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Distribution and Warehousing Network Limited - Announcement and Withdrawal of
Cautionary
Distribution and Warehousing Network Limited
(Incorporated in the Republic of South Africa)
(Registration number 1984/008265/06)
Share code: DAW, ISIN code: ZAE000018834
("DAWN")
ANNOUNCEMENT REGARDING:
THE ACQUISITION OF A 30,43% STRATEGIC EQUITY STAKE IN INCLEDON;
THE GRANTING OF A CALL OPTION TO ACQUIRE THE REMAINING 69,57% OF THE EQUITY IN
INCLEDON; AND
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENTS
1. Introduction
Further to the cautionary announcements dated 31 October 2003 and 7 November
2003, Bishop Corporate Finance (Pty) Limited is authorised to announce that DAWN
has concluded an agreement with the shareholders of Incledon (Pty) Limited
("Incledon") in terms of which DAWN will acquire 30,43% of the issued shares in
Incledon ("the acquisition") as set out in paragraph 4 below and be granted a
call option ("call option") to acquire the remaining 69,57% of the issued shares
in Incledon as set out in paragraph 5 below ("the agreement").
2. Rationale for the acquisition and the call option
The acquisition affords Dawn the opportunity to expand its wholesale
distribution focus with a similar product range into new markets, i.e. into the
mining, industrial and petrochemical sectors, state, provincial and local
authorities as well as into infrastructural development, both locally and into
selected African export markets. In addition it also adds critical mass to
Dawn"s logistical services division.
3. Description of the business of Incledon
Incledon is a privately owned investment company with its primary investment
being a 74% equity stake in Incledon-DPI (Pty) Limited ("IDPI"). 69,57% of the
total issued share capital of Incledon is held by black shareholders.
Consequently Incledon and IDPI are black controlled entities.
IDPI was formed with effect from February 2003 as a joint venture between
Incledon and DPI Plastics (Pty) Limited ("DPI"), in terms of which the entire
business of Incledon and the wholesale trading business of DPI were sold to IDPI
in exchange for shares in IDPI.
IDPI conducts business as a wholesale and engineering trading merchant mainly
dealing in piping systems, valves and related accessories for the mines, general
industry, state, provincial and local authorities as well as for civil
contractors.
4. Terms of the acquisition
DAWN will acquire, subject to the suspensive conditions set out in paragraph 6
below, with effect from 1 July 2003 ("the effective date") 30,43% of the total
issued shares in Incledon ("the acquisition shares") for a maximum cash
consideration of R23 739 130. The vendors of the acquisition shares comprise
mainly the white management and employees of IDPI ("the white consortium").
The cash consideration payable in terms of the acquisition ("the acquisition
consideration") is subject to Incledon achieving a cumulative profit after
taxation of R86 666 667 ("the cumulative warranted profit") over a four year
period from the effective date ("the warranty period"). Based on the assumption
that Incledon will achieve the cumulative warranted profit over the warranty
period, DAWN will pay the acquisition consideration to the white consortium in
six instalments as follows:
- for the six months ending 31 December 2003 an amount of R1 900 000;
- for the six months ending 30 June 2004 an amount of R2 200 000;
- for the six months ending 31 December 2004 an amount of R2 600 000;
- for the six months ending 30 June 2005 an amount of R2 800 000;
- for the year ending 30 June 2006 an amount of R6 600 000; and
- for the year ending 30 June 2007 an amount of R7 639 130.
In the event that Incledon does not achieve the cumulative warranted profit in
each payment period, the instalment due in each period will be reduced to an
amount equal to 90% of the cumulative actual profit achieved and attributable to
the acquisition shares in such payment period, less any amount of instalments
already paid by DAWN. The instalments in respect of the periods ending 30 June
2006 and 30 June 2007, respectively, is further subject to DAWN receiving a
dividend from Incledon equal to 90% of the actual profit attributable to the
acquisition shares for the relevant period.
5. Terms of the call option
DAWN will, subject to the suspensive conditions set out in paragraph 6 below and
for the warranty period, be entitled (but not obliged) to acquire the remaining
69,57% of the total issued share capital of Incledon ("the call option shares")
for a purchase consideration of R52 753 623. The Incledon shareholders who grant
DAWN the call option comprise mainly the black management and employees of IDPI
("the black consortium").
DAWN will settle the purchase consideration payable to the black consortium for
the call option shares by way of an issue of new ordinary shares in DAWN ("DAWN
shares"). For purposes of calculating the DAWN shares due to the black
consortium, the price per DAWN share shall be the thirty day volume weighted
average share price of DAWN shares as traded on the JSE Securities Exchange
South Africa ("JSE") immediately preceding the date on which DAWN exercises the
call option ("option exercise date").
