| Tue 8 Apr 2008, 17:05 | | TAS - Taste - Acquisition of NWJ Holdings (PTY) Li |
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TAS
TAS
TAS - Taste - Acquisition of NWJ Holdings (PTY) Limited and withdrawal of
cautionary announcement
Taste Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 2000/002239/06)
JSE code: TAS ISIN: ZAE000081162
Taste" or "the company"
ACQUISITION OF NWJ HOLDINGS (PTY) LIMITED AND WITHDRAWAL OF CAUTIONARY
ANNOUNCEMENT
1. INTRODUCTION
Shareholders are referred to the cautionary announcement dated 12 March 2008 and
are advised that Taste has entered into an agreement with The Hylton Rabinowitz
Family Trust and The D Buxton Family Trust ("the sellers") for the acquisition
of the entire issued share capital of NWJ Holdings (Pty) Limited ("NWJ") with
effect from 1 August 2008, or the eighth business day after the date upon which
the last suspensive condition is fulfilled or waived ("effective date") ,
whichever is later ("the NWJ acquisition").
2. NATURE OF THE BUSINESS OF NWJ
NWJ and its subsidiaries ("the NWJ Group") is a vertically integrated,
predominantly franchised chain of highly branded outlets, that retail a wide
range of quality jewellery and watches at affordable prices to the LSM 6-10
market. It does so via 70 NWJ outlets situated in major shopping centres around
South Africa, 50 of which are located in KwaZulu-Natal ("KZN") and Gauteng. The
NWJ Brand was founded over 25 years ago by Hylton Rabinowitz and has won several
accolades, the most recent being voted "Best Place to Buy Jewellery" in the
Readers Choice survey for four consecutive years (2004-2007). It also won the
Franchise Association of Southern Africa`s ("FASA") Newcomer Franchisor of the
Year award in 2002. The NWJ group owns 14 outlets, the balance being
franchised.
NWJ sources and distributes 100% of the items stocked and sold by its
franchisees, of which approximately 50% of the items in the outlets are
manufactured through an in-house manufacturing facility. The range includes its
own range of watches, rings, bangles, chains and earrings, making it a fully
integrated manufacturing, sourcing, distribution and franchise business.
3. RATIONALE FOR THE NWJ ACQUISITION
3.1 NWJ offers a good strategic fit given that the Taste strategy is recorded as
follows:
Taste is a South African based management group that is invested in a portfolio
of mostly franchised, category specialist and formula driven, quick service
restaurant and retail brands that have the following characteristics:
3.1.1 They are sustainably and compellingly branded, where the brand itself is
an important differentiating factor.
3.1.2 They can reasonably be developed to be the South African customer`s first
choice in the categories in which they trade.
3.1.3 They maintain value leadership through operational excellence supported by
high volumes relative to the segment in which they trade.
3.1.4 They offer good quality, great value products to customers in the broad
middle market.
3.1.5 On balance, they offer sustainable returns to franchisees commensurate
with the capital investment, risk, and effort incurred to own and operate an
individual outlet.
3.1.6 Each format is appropriately differentiated but complementary, relative to
the balance of the Taste portfolio.
3.1.7 Each format offers opportunities for vertical integration such that
material profit streams can reasonably be expected from sourcing & distribution,
franchise management royalties and company store ownership.
3.1.8 Each format will both add and derive value from being part of the Taste
portfolio greater than would be possible as a stand alone entity.
3.2 In light of the above strategy, the rationale for the NWJ acquisition is,
inter alia, as follows:
3.2.1 The NWJ business, a vertically integrated franchise business that sells
goods to consumers in the LSM 6-10 categories, is aligned to the current Taste
business.
3.2.2 NWJ is an established brand and is the largest franchised chain of
jewellery outlets in South Africa, and the fourth largest jewellery chain by
number of outlets. These characteristics align it with the Taste strategy of
investing in franchise businesses that have a strong well established brand;
relatively large marketing funds and the potential to become the preferred
customer choice in their segment.
3.2.3 There is significant opportunity for expansion of the brand within South
Africa - the top two chains currently have over 300 outlets combined. NWJ has
the opportunity to accelerate its expansion outside of its head office region in
KZN by utilising the national property management infrastructure of Taste.
3.2.4 The sellers will continue to manage and operate the business and Mr.
Hylton Rabinowitz will be appointed to the Taste board of directors once the
suspensive conditions have been fulfilled. Furthermore, both directors and key
management will sign employment contracts for a minimum of two years from the
effective date.
3.2.5 The NWJ Group`s franchise culture and focus on franchisees is aligned with
that of Taste, with both entities adopting franchise best practice as well as
being members of Franchise Association of Southern Africa (FASA). The
acquisition will add critical mass to the Taste group, allowing for economies of
scale across the group.
3.2.6 The NWJ acquisition will bring new skills and experience to the current
Taste management and board.
3.2.7 The NWJ acquisition will be earnings enhancing to Taste from the first
year of consolidation.
4. CONSIDERATION
The base purchase price ("base purchase price") payable by Taste is R120
million. The final purchase price shall be calculated by multiplying the
difference between the actual audited consolidated profit after tax (adjusted
for certain once off-items) ("PAT") for the year ending 30 April 2008 and R19.65
million, by a factor of six, and adjusting the base purchase price by this
amount, provided that if the PAT is less than R15 million, the sellers shall be
entitled, but not obliged, to cancel the agreement.
