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LEWIS GROUP LIMITED - Acquisition of United Furniture Outlets (Pty) Ltd - A Cash Furniture Retailer

Release Date: 19/10/2017 07:05
Code(s): LEW     PDF:  
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Acquisition of United Furniture Outlets (Pty) Ltd - A Cash Furniture Retailer

Lewis Group Limited
Registration Number: 2004/009817/06
Share Code: LEW
ISIN Code: ZAE 000058236
("Lewis" or "the Company")




ACQUISITION OF UNITED FURNITURE OUTLETS (PTY) LTD - A CASH FURNITURE RETAILER



1.   Introduction

     Shareholders are advised that Lewis Stores Proprietary Limited (“Lewis Stores”), a wholly-
     owned subsidiary of the Company, has concluded an agreement with the shareholders
     (“Vendors”) of United Furniture Outlets Proprietary Limited (“UFO”) in terms of which, amongst
     other things, Lewis Stores will acquire the entire issued ordinary share capital and all
     shareholders’ claims against UFO from the Vendors (“Acquisition”). The Vendors are Martini
     Enterprises Group Limited, Philip Glick (the founder of UFO), Michael Yapanis and the LFC
     Trust.

2.   Overview of UFO

     UFO is an independent, cash furniture retailer with a retail footprint of 30 stores. It sells a variety
     of furniture including lounge, bedroom and dining room products. UFO is recognised as a luxury
     brand with a value offering to the upper consumer spectrum, namely LSM 9-10+. The business
     was established in 2004 and currently more than half of its stores are located in Gauteng.

3.   Rationale for the Acquisition

     The Acquisition will enable Lewis Stores to achieve improved economies of scale and provide a
     platform to penetrate new market sectors through a wider, more exclusive product range.
     Importantly, Lewis Stores is of the view that the Acquisition will diversify its offering by increasing
     its cash-to-credit sales ratio and facilitate access to a higher income customer market segment
     (LSM 9-10+).

     The UFO brand and business model is scalable and offers an opportunity to extend the UFO
     store footprint across South Africa and into neighbouring southern African countries.

4.   Acquisition consideration

     The Acquisition consideration (“Consideration”) is a cash amount of R320 million (plus interest if
     applicable). R16 million of the Consideration will be deferred subject to confirmation of the net
     asset value of UFO at the effective date.

     Lewis Stores will utilise its current cash resources to pay the purchase price due in terms of the
     Acquisition.

5.   Net assets acquired and profits attributable to those assets

     As reflected in the audited financial statements for the year ended 28 February 2017, UFO’s net
     assets were R66.4 million and the attributable profit was R21.9 million. UFO’s audited financial
     statements were prepared in accordance with International Financial Reporting Standards for
     Small and Medium Enterprises.

     Earnings before interest, payments to the Vendors and entities controlled by the Vendors, and
     taxation was R40.4 million for the year ended 28 February 2017. Per the unaudited management
     accounts for the 6 months ended 31 August 2017, this number increased by approximately 48%
     over the corresponding period. The unaudited balance sheet as at 31 August 2017 reflects net
     assets of R82.0 million. While Lewis Stores is satisfied with the quality of UFO’s unaudited
     financial information for the period ended 31 August 2017, due to its unaudited nature, the
     Company’s shareholders should exercise caution in placing reliance on the same.

6.   Conditions precedent

     The Acquisition is subject to the fulfilment (or waiver where applicable) by no later than
     90 business days after the signature date, of certain conditions precedent (which are usual for a
     transaction of this nature), including:
     •    the approval of the Competition Tribunal of the Acquisition;
     •    the approval of the Takeover Regulation Panel of the Acquisition; and
     •    certain of UFO’s lessors and third party funders providing consent to the change in
          ownership of UFO.

7.   Effective date

     The effective date of the Acquisition will be the first day of the month in which all conditions
     precedent have been fulfilled or waived, if those conditions are fulfilled or waived on or before the
     15th of that month, or the 1st day of the succeeding month, if all conditions precedent are fulfilled
     or waived after the 15th of that month.

8.   UFO memorandum of incorporation

     On implementation of the Acquisition, UFO will become a wholly owned subsidiary of Lewis
     Stores, which is a wholly owned subsidiary of the Company. The Company confirms that:
     •   the provisions of UFO’s incorporation documents do not frustrate Lewis in any way from
         compliance with its obligations in terms of the Listings Requirements of the JSE Limited
         (“Listings Requirements”); and
     •   nothing in UFO’s incorporation documents shall relieve Lewis from compliance with the
         Listings Requirements.

9.   JSE categorisation

     The Acquisition constitutes a Category 2 transaction in terms of paragraph 9.5(a) of the Listings
     Requirements and accordingly no shareholder approval is required.

     Cape Town
     19 October 2017

     Legal advisors to Lewis
     ENS Africa
     Legal advisors to Vendors
     Fluxmans Attorneys
     Sponsor to Lewis
     UBS South Africa (Proprietary) Limited




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