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Esor Limited - Proposed Acquisition Of Franki Africa (Proprietary) Limited

Release Date: 25/08/2006 15:34:13      Code(s): ESR
     Esor Limited - Proposed Acquisition Of Franki Africa (Proprietary) Limited 
     And Placement Of Shares With Strategic Empowerment Consortium              
     ESOR LIMITED                                                               
(Incorporated in the Republic of South Africa)                             
     Registration number: 1994/000732/06)                                       
     (JSE code: ESR & ISIN: ZAE000078408)                                       
     ("Esor" or "the company")                                                  
     1.   INTRODUCTION                                                          
     Shareholders are referred to the cautionary announcements dated 5 July 2006
and 16 August 2006.                                                        
     Esor has, subject to the conditions precedent set out below, purchased all 
     the issued shares in and claims on loan account against Franki Africa      
     (Proprietary) Limited ("Franki") from the shareholders of Franki ("the     
Sellers") ("the proposed acquisition").  The shareholders of Franki are    
     Franki Executive Holdings, Investec Bank Limited, FT Dudley, D Brindle, GG 
     Robertson, JP Maree and a Consortium of the current executive directors of 
     Franki ("Executive Directors").                                            
A broad based empowerment consortium including Esor-Franki staff (the "BEE 
     Consortium") has agreed to subscribe for part of the new ordinary shares to
     be issued in terms of a specific issue of shares for cash to fund the      
     proposed acquisition, which will result in an empowerment shareholding of  
more than 26% in Esor.                                                     
     In terms of the Listings Requirements of the JSE Limited ("JSE") the       
     proposed acquisition is classified as a category 1 transaction.            
     2.   RATIONALE                                                             
Esor provides geotechnical engineering services to customers in the        
     construction industry, executing projects for parastatals, local government
     and corporations either as partners of a consortium or as the primary      
     contractor for underground construction projects.  The company operates    
from its premises in Durban and Germiston, executing projects in South     
     Africa.  Franki as a specialist geotechnical engineering contractor serves 
     the construction markets locally, in Africa and the Indian Ocean Islands.  
     The acquisition will expand Esor"s product and services offering, as well  
as the company"s geographical footprint, both nationally and in Franki"s   
     area of operations in Africa.  The subscription for new shares by the BEE  
     Consortium establishes Esor as a prominent empowered construction company  
     with levels of black ownership, directors and employment equity above the  
requirements set out in the Construction Charter. The company views its    
     empowerment credentials as a significant asset that will provide           
     opportunities to do business with government, parastatals and the private  
3.   DESCRIPTION OF FRANKI"s BUSINESS                                      
     Franki is a geotechnical engineering contractor serving the building, civil
     and infrastructural construction markets.  The Company comprises of three  
     Divisions located in Johannesburg, Cape Town and Durban.  The divisions are
strategic business units that oversee specific geographical areas of       
     operation.  The Company"s Head Office provides functional support to each  
     of the Divisions, whilst an internal geotechnical investigation and design 
     service are also provided.                                                 
Franki divisions offer geotechnical investigation services, design and     
     construct services for the products and techniques provided by the company,
     as well as a full range of services for the marine construction market that
     supported the construction of numerous facilities for the fishing industry.
Franki also provides Piling, Underpinning and Lateral Support Services.    
     On 25 August 2006 Esor purchased, subject to the fulfilment of the         
     conditions precedent in 6 below, all the issued share capital in and claims
on loan account against Franki, with effect from 1 August 2006.  The       
     purchase consideration is R 170 million and a maximum of  10 375 000 Esor  
     shares which will be issued to the Executive Directors at an issue price of
     160 cents per share if certain profit warranties are achieved over the next
two years.                                                                 
     The purchase price is payable as to R 126.8 million in cash with the       
     balance being issued in              30 826 667 Esor shares at 160 cents   
     per share.  The purchase price will bear interest at the prime overdraft   
rate from 15 August 2006 until the payment date.                           
     Esor has completed a due diligence investigation on Franki to its          
     5.   FUNDING OF THE PROPOSED TRANSACTION                                   
The cash portion of the purchase price will be funded through capital      
     raised in terms of a specific issue of 88 125 000 new ordinary Esor shares 
     for cash at 160 cents per share, by the placement of 65.5 million shares   
     with the BEE consortium and 22.5 million shares with institutions.         
6.   CONDITIONS PRECEDENT TO THE ACQUISITION                               
     The proposed transaction is subject to the fulfilment of inter alia the    
     following conditions precedent:                                            
     -    Esor obtaining all the necessary regulatory approvals;                
-    approval by Esor"s shareholders for the proposed acquisition and the  
          specific issue of shares for cash.                                    
