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Terms announcement re acquisition of Set Point Group (Pty) Ltd and a specific issue of shares to BEE investors
TORRE INDUSTRIES LIMITED
Incorporated in the Republic of South Africa
(Registration number: 2012/144604/06)
Share code: TOR
ISIN: ZAE000188629
(“Torre” or “the Group”)
TERMS ANNOUNCEMENT REGARDING THE ACQUISITION OF SET POINT GROUP
(PTY) LTD AND A SPECIFIC ISSUE OF NEW SHARES FOR CASH TO BEE
INVESTORS
1. INTRODUCTION
Torre is pleased to announce that it has made an offer (the
“Offer”) to acquire 100% of the total issued ordinary shares in
Set Point Group (Pty) Ltd (“Set Point”), being 219 259 098
shares ("Offer Shares") 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)
(the “Acquisition”), settled through the issue of new Torre
ordinary shares (“Torre Shares”) at R5.00 per share.
In addition, Torre has obtained commitments from two leading
BEE investment groups (collectively the “BEE Investors”) to
invest in Torre in a private placement of 82 013 329 new Torre
shares at R4.25 per share, thereby raising new capital of R348
556 650 for the Group (the “BEE Issue”). Following the
completion of the Acquisition and the BEE Issue Torre will have
a total BEE shareholding of 26%.
2. THE ACQUISITION
2.1. Nature of the Business of Set Point
Set Point is an industrial group that provides distribution and
support services to the mining, industrial, energy and
manufacturing sectors via 3 divisions, namely: analytical
services, fluid handling and mining services. The divisions
consist of the following businesses:
Analytical Services
- WearCheck supplies specialised testing and analysis services
in Southern Africa, Dubai and India, including copper, oil,
fuel, coolant, grease, filter, silverstrip corrosion and
corrosive sulfur.
- African Mineral Standards (AMIS) manufactures and sells a
range of matrix and grade matched reference materials for the
mining sector and commercial laboratories.
- Set Point Laboratories is an accredited chemical laboratory
able to transport, handle and analyze radioactive isotopes.
Fluid Handling
- Letaba Group offers professional fluid transfer supply
through its extensive fleet and pump brands and products to
the construction, earthmoving and moving industries.
- Meter Systems supplies flow meters, nozzles, pumps, hoses and
hose reels, lubrication equipment, drainers and dispensers to
the aviation, petrochemical, transport, mining, agricultural
and pharmaceutical industries.
- Pneumax is a leading supplier of pneumatic and automation
products.
Mining Services
- Reng & NW Go Pro manufactures high quality hopper and
locomotive wheels and skip guide rollers.
2.2. Rationale for the Acquisition
The rationale for the Acquisition is:
- Extension of the Group’s activities into high margin,
complementary areas with similar customer bases to Torre’s
existing businesses;
- Increased scale for the Group via a transaction that is
earnings accretive from year 1; and
- Material opportunities to enhance value accretion for Torre
shareholders via the combination of distribution networks and
head office functions.
2.3. Salient Terms of the Acquisition
The Acquisition will be concluded by way of a scheme of
arrangement in terms of section 114(1)(c) of the Companies Act,
No. 71 of 2008, as amended (the “Act”), as read with section
115 of the Act, to be proposed by the board of directors of Set
Point between Set Point and its shareholders (“Set Point
Shareholders”) (the “Scheme”).
Upon implementation of the Scheme, Set Point will become a
wholly-owned subsidiary of Torre.
2.3.1. Scheme Consideration
Set Point Shareholders (save for those who elect to exercise
their appraisal rights in terms of section 164 of the Act)
(“Scheme Participants”) will, if the Scheme becomes operative
and with effect from such date, receive 0.3375 Torre Shares for
every 1 Set Point share disposed of (the “Upfront Consideration
Shares”), which is equivalent to an aggregate upfront
consideration of R370 000 000 (“Initial Scheme Consideration”)
for all the Offer Shares at an issue price of R5.00 per Torre
share.
2.3.2. Adjustment to the Initial Scheme Consideration
By no later than 30 September 2016, Torre shall:
- procure its auditors to determine the headline earnings per
share of Torre for the financial year ended 30 June
2016("Torre FY2016 HEPS") and the consolidated Net Operating
Profit After Tax (“NOPAT”) of Set Point for the period from
1 July 2015 to 30 June 2016 (“Earn-out Period”) after
certain agreed upon adjustments ("SP Earn-out NOPAT"); and
- notify the Scheme Participants of the results of the
determination ("Adjustment Notice").
To the extent that –
- the Torre FY2016 HEPS is less than R0.416 ("Target HEPS"),
then the Scheme Consideration shall be adjusted upwards
proportionately, subject to a maximum Scheme Consideration
of R444 000 000; and
- the SP Earn-out NOPAT is less than R40 000 000 ("Target
NOPAT") then the Scheme Consideration shall be adjusted
downwards proportionately, subject to a minimum Scheme
Consideration of R296 000 000.
