| Fri 16 Mar 2007, 17:10 | | JDG/SHF - Steinhoff/JDG - Firm Intention and Withd |
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JDG SHF
JDG SHF
JDG/SHF - Steinhoff/JDG - Firm Intention and Withdrawal of Cautionary
STEINHOFF INTERNATIONAL HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1998/003951/06)
Share code: SHF
ISIN:ZAE000016176
(Steinhoff)
JD GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1981/009108/06)
Share code: JDG
ISIN:ZAE000030771
(JDG)
FIRM INTENTION BY STEINHOFF TO MAKE AN OFFER TO ACQUIRE THE ENTIRE ISSUED
SHARE CAPITAL OF JDG AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
1. Introduction
1.1 Further to the joint cautionary announcement issued by Steinhoff
and JDG (collectively the Companies) on Thursday, 8 March 2007
(the joint cautionary announcement) and the subsequent
announcement issued by JDG on Monday, 12 March 2007, Steinhoff
and JDG shareholders are hereby advised that Steinhoff has
submitted a notice to the JDG board of directors, of its
intention to acquire the entire issued ordinary share capital of
JDG (the proposed merger) in exchange for the issue of new
Steinhoff shares. The proposed merger is subject to the
fulfilment of the conditions as set out in paragraph 5 below.
1.2 Steinhoff intends to implement the proposed merger by way of a
scheme of arrangement in terms of Section 311 of the Companies
Act No 61, 1973, as amended (the Companies Act) (the scheme) to
be proposed by Steinhoff between JDG and all its ordinary
shareholders (JDG shareholders) (the scheme members).
1.3 Following the joint cautionary announcement Steinhoff and JDG
approached a select number of their respective major
shareholders, the majority of whom have indicated their support
for the proposed merger.
2. Rationale and benefits
2.1 Steinhoff is a vertically integrated distributor of furniture
products and household goods, with retail interests in the
Pacific Rim (Freedom), the United Kingdom (Homestyle Group plc
(Homestyle)) and Hungary (Quattro Meubili). In South Africa
Steinhoff is a substantially diversified industrial company and
wishes to expand its existing retail activities, namely
Pennypinchers, Timbercity and Unitrans Motors, through the
proposed merger.
2.2 JDG, a mass consumer financier, is South Africa`s leading
differentiated furniture, appliance and electronic goods
retailer. JDG also owns Incredible Connection, a specialist IT
retailer, and Hi-Fi Corporation, a mass discounter of electrical
and electronic goods. JDG`s stated objective is to penetrate
emerging markets bordered by first world infrastructures, hence
its expansion into Central Europe via Poland. The proposed
merger will fast track this expansion given Steinhoff`s presence
in Europe.
2.3 Particular benefits of the proposed merger are as follows:
- the application of JDG`s credit expertise to initiate
credit offerings in parts of Steinhoff`s retail businesses;
- the introduction of BEE shareholders into the South African
operations of the enlarged group (Steinhoff SA) which will
include the retail operations of JDG;
- complementary management skills and business acumen;
warehousing and distribution capabilities;
- new consumer finance initiatives;
- compatible cultures and value systems of both groups,
accompanied by reciprocal enhancement of management skills
and succession planning;
- the ability of JDG shareholders, through their receipt of
Steinhoff shares, to enjoy Rand-hedge benefits;
- JDG`s management will add value to Steinhoff`s existing
retail businesses resulting in their accelerated expansion;
- the merged entity will enjoy an elevated position in stock
market indices with an anticipated larger pool of
investors.
2.4 JDG shareholders will, following the implementation of the
proposed merger, indirectly be invested in a South African
empowered entity, with a diversified revenue stream and a much
wider geographical spread of operations at group level.
3. Terms of the proposed merger
3.1 The proposed merger consideration
In terms of the scheme each JDG shareholder will receive 3.6 new
Steinhoff shares for every 1 JDG share held on the record date
of the scheme, rounded to the nearest whole number, credited as
fully paid up (the share consideration). Approximately 651.5
million new Steinhoff shares will be issued (the Steinhoff
consideration shares) in exchange for 100% of the JDG shares
currently in issue.
The share consideration represents a premium of 5.1% and 0.1% to
the 60 day and 30 day VWAP, respectively, of a JDG share up to
Wednesday, 7 March 2007, being the last trading day prior to the
release of the joint cautionary announcement.
JDG shareholders will be entitled to participate in any interim
dividend declared by the JDG board for the six months ended 28
February 2007.
3.2 Mechanism
3.2.1 The scheme
It is Steinhoff`s preferred route to implement the proposed
merger by way of a scheme to be proposed by Steinhoff
between JDG and the JDG shareholders in terms of which
Steinhoff, or its nominated subsidiary, will acquire all of
the ordinary shares in JDG (the JDG shares).
