22/12/2008 - 10:57

Advanced Ocular Systems in $22m merger

22/12/2008 - 10:57

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South Perth-based Advanced Ocular Systems will transform into a scaffolding business after it agreed to merge with International Formwork & Scaffolding, valued at $22.5 million.

Advanced Ocular Systems in $22m merger

South Perth-based Advanced Ocular Systems will transform into a scaffolding business after it agreed to merge with International Formwork & Scaffolding, valued at $22.5 million.

Under the deal, AOS will issue 1.575 billion shares priced at 1.43 cents each and 787.5 million listed AOS options with an exercise price of 2.5c.

The offer values the Singapore-headquartered IFS, which is unlisted, at $22.5 million.

Additionally, AOS must consolidate its issued capital on a 1 for 14 basis before the merger is completed, which will convert the offer to a total of 112.5 million AOS shares at an issue price of 20c and 56.25 million AOS options with an exercise price of 35c each.

A minimum acceptance condition of 90 per cent has been set and the offer is subject to an independent expert report, necessary regulatory approvals and shareholder approvals.

Following the merger, AOS management and board control will pass to existing IFS directors with AOS chairman John Yeudall and director Evan Cross to remain as independent directors on the proposed six-member board.

The AOS office will also relocate to IFS' head office in Malaga.

IFS is currently supplying formwork for McGovern Construction on a five story apartment complex in WA and site accommodation gantry for a Salta Construction commercial development in Perth.

 

 

The announcement is below:

 

 

Advanced Ocular Systems Limited (AOS or Company) today announced that its Board has agreed to a merger with public, unlisted company International Formwork & Scaffolding Limited (ACN 129 229 723) (IFS) (Merger). The terms of the Merger are contained in a Memorandum of Understanding signed by AOS and IFS on 17 December 2008 (MOU), the material terms of which are summarised below.

The Merger has the unanimous support of the IFS board, who intend to recommend the offer to IFS shareholders in the absence of a superior proposal or a material adverse event affecting AOS. All of the IFS directors have indicated that, in the absence of a superior proposal or a material adverse event affecting AOS, they intend to accept AOS' offer in relation to their personal and associated shareholdings.

Merger Summary

The Merger will proceed by means of a scrip offer by AOS for the shares of IFS (Offer). AOS has agreed to lodge a Bidder's Statement containing the terms of the Offer as soon as reasonably practicable. Unless otherwise agreed between AOS and IFS, the terms of the Offer must be no less favourable than, or include conditions other than, the agreed bid terms, which include:

1. AOS will bid a total of 1.575 billion AOS shares at a deemed issued price of 1.43 cents each and 787.5 million listed AOS options with an exercise price of 2.5 cents each and expiring 30 September 2010. The Offer values IFS at $22.5 million.

2. AOS must consolidate its issued capital on a 1 for 14 basis before the Merger can be completed (Consolidation). The Offer, once this Consolidation has occurred, will be converted to a total of 112.5 million AOS shares at a deemed issue price of 20 cents each and 56.25 million listed AOS options with an exercise price of 35 cents each.

3. The number of AOS shares and listed AOS options issued to each IFS Shareholder will depend on the number of IFS shares on issue at the end of the Offer Period. IFS currently has 195,250,000 shares on issue and anticipates issuing another 5,175,000 shares prior to or during the Offer Period. Accordingly, AOS anticipates that 200,425,000 IFS shares will be on issue at the end of the Offer Period. In this case, the Offer will comprise (post Consolidation) 561 AOS shares and 281 listed AOS options for every 1000 IFS shares held by an IFS shareholder (a ratio of 0.561
AOS shares and 0.281 listed AOS options for every 1 IFS share held).

4. The total number of AOS shares and listed AOS options made available by AOS under the terms of the Offer will not change in the event that further IFS Shares are issued during the Offer Period beyond those issues previously agreed with AOS. In these circumstances, only the ratio of the AOS Shares and the Listed AOS Options being offered to each IFS Shareholder will change.

The Offer will be subject to a number of defeating conditions (full details are provided in Annexure A), including without limitation:

1. a minimum acceptable condition of 90%;

2. AOS shareholders providing the necessary approvals for the Merger, including without limitation approving AOS' change in nature and scale under Chapter 11 of the ASX Listing Rules and the Consolidation;

3. an independent expert confirms that the terms of the Merger are fair and reasonable to the non-associated shareholders of AOS;

4. by the end of the Offer Period, AOS lodges a prospectus with the ASIC and raises the minimum subscription, being $2.5 million (or such other amount as agreed) (Prospectus). The AOS shares offered under the Prospectus will have an issue price of 20 cents each (post Consolidation) and include a one for one free AOS option with an exercise price of 35 cents each (post Consolidation) expiring 30 September 2010. The maximum subscription will be up to $5 million (or such other amount as agreed), as market conditions allow; and

5. all regulatory approvals are obtained, including ASX granting AOS conditional approval for reinstatement to trading following completion of the Merger.

