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Masonite disposal transaction as part of the business rescue proceedings
MASONITE (AFRICA) LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1942/015502/06)
Share code: MAS ISIN: ZAE000004289
(“Masonite” or “the Company”)
(Under supervision)
MASONITE DISPOSAL TRANSACTION AS PART OF THE BUSINESS RESCUE PROCEEDINGS
1. INTRODUCTION
Masonite shareholders (“Shareholders”) are advised that Masonite and Masonite’s business
rescue practitioner (“BRP”), Pierre Berrangé, have entered into agreements (“Transaction
Agreements”) with Grey West Fencing Proprietary Limited (“Millco”), Warhorse Private Equity
Proprietary Limited (“Assetco”) and World Hardwood Proprietary Limited (“Forestco”)
(together “the R&B consortium”) in terms of which:
- Masonite will sell its forestry business to Forestco;
- Masonite will sell certain items of plant and equipment to Assetco;
- Millco will subscribe for newly issued ordinary shares in Masonite; and
- Masonite will undertake a share repurchase of the entire issued share capital of
Masonite other than the newly issued ordinary shares acquired by Millco (“Share
Repurchase”), thereby leaving Millco as the sole shareholder of Masonite.
(collectively “the Proposed Transactions”).
The Proposed Transactions are being proposed as part of the business rescue plan (“BR Plan”)
prepared for Masonite by the BRP in accordance with the provisions of Chapter 6 of the
Companies Act, No. 71 of 2008 (“Companies Act”). The BR Plan will be presented for
consideration and possible adoption at a meeting of creditors, Shareholders and other holders
of voting interests convened in terms of section 151 of the Companies Act as described in
paragraph 7. In addition to the approval by creditors and Shareholders, the Proposed
Transactions are subject to the conditions precedent as set out in paragraph 4 (“Conditions
Precedent”).
2. RATIONALE FOR THE PROPOSED TRANSACTIONS
After considering a number of strategic alternatives, the board of directors of Masonite resolved
that it was in the best interest of Masonite and its stakeholders to commence with voluntary
business rescue proceedings in terms of section 129 of the Companies Act on 22 December
2015.
Having considered a number of options, the BRP concluded that the rescue of Masonite would
best be achieved by a structured sale of all or part of the Company’s business as a going concern.
Accordingly, a controlled disposal process was conducted whereby prospective purchasers for
all or part of Masonite were approached to express interest in acquiring the business or part
thereof.
Following the receipt of binding offers from a number of bidders and a rigorous adjudication
process, the R&B consortium was selected as the preferred bidder. Their proposal was viewed
as the most attractive for all stakeholders as it provided an attractive value, funding certainty,
limited conditionality as well as consortium members with the necessary experience and
expertise to allow the mill division to continue to operate. In addition, there are no anticipated job
losses as a result of the Proposed Transactions, with Forestco assuming responsibility for all of
the employees of the forestry division and all of the mill division employees remaining employees
of Masonite, which will be a wholly owned subsidiary of Millco post implementation.
While the final amount of the Share Repurchase Consideration as defined in paragraph 3 is
uncertain for the reasons described below, the estimated Share Repurchase Consideration of
R33.35 in terms of the Proposed Transactions is an attractive 24% premium to the closing price
of Masonite prior to it entering business rescue of R27.00.
3. TERMS OF THE PROPOSED TRANSACTIONS
The proposed disposal to Forestco and Millco will be implemented as follows:
- Forestco will acquire Masonite’s forestry business for a purchase consideration of
R385 million (“Forestry Purchase Consideration”);
- Assetco will acquire certain plant and equipment owned by Masonite for R100 and will
assume responsibility for any future decommissioning and scrapping of the plant and
equipment if applicable;
- Millco will subscribe for new ordinary shares in Masonite for a subscription price of
R1,000; and
- thereafter Masonite will implement the Share Repurchase for a repurchase consideration
(“Share Repurchase Consideration”), payable in a number of tranches, calculated as
described below.
Following the receipt by Masonite of the Forestry Purchase Consideration of R385 million,
R85 million will be retained by Masonite for use by Millco to fund the mill division’s working capital
and capital expenditure requirements as part of the efforts to restructure the mill division and
return it to profitability. The remaining proceeds will be used by the BRP to settle:
- the amount payable to Grindrod Bank under the post commencement finance facility;
- the amount owing in respect of the trade payables;
- the aggregate of the outstanding fees payable to the transaction advisors, the attorneys,
senior counsel and the BRP, in connection with the business rescue proceedings and
the Proposed Transactions; and
- the post-retirement medical aid obligations of Masonite in respect of those of its former
employees to whom it has such obligations.
The balance of the proceeds will form part of the Share Repurchase Consideration and will be
paid to Shareholders as an initial payment.
