Firm offer by AECI to acquire the entire issued share capital of Chemical Services Limited (“Chemserve”)

AECI LIMITED
Incorporated in the Republic of South Africa
(Registration No. 1924/002590/06)
Share code:  AFE     ISIN No. ZAE000000220

1.   INTRODUCTION

Further to the cautionary announcement published over SENS on Thursday, 4 September 2003, it is announced that AECI has now made a firm offer (the "Offer") to acquire the entire issued share capital of Chemserve which it does not already own. AECI currently holds 74% of the issued share capital of Chemserve. It is intended that the Offer will be implemented by way of a scheme of arrangement in terms of section 311 of the Companies Act, (Act 61 of 1973) as amended (the "Act"), between Chemserve and its shareholders (the "scheme") or, if the scheme fails as a result of the non-fulfilment of the conditions to which it is subject, by means of a general offer in terms of section 440 et seq of the Act (the "general offer").

Upon implementation of the Offer an application will be made to the JSE Securities Exchange, South Africa ("JSE") to terminate the listing of the entire issued share capital of Chemserve on the JSE.

2. RATIONALE FOR THE OFFER

In its 2001 Annual Report, AECI disclosed its long-term intent to acquire all the issued ordinary shares in Chemserve ("Chemserve shares").  This element of the AECI group’s transformation strategy was designed to create a single entity, facilitate sharing of best practice between AECI businesses and, in particular, enable the rapid spread of the entrepreneurial and performance culture and style of Chemserve throughout the AECI group.  Access to the underlying cash flows of Chemserve as opposed to dividends was also an important motivation. In addition, the relatively small free float and market capitalisation of Chemserve with consequent limited tradability of the Chemserve shares are considered to have impacted negatively on the market rating of Chemserve shares over many years.  In terms of the Offer, current shareholders in Chemserve will retain exposure to the company through their holding of more liquid and tradable ordinary shares in AECI ("AECI shares") with the potential for a more appropriate rating of the underlying Chemserve business.  Any such potential re-rating would clearly benefit all AECI shareholders.

3. TERMS OF THE OFFER

3.1 The consideration payable in terms of the Offer

In terms of the Offer, AECI is proposing, subject to the fulfilment of the conditions precedent reflected in paragraph 3.2, a consideration equivalent to 95 AECI shares for every 100 Chemserve shares held. This consideration will be in the form of: 60 new AECI shares; plus

R 885.15 in cash, (equivalent to 35 AECI shares valued at the volume weighted average price for the 27 day trading period prior to 4 September 2003, being the day on which AECI published the detailed cautionary announcement in relation to the Offer).

In terms of the Offer a maximum amount of R200 million is expected to be paid, in cash, to Chemserve shareholders.

The aggregate number of new AECI shares to be issued in terms of the Offer is expected to represent approximately 14% of the current AECI issued share capital. The AECI shares to be issued will rank pari passu in all respects with the existing ordinary shares in AECI.

JPMorgan has confirmed to the Securities Regulation Panel ("SRP") that AECI has sufficient resources to discharge its obligations in terms of the Offer.

3.2 Conditions precedent

The Offer, if implemented by way of the scheme, is subject, inter alia, to the fulfilment or where appropriate, waiver, of the following conditions

precedent:

     3.2.1 the approval, to the extent necessary, of any regulatory authorities having jurisdiction over AECI and Chemserve in respect of the Offer, including the SRP, the JSE and the Exchange Control Division of the South African Reserve Bank;

     3.2.2 the JSE granting a listing of the new AECI shares to be issued as part consideration for the Offer;

     3.2.3 the High Court of South Africa granting an order convening a meeting (the "scheme meeting") of shareholders of Chemserve at which such shareholders, excluding AECI ("scheme members") will consider and vote on the scheme;

    3.2.4 the scheme being approved at the scheme meeting by a majority representing not less than three fourths (75%) of the votes exercisable by the scheme members present and voting either in person or by proxy at the scheme meeting;

    3.2.5 the High Court sanctioning the scheme; and

    3.2.6 a certified copy of the Order of Court sanctioning the scheme having been lodged with, and registered by, the Registrar of Companies.

3.3  Pro forma financial effects of the Offer

The table below illustrates the pro forma effects of the Offer per AECI share for the twelve months ended 31 December 2002:

Notes:

1. Attributable earnings per share and Headline earnings per share are based on the published audited income statement of AECI for the year ended 31 December 2002 and the published audited income statement of Chemserve for the year ended 31 December 2002 as if the Offer was effective on 1 January 2002.

2. Net asset value per share and net tangible asset per share is based on the published audited consolidated balance sheet of AECI at 31 December 2002 and on the assumption that the Offer was effective on 1 January 2002.

3. Assumptions:

* Approximately 14 million AECI shares issued and R200 million cash paid as consideration in terms of the Offer;
* Goodwill amortised over 20 years. R76 million in goodwill (including R17 million arising on implementation of the Offer) reversed for the purpose of calculating headline earnings;
* Interest rate equal to 12.4% on the cash used to fund the cash portion of the consideration payable under the Offer;
* All vested Chemserve share options exercised and resulting Chemserve shares acquired under the Offer.

4. SHAREHOLDINGS IN CHEMSERVE

Shareholders holding approximately 65% of the issued share capital of Chemserve not held by AECI have, subject to client approval where necessary, given an irrevocable undertaking to vote in favour of the scheme or accept the general offer in respect of the Chemserve shares held by them at that time. Copies of the irrevocable undertakings are available for inspection at the registered office of AECI.

5. ALTERNATIVE OFFER STRUCTURE

If the scheme fails as a result of the non-fulfilment of the conditions precedent to which it is subject, AECI will make the general offer to Chemserve shareholders. The consideration payable under the general offer will remain the same as that paid under the scheme and the general offer will be subject to the same conditions precedent reflected herein excluding those conditions precedent that are specifically applicable to the scheme. In addition, the general offer may be conditional on achieving a 90% acceptance level, which may be reduced or waived by AECI in its sole and absolute discretion.

6. DOCUMENTATION AND ANNOUNCEMENTS

Documentation, which is subject to the approval of the SRP and the JSE, will be dispatched to shareholders of Chemserve as soon as practicable. Subject to the High Court granting leave to convene the scheme meeting, a further announcement will be published by AECI and Chemserve giving the salient dates of the scheme.

The transaction represents a category 2 transaction for the AECI shareholders as defined in the JSE Listings Requirements and a circular in this regard will be dispatched to AECI shareholders following implementation of the Offer.

Sandton
12 September 2003

Financial adviser to AECI
JP. Morgan

Sponsor to AECI
JP. Morgan

Date: 12/09/2003 02:31:09 PM Produced by the JSE SENS Department