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PEPKOR HOLDINGS LIMITED - Small Related Party Transaction

Release Date: 18/12/2020 14:15
Code(s): PPH PEP02 PEP01     PDF:  
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Small Related Party Transaction

(Incorporated in the Republic of South Africa)
(Registration number: 2017/221869/06)
Share code: PPH
Debt code: PPHI
ISIN: ZAE000259479
(“Pepkor” or “the Company”)



1.1.       Shareholders and noteholders are advised that on 18 December 2020, after an extended period of
           negotiations and a detailed due diligence, the Company and two of its wholly-owned subsidiaries,
           Ultimo Properties Proprietary Limited (“Ultimo”) and JD Consumer Electronics and Appliances
           Proprietary Limited (“CEA”) entered into inter alia a framework agreement (“Framework Agreement”)
           with Steinhoff Africa Holdings Proprietary Limited (“Steinhoff Africa”) and the Steinhoff Subsidiaries,
           as defined below. In terms of the Framework Agreement Ultimo and CEA have agreed to –

1.1.1.        acquire 10 properties and an undivided half share in another property, together with the rental
              enterprises conducted thereon (“Rental Enterprises”), from the Steinhoff Subsidiaries. Entities
              within the Pepkor group of companies (“Pepkor Group”) currently lease these 11 properties; and

1.1.2.        take transfer, by way of a cession and delegation, of a long-term notarial lease between Tanzanite
              (as lessee) and the Elias Motsoaledi Local Municipality (as lessor) (“Groblersdal Lease”) and of
              the sub-lease concluded in respect of this property from Tanzanite, upon which CEA will become
              the new lessee. An entity within the Pepkor Group is the sub-lessee in terms of the sub-lease,

           (together, the “Transaction”).

1.2.       Details of the properties are set out in the table in paragraph 8 below.

1.1.       The Steinhoff Subsidiaries comprise the following indirect wholly owned subsidiaries of Steinhoff
           International Holdings N.V. (“Steinhoff N.V.”): Steinhoff Properties Proprietary Limited (“Steinprop”),
           JD Group Property Holdings Proprietary Limited (“JD Group Property Holdings”), Tanzanite
           Treasure Trading 7 Proprietary Limited (“Tanzanite”), Showboat Trade and Invest 17 Proprietary
           Limited (“Showboat”) and Copperzone 185 Proprietary Limited (“Copperzone”)


2.1.       The properties are predominantly used by Pepkor’s operating entities as distribution centres with one
           property being used as a corporate head office and one property being used as a call centre.

2.2.       The board of directors of Pepkor believes that the Transaction will result in the following benefits for
           the Pepkor Group:

2.2.1.        operational cost savings, as the rental expenses relating to the properties rented by the Pepkor
              Group from the Steinhoff Subsidiaries amounted to R111 million during Pepkor’s 2020 financial
              year, which is expected to be accretive on an earnings per share basis (without taking IFRS16 into
              account) and results in a cash saving for the Pepkor group;

2.2.2.        secures ownership of high roof distribution centre buildings for Ackermans, Pepkor Speciality and
              JD Group that are strategically important to their businesses; and

2.2.3.        secures ownership of Tenacity’s call centre and JD Group’s corporate head office, the locations of
              which are ideally suited to cater for their operational needs.


3.1.        The aggregate purchase consideration payable in terms of the Transaction is R1,050,000,000 (one
            billion fifty million rand) (“Aggregate Consideration”), which will be settled by Pepkor issuing, in
            aggregate, 70 000 000 (seventy million) new Pepkor shares (“Pepkor Consideration Shares”) to the
            respective Steinhoff Subsidiaries. It is considered appropriate to issue new Pepkor shares in order to
            preserve cash resources. The Pepkor Consideration Shares equates to 1.91% of the issued share
            capital of Pepkor prior to issuing the Pepkor Consideration Shares.

3.2.        The Pepkor Consideration Shares will be issued at an issue price of R15 per share which represents
            a premium of 16.0% to the volume weighted average trading price of Pepkor’s shares traded on the
            JSE over the 30 trading days up to and including 19 November 2020, being the date prior to the board
            of directors of Pepkor approving the key terms of the Transaction.


4.1.        In terms of the Framework Agreement, the Transaction is subject to the fulfilment of a number of
            conditions precedent (“Conditions Precedent”) which include that on or before 15 March 2021 (or
            such later date as the parties to the Framework Agreement may agree in writing):

4.1.1.         the approvals required by the Competition Act No. 89 of 1998 for the implementation of the
               Transaction have been granted, either unconditionally or subject to such conditions as have been
               approved in writing by the Company and, to the extent that any conditions are imposed on them,
               also the Steinhoff Subsidiaries;

4.1.2.         the shareholders of Pepkor have approved, by way of a special resolution in terms of section 60 of
               the Companies Act the issue of the Pepkor Consideration Shares to the Steinhoff Subsidiaries in
               accordance with section 41(1) of the Companies Act;

4.1.3.         the Steinhoff Subsidiaries have obtained the consent of Steinhoff N.V.’s creditors under the written
               “Contingent Payment Undertakings” in place by Steinhoff N.V. in favour of its creditors, to the extent
               required; and

4.1.4.         the JSE has approved the admission to listing on the Main Board of the JSE of the Pepkor
               Consideration Shares.


