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CLOVER INDUSTRIES LIMITED - Acquisition terms and withdrawal of cautionary announcement

Release Date: 08/05/2014 13:30
Code(s): CLR     PDF:  
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Acquisition terms and withdrawal of cautionary announcement

Clover Industries Limited
(Incorporated in the Republic of South Africa)
Registration number 2003/030429/06
Ordinary Share Code: CLR ISIN No: ZAE000152371
("Clover" or the "Company")

ACQUISITION OF YOGHURT AND UHT MILK BUSINESS OF DAIRYBELLE PROPRIETARY LIMITED BY
THE REAL BEVERAGES COMPANY PROPRIETARY LIMITED AND WITHDRAWAL OF CAUTIONARY
ANNOUNCEMENT

1 INTRODUCTION

Further to the cautionary announcements released on the Stock Exchange News Service of the JSE
("SENS") on 5 March 2014 and 16 April 2014, shareholders of the Company ("Shareholders") are
advised that The Real Beverages Company Proprietary Limited ("Real Beverages") (a wholly-owned
subsidiary of the Company) has concluded two agreements with Dairybelle Proprietary Limited
("Dairybelle" or "the Seller"), each of which is subject to the fulfilment of certain suspensive
conditions, to purchase the Seller's -

1.1    yoghurt manufacturing, marketing and distribution business ("Yoghurt Business") (such
agreement, the "Yoghurt Sale of Business Agreement"); and
1.2 UHT milk manufacturing, marketing and distribution business ("UHT Milk Business") (such
agreement, the "UHT Milk Sale of Business Agreement"),
   each as a going concern (collectively, the "Transactions").

2 RATIONALE

The Transactions are in line with the Company's stated strategy to expand its portfolio of value
added and branded consumer products. As announced in March 2014, the Company made the
decision to enter the attractive high margin yoghurt and custard markets in 2015.

The acquisition of the assets comprising the Yoghurt Business will provide the Company with access
to the yoghurt market, in which Dairybelle has a meaningful presence. Additionally, the location of
Dairybelle's UHT production facilities in the Western Cape will allow the Company, after it acquires
the UHT Milk Business, to improve efficiencies through the more effective utilisation of its raw milk
supply in the region.

3 COMPLETION DATE OF TRANSACTIONS

3.1 The Yoghurt Sale of Business Agreement will take effect on the later of (i) the first day of the
month succeeding the month in which the last of the suspensive conditions set out below is fulfilled
or waived (as the case may be), or (ii) 1 January 2015 (such date, the "Yoghurt Completion Date").

3.2 The UHT Milk Sale of Business Agreement will take effect on the first day of the month
succeeding the month in which the last of the suspensive conditions set out below is fulfilled or
waived (as the case may be) (such date, the "UHT Milk Completion Date").

3.3 It is therefore envisaged that the UHT Milk Sale of Business Agreement will come into effect and
will be implemented before the Yoghurt Sale of Business Agreement. However, the UHT Milk Sale of
Business Agreement will only be implemented once the Yoghurt Sale of Business Agreement
becomes unconditional.
4 SUSPENSIVE CONDITIONS TO THE TRANSACTIONS

4.1 Each of the Transactions is subject to the fulfilment of certain suspensive conditions, including
approval by the shareholder of the Seller, approval of the Transactions by the competition
authorities in South Africa, the conclusion of certain ancillary agreements between the Seller and
Real Beverages relating to arrangements between them after the implementation of the
Transactions, the provision of a guarantee by the Company to the Seller in respect of the obligations
of Real Beverages under the Yoghurt Sale of Business Agreement, the release of certain security over
the assets and properties of the Seller and the deposit of certain amounts pertaining to the Purchase
Prices into an escrow account.

4.2 The final date for fulfilment of these conditions is 31 July 2014. This date may be extended by
agreement between the parties and all of the conditions, other than the approval from the
competition authorities, may be waived by agreement between the parties.

