| Mon 5 Mar 2007, 10:01 | | AMA - AMAP - Acquisition and Withdrawal Of Caution |
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AMA
AMA
AMA - AMAP - Acquisition and Withdrawal Of Cautionary Announcement
Amalgamated Appliance Holdings Limited
Incorporated in the Republic of South Africa
Registration number 1997/004130/06
Share code: AMA ISIN: ZAE000012647
("AMAP" or "the group")
ACQUISITION OF STEINHOFF AFRICA`S SOUTH AFRICAN FURNITURE MANUFACTURING
INTERESTS WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
1. Background
Shareholders are referred to the announcement dated 14 December 2006 notifying
them that AMAP had concluded a heads of agreement dated 14 December 2006 with
Steinhoff Africa Holdings Limited ("Steinhoff Africa"), a wholly- owned
subsidiary of Steinhoff International Holdings Limited ("Steinhoff"), for the
acquisition of Steinhoff Africa`s South African furniture manufacturing
interests ("the Steinfurn business") ("the Steinfurn acquisition"). The terms
of the Steinfurn acquisition have now been agreed, details of which are set out
below.
2. The Steinfurn acquisition
2.1 The Steinfurn business
The Steinfurn business manufactures and distributes a wide range of furniture
and related products. It consists of four sub-divisions: upholstered furniture,
bedding, non-solid case goods and solid case goods. These divisions are
supported by an import distribution business that imports household goods to
supplement the manufactured ranges and Roadway Logistics, which fulfils a large
part of their logistics needs. The Steinfurn business produces many of the
major furniture brands at price points ranging from the upper to lower ends of
the market. The Steinfurn business` pro forma revenues for the year ended 30
June 2006 were R2.1 billion and the business achieved healthy returns on
capital.
2.2 Terms of the Steinfurn acquisition
AMAP will acquire the Steinfurn business from Steinhoff Africa with effect from
the fulfilment of all the conditions precedent for a consideration of R1 152
million in exchange for cash of R665 million and, effectively, the issue of 99
102 037 new AMAP ordinary shares ("the consideration shares") at a price of 491
cents per share ("the acquisition consideration"). The cash portion of the
acquisition consideration will be funded from unsecured debt facilities
negotiated with a financial institution specifically for the Steinfurn
acquisition.
Steinhoff Africa intends to place, on terms to be negotiated, certain of the
consideration shares with management and an appropriate BEE party/ies, such
that these persons will hold a collective interest of approximately 21% of
AMAP`s enlarged issued share capital.
As a result of the way in which the funding of the Steinfurn acquisition has
been structured, taking into account, inter alia, appropriate gearing levels,
and the proposed BEE/management participation, Steinhoff has agreed to retain a
29% minority shareholding in AMAP. Steinhoff will have no involvement in the
day-to-day executive management of AMAP.
The Steinfurn acquisition remains subject to the necessary regulatory
approvals, including but not limited to approval by the Competition authorities
and by the AMAP shareholders, other than Steinhoff Africa ("the minority
shareholders").
2.3 Rationale for the Steinfurn acquisition
AMAP has for several years evolved a successful strategy of focused expansion
into related product categories. Such growth has allowed the group to utilise
the "leverage" of its existing brands, trade relationships, logistics,
administration and financial infrastructure to enhance profitability and
diversify its product portfolio.
With the acquisition by Steinhoff in 2005 of 26.7% of AMAP`s equity, the group
was presented with a unique opportunity to understand the dynamics of another
closely related business - that of home furnishings. AMAP recognised that the
similarities between its business and that of the Steinfurn business were
considerable and that major opportunities existed to collaborate to bring more
competitive and comprehensive product and service offerings to South African
consumers and retailers alike.
Steinhoff, in turn, had reached a stage in its evolution where the Steinfurn
business had grown to a substantial and profitable enterprise whose continued
growth was being limited by its ownership structure under the Steinhoff
umbrella. The Steinfurn business` strategy had independently emerged as one
driving towards the creation of an independent, broad-based household products
company.
AMAP concluded that the acquisition of the Steinfurn business, coupled with its
ongoing strategy to enter the white appliance industry, would constitute a
"quantum leap" opportunity that would add significant long-term value to the
group. The result would be South Africa`s only across-the-board manufacturer
and marketer of household durable products, with a formidable stable of brands,
an excellent balance of local manufacture and global sourcing, an extensive
logistics and distribution infrastructure and an ability to service retailers
and consumers across the country more efficiently and effectively.