The final adjusted Scheme Consideration ("Adjusted Scheme
Consideration") shall be based on the net adjustment required.
2.3.3. Upward Adjustment–
- If the Adjusted Scheme Consideration is greater than the
Initial Scheme Consideration (i.e. R370 000 000) then Torre
shall issue to each Scheme Participant, pro rata to their
holdings of Offer Shares as at the record date of the
Scheme, such additional number of Torre Shares as is
necessary (at an issue price of R5.00 per Torre Share) to
settle the difference between the Adjusted Scheme
Consideration and the Scheme Consideration owing to such
Scheme Participant (“Top-up Shares”).
- If, after the operative date of the Scheme but prior to the
date of issue of the Top-up Shares, Torre declares and/or
pays any dividends or other distributions in respect of the
Torre Shares, and the Adjusted Scheme Consideration is
greater than the Initial Scheme Consideration, each Scheme
Participant shall receive from Torre, in addition to and
simultaneously with the issue of the Top-up Shares, as
additional consideration, an amount in cash equal to the
amount to which such Scheme Participant would have been
entitled had it been the registered and beneficial owner of
the Top-up Shares as at the date of declaration of such
dividends or distributions (“Top-up Dividends”). The Scheme
Participants shall be issued with the Top-up Shares, and
paid the Top-up Dividends, by not later than 31 October
2016, or in the event of a dispute to the Adjustment Notice,
within 20 days after the resolution of such dispute.
2.3.4. Downward Adjustment–
- If the Adjusted Scheme Consideration is less than the
Initial Scheme Consideration (i.e. R370 000 000) then Torre
shall be entitled on a date not earlier than 20 business
days after the expiry of 18 months after the date of issue
of the Upfront Consideration Shares (“Earliest Exercise
Date”) and not later than 20 business days after the later
of the Earliest Exercise Date or the date of the delivery of
the Adjustment Notice to require each of Sabvest Investments
(Pty) Ltd (“Sabvest”), MIC Investment Holdings (Pty) Ltd,
and the trustees of the Haroon Habib Family Trust ("Major
Shareholders"), to sell to Torre the same percentage of the
Torre Shares issued to the Major Shareholders as the
percentage shortfall in the Initial Scheme Consideration
such number of Torre Shares ("Option Shares") as is
calculated in accordance with a pre-determined formula at a
price of R0.0001 per Torre share.
- If, after the operative date of the Scheme but prior to the
date of issue of the Top-up Shares, Torre declares and/or
pays a dividend or other distribution (net of dividend
withholding tax, to the extent applicable) in respect of the
Torre Shares, and the Adjusted Scheme Consideration is less
than the Initial Scheme Consideration, then the dividends
declared in respect of the Option Shares shall be repaid to
Torre (net of dividends withholdings tax).
The operative date of the Scheme is expected to be on or about
4 May 2015.
2.4. Conditions Precedent to the Acquisition
The Offer and the posting of the Scheme circular to Set Point
Shareholders in compliance with the provisions of the Act are
subject to the following conditions being fulfilled before 31
March 2015 or such later date/s as may be agreed to between
Torre and Set Point in writing:
2.4.1. Set Point 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;
2.4.2. the board of directors of Set Point to recommend that
the Set Point shareholders vote in favour of the
Scheme;
2.4.3. Torre and the Major Shareholders have concluded an
option agreement in respect of the Option Shares; and
2.4.4. to the extent applicable, all requisite regulatory
approvals have been obtained to enable Torre to make the
Offer.
In addition, the following suspensive conditions in relation to
the implementation of the Scheme are to be fulfilled before 31
May 2015 or such later date/s as may be agreed to between Torre
and Set Point in writing:
2.4.5. Conclusion by Torre of a satisfactory due diligence
investigation into Set Point;
2.4.6. Agreement as to cancellation of any management contracts
or similar related party agreements on implementation of
the Scheme;
2.4.7. Conclusion of an agreement with the Major Shareholders
granting TIH Capital Partners Ltd a right of pre-emption
in respect of the disposal of any Torre Shares acquired
pursuant to the Scheme;
2.4.8. Approval by the requisite majority/ies of Set Point
Shareholders of the Scheme in terms of section 115(2) of
the Act ("Scheme Resolution") and of such other
resolutions as may be required, at the general meeting
of Set Point Shareholders convened for this purpose,;
and:
2.4.8.1. to the extent required, the approval of the
implementation of such resolution by a court in terms
of section 115(2)(c) and/or section 115(3) of the
Act; and
2.4.8.2. if applicable, Set Point not treating the aforesaid
resolution as a nullity, as contemplated in section
115(5)(b) of the Act; and
2.4.8.3. not more than 10% of Set Point Shareholders
exercising appraisal rights in terms of section 164
of the Act.
