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Update On Dpi Wind Down
DISTRIBUTION AND WAREHOUSING NETWORK LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1984/008265/06)
Share code: DAW
ISIN code: ZAE000018834
(“DAWN” or “the Company”)
POLANOFIELD PROPRIETARY LIMITED
Incorporated in the Republic of South Africa)
(Registration number 2018/556404/07)
(“Offeror”)
UPDATE ON DPI WIND DOWN
INTRODUCTION
Shareholders are referred to the unaudited 30 September 2018
Interim Financial Results (“Interim Results”) issued on 5
December 2018 in which shareholders were advised of the decision
by the DAWN board to commence with the closure of DPI Plastics
Proprietary Limited (“DPI”)’s operations and the classification
of its property and equipment assets as held-for-sale, as
repeated in the circular dated 20 December 2018 (“Circular”).
BACKGROUND
DPI, a wholly-owned subsidiary DAWN, was a manufacturer and
supplier of SABS-approved Polyvinyl chloride (“PVC”) and High
Density Poly Ethylene (”HPDE”) pipes and fittings for various
applications, including the civil engineering, building and
construction, industrial, mining and agricultural/irrigation
sectors. As reported, DPI’s financial performance was severely
affected by a fundamental decline in sales performance, high
levels of scrap and its prevailing high cost structure, very
outdated and inefficient machinery, fierce competition, and
extremely low margins over the reporting period ended 30
September 2018. The process of curtailing costs in DPI was
started in 2017 with the closure of the Cape Town manufacturing
plant. This business had been facing dire market and operating
conditions as a result of reduced government spending. Added to
this, a crippling strike action placed severe strain on the
business and accordingly the DAWN group. Despite multiple
actions taken by management to turn the business around, the
business continued to be in a substantial loss-making position
and consumed an unbearable level of the group’s cash flow,
placing the sustainability of the group as a whole at risk. As a
result of the financial position, and with no other viable
alternatives, management and the board decided to proceed with a
closure process prior to the release of the Interim Results.
Accordingly, DPI was classified as a discontinued operation and
disclosures were performed in terms of IFRS 5 in the Interim
Results.
Following the decision to proceed with the closure of DPI,
management considered its options as to how to proceed with
effecting the closure. The most favourable option, which
management believed was in the best interests of shareholders and
all stakeholder groupings was to effect an orderly wind-down of
DPI outside of a formal process. The expectation by management
was that sufficient proceeds from collections and from the sale
of the sum total of all DPI assets (of which the sale assets
referred to below form a part) would be realised to discharge
DPI’s liabilities, so that DPI could be wound-up on a zero-sum
basis. This is of further importance due to cross-guarantees
which are in place for certain liabilities.
DISPOSAL OF HDPE PROPERTY AND EQUIPMENT ASSETS
Subsequent to the decision to close DPI’s HDPE operations, a
tender auction process was embarked upon to realise a return for
the remaining HDPE property and equipment assets (“HDPE Assets”)
in order to settle DPI’s liabilities, and at a broader level
sustain the DAWN group’s operations. This process commenced on 15
October 2018. The tender process was pursued in order to obtain
the best return for the individual assets. Assets were listed on
a line by line basis and various parties expressed interest in
the assets and subsequently purchased individual assets through
separate cash transactions from November 2018 until January 2019.
Over the period a total amount of R4,9 million in cash, was
realised for the HDPE Assets, against a book value of R0,7
million included in the Interim Results prepared on an IFRS
basis, with which management is satisfied, translating into an
accounting profit of R4,2 million, due to impairments that had
been processed previously. The aggregate sale proceeds received
over the period would have at some point, considered
retrospectively, rendered the numerous underlying transactions
(when aggregated) a category 2 transaction under the JSE Listings
Requirements. All sales are concluded with no conditions
precedent outstanding. The loss after tax of the DPI discontinued
operations attributable to HDPE operations for the six months
ended 30 September 2018 is R19,6 million, included in the Interim
Results prepared on an IFRS basis, with which management is
satisfied.
DISPOSAL OF PVC PROPERTY AND EQUIPMENT ASSETS
Subsequent to the decision to close DPI, a tender auction process
was further embarked upon to realise a return for the remaining
PVC property and equipment assets (“PVC Assets”).
Due to severe liquidity constraints and rising pressure from
DPI’s creditors, management resolved to dispose of the PVC Assets
in an effort to ensure to the orderly wind up of DPI outside of
any formal process.
