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Massmart Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1940/014066/06)
Acquisition of Jumbo Cash & Carry (Proprietary) Limited ("Jumbo"), selected
Browns and Weirs stores and Sip 'n Save division ("Sip 'n Save")
1.Introduction
Further to the cautionary announcement published on 23 April 2001, a series
of agreements have been reached in terms of which, subject to the fulfilment
of the conditions precedent, Massmart Holdings Limited or any nominated
subsidiary ("Massmart") will acquire, as going concerns (together, the
"Acquisitions"), for a consideration to be settled in cash, the following:
- Jumbo and 22 Browns and Weirs stores from Rebhold Limited ("Rebhold") and
Tiger Food Brands Limited ("Tiger"); and
- Sip 'n Save from Picardi Liquors (Proprietary) Limited, a wholly-owned
subsidiary of Rebhold.
2.Nature of the Acquisition business
2.1 Jumbo
Jumbo comprises six wholesale distribution outlets located in the Gauteng,
Northern, KwaZulu-Natal and Free State provinces of South Africa. An
independent management team operating from a head office in Johannesburg
manages this autonomous trading division. The chain is widely regarded as a
leader in the distribution of cosmetics, toiletries and hair care products,
which are ultimately used by middle to lower income urban consumers. A
limited range of groceries and general merchandise targeted at the same end
consumer is also distributed. In the year ended
30 June 2000, the chain generated sales of approximately R1 billion.
2.2 Selected Browns and Weirs stores
The selected Browns and Weirs stores comprise 22 cash and carry outlets,
located in KwaZulu-Natal and the Eastern Cape, trading under either the
Browns or Weirs banners. The stores wholesale predominantly basic groceries
and a limited range of general merchandise, which is ultimately retailed by
independent traders to lower income consumers. For the year ended 30 June
2000, these stores generated sales in excess of R1,1 billion.
The terms of the acquisition are such that Massmart will only acquire the
assets of 11 Browns and 11 Weirs stores, specifically excluding liabilities
relating to head office costs and the remaining Browns and Weirs stores.
2.3 Sip 'n Save
Sip 'n Save is a wholesaler of liquor (mainly beer and mass-market wine)
which is ultimately targeted at lower income consumers living within 200 km
of Port Elizabeth in the Eastern Cape. In the year ended 30 June 2000, the
business generated sales of approximately R100 million.
3.Rationale for the Acquisitions
The Acquisitions enable Massmart to pursue its published strategy to "...
invest in a portfolio of focused distribution formulae, each reliant on
operational excellence as the foundation of price leadership in the
distribution of branded consumer goods".
- Jumbo extends Massmart's presence into a new merchandise arena and a new
customer base. It will operate as a fifth division of the group.
- Massmart's stated intention to grow its CCW Holding (Pty) Limited ("CCW")
division will be facilitated by the rapid integration of the selected Browns
and Weirs outlets into CCW. It is anticipated that these outlets and their
customers will benefit from the application of the trading disciplines and
philosophies that have resulted in CCW's consistent growth since its
founding in 1986.
- Sip 'n Save will complement and enhance Massmart's existing liquor
activities.
The Acquisitions will benefit from the supplier relationships, operating
controls, market penetration methods and executive development practices
which are the hallmarks of Massmart's strategy of inter-divisional
collaboration.
In addition to the value thus created, it is anticipated that various
specific initiatives, not quantified in paragraph 6 below, will be
beneficial to Massmart shareholders. These include, inter alia:
- the cross-pollination of procurement skills and selected product
categories between existing Massmart subsidiaries and the acquired
businesses;
- the utilisation by the acquired businesses of certain services shared by
Massmart subsidiaries;
- the provision of managerial expertise and operating skills to enhance the
performance of the acquired businesses; and
- the provision of financial resources to grow the acquired businesses.
