1. INTRODUCTION. (the transaction ). Rafik Mohamed is currently the sole director of PRSM.

Transcription

1 ANDULELA INVESTMENT HOLDINGS LIMITED (Incorporated in the Republic of South Africa) (Registration number: 1950/037061/06) JSE share code: AND ISIN: ZAE ( Andulela or the company ) CATEGORY 1 DISPOSAL BY ANDULELA OF ITS WHOLLY OWNED SUBSIDIARY PRO-ROOF STEEL MERCHANTS PROPRIETARY LIMITED ( PRSM ) TO A RELATED PARTY, A SPECIFIC REPURCHASE OF ANDULELA SHARES AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT 1. INTRODUCTION Andulela shareholders are referred to the cautionary announcement dated 18 September 2013 and the renewal of cautionary announcement dated 30 October 2013 and are advised that Andulela has concluded an agreement with Steelmin Investment Holdings Proprietary Limited ( Steelmin ) and The Rafik Mohamed Family Trust ( RM Family Trust ) (collectively, the purchasers ) dated 3 December 2013 (the disposal agreement ), in terms of which, inter alia: - with effect from the effective date, as defined below, Andulela, as the seller, will sell to the purchasers, which will purchase, all of the issued shares of PRSM (the sold shares ), a major and wholly owned subsidiary of Andulela, for an aggregate purchase price of R (the purchase price ) in the following proportions: o 46.08% of the sold shares to the RM Family Trust; and o 53.92% of the sold shares to Steelmin; - the purchasers will settle the purchase price by delivering to Andulela in aggregate Andulela ordinary shares (the consideration shares ) whereafter the consideration shares will be repurchased and cancelled by the company in terms of section 48 of the Companies Act, 2008 ( Companies Act ) and paragraph 5.69 of the JSE Listings Requirements, (the transaction ). Rafik Mohamed is currently the sole director of PRSM. Each of Steelmin and the RM Family Trust as well as Newshelf 1005 Proprietary Limited, Andulela s controlling shareholder, is an associate of Mr Mohamed and accordingly the transaction is regarded as a large related party transaction in terms of section 10 of the JSE Listings Requirements and as such is conditional upon the approval of a simple majority of Andulela shareholders being obtained therefor (other than Mr Mohamed and his associates and any other shareholder excluded from voting in respect of such resolution in terms of the JSE Listings Requirements). In addition, since the purchase price is to be settled by the delivery by the purchasers to Andulela of the consideration shares (the buy-back ), the JSE Listings Requirements pertaining to a specific repurchase of shares will be applicable to the settlement of the purchase price. As such, the buy-back will require the approval of shareholders by way of a special resolution (excluding the votes of each of the purchasers and its associates and any other shareholder excluded from voting in respect of such resolution in terms of the JSE Listings Requirements and/or the Companies Act). Mazars Corporate Finance Pty Ltd (the independent expert ) has been appointed by the company to provide a report in terms of section 114(3) of the Companies Act and paragraphs 10.4(f) and 5.69(e) of the JSE Listings Requirements to advise the board of directors of Andulela ( board ) on whether the terms of the transaction are fair and reasonable insofar as shareholders are concerned. The independent expert is of the opinion that the transaction is fair and reasonable to the shareholders of Andulela.

