Wrap Text
Proposed acquisition of the entire issued share capital of Conlog Pty Limited and R750million claw-back rights offer
CONSOLIDATED INFRASTRUCTURE GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2007/004935/06)
JSE share code: CIL ISIN: ZAE000153888
(“Consolidated Infrastructure Group Limited” or “the Company” or “CIG”)
PROPOSED ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF CONLOG
PROPRIETARY LIMITED AND R750 MILLION CLAW-BACK RIGHTS OFFER
1. Introduction
Shareholders are referred to the cautionary announcement dated 25 July 2016, in terms of which
shareholders were advised that Consolidated Infrastructure Group Limited is currently engaged
in negotiations regarding a new acquisition.
The board of directors of CIG (the “Board”) is pleased to announce it has concluded an agreement
(“Purchase Agreement”) with the shareholders of Conlog Proprietary Limited (“Conlog”) to acquire
the entire issued share capital of Conlog (the “Proposed Acquisition”), a manufacturer and
distributor of prepaid electricity solutions.
2. Overview and principal terms of the Proposed Acquisition
2.1. Overview of Conlog
Conlog is engaged in the business of the design, development, manufacture, marketing, sale and
distribution of prepayment and smart electronic metering devices, associated software, solutions
and services for the provision of prepayment and smart metering applications for the residential,
commercial and light industrial sectors. Additionally, as part of an advanced smart metering
infrastructure, Conlog provides utilities and municipalities with services such as revenue
management, revenue protection, prepayment with smart load control and load management.
The importance of pre-paid meters has been demonstrated across the African continent with the
positive impact they have had on revenue certainty for cash starved utilities. Additionally, end
consumers and commercial users benefit from being able to better manage their power utilisation.
2.2. Rationale for the Proposed Acquisition
Conlog extends CIG’s service offerings to its utility, municipality and commercial clients.
Previously, CIG’s products and services were mostly limited to the generation and transmission
sectors. Conlog allows CIG to diversify further its power division with an offering for the distribution
power sector. The acquisition places CIG’s presence across all segments of the power sector
value chain.
Additionally, Conlog supports CIG’s regional diversification strategic priority with 60% to 70% of
its sales coming from outside of South Africa. On a historic pro-forma basis, CIG will improve its
ex-SA profit contribution from 54% to 60% based on both company’s fiscal year 2015 normalised
annual results. Furthermore, Conlog’s business has a different profile from CIG’s core power
sector EPC offering, Consolidated Power Projects, as Conlog is not capital or capex intensive,
and has a history of positive cash generation through periods of growth. CIG is certain that
Conlog’s young and passionate management team will fit seamlessly within the group’s culture
prioritising profitable growth and client focused delivery.
As assessed against CIG’s long-standing growth strategy, the acquisition delivers on the strategic
objective of Transformative M&A: Seek and acquire infrastructure companies and projects which
significantly enhance the value of the group, strategically and financially. We believe the business
has tremendous tailwinds under CIG management and further diversifies the group financially,
geographically and offering-wise. As CIG has continuously communicated, management focuses
on transactions which are earnings per share enhancing for shareholders.
2.3. Purchase consideration of the Proposed Acquisition
The purchase consideration for the Proposed Acquisition comprises an initial payment of
R700,000,000 (“Initial Payment”) payable on closing, together with deferred consideration with
an earn-out component of between R50,000,000 (“Guaranteed Deferred Payment”) and
R150,000,000, depending on Conlog’s 2016 adjusted earnings before tax, depreciation and
amortization (“EBITDA”), and a closing net cash and working capital adjustment. Conlog’s
adjusted EBITDA is calculated on the basis of eliminating the impact of inter-company
transactions, cost reallocations and one-off variations on the company’s reported EBITDA.
The Initial Payment and the Guaranteed Deferred Payment will be funded by CIG using the
proceeds of the claw-back rights offer, the details of which are set out in paragraph 3 below. To
the extent it becomes payable, any purchase consideration in excess of the Initial Payment and
the Guaranteed Deferred Payment will be funded using CIG’s internal cash and / or borrowing
facilities.
2.4. Suspensive conditions to the Proposed Acquisition
The Purchase Agreement is subject to the following suspensive conditions:
- approval of the Proposed Acquisition by the Competition Authorities of South Africa and
other jurisdictions where required by law;
- all exchange control approvals which are legally required for the implementation of the
Proposed Acquisition from the South African Reserve Bank being duly obtained;
- on or before 30 November 2016, shareholders placing sufficient CIG shares under the
control of the directors of CIG for the purposes of giving effect to a R750,000,000 claw-back
rights offer (“Claw-back Rights Offer”), more fully detailed in paragraph 3 below ; and
- on or before 30 November 2016, all conditions precedent to the underwriting agreement as
set out in paragraph 3.2 being fulfilled.
