27/01/2009 - 13:36

Patersons to merge with Tolhurst

27/01/2009 - 13:36

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One month after announcing it will merge with Perth firm Montagu Stockbrokers, Patersons Securities has reached agreement to buy the stockbroking business of listed company Tolhurst Group for some $7 million.

One month after announcing it will merge with Perth firm Montagu Stockbrokers, Patersons Securities has reached agreement to buy the stockbroking business of listed company Tolhurst Group for some $7 million.

Tolhurst announced the in-principle agreement after entering into a trading halt earlier today. Its shares last traded at 4.5 cents.

The merger will create one of Australia's largest full service, retail stockbroking businesses, Tolhurst said.

Tolhurst added that the purchase price for its broking business, including property leases and liabilities, will be finalised during the exclusive due diligence period.

Should the acquisition go ahead, Tolhurst expects the purchase price to be in the range of $6 million to $7 million.

Additionally, Tolhurst will have the opportunity to subscribe for new shares in Patersons representing 31 per cent of the merged entity, with the price to be determined by the net asset value of Patersons at the time of subscriptions.

"Tolhurst expects that a shareholding of 31 per cent in Patersons would require Tolhurst to contribute net assets of between $10 million and $12 million based on the current net assets of Patersons," Tolhurst said.

Patersons will also be granted options to acquire 15 per cent of Tolhurst's issued capital. The options have an exercise price of 7.5 cents and will expire 18 months after completion.

The merger is subject to regulatory and shareholder approvals, and should Tolhurst stakeholders not approve the deal, Tolhurst will be required to pay a $50,000 break fee.

Tolhurst has also agreed not to be engaged in a competing business for a period of 12 months from completion of the merger.

The merged entity, to trade under the Patersons name, will have more than 400 employees and 370,000 clients.

 

 

Tolhurst's announcement is below:

 

 

Tolhurst Group Limited (ASX: TNL) is pleased to announce an in-principle agreement to merge its stockbroking business with Patersons Securities Limited.

On completion, the merger will create of one of Australia's largest full service, retail stockbroking businesses.

The proposed merger will be effected through the sale of the Tolhurst broking business and brand names to Patersons. Subject to certain conditions being satisfied, Patersons will assume responsibility for property leases related to the Tolhurst stockbroking business.

Tolhurst will have the opportunity to subscribe for new shares in Patersons representing up to 31% of the merged group's expanded capital, which is representative of the share of revenue that Tolhurst is contributing.

The parties have agreed that the subscription price for new shares in Patersons will be determined by the net asset value of Patersons as at the time of subscription.

As part of the transaction, Patersons will also be granted options to acquire 15% of Tolhurst's total issued capital.

The transaction is subject to due diligence, regulatory approvals, formal legal documentation and, if required, shareholder approval. Major shareholders representing in excess of 50% of the issued capital of Tolhurst have indicated that they will support this transaction.

The key terms of the proposed transaction are set out in the appendix to this announcement. Under the proposal, the new business will trade as Patersons Securities Limited (incorporating Tolhurst and William Noall Stockbrokers), acknowledging the strength and heritage of the Tolhurst and William Noall brands.

The new, merged organisation will have more than 400 employees, 370,000 clients and will rank in the top 20 of Australian stockbrokers by the measure of market turnover.

It will have one of the largest advisory networks in Australia, with a significant presence in all major capital city markets and a number of dynamic regional centres.

The expanded Patersons will continue to operate with a strong balance sheet, no debt and negligible intangibles.

Tolhurst Chairman David Browne said the proposed transaction was a positive outcome for Tolhurst shareholders, clients and staff.

"This is an exciting day for Tolhurst clients and will ensure they receive the best possible levels of service from a strong, expanded debt free firm going forward," said Mr Browne.

"For Tolhurst shareholders and advisers, the merger provides the opportunity to be part of an Australian broking success story."

"We look forward to the completion of the due diligence process and moving ahead with the proposal."

Patersons Chairman Michael Manford said the merger was a win-win situation for both businesses.

"This merger will see the creation of an outstanding national retail stockbroking business that prides itself on delivering exceptional service to clients and is backed by a strong, robust organisation," said Mr Manford.

"The two businesses have a long and proud history - their combination will create a dynamic new force in Australian stockbroking that provides clients with great service and an expanded range of investment opportunities."

Further information on the transaction will be provided upon completion of due diligence and formal legal documentation.

Sale of Community & Corporate Financial Services Pty Ltd (ComCorp)

Tolhurst is pleased to also advise that the process that it has instigated for the sale of ComCorp has already yielded bids that, subject to due diligence, are acceptable to the Board and are materially in excess of Tolhurst's total outstanding bank debt.

Tolhurst anticipates that it will be in a position to provide further detail in respect to this transaction by 13 February 2009.

Tolhurst Group Limited will, upon the completion of the sale of the Tolhurst stockbroking business and the sale of ComCorp, review its strategic direction having regard to the best interests of shareholders.

Other Developments

Tolhurst is also finalising a management buyout of its corporate activities in Brisbane. As a result of the impending sale of ComCorp and the aforementioned management buy out, and as flagged in Tolhurst's announcement to ASX on 19 December 2008, Tolhurst expects that there will be a significant impairment charge to its balance sheet relating to the carrying value of goodwill of ComCorp and Tolhurst InterFinancial Limited (Tolhurst's corporate finance division). The Board is now in a position to provide an estimate of that impairment charge and believes that it will be approximately $23 million as at 31 December 2008.

In its announcement to ASX on 19 December 2008, Tolhurst also estimated that its pre-tax loss before impairment charges for the first 6 months of trading up to 31 December 2008 would be $5.6 million. Tolhurst now advises that, upon a review of December trading, this pre-tax loss is now expected to be between $6.3 million and $6.5 million, before impairment charges. The increased loss is due to higher redundancy charges and lower trading volume in December than was expected

While Tolhurst continues to trade in breach of certain banking covenants, the actions as outlined above will rectify these breaches and the Board is confident from the discussions it has had of the ongoing support from its bankers.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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