The DAWN shares so issued will be subject to Incledon achieving the cumulative
warranted profit over the warranty period and will be held in escrow by the
auditors of Incledon until the warranty period expires. At the end of the
warranty period the purchase consideration attributable to the call option
shares shall be adjusted and such adjustment will be calculated with reference
to the cumulative actual profit achieved by Incledon divided by the cumulative
warranted profit. In the event that Incledon exceeds the cumulative warranted
profit, DAWN will issue further DAWN shares to the black consortium, subject to
the total purchase consideration attributable to the call option shares not
exceeding R56 000 000. In the event that the cumulative actual profit achieved
by Incledon is less than the cumulative warranted profit, the number of DAWN
shares that were conditionally issued to the black consortium and held in escrow
will be reduced on a pro rata basis.
The black consortium will be restrained from dealing in the DAWN shares for a
period of five years from the effective date ("restraint period"). Should the
black consortium wish to sell the DAWN shares after the restraint period then
DAWN shall be given a period of 120 days to place such shares with alternative
black shareholders, so as to retain the black controlled status created within
DAWN due to the exercise of the call option.
6. Suspensive conditions
The agreement is subject to the following suspensive conditions being met within
thirty days from 7 November 2003:
- the completion of employment agreements with key management members of IDPI
containing appropriate lock-in provisions and restraints ;
- DAWN be permitted to nominate one director to the board of Incledon and one
member to the executive committee of IDPI;
- written approval by the lessor of the premises currently being used as the
IDPI head office or alternatively IDPI providing Incledon, with a written
- indemnity against any and all claims which may result from the lease
agreement; and
- the existing shareholders agreement entered into between DPI and Incledon
as shareholders of IDPI on 4 November 2002, be replaced or amended to the
satisfaction of DAWN acting reasonably.
The exercise of the call option is subject to the following additional
suspensive conditions being met within ninety days from the option exercise
date, namely:
- DAWN may only exercise the call option if, upon implementation of the call
option and the issue of the call option shares to the black consortium, no less
than 50% of DAWN"s issued share capital is held by black shareholders (including
the black consortium);
- to the extent required by law, a resolution by the shareholders of DAWN is
obtained approving the implementation of the call option; and
- the written approval of the JSE, The Securities Regulation Panel, The South
African Competition Commission and such other regulatory approval as may be
required.
A further condition on the transferability of the call option shares is
contained in the IDPI shareholders agreement dated 4 November 2002 and entered
into between DPI and Incledon, in terms of which DPI"s approval for any change
in IDPI"s black empowerment status is required. The black consortium currently
has an effective 51,48% shareholding in IDPI. DPI has indicated that it will not
unreasonably withhold its approval from the black consortium should they be
required to sell the call option shares in terms of the call option, on
condition that the current effective black shareholding in IDPI, or such other
level as may be required by future statutory guidelines and requirements, is
maintained.
7. Financial effects
The pro forma financial effects of the acquisition on the headline earnings,
earnings, net asset value and tangible net asset value per DAWN share, before
and after the disposal, are set out below:
Notes Before After Change
Per DAWN share (cents) (cents) (%)
Headline earnings 1 17,11 19,60 14,55
Earnings 1 17,22 19,71 14,46
Net asset value 2 57,48 57,48 -
Net tangible asset value 2 57,48 57,48 -
Notes:
1. The amounts in the "Before" column are based on the headline earnings and
earnings per Dawn share as reported in the annual financial results of DAWN for
the year ended 30 June 2003. The amounts in the "After" column represent the
headline earnings and earnings that would have accrued per DAWN share for the
year ended 30 June 2003 had the acquisition been effective 1 July 2002, which
pro forma headline earnings and earnings per DAWN share include the headline
earnings and earnings achieved by Incledon and attributable to the acquisition
shares for the year ended 30 June 2003 less a cost for interest foregone at a
rate per annum of 7% after taxation calculated on the first instalment of R1 900
000 assumed to been paid on 1 January 2003.
2. The amounts in the "Before" column are based on the net asset value per
share and net tangible asset value per share as reported in the annual financial
results of DAWN for the year ended 30 June 2003. The amounts in the "After"
column represent the net asset value per share and tangible net asset value per
share had the acquisition been effective 30 June 2003.
8. Withdrawal of cautionary announcements
Shareholders are referred to the cautionary announcements dated 31 October 2003
and 7 November 2003 and are advised that, as full disclosure regarding the
negotiations as contemplated therein has been made in terms of this
announcement, caution is no longer required.
Johannesburg
11 November 2003
Corporate adviser Sponsor Legal adviser
Bishop Corporate Finance Deloitte & Touche Sponsor Services Werksmans attorneys
Date: 10/11/2003 05:15:06 PM Supplied by www.sharenet.co.za
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