2 The board of Andulela has considered the terms of the transaction, as well as the report from the independent expert, and is of the opinion that the transaction is fair and reasonable to the shareholders of Andulela. 2. BUSINESS OF PRSM PRSM is a wholly owned subsidiary of Andulela. PRSM is one of the largest and most prominent steel processors and merchants in South Africa with its main processing plant in Vereeniging, as well as plants in Pretoria and Cape Town. PRSM s product range consists of the most commonly used steel products including welded universal columns or beams and T-beams, a range of roofing solutions (corrugated, inverted box rib, and wide-span); fencing and wire products; tubing and cold formed flat and long products; and value-added services (slitting, cut-to-length, blanking, de- and recoiling, guillotine and tube saw). 3. RATIONALE FOR THE TRANSACTION PRSM was acquired by Andulela with effect from 1 September 2011 for a purchase price of R172 million, being its confirmed and audited net asset value on that date. The purchase price of R172 million was settled on 1 September 2011 by the issue of million Andulela ordinary shares to the purchasers at an issue price of 40 cents per share being the closing price of Andulela s shares on the day prior to the release of the announcement relating to that acquisition dated 10 December This equates to 8.6 million ordinary shares post the implementation of a consolidation of the company s share capital on a 50 to 1 basis, which consolidation was implemented on 29 April The rationale for the transaction is supported by the following key factors: 3.1 market analysts and economic commentators do not forecast world steel demand and outputs to recover within the short to medium term, contrary to the views expressed at the time of the acquisition of PRSM; 3.2 it will require a disproportionate involvement of senior management s time and resources to turn the investment in PRSM around; 3.3 extensive rationalisation initiatives have not yielded the expected results; 3.4 PRSM will in all likelihood require significant further working capital injections with a diminished capacity to provide sureties and securities, and will in all likelihood be looking to Andulela to provide further risk capital or funding; 3.5 PRSM has undesirably high debt-to-equity and liabilities-to-assets gearing ratios; 3.6 senior management s resources and expertise will be freed-up to pursue more profitable acquisition targets; and 3.7 senior management will be able to focus on further enhancing Kilken s capacity to contribute positive cash flows and profits to the company. 4. TERMS OF THE DISPOSAL Andulela is disposing of all of the issued shares in PRSM to the purchasers for a purchase price of R with effect from the first business day following the date of fulfilment or waiver, as the case may be, of the last of the suspensive conditions set out in paragraph 5 below ( effective date ). The purchase price for the sold shares is to be settled by the delivery of in aggregate Andulela ordinary shares. Both in terms of the Companies Act and the JSE Listings Requirements, this

3 is regarded as a repurchase and as such is subject to the provisions of the JSE Listings Requirements applicable to a specific repurchase and the provisions of the Companies Act applicable to a repurchase generally. 5. SUSPENSIVE CONDITIONS The transaction is conditional upon, inter alia, the fulfilment or waiver, where appropriate, of the following suspensive conditions by no later than 31 March 2013, or such later date as the parties may agree to in writing: 5.1 an independent opinion in terms of the JSE Listings Requirements and the Companies Act in respect of the implementation of the transaction is obtained from the independent expert; 5.2 an addendum to the loan agreement entered into between Kinlela Proprietary Limited (Registration No. 2012/103995/07) (a wholly-owned subsidiary of Kilken Platinum, which in turn is a majority owned subsidiary of Andulela) ( Kinlela ) on or about 6 July 2012 in terms of which Kinlela advanced an amount of R to PRSM (the Kinlela loan, further details of which are set out below), the outstanding amount of which as at 31 October 2013 is R , is entered into between Kinlela and PRSM; 5.3 additional security documents in respect of the Kinlela loan are signed in a form and substance acceptable to Andulela and become unconditional in accordance with their terms save for reference therein to the conditionality of the disposal agreement; 5.4 resolutions by the board of directors of Andulela in accordance with the provisions of section 46 and section 48 of the Companies Act for the repurchase of the consideration shares from the purchasers are adopted; 5.5 any third party consent required for the change in control of PRSM and/or for purposes of the transaction is obtained in writing from such third party or such third party waives its rights in writing; 5.6 all requisite regulatory consents and/or authorisations required for purposes of the transaction and the implementation thereof are obtained, including, inter alia: the JSE; the Takeover Regulation Panel; the adoption of special resolutions by the shareholders of Andulela approving and/or ratifying the buy-back in terms of the disposal agreement in accordance with the provisions of section 48(8) of the Companies Act and paragraph 5.69 of the JSE Listings Requirements; the adoption of a resolution by the shareholders of Andulela approving and/or ratifying the transaction under paragraph 10.4 of the JSE Listings Requirements; and if applicable, the written approval of the transaction by the Competition Authorities in terms of the Competition Act and to the extent that any such approvals are granted subject to any condition/s, the purchasers and the company having accepted such conditions in writing;

