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INSIMBI INDUSTRIAL HOLDINGS LIMITED - Acquisition of Treppo Group Proprietary Limited (Treppo)

Release Date: 20/06/2019 13:25
Code(s): ISB     PDF:  
 
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Acquisition of Treppo Group Proprietary Limited (“Treppo”)

     Insimbi Industrial Holdings Limited
     (Formerly Insimbi Refractory and Alloy Supplies Limited)
     (Incorporated in the Republic of South Africa)
     (Registration number: 2002/029821/06)
     Share code: ISB ISIN: ZAE000116828
     (“Insimbi” or “ISB” or “the Group”)

     ACQUISITION OF TREPPO GROUP PROPRIETARY LIMITED (“TREPPO”)

1.   INTRODUCTION

     Shareholders are hereby referred to the cautionary announcement issued 20 March 2019, renewed on 18 April
     2019 and 29 May 2019, and are advised in terms of Section 9 of the JSE Limited Listings Requirements, that
     Insimbi has extended an offer to the shareholder of Treppo, being Texiflash Proprietary Limited (“the Vendor”),
     who has agreed to the key terms of the proposed transaction, which will see ISB acquiring control of Treppo
     which is made up of its MetalCorp and Treppo trading divisions, Bulk Ferrous Exports Proprietary Limited as
     well as interests in an unincorporated joint venture with CRMN Trading Proprietary Limited, Metfurco Trading
     Proprietary Limited, Steelco Broking Proprietary Limited and FragCorp Proprietary Limited. The transaction is
     subject to the fulfilment of all suspensive conditions relating to the proposed acquisition.

2.   EFFECTIVE DATE AND CONDITIONS PRECEDENT

     The transaction will become effective once all the suspensive conditions to the transaction agreement have been
     met. It is expected that a ruling by the Competition Commission may be required as a final condition to be met.
     All things being equal, it is expected that the effective date will be on or about 1 September 2019 (“Effective
     Date”), assuming the timely submission of the necessary merger notification to the Competition Commission.

     Key suspensive conditions to the proposed transaction include, amongst others, the finalisation of the relevant
     transaction agreements, funding arrangements, employment agreements with key executives, appropriate
     immovable property rental agreements, as well as the necessary regulatory approvals as may be required (e.g.
     Competition Commission).

     An additional suspensive condition to the finalisation of the proposed transaction is that no material adverse
     change would have occurred regarding the business of Treppo as at the Effective Date.

3.   THE BUSINESS OF TREPPO

     Treppo is involved in the sourcing, trading and purchasing of recycled metals, mainly ferrous or steel metal in
     the greater Gauteng area, South Africa. The business has a 13-year track record in this niche sector of the
     market and has experienced significant growth during the recent past. The business operates from its Head Office
     in Marlborough Gate, Hyde Park and premises at 110 Kreupelhout Street, Wadeville, Unit 10A Unifront
     Industrial Park, Wadeville and 151 South Coast Rd, Rossburgh, Durban. The business offers services in the field
     of metal trading, processing, recycling, logistics, procurement and supply of various grades of metals to the local
     metal melting industry. The business strives to supply local end users wherever possible and will occasionally
     export limited volumes. The business also has the rights to sell Belgian origin Lefort machinery equipment, a
     world leader in the supply of metal recycling equipment. It also has a joint venture in a chrome trading venture.
4.   TRANSACTION CONSIDERATION & OTHER TERMS

     The transaction consideration is an initial amount of R109.0 million, (including loans), payable by Insimbi to
     Treppo and its subsidiaries. This is subject to certain warranties by the Vendor regarding the net asset value at
     Effective Date and future profits to be achieved by Treppo. A further amount limited to R8.5 million may also
     become payable based on the achievement of certain profit targets set over the initial 36-month period post
     acquisition. The breakdown of the transaction consideration is set out below:

     *    Cash; up to R102.5 million in tranches as follows (subject to the net asset value warranty described below);

                     * R74.0 million payable on Effective Date.
                     * Vendor Loan; to the value of R20.0 million, repayable after a period of three years, bearing
                       interest at a rate of prime less 2%. Repayment of the capital amount may be extended to a
                       maximum of 5 years, at the option of Insimbi.
                     * Additional payments; should Treppo exceed the profit target of R90.0 million in a 36-month
                       period post acquisition (i.e. an average of R30.0 million per annum), calculated on a pro rata
                       basis an additional amount limited to R8.5 million will become payable by ISB to Texiflash
                       in cash once certified by the auditors.

     *   ISB Shares; 11 538 462 shares to be issued at R1.30 per share equivalent, to the value of R15.0 million in
         aggregate, and
     *   Profit warranty; the transaction consideration defined in terms of the offer is however subject to Treppo
         maintaining an average profit before tax of R30.0 million per annum for the next three financial years, or
         R90.0 million profit before tax in aggregate over 36-months post implementation of the acquisition.
     *   Surety; the Vendor Loans, as well as the ISB Shares will secure the Vendor’s obligations in terms of the
         final transaction agreements.

     As a result of these arrangements, a maximum purchase consideration of R117.5 million may be payable, at a
     then effective price earnings ratio of approximately 4.1 times earnings.

5.   NET ASSETS & ATTRIBUTABLE PROFITS

     It is agreed that Treppo will, on the Effective Date report Tangible Net Asset Value (“TNAV”) of at least R90.0
     million. Should the TNAV of the business be less than the warranted amount, the acquisition price will be
     adjusted.

6. RATIONALE FOR THE TRANSACTION

     The rationale for the transaction is to expand Insimbi’s ferrous business, expand its client base, and enhance its
     access to raw material for purposes of beneficiation, as well as access to an experienced management team and
     its international trading network and further to exploit the synergies that exist between the 2 groups which may
     include cost savings, improved margins, increased global and regional footprint and most importantly, further
     diversification of Insimbi into a larger industrial conglomerate.
7.   MOI

     As Treppo will become a wholly owned subsidiary of the larger ISB Group of companies, the MOI of Treppo
     as an ISB subsidiary will be amended in order to conform to Schedule 10.21 of the Listings Requirements, as
     required.

8.   CATEGORISATION OF THE TRANSACTION

     For purposes of categorisation, the transaction is deemed a Category 2 transaction in terms of the Listings
     Requirements of the JSE Limited, given the dilutionary impact of shares issued and the maximum cash
     consideration payable, or potentially payable in terms of the agreed terms and therefore does not require
     shareholder approval.

9.   WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT

     Following the release of this announcement, the cautionary announcement published by ISB on 20 March 2019,
     renewed on 18 April 2019 and 29 May 2019 is hereby withdrawn and caution is no longer required to be
     exercised by shareholders when dealing in their ISB Shares. Having said that, a finalisation announcement will
     be made when the transaction becomes unconditional.

     Johannesburg

     20 June 2019

     Sponsor: Bridge Capital Advisors Proprietary Limited

     Legal Advisor to Insimbi: Falcon & Hume Inc Attorneys

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