Similar to the HDPE Assets, the tender auction process was deemed
the most suitable route to source the best return for the assets,
in the current situation. The PVC Assets were, however, offered
as a collective (lot) and not on an individual basis. Through
finalisation of the tender auction process on 23 November 2018,
an offer received from Swan Plastics Proprietary Limited
(“Swan”), for a consideration of R30 million for the lot
(excluding VAT and commission) was evaluated as the best
alternative. Following approval by the South African Competition
Commission of the sale to Swan on 22 January 2019, Swan and DPI
entered into a formal agreement on 6 February 2019 to regulate
such sale. This sale is classified as a category 1 transaction
for the purposes of the JSE Listings Requirements. The material
terms of the sale are as follows:
– The sale is subject to (i) shareholder approval under sections
112/115 of the Companies Act No 71 of 2008 by DPI and DAWN and
to the extent that DAWN is still listed, as a category 1
transaction under the JSE Listings Requirements; (ii) the
Takeover Regulation Panel exempting the sale from compliance
with Parts B and C of Chapter 5 of the Companies Act and the
Takeover Regulations; (iii) the requisite shareholders of DPI
and DAWN have waived the requirement for the parties to comply
with Parts B and C of Chapter 5 of the Companies Act and the
Takeover Regulations (collectively the “Conditions
Precedent”). The Conditions Precedent are required to be
fulfilled by 28 February 2019.
– Of the PVC Assets disposal proceeds, an amount of R25 million
has been received in cash as a deposit and the balance will be
paid within 48 hours of the date on which ownership of the
intellectual property comprising the PVC Assets has been
transferred to Swan (“Closing Date”).
– Ownership of and risk to the PVC Assets will pass on the
Ownership Date, being the date when the Conditions Precedent
have been fulfilled. Delivery of the PVC Assets will be
effected on the Closing Date.
– DPI has given a security pledge and cession in favour of Swan
to secure its obligations under this agreement against the PVC
Assets.
The consideration of R30 million against the Book Value of R27
million included in the Interim Results prepared on an IFRS
basis, with which management is satisfied, yields an accounting
profit of R3 million due to impairments processed previously. The
loss after tax of the DPI discontinued operations attributable to
PVC operations for the six months ended 30 September 2018 is
R108,1 million, included in the Interim Results prepared on an
IFRS basis, with which management is satisfied.
IMPACT ON THE OFFER
Shareholders were advised through the Circular that the Offer
prevented management from entering into agreements other than in
the ordinary course of business prior to closing date, except in
the case of the disposal of DPI’s Assets, which was permitted by
the Offeror. The orderly winding up of DPI was critical in
ensuring DAWN’s operations are sustained while the Offer is
pursued and remains on track.
The Independent Board, as defined in the Circular, highlights
that the independent expert who prepared the fair and reasonable
in relation to the Scheme (as defined in the Circular), namely
BDO Corporate Finance Proprietary Limited (“BDO”), valued DPI at
the time as follows: “For the purpose of the Fair and Reasonable
Opinion, DPI Plastics was included in the sum-of-the-parts
valuation of DAWN (the “SOTP”) according to the net asset
valuation methodology on a liquidation basis (“NAV”). As the
carrying value of DPI Plastics’ liabilities exceeded its assets
according to its statement of financial position, a nominal value
of R1 was attributed to the company.”
Out of prudence, DAWN has obtained fresh confirmation from BDO
that the above contemplated sales by DPI do not and will not
alter their original opinion. BDO stated as follows: “In
determining the impact of the valuation of DPI to our sum of the
parts valuation performed for the purpose of the Transaction, we
confirmed a zero value attributable per Scheme Share after taking
into account all outstanding liabilities and commitments. The
Offer Consideration is considered to be fair as the Offer
Consideration in the amount of R0,01, falls above the fair value
per Share.”
Accordingly, the opinion of BDO remains unchanged, and is
available for inspection at the registered office of DAWN.
The Independent Board of DAWN has considered the confirmation of
BDO as set out above and is in agreement thereof.
THE INDEPENDENT BOARD AND BOARD RESPONSIBILITY STATEMENT
The Board and the Independent Board (to the extent the
information relates to DAWN), collectively and individually,
accept responsibility for the information contained in this
announcement and confirm that, to the best of each member’s
respective knowledge and belief, the information contained in
this announcement is true and does not omit anything likely to
affect the importance of such information.
OFFEROR RESPONSIBILITY STATEMENT
Offeror (to the extent the information relates to Offeror),
accepts responsibility for the information contained in this
announcement and confirms that, to the best of its knowledge and
belief, the information contained in this announcement is true
and does not omit anything likely to affect the importance of
such information.
Germiston
6 February 2019
SPONSOR:
Deloitte & Touche Sponsor Services (Pty) Ltd
LEGAL ADVISOR:
ENSafrica (Edward Nathan Sonnenbergs Incorporated)
Date: 06/02/2019 05:49:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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