4 5.7 written confirmation is supplied by the seller to the purchasers that within the period prescribed under section 164(7) of the Companies Act, no valid demands have been received by the company in terms of such section in respect of ordinary shares representing more than 0.50% (nought point five percent) of the total issued shares in the company. The date for the fulfilment of the suspensive conditions may be extended by Andulela and the purchasers until such later date as may be agreed to in writing between Andulela and the purchasers. 6. KINLELA LOAN 6.1 The current Kinlela loan bears interest at the prime interest rate plus 0.5% compounded monthly. The current Kinlela loan is repayable in stipulated monthly instalments, with the final payment due in December The company and the purchasers have agreed pursuant to an addendum to the agreement regulating for the Kinlela loan dated 6 July 2012 ( Kinlela loan agreement ) that the loan will be settled on an accelerated amortisation schedule. The Kinlela loan will bear interest based on the interest rates payable by Kilken to Absa Bank Limited ( Absa ). The Kinlela loan will be repayable as stipulated in the addendum to the Kinlela loan agreement in monthly instalments, and a final balloon payment of the outstanding balance (capital and interest that may be due) will be made on 31 March In terms of the addendum to the Kinlela loan agreement, an amount of R5 million, being the original raising fee paid by Kinlela to Absa plus interest thereon is repayable by PRSM to Kinlela by not later than 31 March PRSM provided Kinlela with security in terms of the Kinlela loan agreement, which consists of a reversionary cession of book debts, subordinated to the security provided to Reichmans Capital Proprietary Limited ( Reichmans ). PRSM has in addition given positive and negative undertakings to Kinlela, which includes providing Kinlela with financial information on its affairs for as long as it is indebted to Kinlela. 6.4 The disposal agreement provides for additional security/undertakings to secure the Kinlela loan until such time that the Kinlela loan has been repaid. The additional security includes the following: a deed of suretyship by each of the RM Family Trust and Mr Mohamed in favour of Kinlela; and a pledge in securitatem debiti by PRSM in favour of Kinlela in favour of all reversionary rights to the stock and debtors secured in terms of a general notarial bond to Reichmans; cession of a loan in the amount of R by Steelmin as security for the obligations of Steelmin and/or Mr Rafik Mohamed and/or the RM Family Trust and/or PRSM to Kinlela. 6.5 A subordination agreement has been entered into between Thunder Rate Investments Proprietary Limited ( TRI ), a company indirectly owned and controlled by Mr Mohamed through a trust, and PRSM and Kinlela in terms of which TRI has subordinated its loan to PRSM (R as at 31 October 2013) in favour of the Kinlela loan and also agrees not to increase the loan unless the prior written consent of Kinlela is obtained. 6.6 In addition, PRSM has given certain undertakings to Kinlela regarding the incurring and/or increasing of its debt while the Kinlela loan remains outstanding.

