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DISTRIBUTION AND WAREHOUSING NETWORK LIMITED - Update On Dpi Wind Down

Release Date: 06/02/2019 17:49
Code(s): DAW     PDF:  
 
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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outdated and inefficient machinery, fierce competition, and 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)



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