| Thu 31 Jul 2003, 18:08 | | Super Group Limited - Acquistion Announcement |
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Super Group Limited - Acquistion Announcement
Release Date: 31/07/2003 17:55:03 Code(s): SPG
Super Group Limited - Acquistion Announcement
Super Group Limited
(Incorporated in the Republic of South Africa)
(Registration number 1943/016107/06)
(Share code: SPG ISIN: ZAE000011334)
("Super Group")
Announcement to shareholders of the acquisition by Super Group Limited ("Super
Group") of certain businesses conducted by subsidiaries of DNA Supply Chain
Investments Limited ("DNA"), and withdrawal of cautionary announcement.
Super Group shareholders are advised that, subject to the fulfilment of the
conditions precedent ("the conditions precedent") set out below, Super Group
Trading (Proprietary) Limited ("SGT") has acquired ("the acquisition") the
businesses of DNA conducted within the divisions of DNA known as Micor, Sherwood
(including Mining and Beverages), DNA Automotive, Streamworks and Jumpoint
(collectively "the subject businesses").
Salient terms of the transaction
SGT will pay to DNA a purchase price ("the purchase price") of R220 million
in terms of the acquisition, which consideration will be settled as follows:
* SGT will repay to Emerald Insurance Company Limited ("Emerald"), a wholly-
owned subsidiary of Super Group, the working capital loan previously procured by
Super Group. The capital amount (inclusive of interest) currently outstanding is
approximately R21 679 000. In addition to the aforesaid amount, a raising fee of
R1 million (excluding VAT) is payable to Emerald in respect of the funds
advanced;
* SGT will ensure the settlement of intra-group loans owing at the effective
date of the transaction by members of the DNA Group not being acquired by Super
Group (whether by way of the sale of their businesses or the shares in their
share capital) to certain of DNA"s subsidiaries conducting the subject
businesses, in the amount of R66 million;
* SGT will ensure the settlement of all amounts lent and advanced after the
effective date of the transaction by DNA"s subsidiaries conducting the subject
businesses to members of the DNA group not being acquired by Super Group
(whether by way of the sale of their businesses or the shares in their share
capital);
* SGT will repay an amount of R60 million in partial reduction of DNA"s bank
overdrafts;
* SGT will retain an amount of R8 million and pay out bonuses, over a three-
year period, to such employees of DNA as Super Group may determine.
* The balance of the purchase price, will be placed in "escrow" with an
escrow agent approved by SGT, which agent is mandated to settle -
(a) all liabilities not assumed by SGT so as to ensure that DNA is wound-up
in an orderly fashion and that all amounts owing to legitimate creditors are
paid prior to any distribution to shareholders of DNA; and
(b) the anticipated costs of winding-up DNA ("the wind-up costs"),
with the remaining balance to be distributed to shareholders of DNA;
The acquisition is, subject to the fulfilment of the conditions precedent,
effective from 1 April 2003.
SGT will, in terms of the acquisition, assume the ongoing trading liabilities of
the subject businesses identified by the parties, excluding any:
- liability of DNA to the banks after the partial repayment referred to
above and a further repayment of a maximum of R67 million to the banks by Super
Group; and
- liabilities in respect of taxation which arose prior to the effective date
of the acquisition.
It is a term of the acquisition that an offshore subsidiary of Super Group will
acquire ("the offshore acquisition") all of DNA"s offshore operations, on the
same terms and conditions as those to which the acquisition is subject. These
offshore operations include those conducted in the United Kingdom, Australia,
Hong Kong and the Philippines. The purchase price (of R220 million payable in
terms of the acquisition) will be reduced by the aggregate of such amounts as
are payable pursuant to the offshore acquisition.
In terms of the transaction, DNA has given to SGT warranties in relation to
the unencumbered ownership of the subject businesses and the compliance, by the
companies conducting the subject businesses, with their statutory obligations.
Shareholders of DNA representing at least 51% of the voting rights
attributable to the issued share capital of DNA have irrevocably committed to
vote in favour of the resolutions to be proposed at the general meeting of DNA
to be convened for the purpose of obtaining shareholders" approval for the
transaction.
Conditions precedent
The acquisition is subject, inter alia, to the fulfilment of the following
conditions precedent:
* approval being obtained, to the extent necessary, of all the relevant
regulatory and statutory authorities, including the competition authorities; and
* all requisite shareholder approvals being obtained within the DNA group of
companies.
Rationale for the transaction
Globally, effective supply chain management has become a critical success
factor in most business operations. By integrating supply chain management into
basic business planning, companies worldwide are achieving substantial cost
savings while simultaneously enhancing customer service levels. For South
African companies to compete globally, their supply chains must be optimised.
Although Super Group is at the forefront of design, management and execution
of supply chains in Southern Africa, it is continuously exploring ways to expand
its service offering, thereby supporting its clients" global reach and unlocking
further value within clients" supply chains. Given the size of the Southern
African market and the time required to secure a client base and acquire the
necessary skills, it is expensive to replicate supply chain management business
models.
For this reason, SGT acquired those businesses from within DNA that suit
Super Group"s supply chain strategy. These innovative businesses operate in
market niches that will complement Super Group"s existing supply chain offering.
