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SHF - Steinhoff International Holdings Limited - Proposed disposal of

Release Date: 18/10/2011 12:26
Code(s): SHF
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SHF - Steinhoff International Holdings Limited - Proposed disposal of Steinhoff assets and granting of options on JD Group Limited shares STEINHOFF INTERNATIONAL HOLDINGS LIMITED Incorporated in the Republic of South Africa (Registration Number 1998/003951/06) Share code: SHF ISIN: ZAE000016176 ("Steinhoff") PROPOSED DISPOSAL OF STEINHOFF`S INDUSTRIAL ASSETS TO KAP INTERNATIONAL HOLDINGS LIMITED AND THE GRANTING TO STEINHOFF OF CALL OPTIONS IN RESPECT OF JD GROUP LIMITED SHARES 1. Introduction The board of directors of Steinhoff announces that in-principle agreement (the "Agreement") has been reached between Steinhoff and KAP International Holdings Limited ("KAP"), in terms of which Steinhoff will, subject to the fulfillment or waiver of the conditions precedent set out in paragraph 3.4 of the announcement by KAP released contemporaneously herewith ("the KAP Announcement"), dispose of the entire issued ordinary share capital of PG Bison Holdings (Proprietary) Limited ("PG Bison"), Unitrans Holdings (Proprietary) Limited ("Unitrans"), and Steinhoff`s raw materials subsidiaries ("Steinhoff Raw Materials") (together the "Steinhoff Industrial Assets"), to KAP in exchange for ordinary shares in KAP and the crediting of a loan account in favour of Steinhoff, as detailed below (the "KAP Transaction"). Furthermore, Steinhoff has secured call options to acquire 27.2 million ordinary shares in JD Group Limited ("JD Group"), exercisable at Steinhoff`s sole discretion, in exchange for KAP shares on the basis of 16 KAP shares for each JD Group share held (the "JD Group Call Options"). The JD Group Call Options are subject to the conditions set out in paragraph 4 below. The KAP Transaction and the JD Group Call Options are hereinafter collectively referred to as the "Transactions". 2. Rationale for the Transactions The Transactions represent a further step towards establishing, dedicated focused and separately listed operating entities, in line with Steinhoff`s key strategic objectives. The operating entities will comprise: - Steinhoff`s integrated European household goods retail operations, which Steinhoff already controls; - JD Group`s retail assets in southern Africa complemented by its consumer finance platform, which Steinhoff will gain control of if it elects to exercise the JD Group Call Options; and - KAP, a diversified industrial business, which Steinhoff will gain control of through the implementation of the KAP Transaction. In addition, the Transactions will simplify Steinhoff`s existing reporting structure and will enhance shareholders` ability to evaluate performance and the ability of these constituent businesses to deliver sustainable earnings growth in their local currencies, within their respective and specialised spheres of activity, with Steinhoff as the controlling shareholder. 3. The KAP Transaction 3.1 Nature of the Steinhoff Industrial Assets 3.1.1 PG Bison PG Bison manufactures and distributes sawn timber, poles, wood- based panel products, decorative laminates and solid surfacing materials through its comprehensive national footprint.
PG Bison`s integrated timber operations comprise forestry plantations, timber beneficiation processes sawmills, particle board and decorative laminate plants. PG Bison`s products are ultimately distributed to a diverse customer base in southern Africa. 3.1.2 Unitrans Unitrans comprises a specialist supply chain business that designs, implements and manages supply chains and logistics
for a diverse customer base on a long term contractual basis. Services include comprehensive warehouse-, logistics- and related supply chain solutions for customers in southern Africa.