     7.   PRO FORMA FINANCIAL EFFECTS                                           
     The unaudited pro forma financial effects are provided for illustrative    
purposes only to provide information about how the acquisition of Franki   
     and the issue of Esor ordinary shares may have impacted on Esor"s results  
     and financial position.  Due to the nature of the unaudited pro forma      
     financial information, it may not give a fair presentation of the group"s  
results and financial position after the acquisition of Franki and the     
     issue of Esor ordinary shares.                                             
     The unaudited pro forma financial effects are based on the unaudited pro   
     forma financial information after the capital raising and private placing  
as disclosed in the prospectus dated 2 March 2006, as well as the issue of 
     shares to the Share Incentive Trust, to make the comparison more           
     meaningful. Esor applied to the JSE for the listing of an additional 3 000 
     000 new ordinary shares on 14 March 2006. The application was approved and 
the shares listed with effect from 14 March 2006. These shares were issued 
     to the Share Incentive Trust for allocation to qualifying Esor employees.  
     The audited 28 February 2006 financial effects have been included in terms 
     of the JSE Listings Requirements.  The directors of Esor are responsible   
for the preparation of the unaudited pro forma financial effects.          
                      Audited        Unaudited    Pro Forma     %               
                      28 February    pro forma    unaudited     Change          
                      2006           after the    after the                     
capital      Franki                        
                                     raising,     transaction                   
                                     private      28 February                   
                                     placing and  2006                          
                                     28 February                                
     Earnings per     13.3           10.9         15.8          19              
     share (cents)                                                              
Headline         12.7           10.4         15.6          23              
     earnings per                                                               
     share (cents)                                                              
Net asset value  36.9           44.3         98.4          166             
     per share                                                                  
     (cents) (2)                                                                
     Net tangible     36.9           44.3         49.8          35              
asset value per                                                            
     share (cents)                                                              
     Shares in issue  100 000        123 000      245 139                       
(000) (3)                                                                  
     (1)  The unaudited pro forma financial effects on the results were prepared
          on the basis that the acquisition of Franki and the issue of Esor     
ordinary shares were completed on 1 March 2005.                       
     (2)  The unaudited pro forma financial effects on the financial positions  
          were prepared on the basis that the acquisition of Franki and the     
          issue of Esor ordinary shares were completed on 28 February 2006.     
(3)  Assumed that 122 139 167 new ordinary Esor shares will be issued in   
          terms of the transaction. 3 187 500 of the new ordinary shares will be
          issued to the Designated Advisor in lieu of their fees, 65 625 000 to 
          the BEE consortium, 20 400 000 to the Seller in settling part of the  
purchase consideration, 22 500 000 to institutions and 10 426 667 to  
          the Franki executive management in terms of the profit incentive. The 
          new shares will be issued at 160 cents per share.                     
     (4)  Assumed that profit targets will be met and additional 10 426 667     
shares were issued to the executive management on 1 March 2005 (for   
          NAV and NTAV calculations) and 28 February 2006 (for EPS and HEPS     
     (5)  Goodwill of approximately R119 million will arise on the acquisition. 
8.   DOCUMENTATION                                                         
     A circular with full particulars of the proposed acquisition, as well as   
     Revised Listings Particulars of Esor and a notice of a general meeting of  
     shareholders, will be mailed to the shareholders within the next 28 days.  
     25 August 2006                                                             
     Designated adviser               Exchange Sponsors                         
     Auditors                         RSM Betty & Dickson                       
Attorneys                        Fluxmans Inc.                             
     Attorneys for Competition        Brink Cohen Le Roux Inc.                  
     Commission Application                                                     
     Warning: The listing of ordinary shares in the company is on ALTx.         
Investors are advised of the risks of investing in a company listed on     
     ALTx. Investors are advised that the JSE does not guarantee the viability  
     or the success of a company listed on ALTx.  In terms of the Listings      
     Requirements, the company is obliged to appoint and retain a Designated    
Adviser, which is required to, inter alia, attend all board meetings held  
     by the company to ensure that all the Listings Requirements and applicable 
     regulations are complied with, approve the Financial Director of the       
     company and guide the company in a competent, professional and impartial   
manner.  If the company fails to retain a Designated Adviser, it must make 
     arrangements to appoint a new Designated Adviser within 10 business days,  
     failing which the company faces suspension of trading of its securities.   
     If a Designated Adviser is not appointed within 30 days of its suspension, 
the company faces the termination of its listing without the prospect of an
     appropriate offer to minority shareholders.                                
Date: 25/08/2006 03:34:19 PM Supplied by www.sharenet.co.za                     
Produced by the JSE SENS Department                                             

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