In the event the Offer is freed of all its defeating conditions, the Merger will be completed as follows (as required by the MOU):

1. AOS will issue the applicable number of AOS shares and listed AOS options to the IFS Shareholders who have accepted the Offer in consideration for the acquisition of all of their IFS Shares in accordance with the Bidder's Statement;

2. AOS will issue AOS shares and AOS options to subscribers in accordance with the Prospectus;

3. AOS will change its name to a name as agreed by AOS and IFS and apply for the ASX code: "IFS" and

4. management and board control will pass to the existing directors of IFS with the appointment of Mr Bill Ryan as proposed Chairman (currently IFS chairman), Mr Doulas Weir as proposed Managing Director and Mr Billy Ong and Mr Ian Spence as directors. The existing Directors will resign other than Mr John Yeudall, the current AOS chairman, and Mr Evan Cross, who will remain as independent directors of the proposed six member board; and

5. AOS intends to use proceeds from the Prospectus to fund further growth opportunities for the IFS business.

The Merger will result in AOS completing its transformation from an ophthalmic investment company to an operating company providing scaffolding and formwork services on an international basis. Management control of the business will be assumed by the IFS managing director, Mr Douglas Weir, and his management team, with the head office relocating to the IFS head office in Malaga, Western Australia.

Overview from the Chairmen of AOS and IFS

AOS Chairman, John Yeudall, said that AOS had for some time been looking for an operating business that could provide shareholders with strong growth and the ability to significantly increase shareholder value over the long term. He said that the IFS business displays the acquisition attributes AOS is seeking, namely;

- A highly experienced board and management team with a successful track record in their industry.

- A growth oriented business with an established base in the Western Australian economy.

- National and international business perspective, particularly in the Asia region and Middle East.

- Strong growth prospects.

- An attractive acquisition multiple.

IFS Chairman, Bill Ryan, said the merger with AOS provided IFS with the growth capital it needed to continue its domestic and international expansion. He said that IFS had been working towards an IPO prior to the effective closure of the capital markets caused by the global financial crisis. The merger with AOS will allow the company to achieve its public company objective and position itself as a strong industry participant. He said that IFS shareholders would benefit along with AOS shareholders from having tradable securities in a merged group with low levels of debt and excellent growth prospects. In essence it is a win for both shareholder groups, he said.

Change of Activities

The Merger with IFS will result in a significant change in the nature and scale of AOS' activities. Accordingly, shareholder approval for the acquisition will be sought in accordance with ASX Listing Rule 11.1.2 and AOS will be required to re-comply with Chapters 1 and 2 of the ASX Listing Rules in conjunction with the Merger.

In this regard, as noted above, AOS must prepare a full form prospectus and will seek to raise $2.5 million and up to $5 million (or such other amounts as agreed) (subject to market conditions) through the issue of AOS shares at an issue price of 20 cents each (post Consolidation) (Capital Raising). A one (1) for one (1) free attaching listed AOS option (with an exercise price of 35 cents each (post Consolidation) expiring 30 September 2010) will also be offered to subscribers under the Prospectus.

Executive Summary of IFS' Business and Operations

IFS was incorporated in Australia in early 2008. The company was established by the current managing director Mr. Doug Weir, a 30 year veteran in the international formwork industry, with major financial backing provided by Millennium Scaffolding Asia Ltd, a major scaffolding equipment manufacturer based in Hong Kong.

Since its formation, IFS has moved quickly to establish a fully operational branch in Singapore that is operating successfully and working on several prominent projects. These include the Sentosa Island I R(the Island Casino project), a high rise building project in Orchard Road, work on the new US$2.5 billion Solar Panel Plant in Singapore and the supply of formwork for a new cement silo in Singapore Port. In addition to the formwork projects, IFS' climbing scaffold safety screens are currently being installed on the new DBS Bank building and a high-rise condominium in central Singapore for listed Singapore construction company Wee Hur Construction. Despite the "technical recession" announced in Singapore, IFS is continuing to see strong demand for its products and services.

In Western Australia, IFS has established its Perth branch and head office management, administration and finance departments in the industrial precinct of Malaga. The first contracts for the Perth branch include; the supply of formwork on the for McGovern Construction on a 5 storey Apartment complex, and Site Accommodation Gantry for Salta Construction commercial development in CBD Perth And several other prominent projects in the Perth CBD.

In addition to the Perth formwork division, IFS completed the acquisition of Hire Access Pty Ltd (Hire Access), a successful Perth based commercial scaffolding business, in September 2008. Hire Access has achieved a strong reputation for quality work in the commercial scaffolding sector over the past 10 years. Hire Access is performing strongly as a profitable business unit and is working closely with the IFS Perth branch to quote on both formwork and scaffolding for large commercial contracts. IFS expects to capitalise on and compliment the business relationships developed by Hire Access over the years to build an even stronger and more successful business enterprise.

