SSK
SSK - Stefanutti Stocks Holdings Limited - Acquisition by Stefanutti Stocks
Holdings Limited
Stefanutti Stocks Holdings Limited
(Registration number 1996/003767/06)
Share code: SSK ISIN: ZAE000123766
("Stefanutti Stocks" or "the Company")
ACQUISITION BY STEFANUTTI STOCKS HOLDINGS LIMITED ("STEFANUTTI STOCKS") OF
CYCAD PIPELINES (PROPRIETARY) LIMITED ("CYCAD PIPELINES") AND WITHDRAWAL OF
CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
Further to the cautionary announcements made on 23 February 2011, 6 April
2011 and 24 May 2011, shareholders are advised that Stefanutti Stocks,
through its wholly owned subsidiary Stefanutti Stocks (Proprietary)
Limited, has entered into an agreement dated 17 June 2011 to acquire the
entire issued share capital of Cycad Pipelines and its related property
holding companies.
2. NATURE OF THE CYCAD GROUP BUSINESS
The Cycad Group, which is made up of Cycad Pipelines, Cycad Construction
(Proprietary) Limited ("Cycad Construction") and two property holding
companies, is a specialist pipeline construction and refurbishment
contractor with its head office based in Nuffield, Springs, South Africa.
The business has been in existence for over 22 years and is focused on the
construction of major new pipelines and the refurbishment of existing
pipelines. Gas, oil, water, sewerage and effluent pipelines are built or
refurbished in steel, plastic, concrete and other specialist materials.
The business has over recent years, as a result of its significant and
ongoing investment in plant, equipment and human resource capital,
positioned itself as one of the premier contractors in the pipeline
construction market and is able to execute contracts of all sizes.
For the year ended 28 February 2011 the Cycad Group reported an operating
profit and a profit after tax of R61,4 million (2010: R52,7 million) and
R50,6 million (2010: R40,6 million) respectively. The turnover of the Cycad
Group varies depending on whether or not the pipes required for the
contract are either supplied by the client as free issues, or have to be
purchased as part of the contract price.
3. SALIENT FEATURES OF THE TRANSACTION
Stefanutti Stocks has entered into an agreement with the Bortan Trust,
Alfred Henry Smith ("Mr Smith") and Burcron Props 15 (Proprietary) Limited
("the Sellers") to acquire Cycad Pipelines and its related properties
housed by property holding companies for a total purchase consideration of
R298 000 000 and R8 000 000 respectively ("the Transaction"). Prior to the
implementation of the Transaction, the business of Cycad Construction will
be amalgamated with that of Cycad Pipelines so that the Cycad Group`s
business will be housed entirely within Cycad Pipelines.
The purchase consideration will be settled in cash, utilising an element of
existing cash resources and external borrowings, once all conditions
precedent to the Transaction have been fulfilled or waived. The Sellers
have provided warranties typical to a transaction of this nature.
Mr Smith, being a founding shareholder and current chief executive officer
of the Cycad Group will enter into an employment contract with Stefanutti
Stocks, for a period of at least two years.
4. RATIONALE FOR THE TRANSACTION
It is expected that water infrastructure distribution expansion and
rehabilitation forms an integral part of the South African Government`s
future investment. Stefanutti Stocks has, therefore, indentified the
pipeline construction market to be a growth sector within the South African
economy. In order to be well positioned within the sector and to be able to
capitalise on the infrastructure spend, Stefanutti Stocks has taken a
strategic decision to acquire the Cycad Group.
Having recently co-operated on a number of joint ventures with the Cycad
Group, Stefanutti Stocks concluded that the cultures of the two businesses
compliment one another, and significant strategic benefits can be achieved
through this acquisition.
The Transaction will provide Stefanutti Stocks with the prospects of:
- expanding its current service offerings to its clients;
- participation in the pipeline construction market with good long term
growth prospects;
- enhancing the enlarged Stefanutti Stocks group access to specialist skills,
asset base and management capacity; and
- improved operating margins.
