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DAWN / ETHOS PRIVATE EQUITY - ACQUISITION OF COBRA WATERTECH (PTY) LIMITED
Distribution and Warehousing Network Limited Ethos Private Equity
(Incorporated in the Republic of South Africa)
(Registration number 1984/008265/06)
Share code: DAW ISIN code: ZAE000018834
("Dawn")
ACQUISITION OF COBRA WATERTECH (PTY) LIMITED
1. Introduction
Bishop Corporate Finance (Pty) Limited is authorised to announce that Dawn has
made an offer on the basis set out below to the shareholders of Cobra Watertech
(Pty) Limited ("Cobra"), which offer has been accepted, subject to the
suspensive conditions set out in paragraph 5 below, and will ultimately result
in Dawn acquiring 78% of the issued share capital of Cobra ("the acquisition")
with the management of Cobra ("Cobra management") acquiring the remaining 22%
("the proposed transaction"). The current shareholders of Cobra are Ethos
Private Equity Fund IV, Delta Group Limited and Cobra management (collectively
referred to as "the vendors").
2. Rationale for the acquisition
The acquisition affords Dawn the opportunity to become a more effective and
efficient supplier and distributor of quality products to the building industry.
Integration of the existing logistical infrastructures will result in cost and
operating efficiencies including reduced levels of combined investment in
working capital. In addition, optimised stock levels and logistical efficiencies
will contribute to enhanced service levels to the combined retail customer base.
3. Description of the business of Cobra
Cobra was originally formed by the merger of the local operations of well
established global players in brass sanitaryware, valves and fitting products.
Today Cobra"s locally manufactured products are a leading brand in South Africa
for plumbing products. Cobra"s key products are taps and mixers, which are
supported by more technical products such as flush valves, pressure reducing
valves and hospital mixers. In addition, Cobra manufactures and markets ranges
of compression tube fittings, a range of general valves, plumbing accessories
and waste fittings. Cobra"s products require a high level of engineering
precision together with a focus on aesthetic appeal.
4. Terms of the acquisition
Dawn and Cobra management, through a nominee company ("Newco"), will acquire all
the vendors" shares in and claims against Cobra for a purchase consideration
expected to amount to R145,4 million, payable in cash ("the purchase
consideration"). Dawn will own 78% of the issued ordinary shares in Newco and
Cobra management 22%.
Newco will fund the purchase consideration as follows:
- Senior debt of R68,4 million comprising of a term loan and working capital
facilities, subject to certain suspensive conditions, from suitable financiers;
- Subordinated debt of R60,06 million from Dawn; and
- Subordinated debt of R16,94 million from Cobra management.
Dawn will fund its obligation in terms of the subordinated debt from existing
cash resources and available financing facilities. Cobra management will fund
their obligation in terms of the subordinated debt from cash to be received by
them as current shareholders of Cobra in terms of the acquisition of their
shares in Cobra by Newco.
The acquisition will be effective from the date of fulfilment of the last
suspensive condition as detailed in paragraph 5 below ("suspensive conditions"),
which is expected to occur by no later than 17 December 2004 ("effective date").
Should all the suspensive conditions not have been fulfilled by 31 January 2005,
the proposed transaction will expire or will be renegotiated after such date.
Cobra will be restrained from making any distributions, capital or loan
repayments to current shareholders until the earlier of 31 January 2005 or until
the proposed transaction fails as a result of an unfulfilled condition.
The purchase price will attract interest at 1% above the prime overdraft rate of
Standard Bank of South Africa Limited after 31 December 2004 until settled.