4. Salient terms of the Acquisitions
4.1 The purchase consideration
The purchase consideration will be settled by the payment in cash of R490
million on the date that the conditions precedent have been fulfiled or
waived, as the case may be, which date is expected to be during August 2001
(the "Closing Date").
4.2 Warranties and indemnities
Warranties and indemnities normal in transactions of this nature have been
provided.
4.3 The effective dates
The acquisitions of Jumbo and Sip 'n Save will be effective from 1 April
2001 and the acquisition of the Browns and Weirs stores will be effective
from 1 July 2001 (together, the "Effective Dates").
5. Financing the Acquisitions
Massmart intends to utilise R200 - R250 million of its own existing cash
resources to pay part of the purchase price. Massmart's bankers support the
Acquisitions and have provided written proposals to finance the balance of
the funding requirement with medium-term loans.
6. Financial effects
The table below sets out the pro forma financial effects of the Acquisitions
on the unaudited published interim results for Massmart for the six-month
period ending 31 December 2000, based on the following assumptions:
- the effect on earnings is based on the assumption that the Acquisitions
were effective for the six months ended 31 December 2000 and the effect on
net asset value on the assumption that the Acquisitions were implemented on
31 December 2000;
- the calculation includes the impact of interest foregone on cash resources
and the cost of interest paid on medium-term loans;
- the Acquisitions' earnings have been restated to comply with Massmart's
more conservative accounting policies;
- Jumbo's earnings have been reduced to reflect the repayment of R103
million of the shareholders' loan, representing pre-acquisition cash, such
that the Acquisitions will be cash and debt free; and
- the amortisation over ten years of R342 million goodwill arising on
acquisition.
Before the After the
Acquisitions Acquisitions Change
(cents) (cents) ( %)
Headline earnings
per share 73,8 79,6 7,8
Earnings per share 66,4 61,1 (8,0)
Net asset value 611,1 611,1 -
The Acquisitions are expected to show greater earnings enhancement over the
full year versus the six months pro forma.
7. Conditions precedent
The Acquisitions are conditional upon, inter alia, the following conditions
being fulfiled:
- the passing of the requisite resolutions by Massmart shareholders in
general meeting to approve and implement the Acquisitions;
- the approval of the JSE Securities Exchange South Africa; and
- the approval of the Acquisitions by the Competition Authorities, which is
expected on or before 30 August 2001.
In addition, the acquisition of Sip 'n Save is conditional on the
acquisition of Jumbo becoming unconditional.
8. Opinions and recommendations
The directors of Massmart are of the opinion that the terms and conditions
of the Acquisitions are fair and reasonable to Massmart shareholders and
recommend that shareholders vote in favour of the ordinary resolution to
approve and implement the Acquisitions.
Directors, who are Massmart shareholders, whether directly or indirectly,
intend to vote in favour of the ordinary resolution necessary to approve and
implement the Acquisitions. The directors currently have a total
shareholding of 3,79% in Massmart.
9. Circular to shareholders
A circular containing full details of the Acquisitions and a notice
convening the general meeting of shareholders will be posted to Massmart
shareholders within 28 days of this announcement.
10.Withdrawal of cautionary announcement
Massmart shareholders are advised that the cautionary announcement, dated 23
April 2001, is hereby withdrawn.
