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Massmart Holdings Limited - Massmart Acquires Controlling Interest in Moresport Massmart Holdings Limited (Incorporated in the Republic of South Africa) (Registration number 1940/014066/06) (Share code:MSM) (ISIN: ZAE000029534) ("Massmart" or "the company") Massmart Acquires Controlling Interest in Moresport Introduction Massmart is pleased to announce, subject to the fulfilment of the conditions precedent detailed below, the acquisition of 84.1% of the issued shares and all the shareholders loans in Moresport (Proprietary) Limited ("Moresport") for a cash consideration of R403.8m ("the acquisition"). Background to Moresport Moresport owns three successful retail brands operating in South Africa: - Sportsmans Warehouse - a 20-store national chain that sells a wide range of sporting goods and accessories; - Sport Shoe World - a 13-store chain, usually attached to or trading in close proximity to a Sportsmans Warehouse, that sells a wide range of specialist sporting footwear; and - Outdoor Warehouse - a 9-store chain operating in Johannesburg, Pretoria, Cape Town and Durban that sells a wide range of specialist outdoor and camping merchandise. Rationale for the Transaction Since its founding, Massmart has pursued a strategy of organic and acquisitive growth, mitigating the risks of the latter by the accretive acquisition of businesses that trade in product categories and markets with which the Group is familiar. For many years Massmart has participated to a limited extent in the distribution of sports clothing and footwear, outdoor and camping equipment and accessories, and sports equipment, through its Makro, Game and Dion chains. The acquisition of Moresport enhances Massmart"s customer appeal, participation and expertise in these categories, through stores recognised by South African consumers as leading category specialists. While Moresport will be housed within the Group"s Massdiscounters division, it will retain its own branding, customer focus and profit responsibility under a proven management team committed to realising fully the potential of Moresport"s new ownership. Details of the Transaction Upon fulfilment of the conditions precedent, Massmart will pay a cash consideration of R403.8m for 84.1% of the issued share capital and all the shareholders loans of Moresport. The vendors are Nedbank Limited through its Private Equity division, Vestacor Limited and management (representing individuals in key management positions in Moresport and its retail brands). This Management owns the remaining 15.9% of the issued shares in Moresport. Massmart has a call and management has a put on these remaining shares, which can be triggered in equal amounts after the June 2007 and June 2008 financial years respectively. The value of those puts and calls will be determined by applying a multiple to the audited annual after-tax profits of Moresport on those dates. Massmart is currently evaluating various forms of funding that will most effectively meet its desired capital structure, anticipated net gearing levels and risk profile. Financial Effects The pro forma financial effects of the acquisition on Massmart"s earnings, headline earnings, net asset value ("NAV") and tangible NAV are set out below. The pro forma financial effects have been calculated using the assumptions detailed in the notes below and using the reviewed financial figures for Massmart for the six months to December 2004 and the unaudited financial figures for Moresport for the six months to February 2005. Before the After the Percentage Acquisition Acquisition Change R millions Earnings 396.6 422.5 6.5 Headline earnings 443.4 469.8 6.0 NAV 2 047.9 2 047.9 - Tangible NAV 1 416.9 1 089.9 (23.1) Cents per Massmart ordinary share Earnings 199.5 212.5 6.5 Headline earnings 223.0 236.3 6.0 NAV 1 028.1 1 028.1 - Tangible NAV 711.3 547.2 (23.1) Notes: 1. It is assumed that the acquisition was effected on 1 July 2004 for income statement purposes and on 31 December 2004 for balance sheet purposes. 2. Interest on the funding for the purchase consideration is assumed to be 8.5%. 3. It is assumed that goodwill of approximately R327m will arise from the acquisition. 4. The recently announced acquisitions in the South African DIY, Home Improvement and Building Material industries, all of which are still subject to Competition Authorities" approval, have not been included in the Massmart figures. Material Conditions Precedent The acquisition is subject to the usual conditions precedent for a transaction of this nature, including but not limited to: - The completion by Massmart of a due diligence investigation; and - The approval of all regulatory authorities, including the Competition Authorities, whose decision is expected in approximately three months. Conclusion Once all conditions precedent have been satisfied, in respect of this transaction and the Group"s recently announced investments in the building supplies sector, Massmart is positioned for an 18 to 24 month period of consolidation, during which the management and assets of the acquired companies will be integrated in a manner that sustains their performance, while realising their full potential in the interests of Massmart stakeholders. 26 April 2005 Johannesburg Sponsor to Massmart: Deutsche Securities (SA) (Proprietary) Limited Date: 26/04/2005 08:28:39 AM Supplied by www.sharenet.co.za Produced by the JSE SENS Department
