SABVEST LIMITED - Investment in Set Point Group Proprietary Limited

Investment in Set Point Group Proprietary Limited

SABVEST LIMITED
(Incorporated in the Republic of South Africa)
Registration number 1987/003753/06
ISIN: ZAE000006417 – ordinary shares
ISIN: ZAE000012043 – "N" ordinary shares
Share code: SBV – ordinary shares
Share code: SVN – "N" ordinary shares
("Sabvest Limited")

INVESTMENT IN SET POINT GROUP PROPRIETARY LIMITED ("SPG")

1.      Introduction

        1.1     Sabvest Investments Proprietary Limited ("Sabvest"), a wholly owned subsidiary of
                Sabvest Limited, holds 109,6m ordinary shares in SPG comprising 49,9% of the SPG
                shares in issue.

        1.2     The board of directors of SPG has received an offer ("the Offer") from Torre
                Industries Limited ("Torre") to acquire 100% of the ordinary shares in SPG, for an
                upfront consideration of R370 000 000 (subject to adjustment, with a minimum
                consideration of R296 000 000 and a maximum consideration of R444 000 000, as
                envisaged below), to be discharged by the allotment and issue of new Torre ordinary
                shares ("Torre Shares") at 500c per share, by way of a scheme of arrangement ("the
                Scheme") in terms of Section 114 of the Companies Act No. 71 of 2008, as amended
                ("Act") (read with section 115 of the Act) ("the Transaction").

        1.3     Sabvest has given a written irrevocable undertaking to vote in favour of the Scheme
                at a general meeting of SPG shareholders called to consider and approve the
                Scheme, provided this occurs before 29 May 2015.

2.      Nature of the businesses

        2.1     SPG is an unlisted industrial group that provides distribution and support services to
                the industrial, energy, resource, manufacturing and associated sectors through its
                three divisions:

                -       Analytical Services which comprises WearCheck, African Mineral Standards
                        and Set Point Laboratories;

                -       Fluid Handling which comprises Letaba Group, Meter Systems and Pneumax;
                        and

                -       Mining Services which comprises Reng and North West Go Pro.

        2.2     Torre is a JSE listed industrial group. Torre's activities comprise:

                -       The distribution and rental of branded capital equipment through Torre
                        Lifting Solutions (comprising the business units of SA French and Elephant
                        Lifting), Manhand and Kanu Equipment;

                -       The supply of critical parts and services to the equipment and automotive
                        after-markets through Tractor & Grader Supplies and Torre Automotive
                        (formerly Control Instruments) respectively, and
             -       The provision of specialised financial solutions to assist customers in
                     financing their capital programmes through Torre Capital.

3.   Rationale for acceptance of the Offer

     Sabvest intends to vote in favour of the Scheme for the following reasons:

     3.1     Torre is a fast growing industrial group with an appealing strategy and in which
             Sabvest would like to have a material investment. Sabvest has a current holding of
             about 7% in Torre and this will increase to about 12% after implementation of the
             Transaction and the BEE Private Placement explained in paragraph 6 below.

     3.2     Torre operates in fields similar or complementary to those in which SPG operates,
             and Sabvest believes that a combination of the groups will result in significant
             synergies in terms of management, systems and costs, and, through the use of each
             group's geographic footprints in Africa, the Middle East and India.

     3.3     SPG executive management will be better motivated by participating in long term
             incentive plans rewarded by listed shares in comparison with the cash settled plans
             currently in place.

     3.4     The value exchange in the forward pricing and the enterprise value protection in the
             adjustments envisaged in paragraph 4 are attractive.

4.   Salient details of the Transaction, including the sale consideration

     4.1     In terms of the Offer, Torre proposes to issue 0,3375 Torre Shares in the authorised
             but unissued share capital of Torre at 500c per share to SPG shareholders for every 1
             ordinary share in SPG disposed of to Torre, which is equivalent to an upfront
             consideration of R370 000 000 for all the ordinary shares in SPG, based on a
             valuation of SPG of R370 000 000 (being R400 000 000 less expected net debt as at
             the operative date of the Scheme).

     4.2     To the extent SPG does not achieve R40 000 000 adjusted net operating profit after
             tax ("NOPAT") for the financial year ending 30 June 2016, then the aforementioned
             consideration will be adjusted down, subject to a minimum consideration of
             R296 000 000, and up to 20% of the Torre Shares issued to the three largest SPG
             shareholders holding 97% of SPG (including Sabvest) will be subject to a repurchase
             by Torre at nominal value.

     4.3     To the extent that Torre does not earn 41,6c Headline Earnings Per Share for the
             same period, then the aforementioned consideration will be adjusted upwards,
             subject to a maximum consideration of R444 000 000 and the additional
             consideration will be discharged by the allotment and issue of additional Torre
             Shares, at 500c per share, to all SPG shareholders.

     4.4     Accordingly, Sabvest will receive approximately 37 000 000 Torre Shares at the issue
             price of 500c per Torre Share which translates to a consideration of R185 000 000.
             However, this is subject to the share repurchase adjustment envisaged in paragraph
             4.2 above which, if effected, would reduce the consideration to a minimum of
             approximately 29 600 000 Torre Shares at the issue price of 500c per Torre Share
             which translates to a consideration of R148 000 000. Conversely, the
             aforementioned consideration is also subject to the top up adjustment envisaged in
             paragraph 4.3 above which, if effected, would increase the consideration to Sabvest
             to a maximum of approximately 44 400 000 Torre Shares which would be issued at
             500c per Torre Share in terms of the pricing formula. The effective consideration to
             Sabvest if the top up adjustment is applied would depend on the actual share price
             of the Torre Shares at the time. At the issue price of 500c per Torre Shares, it would
             amount to R222 000 000.