Johannesburg
31 May 2001
Financial adviser
UBS Warburg Corporate Finance (SA) (Pty) Ltd
A financial services group of UBS AG
Registration number 1994/008363/07
Sponsor
UBS Warburg Securities (SA) (Pty) Ltd
A financial services group of UBS AG
Member of the JSE Securities Exchange South Africa
Registration number 1996/011140/07
Corporate law advisers
and consultants
Edward Nathan & Friedland (Pty) Ltd
Registration number 1999/026464/07
Independent reporting accountants
Deloitte & Touche MASSMART HOLDINGS LIMITED - ACQUSITION OF JUMBO CASH &
CARRY
MASSMART HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1940/014066/06)
Acquisition of Jumbo Cash & Carry (Proprietary) Limited ("Jumbo"),
selected Browns and Weirs stores and Sip 'n Save division ("Sip 'n Save")
1. Introduction
Further to the cautionary announcement published on 23 April 2001, a series
of agreements have been reached in terms of which, subject to the fulfilment
of the conditions precedent, Massmart Holdings Limited or any nominated
subsidiary ("Massmart") will acquire, as going concerns (together, the
"Acquisitions"), for a consideration to be settled in cash, the following:
* Jumbo and 22 Browns and Weirs stores from Rebhold Limited ("Rebhold") and
Tiger Food Brands Limited ("Tiger"); and
* Sip 'n Save from Picardi Liquors (Proprietary) Limited, a wholly-owned
subsidiary of Rebhold.
2. Nature of the Acquisition business
2.1 Jumbo
Jumbo comprises six wholesale distribution outlets located in the Gauteng,
Northern, KwaZulu-Natal and Free State provinces of South Africa. An
independent management team operating from a head office in Johannesburg
manages this autonomous trading division. The chain is widely regarded as a
leader in the distribution of cosmetics, toiletries and hair care products,
which are ultimately used by middle to lower income urban consumers. A
limited range of groceries and general merchandise targeted at the same end
consumer is also distributed. In the year ended 30 June 2000, the chain
generated sales of approximately R1 billion.
2.2 Selected Browns and Weirs stores
The selected Browns and Weirs stores comprise 22 cash and carry outlets,
located in KwaZulu-Natal and the Eastern Cape, trading under either the
Browns or Weirs banners. The stores wholesale predominantly basic groceries
and a limited range of general merchandise, which is ultimately retailed by
independent traders to lower income consumers. For the year ended 30 June
2000, these stores generated sales in excess of R1,1 billion.
The terms of the acquisition are such that Massmart will only acquire the
assets of 11 Browns and 11 Weirs stores, specifically excluding liabilities
relating to head office costs and the remaining Browns and Weirs stores.
2.3 Sip 'n Save
Sip 'n Save is a wholesaler of liquor (mainly beer and mass-market wine)
which is ultimately targeted at lower income consumers living within 200 km
of Port Elizabeth in the Eastern Cape. In the year ended 30 June 2000, the
business generated sales of approximately R100 million.
3. Rationale for the Acquisitions
The Acquisitions enable Massmart to pursue its published strategy to "...
invest in a portfolio of focused distribution formulae, each reliant on
operational excellence as the foundation of price leadership in the
distribution of branded consumer goods".
* Jumbo extends Massmart's presence into a new merchandise arena and a new
customer base. It will operate as a fifth division of the group.
* Massmart's stated intention to grow its CCW Holding (Pty) Limited ("CCW")
division will be facilitated by the rapid integration of the selected Browns
and Weirs outlets into CCW. It is anticipated that these outlets and their
customers will benefit from the application of the trading disciplines and
philosophies that have resulted in CCW's consistent growth since its
founding in 1986.
* Sip 'n Save will complement and enhance Massmart's existing liquor
activities.
The Acquisitions will benefit from the supplier relationships, operating
controls, market penetration methods and executive development practices
which are the hallmarks of Massmart's strategy of inter-divisional
collaboration.
In addition to the value thus created, it is anticipated that various
specific initiatives, not quantified in paragraph 6 below, will be
beneficial to Massmart shareholders. These include, inter alia:
* the cross-pollination of procurement skills and selected product
categories between existing Massmart subsidiaries and the acquired
businesses;
* the utilisation by the acquired businesses of certain services shared by
Massmart subsidiaries;
* the provision of managerial expertise and operating skills to enhance the
performance of the acquired businesses; and
* the provision of financial resources to grow the acquired businesses.
4. Salient terms of the Acquisitions
4.1 The purchase consideration
The purchase consideration will be settled by the payment in cash of R490
million on the date that the conditions precedent have been fulfiled or
waived, as the case may be, which date is expected to be during August 2001
(the "Closing Date").
