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ESR - ESOR - Acquisition of Patula Construction (Proprietary) Limited ("Patula")

Release Date: 22/09/2008 16:10:01      Code(s): ESR
ESR - ESOR - Acquisition of Patula Construction (Proprietary) Limited ("Patula")
and further cautionary announcement                                             
ESOR LIMITED                                                                    
(Incorporated in the Republic of South Africa)                                  
(Registration number: 1994/000732/06)                                           
JSE code: ESR  ISIN: ZAE000078408                                               
("Esor" or "the company")                                                       
CAUTIONARY ANNOUNCEMENT                                                         
1.   INTRODUCTION                                                               
    Shareholders are referred to the cautionary announcements dated 9 July 2008 
and 20 August 2008 and are advised that Esor entered into agreements on 19  
    September 2008 to acquire the entire issued share capital of and            
    shareholders claims in Patula, the minority interests in Patula Plant       
    (Proprietary) Limited, (a subsidiary of Patula) and the entire issued share 
capital of Brookmay Properties (Proprietary) Limited ("Brookmay")           
    (collectively "the Patula Group") from Andrew Charles Brookstein,           
    Malemadutje Briss Mathabathe, Richard Maynard and Mark Gavin Rippon ("the   
    Patula vendors") (either "the Patula acquisition" or "the Patula            
2.   BACKGROUND INFORMATION TO THE PATULA GROUP                                 
    Patula was founded in 1997 by Andrew Brookstein, initially to service       
    mining contracts and later to also service all civil engineering type       
contracts.  Over the last seven years, Patula has operated as a civil       
    engineering construction company.                                           
    Patula has completed construction projects in:                              
    -    Road building;                                                         
-    Bridge building;                                                       
    -    Township infrastructure work;                                          
    -    Water reticulation schemes;                                            
    -    Sewer reticulation;                                                    
-    Structural work in mining infrastructure; and                          
    -    Bulk earthmoving.                                                      
    Patula has a 9 Civil Engineering ("CE") certificate of contractor           
    registration granted by the Construction Industry Development Board (the    
highest possible grading), thereby qualifying it to tender for very large   
    construction projects.                                                      
3.   RATIONALE FOR THE TRANSACTION                                              
    3.1  Esor is the largest specialist geotechnical and civil engineering      
contractor in South Africa and the only one-stop geotechnical          
         provider.  Esor provides the mining, civil engineering and             
         construction industries with pipe-jacking, piling, soil improvements,  
         dynamic compaction, marine services and lateral support services       
needed to construct the sub-surface foundations for all major non-     
         residential buildings, mines, infrastructure and marine construction   
         projects.  Esor also offers field investigation, design and testing    
3.2  Patula is a civil engineering company that focuses on road building,   
         mining infrastructure work, township infrastructure work and concrete  
         projects for Government, mining houses and the private sector.         
    The Patula acquisition will contribute towards Esor increasing its          
participation in the overall large infrastructural spend anticipated by     
    Government and the private sector.                                          
    -    the Patula acquisition will expand Esor`s product and service          
offerings, diversify revenue streams and add critical mass to Esor;    
    -    Patula is an established profitable operation with a presence and      
         track record and can operate as a stand-alone and self-sufficient      
         business unit; and                                                     
-    Patula has experienced management with a track record, who will bring  
         further depth and diversity of management to the Esor group and who    
         will also become Esor shareholders.                                    
4.   PURCHASE CONSIDERATION                                                     
Subject to the provisions set out below, the purchase consideration payable 
    by Esor in terms of the Patula transaction is the aggregate of:             
    4.1  An initial amount ("initial payment") of R233.55 million; and          
    4.2  R6.45 million for the acquisition of Brookmay, the property company;   
4.3  A final maximum payment ("final payment") of R190 million determined   
         as follows:                                                            
         -    If the Patula Group`s headline earnings for the year ending 28    
              February 2009 ("2009 headline earnings") are less than R62.3      
million, then no further payment will be made;                    
         -    If the Patula Group`s 2009 headline earnings exceed R62.3         
              million, the final payment will be an amount equal to R4.18 for   
              every R1.00 by which the 2009 headline earnings shall exceed the  
sum of R62.3 million, provided that such final payment shall not  
              exceed R190 million.                                              
5.   PAYMENT OF PURCHASE CONSIDERATION                                          
    5.1  The purchase consideration as set out above will be discharged in the  
following manner:                                                      
         5.1.1     40% of the initial payment and the amount payable in terms   
                   of 4.1 and 4.2. will be discharged on the closing date (as   
                   described in 6 below) by the issue and allotment by Esor to  
the Patula vendors of Esor ordinary shares at an issue price 
                   of R6.00 per ordinary share;                                 
         5.1.2     the balance of the initial payment and the amount payable in 
                   terms of 4.1 and 4.2. will be payable in cash, which cash    
payment will be financed through borrowings, on the closing  
         5.1.3     40% of the final payment will be discharged on the later of  
                   1 September 2009 or the date upon which the 2009 headline    
earnings are finally determined, by the issue and allotment  
                   by Esor to the Patula vendors of Esor ordinary shares at an  
                   issue price equal to the higher of R6.00 per ordinary share  
                   or the 30 day volume weighted average price per ordinary     
share on the date preceding the date upon which the 2009     
                   headline earnings are finally determined;                    
         5.1.4     the balance of the final payment will be payable in cash at  
                   the same time as the issue of the ordinary shares in terms   
of 5.1.3.                                                    
    5.2  Restrictions on the disposal of the ordinary shares to be issued to    
         the Patula vendors                                                     
         None of the Patula vendors shall be entitled to sell:                  
-    more than 50% of the Esor ordinary shares issued to them in terms 
              of 5.1.1. prior to the first anniversary of the effective date;   
         -    more than 75% of the Esor ordinary shares issued to them in terms 
              of 5.1.1. prior to the second anniversary of the effective date.  