The purchase price shall be payable as follows:
- a minimum of R12 million and a maximum of R13.5 million, at the sellers`
election, by the issue of Taste shares at R0.65 per share (a premium of 7.3% to
the 30 day volume weighted average price as at 30 March 2008); and
- the balance in cash on the effective date.
Taste intends to fund the cash portion of the purchase price through a
combination of current cash balances, debt and equity funding.
5. CONDITIONS PRECEDENT
The NWJ acquisition is subject, inter alia, to the following conditions
precedent:
- approval by Taste shareholders by no later than 31 August 2008;
- key management of NWJ entering into service agreements for a minimum period of
two years, which service agreements shall include a restraint of trade for a
minimum of three years after termination thereof;
- an unqualified audit opinion being issued in respect of the financial
statements of the NWJ Group for the year ending 30 April 2008 by no later than
16 June 2008; and
- the necessary regulatory approvals which may be required, including but not
limited to the Exchange Control Department of the South African Reserve Bank,
the JSE Limited ("JSE"), the Securities Regulation Panel, the Competition
Commission and/or the Companies and Intellectual Property Registration Office
are obtained by no later than 31 August 2008.
6. CONDITIONAL APPROVAL BY THE TASTE BOARD
In terms of the agreement the board of directors, having considered, inter alia,
the contents of the independent financial, legal and commercial due diligence
reports, have approved the NWJ acquisition, which approval is conditional upon
the achievement of a PAT of no less than R16.7025 million for the financial year
ending 30 April 2008.
7. UNAUDITED PRO FORMA FINANCIAL EFFECTS
The unaudited pro forma financial effects set out below are provided for
illustrative purposes only to assist the shareholders of Taste to assess the
impact of the NWJ acquisition on the earnings per share ("EPS"), headline
earnings per share ("HEPS"), net asset value per share ("NAVPS") and net
tangible asset value per share ("NTAVPS") of Taste. These unaudited pro forma
financial effects have been disclosed in terms of the JSE Listings Requirements
and because of their nature may not give a fair presentation of the Taste`s
results and financial position after the NWJ acquisition. The unaudited pro
forma financial effects are the responsibility of the directors of Taste and are
presented in a manner consistent with the accounting policies adopted by Taste.
Before After Change
EPS (cents) 3.4 5.6 64.7%
HEPS (cents) 3.4 5.6 64.7%
NAVPS(cents) 31.3 31.8 1.7%
NTAVPS (cents) 18.4 -17.8 -196.9%
Weighted average number of 125 000 157 308
shares in issue (000)
Shares in issue at period 125 000 157 308
end (000)
Notes:
1 The EPS, HEPS, NAVPS and NTAVPS, as set out in the "Before" column of the
table, are extracted from Taste`s interim results for the six months ended 31
August 2007 as released on SENS on 10 October 2007.
2 EPS and HEPS effects are based on the following assumptions and
information:
- the transaction was effective 1 March 2007;
- the purchase price of R120 million was paid on 1 March 2007 by way of an issue
of 20 769 231 Taste ordinary shares at R0.65 per share to the sellers and a cash
payment of R106.5 million to the sellers, which cash payment was financed
through existing cash on hand of R24.0 million, an issue of shares for cash for
R7.5 million (11 538 462 shares issued at R0.65 per share) and borrowings of
R75.0 million incurring interest at 13% per annum (pre tax); and
- the total after tax profit attributable to the NWJ Group acquired is R8.8
million for six months based on the management accounts for the 10 months ended
29 February 2008 prorated for 6 months and adjusted for historical seasonality.
3 NAVPS and TNAVPS effects are based on the following assumptions and
information:
- the transaction was effective 31 August 2007;
- the purchase price of R120 million was paid on 31 August 2007 in the manner
described in note 2 above;
- estimated transaction costs of R10.0 million have been accounted for against
share premium; and
- the revaluations and allocations that may arise from the application of IFRS 3
(Business Combinations) have not been made as this will only be finalised in due
course. The pro forma financial information has thus been prepared on the basis
that the excess of the purchase price over the net asset value of the NWJ
acquisition will comprise goodwill of R62 million, which goodwill is not
amortised.
8. CLASSIFICATION OF THE TRANSACTION AND CIRCULAR TO SHAREHOLDERS
In terms of the JSE Listings Requirements, the NWJ acquisition is classified as
a category 1 transaction constituting a "reverse takeover". Accordingly,
shareholder approval is required therefor and the enlarged Taste (after the NWJ
acquisition) must be suitable for listing as if it is a new applicant and
shareholders are advised, in terms of paragraph 9.24 of the JSE Listings
Requirements, that the JSE will need to specifically approve the continued
listing of Taste following the NWJ acquisition.
Subject to JSE approval, a circular to shareholders, including revised listing
particulars and a notice of a shareholders` general meeting, will be circulated
some time after the condition precedent relating to the receipt of an
unqualified audit opinion on the NWJ financial statements for the year ending 30
April 2008 has been fulfilled.
9. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Shareholders are referred to the cautionary announcement released on SENS on 12
March 2008 and are advised caution is no longer required when dealing in the
company`s securities.
8 April 2008
Designated Adviser
Vunani Corporate Finance
Johannesburg
Date: 08/04/2008 17:05:01 Produced by the JSE SENS Department.
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