     4.5     The operative date of the Scheme is expected to be in May 2015.

5.   Financial effects on Sabvest and Sabvest Limited

     The fair value of Sabvest's investment in SPG at 31 December 2014 as reflected in its
     unaudited management accounts, was R123 000 000. Accordingly Sabvest's gain on the
     Transaction will be R62 000 000 as against its share of the upfront consideration of R370 000
     000. It may reduce to a minimum of R25 000 000 if the adjustment envisaged in paragraph
     4.2 above becomes effective. This equates to a gain of between 134c and 54c per Sabvest
     share using the aforementioned upfront consideration and the minimum consideration at an
     assumed Torre Share price of 500c. It is not possible to assess the effective gain if the top up
     formula becomes applicable as the share price of the additional Torre Shares that may be
     required to be allotted and issued to SPG shareholders at the time is not known. However at
     the issue price of 500c per Torre Share the maximum gain would be R99 000 000.

     Sabvest as an investment entity measures all investments at fair value. Accordingly, the fair
     value of the Torre Shares to be received in terms of the Transaction can increase or decrease
     based on the future Torre Share price.

     The value of the net assets of SPG which are the subject of the Offer was R150 228 000 at
     31 August 2014 as reflected in the audited financial statements at that date. The unadjusted
     audited net profit after tax attributable to the net assets that are the subject of the
     Transaction for the year ended 31 August 2014 was R14 856 000. The NOPAT for the year
     ended 31 August 2014, adjusted and normalised in accordance with the formula for the
     adjusted normalised NOPAT for the year to 30 June 2016, as described in paragraph 4.2
     above, is approximately R32 300 000.

6.   Other Torre transactions

     Torre announced today on the Stock Exchange News Service ("SENS") that it has obtained
     commitments from two Black owned unlisted investment groups to subscribe for 82 000 000
     Torre Shares at 425 cents per share in terms of a private placement, thereby raising new
     capital of R349 000 000 for Torre ("the BEE Private Placement").

     On completion of the BEE private Placement and the acquisition of SPG, Black owned
     shareholders will hold 26% of the issued share capital of Torre.

7.   Sabvest Limited's investment in Torre

     Sabvest Limited is already a shareholder in Torre to the extent of 23 000 000 Torre Shares
     held by another of its wholly owned subsidiaries.

     On completion of the Transaction, Sabvest Limited, through its subsidiaries, will hold
     between 52 000 000 and 60 000 000 Torre Shares, depending on the adjustments envisaged
     in paragraphs 4.2 above, which will represent an interest of between 10% and 12% in Torre.
     If the allotment and issue of additional Torre Shares, as envisaged in paragraph 4.3,
     becomes applicable, its shareholding would increase to 67 400 000 Torre Shares
     representing 13,5% of Torre (assuming no further shares had been issued by Torre).

     Sabvest Limited intends to retain the total holding in Torre and regards it as a long term
     investment.

8.    Conditions precedent

      The Scheme is subject to a number of suspensive conditions of which the following are
      material:

      8.1     SPG to retain an independent expert in terms of section 114(2) of the Act to prepare
              and issue a report in terms of Section 114(3) of the Act in respect of the Scheme.

      8.2     The board of directors of SPG to recommend that SPG shareholders vote in favour of
              the Scheme.

      8.3     All requisite regulatory approvals to be obtained.

      8.4     A due diligence investigation into SPG by Torre to be concluded to its satisfaction

      8.5     The Scheme to be approved by the requisite majority of SPG shareholders.

      8.6     The BEE Private Placement referred to in paragraph 6 above to be successfully
              implemented.

      8.7     The acquisition of SPG as a related party transaction being approved by Torre
              shareholders.

9.    Further communications

      Sabvest Limited will advise shareholders in due course:

      9.1     whether or not the Scheme has become unconditional; and

      9.2     the outcome of the adjustments envisaged in paragraphs 4.2 and 4.3 above.

10.   Categorisation of the Transaction and approvals required

      The Transaction, which is a disposal by Sabvest of its interest in SPG, is a category 2
      transaction in terms of the JSE Listing Requirements. As such Sabvest Limited shareholders
      are not required to approve the Transaction.

      In terms of the JSE Listings Requirements by virtue of an association between
      Mr C. Seabrooke, a non-executive director of Torre, and Sabvest, Sabvest is deemed an
      associate of Mr C. Seabrooke and as a result a related party of Torre. Mr C. Seabrooke is
      also a director of Sabvest and SPG.

      Accordingly, the Transaction will require Torre shareholder approval as well as a fairness
      opinion. Torre will post a circular to Torre shareholders ("Circular") setting out details of the
      Transaction and the board of directors of Torre will appoint an independent expert to
      prepare a fairness opinion which will be included in the Circular.

      Shareholders of Sabvest Limited should refer to the announcements released on SENS by
      Torre on the Transaction made as of the current date.

Sandton
16 February 2015

Sponsor
RAND MERCHANT BANK (a division of FirstRand Bank Limited)

Legal advisers
ENSafrica

Date: 16/02/2015 11:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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