.
6.6 In addition, PRSM has given certain undertakings to Kinlela regarding the incurring and/or
increasing of its debt while the Kinlela loan remains outstanding.
6.7 A guarantee and substitution of debtor agreement (the “Zamferro guarantee”) has been
entered into between Kinlela, PRSM, TRI and Zamferro Proprietary Limited (“Zamferro”)
in terms of which, subject to the Zamferro guarantee becoming effective and the acceptance
of the Zamferro guarantee by the board of Andulela:
6.7.1 PRSM or its nominee will settle approximately R40 million of the Kinlela loan on
31 January 2014, which will be treated as a prepayment of the monthly instalments
due by PRSM to Kinlela from February 2014 to January 2015 so that on 31
January 2015 the outstanding balance, together with interest capitalised from 1
February 2014 to 31 January 2015 will be R137 500 000;
6.7.2 Zamferro has undertaken to pay or take over the remaining indebtedness of PRSM
to Kinlela as at 31 January 2015 of R137 500 000 and shall replace PRSM as
principal debtor with effect from 31 January 2014 (“the substitution”) in respect
of the Kinlela loan, on which date Kinlela accepts the substitution and PRSM, the
RM Family Trust and Mr Rafik Mohamed will be released of all the security they
have provided in respect of the Kinlela loan.
6.8 Zamferro’s major asset is its shareholding in Ferrochrome Furnaces Proprietary Limited, a
producer of low and medium carbon ferrochrome products, which commenced its
commissioning in October 2013 and is expected to commence with production in January
2014.
6.9 A subordination agreement has been entered into between Ferrochrome Furnaces Holdings
Proprietary Limited (the “funder”), Zamferro and Kinlela in terms of which the funder has
subordinated any and all claims in terms of its loan to Zamferro in favour of the Kinlela loan.
7. APPLICATION OF THE SALE PROCEEDS
7.1 Andulela will repurchase and cancel the consideration shares in terms of section 48 of the
Companies Act and paragraph 5.69 of the JSE Listings Requirements upon implementation
of the transaction.
7.2 After implementation of the transaction and the repurchase and cancellation of the
consideration shares, there will be no shares held in treasury by the company.
8. DISPOSAL BY PRSM OF PRFC
In September 2013, PRSM disposed of its wholly owned, dormant subsidiary Pro Roof Flashing
Centre Proprietary Limited (“PRFC”) to SA Steel Rolling Mills Proprietary Limited (“SA Steel”), an
entity wholly owned by Mr Mohamed, for a purchase consideration of R284 708 (“PRFC disposal”),
being the net asset value of PRFC on the effective date of that disposal. The PRFC disposal being less
than 0.25% of the company’s market capitalisation at the relevant time, is not regarded as a related
party transaction under the JSE Listings Requirements.
However, as the PRFC disposal was a transaction entered into by the company with the same related
party applicable to the transaction, namely Mr Mohamed, the PRFC disposal has been aggregated with
the transaction recorded in the disposal agreement but such aggregation has no effect on the
categorisation of the transaction as a whole, which remains a large related party transaction under the
JSE Listings Requirements.
9. UNAUDITED PRO FORMA FINANCIAL EFFECTS OF THE TRANSACTION AGGREGATED WITH THE PRFC DISPOSAL
The table below sets out the unaudited pro forma financial effects of the transaction (including the
buy-back) aggregated with the PRFC disposal based on Andulela’s reviewed condensed consolidated
interim results for the six months ended 30 June 2013.
These unaudited pro forma financial effects are the responsibility of the directors of Andulela and
have been prepared for illustrative purposes only, in order to provide information about the financial
position of Andulela assuming that the transaction (including the buy-back) aggregated with the PRFC
disposal had been implemented on 1 January 2013 for purposes of statement of comprehensive income
and on 30 June 2013 for purposes of statement of financial position.
Due to the nature of the unaudited pro forma financial effects, they may not fairly present Andulela’s
financial position subsequent to the transaction (including the buy-back) aggregated with the PRFC
disposal.
The unaudited pro forma financial effects have been prepared in accordance with the accounting
policies of the Andulela group.
The table below reflects the unaudited pro forma financial effects of the transaction (including the
buy-back) aggregated with the PRFC disposal on a shareholder of Andulela:
Before After % change
Basic earnings per share (cents) 3.69 19.79 436.65
Headline earnings per share (cents) 3.39 10.18 200.30
Net asset value per share (cents) 459.82 431.40 (6.18)
Net tangible asset value per share (cents) 60.51 (57.86) (195.62)
Number of shares in issue (‘000) 87 645 71 532 (18.4)
Weighted average number of shares in issue (‘000) 87 645 71 532 (18.4)
Notes and assumptions:
1. The numbers in the "Before" column have been extracted, without adjustment, from
Andulela's reviewed condensed consolidated interim results for the six months ended 30 June
2013.