5 6.7 A guarantee and substitution of debtor agreement (the Zamferro guarantee ) has been entered into between Kinlela, PRSM, TRI and Zamferro Proprietary Limited ( Zamferro ) in terms of which, subject to the Zamferro guarantee becoming effective and the acceptance of the Zamferro guarantee by the board of Andulela: PRSM or its nominee will settle approximately R40 million of the Kinlela loan on 31 January 2014, which will be treated as a prepayment of the monthly instalments due by PRSM to Kinlela from February 2014 to January 2015 so that on 31 January 2015 the outstanding balance, together with interest capitalised from 1 February 2014 to 31 January 2015 will be R ; Zamferro has undertaken to pay or take over the remaining indebtedness of PRSM to Kinlela as at 31 January 2015 of R and shall replace PRSM as principal debtor with effect from 31 January 2014 ( the substitution ) in respect of the Kinlela loan, on which date Kinlela accepts the substitution and PRSM, the RM Family Trust and Mr Rafik Mohamed will be released of all the security they have provided in respect of the Kinlela loan. 6.8 Zamferro s major asset is its shareholding in Ferrochrome Furnaces Proprietary Limited, a producer of low and medium carbon ferrochrome products, which commenced its commissioning in October 2013 and is expected to commence with production in January A subordination agreement has been entered into between Ferrochrome Furnaces Holdings Proprietary Limited (the funder ), Zamferro and Kinlela in terms of which the funder has subordinated any and all claims in terms of its loan to Zamferro in favour of the Kinlela loan. 7. APPLICATION OF THE SALE PROCEEDS 7.1 Andulela will repurchase and cancel the consideration shares in terms of section 48 of the Companies Act and paragraph 5.69 of the JSE Listings Requirements upon implementation of the transaction. 7.2 After implementation of the transaction and the repurchase and cancellation of the consideration shares, there will be no shares held in treasury by the company. 8. DISPOSAL BY PRSM OF PRFC In September 2013, PRSM disposed of its wholly owned, dormant subsidiary Pro Roof Flashing Centre Proprietary Limited ( PRFC ) to SA Steel Rolling Mills Proprietary Limited ( SA Steel ), an entity wholly owned by Mr Mohamed, for a purchase consideration of R ( PRFC disposal ), being the net asset value of PRFC on the effective date of that disposal. The PRFC disposal being less than 0.25% of the company s market capitalisation at the relevant time, is not regarded as a related party transaction under the JSE Listings Requirements. However, as the PRFC disposal was a transaction entered into by the company with the same related party applicable to the transaction, namely Mr Mohamed, the PRFC disposal has been aggregated with the transaction recorded in the disposal agreement but such aggregation has no effect on the categorisation of the transaction as a whole, which remains a large related party transaction under the JSE Listings Requirements.

6 9. UNAUDITED PRO FORMA FINANCIAL EFFECTS OF THE TRANSACTION AGGREGATED WITH THE PRFC DISPOSAL The table below sets out the unaudited pro forma financial effects of the transaction (including the buy-back) aggregated with the PRFC disposal based on Andulela s reviewed condensed consolidated interim results for the six months ended 30 June These unaudited pro forma financial effects are the responsibility of the directors of Andulela and have been prepared for illustrative purposes only, in order to provide information about the financial position of Andulela assuming that the transaction (including the buy-back) aggregated with the PRFC disposal had been implemented on 1 January 2013 for purposes of statement of comprehensive income and on 30 June 2013 for purposes of statement of financial position. Due to the nature of the unaudited pro forma financial effects, they may not fairly present Andulela s financial position subsequent to the transaction (including the buy-back) aggregated with the PRFC disposal. The unaudited pro forma financial effects have been prepared in accordance with the accounting policies of the Andulela group. The table below reflects the unaudited pro forma financial effects of the transaction (including the buy-back) aggregated with the PRFC disposal on a shareholder of Andulela: Before After % change Basic earnings per share (cents) Headline earnings per share (cents) Net asset value per share (cents) (6.18) Net tangible asset value per share (cents) (57.86) (195.62) Number of shares in issue ( 000) (18.4) Weighted average number of shares in issue ( 000) (18.4) Notes and assumptions: 1. The numbers in the "Before" column have been extracted, without adjustment, from Andulela's reviewed condensed consolidated interim results for the six months ended 30 June The PRFC financial information has been extracted without adjustment from the un-audited interim management accounts for PRFC for the six months ended 30 June The assets and liabilities and income and expenses of PRFC previously consolidated by PRSM are eliminated on the PRFC disposal. 3. The PRSM financial information has been extracted without adjustment from the un-audited interim management accounts for PRSM for the six months ended 30 June. The assets and liabilities and income and expenses of PRSM previously consolidated by Andulela are eliminated on disposal. 4. For the purposes of adjustments to the statement of comprehensive income, it has been assumed that the transaction aggregated with the PRFC disposal was implemented on 1 January 2013 and that the consideration shares were cancelled and delisted on that date. The following adjustments have been made to the statement of comprehensive income: 4.1 PRFC was disposed of to SA Steel for a total consideration of R , being the net asset value of this company on the effective date of that disposal, resulting in a loss on disposal of R This adjustment will thus not have a continuing effect on the group.