Similar restrictions will apply to the shares to be issued to the      
         Patula vendors in terms of 5.1.3.                                      
    5.3  Pre-emptive rights in favour of Esor                                   
         Subject to the restrictions in 5.2 and the JSE Limited ("JSE")         
Listings Requirements, should any of the Patula vendors wish to sell   
         their Esor ordinary shares, they shall be obliged to first offer such  
         shares to Esor.  Esor shall be entitled to cede its rights in terms of 
         the pre-emptive.                                                       
6.   EFFECTIVE DATE AND CLOSING DATE                                            
    The Patula transaction will become effective on the first day of the month  
    following the month in which all of the conditions precedent (as set out in 
    7) have been fulfilled or waived.  The closing date of the transaction will 
be the later of 21 business days after the effective date or the 5th        
    business day after the date upon which the effective date net tangible      
    asset value ("NTAV") and effective date headline earnings have been finally 
7.   CONDITIONS PRECEDENT                                                       
    The Patula acquisition is conditional, inter alia, upon:-                   
    7.1  all necessary regulatory approvals being obtained, including approval  
         in terms of the Competition Act 89 of 1998;                            
7.2  Patula`s bankers to confirm that their existing banking facilities     
         shall continue in existence following the implementation of the Patula 
    7.3  the effective date NTAV being not less than R48.5 million plus the     
effective date headline earnings (with the effective date headline     
         earnings being not less than R8 million multiplied by the number of    
         months leading up to the effective date);                              
    7.4  the unconditional written consent being obtained, to the extent        
required, from other parties with regard to material contracts; and    
    7.5  a shareholders` agreement being entered into between Patula other      
         shareholders governing their relationship as shareholders of Balekane  
         Construction (Pty) Limited, in which Patula currently owns 50% of the  
issued share capital.                                                  
8.   OTHER MATTERS                                                              
    8.1  Warranties and indemnities as are normal in transactions of this       
         nature have been provided for in respect of the aforementioned         
    8.2  Key employees of the Patula Group have entered into standard service   
    8.3  All the Patula vendors, with the exception of Briss Mathabathe, have   
entered into restraint of trade agreements in favour of Patula.        
    8.4  To ensure the retention of second tier management, Esor will make 3    
         500 000 Esor share options available to certain Patula employees in    
         terms of the Esor Share Incentive Scheme.                              
8.5  Esor has successfully completed a due diligence review on the Patula   
9.   APPOINTMENT TO THE ESOR BOARD                                              
    Once the Patula transaction becomes unconditional, Mr Briss Mathabathe will 
be appointed as a non-executive director to the Esor board.                 
10.  FINANCIAL EFFECTS                                                          
    The financial effects of the Patula transaction are in the process of being 
    finalised and will be released on or before 29 September 2008.              
11.  CLASSIFICATION OF THE TRANSACTION                                          
    The transaction is classified as a Category 2 transaction in terms of the   
    JSE Listings Requirements.                                                  
12.  FURTHER CAUTIONARY ANNOUNCEMENT                                            
Shareholders are advised that negotiations unrelated to the above           
    announcement are still in progress, which, if successfully concluded, may   
    have a material effect on the price of the company`s securities.            
    Shareholders are therefore advised to continue exercising caution in        
dealing in the company`s securities on the JSE until such time as both the  
    financial effects of the Patula transaction and the results of the          
    aforementioned negotiations are announced.                                  
22 September 2008                                                               
Designated Adviser                                                              
Exchange Sponsors                                                               
Transaction Adviser                                                             
Vunani Corporate Finance                                                        
Legal Advisers to Esor                                                          
Fluxmans Inc.                                                                   
Competition Law Advisers                                                        
Brink Cohen Le Roux Inc.                                                        
Date: 22/09/2008 16:10:01 Supplied by www.sharenet.co.za                     
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