In addition, the Share Repurchase Consideration will include the following amounts, which will
be paid to Shareholders as and when they are received:
- The first R60 million of trade receivables collected by Masonite; and
- The amount of R14.75 million which Masonite is due to receive from the Land Claims
Commissioner as payment for a settled land claim.
(collectively “the Further Consideration”).
The Further Consideration will be secured by a cession of the trade receivables and the
receivable in respect of the land claim in favour of the BRP who will act as receiver on behalf of
Shareholders to collect and pay these subsequent amounts.
While the final amount of the Share Repurchase Consideration is uncertain, being based on, inter
alia, the length of time for the fulfilment of the Conditions Precedent and Masonite’s trading
performance during the interim period, the BRP has estimated that the Share Repurchase
Consideration is likely to be approximately R238 million which equates to c. R33.35 per share.
This compares favourably to Masonite’s market capitalisation when it entered business rescue
on 22 December 2015 of approximately R193 million or R27.00 per share.
4. CONDITIONS PRECEDENT TO THE PROPOSED TRANSACTIONS
The Proposed Transactions are subject to the fulfilment or waiver, as the case may be, of, inter
alia, the following Conditions Precedent:
- the R&B Consortium being provided with irrevocable undertakings to vote in favour of the
BR Plan and any other resolutions required to implement the transactions contemplated by
the Transaction Agreements by:
a. Masonite International Corporation, Masonite’s 78.3% majority shareholder;
b. Grindrod Bank, the provider of Masonite’s post-commencement finance facility;
and
c. the representative of the former employees of Masonite to whom Masonite has
post-retirement medical aid obligations.
- the approval of the BR Plan in terms of the Companies Act;
- the approval of the relevant competition authorities;
- the signature of the relevant agreements to provide for the security by way of a cession of
the Further Consideration;
- the requisite approvals of Shareholders in terms of sections 46 and 48 of the Companies
Act; and
- the passing of all resolutions required to give effect to and implement the Proposed
Transactions, and the delivery of certified copies of the applicable resolutions to the BRP.
5. R&B CONSORTIUM OVERVIEW
Forestco forms part of the R&B Timber group (“R&B”). R&B, controlled by the Armour family,
was established in 1952 and is a timber business that harvests, processes and pressure treats
wooden poles for the domestic and international markets. The timber poles are manufactured for
the power transmission, telecommunications, building, thatching and fencing markets. R&B is
one of the largest manufacturers and suppliers of timber poles in Southern Africa, employs over
1,000 people and supplies approximately 120,000m³ of treated poles per annum.
Millco is a consortium made up of Nkosinathi Nhlangulela and Siyabonga Mncube, who will own
51% of Millco, and Jacobs Capital Proprietary Limited (“Jacobs Capital”) who will own 49% of
Millco. Jacobs Capital is an advisory company that specialises in turnarounds and has completed
over 50 restructuring projects including the successful turnaround, from the brink of liquidation,
of one of the largest textile mills in South Africa. Millco provides a combination of strong BEE
credentials and turnaround experience and expertise, which together with the transaction
structure which provides Millco with cash required for the restructuring, is believed will favourably
position the mill division for a turnaround in performance.
Assetco, which is owned by the same shareholders as Millco, has agreed to purchase certain
equipment owned by Masonite’s mill division that is old and may in the future need to be
decommissioned and scrapped.
6. EFFECTIVE DATE OF THE PROPOSED TRANSACTIONS
The closing date of the Proposed Transactions shall be the date of simultaneous registration of
transfer of at least 85% of Masonite’s forestry properties into the name of Forestco (“Effective
Date”). This date shall not be earlier than the first business day of the month following the month
in which the last of the Conditions Precedent was fulfilled or waived. Each of the transactions
comprising the Proposed Transactions will be implemented on the Effective Date.
7. NET ASSETS AND PROFIT ATTRIBUTABLE TO THE NET ASSETS
The unaudited net asset value of Masonite at 31 December 2015 was R445 million and the
unaudited loss attributable to the net assets for the year ended 31 December 2015 was
R13 million.
8. BR PLAN AND CREDITOR AND SHAREHOLDER APPROVAL
The Proposed Transactions will be proposed, in accordance with the business rescue provisions
of the Companies Act in the BR Plan prepared by the BRP. It is envisaged that the BR Plan will
be published and distributed to creditors and Shareholders on Friday, 6 May 2016 with the
proposed creditor and Shareholder meetings to be held at 10:00 on Monday, 16 May 2016.
Full details, as required by Chapter 6 of the Companies Act, will be included in the BR Plan.
Durban
5 May 2016
Investment Bank
Investec Bank Limited
Sponsor
Nedbank Corporate and Investment Banking
Legal Advisors
Norton Rose Fulbright South Africa Inc.
Communication Advisors
Brunswick Group
Date: 05/05/2016 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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