The proposed business combination will strengthen and diversify AMAP`s
management pool, provide the management group with the opportunity to invest
further in AMAP, and advance AMAP`s strategy for transformation through a
significant BEE equity transaction.
From a risk perspective, the new group will offer a more diversified set of
cash flows within its defined business scope, mitigating against the present
volatility in such areas as currency valuation and technology evolution. AMAP`s
larger market capitalisation will offer investors greater liquidity and its
larger asset base and more predictable cash flow profile also allows a greater
level of financial gearing, enhancing returns on capital and headline earnings
per share, within prudent risk parameters.
2.4 Related party transaction
Steinhoff Africa currently holds 26.7% of AMAP`s issued share capital,
therefore, the Steinfurn acquisition represents a related party transaction for
AMAP from a JSE Listings Requirements` perspective. In this regard, Bridge
Capital Advisors (Pty) Limited ("Bridge Capital") has been appointed as the
independent professional expert to provide minority shareholders with an
opinion on the fairness and reasonableness of the Steinfurn acquisition.
Bridge Capital has completed preliminary indicative valuations of both AMAP and
the Steinfurn business and has advised the independent board of AMAP, being all
the directors excluding the two Steinhoff representatives, that the terms and
conditions of the Steinfurn acquisition appear fair and reasonable to the
minority shareholders. Bridge Capital`s final opinion will be included in the
circular to AMAP shareholders, which will be posted in due course.
3. Pro forma financial effects
Set out in the table below are the pro forma financial effects of the Steinfurn
acquisition based on AMAP`s published interim results for the six months ended
31 December 2006. The pro forma financial effects have been prepared for
illustrative purposes only to provide information of how the Steinfurn
acquisition may have impacted on the results and financial position of AMAP.
Because of their nature, the pro forma financial effects may not give a fair
reflection of AMAP`s financial position after the Steinfurn acquisition or the
effect on future earnings. The pro forma financial effects are the
responsibility of the AMAP`s directors. The pro forma financial effects have
not yet been reviewed and reported on by AMAP`s auditors.
Before the After the
Steinfurn Steinfurn Percentage
acquisition 1 acquisition change
Earnings per share (cents) 34.0 42.5 2,4 +25.1
Headline earnings per share (cents) 34.0 42.5 2,4 +25.1
Net asset value per share (cents) 257.8 332.0 3,5 +28.8
Net tangible asset value
per share (cents) 254.8 187.7 3,5 (26.3)
Number of shares in issue (`000) 212 190 311 292 6
Weighted average number of
shares in issue (`000) 207 905 307 007 6
Notes:
1. The figures in the "Before the Steinfurn acquisition" column have been
extracted from the published unaudited interim results of AMAP for the six
months ended 31 December 2006.
2. Earnings and headline earnings per share in the "After the Steinfurn
acquisition" column have been based on:
- the assumption that the Steinfurn acquisition was effected on 1 July
2006; and
- the reviewed pro forma interim results of the Steinfurn business for the
six months ended 31 December 2006.
3. Net asset value and net tangible asset value per share in the "After the
Steinfurn acquisition" column have been based on:
- the assumption that the Steinfurn acquisition was effected on 31
December 2006; and
- the reviewed pro forma balance sheet of the Steinfurn business at 31
December 2006.
4. The earnings per share and headline earnings per share figures as
reflected in the "After the Steinfurn acquisition" column are adjusted for the
after-tax interest incurred on the third-party debt raised to fund the cash
portion of the acquisition consideration, as well as the total transaction
costs in so far as these need to be expensed.
5. The net asset value per share and net tangible asset value per share
figures as reflect in the "After the Steinfurn acquisition" column are adjusted
for the R665.5 million of third-party debt raised to discharge the cash portion
of the acquisition consideration and the R486.9 million issue of the
consideration shares.
6. The number of shares in issue and the weighted average number of shares
in issue as reflected in the "After the Steinfurn acquisition" column are
adjusted for the issue of the consideration shares.
4. Documentation and withdrawal of cautionary announcement
A circular containing details of, inter alia, the Steinfurn acquisition and
Bridge Capital`s final opinion will be posted to AMAP shareholders within 28
days of this announcement.
The possible acquisition of the southern African interests of a leading
international white goods company is still being investigated. It does not,
however, require that the cautionary announcement, under which AMAP has been
trading, be renewed.
Johannesburg
5 March 2007
Sponsor and independent advisor
BRIDGE CAPITAL
Date: 05/03/2007 10:01:00 Produced by the JSE SENS Department.
