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ACQUISITION OF MUCH ASPHALT PROPRIETARY LIMITED (“MUCH ASPHALT”) AND FURTHER CAUTIONARY ANNOUNCEMENT

Monday, 30 October 2017
AECI LIMITED
Incorporated in the Republic of South Africa
(Registration No. 1924/002590/06)
Share code: AFE  ISIN No. ZAE000000220
("AECI" or "the Company")

ACQUISITION OF MUCH ASPHALT PROPRIETARY LIMITED (“MUCH ASPHALT”) AND FURTHER CAUTIONARY ANNOUNCEMENT

1. Introduction

Shareholders are advised that AECI has entered into an agreement with Capitalworks Private Equity, MIC Investment Holdings Proprietary Limited and the Much Asphalt management team to acquire 100% of the issued share capital in Much Asphalt (“the Transaction”), for a total consideration of R2,272 billion which is payable in cash (the “Purchase Consideration”), subject to the management transaction referred to in paragraph 4 below. The Transaction is subject to the conditions precedent set out in paragraph 4 below.

Much Asphalt is South Africa’s leading asphalt producer, servicing a range of customers engaged in road construction and maintenance activities.

2. Overview of Much Asphalt

Much Asphalt is South Africa’s leading manufacturer and supplier of hot and cold mix asphalt products, and a manufacturer, supplier and applicator of bituminous road binders, emulsions, primes, pre-coats and modified binders. The product offering, from hot asphalt through to fog-spray, covers the entire road surfacing product spectrum. Products are used in, inter alia, the construction and maintenance of all types of roads, airport runways, parking facilities, harbour quays, dam linings and racing tracks.

Applications range from industrial and commercial surfacing requirements to small domestic asphalt projects. Whilst Much Asphalt is not a construction company, its major customers are construction companies contracted by the likes of the South African National Roads Agency (“SANRAL”), the Airports Company of South Africa (“ACSA”), municipalities, national and provincial departments of transport and the private sector to construct or maintain, inter alia, roads and runways.

The company has long-term relationships with most major construction companies in South Africa as well as with SMMEs that undertake smaller-scale road surfacing and maintenance projects.

Much Asphalt has a strong brand and reputation as a leader in its field. Much Asphalt has seventeen static asphalt plants, four mobile asphalt plants, three static emulsion/modified binder facilities across South Africa as well as a bitumen convertor. It also has one static asphalt plant in Namibia. Much Asphalt’s geographic reach enables countrywide participation in road spend. It employs more than 500 people and its production capacity represents over 50% of South Africa’s installed asphalt capacity.

Spend on road infrastructure in South Africa has increased by a compound annual growth rate of 12,7% over the past six years, evidencing government’s commitment to infrastructure development. In terms of the 2017 Budget Review, government and state-owned companies plan to spend R327,7 billion on transport and logistics over the medium term.

SANRAL’s reviewed plan is to expand its road network from about 22 000km to 25 000km, through the transfer of roads previously administered by provincial and metropolitan authorities, placing Much Asphalt in a good position to realise its growth ambitions. SANRAL has been allocated R36,8 billion to upgrade and maintain the national road network over the medium term, including R4,8 billion for the Moloto Road upgrade, R29,6 billion for road rehabilitation and R2,4 billion for coal haulage roads. The provincial roads maintenance grant has been allocated R34,5 billion to fund the resealing and rehabilitation of provincial roads.

3. Rationale for the Transaction

In addition to the focus on domestic growth and ongoing expansion outside South Africa in its current strategic pillars (Mining Solutions, Water & Process, Plant & Animal Health, Food & Beverage, Chemicals), AECI’s growth strategy includes expansion into new areas of business. The Transaction, therefore, is in line with the Company’s strategy to diversify the markets in which it operates.

Much Asphalt presents a strong investment case for AECI:

it has a market-leading position with long-established customer relationships, a robust order book and project pipeline, and a highly experienced management team;
it has a strong track record of innovation supported by a leading R&D capability, excellent technical capabilities and provides specialist, proprietary solutions for customers;
the outlook for road infrastructure expenditure in South Africa is very positive; and
there is potential to extract benefits by combining supply chains, geographic networks and best practice in complex, heavy industrial manufacturing processes, R&D and AECI’s innovation initiatives.

Much Asphalt will operate as a stand-alone entity in the Group’s Chemicals pillar.

4. Conditions precedent

The closing of the Transaction is subject to the fulfilment or waiver of the following conditions:

approval by the Competition Authorities in South Africa and Namibia in terms of the respective Competition Acts;
consent to the change of control in Much Asphalt from certain parties; and
finalisation of a management transaction, whereby the Much Asphalt management team will either retain a portion of their shareholding in Much Asphalt or re-invest a portion of the proceeds received from the Transaction, representing approximately 2% of Much Asphalt’s issued share capital, through a purchase or subscription of shares in Much Asphalt.

The effective date of the Transaction will be the last day of the month in which the last of the conditions precedent are fulfilled or waived.

5. Financial information

For the year ended 30 June 2017, Much Asphalt’s net asset value was R514 million and it delivered revenue of R2,0 billion and profits after tax of R181 million attributable to the net assets. These audited results were prepared in conformity with International Financial Reporting Standards.

AECI will fund the Transaction utilising a financing facility provided by The Standard Bank of South Africa Limited.

Warranties and indemnities typical of a transaction of this nature have been provided for.

6. Categorisation of the Transaction

The Transaction is classified as a Category 2 transaction for AECI in terms of the Listings Requirements of the JSE Limited (“Listings Requirements”).

Following the implementation of the Transaction, Much Asphalt will become a subsidiary of AECI. Accordingly, AECI can confirm that Much Asphalt’s constitutional documents enable AECI to continue to comply with its obligations in terms of the Listings Requirements.

7. Further cautionary announcement

As indicated in the cautionary announcement published on the JSE Limited’s Stock Exchange News Service on 18 October 2017, shareholders are reminded that AECI has also entered into discussions relating to a further acquisition, unrelated to the Transaction, which, if successfully concluded, may have an effect on the Company’s share price.

Accordingly, shareholders are advised to continue to exercise caution when dealing in the Company’s securities until a further announcement is made in this regard.

Woodmead, Sandton
30 October 2017

Investment Bank, Corporate Advisor and Transaction Sponsor to AECI
The Standard Bank of South Africa Limited

Corporate Advisor to AECI
Deloitte Capital Proprietary Limited

Legal Advisors to AECI
Webber Wentzel

Financial Advisor to Much Asphalt and Capitalworks
Deutsche Bank

Legal Advisor to Much Asphalt and Capitalworks
ENSafrica
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