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FORMATION OF A STRATEGIC MANUFACTURING ALLIANCE BETWEEN STEINHOFF AND

Release Date: 17/07/2001 16:14
Code(s): SHF
Wrap Text
FREEDOM GROUP
STEINHOFF INTERNATIONAL HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1998/003951/06)
("Steinhoff")

FORMATION OF A STRATEGIC MANUFACTURING ALLIANCE BETWEEN STEINHOFF AND THE AUSTRALIAN LIFESTYLE AND HOMEWARES GROUP, FREEDOM GROUP LIMITED ("FGL") INTRODUCTION
Gensec Bank Limited, Rand Merchant Bank and Wentworth Associates
(Proprietary) Limited (a wholly-owned subsidiary of Investec Bank limited) are authorised to announce that agreement has been reached between, inter alia, Steinhoff and FGL in terms of which FGL's existing manufacturing business has been transferred to a new company incorporated in Australia ("Newco") in exchange for a combination of a cash payment to FGL of ZAR35,1 million (Aus$8,4 million) and Newco equity. Steinhoff's existing Australian operations, comprising Marshall Furniture and an upholstery plant in
Adelaide, will also be sold to Newco. As a result of each party's respective contribution to Newco, its equity will be held as to 74,9% by Steinhoff and 25,1% by FGL.
In addition and in order to further entrench the strategic relationship with FGL, Fihag Finanz und Handels AG ("Fihag"), the holding company of
Steinhoff, has subscribed for 13,2 million new shares in FGL for cash of ZAR73,1 million (Aus$17,4 million), equivalent to ZAR5,52 per share
(Aus$1,32 per share). This will result in Fihag holding 13% of the enlarged issued share capital of FGL. It will become the second largest shareholder in FGL entitling it to board representation of one representative on a total board consisting of seven directors.
A supply and alliance agreement between Newco and FGL has been concluded which provides for the off-take of Newco's production on a preferred
supplier basis, but subject at all times to market-related standards of quality and terms of supply. It is foreseen that Newco may also supply certain goods to retailers, other than FGL, in geographical markets, other than Australia and New Zealand. INFORMATION ON FGL
FGL is a public company listed on the Australia Stock Exchange with a market capitalisation (after this transaction) of approximately ZAR562 million - Aus$135 million. It is a leading lifestyle and homewares retailer which distributes its products under the well-known "Freedom" and "Guests" brands throughout Australia and New Zealand. As a result of certain vertical integration strategies, FGL also manufactures furniture and imports, mainly from Asia, selected furniture and homewares products. FGL has factories in Sydney and Brisbane where fabric sofas are manufactured and in Auckland where fabric and leather sofas are produced. Current weekly manufacturing is approximately 1 000 sofa units (20 models) in Australia and 150 sofa units (34 models) in New Zealand. The manufacturing operation to be operated through Newco is expected to employ 300 people.
The Australian furniture market has grown over the past five years by an average of about 6,5% per annum with FGL's aggregate sales growing over the same period at a compound growth rate of over 15% per annum. This clearly demonstrates FGL's ability to gain market share from its competitors. The Australian market is highly fragmented with 10 players holding a collective market share of around 42% of the addressable furniture market of ZAR19,2 billion (Aus$4,6 billion) per annum and no one player holding more than 9% of the addressable homewares market of ZAR14,6 billion (Aus$3,5 billion) per annum. FGL operates 78 stores strategically spread throughout Australia and New Zealand and trading under the "Freedom" and "Guests" brands. RATIONALE
The formation of Newco ("the transaction") will combine FGL's recognised skills as a retailer and marketer with the manufacturing and distribution capabilities of Steinhoff. The two groups' brands and products are
complementary and the combined manufacturing operation is expected to benefit substantially from synergies in the areas of shared infrastructure, sourcing of raw materials and terms of supply. In addition, the transfer of Steinhoff's world best practice manufacturing technologies and skills are expected to benefit the combined manufacturing operation. This, in turn, should result in further market share growth for the rest of the FGL group due to enhanced customer loyalty flowing from a possible broader product range and improved efficiencies.
The formation of Newco and the related agreements provide a foothold for Steinhoff to accelerate its manufacturing growth and broaden its presence in the Australasian market and will further contribute to enhancing Steinhoff's Rand-hedge qualities. The structure of the transaction is such that
Steinhoff has entered into a partnership with an Australian industry player with an existing distribution footprint, whose management has a proven track record and knowledge of the local trading conditions. Steinhoff is,
therefore, investing in an entity that is self-sufficient in terms of managerial expertise and should not place any additional burden on its existing management capacity and infrastructure. FINANCIAL EFFECTS
The transaction is not expected to have any material effect on the earnings and net asset value per share of Steinhoff. It is, however, envisaged to substantially benefit Steinhoff's world-wide growth as a result of the expanded base in Australia and New Zealand from which adjacent markets, like China, could also be served in the future. GENERAL
The transaction represents a Category 4 transaction in relation to Steinhoff as defined by the Listings Requirements of the JSE Securities Exchange South Africa and, as such, this announcement is published in South Africa solely for information purposes given its strategic importance to Steinhoff. Wynberg, Sandton 17 July 2001
Investment Bank and Sponsor to Steinhoff in South Africa Gensec Bank Limited (Registration number 1996/004744/06) Corporate Advisor to Steinhoff in Australia Rand Merchant Bank Corporate Finance A Division of FirstRand Bank Limited Corporate Advisor to FGL Investec Corporate Finance
(through Investec Bank Limited's wholly owned subsidiary Wentworth Associates (Pty) Limited)

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