A 51% EQUITY INTEREST IN AND SHAREHOLDER LOAN OF LeBLANC CIH LIGHTING STRUCTURES (PROPRIETARY) LIMITED ("LS") FROM COMMUNITY INVESTMENT HOLDINGS (PROPRIETARY) LIMITED ("CIH)
Jasco shareholders are hereby advised that on 8 December 2009, unconditional agreement was reached between Jasco Trading and Namane Electrical (Proprietary) Limited ("Namane"), a wholly owned subsidiary of CIH ("the Seller"), whereby Jasco Trading will acquire a 51% equity interest in and shareholder loan of LS for a purchase consideration of R7 million ("the purchase consideration") ("the Acquisition"). The effective date of the Acquisition is 1 September 2009.
LS has been operating from a factory in Nigel for over 20 years and is involved in the design, manufacture and installation of lighting, broadcasting and telecommunication steel structures in Sub-Saharan Africa. LS has a broad range of customers (in excess of 100) with 20% of customers making up 70% of total sales in 2008.
The remaining 49% equity interest in LS is owned by LeBlanc Communications South Africa (Proprietary) Limited ("LC") a subsidiary of LeBlanc International PTE Limited ("LBI"). LBI also owns 50% of WebbLeBLANC Communications (Proprietary) Limited ("WLB"), with the remaining 50% held by Jasco
Southern Africa is going through a phase of unprecedented infrastructure development due to ailing infrastructure. This has resulted in increased spend on infrastructure upgrades such as rail networks, ports and harbours, roads and pipelines. South African specific local infrastructure developments include major new power stations by Eskom and the 2010 Soccer World Cup stadiums.
In addition, the local and rest of Africa's communications market continues to grow, with leading fixed and wireless operators currently aggressively rolling out infrastructure or announcing plans to expand their networks. In South Africa, new legislation will allow individual electronic communication network service providers (I-ECN's) to develop and operate their own communications networks.
In summary, the medium to long term market and economic outlook is positive for the products and services offered by LS. LS was therefore identified as a suitable acquisition that will satisfy the objective of growth in accordance with Jasco's strategy. Management strongly believes that the Acquisition will enable Jasco to achieve the following objectives:
- LS qualifies as an acquisition that could contribute to revenue and earnings growth over the next five years;
- LBI offers additional contracts in Africa, such as the opening of a warehouse in Ghana for Alcatel/Lucent. This warehouse opens up West Africa for the sale of both communications and lighting structures as telecommunication and electrification networks are expanded in that part of the continent;
- various opportunities for inter-divisional supply, such as:
- LS is an approved supplier of lattice towers to Telkom and has received orders from Telkom that it cannot execute. These orders can now be executed by WLB;
- Webb Industries, a Jasco Telecommunications division, can assist in providing kitting that is used in the deployment of the various lighting structures offered by LS;
- Jasco's Security division occasionally requires monopoles for their equipment and LS could supply these monopoles and masts; and
- Maringo Communications (Proprietary) Limited, a recent Jasco investment, may be able to use LS' monopole structures in their network build requirements.
In addition, the Acquisition was also effected for the following reasons:
- to further enhance Jasco's relationship with its international partner, LBI;
- to consolidate the management and administrative functions of WLB and LS into one operational site to extract efficiencies;
- to generate savings in raw material costs such as steel and galvanising due to increased economies of scale; and
- to extract savings in labour costs through sharing of a common labour pool.
The purchase consideration will be settled in cash as follows:
- payment of the amount of R4 million in four equal monthly installments of R1 million each to the Seller, commencing in December 2009; and
- assuming the liability to repay the R3 million vendor loan granted to CIH when CIH acquired its 51% equity share in LS from LBI in 2006 ("the vendor loan").
The acquired shareholder loan amounts to R4 million, and bears interest at the same rate as the vendor loan. The Seller has given warranties which are normal for a transaction of this nature.
