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JASCO ELECTRONICS HOLDINGS LIMITED - Disposal of the Electrical Manufacturers Division

Release Date: 04/10/2019 17:00
Code(s): JSC     PDF:  
 
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Disposal of the Electrical Manufacturers Division

JASCO ELECTRONICS HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration Number: 1987/003293/06)
Share Code: JSC            ISIN: ZAE000003794
("Jasco" or “the Group”)


DISPOSAL OF THE ELECTRICAL MANUFACTURERS DIVISION

1 INTRODUCTION

   Shareholders are advised that Jasco, through its wholly owned subsidiary Jasco Trading (Pty)
   Limited, has entered into a sale of business agreement with African Zaibatsu Corporation (Pty)
   Limited (“AZC”) (“Disposal Agreement”). In terms of the Disposal Agreement, AZC will acquire 100%
   of the Electrical Manufacturers Division (“EM”), as a going concern from Jasco Trading (Pty) Limited
   for a maximum expected aggregate purchase price of R65 million (“the Disposal”).

2 BACKGROUND TO EM

   EM offers a component manufacturing service on both a contract and an ad hoc basis. As well as
   product development services. The factory is equipped to handle large volumes of plastic injection
   moulded and metal pressed manufacture of a variety of sizes of components. In addition, it has a
   range of in-house manufactured products, including electrical plugs, adaptors and extensions and
   salt water chlorinators. Electrical Manufacturers is largely a component manufacturer of plastic
   injection-moulded products, wire harnesses, metal pressings and household electrical products with
   a special focus on the large home appliance market in South Africa.

   EM is primarily a manufacturer of componentry for the Domestic appliance industry in South Africa.
   Other products, which are offered by EM, include branded (Just Chlor) swimming pool chlorinators
   and accessories. EM is also a manufacturer of componentry for the appliance industry, but its scope
   extends to the large as well as small appliance industry. The main product lines are electrical cord-
   sets, metal pressings and assembled electrical products, which form part of the Snapper Electrical
   Range as well as various plastic moulded that are contract manufactured.

   EM essentially has two distinct departments, namely: Domestic and Poolcare. The automotive
   business was sold during 2014 to Lumen International.

   •           Domestic: This department is concerned with the manufacture and assembly of wiring
               harnesses and plastic moulded componentry for the large appliance manufacturers in
               South Africa. This department is also responsible for the manufacture of plastic
               componentry used in the manufacture of the “Snapper” and associated domestic
               electrical connectors and extenders. These products are then distributed to the
               components operation for assembly and distribution.
  •            Poolcare: This department is concerned with the manufacture and distribution of
               domestic swimming pool products. The “Just Chlor” pool chlorinator is the primary
               product associated with this department.

3 BACKGROUND TO AZC

  AZC is a 100% Black Owned and 100% Black Youth Owned South African company that invests in
  and through active management, adds value to businesses that are aligned strategically to the
  African continent’s developmental objectives. AZC’s primary investment focus is on businesses
  within the Industrial Sector characterised by the predictable cashflows, potential for growth and a
  strong management team.

4 BACKGROUND AND RATIONALE FOR THE DISPOSAL

  The EM business continued to come under pressure from its largest customer in the appliance white
  goods market. The more profitable product lines in the wiring harness space were lost to competitors
  due to unsustainably low pricing levels. This had a negative impact on the gross margin product mix.
  Jasco has previously investigated exiting or restructuring EM into more focused areas, such as
  plastics and metal pressings, to reduce input costs from a cost of sales and overhead perspective
  to improve profitability levels. In 2018 the decision was made to focus on additional customer
  diversification to reduce the reliance on major appliance manufacturers and improve margins before
  further consideration will be given to a possible disposal.


  The Disposal of EM remains in line with the management of Jasco’s continued focus on exiting from
  non-core and low value-adding businesses. In addition to this, the Disposal is anticipated to yield
  the following benefits to the Jasco Group:
  •    utilisation of the proceeds from the Disposal to redeem the corporate bond and reduce the
       working capital loan thereby strengthening Jasco’s balance sheet;
  •    a reduction of Jasco’s interest cost expense and the resultant improvement of cash flows; and
  •    free up significant executive management time and resources to focus on the core operations
       of Jasco.

5 KEY TERMS OF THE DISPOSAL

  5.1 Disposal Agreement

       In terms of the Disposal Agreement Jasco will sell to ACZ, EM, the business of contract
       manufacturing components for predominantly the domestic appliance industry in South Africa
       conducted as a going concern under the name and style of “Jasco Electrical Manufacturers”,
       comprising the Sale Assets and the Assumed Liabilities;

  5.2 Sale Assets and Assumed Liabilities

       The Sale Assets consists of the following:
       •    Book Debts: all trade and other debtors, all contracts in respect of or relating to EM in
            existence as at the effective date,
       •    Contracts: all contracts in respect of or relating to EM in existence as at the effective
            date and which shall include without limitation the material contracts, lease
            agreements, credit agreements, unexecuted or partially executed orders and tenders
            (whether they are awaiting adjudication or in respect of which contracts have been
            awarded);
       •    Fixed Assets: the tangible and intangible assets owned and used by EM in connection
            with the Business as at the effective date,
       •    Intellectual Property: all right, title and interest in and to any copyright, provisional or
            complete patents, registered or pending designs, licences, registered or unregistered
            trademarks and trading names, registered domain names and any information or
            technical know-how owned or used in connection with the Business and its operation
            as at the effective date. The name “Jasco” is not being sold as part of the Disposal
            and is excluded from all Intellectual Property,
       •    Stock: all of the inventory of EM in relation to the Disposal as at the effective date,
            including the stock of raw materials, work-in-progress and finished products, as well as
            consumable stores, packing materials, spare parts and stock-in-transit (being stock
            purchased by EM prior to the effective date but not yet delivered;


    The Assumed Liabilities, means all liabilities of EM, specifically assumed by AZC, including
    Trade and Other Payables (amounting to approximately R31.5 million), Employee and other
    provisions (amounting to approximately R3.0 million) and interest bearing liabilities (finance
    leases) (amounting to approximately R4.1 million).

