ACL - Terms Announcement : Proposed Acquisition
ArcelorMittal South Africa Limited
(Incorporated in the Republic of South Africa)
(Registration Number 1989/002164/06)
Share Code: ACL
(“ArcelorMittal South Africa”)
TERMS ANNOUNCEMENT REGARDING THE PROPOSED ACQUISITION BY ARCELORMITTAL
SOUTH AFRICA OF THE STRUCTURAL STEEL AND RAIL MANUFACTURING BUSINESS
OPERATED BY HIGHVELD STRUCTURAL MILL PROPRIETARY LIMITED ("HSM"), A PRIVATE
COMPANY REGISTERED AND INCORPORATED UNDER THE LAWS OF SOUTH AFRICA, WHICH
IS A WHOLLY-OWNED SUBSIDIARY OF EVRAZ HIGHVELD STEEL AND VANADIUM LTD
("HIGHVELD"), CURRENTLY UNDER BUSINESS RESCUE
Shareholders were advised that a contract manufacturing agreement (“CMA”), had been concluded
between ArcelorMittal South Africa, Highveld and HSM (a subsidiary of Highveld) in terms of which
ArcelorMittal South Africa will supply blooms and slabs to HSM for processing into heavy structural
steel. In terms thereof, ArcelorMittal South Africa also had an option to purchase the business of
We are pleased to advise that ArcelorMittal South Africa has entered into a sale of business
agreement with HSM and Highveld (represented by Piers Marsden in his capacity as the Business
Rescue Practitioner of Highveld) ("Sale of Business Agreement"), in relation to the acquisition of the
assets and liabilities of the structural steel and rail manufacturing business ("Business") currently
operated by HSM ("Proposed Transaction").
OVERVIEW OF THE BUSINESS
The Business carried on by HSM is the manufacture of heavy structural steel pursuant to the supply
by ArcelorMittal South Africa to HSM of blooms and slabs in terms of the CMA.
RATIONALE FOR THE PROPOSED TRANSACTION
ArcelorMittal South Africa, Highveld and HSM restarted the heavy section steel mill in eMalahleni after
ArcelorMittal South Africa, Highveld and HSM concluded the CMA in December 2017, which was
amended on 17 January 2018 and on 28 June 2019. In terms of the CMA, ArcelorMittal South Africa
has supplied blooms and slabs to HSM for processing into heavy structural steel from April 2017. The
conclusion of the CMA was as a result, in part, of the ongoing engagement between Government and
the steel industry aimed at ensuring the sustainability of the local steel sector.
The products produced by HSM at the heavy section mill are primarily sold to the construction,
infrastructure, mining and general engineering sectors. The restart of the heavy section mill was a
positive development for the local steel industry. Not only did it assist in curbing imports of these
products, but it also ensured that there was continued supply of these products to the downstream
industry. In addition, the operation of the CMA has had the added benefit of reviving jobs in the
struggling steel sector.
The structural mill is the only facility of its kind in Africa with the ability to produce structural steel,
including material for railway lines. This is a unique position to supply markets locally and in the
By entering into the Proposed Transaction, ArcelorMittal South Africa will ensure it retains the
momentum created under the CMA to continue to build steel manufacturing capability in South Africa
and at the same time support the struggling eMalahleni economy and the local community following
retrenchments when the structural steel mill closed four years ago.
STRUCTURE OF THE PROPOSED TRANSACTION
It is envisaged that ArcelorMittal South Africa will acquire the Business currently operated by HSM,
which takes into account optimal structuring from a commercial, tax and legal perspective in terms of
the Sale of Business Agreement.
Subject to the successful fulfilment or waiver (as the case may be) of the below-mentioned conditions
precedent, it is anticipated that the effective date of the Proposed Transaction will be no later than