2. The PRFC financial information has been extracted without adjustment from the un-audited
interim management accounts for PRFC for the six months ended 30 June 2013. The assets
and liabilities and income and expenses of PRFC previously consolidated by PRSM are
eliminated on the PRFC disposal.
3. The PRSM financial information has been extracted without adjustment from the un-audited
interim management accounts for PRSM for the six months ended 30 June. The assets and
liabilities and income and expenses of PRSM previously consolidated by Andulela are
eliminated on disposal.
4. For the purposes of adjustments to the statement of comprehensive income, it has been
assumed that the transaction aggregated with the PRFC disposal was implemented on
1 January 2013 and that the consideration shares were cancelled and delisted on that date. The
following adjustments have been made to the statement of comprehensive income:
4.1 PRFC was disposed of to SA Steel for a total consideration of R284 708, being the net
asset value of this company on the effective date of that disposal, resulting in a loss on
disposal of R1 222 902. This adjustment will thus not have a continuing effect on the
group.
4.2 Andulela’s interest in PRSM was disposed of to the purchasers for a total
consideration of R104 732 830 resulting in a profit on disposal of R7 837 440. This
adjustment will not have a continuing effect.
4.3 The management fees payable by PRSM to Andulela and which have been eliminated
upon group consolidation, have been eliminated from the expenses of PRSM for
purposes of the pro forma financial information. These fees have been eliminated on
consolidation and will thus not have a continuing effect on the group;
4.4 Once-off transaction costs of R1 302 274 and the tax effect thereon calculated at the
income taxation rate of 28%. This adjustment will not have a continuing effect;
4.5 PRSM has an outstanding loan amount owing to Kinlela, a wholly-owned subsidiary
of Kilken Platinum, which in turn is a majority owned subsidiary of Andulela. In
terms of the disposal agreement such loan amount is increased by R5 000 000 being
the original raising fee paid by Kinlela to ABSA. The Kinlela loan bears interest at the
prime interest rate + 0.5% compounded monthly. The additional loan amount in
respect of the raising fee does not bear any interest. This loan and interest paid were
previously eliminated on consolidation. This adjustment accounts for the interest paid
by PRSM on the total loan amount, excluding the raising fee, for the period 1 January
2013 to 30 June 2013. This adjustment will have a continuing effect; and
4.6 The buy-back of the consideration shares from RM Family Trust (7 424 507) and
Steelmin (8 688 236) and the subsequent cancellation was implemented on 1 January
2013. The disposal of PRSM and the buy-back comprise part of a single inter-
conditional and indivisible transaction. This adjustment will not have a continuing
effect.
5. For the purposes of adjustments to the statement of financial position, it has been assumed that
the transaction aggregated with the PRFC disposal was implemented on 30 June 2013 and that
the consideration shares were cancelled and delisted on that date. The following adjustments
have been made to the statement of financial position:
5.1 The loan amount of R175 965 000 owing by PRSM to Kinlela previously eliminated
on consolidation, is recorded as a loan receivable by Andulela;
5.2 As per the addendum to the Kinlela loan agreement, an amount of R5 million, being
the original raising fee paid by Kinlela to Absa plus interest thereon is repayable by
PRSM to Kinlela by not later than 31 March 2015;
5.3 The buy-back and subsequent cancellation of the consideration shares were
implemented on 30 June 2013. This results in a decrease in the stated capital of
Andulela amounting to R104 732 829.50.
6. It has been assumed that no shares will be repurchased pursuant to an exercise of appraisal
rights.
7. The basic earnings and headline earnings per share were calculated based on the assumption
that the transaction aggregated with the PRFC disposal took place on 1 January 2013.
8. The net asset value and net tangible asset value per share were calculated based on the
assumption that the transaction aggregated with the PRFC disposal took place on
30 June 2013.
10. CLASSIFICATION OF THE TRANSACTION
The transaction, aggregated with the PRFC disposal, is a Category 1, large related party transaction
incorporating a buy-back and accordingly will be subject to shareholders voting in favour thereof. A
circular convening a general meeting and providing further details of the transaction will be posted to
shareholders in due course.
A statement by the board of directors will be included in the circular confirming that the transaction
(including the buy-back) is fair and reasonable insofar as shareholders (excluding any related parties)
of the company are concerned and that the board of directors has been so advised by the independent
expert.
11. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Shareholders are referred to the cautionary announcement dated 18 September 2013 and the renewal
of cautionary announcement dated 30 October 2013, and are advised that as the details of the
transaction referred to above have been announced to Andulela shareholders, caution is no longer
required to be exercised by shareholders when dealing in their Andulela shares.
4 December 2013
Sponsor
Java Capital
Independent expert
Mazars
Reporting accountants and auditors
BDO
Attorneys
Glyn Marais
Date: 04/12/2013 04:22:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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