         The Transaction is subject to a resolutive condition that the Framework Agreement and all of the
         substantive agreements between CEA or Ultimo, as applicable, Pepkor and the relevant Steinhoff
         Subsidiary, relating to each of the relevant Rental Enterprises and underlying properties (described in
         paragraph 8 below) (“Substantive Agreements”) will terminate and cease to be of further force and effect
         if the registration of transfer of the Cliffdale Property (described in paragraph 8 below) into the name of
         Ultimo and the issuing of the relevant portion of the Pepkor Consideration Shares to Steinprop for the
         Cliffdale Property does not occur by 30 April 2021 (or such later date as the parties to the Framework
         Agreement may agree to in writing).


         The effective date of the transaction is the dates of the transfer of each of the Rental Enterprises shall be
         the date on which (i) transfer of the relevant property or, with respect to the Groblersdal Property, cession
         and assignment of the Groblersdal Lease Agreement to CEA or Ultimo, as applicable, is registered in
         accordance with the provisions of the Deeds Registries Act No. 47 of 1937, and (ii) Pepkor allots and
         issues the corresponding number of Pepkor Consideration Shares to the relevant Steinhoff Subsidiary in
         accordance with the relevant Substantive Agreement (as read with the Framework Agreement). The
         effective date of the Properties other than the Cliffdale Property will be after the date of transfer of the
         Cliffdale Property.


7.1.      The Framework Agreement and the Substantive Agreements contains warranties by the parties
          thereto in favour of each other, which are usual for a transaction of this nature.

7.2.      The Steinhoff Subsidiaries have each undertaken not to dispose of or encumber the Pepkor
          Consideration Shares received by it in terms of the applicable Substantive Agreement for a period of
          at least 6 months from the date of the relevant Pepkor Consideration Shares were issued to it.

7.3.      In terms of the Framework Agreement, if CEA or Ultimo dispose of any of the Rental Enterprises to a
          third party within a period of 12 months from the relevant transfer date of such Rental Enterprise, at a
          profit, they will be obliged to pay an amount equal to such profit up to a maximum of R200 million in
          aggregate to the applicable Steinhoff Subsidiary. The aforesaid clawback shall not apply if the Rental
          Enterprise is sold to another company within the Pepkor Group or if the disposal occurs pursuant to a
          transaction which does not have as its primary objective, the disposal of the relevant Rental Enterprise.
          Pepkor deems the acquisition of the Rental Enterprises to be strategic in nature and does not intend
          to dispose of the Rental Enterprises in the next 12 months.

7.4.      Steinhoff Africa has guaranteed all payment obligations of each of Steinhoff Subsidiaries in terms of
          the Transaction, which guarantee is effective for a period of 6 months from the date of implementation
          of each Substantive Agreement.

7.5.      Steinhoff Africa has also indemnified the Company, CEA and Ultimo against any loss, expense, liability
          or cost which they may suffer if Showboat, Tanzanite and/or Copperzone is liquidated at any time
          within 6 months from the date of implementation of any Substantive Agreement to which Showboat,
          Tanzanite or Copperzone, as the case may be, is a party.

7.6.      Following the issue by Pepkor of the Pepkor Consideration Shares, CEA and Ultimo will each become
          indebted to Pepkor in an amount equal to their respective portions of the Aggregate Consideration.