7 4.2 Andulela s interest in PRSM was disposed of to the purchasers for a total consideration of R resulting in a profit on disposal of R This adjustment will not have a continuing effect. 4.3 The management fees payable by PRSM to Andulela and which have been eliminated upon group consolidation, have been eliminated from the expenses of PRSM for purposes of the pro forma financial information. These fees have been eliminated on consolidation and will thus not have a continuing effect on the group; 4.4 Once-off transaction costs of R and the tax effect thereon calculated at the income taxation rate of 28%. This adjustment will not have a continuing effect; 4.5 PRSM has an outstanding loan amount owing to Kinlela, a wholly-owned subsidiary of Kilken Platinum, which in turn is a majority owned subsidiary of Andulela. In terms of the disposal agreement such loan amount is increased by R being the original raising fee paid by Kinlela to ABSA. The Kinlela loan bears interest at the prime interest rate + 0.5% compounded monthly. The additional loan amount in respect of the raising fee does not bear any interest. This loan and interest paid were previously eliminated on consolidation. This adjustment accounts for the interest paid by PRSM on the total loan amount, excluding the raising fee, for the period 1 January 2013 to 30 June This adjustment will have a continuing effect; and 4.6 The buy-back of the consideration shares from RM Family Trust ( ) and Steelmin ( ) and the subsequent cancellation was implemented on 1 January The disposal of PRSM and the buy-back comprise part of a single interconditional and indivisible transaction. This adjustment will not have a continuing effect. 5. For the purposes of adjustments to the statement of financial position, it has been assumed that the transaction aggregated with the PRFC disposal was implemented on 30 June 2013 and that the consideration shares were cancelled and delisted on that date. The following adjustments have been made to the statement of financial position: 5.1 The loan amount of R owing by PRSM to Kinlela previously eliminated on consolidation, is recorded as a loan receivable by Andulela; 5.2 As per the addendum to the Kinlela loan agreement, an amount of R5 million, being the original raising fee paid by Kinlela to Absa plus interest thereon is repayable by PRSM to Kinlela by not later than 31 March 2015; 5.3 The buy-back and subsequent cancellation of the consideration shares were implemented on 30 June This results in a decrease in the stated capital of Andulela amounting to R It has been assumed that no shares will be repurchased pursuant to an exercise of appraisal rights. 7. The basic earnings and headline earnings per share were calculated based on the assumption that the transaction aggregated with the PRFC disposal took place on 1 January The net asset value and net tangible asset value per share were calculated based on the assumption that the transaction aggregated with the PRFC disposal took place on 30 June CLASSIFICATION OF THE TRANSACTION The transaction, aggregated with the PRFC disposal, is a Category 1, large related party transaction incorporating a buy-back and accordingly will be subject to shareholders voting in favour thereof. A circular convening a general meeting and providing further details of the transaction will be posted to shareholders in due course. A statement by the board of directors will be included in the circular confirming that the transaction (including the buy-back) is fair and reasonable insofar as shareholders (excluding any related parties) of the company are concerned and that the board of directors has been so advised by the independent expert.

8 11. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT Shareholders are referred to the cautionary announcement dated 18 September 2013 and the renewal of cautionary announcement dated 30 October 2013, and are advised that as the details of the transaction referred to above have been announced to Andulela shareholders, caution is no longer required to be exercised by shareholders when dealing in their Andulela shares. 4 December 2013 Sponsor Java Capital Independent expert Reporting accountants and auditors Attorneys