1 December 2020, unless the parties agree otherwise ("Effective Date").
KEY COMMERCIAL TERMS:
The purchase price payable by ArcelorMittal South Africa to HSM for the Business shall be:
a. an amount equal to ZAR150 million to be paid on the Effective Date in cash ("Effective
Date Purchase Price"); and, if applicable
b. the Effective Date Purchase Price will be increased by an amount equal to ZAR150 million,
subject to the occurrence of a payment trigger event ("Adjustment Amount"), being either
of the following occurring after the Closing Date but prior to 31 December 2023 (or 31
December 2024 if the Effective Date occurs after 31 May 2020), unless otherwise agreed
between the parties:
i. ArcelorMittal South Africa (or any member of the ArcelorMittal South Africa
group) becoming entitled to draw down or utilise a funding facility from the
Industrial Development Corporation of South Africa Limited ("IDC") or similar
financial institution in an amount up to R150 million together with the
ArcelorMittal South Africa board approval of a business case providing for the
investment in improvements, modifications and/or upgrades to the structural
steel mill so as to enable it to manufacture alternative products, in particular,
mainline rail; or
ii. the free cash flow of the Business during any financial year equating to
exceeding R100 million,
(each a "Payment Trigger Event").
The Adjustment Amount will be payable by ArcelorMittal South Africa to HSM within a period
of 5 business days from the occurrence of a Payment Trigger Event. In the event that on
the date that the Adjustment Amount is due to be paid by ArcelorMittal South Africa to HSM,
ArcelorMittal South Africa:
i. is entitled to claim/s in relation to a breach of warranties and/or indemnities
by HSM and/or Highveld, as contemplated in the Sale of Business
Agreement, ArcelorMittal South Africa shall be entitled to reduce the
Adjustment Amount by the quantum of such claim/s; or
ii. has no claim/s in relation to a breach of warranties and/or indemnities by
HSM and/or Highveld, as contemplated in the Sale of Business Agreement,
HSM shall be obliged to deposit a portion of the Adjustment Amount into an
escrow account, held by an escrow agent appointed by HSM, for a period
of 12 months after receipt of payment of the Adjustment Amount for the
purposes of settling any potential claims that ArcelorMittal South Africa may
have in relation to a breach of warranties and/or indemnities by HSM
and/or Highveld during such 12 month period.
The Proposed Transaction is subject to, amongst others, the fulfilment of the following conditions
a. obtaining the necessary regulatory approvals required for implementation of the
Proposed Transaction, being the approval of the Competition Authorities of South
b. ArcelorMittal South Africa obtaining an air emissions licence from the relevant
Governmental authority for the purposes of operating the Business from the Effective
c. the release of the security held by the IDC over the assets comprising the Business;
d. various supply and lease agreements having been entered into in order to keep the
ArcelorMittal South Africa will, prior to the Effective Date, make offers of employment on a fixed basis to
all current employees of the Business pursuant to which, all employees who accept such offer of
employment will be employed on a fixed basis by ArcelorMittal South Africa with effect from the Effective
Simultaneously with the conclusion of the Sale of Business Agreement, ArcelorMittal South Africa has
entered into utilities agreement with Highveld for the supply of water, electricity, gas and other
services to the Business.
ArcelorMittal South Africa also concluded an addendum to the CMA on 28 June 2019 so that the CMA
will continue to endure until the Effective Date of the Sale of Business Agreement or, in the event that
the Sale of Business Agreement lapses and does not become effective, the CMA will endure until 30
FUNDING OF THE ACQUISITION
The funds for the purchase of the Business is envisaged to be funded by ArcelorMittal South Africa
via new borrowings.
a. the Effective Date Purchase Price from internal sources; and
b. the conditional Adjustment Amount from new borrowings.
Per the draft financial statements of HSM as at 31 December 2018, the financial information is as
a. the value of the net assets of HSM was R154 million; and
b. the profit after tax attributable to the net assets of HSM was R85 million.
CLASSFICATION OF THE PROPOSED TRANSACTION
The Proposed Transaction is a Category 2 transaction in terms of the JSE Listings Requirements and
therefore shareholder approval is not required for the Proposed Transaction. Accordingly, no circular
will be published.
The Proposed Transaction is once again a demonstration of effective collaboration between key
stakeholders to achieve what could in future prove to be a significant contributor to economic growth,
manufacturing capability and further industrialisation in South Africa.
1 August 2019
For further information please contact:
Mrs Vuyo Mtawa
Manager: Corporate Communications
Tel: (016) 889 4100
Sponsor to ArcelorMittal South Africa Limited
Absa Bank Limited (acting through its Corporate and Investment Banking division)
Date: 01/08/2019 07:05:00
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