4.2 Warranties and indemnities
Warranties and indemnities normal in transactions of this nature have been
provided.
4.3 The effective dates
The acquisitions of Jumbo and Sip 'n Save will be effective from 1 April
2001 and the acquisition of the Browns and Weirs stores will be effective
from 1 July 2001 (together, the "Effective Dates").
4.4 Sip 'n Save
Rebhold has granted Jumbo the right to require Rebhold, or a subsidiary
nominated by Rebhold, to purchase Sip 'n Save for a purchase price of R7
million. This right is valid until 31 December 2001.
5. Financing the Acquisitions
Massmart intends to utilise R200 - R250 million of its own existing cash
resources to pay part of the purchase price. Massmart's bankers support the
Acquisitions and have provided written proposals to finance the balance of
the funding requirement with medium-term loans.
6. Financial effects
The table below sets out the pro forma financial effects of the Acquisitions
on the unaudited published interim results for Massmart for the six-month
period ending 31 December 2001, based on the following assumptions:
* the effect on earnings is based on the assumption that the Acquisitions
were effective for the six months ended 31 December 2000 and the effect on
net asset value on the assumption that the Acquisitions were implemented on
31 December 2000;
* the calculation includes the impact of interest foregone on cash resources
and the cost of interest paid on medium-term loans;
* the Acquisitions' earnings have been restated to comply with Massmart's
more conservative accounting policies;
* Jumbo's earnings have been reduced to reflect the repayment of R103
million of the shareholders' loan, representing pre-acquisition cash, such
that the Acquisitions will be cash and debt free;
* the amortisation over ten years of R423 million goodwill arising on
acquisition.
Before the After the
Acquisitions Acquisitions Change
(cents) (cents) (%)
Headline earnings
per share 73,8 79,6 7,8
Earnings pre share 66,4 59,0 (11,1)
Net asset value 611,1 611,1 -
The Acquisitions are expected to show greater earnings enhancement over the
full year versus the six months pro forma.
7. Conditions precedent
The Acquisitions are conditional upon, inter alia, the following conditions
being fulfiled:
* the passing of the requisite resolutions by Massmart shareholders in
general meeting to approve and implement the Acquisitions;
* the approval of the JSE Securities Exchange South Africa; and
* the approval of the Acquisitions by the Competition Authorities, which is
expected on or before 30 August 2001.
In addition, the acquisition of Sip 'n Save is conditional on the
acquisition of Jumbo becoming unconditional.
8. Opinions and recommendations
The directors of Massmart are of the opinion that the terms and conditions
of the Acquisitions are fair and reasonable to Massmart shareholders and
recommend that shareholders vote in favour of the ordinary resolution to
approve and implement the Acquisitions.
Directors, who are Massmart shareholders, whether directly or indirectly,
intend to vote in favour of the ordinary resolution necessary to approve and
implement the Acquisitions. The directors currently have a total
shareholding of 3,79% in Massmart.
9. Circular to shareholders
A circular containing full details of the Acquisitions and a notice
convening the general meeting of shareholders will be posted to Massmart
shareholders within 28 days of this announcement.
10. Withdrawal of cautionary announcement
Massmart shareholders are advised that the cautionary announcement, dated 23
April 2001, is hereby withdrawn.
Johannesburg
30 May 2001
Financial adviser
UBS Warburg Corporate Finance (SA) (Pty) Ltd
A financial services group of UBS AG
(Registration number 1994/008363/07)
Sponsor
UBS Warburg Securities (SA) (Pty) Ltd
A financial services group of UBS AG
(Member of the JSE Securities Exchange South Africa)
(Registration number 1996/011140/07)
Corporate law advisers and consultants
Edward Nathan & Friedland (Pty) Ltd
(Registration number 1999/026464/07)
Independent reporting accountants
Deloiite & Touche
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