2.5. Financial effects of the Proposed Acquisition
The tangible net asset value of Conlog as at 31 December 2015 was R292 million. The profit
after taxation attributable to the business for the year ended 31 December 2015 was R161
million.
Taking into account normalisation adjustments to eliminate the impact of once off items, inter-
company transactions, cost reallocations and the payment of post year end dividends, the tangible
net asset value and profit after tax of Conlog for the financial year ended 31 December 2015 are R152
million and R106 million, respectively. On a normalised basis, the turnover and EBITDA impacts on
CIG, based on fiscal year 2015 annual results, would be an enhancement of 14% and 36%,
respectively. The earnings per share impact will depend on the number of shares to be issued
pursuant to the Claw-back Rights Offer.
The financial effects of the Proposed Acquisition as set out above are presented for illustrative
purposes only and have not been independently reviewed by the Company’s auditors.
2.6. Effective Date
The effective date (which will coincide with the closing date) of the Proposed Acquisition will be
determined by reference to the date on which the last of the suspensive conditions to the Purchase
Agreement is fulfilled:
- should the last of the suspensive conditions to the Purchase Agreement be fulfilled on or before
the 23rd of a month, the effective date will be the last business day of that calendar month; or
- should the suspensive conditions to the Purchase Agreement take place after the 23rd of a
month, the effective date will be the 7th business day of the calendar month following the month
in which the last of the suspensive conditions to the Purchase Agreement was fulfilled; or
- such other date as the shareholders of Conlog and CIG may agree in writing.
3. Proposed claw-back rights offer
3.1. Overview
In order to raise the R750,000,000 purchase consideration payable in respect of the Initial
Payment and the Guaranteed Deferred Payment, CIG intends to undertake the Claw-back Rights
Offer which will only be implemented following the fulfillment of the last of the suspensive
conditions to the Purchase Agreement. CIG has entered into underwriting agreements with
Investec Bank Limited (“Investec”) and Pinecourt Advisors Limited (“Pinecourt”) to underwrite
R500,000,000 and R250,000,000 respectively of the Claw-back Rights Offer.
3.2. Conditions precedent to the Claw-back Rights Offer
The implementation of the Claw-back Rights Offer is subject to the fulfillment of the following
conditions precedent including, inter alia:
- on or before 30 November 2016, the Purchase Agreement becoming unconditional, save
for any condition that the underwrite agreement becomes unconditional;
- Investec confirming that it is satisfied that all regulatory approvals, including but not limited
to the South African Reserve Bank and the JSE Limited have been obtained;
- the requisite majority of CIG shareholders placing a sufficient number of CIG shares under
the control of the directors of CIG for the purpose of the Claw-back Rights Offer; and
- no material adverse effect or force majeure event occurring prior to the declaration
announcement date of the Claw-back Rights Offer.
A notice of general meeting tabling the resolutions required to place sufficient shares under the
control of the CIG directors will be posted to shareholders as soon as practicable following this
announcement.
4. Categorisation of the Proposed Acquisition
The Proposed Acquisition is classified as a category 2 transaction in terms of paragraph 9.5(a)
of the JSE Listings Requirements.
5. Timetable
Further announcements and a detailed timetable pertaining to the shareholder meeting to place
sufficient shares under the control of the directors for the purposes of the Claw-Back Rights Offer
will be released as soon as practicable.
The final terms of the Claw-back Rights Offer will be released on SENS and published in the South
African press once the Purchase Agreement is unconditional. CIG estimates this could take 2 to 3
months, based on estimates for regulatory approvals.
CIG management will conduct a conference call to discuss the transaction on Thursday, 11 August
at 14h00. Details for the call are below.
Live Call Access Numbers For Participants
Country Access Number
Other Countries - International +27 11 535 3600
Other Countries - International +27 10 201 6800
South Africa - Cape Town 021 819 0900
South Africa - Durban 031 812 7600
South Africa - Johannesburg Neotel 011 535 3600
South Africa - Johannesburg Telkom 010 201 6800
UK - Toll-Free 0808 162 4061
Sandton
11 August 2016
Financial Advisor and Transaction Sponsor
Investec Bank Limited
Underwriter and advisor to the Rights Offer
Investec Bank Limited
Legal Counsel to Consolidated Infrastructure
Edward Nathan Sonnenbergs Incorporated
Legal Counsel to Investec Bank Limited
Glyn Marais Incorporated
Date: 11/08/2016 10:00:00 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.
Sharenet Sites 