5. Suspensive conditions
The proposed transaction is subject to the following suspensive conditions,
which are to be satisfied according to a timetable which has been agreed between
Dawn and the vendors:
- Dawn completing a due diligence investigation to its satisfaction;
- Suitable funding arrangements being concluded on terms reasonably acceptable
to Dawn;
- Signature of:
- a formal sale and purchase agreement between Newco and the vendors for the
acquisition of their shares in and claims against Cobra, containing
standard terms, conditions and warranties;
- a formal sale and purchase agreement between Newco and Cobra for the
acquisition of the net operating assets and business of Cobra as a going
concern;
- a formal subscription and shareholders" agreement between Dawn and Cobra
management as shareholders of Newco;
- confidentiality and restraint agreements between Newco and Cobra
management;
- Regulatory approvals being obtained, inter alia, from the JSE Securities
Exchange South Africa, Securities Regulation Panel and The South African Reserve
Bank to the extent necessary;
- Approval of the acquisition by Dawn shareholders in a general meeting; and
- Approval of the acquisition being obtained from the Competition Authorities.
6. Financial effects
The unaudited 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 acquisition, are set out below. The unaudited pro forma
financial information provided is the responsibility of the directors of Dawn
("directors"). The unaudited pro forma financial information has been prepared
for illustrative purposes only and because of its nature, may not fairly present
the financial position of Dawn, changes in its equity or results of its
operations or cash flows.
The cyclical nature of Cobra"s operations may result in the full year financial
effects being lower than that disclosed under this paragraph for the six months
ended 31 December 2003. Consequently, the financial effects should be read with
caution.
Notes Before After Change
(cents) (cents) (%)
Headline earnings 1 14,31 20,78 45,21
Earnings 1 14,00 22,27 59,07
Net asset value 2 70,26 70,26 0,00
Net tangible asset value 2 70,26 49,07 (30,16)
Notes:
1. The amounts in the "Before" column are based on the headline earnings and
earnings per Dawn share as reported in the unaudited interim financial results
of Dawn for the six months ended 31 December 2003. The amounts in the "After"
column represent the headline earnings and earnings that would have accrued per
Dawn share for the six months ended 31 December 2003 based on the following main
assumptions:
- the acquisition had been effective 1 July 2003;
- the audited financial results of Cobra for the six months ended 31
December 2003;
- borrowing cost of Newco at an after tax cost of 9,45%; and
- the excess of the purchase consideration over the book asset value of
Cobra at 1 July 2003 resulting from the acquisition, of approximately R58.7
million, is assumed to represent intangibles and would be amortised over a
period of 20 years. The amount of the intangibles would be affected by an
increase in equity from 1 July 2003 to the effective date of the acquisition.
The excess still needs to be allocated to the fair value of the underlying
assets of Cobra.
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 unaudited interim
financial results of Dawn for the six months ended 31 December 2003. The amounts
in the "After" column represent the net asset value per share and tangible net
asset value per share based in the following assumptions:
- had the acquisition been effective 31 December 2003;
- the audited financial statements of Cobra for the six months ended 31
December 2003; and
- the excess of the purchase consideration over the book asset value of
Cobra at 31 December 2003 resulting from the acquisition, of approximately
R34.4 million, is assumed to represent intangibles and would be amortised
over a period of 20 years. The amount of the intangibles would be affected
by an increase in equity from 31 December 2003 to the effective date of
the acquisition. The excess still needs to be allocated to the fair value
of the underlying assets of Cobra.
7. Further cautionary announcement
Shareholders are referred to the cautionary announcements dated 9 June 2004 and
21 July 2004 and are advised that the negotiations referred to therein are still
in progress. Accordingly, shareholders are advised to continue to exercise
caution when dealing in Dawn shares until a full announcement in terms thereof
is made.
A further announcement relating to the acquisition will be made in due course.
The purpose of such announcement will be to inform shareholders of progress made
and to advise shareholders of the proposed date of the general meeting to be
held for purposes of considering, and if deemed fit, approving the acquisition.
Johannesburg
29 July 2004
Corporate adviser
Bishop Corporate Finance
Sponsor
Deloitte & Touche Sponsor Services
Attorneys
Werksmans Attorneys
Reporting accountants
PricewaterhouseCoopers Inc.
Attorneys to the vendors
Webber Wentzel Bowens
Date: 29/07/2004 05:15:06 PM Supplied by www.sharenet.co.za
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