Should the scheme be implemented, JDG will become a wholly-
owned subsidiary of Steinhoff and the listing of its shares
on the JSE Limited (JSE) will be terminated.
Steinhoff currently does not hold any shares in JDG.
3.2.2 The Substitute Offer
In the event that the scheme does not become operative for
any reason, Steinhoff may, in its sole discretion, make a
substitute share exchange offer to the scheme members in
the same ratio as the share consideration.
4. Financial effects of the proposed merger
The unaudited pro forma financial effects of the proposed merger set
out below are based on the annualised results of Steinhoff for the
calendar year ended 31 December 2006 and the JDG results for the year
ended 31 August 2006. The unaudited pro forma financial effects are
the responsibility of the boards of directors of the respective
companies and have been prepared for illustrative purposes in order
to assist shareholders of the companies in assessing the effects of
the proposed merger on earnings, headline earnings, net asset value
and net asset value adjusted for the elimination of goodwill per
share.
4.1 Financial effects on Steinhoff
Note Before After % Change
(cents) (cents)
Earnings per 1 189 202 6.9
share
Headline earnings
per share 1 196 206 5.1
Net asset value 2 1 018 1 549 52.2
per share
Net asset value
adjusted for the
elimination of 2 812 810 (0.2)
goodwill per
share
Notes
1. The "Before" column sets out the annualised earnings and
headline earnings per Steinhoff share for the calendar year
ended 31 December 2006, calculated on the basis of the weighted
average number of 1 141 million Steinhoff shares in issue
throughout the period. The "After" column assumes that the
proposed merger was implemented with effect from 1 January 2006
and it incorporates Steinhoff`s share of the earnings of JDG for
the 12 months ended 31 August 2006, and based on a total
weighted average number of 1 793 million Steinhoff shares in
issue.
2. The "Before" column sets out the net asset value (NAV) and NAV
adjusted for the elimination of goodwill per Steinhoff share as
at 31 December 2006 based on 1 140 million Steinhoff shares in
issue. The "After" column assumes that the proposed merger was
implemented on 31 December 2006 and incorporates the additional
651.5 million new Steinhoff shares issued in terms of the share
consideration. The excess of the share consideration over JDG`s
NAV (the excess) has been notionally written off as goodwill in
determining the above financial effects. This excess will have
to be reviewed in terms of IFRS 3 - Business Combinations before
it can be concluded that the full excess amount relates to
goodwill.
3. The above pro forma financial effects do not take into account
the possible impact of the Homestyle, Amalgamated Appliance
Holdings Limited and Unitrans Limited transactions
4. The annualized earnings and headline earnings per share referred
to in note 1 above have been calculated based on Steinhoff
unaudited interim results for the six month period ended 31
December 2006 rolled for a twelve month period by the inclusion
of Steinhoff audited results for the year ended 30 June 2006
less the 31 December 2005 unaudited interim results.
4.2 Financial effects on JDG shareholders
Note Before After % Change
(cents) (cents)
Market Value per 1,2 8 925 8 845 (0.9)
share
30 day VWAP per 1,2 8 998 8 998 0.0
share
60 day VWAP per 1,2 8 545 8 976 5.1
share
Earnings per 3 827 726 (12.2)
share
Headline earnings
per share 3 823 742 (9.8)
Net asset value 4 3 161 5 578 76.5
per share
Net asset value
adjusted for the
elimination of 4 2 965 2 916 (1.6)
goodwill per
share
Notes
1. The "Before" market value is based on JDG`s closing price on
Wednesday, 7 March 2006 and the 30 and 60 day VWAP up to and
including Wednesday, 7 March 2006, being the date immediately
preceding the joint cautionary announcement. The "After" column
sets out the pro forma market value attributable to 3.6
Steinhoff shares on the basis of its market price and VWAP over
the same period.
2. The above financial effects assume no change in Steinhoff`s
market rating following the implementation of the proposed
merger. It is possible for the reasons set out and implied in
paragraph 2 above that the market rating of the merged entity
will be greater than Steinhoff`s current market rating.
3. The "Before" column sets out JDG earnings and headline earnings
per share for the 12 months ended 31 August 2006. The "After"
column sets out the pro forma earnings and headline earnings per
3.6 Steinhoff shares based on the assumption that the share
exchange was in effect from 1 January 2006.
4. The "Before" column sets out the NAV and NAV adjusted for the
elimination of goodwill per share of JDG as at 31 August 2006.
The "After" column sets out the pro forma NAV and NAV adjusted
for the elimination of goodwill attributable to 3.6 Steinhoff
shares, on the assumption that the proposed merger became
effective on 31 December 2006.
