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The disposal by Seardel of its clothing manufacturing business
SEARDEL INVESTMENT CORPORATION LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 1968/011249/06
N-Ordinary Shares share code: SRN; Ordinary Shares share code: SER
ISIN: ZAE000030144; ISIN: ZAE000029815
(“Seardel” or “the Company”)
ANNOUNCEMENT REGARDING THE DISPOSAL BY SEARDEL OF ITS CLOTHING MANUFACTURING BUSINESS
1. INTRODUCTION
Seardel ordinary shareholders and N-ordinary shareholders (collectively “Seardel
Shareholders”) are advised that Seardel and the Southern African Clothing & Textile
Workers Union (“SACTWU”) have entered into a Memorandum of Understanding
(“MOU”) in terms of which SACTWU, or its assignee (“the Purchaser”), will acquire the
Seardel Group’s apparel manufacturing business, excluding the Lesotho operation, (“the
Business”), as a going concern (“the Proposed Transaction”).
2. RATIONALE
The apparel manufacturing business of Seardel has over the years been ravaged by the
flood of legal and illegal imports that have entered the market, including those that have
been significantly undervalued to reduce import duties. To combat this, the business has
undertaken a number of restructuring initiatives to significantly reduce costs, improve
trading margins and increase efficiencies. Despite these efforts, the business has
continued to make losses.
The Directors have resolved to exit the apparel manufacturing business through a
closure of its Western Cape and Kwa-Zulu Natal operations and a disposal of its Lesotho
operation. Further to the notification of the proposed closures, and in an effort to protect
local manufacturing capacity and the loss of over 2 000 jobs, the Company has entered
into the MOU with the Purchaser for the disposal of the Business on the terms set out
below.
3. TERMS OF THE PROPOSED TRANSACTION
3.1 In terms of the Proposed Transaction, Seardel’s wholly owned subsidiary, Seardel
Group Trading Proprietary Limited (“SGT”) will dispose of the Business to the
Purchaser as a going concern with effect from the 1st October 2013.
3.2 The consideration payable for the Business is an amount equal to:
3.2.1 the aggregate of the book values of the Plant, Equipment, Furniture, Vehicles
and Intangible assets, (expected to be R51,1 million) and Inventory (expected
to be R131,0 million) as reflected in the Implementation Date Accounts (being
the unaudited management accounts of the Business to be prepared as at the
Implementation Date); plus
3.2.2 an amount equal to the losses incurred by the Business from 1 October 2013
and terminating on the Implementation Date; plus
3.2.3 an amount equal to all retrenchment costs incurred by SGT in retrenching
employees; less
3.2.4 an amount of R105 million.
(collectively “the Purchase Price”)
3.3 The Purchaser will on the Implementation Date, pay an amount of R77,1 million
(exclusive of value-added tax), as adjusted in line with the Implementation Date
Accounts, to SGT on account of the Purchase Price (“Initial Payment”).
4. IMPLEMENTATION DATE
4.1 It is anticipated that the Proposed Transaction will be implemented on or before 15
April 2014 (“the Implementation Date”).
5. LOAN BY SGT
5.1 SGT will, on the Implementation Date, lend and advance to SACTWU an amount
equal to the amount of R77,1 million (as adjusted in line with the Implementation
Date Accounts), on the basis that SACTWU will, on the Implementation Date,
apply the proceeds of the loan in discharging the Initial Payment.
5.2 The loan will bear interest at the prime rate from the Implementation Date to the
date of settlement.
5.3 The loan will be repaid by SACTWU out of any cash payments or distributions
received by SACTWU from Seardel and Hosken Consolidated Investments
Limited (“HCI”) (whether by way of dividend, repurchase of shares, interest, capital
repayments or otherwise). As security for its obligation to repay the loan,
SACTWU will cede and assign its rights to receive such payments and
distributions, to SGT and will mandate both Seardel and HCI to make all such
payments and distributions to SGT until the loan, together with the interest
accrued thereon, has been repaid in full.
5.4 Once the Purchase Price has been determined in terms of the Implementation
Date Accounts, the amount of the loan will be adjusted for any further payments or
refunds to be made in respect of the Purchase Price.
6. CONDITIONS PRECEDENT TO THE PROPOSED TRANSACTION
The Proposed Transaction is subject to the fulfilment or waiver of the following conditions
precedent:
- the obtaining of the approval of the JSE Limited ("JSE"), insofar as may be
necessary, including the approval of any documentation to be issued to Seardel
shareholders;
- the obtaining of the consents of the bankers of Seardel to the Proposed
Transaction;
- the obtaining of such regulatory approvals as may be required;
- the obtaining of a fairness opinion from an independent expert in terms of the
Listing Requirements of the JSE ("Listings Requirements");
- the obtaining of any shareholder approvals required; and
- such other conditions as may be specified by the Parties.
