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TRELLIDOR HOLDINGS LIMITED - Acquisition of Taylor Blinds and NMC

Release Date: 06/06/2016 08:55
Code(s): TRL     PDF:  
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Acquisition of Taylor Blinds and NMC

TRELLIDOR HOLDINGS LIMITED
(Previously Trellicor Holdings Proprietary Limited)
Incorporated in the Republic of South Africa
Registration number: 1970/015401/06
Share Code: TRL
ISIN Code: ZAE000209342
(“Trellidor”)

ACQUISITION OF TAYLOR BLINDS AND NMC

1     THE ACQUISITION

1.1    Trellidor is pleased to announce that on 3 June 2016 it
       concluded a sale of business agreement (“Agreement”) with
       Odyssey House Proprietary Limited (“Seller”), in terms of which
       it will, through a subsidiary (“Subco”), purchase an effective
       92.5% interest in the Seller’s business (“Business”),
       comprising Taylor Blinds and Shutters (“Taylor Blinds”) and NMC
       Decorative Mouldings (“NMC”) (“the Acquisition”).

1.2    Taylor   Blinds  specialises   in  designing, manufacturing,
       marketing, distributing and servicing blinds, shutters and
       security doors in the South African market, while NMC
       distributes imported decorative mouldings.

2     RATIONALE FOR THE ACQUISITION

2.1    The Acquisition advances Trellidor’s strategic objectives of
       diversifying and expanding its product range and distribution
       network.

2.2    The Taylor Blinds product range, including its Shutterguard
       range, enjoys strong market share, particularly in Gauteng and
       the Western Cape.

2.3    The acquisition of the Business provides Trellidor with strong
       brands, management team and distribution network for the
       development of the home improvements market, distinct from the
       Trellidor business. The Business’s distribution network will
       be expanded using the skills and based on tried and tested
       processes inherent in Trellidor.

2.4    The existing management of the Business will continue unchanged
       for an initial two-year period to ensure that the current growth
       momentum in the Business is retained and core competencies are
       transferred and to ensure minimum disruption.

2.5    The Business’s product offering is complementary to that of
       Trellidor with substantial value to be realised through the
       Acquisition,   including   potential  distribution  through
        Trellidor’s African network, which continues to grow in line
        with its stated strategy.

3     EFFECTIVE DATE

3.1     The Acquisition will be implemented on the last business day
        of the calendar month in which the final Condition Precedent
        (as defined in paragraph 6.1 below) is fulfilled or waived
        (“Closing Date”), it being anticipated that the Closing Date
        will occur on 30 June 2016.

3.2     Subject to the fulfilment or waiver of the Conditions Precedent,
        ownership of and risk in and benefit attaching to the Business
        shall be deemed to have passed to Trellidor on 30 April 2016
        (“Effective Date”).

4     PURCHASE CONSIDERATION

4.1     The purchase consideration for the Acquisition of Trellidor’s
        effective   92.5%  interest   in   the  Business   (“Purchase
        Consideration”) will be settled in two tranches, as set out
        below:

4.1.1     the first tranche, involving an effective cash payment of
          R120 992 122, as well as the assumption by Subco of certain
          liabilities, will occur on the Closing Date (“First
          Tranche”); and

4.1.2     the second tranche, involving an effective cash payment of
          up to R27 750 000, will be settled on the Second Tranche
          Payment Date, as defined below (“Second Tranche”),

        with the Purchase Consideration being subject to possible
        reduction, as set out in paragraphs 4.3 and 4.4 below.

4.2     The Second Tranche will be paid in cash by no later than the
        10th business day following the finalisation or audit of Subco’s
        financial statements for the 12 months ending 30 April 2017
        (“Second Tranche Payment Date”), with this 12 month period
        being referred to as the “2017 Profit Period”. Alternatively,
        the Seller may require the Second Tranche to be settled through
        the issue of Trellidor shares at an issue price of R6 per share.

4.3     Payment of the Second Tranche will be subject to the Business
        achieving a profit after tax of at least R33 000 000 for the
        2017 Profit Period (“2017 Target PAT”). Should the actual
        sustainable profit after tax (before cost of debt) achieved for
        the 2017 Profit Period be less than the 2017 Target PAT, the
        Second Tranche will effectively be reduced, in proportion to
        Trellidor’s shareholding in Subco, by R5.50 for each Rand of
        such shortfall.
4.4     In addition, if, after the Closing Date, it transpires that the
        net working capital remaining in the Business is insufficient
        to meet the Business’s cash and working capital requirements
        and to cover any provisions, in the ordinary course of business,
        for the 2017 Profit Period, the Purchase Consideration will be
        reduced by R1 for each Rand of such shortfall.

4.5     The First Tranche will be financed by cash and bank debt. The
        Second Tranche will be financed by the issue of new shares as
        indicated above or a combination of cash and bank debt.