5. Conditions precedent
The proposed merger is, inter alia, subject to the fulfilment or
waiver (where possible) of the following conditions precedent:
- the passing by Steinhoff shareholders of the requisite
resolutions required to implement the proposed merger at a
general meeting of Steinhoff shareholders;
- the scheme being approved by a majority representing not less
than three fourths of the votes exercisable by the scheme
members present and voting, either in person or by proxy, at the
scheme meeting;
- the scheme being sanctioned by the High Court of South Africa;
a certified copy of the Order of Court sanctioning the scheme
being registered by the Registrar of Companies in terms of the
Companies Act;
- the approval of the proposed merger by the Competition
Authorities as contemplated in the Competition Act, No 89 of
1998, as amended;
- insofar as may be necessary all regulatory consents being
received, including the consent of the JSE, the Securities
Regulation Panel (SRP), the South African Reserve Bank, and any
other regulatory authorities to the extent required; and
- the JSE granting a listing of the Steinhoff consideration
shares.
6. Board of directors
Following the implementation of the proposed merger, Mr David Sussman
will join the Board of Steinhoff as Deputy Executive Chairman and Mr
Markus Jooste will remain as Chief Executive Officer of the merged
entity.
Shareholders of both companies are advised that Dr Len Konar is
currently a Non-executive director of both companies.
7. Introduction of BEE
An integral component of the proposed merger is the introduction of a
Consortium of BEE shareholders ("BEE Consortium") as a substantial
equity participant in the merged entity. It is envisaged that a BEE
Consortium will acquire a 15% interest in the Southern African
operations of the merged entity for a market related consideration on
terms and conditions to be agreed.
After constructive discussions with the Public Investment Corporation
("PIC"), as a material shareholder in both companies, surrounding the
rationale and benefits of the proposed merger, the PIC in principle
supports the proposed merger. The PIC has accordingly indicated that
it intends voting in favour of the resolutions to be proposed at the
relevant shareholder meetings in respect of all of its shares then
held (directly and indirectly) in Steinhoff and JDG respectively.
The PIC currently holds (directly and indirectly) 15,63% and 15,70%
in JDG and Steinhoff respectively.
8. Opinion and recommendation
8.1. Independent expert
Ernst & Young Corporate Finance (Pty) Ltd (E&Y) has been
appointed by JDG to advise on whether or not the proposed share
consideration is fair and reasonable (the Fair and Reasonable
Opinion) to the JDG shareholders. E&Y has completed preliminary
valuations of both JDG and Steinhoff and has advised that the
proposed share consideration is fair and reasonable to JDG
shareholders as at 15 March 2007. E&Y`s opinion will be
finalised in due course and a copy of E&Y`s opinion will be
contained in the circular to JDG shareholders referred to in
paragraph 9 below.
8.2. Board of directors of Steinhoff
The board of directors of Steinhoff have considered the terms
and conditions of the proposed merger and unanimously recommend
that Steinhoff shareholders vote in favour of the transaction at
the Steinhoff general meeting to be convened for the purposes of
considering, and, if deemed fit, approving the proposed merger.
All of the directors of Steinhoff who own shares in Steinhoff
intend to vote in favour of the resolutions to be proposed at
the Steinhoff general meeting.
8.3 Board of directors of JDG
A committee comprising the independent non-executive directors
of JDG has considered the proposed share consideration and the
receipt of the aforesaid preliminary Fair and Reasonable Opinion
from E&Y. Following a positive recommendation of the committee
the Board of JDG unanimously recommends that JDG shareholders
vote in favour of the scheme. All of the directors of JDG who
own shares in JDG intend to vote in favour of the scheme.
8.4 Directors responsibility statement (Rule 20.3 of the Code
on Takeovers and Mergers of the SRP)
The directors of Steinhoff and JDG accept responsibility for the
information contained in this announcement. To the best of the
knowledge and belief of the directors of Steinhoff and JDG (who
have taken all reasonable care to ensure that such is the case),
the information contained in this announcement is in accordance
with the facts and does not omit anything likely to affect the
import of such information.
9. Salient dates and documentation
Circulars containing details of the proposed merger and the scheme
will be posted to Shareholders of the respective companies in due
course.
A further announcement setting out the salient dates of the proposed
merger will be made in due course.
10. Withdrawal of cautionary announcements
Steinhoff and JDG shareholders are advised that as a result of the
publication of this announcement, the relevant cautionary
announcements are now withdrawn.
Johannesburg
16 March 2007
Investment bank and Investment advisor and
transaction sponsor to transaction sponsor to JDG
Steinhoff
(Investec Bank) (ABSA Capital)
Sponsor to Steinhoff & JDG Legal advisors to JDG
(PSG ) (Feinsteins )
Independent advisors to JDG
(Ernst & Young Corporate
Finance)
Date: 16/03/2007 17:09:59 Produced by the JSE SENS Department.
