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JDG - JD Group - Proposed transaction with Steinhoff International Holdings
Limited
JD Group Limited
(Incorporated in the Republic of South Africa)
(Registration number 1981/009108/06)
JSE Share Code: JDG
ISIN: ZAE000030771
("JD Group" or "the Company")
PROPOSED TRANSACTION WITH STEINHOFF INTERNATIONAL HOLDINGS LIMITED
INTRODUCTION
JD Group shareholders are advised that JD Group and Steinhoff International
Holdings Limited (together with its subsidiaries and associates "Steinhoff")
have agreed to the material terms relating to a proposed transaction, which
entails:
- the proposed acquisition by JD Group, either directly or through a
whollyowned subsidiary, of the companies comprising Steinhoff`s South
African retail assets, being:
- Unitrans Motor Enterprises (Proprietary) Limited (together with its
subsidiaries and associates "Unitrans Auto"), a leading motor retailer
with an extensive portfolio of original equipment manufacturer ("OEM")
brands such as Toyota, Volkswagen, Audi, General Motors, Nissan,
Mercedes Benz, MAN, Renault and BMW; and
- Steinhoff Doors and Building Materials (Proprietary) Limited
("Steinbuild"), a building materials supplier and DIY business
comprising the Timbercity, Pennypinchers and Tilehouse retail outlets;
and
- the proposed acquisition by a Steinhoff associate of JD Group`s interest in
Abra Spolka Akcyjna ("Abra"), JD Group`s Polish furniture retail business,
(the "Proposed Transaction"). The Proposed Transaction is subject to the
fulfilment or waiver of the conditions precedent referred to below.
RATIONALE AND DESCRIPTION OF THE BUSINESSES BEING ACQUIRED
JD Group Strategy
In 2008, JD Group embarked on a fundamental strategic shift, separating its
furniture retail operations and its financial services operations in order to
move from an integrated furniture business to a diversified retail and financial
services entity. The move was designed to bring greater management visibility in
relation to the profitability of each business, and to aid management in
creating value through the expansion of its customer base, product range (in
both retail and financial services) and distribution channels. JD Group`s
intention is to leverage its established financial services expertise across its
massmiddle market retail customer base to drive revenue growth and
profitability.
The Proposed Transaction represents a significant step forward in JD Group`s
stated strategy by providing it with a large new customer base to whom it will
be able to cross-sell new financial services products. The Proposed Transaction
will result in JD Group acquiring a high-quality asset in Unitrans Auto and an
asset with significant growth opportunity in Steinbuild. The Proposed
Transaction will enhance JD Group`s position as a diversified retail and
consumer finance services provider of scale.
In addition, as the consideration will be settled in shares, Steinhoff will
become a significant shareholder of JD Group, which will enable JD Group to
strengthen its balance sheet and retain significant capacity to invest in
growth.
Rationale for the proposed acquisition of Unitrans Auto
Unitrans Auto has been an investment of Steinhoff since 2000, and traces its
origins back to the 1920`s. It offers a broad range of vehicles (both new and
pre-owned), parts and accessories, servicing, insurance and is complemented by
the Hertz car rental division. Unitrans Auto targets consumers across the income
spectrum and has significant market share of the top selling volume brands. It
has a strong relationship with the original equipment manufacturers (OEMs) and
is the number one dealer in Toyota vehicles (the number one OEM in South Africa
in 2010 by market share) and General Motors (GM) vehicles (the third largest OEM
in South Africa in 2010 by market share) and the number three dealer in
Volkswagen VW/Audi vehicles (the second largest OEM in South Africa in 2010 by
market share). It has 82 retail outlets in South Africa and is a strong cash
generative enterprise.
Unitrans Auto is a high-quality asset which is a good fit with JD Group`s retail
and consumer finance strategy:
- Unitrans Auto belongs to an industry with attractive prospects. The motor
retail industry is in a recovery phase, following recent declines from its
peak in the mid-2000s. A recovery in consumer spending and credit growth
should provide support for near to medium term growth. JD Group believes
that growth will be particularly strong in popular brands where Unitrans
Auto has a favourable position;
- JD Group believes that the Proposed Transaction presents significant
financial services growth opportunities. It will allow JD Group`s Financial
Services division to sell a number of new financial services products into
its target market via the Unitrans Auto retail outlets, without replacing
traditional vehicle finance;
- JD Group has a successful track record in credit granting and collection
and there will be opportunities to develop new financial services products
for an expanded JD Group consumer finance book.
