China Holdings Acquisition Corp. to Acquire Bright World Precision

Tag : Cutting Tools Holders

Under the terms of the definitive agreement, CHAC will issue toWorld Share, which is controlled by Mr. Wang Wei Yao, thenonexecutive Chairman of Bright World, a promissory noteautomatically convertible into a minimum of 19.9 million initialshares of CHAC in exchange for World Share's 77.42% equity ownership positionin Bright World. For the remaining 22.58% of Bright World's sharesheld by other shareholders, CHAC will offer SG$0.70, orapproximately US$0.51, per share in cash. If 90% or more of BrightWorld's shares are purchased, CHAC will increase its offer price toSG$0.75, or approximately US$0.55, per share in cash.
Also under the terms of the definitive agreement, World Share iseligible to receive additional CHAC shares, up to a maximum awardof 3,765,000 shares, based on Bright World's realized profit forFiscal Year 2008, provided such maximum award will be reduced,share-for-share, by the number of initial shares in excess of 19.9million. World Share also will be eligible to receive an additional1,000 CHAC shares for each 0.001% increase in Bright World's FiscalYear 2008 net earnings (in Renminbi or RMB) above 20% compared witha base net earnings of RMB 144,863,000, up to a maximum award of12,000,000 additional CHAC shares if Bright World's Fiscal Year2008 net earnings exceed a base net earnings of RMB 144,863,000 by32%.
The total number of initial CHAC shares plus additional CHAC sharesthat will be awarded to World Share shall not exceed a combinedmaximum total of 35,665,000 CHAC shares. If Bright World achievesthe specified 2008 financial performance benchmarks, CHAC acquiresall issued Bright World shares, the CHAC shares issued to WorldShare are valued based on the estimated redemption value of theCHAC shares and CHAC assumes Bright World's existing debt, thetransaction will value Bright World at approximately US$404million. Under this scenario, the pro forma, fully dilutedownership of World Share in CHAC would be approximately 64% underthe treasury stock method, assuming US$10.00 per share. World Sharealso may receive a contingent payment as compensation for theforeign exchange impact on the funds in CHAC's trust account if theUS dollar weakens against the RMB between signing and closing ofthe transaction.
"Our acquisition of Bright World presents our shareholders with acompelling opportunity to participate in the continued economic andindustrial expansion of China," said Paul K. Kelly, Chairman andChief Executive Officer of CHAC. "It is very much in line with ourstated objective to establish a platform in China by acquiring acompany with a leadership position in its industry and a proventrack record of growth. We are also excited about the additionalexpansion possibilities associated with the right of first refusal,which is part of this transaction.
"Through its world-class engineering technology and manufacturingexpertise, Bright World has built a leadership position in themetal forming machinery industry with a reputation for high qualityand a consistent track record of strong year-over-year growth inrevenues and profitability," continued Mr. Kelly. "Significantly,it also has positioned itself for future performance bytransitioning its production toward higher margin, high-performancemetal stamping machines. We are impressed with the manyaccomplishments of Bright World's leadership team, and we lookforward to working with them and Bright World's employees to buildupon the strong foundation they have created and help the companyachieve even greater success in the future." Upon completion of thetransaction, CHAC will seek to list its shares on the New YorkStock Exchange. Messrs. Wang Wei Yao and Shao Jian Jun,non-executive Chairman and Chief Executive Officer, respectively,of Bright World, will continue in those roles with the combinedcompany. Mr. Kelly will serve as Vice Chairman and Mark L. Wilson,an Officer and Director of Stuart Management Corp., which providesadministrative and management services to CHAC, will serve as ChiefFinancial Officer of the new company. Mr. Wilson previously was theChief Financial Officer of global professional services firm TowersPerrin.
"This transaction provides our company with a strong platform forcontinued success," said Mr. Wang Wei Yao, non-executive Chairmanof Bright World. "CHAC's leadership understands our business, themarkets we serve and the actions we need to take to continue togrow in China and beyond. With CHAC's assistance and our enhancedaccess to the US capital markets, we will be in an even betterposition to develop innovative new products for our customers,provide opportunities to our employees and grow our business."
Bright World, headquartered in Danyang City, Jiangsu Province,serves a diverse customer base that is located mainly in the PearlRiver Delta, the Yangtze River Delta and Bohai Bay Area. BrightWorld's customers manufacture products for multiple growthindustries in China, including the automotive, home electricalappliance and computer and telecommunications manufacturingsectors. With a gross plant production area of over 230,000 squaremeters, Bright World's product line includes over 100 models ofmetal stamping machines, with an emphasis on high performance metalstamping machines. Its product line also includes board cuttingmachines, bending machines, Computer Numeric Control (CNC) metalstamping machines and other complementary heavy machine tools. Thecompany's vertically integrated structure allows it the flexibilityto fulfill custom design stamping machine requests at competitiverates. Since 2005, Bright World has successfully refocused itsproduct portfolio toward high-performance metal stamping machinesthat yield higher prices, enhanced margins and superior growthprospects. From 2004 through 2007, in US dollar terms, Bright Worldachieved a revenue compounded annual growth rate (CAGR) of 33.5%, anet profit CAGR of 28.3% and an EBITDA (earnings before interest,taxes, depreciation and amortization) CAGR of 31.1%. For the firstquarter of 2008, Bright World's revenues grew by 46.8% and its netprofits increased by 57.9% in US dollar terms versus the comparableperiod in 2007.
The company's proximity to numerous manufacturing facilities willenhance its ability to grow its customer base. The definitiveagreement between CHAC, on the one hand, and World Share, Mr. WangWei Yao and Mr. Shao Jian Jun, on the other hand, also provides thenewly combined company with a right of first refusal to acquirefour other companies controlled by Mr. Wang Wei Yao thatmanufacture agricultural machinery, auto parts and components, lawnequipment and construction equipment. The new company plans to beable to grow through the use of cash flow from operations and cashavailable from CHAC's trust fund.
CHAC will make the tender offer on the terms set forth above inaccordance with the Singapore Code on Takeovers and Mergers. TheSingapore Securities Industry Council (SIC) has confirmed that thearrangements relating to issuance of the CHAC shares to World Shareand the contingent payment for the foreign exchange impact on thefunds in CHAC's trust account are not special deals under Rule 10of the Singapore Code on Takeovers and Mergers. This SICconfirmation, however, is conditioned on a determination by anindependent financial advisor ("IFA") to be appointed by BrightWorld that such arrangements are in its opinion fair andreasonable. The IFA's determination has not been obtained as of thedate of this press release.
CHAC's acquisition of Bright World is expected to be completed inthe fourth quarter 2008, pending approval by CHAC's shareholders(and less than 33.3% of CHAC's public shareholders exercising theirright to redeem their shares for cash) and clearance by the USSecurities and Exchange Commission (SEC), China's SecuritiesRegulatory Commission and Singapore's Securities Industry Council.