5 TERMS OF THE ACQUISITION OF THE YOGHURT BUSINESS

5.1 The Yoghurt Business Assets

5.1.1 Real Beverages shall acquire, in terms of the Yoghurt Sale of Business Agreement and subject
to certain exceptions and requirements, all of the consumables, raw materials, finished goods, fixed
assets (property, plant and equipment), goodwill, intellectual property (for example certain
trademarks), material contracts and a certain immovable property of the Seller in relation to the
Yoghurt Business as at the Yoghurt Completion Date.

5.1.2 Real Beverages shall not assume or acquire any of the liabilities, cash, claims of the Seller
against its debtors and vehicles, of the Seller relating to the Yoghurt Business as at the Yoghurt
Completion date.

5.2 Yoghurt Purchase Price

5.2.1 The purchase price payable by Real Beverages to the Seller for the Yoghurt Business ("Yoghurt
Purchase Price") shall be the sum of (i) an amount of R125,000,00 ("Yoghurt Base Component")
adjusted as set out in 5.2.2 below, plus (ii) an amount equal to the value of the raw materials that
the Seller has in stock at the Yoghurt Completion Date which must comply with certain specific
conditions and will be valued at the actual average purchase price of such raw materials during the
three month period preceding the Yoghurt Completion Date, plus (iii) an amount equal to the value
of the finished goods that the Seller has in stock at the Yoghurt Completion Date which must comply
with certain specific conditions and will be valued at the actual average total raw material and
production cost of such finished goods over the three month period preceding the Yoghurt
Completion Date, plus (iv) an amount equal to the value of the consumables that the Seller has in
stock at the Yoghurt Completion Date which must comply with certain specific conditions and will be
valued at the actual purchase price of such consumables.

5.2.2 The Yoghurt Base Component of the Yoghurt Purchase Price shall be adjusted (upwards or
downwards) taking cognisance of:-

5.2.2.1 the volume of yoghurt product sold by the Seller in the course of conduct of the Yoghurt
Business during the Relevant Period (to be measured in tons); and
5.2.2.2 the Industrial Contribution per kilogram of yoghurt product sold by the Yoghurt Business
during the Relevant Period (expressed as a rand per kilogram value);

The term:
"Industrial Contribution" means Net Sales minus cost of material (packaging and raw materials)
minus industrial cost (production and conversion cost);

"Net Sales" means gross invoiced sales minus discounts, rebates, co-ops, co-advertising, trade
marketing (gondola ends, listing fees, trade promotions, etc.,), returns, distribution centre
allowances and any other allowances payable to the trade; and

"Relevant     Period" means the period from 1 January 2014 to 31 December 2014 (both dates
inclusive).

6 TERMS OF THE ACQUISITION OF THE UHT MILK BUSINESS

6.1 The UHT Milk Business Assets

6.1.1 Real Beverages shall acquire, in terms of the UHT Milk Sale of Business Agreement and subject
to certain exceptions and requirements, all of the consumables, raw materials, finished goods, fixed
assets (equipment), goodwill and material contracts of the Seller in relation to the UHT Milk Business
as at the UHT Milk Completion Date.

6.1.2 Real Beverages shall not assume or acquire any of the liabilities, cash, claims of the Seller
against its debtors, the immovable property at the Cape Town facility and certain listed milk
reception assets of the Seller relating to the UHT Milk Business as at the UHT Milk Completion date.