    The value of the Sale Assets as at 30 June 2019 was approximately R100.1 million and the
    value of the Assumed Liabilities at the same date was R 38.6 million. The net amount of Sale
    Assets less Assumed Liabilities was R61.5 million. Sale Assets excludes cash and cash
    equivalents (amounting to approximately R15.4 million) and amounts owing by group
    companies (amounting to approximately R178 million) which will be retained by Jasco.


5.3 Employees of EM

   Section 197 of the Labour Relations Act, 1995 (LRA) applies to the Disposal Agreement.
   Accordingly, with effect from the effective date the employment of each employee will be
   transferred to AZC and continue in force with AZC as the new employer in terms of the LRA.
   All the rights and obligations as at the effective date between Jasco and each employee will
   continue in force as if they had been rights and obligations between AZC and each Employee
    The transfer of the contracts of employment will not interrupt any of the employees’ continuity
    of employment and each employee’s contract of employment continues with AZC as if with
    Jasco, and no retrenchments of the employees are contemplation by AZC.


5.4 The Disposal Consideration

   The Disposal Consideration payable by AZC in respect of EM, will be the value of the Sale
   Assets less the Assumed Liabilities as at the effective date of the transaction is expected to be
   a maximum aggregate amount of R65 million.


   The final Disposal Consideration will be determined based on the financial statements of EM
   for the period from 30 June 2019 to the effective date (the “effective date financial statements”)
   and will consist of the aggregate value of the Sale Assets less the Assumed Liabilities. The
   effective date financial statements will be prepared and audited by no later than 60 days after
   the effective date.


   The Disposal Consideration will be settled as follows:
    •     AZC will pay the Disposal Consideration, less R5 million on the closing date;
    •     Within 24 months after the closing date, AZC will pay the R5 million together with interest
          thereon at a rate of 5% calculated from the closing date.


    The closing date applicable to the Disposal Consideration will be the second business day after
    the final Disposal Consideration and is expected to be 2 May 2020.


    AZC has partnered with the Industrial Development Corporation of South Africa Limited (“IDC”)
    as a preferred funding partner to fund the Disposal Consideration.


   The proceeds from the Disposal will be applied towards reducing the Jasco corporate bond and
   the working capital loan.

5.5 Conditions precedent

    The conclusion of the Disposal is subject to the fulfilment of the following conditions precedent
    by no later than the dates set out below, or such later date as is agreed in writing by the parties:


    •   By no later than 4 April 2020, the approval of the requisite majority of Jasco shareholders
        at a properly convened general meeting, by means of written resolution;
    •   By no later than 4 April 2020, a cession and delegation of the relevant existing instalment
        sale agreements, operation lease agreements and customer contracts (“Material
        Contracts”) to AZC with effect from the Effective Date or in the alternative AZC concluding
        a new contract with each of the other party/ies to each of the Material Contracts upon terms
        no less favourable than currently applicable in the Material Contracts;
       •    By no later than 4 April 2020, any third party consents or waivers that may be necessary
            to be able to give effect to the Disposal Agreement have been obtained;
       •    by no later than 30 November 2019, the funding agreements between AZC and the IDC,
            in respect of the funding of the Disposal, are executed and become unconditional in
            accordance with their terms;
       •    By no later than 4 April 2020, the approval, insofar as it may be necessary, of the
            Competition Authorities to the transaction set out in the Disposal Agreement, which
            approval must either be unconditional, or subject to conditions that are acceptable to all
            the parties.


        The Disposal Agreement further contains legal warranties and indemnities which are
        considered normal in respect of a transaction of this nature.

6 EFFECTIVE DATE

   The effective date of the Disposal Agreement will fall on the last day of the month in which the last
   of the condition’s precedent have been fulfilled or waived, as the case may be, currently expected
   to be on or about 30 April 2020. Updates will be provided on the fulfilment of the conditions
   precedent, the effective date and the closing date, in due course.

7 PROFIT AND NET ASSET VALUE ATTRIBUTABLE TO EM

   The net assets of EM and the net operating profit after tax attributable to the net assets of EM for
   the 12 months ended 30 June 2019, will be provided in the audited financial results announcement
   for the year ended 30 June 2019, which will be released as soon as possible.

8 CATEGORISATION OF THE DISPOSAL AND RENEWAL OF CAUTIONARY ANNOUNCEMENT.

   The Disposal constitutes a category 1 disposal in terms of the Listings Requirements of the JSE
   Limited. A circular regarding the Disposal, including a notice of general meeting will be distributed
   to shareholders in due course.


   Shareholders are referred to the Cautionary announcement and renewal thereof, released on SENS
   on 6 August 2019 and 18 September 2019, respectively and are advised that until the profit and net
   asset value attributable to EM for the 12 months ended 30 June 2019 has been published,
   shareholder should continue to exercise caution when dealing in their securities.

Midrand
4 October 2019


Legal Advisor to Jasco
Rashaad Sujee Legal


Corporate Advisor to Jasco
SamuelKennedy Investments (Proprietary) Limited


Joint Corporate Advisor and Sponsor
Grindrod Bank Limited

Date: 04/10/2019 05:00:00
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