SGT did not acquire any businesses other than the subject businesses referred
to above. The businesses not acquired by SGT include that conducted under the
auspices of the DNA/Skonkwane joint venture.
Freight Forwarding, Clearing and Consolidation
Micor Logistics
All Super Group clients, to a greater or lesser degree, have an international
clearing and forwarding requirement. Given Super Group"s strategy of fully
integrating itself into its clients" supply chains, the acquisition of Micor
Logistics is a logical choice. Micor Logistics has been involved in the freight
forwarding and clearing industry since 1911.
Micor"s inbound and outbound freight forwarding services include clearing and
forwarding services, customs brokerage, import and export consolidation,
international air and ocean freight, groupage consolidation and bonded cross-
border transport. As with any freight forwarding and clearing business, South
African trade volumes are one of the primary macro-economic drivers of the
business. Micor"s earnings are nevertheless protected to some extent by the even
balance between revenue streams flowing from the aforesaid services.
Micor has a solid profit history and an established client base exceeding 500
clients. Super Group valued the forwarding and clearing business of Micor on a
conservative earnings enhancing price-earnings multiple. Future earnings growth
should be driven by ever-increasing global trade, Micor"s existing customers and
Super Group"s ability to offer Micor"s services to its existing clients.
Collaborative Xchange, an existing division of Super Group, utilises
application software that enables total visibility throughout the supply chain,
thereby giving the user real-time relevant information and control over their
product. Using Collaborative Xchange"s software, Super Group is able to offer to
its own and to Micor"s clients increased visibility and control of their supply
chains.
Procurement
Sherwood
Sherwood is an inbound procurement company which, over the last 30 years, has
established a niche by offering these services in 14 countries in Africa. US
Dollar denominated revenues are derived from long-term procurement contracts
varying from one to five years. Sherwood has established relationships with a
bluechip client base.
Over the last 12 months, the strength of the Rand negatively impacted on
Sherwood"s earnings. Future earnings should grow strongly on the back of
significant new contracts, economies of scale from load consolidation, and
potential new procurement contracts with Super Group"s cross-border division"s
existing mining and agriculture clients.
Supply Chain
DNA Automotive
DNA Automotive specialises in the automotive aftermarket logistics industry.
DNA Automotive has concluded agreements with a number of motor manufacturers for
the management of their outbound distribution of parts and accessories. This
complements Super Group"s established niche in the distribution of aftermarket
parts and accessories. Synergies and efficiencies resulting from this
acquisition will enable clients to receive an improved supply chain offering.
Streamworks
Streamworks is a technology company that designs and executes customised
software for manufacturers" factories and finished goods warehouses. It
specialises in warehouse management and tracking systems, factory automation and
shop floor systems. Super Group currently uses internationally recognised
software, Dispatcher, for the implementation of larger, more complex wholesale
and retail warehouse management and tracking systems. The acquisition of
Streamworks will extend Super Group"s warehouse management capabilities thereby
offering clients a comprehensive range of suitable technology solutions.
Streamworks has recently redeveloped its business model and is expected to
show strong earnings growth once it has been integrated into Super Group"s
Supply Chain division.
Jumpoint
As a result of Super Group being awarded a greater number of supply chain
management contracts of increasing complexity, requests from clients for
customised technology solutions that would remove the inefficiencies within
their supply chains are increasing. Super Group requires additional skills to
adequately meet market demand.
Jumpoint has similar supply chain management skills to those of Super Group.
The acquisition of Jumpoint will not only provide the capacity to enable Super
Group to address market demand but it will also significantly broaden Super
Group"s implementation capabilities. Super Group has Manugistics and Roadshow
implementation capabilities while Jumpoint, in addition to these capabilities,
is skilled in implementing SAP APO and AspenTech software solutions. The
combined entity will be proficient in all the frequently used technology
platforms and would thus be able to offer its clients the widest range of supply
chain solutions in the country.
Jumpoint, which was started four years ago, is currently not contributing to
profit but it is anticipated to make the transition from the investment phase to
the growth phase of its life cycle in the short-term. Jumpoint is a strategic
acquisition, and strong growth is anticipated from the combined entity as a
result of synergistic benefits and the conclusion of new contracts.
Financial effects
The table below sets out the pro forma effects of the acquisition on earnings
and net tangible asset value per share based upon the following assumptions:
1. The earnings of Super Group for the year ended 31 March 2003 and net tangible
asset value of Super Group as at 31 March 2003.
2. The earnings of the subject businesses for the 12 months ended 31 December
2002 and the net tangible asset value as at 31 December 2002.
3. The acquisition has been implemented for 12 months ended 31 March 2003.
Before the After the change
acquisition acquisition %
Headline earnings per share (cents) 101,6 104,2* 2,6
Net tangible asset value (cents) 315,5 279,9 (11,3)
* The management of Super Group expect the effect on earnings in the first year
to be minimal as costs will be incurred rationalising and restructuring the
businesses acquired. However, the synergistic and rationalisation benefits are
expected to be significant over the medium term.
Withdrawal of cautionary announcement
Super Group shareholders are advised that the cautionary announcement dated 5
June 2003 is hereby withdrawn.
Sandton
31 July 2003
Corporate and Legal advisors
Nucleus Corporate Finance
(Proprietary) Limited
Transactional Sponsor
Nedbank Corporate
