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GRAND PARADE INVESTMENTS LIMITED - Acquisition by GPI of a further 42.79% of the issued ordinary share capital of Mac Brothers

Release Date: 19/05/2014 15:00
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Acquisition by GPI of a further 42.79% of the issued ordinary share capital of Mac Brothers

GRAND PARADE INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
(Registration Number 1997/003548/06)
Share code: GPL
ISIN: ZAE000119814
(“GPI” or “the Company”)

SMALL RELATED PARTY TRANSACTION: ACQUISITION BY GPI OF A
FURTHER 42.79% OF THE ISSUED ORDINARY SHARE CAPITAL OF MAC
BROTHERS   CATERING EQUIPMENT (PROPRIETARY)  LIMITED  (“MAC
BROTHERS”)

1.   THE ACQUISITION

     Shareholders are hereby advised that GPI has entered into
     a sale of shares agreement dated 16 May 2014 (“the
     Agreement”) with, inter alia, Ranmac Management and
     Holdings (Proprietary) Limited,      Nadesons Investments
     (Proprietary) Limited (“Nadesons Investments”), Razia Khan
     and Ivanhoe Nigel Burns (collectively referred to as “the
     Sellers”), in terms of which the Sellers have agreed to
     sell 42.79% of the total issued ordinary share capital of
     Mac Brothers (“the Sale Shares”) to the Company (“the
     Acquisition”).

     Following the implementation of the Acquisition, GPI’s
     total interest in Mac Brothers will be 65.00%.

2.   DETAILS OF THE BUSINESS OF MAC BROTHERS


     Mac Brothers was established in 2002 and has grown to
     become one of the largest catering equipment manufacturers
     in South Africa and one of the leading suppliers of
     catering equipment and related services to the food
     service industry in Africa.

     Mac Brothers manufactures and supplies its own extensive
     range of stainless steel catering and refrigeration
     equipment and has well established agency agreements in
     place to import, supply and service some of the top
     international brands of food service equipment. In some
     cases, certain international brands are manufactured under
     licence in their factory taking advantage of an abundance
     of local stainless steel and well trained local artisans
     and engineers. They have a well-established and varied
     client base supplying from the local corner coffee shop,
     bakery or restaurant through to franchise groups, hotel
     groups, golf and wine estates, staff canteen feeding
     organisations, prisons, hospitals, mines and a large
     number   of   South   Africa's   finest   world   renowned
     restaurants. Mac Brothers is also a patron sponsor of the
     South African Chefs Association and part of their program
     to inspire, train and promote up and coming chefs to the
     industry.

     The fabrication factory and head office is located in Cape
     Town, with branches in Johannesburg, Durban and Harare. It
     also has an extensive dealer network throughout Africa
     including Namibia, Mozambique, Tanzania, Kenya, Zambia,
     Botswana,   Congo,   Nigeria,   Ghana,   Uganda,   Angola,
     Seychelles and Mauritius.

3.   RATIONALE FOR THE ACQUISITION


     Mac Brothers is an established and professional business
     that has proved its operational capabilities over a number
     of years, some of which have been during difficult
     financial periods that have seen a number of industry
     players closing down. The technical capabilities of Mac
     Brothers ensure that it is uniquely placed to gain market
     share in a large and growing industry both locally and
     throughout the African continent.

     Mac Brothers has been approved by BURGER KING® Corporation
     to manufacture and supply certain kitchen equipment for
     BURGER KING® Restaurants through-out Africa. The kitchen
     equipment   required   in   a   BURGER  KING®   Restaurant
     represents, on average, one third of a BURGER KING®
     Restaurant set-up cost, therefore the Acquisition will
     allow GPI to reduce the BURGER KING® set-up costs.

     As a result of the approval received from BURGER KING®
     Corporation, Mac Brothers is able to supply kitchen and
     catering equipment to any BURGER KING® Restaurant in
     Africa and GPI, through its relationship with BURGER KING®
     Corporation will look for further opportunities to supply
     and export equipment to other BURGER KING® franchises
     around the world.

     Roughly 18% of Mac Brothers’ sales are made outside of
     South Africa and accordingly, the Acquisition will give
     GPI exposure to African markets, which are expected to
     grow at a higher rate than South Africa and the rest of
     the developed world. This exposure will assist GPI in
     expanding the Burger King® franchise into Africa.

     In addition, GPI has embarked on becoming the first local
     manufacturer of slot machines and other gaming equipment.
     A large portion of the components of a slot machine are
     stainless steel, which Mac Brothers can manufacturer. The
     Acquisition will further reduce GPI’s overall cost of
     manufacturing the slot machines.

4.    SMALL RELATED PARTY TRANSACTION

4.1   Due to the fact that one of the Sellers, being Nadesons
      Investments, is an associate of Mr Hassen Adams and Mr
      Alan Keet, both directors of GPI, the Acquisition is
      deemed to be a “related party transaction” in terms of
      section 10 of the Listings Requirements of the JSE Limited
      (“JSE”).

4.2   However, as the Acquisition amounts to less than 5% of the
      market capitalisation of GPI as at 30 April 2014, the
      Acquisition is classified as a “small related party
      transaction” in terms of paragraph 10.7 of the Listings
      Requirements of the JSE and written confirmation is
      required from an independent expert confirming the
      fairness of the terms of the Acquisition in relation to
      GPI shareholders.