6.2 UHT Milk Purchase Price

6.2.1 The purchase price payable by Real Beverages to the Seller for the UHT Milk Business ("UHT
Milk Purchase Price") shall be the sum of (i) an amount of R30,000,000 ("UHT Milk Base
Component"), plus (ii)an amount equal to the value of the raw materials that the Seller has in stock
at the UHT Milk Completion Date which must comply with certain specific conditions and will be
valued at the actual average purchase price of such raw materials during the three month period
preceding the UHT Milk Completion Date, plus (iii) an amount equal to the value of the finished
goods that the Seller has in stock at the UHT Milk Completion Date which must comply with certain
specific conditions and will be valued at the actual average total raw material and production cost of
such finished goods over the three month period preceding the UHT Milk Completion Date, plus (iv)
 an amount equal to the value of the consumables that the Seller has in stock at the UHT Milk
Completion Date which must comply with certain specific conditions and will be valued at the actual
purchased price of such consumables.

7 FINANCIAL EFFECTS OF THE TRANSACTIONS

7.1 The Value of the Net Assets that are the Subject of the Transactions

Real Beverages shall not assume any liabilities as part of the Transactions. The Purchase Prices shall
be subject to a formula which is based on actual sales volumes and profitability for the year
preceding the Completion Dates as referred to in 5.2.2 above. Given historical trends, it is unlikely
that the combined aggregate Purchase Price will exceed R400,000,000 although it is estimated that,
based on current available information, the combined aggregate Purchase Price will be
approximately R200,000,000. The Purchase Prices will be allocated among the various classes of
assets. The allocation of the assets has been assumed to calculate the net tangible assets per share
of the company.

7.2 Unaudited pro forma financial effects

7.2.1.1 The directors of the Company are responsible for the preparation of the unaudited pro
forma financial effects. Financial information relating only to the gross profit level in respect of the
Seller's most recently concluded financial period was made available to the Company. For the
purpose of evaluating the Transactions, other operating costs were assumed based on the
Company's experience in the industry.

7.2.1.2 The unaudited pro forma financial effects of the Transaction on the Company are presented
for illustrative purposes only and due to their nature may not fairly present the company’s financial
position, changes in equity, results of operations or cash flows. Set out below are the unaudited pro
forma financial effects of the Transaction, based on Clover’s published, unaudited results for the
interim period ended 31 December 2013. The unaudited pro forma financial effects have been
prepared in accordance with the JSE Listings Requirements, the Guide on Pro Forma Financial
Information issued by SAICA and the measurement and recognition requirements of International
Financial Reporting Standards (IFRS). Accounting policies used to prepare the unaudited pro forma
financial effects are consistent with those applied in the preparation of the audited results for the
year ended 30 June 2013.

                                      Interim Financial     Pro forma after the      Change      Notes
                                    statements before            Transaction           (%)
                                      the Transaction
                                     (cents per share)        (cents per share)
Basic earnings per share                87,0                      79,8                 (8,3)         1
Diluted basic earnings per share        82,4                      75,5                 (8,3)         1
Headline earnings per share             77,3                      70,0                 (9,4)         1
Diluted headline earnings per share     73,2                      66,3                  (9,4)        1
Net asset value per share             1229,5                    1229,5                   0.0         2
Tangible net asset value per share     985,2                    796,11                 (0,2)         2

Notes and assumptions:

1. Adjustments to earnings per share ("EPS") and headline EPS have been made on the assumption
that the purchase was effective on 31 December 2013. Therefore no interest has been assumed on
the purchase price. Company tax at the statutory rate of 28,00% has been applied for deductible
expenses.

2. Adjustments to net asset value ("NAV") and tangible net asset value ("TNAV") per share have been
made on the assumption that the acquisition was effective on 31 December 2013.

7.2.1.3 Other than facilitating an entry into the yoghurt market, the acquisitions are warranted in
view of the synergies to be achieved from merging these two business undertakings. The synergies
will be established through anticipated savings in costs and anticipated growth in sales given the
Company's extensive distribution network.

8 WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT

As all the terms of the Transactions are contained herein, caution is no longer required to be
exercised by the Shareholders when dealing in their shares in the Company.

Johannesburg
8 May 2014

Attorneys
Werksmans Inc.

Merchant Bank and Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)

Date: 08/05/2014 01:30:00 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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