2.4.9. Receipt of all relevant board, shareholder and
regulatory approvals in respect of the Scheme, including
–
2.4.9.1. Torre board and shareholder approval;
2.4.9.2. JSE Limited, the Financial Surveillance
Department of the South African Reserve Bank
and South African Competition Commission, to
the extent required;
2.4.10. Approval of the listing of the Upfront Consideration
Shares and the Top-up Shares (to the extent issued);
2.4.11. The implementation of the BEE Issue; and
2.4.12. Material counterparties to consent to the change in
control of Set Point.
Other than those conditions above that are of a regulatory
nature and cannot be waived, Torre and Set Point, by agreement
in writing and to the extent they are permitted to do so in
terms of the Act, may extend the time period of the fulfilment
of any of the aforementioned conditions or waive the
conditions.
2.5. Categorisation of the Acquisition and Approvals Required
The Acquisition is a category 2 transaction in terms of section
9 of the JSE Listing Requirements. In addition, in terms of
section 10 of the JSE Listings Requirements, the Acquisition is
a related party transaction by virtue of an association between
Mr C. Seabrooke, a director of Torre and Sabvest. Sabvest is
deemed an associate of Mr C. Seabrooke and as a result a
related party of Torre.
Accordingly, the Acquisition will require Torre shareholder
approval as well as a fairness opinion. Torre will post a
circular to shareholders (“Circular”) setting out details of
the Acquisition and the board of directors of Torre will
appoint an independent expert to prepare a fairness opinion
which will be included in the Circular.
2.6. Net Assets and Profits of Set Point
The value of the net assets of Set Point which are the subject
of the Acquisition as at 31 August 2014 was R150 228 000. The
adjusted net operating profit after tax attributable to the net
assets that are the subject of the Acquisition for the year
ended 31 August 2014 was R32 300 000, which has been extracted
from the audited financial statements of Set Point.
2.7. Integration into the Group and alignment of the Memorandum
of Incorporation (“MOI”)
Following the implementation of the Scheme, Set Point will be
integrated into the Group. Torre will review the MOI of Set
Point to ensure that it neither frustrates nor relieve Torre in
any way from compliance with its obligations in terms of the
Listings Requirements.
2.8. Irrevocable undertakings
Set Point Shareholders representing in excess of 75% of Set
Point’s issued share capital have provided Set Point and Torre
with irrevocable support to vote in favour of the Acquisition.
3. BEE ISSUE
3.1.1. Introduction
Torre has received commitments from the BEE Investors to
subscribe for a total of 82 013 329 new shares in Torre at
R4.25 (“Issue Price”) per Torre share raising new capital of
R348 556 650 for the Group.
3.1.2. Rationale for the BEE Issue
The conclusion of the BEE Issue and the Acquisition will
increase the BEE shareholding of Torre to 26% and so facilitate
an improved BEE scorecard for the Group.
The proceeds from the BEE Issue will also strengthen Torre’s
balance sheet and will be utilised to fund the growth
initiatives of the Group.
3.1.3. Conditions Precedent to the BEE Issue
The BEE Issue is subject to the following conditions precedent
being achieved by no later than 30 April 2015:
- Conclusion of a satisfactory due diligence investigation into
Torre by the BEE Investors;
- Internal approvals as required by the BEE investors;
- JSE approval of a circular to be posted to Torre
shareholders;
- Approval by the requisite majority of Torre shareholders of
the ordinary and special resolutions required in terms of the
Act and of the JSE Listings Requirements; and
- Approval of the listing of the BEE Issue shares.
3.1.4. Categorisation of the BEE Issue and Approval Required
The BEE Issue will be deemed a specific issue of shares for
cash in terms of the JSE Listings Requirements and will require
the support of at least 75% of the Torre shareholders present
and entitled to vote at a Torre general meeting (the “General
Meeting”).
The Issue Price is at a discount of approximately 9% to the 30-
day Volume Weighted Average Price (“VWAP”) of Torre as at 13
February 2015.
In addition, in accordance with section 41(3) of the Act, the
Acquisition and BEE Issue combined will require support of at
least 75% of the Torre shareholders present and entitled to
vote at the General Meeting as more than 30% of Torre’s issued
share capital will be issued.
Shareholders are reminded that the BEE Issue is not an offer to
the public as contemplated in the Act and accordingly no
prospectus will be issued or registered in respect thereof.
4. FURTHER DOCUMENTATION AND SALIENT DATES
The Circular to be submitted to Torre shareholders in due
course will incorporate the detailed terms of the Acquisition
and the BEE Issue and a notice of General Meeting.
Torre will keep shareholders informed of the expected date of
posting of the Circular and the salient dates in terms of the
corporate actions detailed in this announcement.
Johannesburg
16 February 2015
Corporate Finance Adviser and Sponsor to Torre:
AfrAsia Corporate Finance (Pty) Ltd
Legal Adviser to Torre
Cliffe Dekker Hofmeyr
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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