Proposed related party acquisition of the minority interest in the South American welding and cutting businesses
25/08/2005
Charter plc (“Charter”) announces that it has entered into a conditional contract to acquire for approximately US$38 million (£21 million) the outstanding 49 per cent. of the shares in the South American welding and cutting businesses (the “Businesses”) which the Charter Group does not already own (the “Acquisition”). The Acquisition is classified as a related party transaction by the UK Listing Authority and, accordingly, the contract is conditional, inter alia, on the approval of shareholders of Charter.
In addition, the Vendors will receive approximately US$7.9 million (£4.4 million) in cash in lieu of receipt of any further dividends for the period prior to completion of the Acquisition (“Completion”). This sum represents the Vendors' share of the expected profit of the Businesses for the period from 1 January 2004 until Completion of the Acquisition, less any dividends previously paid in respect of this period.
The Acquisition is being implemented by Charter acquiring from the Vendors a series of holding companies. The consideration has been calculated on the basis of these holding companies having net liabilities (excluding their net investment in the Businesses) of approximately US$ 1 million; to the extent that the actual net liabilities are different at Completion, an appropriate adjustment to the consideration will subsequently be made.
The Businesses principally comprise ESAB SA Industria e Comercio and its wholly owned subsidiary Eutectic do Brasil Ltda in Brazil, Conarco Alambres y Soldaduras SA in Argentina and its wholly owned subsidiary ESAB Chile SA in Chile. The Businesses are engaged in the manufacture and distribution of welding equipment and consumables.
In the year ended 31 December 2004, the Businesses generated profit before taxation of £8.9 million on sales of £72.1 million (including intra-group sales of £2.3 million); these results represented considerable improvements over the previous year in which profit before tax was £5.3 million and sales were £56.0 million (including intra-group sales of £1.6 million). As at 31 December 2004, the Businesses had shareholders' funds of £22.4 million, gross assets of £34.6 million and net cash of £2.0 million.
The performance of the Businesses in 2005 has continued to show further positive progress compared to the same period in 2004. The Directors expect this to continue for the remainder of the current financial year.
The consideration payable by Charter is approximately US$38 million (£21 million), to be satisfied by the issue to Jorge Acevedo, Maria de Acevedo, Arturo Acevedo, Guillermo Acevedo, Rafael Acevedo and Fernando Calvente (the “Vendors”) of new Charter shares at the average mid-market closing price over the period from 26 August 2005 to the business day prior to the extraordinary general meeting to approve the Acquisition, translated at an exchange rate of £1/US$1.7995, subject to a maximum of approximately 7.46 million new Charter shares (representing approximately 4.7 per cent. of Charter's existing issued share capital) and a minimum of approximately 6.12 million new Charter shares (representing approximately 3.9 per cent. of Charter's existing issued share capital).
The Vendors have agreed to retain at least 50 per cent of their new Charter shares for at least one year (after allowing for a disposal of Charter shares to meet their expenses in connection with the transaction), except in certain circumstances, including the prior approval of Charter. Any sale of Charter shares by the Vendors which takes place within one year following completion of the Acquisition will be subject to a private opinion from the Company's broker that such sale can take place without materially adversely affecting the market in Charter shares.
The Acquisition is expected to enhance Charter's earnings per share from the time at which the Acquisition is completed, but this statement should not be interpreted to mean that earnings per share in the first full financial year following Completion, or in any subsequent period, will necessarily match or be higher than those for the relevant preceding financial period.
The circular, setting out the full details of the Acquisition, together with the notice of extraordinary general meeting and the form of proxy for use at the extraordinary general meeting, is expected to be despatched to shareholders of Charter shortly.
Commenting on the proposed acquisition the Chairman and Chief Executive, David Gawler, stated:
“The Acquisition will increase the Group's exposure to the Brazilian and Argentine markets which the Directors believe offer attractive growth opportunities. The Directors believe that full ownership of the Group's businesses in these countries will provide a firm base from which to further develop our business in South America.
The Acquisition will permit the Group to assume complete management control of the Businesses; this will allow them to be managed in a way which is more closely aligned with the interests of the Charter Group and its Shareholders. It will also ease the transfer of more modern technology to these businesses from the remainder of the Charter Group.”
Contact
David Gawler, Robert Careless, Charter plc +44 (0) 20 7404 5959
Julian Goodwin, Andrew Foster, Hoare Govett Limited +44 (0) 20 7678 8000
Andrew Fenwick, Pamela Small, Brunswick +44 (0) 20 7404 5959
Hoare Govett Limited, which is authorised in the United Kingdom under the Financial Services and Markets Act 2000 and which is regulated in the United Kingdom by the Financial Services Authority, is acting exclusively for Charter plc in connection with the Acquisition and for no one else and will not be responsible to anyone other than Charter plc for providing the protections afforded to clients of Hoare Govett Limited or for providing advice in relation to the Acquisition.