8.1.      Details of each of the properties in respect of which the Rental Enterprises are conducted are as

            Property        Erf and Size                   Current Owner          Province     Property Type           Tenant
            Name                                           (applicable
            Cliffdale       Erf 241 Cliffdale, in extent   Steinprop              KwaZulu      Distribution centre     Ackermans
            Property        10,3167 hectares                                      Natal        (warehouse)             Pepkor
                            Erf 242 Cliffdale, in extent                                                               Speciality
                            4,2527 hectares
                            Erf 243 Cliffdale, in extent
                            3,1831 hectares
                            Erf 244 Cliffdale, in extent
                            11,2510 hectares
            East    Gate    Erf 126 Eastgate Extension     Steinprop              Gauteng      Office building (B-     JD Group
            property        3, in extent 2,4765 hectares                                       grade offices)
            Kuils River     Erf 9379 Kuils River, in       Steinprop              Western      Office building (B-     Tenacity
            Property        extent 1,0527 hectares                                Cape         grade offices)
            Jet      Park   Erf 684 Jet Park Extension     JD Group Property      Gauteng      Distribution centre     JD Group
            Property        66, in extent 3,5739           Holdings                            (warehouse)
            PE Property     Portion 193 of Farm Kuyga      JD Group Property      Eastern      Distribution centre     JD Group
                            No. 8, Nelson Mandela Bay      Holdings               Cape         (warehouse)
                            Metropolitan,    in   extent
                            2,5491 hectares
            Polokwane       Remaining extent of Erf        JD Group Property      Limpopo      Distribution centre     JD Group
            Property        5669 Pietersburg Extension     Holdings                            (warehouse)
                            12, in extent 3,0716
            Tzaneen         Portion 1 of Erf 1972,         JD Group Property      Limpopo      Distribution centre     JD Group
            Property        Tzaneen Extension 18, in       Holdings                            (warehouse)
                            extent 2,0815 hectares
            Vryburg         Erf 2963 Vryburg, Naledi       JD Group Property      North        Distribution centre     JD Group
            Property        Municipality,   in extent      Holdings               West         (warehouse)
                            1,5255 hectares
            Groblersdal     Erf    832     Groblersdal,    Tanzanite (current     Limpopo      Distribution centre     JD Group
            Property        Extension 15, in extent        lessee)                             (warehouse)
            (note 1)        4,9514 hectares
            Kokstad         Erf 8947 Kokstad, in extent    Showboat               KwaZulu      Distribution centre     JD Group
            Property        3269 square metres                                    Natal        (warehouse)
                            Erf 8948 Kokstad, in extent
                            3281 square metres
                            Erf 8949 Kokstad, in extent
                            1677 square metres
                            Erf 8950 Kokstad, in extent
                            1663 square metres
            Richards        Erf 8778, Richards Bay         Showboat               KwaZulu      Distribution centre     JD Group
            Bay Property    (Extension No. 28), in extent                         Natal        (warehouse)
                            1,7437 hectares
            Nelspruit       Portion 3 of Erf 5, Karino     Copperzone             Mpumalanga   Distribution centre     JD Group
            Property        Township, in extent 4,0600                                         (warehouse)
            (note 2)        hectares
          1. The Groblersdal Property itself is not the subject of the relevant acquisition and will not be acquired by Pepkor. The
             Groblersdal Lease in respect of portion A of the Groblersdal Property, in extent 1,990 hectares, is the subject of the
             acquisition and will be transferred, by way of a cession and assignment from Tanzanite (as lessee) to CEA, following which
             CEA will become the new Lessee, as contemplated by paragraph 1.1.2 above.
          2. Copperzone is the owner of an undivided share in the Nelspruit Property. Accordingly, CEA will not acquire ownership of
             the whole property but only an undivided half share in the Nelspruit Property.


9.1.      The fair value of the net assets comprising the Rental Enterprises at the date of the announcement
          equates to R1,050,000,000, being the purchase consideration.

9.2.      The profits attributable to the Rental Enterprises for the 12 months ended 30 September 2020 were
          approximately R79.6 million, based on Steinhoff’s unaudited management accounts. The profit was
          calculated as the after tax operating profit of each property after tax and does not take into account
          the impact of the capital structure, rental smoothing and any impairments.

9.3.      The Company is satisfied with the quality of Steinhoff’s management accounts, however, shareholders
          are advised that these management accounts are unaudited.


10.1.     The Transaction constitutes a small related party transaction for Pepkor as contemplated by paragraph
          10.7 of the JSE Listings Requirements given that:

10.1.1.      Steinhoff N.V. and the Steinhoff Subsidiaries are “related parties” of Pepkor by virtue of the fact
             that Steinhoff N.V. is indirectly a material shareholder of the Company; and

10.1.2.      the number of the Pepkor Consideration Shares to be issued by Pepkor to the Steinhoff
             Subsidiaries as a percentage of Pepkor’s shares in issue (excluding treasury shares), equates to

10.2.     Pepkor is accordingly required to appoint an independent expert to prepare a fairness opinion on the
          Transaction in terms of paragraph 10.7(b) of the JSE Listings Requirements to confirm that the
          Transaction is fair to shareholders of the Company.

10.3.     The board of directors of the Company has appointed PSG Capital Proprietary Limited (“Independent
          Expert”) as the independent expert to prepare the required fairness opinion on the Transaction. The
          Independent Expert has considered the terms and conditions of the Transaction and is of the opinion
          that the terms and conditions of the Transaction are fair to the shareholders of the Company. A copy
          of the fairness opinion is available for inspection at the Company’s registered office for a period of 28
          days from the date of this announcement.


      As contemplated in paragraph above, approval by the shareholders of the Company is required
      in terms of section 41(1) of the Companies Act for the issue of the Pepkor Consideration Shares to the
      Steinhoff Subsidiaries as a result of the fact that the Steinhoff Subsidiaries are related or inter-related to
      the Company, as contemplated in section 2 of the Companies Act. This approval will be sought as a
      written resolution of Pepkor shareholders in terms of section 60 of the Companies Act. In this regard, a
      circular detailing the Transaction and incorporating a notice of the required written resolution to be voted
      on by Pepkor Shareholders, will be distributed to shareholders on or about 18 January 2021.

18 December 2020

 Equity Sponsor                  Legal Advisor to Pepkor

 PSG Capital                     ENSafrica

 Debt Sponsor

 Rand Merchant Bank (A division of Firstrand Bank Limited)

Date: 18-12-2020 02:15:00
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