In addition to the supply chain solutions, Unitrans Passenger provides comprehensive passenger transport solutions to various sectors, which include, inter alia, contractual commuter and personnel transport services, intercity transport
services, tourism services, as well as management and operations relating to the Gautrain fleet of commuter buses. 3.1.3 Steinhoff Raw Materials Steinhoff Raw Materials manufactures various products as
highlighted below. Steinhoff Raw Materials includes: - Vitafoam, a flexible polyurethane foam producer active in the furniture, packaging, insulation and cleaning industries in
South Africa and Namibia; - BCM, a manufacturer of components predominantly used in bedding products; and - DesleeMattex, a technologically advanced supplier of woven jacquard and knitted textiles to bedding and related industries. 3.2 Nature of the KAP business KAP is a holding company which, through its subsidiaries, is invested in a portfolio of diverse manufacturing businesses across some of South Africa`s most buoyant industrial and consumer sectors. These include, inter alia, leather products, footwear, speciality fibres, bottle resin, automotive products, towelling products and food products. KAP, via its subsidiaries, is operationally focused through an industrial segment (Feltex Automotive, Industrial Footwear and Hosaf Fibres), and a consumer segment (Jordan Shoes, Glodina, Bull Brand and Brenner Mills). 3.3 Terms of the KAP Transaction Subject to the fulfillment or waiver of the conditions precedent detailed in the KAP Announcement, KAP will acquire the Steinhoff Industrial Assets at an enterprise value of R8 921 million (the "KAP Purchase Consideration"). The KAP Purchase Consideration will be settled by way of a fresh issue of 1 912.8 million KAP shares credited as fully paid at an issue price of R2.50 per share, representing a premium of 2.5% to KAP`s 30 day VWAP up to and including 14 October 2011 and by KAP crediting an interest-bearing loan account in favour of Steinhoff in an amount of approximately R4 139 million ("the Claims"). As a result of the KAP Transaction, Steinhoff will increase its shareholding in KAP from 34% to 88% and will therefore be required to make a mandatory offer to the remaining KAP shareholders ("KAP Minorities"). Steinhoff will, at its election, either extend a cash offer at R2.50 per KAP share, or, as a condition precedent to the implementation of the KAP Transaction, request that the requirement to make a mandatory offer be waived by the KAP Minorities at the general meeting of KAP shareholders to be convened to consider and, if deemed appropriate, to pass all resolutions required in order to approve and implement the KAP Transaction (the "KAP General Meeting"). Details in respect of Steinhoff`s election to make a mandatory offer or to require the waiver of such offer, will be contained in a further SENS announcement and the circular to KAP shareholders in respect of the KAP Transaction. 3.4 JSE Small Related Party Transaction Mr CE Daun, is a director of Steinhoff and the major shareholder in KAP. The KAP Transaction will therefore be categorised as a small Related Party transaction for Steinhoff in terms of the Listing Requirements ("the Listing Requirements") of the JSE Limited ("the JSE"). This is based on the fact that Steinhoff will effectively only dispose of 12% of the Steinhoff Industrial Assets to KAP, therefore retaining control over 88% of the assets so disposed. Accordingly, Steinhoff will require a positive fairness opinion from an independent expert that the terms and conditions of the KAP Transaction are fair to Steinhoff shareholders. Furthermore, Mr CE Daun recused himself from the Steinhoff board meeting held to consider the KAP Transaction. 3.5 Effective date of the KAP Transaction The effective date of the KAP Transaction will be the first day of the month following the date of fulfillment or waiver, as the case may be, of the last of the conditions precedent to the KAP Transaction. 3.6 Financial effects of the KAP Transaction on Steinhoff The unaudited pro forma financial effects of the KAP Transaction on the earnings and headline earnings per share for the year ended 30 June 2011, and the net asset value per share at 30 June 2011 are not significant (being less than 3%) and are therefore not disclosed in accordance with section 9.15 of the Listings Requirements of the JSE. 3.7 Shareholder undertakings KAP has received irrevocable undertakings from KAP shareholders holding sufficient KAP shares to vote in favour of all resolutions required to implement the KAP Transaction at the KAP General Meeting. 4. The JD Group Call Options Steinhoff has secured the JD Group Call Options which, subject to, inter alia, the KAP Transaction becoming unconditional and Steinhoff receiving the requisite regulatory approvals, if exercised, may result in Steinhoff acquiring up to 27.2 million JD Group shares in exchange for 435.2 million KAP shares on the basis of 16 KAP shares for each JD Group share held. In addition, and subject to the JD Group Call Options being exercised, Steinhoff has received indication from other JD Group shareholders of their intention to make available to Steinhoff a further 11 million JD Group shares to exchange for 176 million KAP shares on the same terms and conditions as the JD Group Call Options. If and to the extent that Steinhoff exercises the JD Group Call Options and takes transfer of the aggregate number of 38.2 million of the above JD Group shares during, or after the latter part of January 2012, its shareholding in JD Group could increase from the current 32.4% to more than 50% and its shareholding in KAP will reduce to 62%, thereby restoring the requirement contained in the Listings Requirement of the JSE that at least 20% of the KAP shares must be held by the public. However, Steinhoff will not exercise the JD Group Call Options if such exercise will result in Steinhoff being obliged to make a mandatory offer to acquire all of the remaining JD Group shares not held by Steinhoff. In this regard, Steinhoff has already procured the relevant voting support of 42% of JD Group shareholders (excluding Steinhoff). The JD Group Call Options are only capable of being exercised on the later of: (i) 14 January 2012; (ii) the date on which the KAP Transaction becomes unconditional in accordance with its terms, or (iii) the date upon which the last of the requisite regulatory approvals (including Competition Tribunal approval) in respect of the exercise of the JD Group Call Options is obtained. Notwithstanding the aforementioned, the JD Group Call Options, if not exercised on or before 31 March 2012, shall lapse and be of no further force or effect. Steinhoff will make a further announcement regarding its election whether or not to exercise the JD Group Call Options at the appropriate time. 5. Steinhoff responsibility statement The Steinhoff board of directors accepts responsibility for the information contained in this announcement. To the best of its knowledge and belief, the information contained in this announcement is true and nothing has been omitted which is likely to affect the importance of the information. 18 October 2011 Wynberg, Sandton Investment Bank and Transaction Sponsor to KAP transaction Investec Corporate Finance Joint Investment Bank The Standard Bank of South Africa Limited Sponsor PSG Capital (Proprietary) Limited Legal advisor Cliffe Dekker Hofmeyr Incorporated Date: 18/10/2011 12:26:55 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.

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