4.3   Accordingly, GPI has appointed Mazars Corporate Finance
      (Proprietary) Limited (“Mazars”) as the independent expert
      and Mazars has provided written confirmation to the JSE
      that the terms of the Acquisition are fair in relation to
      GPI shareholders. The fairness opinion will lie open for
      inspection at the registered office of GPI for a period of
      28 days from the date of publication of this announcement.

4.4   This announcement is made for information purposes only
      and no action is required by GPI shareholders with regards
      to the Acquisition.

5.    PURCHASE CONSIDERATION

      The total consideration payable by the Company to the
      Sellers for the purchase of the Sale Shares is the sum of
      R 42 790 300 and shall be payable to the Sellers, in cash,
      in proportion to the number of Sale Shares being sold by
      each Seller, provided that the amount payable to each
      Seller shall be reduced by way of set-off against any
      amount which that Seller owes to Mac Brothers under any
      loan received from Mac Brothers.

6.    CONDITIONS PRECEDENT

6.1. The Acquisition is subject to the fulfillment of the
     following outstanding conditions precedent, that:

6.1.1.      by no later than 23 July 2014, the parties to the
            Agreement (“the Parties”) comply, to the extent
            necessary in law, with the Listings Requirements of the
            JSE Limited and the Competition Act, 1998; and

6.1.2.      by no later than 30 May 2014, the unconditional
            approval, exemption and/or compliance certificate which
            might be required from the Takeover Regulation Panel
            for the purchase and sale of the Sale Shares shall have
            been obtained.

7.        OTHER SIGNIFICANT TERMS OF THE AGREEMENT

          The Agreement provides for warranties and indemnities that
          are normal for a transaction of this nature.

8.        PRO FORMA FINANCIAL EFFECTS

          The pro forma financial effects of the Acquisition are
          presented for illustrative purposes only and because of
          their nature may not give a fair reflection of the
          Company’s financial position nor of the effect on future
          earnings after the Acquisition.

          Set out below are the unaudited pro forma financial
          effects of the Acquisition, based on the unaudited interim
          results for the period ended 31 December 2013. The
          directors of GPI are responsible for the preparation of
          the unaudited pro forma financial information.

                            Unaudited  Unaudited     Change (%)
                           before the  Pro Forma
                          Acquisition  after the
                             (cents)  Acquisition
                                        (cents)
          Basic earnings      26.21       26.74         2.0%
          per share
          Basic headline      13.95       14.49         3.9%
          earnings    per
          share
          Net       asset     369.00     376.00         2.0%
          value       per
          share
          Net   tangible      315.00     312.00        (0.7%)
          asset     value
          per share

     Notes and assumptions:

     1.    The basic earnings per share and basic headline earnings
           per share figures in the “Pro Forma after the
           Acquisition” column have been calculated on the basis
           that the Acquisition was effected on 1 July 2013.

     2.    The net asset value per share and net tangible asset
           value per share figures in the “Pro forma after the
          Acquisition” column have been calculated on the basis
          that the Acquisition was effected on 31 December 2013.

     3.   The taxation rate applicable is assumed to be 28%.

     4.   The basic earnings per share and basic headline earnings
          per share figures are calculated based on weighted
          average number of shares in issue of 461.4 million at 31
          December 2014.

     5.   The net asset value per share and net tangible asset
          value per share have been calculated based on 469.6
          million shares in issue at 31 December 2014.

     6.   The results of Mac Brothers have been extracted from the
          statement of financial position and the statement of
          comprehensive   income  included  in   their  management
          accounts for the 6 month period ended 31 December 2013,
          without adjustment.

     7.   GPI management has undertaken a preliminary purchase
          price allocation to determine the recognition and
          classification of the excess of the purchase price paid
          in the Acquisition over the identifiable net assets
          acquired. Accordingly based on the preliminary purchase
          price allocation an amount of R45.6 million is accounted
          for as goodwill.

     8.   The total purchase consideration for the Acquisition is
          assumed to be R42.8 million, being funded from GPI's cash
          reserves at an interest rate of 5.16% per annum, being
          the tax free rate of 57.38% of the prime interest rate
          applicable to preference share funding.

     9.   All adjustments, are expected to have a continuing
          effect.

9.    EFFECTIVE DATE OF THE ACQUISITION

      In terms of the Agreement, the effective date of the
      Acquisition is 1 January 2014.

10. SUBSIDIARY COMPANY

      As a result of the Acquisition, Mac Brothers will become a
      subsidiary company of GPI and GPI shall ensure that the
      memorandum of incorporation of Mac Brothers (“MOI”) will
      not frustrate GPI in any way from compliance with its
      obligation in terms of the Listings Requirements of the JSE
      and nothing contained in the MOI shall relieve GPI from
      compliance with the Listings Requirements.

Cape Town
19 May 2014

Sponsor and corporate advisor:
PSG Capital

Lead corporate advisor:
Leaf Capital

Legal advisor:
Bernadt Vukic Potash & Getz

Independent expert:
Mazars Corporate Finance (Proprietary) Limited

Independent Reporting Accountants and Auditors:
Ernst & Young Incorporated

Date: 19/05/2014 03:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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