| Tue 26 Apr 2005, 8:59 | | Massmart Holdings Limited - Massmart Acquires Cont |
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Massmart Holdings Limited - Massmart Acquires Controlling Interest in Moresport
Massmart Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1940/014066/06)
(Share code:MSM)
(ISIN: ZAE000029534)
(`Massmart` or `the company`)
Massmart Acquires Controlling Interest in Moresport
Introduction
Massmart is pleased to announce, subject to the fulfilment of the conditions
precedent detailed below, the acquisition of 84.1% of the issued shares and all
the shareholders loans in Moresport (Proprietary) Limited (`Moresport`) for a
cash consideration of R403.8m (`the acquisition`).
Background to Moresport
Moresport owns three successful retail brands operating in South Africa:
- Sportsmans Warehouse - a 20-store national chain that sells a wide range of
sporting goods and accessories;
- Sport Shoe World - a 13-store chain, usually attached to or trading in
close proximity to a Sportsmans Warehouse, that sells a wide range of specialist
sporting footwear; and
- Outdoor Warehouse - a 9-store chain operating in Johannesburg, Pretoria,
Cape Town and Durban that sells a wide range of specialist outdoor and camping
merchandise.
Rationale for the Transaction
Since its founding, Massmart has pursued a strategy of organic and acquisitive
growth, mitigating the risks of the latter by the accretive acquisition of
businesses that trade in product categories and markets with which the Group is
familiar.
For many years Massmart has participated to a limited extent in the distribution
of sports clothing and footwear, outdoor and camping equipment and accessories,
and sports equipment, through its Makro, Game and Dion chains. The acquisition
of Moresport enhances Massmart`s customer appeal, participation and expertise in
these categories, through stores recognised by South African consumers as
leading category specialists.
While Moresport will be housed within the Group`s Massdiscounters division, it
will retain its own branding, customer focus and profit responsibility under a
proven management team committed to realising fully the potential of Moresport`s
new ownership.
Details of the Transaction
Upon fulfilment of the conditions precedent, Massmart will pay a cash
consideration of R403.8m for 84.1% of the issued share capital and all the
shareholders loans of Moresport.
The vendors are Nedbank Limited through its Private Equity division, Vestacor
Limited and management (representing individuals in key management positions in
Moresport and its retail brands).
This Management owns the remaining 15.9% of the issued shares in Moresport.
Massmart has a call and management has a put on these remaining shares, which
can be triggered in equal amounts after the June 2007 and June 2008 financial
years respectively. The value of those puts and calls will be determined by
applying a multiple to the audited annual after-tax profits of Moresport on
those dates.
Massmart is currently evaluating various forms of funding that will most
effectively meet its desired capital structure, anticipated net gearing levels
and risk profile.
Financial Effects
The pro forma financial effects of the acquisition on Massmart`s earnings,
headline earnings, net asset value (`NAV`) and tangible NAV are set out below.
The pro forma financial effects have been calculated using the assumptions
detailed in the notes below and using the reviewed financial figures for
Massmart for the six months to December 2004 and the unaudited financial figures
for Moresport for the six months to February 2005.
Before the After the Percentage
Acquisition Acquisition Change
R millions
Earnings 396.6 422.5 6.5
Headline earnings 443.4 469.8 6.0
NAV 2 047.9 2 047.9 -
Tangible NAV 1 416.9 1 089.9 (23.1)
Cents per Massmart ordinary
share
Earnings 199.5 212.5 6.5
Headline earnings 223.0 236.3 6.0
NAV 1 028.1 1 028.1 -
Tangible NAV 711.3 547.2 (23.1)
Notes:
1. It is assumed that the acquisition was effected on 1 July 2004 for income
statement purposes and on 31 December 2004 for balance sheet purposes.
2. Interest on the funding for the purchase consideration is assumed to be
8.5%.
3. It is assumed that goodwill of approximately R327m will arise from the
acquisition.
4. The recently announced acquisitions in the South African DIY, Home
Improvement and Building Material industries, all of which are still subject to
Competition Authorities` approval, have not been included in the Massmart
figures.
Material Conditions Precedent
The acquisition is subject to the usual conditions precedent for a transaction
of this nature, including but not limited to:
- The completion by Massmart of a due diligence investigation; and
- The approval of all regulatory authorities, including the Competition
Authorities, whose decision is expected in approximately three months.
Conclusion
Once all conditions precedent have been satisfied, in respect of this
transaction and the Group`s recently announced investments in the building
supplies sector, Massmart is positioned for an 18 to 24 month period of
consolidation, during which the management and assets of the acquired companies
will be integrated in a manner that sustains their performance, while realising
their full potential in the interests of Massmart stakeholders.
26 April 2005
Johannesburg
Sponsor to Massmart:
Deutsche Securities (SA) (Proprietary) Limited