7. FINANCIAL EFFECTS
The table below sets out the unaudited pro forma financial effects of the Proposed
Transaction on the earnings, diluted earnings, headline earnings and diluted headline
earnings per Seardel share for the year ended 31 March 2013 and the net asset
value and tangible net asset value per Seardel share at that date.
The unaudited pro forma financial effects have been prepared in accordance with the
Listing Requirements, the Guide on Pro Forma Financial information issued by the
South African Institute of Chartered Accountants and the measurement and
recognition requirements of the international Financial Reporting Standards (“IFRS”).
The accounting policies used to prepare the unaudited pro forma financial effects are
consistent with those applied in the preparation of the financial statements for the
year ended 31 March 2013.
The unaudited pro forma financial effects have been prepared for illustrative
purposes only, in order to provide information on how the proposed disposal may
have affected the financial results and position of a Seardel Shareholder and,
because of their nature, may not give a true reflection of the actual financial effects of
the Proposed Transaction. The unaudited pro forma financial effects are the
responsibility of the directors of Seardel.
Before the After the
Proposed Proposed
Transaction Transaction %
Per Seardel share (cents)1 (cents) 2,3,4 Change Notes
Earnings 5.96 (4.06) (168.1%) 3
Diluted earnings 5.75 (3.91) (168.0%) 3
Headline earnings 2.92 8.23 181.8% 3
Diluted headline earnings 2.82 7.93 181.2% 3
Net asset value 214 199 (7.0%) 4
Tangible net asset value 212 197 (7.1%) 4
Weighted average number of Seardel
shares in issue ('000) 685 310 685 310 -
Diluted weighted average number of
Seardel shares in issue ('000) 710 913 710 913 -
Number of Seardel shares in issue ('000) 682 892 682 892 -
Notes to the unaudited pro forma financial effects:
1. The Before the Proposed Transaction column reflects the earnings, diluted
earnings, headline earnings, diluted headline earnings, net asset value and the
tangible net asset value per Seardel share based on the audited consolidated
financial statements of Seardel for the year ended 31 March 2013.
2. The After the Proposed Transaction is based on the audited consolidated
financial statements of Seardel for the year ended 31 March 2013 and the
financial results and position of the Business for the year ended 31 March 2013
based on its management accounts for the year ended 31 March 2013.
3. The effects on earnings, diluted earnings, headline earnings and diluted headline
earnings per Seardel share are based on the following assumptions:
a. the Proposed Transaction was effective 1 April 2012;
b. the financial results of the Business are excluded from Seardel’s financial
results for the year ended 31 March 2013; and
c. the costs relating to the Proposed Transaction, which are once-off in
nature, have not been included in the calculation as they are not
considered to have a significant impact.
4. The effects on net asset value and tangible net asset value per Seardel share are
based on the following assumptions:
a. the Proposed Transaction was effective on 31 March 2013;
b. the assets of the Business that are disposed of are excluded from
Seardel’s financial position as at 31 March 2013;
c. the purchase consideration is settled in cash on the 31 March 2013; and
d. the costs relating to the Proposed Transaction, which are once-off in
nature, have not been included in the calculation as they are not
considered to have a significant impact.
8. CATEGORISATION
In terms of the Listing Requirements, the Proposed Transaction is a related party
transaction as SACTWU is a material shareholder of HCI, Seardel’s holding company.
Accordingly, the Proposed Transaction is subject to approval by means of an ordinary
resolution by Seardel's shareholders excluding SACTWU.
A circular will be issued to Seardel's shareholders in accordance with the Listing
Requirements and Companies Act, 2008, as amended, which will incorporate a notice
convening a general meeting of Seardel's shareholders to pass the resolutions
necessary to approve the Proposed Transaction.
9. FAIRNESS OPINION
The directors of Seardel have appointed BDO Corporate Finance Proprietary Limited as
the independent expert to provide the fairness opinion on the Proposed Transaction. The
fairness opinion will form part of the circular to Seardel's shareholders referred to above.
Cape Town
29 October 2013
Investment bank and sponsor: Investec Bank Limited
Legal adviser: Tabacks
Independent expert: BDO Corporate Finance Proprietary Limited
Reporting accountants: Grant Thornton
Date: 29/10/2013 04:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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