Rationale for the proposed acquisition of Steinbuild
Steinbuild comprises entrenched brands, namely Timbercity, Pennypinchers and
Tilehouse. These are retailers of building materials and related products and
services. Steinbuild has 59 retail outlets located in South Africa.
Steinbuild presents a significant growth opportunity and is a good fit with JD
Group`s retail and consumer finance strategy in that:
- The Proposed Transaction allows JD Group to diversify and scale up its
retail operations and opens new avenues for growth in the building
materials and DIY retail business; and
- JD Group will be able to leverage its successful track record in consumer
financial services to introduce new financial services products to
Steinbuild`s customers.
Rationale for the disposal of Abra
Since it was established 20 years ago, Abra has become a leading furniture
retailer in Poland, offering a wide selection of furniture to the lower and
middle income segments. It currently operates 74 stores in Poland. Abra is JD
Group`s only exposure outside Southern Africa. The sale of Abra to a Steinhoff
associate allows JD Group to focus on its core strategic priority of being a
leading South African and Southern African retail and consumer financial
services provider.
TERMS OF THE PROPOSED TRANSACTION
In respect of JD Group`s acquisition of Unitrans Auto, the purchase price
payable is R3 billion, on a cash free, debt free basis, based on Unitrans Auto`s
warranted profits of R263.7 million for the year ending 30 June 2011, and will
be settled by the issue of 60 million JD Group shares at R50 per share (which
implies a PE multiple of 11.38 times).
In respect of JD Group`s acquisition of Steinbuild, the purchase price payable
is approximately R169 million, based on Steinbuild`s warranted NAV at 30 June
2011, and will be settled by the issue of 3 376 620 JD Group shares at R50 per
share.
In respect of the sale of Abra by JD Group to a Steinhoff associate, the
purchase price payable is approximately R134 million based on Abra`s projected
earnings after tax, multiplied by a PE ratio of 11.38 times, on a cash free,
debt free basis.
The purchase price payable by a Steinhoff associate to JD Group in respect of
the Abra transaction will be settled by way of a reduction in the number of JD
Group shares to be issued for the acquisition of Unitrans Auto and Steinbuild.
The effective date of the Proposed Transaction is 30 June 2011 ("Effective
Date").
The parties have agreed that on the Effective Date JD Group will issue 52
million JD Group shares to Steinhoff, along with renounceable letters of
allocation in respect of the potential remaining 8.7 million JD Group shares.
The final number of JD Group shares to be issued to Steinhoff will be determined
based on the actual profit achieved by Unitrans Auto for the year ending 30 June
2011, the actual net asset value of Unitrans Auto and Steinbuild as at 30 June
2011 and the actual profit achieved by Abra for the year ending 31 August 2011.
JD Group has obtained support for the Proposed Transaction from their largest
shareholders who together own 51.30% of the JD Group issued shares, excluding JD
Group shares held by the JD Group Employee Share Incentive Scheme (which in
terms of the JSE Listings Requirements are not entitled to vote at the general
meeting to be convened for the purpose of approving, inter alia, the Proposed
Transaction).
RATIONALE FOR HAVING STEINHOFF AS A SIGNIFICANT SHAREHOLDER IN JD GROUP
If implemented, the Proposed Transaction will result in Steinhoff owning
approximately 26% of the total JD Group shares then in issue. The parties will
enter into a commercial relationship agreement, which is expected to yield
significant benefits for JD Group.
JD Group is expected to benefit from, inter alia, Steinhoff`s sourcing
capabilities and from leveraging off Steinhoff`s established European track
record in marketing of the "home life-style" retail concept to market a similar
retail concept in South Africa. This will allow JD Group to broaden its retail
offering to its target market. JD Group will also have access to Steinhoff`s
internationally experienced management team and intellectual property and
merchandising skills in order to execute on the above commitments.
The Proposed Transaction will allow JD Group access to Steinhoff`s global
procurement and supply chain without impacting on JD Group`s local supply chain.
Following the successful acquisition by Steinhoff of French furniture and
household goods retailer, Conforama, Steinhoff is the second largest European
furniture and general merchandise retailer, with retail sales of almost Euro5bn
in Europe. JD Group expects to benefit from Steinhoff`s scale.