As at the date of this announcement, the Cycad Group`s order book was R527
million.
5. CONDITIONS PRECEDENT
The Transaction is subject, inter alia, to the following significant
conditions precedent:
- the Sellers to ensure the conclusion and implementation of agreements
required to give effect to the pre-acquisition restructuring of the Cycad
Group;
- Mr Smith to conclude a written fixed term employment contract, to the
satisfaction of both parties, for a period of not less than two years with
effect from 17 June 2011;
- the granting of all regulatory approvals or clearances as may be required,
including that of the Competition Tribunal and the Takeover Regulation
Panel;
- the Sellers entering into appropriate restraint of trade agreements;
- the approval by any counterparties to commercial contracts requiring
consent to the transfer of such contracts or change of ownership of the
Cycad Group, as may be required; and
- no material adverse change having occurred between the signature date and
the date of fulfilment of the other conditions.
6. EFFECTIVE DATE
The effective date of the acquisition is 1 November 2010.
7. UNAUDITED PRO FORMA FINANCIAL EFFECTS OF THE ACQUISITION
The unaudited pro forma financial effects of the acquisition, as set out
below, are based on the reviewed condensed consolidated results of
Stefanutti Stocks for the year ended 28 February 2011. The unaudited pro
forma financial effects are presented for illustrative purposes only, to
provide information on how the acquisition may have impacted on the results
and financial position of Stefanutti Stocks. Due to the nature of the
unaudited pro forma financial
effects, they may not give a fair representation of the financial position
of the Company and the results of its operations after the acquisition. The
Company`s directors are responsible for the preparation of the unaudited
pro
forma financial effects.
The unaudited pro forma financial effects of the acquisition are set out
below:
Before the After the Percentage
acquisition (1) acquisition change (%)
Earnings per share (cents) 193,55 203,44(2) 5,11
Diluted earnings per share (cents) 177,06 186,11(2) 5,11
Headline earnings per share (cents) 192,45 202,24(2) 5,09
Diluted headline earnings per
share (cents) 176,04 185,00(2) 5,09
Net asset value per share (cents) 1 079,54 1 059,97(3) (1,81)
Net tangible asset value (cents) 420,22 303,45(3) (27,79)
Notes:
1. Extracted from the reviewed condensed consolidated results of Stefanutti
Stocks for the year ended 28 February 2011.
2. Earnings, diluted earnings, headline earnings and diluted headline earnings
per share in the "After the acquisition" column have been based on the
following assumptions:
a. the acquisition was implemented on 1 March 2010;
b. the weighted average number of Stefanutti Stocks shares in issue is 172 051
492 before and after the acquisition; and
c. interest payable on borrowed funds and interest foregone on the cash
utilised by Stefanutti Stocks to fund the acquisition at a pre-tax rate of
8,2% and 5,0% per annum respectively, was taken into account.
3. Net asset value and net tangible asset value per share in the "After the
acquisition" column have been based on the following assumptions:
a. the total number of shares in issue of 171 700 649 before and after the
acquisition.
4. The pro forma financial effects have not been reviewed by the Company`s
auditors.
8. ARTICLES OF ASSOCIATION
Stefanutti Stocks undertakes to amend the Articles of Association of Cycad
Pipelines as required by Schedule 10 of the Listings Requirements of the
JSE Limited.
9. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Following the disclosure of the unaudited pro forma financial effects of
the acquisition, shareholders are no longer required to exercise caution
when dealing in the Company`s securities and accordingly, the cautionary
announcement renewal released by Stefanutti Stocks on 24 May 2011 is hereby
withdrawn.
Johannesburg
20 June 2011
Sponsor and Transaction Advisor: Bridge Capital Advisors (Pty) Limited
Attorneys to Stefanutti Stocks: Webber Wentzel
Date: 20/06/2011 07:14:07
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