Over the coming months, IFS intends to expand its operations both nationally and internationally to service strategic market sectors in formwork predominantly. Notwithstanding the global slowdown being experienced, IFS expects profitable growth across all branches in calendar (and financial) year 2009. One of IFS's key advantages in surviving any downturn is an intimate knowledge of the international formwork industry and its ability to move across a number of geographic regions with fully transportable product.

IFS Board of Directors

Bill Ryan - Independent Chairman

Bill Ryan is a former Chairman of PCH Group Limited and has 30 years experience in hire and contracting businesses.

Douglas Weir - Managing Director

Douglas Weir is the founder of IFS and has 30 years international formwork experience working with SGB in management positions in Saudi Arabia, Dubai, Turkey, Indonesia, Singapore, Taiwan and Hong Kong.

Billy Ong - Director (Hong Kong)

Billy Ong is the founder of Millennium Scaffolding Asia Limited, a major international manufacturer of scaffolding equipment and strategic equipment supplier to IFS. Millennium Scaffolding Asia Limited is a cornerstone IFS shareholder.

Ian Spence - Independent Director (Singapore)

Ian Spence has significant senior commercial experience in Asia based businesses. He is a resident of Singapore and a NZ expatriate. He is a CPA and now a professional director for a number of private and public companies. He is Chairman of IFS' audit committee.

IFS Senior Management

Douglas Weir - Managing Director

Scott Williams - Director Scaffolding

Scott Williams is the founder and Managing Director of Hire Access Pty Ltd. He has 10 years experience in the scaffolding industry.

Chris Tan - Country Manager (Singapore)

Chris Tan has approximately 8 years experience with SGB and 3 years with the PCH Group as Country Formwork Manager.

Wil Cuperus - Chief Financial Officer

Wil Cuperus had 11 years experience with the PCH Group as a senior accountant and CFO and 3 years as Company Secretary.

IFS Business Strategy

- To provide a highly experienced competitor to the Asia region formwork & scaffolding market place.

- To offer rental and sale options on a range of formwork & scaffolding products.

- To access exclusive products for supply only through IFS.

- To target high end projects where quality / safety and experience are more important than just price.
- To identify and acquire strategic assets that can benefit from group integration.

Overview of intentions in relation to residual AOS assets

As announced to shareholders over the past 12 months, AOS has been progressivel selling its ophthalmic investment portfolio. At the current date, AOS has two non cash assets remaining in its portfolio, together with cash of approximately $3.7 million.

The two non cash assets comprise;

1. the Alcon license for the use of Triamcinolone Acetonide in various eye conditions; and

2. an investment interest in the Westfield property subdivision due for completion in calendar 2009.

With the proposed merger with IFS, AOS will look for the opportunity to convert its remaining assets to cash in the next twelve months to support the growth of the formwork and scaffolding business.

Loan Agreement

In conjunction with the Merger, AOS and IFS have entered into a loan terms sheet (Loan Agreement) under which AOS agreed, subject to a number of conditions precedent, to advance up to $2,000,000 to IFS for short term working capital purposes pending completion of the Merger (Loan). The Loan will be secured over IFS and its subsidiary Hire Access (behind two priority charges). The Loan Agreement is conditional on AOS obtaining this security.

Break Fee

Where a party terminates the MOU due to a material default by the other party under the MOU during the Offer Period, the defaulting party must pay a break fee of $50,000. IFS must also pay a break fee of $50,000 where the MOU is terminated by:

1. AOS as a result of IFS receiving and recommending a superior proposal from a third party or a breach of an IFS representation and warranty given under the MOU; or

2. AOS or IFS as a result of IFS receiving a superior proposal from a third party and that third party acquiring more than 50% of the voting power in IFS.

Related Party Disclosure

Mr. Evan Cross and Mr. Vlado Bosanac are non executive directors of AOS and are executive directors of Greenday Corporate Pty Ltd (GDC).

GDC has a continuing corporate advisory mandate with AOS under which GDC will be entitled to a success fee equal to 3% of the gross acquisition price of IFS if the Merger proceeds. While this fee is payable in cash, GDC has agreed to accept the fee as to 50% only in cash and 50% in post consolidated AOS shares at $0.20 each.

Prior to the discussions being entered into between AOS and IFS, Mr. Cross acted as a non executive director of IFS and GDC acted in a corporate advisory capacity to IFS and received corporate advisory fees in the form of cash and IFS shares. Mr Cross resigned from the board of IFS and GDC terminated its corporate advisory mandate with IFS to allow the merger discussions to occur between IFS and AOS without conflict.

While Mr. Cross and Mr. Bosanac as AOS directors have been privy to the discussions between the two groups, the decision to agree final terms and proceed with the merger Memorandum of Understanding has been taken by the independent directors of AOS and IFS. AOS has also commissioned an Independent Expert's Report to consider the fairness and reasonableness of the transaction to the non-associated shareholders of AOS. This report will accompany the Notice of Meeting to be sent to AOS shareholders seeking shareholder approval for the Merger.

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