CONDITIONS PRECEDENT
The Proposed Transaction will be subject to the fulfilment of certain conditions
precedent by not later than 30 June 2011, or such later date as the parties may
agree upon in writing. These include:
- the parties signing legal agreements to give effect to the Proposed
Transaction;
- JD Group shareholder approval for the acquisition by JD Group of Unitrans
Auto and Steinbuild and the issue and allotment of approximately 60.7
million JD Group shares at R50 per share in consideration for the Proposed
Transaction (the "Consideration Shares");
- approval from the Competition Authorities of the acquisition by JD Group of
Unitrans Auto and Steinbuild, either unconditionally or subject to such
conditions as the parties may confirm in writing are acceptable to them;
- to the extent required, any other local and foreign regulatory or statutory
approvals, including approval from the Financial Services Board;
- the approval of JD Group`s funders of the acquisition of Unitrans Auto and
Steinbuild;
- the unconditional written consent from counterparties to material contracts
to the change of control of Unitrans Auto and Steinbuild pursuant to the
acquisition by JD Group of Unitrans Auto and Steinbuild, to the extent that
these may be required; and
- the JSE Limited granting a listing of the Consideration Shares.
UNAUDITED PRO FORMA FINANCIAL EFFECTS OF JD GROUP
The unaudited pro forma consolidated statement of comprehensive income and
consolidated statement of financial position of JD Group and the financial
effects of the Proposed Transaction on JD Group for the 12 months ended 31
August 2010 (together the "unaudited pro forma financial information") have been
prepared to show the impact of the Proposed Transaction as if the Proposed
Transaction had occurred on 1 September 2009 for purposes of adjusting the pro
forma consolidated statement of comprehensive income, and on 31 August 2010 for
purposes of adjusting the pro forma consolidated statement of financial
position. The pro forma consolidated statement of comprehensive income of JD
Group includes the statement of comprehensive income of Unitrans Auto and
Steinbuild for the 12 months ended 30 June 2010, while the pro forma
consolidated statement of financial position of JD Group includes the statement
of financial position of Unitrans Auto and Steinbuild as at 30 June 2010. The
unaudited pro forma financial information is presented for illustrative purposes
only and because of its nature may not fairly present JD Group`s financial
position, changes in equity, results of operations or cash flows going forward.
The unaudited pro forma financial information has been prepared using accounting
policies that are consistent with IFRS and with the basis on which the
historical financial information has been prepared in terms of the accounting
policies adopted by JD Group.
The JD Group Board is responsible for the compilation, contents and presentation
of the unaudited pro forma financial information contained in this announcement
and for the financial information from which it has been prepared. Their
responsibility includes determining that the unaudited pro forma financial
information has been properly compiled on the basis stated; that the basis is
consistent with the accounting policies of JD Group; and that the pro forma
adjustments are appropriate for the purposes of the unaudited pro forma
financial information disclosed in terms of the JSE Limited Listings
Requirements.
The detailed unaudited pro forma financial information will be set out in the
Circular to be posted to JD Group shareholders in due course.
Unaudited pro forma financial effects
Notes Before After % changes
EPS (cents) 2 304.9 346.7 13.7
HEPS (cents) 3 303.6 304.4 0.3
Fully diluted EPS (cents) 301.4 343.8 14.0
Fully diluted HEPS (cents) 300.1 301.8 0.5
NAV per Share (cents) 3,023 3,559 17.7
TNAV per Share (cents) 4 2,609 2,111 (19.1)
Weighted average number 5 164,314 225,014 36.9
of Shares (`000)
Fully diluted weighted 5 166,253 226,953 36.5
average Shares in issue (`000)
Notes:
1. The "Before" column is based on the JD Group audited results for the year
ended 31 August 2010.
2. The pro forma EPS includes the effect of the profit on the sale of the
investment in Abra after provision for a Capital Gains Tax liability and
expected transaction costs.
3. The pro forma HEPS excludes the effect of the profit on the sale of Abra and
a Capital Gains Tax liability.
4. The pro forma TNAV per share is impacted by intangibles resulting from the
acquisition of Unitrans Auto amounting to R2.5 billion.
5. The pro forma financial effects have been calculated based on the assumption
that 60.7 million shares are issued.
POSTING OF CIRCULARS
A circular and revised listing particulars ("the Circular") will be posted to JD
Group shareholders in due course, which Circular will contain information in
relation to the Proposed Transaction as well as a notice convening a general
meeting of JD Group shareholders for the purpose of considering and, if deemed
fit, approving the resolutions required to implement the Proposed Transaction.
14 March 2011
Johannesburg
Financial advisor to JD Group
J.P. Morgan
Sponsor to JD Group
PSG Capital (Proprietary) Limited
Legal advisor to JD Group
Fluxmans Attorneys
Competition law advisor to JD Group
Deneys Reitz
Reporting accountants and auditors
Deloitte & Touche
Date: 14/03/2011 07:49:21 Supplied by www.sharenet.co.za
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