A black economic empowerment (BEE) consortium led by Tiso is to acquire a 25,1% interest in South African explosives and chemicals group AECI’s South African explosives operations for approximately R401-million in cash, it was announced on Wednesday.
A new company — EmpCo — will be formed for the deal and the effective date of the transaction will be July 1 2004.
As part of the deal, AECI’s wholly-owned subsidiary AEL will become a wholly-owned subsidiary of AEL Holdings.
The transaction excludes AECI’s electronic detonator business, DetNet, which is being merged into a global 50:50 joint venture with Dyno Nobel ASA of Norway, the international leader in explosives initiation systems.
The consortium comprises Tiso — the majority black-owned and -managed investment company with interests in natural resources, mining and industrial services, and financial services — which will own 75% of EmpCo, and the AEL Community Development Trust (CDT), which will own the remaining 25%.
AEL’s customer base is primarily the mining industry in South Africa and Africa. The South African mining industry has recently adopted the Mining Charter, and AEL, as a major supplier to the mining industry, wishes to strengthen its relationship with its customers by ensuring compliance with their preferred procurement requirements, AECI said.
The transaction therefore will enable AEL’s customers to operate within the procurement parameters of the Mining Charter.
The business, currently owned and operated as a division of AECI through the agency of AEL, has been valued at R1,605-billion for the purposes of the transaction.
As an initial step in the transaction, the business will be sold by AECI to AELH, with the purchase consideration funded by way of R100-million in share capital and R1,505-billion in shareholder loans.
The consortium will, through EmpCo, then acquire a 25,1% economic and voting interest in AELH for R401-million comprising R25,1-million in share capital and R376-million in shareholder loans.
EmpCo will be funded by means of R25,1-million of equity — R18,825-million from Tiso and R6,275-million from the CDT, and a R376-million bank term loan.
The CDT’s equity investment of R6,275-million will be funded by AECI by way of an interest-free loan. Tiso will fund its equity investment from its own resources.
The R376-million in shareholder loans to AELH acquired by the consortium is being funded by a bank term loan. A portion of this loan — R201-million — will be underwritten by AECI as surety, and repayments of the AELH shareholder loan due to AECI will rank behind repayments of the AELH shareholder loan due to EmpCo.
AECI’s surety obligation will diminish over time and will terminate when AELH refinances the remaining shareholder loans by way of external funding upon commercial terms, which is envisaged to be within six to seven years.
The transaction is structured such that EmpCo will have a direct 25,1% economic interest and full voting rights in respect of the business from inception of the transaction.
The participation of the CDT and the Tiso Foundation in the transaction will result in an effective 40% interest in EmpCo being held by broad-based shareholders, AECI added.
EmpCo will be entitled to nominate two of the six non-executive directors to the board of AELH and will be represented in various sub-committees of the board. — I-Net Bridge