5     MINORITY SHAREHOLDER

      The Family Trust of Taylor Blinds’ chief executive officer, Mr
      Anthony Mederer, (“Minority Shareholder”) will, pursuant to the
      conclusion and implementation of a series of further agreements
      (“Further Agreements”) hold the remaining 7.5% shareholding in
      Subco.

6     CONDITIONS PRECEDENT

6.1     The Acquisition is subject to the fulfilment         or, where
        applicable,   waiver,   of   various    conditions    precedent
        (“Conditions Precedent”), as summarised below:

6.1.1     that the Further Agreements be concluded and,           where
          applicable, become unconditional and be fulfilled;

6.1.2     that Subco notifies the Seller that it is satisfied with the
          results of its due diligence investigation into the Business;

6.1.3     that the boards of directors of Trellidor and Subco approve
          or, to the extent applicable, ratify the Acquisition;

6.1.4     that the board of directors of the Seller approves or, to the
          extent applicable, ratifies the Acquisition;

6.1.5     that the shareholders of the Seller approve the Acquisition
          in terms of section 112 of the Companies Act, No. 71 of 2008;

6.1.6     that Subco confirms that it is satisfied that the cash
          remaining in the Business will exceed the Business’s working
          capital requirements for the 2017 Profit Period;

6.1.7     that each Warranty Provider (as defined in paragraph 8 below)
          has agreed to be bound by the Agreement’s warranty and
          indemnity provisions in favour of Subco;

6.1.8     that the key employees of the Business have entered into new
          (or suitably amended) employment contracts with Subco;
6.1.9     that, to the extent required or advisable, all regulatory and
          statutory approvals and/or waivers be obtained;

6.1.10    that the landlord of the Business’s main premises consents
          to assignment of such lease to Subco; and

6.1.11    that the main supplier to NMC consents to the assignment of
          the existing distribution agreement to Subco or that such
          agreement be replaced, in either case on such terms and
          subject to such conditions as may be acceptable to Subco.

6.2     All Conditions Precedent are to be fulfilled or, where
        applicable, waived by no later than 21 June 2016, save that the
        deadlines for the Conditions Precedent in paragraphs 6.1.2 and
        6.1.9 are 10 June 2016 and 29 July 2016, respectively. Subco
        is entitled to extend the above dates by written notice,
        provided that any extension of more than 20 business days will
        require the consent of the Seller.

6.3     Subco is entitled to waive fulfilment, wholly or in part, of
        the Conditions Precedent referred to in paragraphs 6.1.1 to
        6.1.3, 6.1.6 to 6.1.8, 6.1.10 and 6.1.11 above.

7     FINANCIAL EFFECTS

7.1     The value of the net assets attributable to the Business amounts
        to R90.2 million, while the attributable profit after tax
        amounts to R26.1 million for the Business’s most recent
        financial year ended 29 February 2016. Based on historical
        performance, the Acquisition will be earnings enhancing to
        Trellidor.

7.2     The financial information contained in this announcement has
        not been reviewed or reported on by Trellidor’s auditors.

8     WARRANTIES AND INDEMNITIES

      The Seller, its shareholders and their trustees, as well as the
      Minority Shareholder (collectively, “Warranty Providers”) are
      providing detailed warranties and indemnities to Subco that are
      standard for a transaction of this nature.

9     PUT AND CALL OPTIONS

9.1     In terms of the Further Agreements, Trellidor and the Minority
        Shareholder have granted each other reciprocal put and call
        options, in terms of which the Minority Shareholder will have
        the option to sell to Trellidor, and in terms of which Trellidor
        will have the option to purchase from the Minority Shareholder,
        all shares held by the Minority Shareholder in Subco (“Option
        Shares”), as well as all shareholder loan claims of the Minority
       Shareholder against Subco (“Option Claims”), such option to
       be exercised during the 30 day period following the approval
       of Subco’s audited financial statements for its 2019 financial
       year.

9.2    Should such an option be exercised, the consideration due in
       respect of the Option Shares and Option Claims will be
       calculated on a 6 times multiple of Subco’s headline profit
       after tax for its 2019 financial year, adjusted for interest
       on shareholder loans (“Option Consideration”).

9.3    Notwithstanding   anything   to   the  contrary,   the   Option
       Consideration, when aggregated with the Purchase Consideration,
       will be limited so as to not result in any of the percentage
       ratios in paragraph 9.6, read with paragraph 9.1(b) of the JSE
       Listings Requirements, exceeding 29.99%, provided that such
       ratio may be exceeded with the approval of Trellidor
       shareholders (if required under the JSE Listings Requirements).

10    CATEGORISATION

      The Acquisition qualifies as a category 2 acquisition       for
      Trellidor in terms of the JSE Listings Requirements.


6 June 2016
Durban


Sponsor and Transaction Advisor to Trellidor
PSG Capital Proprietary Limited


Attorneys of the Seller
Werksmans Attorneys

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