HWW
HWW
HWW - Hardware Warehouse - Acquisition Of The Business Known As On Tap From
Ngami Trading Close Corporation And Withdrawal Of Cautionary Announcement
HARDWARE WAREHOUSE LIMITED
Incorporated in the Republic of South Africa
(Registration number: 2007/004302/06)
Share code: HWW ISIN: ZAE000104253
("Hardware Warehouse" or "the company")
ACQUISITION OF THE BUSINESS KNOWN AS ON TAP FROM NGAMI TRADING CLOSE CORPORATION
AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
Shareholders are referred to the cautionary announcement released on SENS
on 28 August 2008 and the subsequent renewal of cautionary announcements
released on 9 October 2008 and 31 October 2008. Shareholders are advised
that Hardware Warehouse entered into an agreement with Ngami Trading Close
Corporation ("Ngami") to acquire the business known as `On Tap` as a going
concern comprising of the trade and assets ("the acquisition").
2. THE ACQUISITION
2.1 Nature of the On Tap business
The On Tap business, incorporating `Tiles On Tap`, is a franchise
business which operates nationally as a plumbing, sanitary ware and
tile retailer. The franchise region acquired includes the current
branches in East London, Gonubie and Mthatha and extends to the
greater Transkei, Ciskei and Border regions.
2.2 The rationale for the acquisition
The directors of Hardware Warehouse believe that the acquisition is in
line with their geographical and customer diversification strategy.
The On Tap branches are located in the more urban areas of East
London, Gonubie and Mthatha where the customers consist mainly of
contractors who purchase on credit as opposed to cash paying
individuals. On Tap has well entrenched credit policies in place which
will benefit the company. In addition, On Tap and Tiles on Tap are
well established, well branded franchises offering products which will
complement Hardware Warehouse`s existing product range. Furthermore,
Hardware Warehouse`s range of building materials and related products
will be made available to existing On Tap customers.
2.3 Purchase consideration
The purchase consideration for the acquisition, to be settled in cash
comprises:
- the actual net profit after tax of the East London branch for the
financial years ended 29 February 2008, 28 February 2009 and 28
February 2010, which consideration is subject to a minimum of R3
million and a maximum of R5 million; and
- the value of inventory based on a stock take performed two days
prior to the effective date.
The net profit after tax portion of the purchase consideration will be
settled as follows:
- R1 million within 5 days of the effective date, provided that all
conditions precedent have been met;
- R1 million within 40 days of the effective date;
- R1 million plus an additional amount of R50 000 payable in lieu
of accrued interest on 16 May 2009; and
- the balance, subject to final audit verification, 26 months and 3
days after the effective date.
The inventory portion of the purchase consideration will be settled as
follows:
- 75% within 30 days of the effective date; and
- the balance within 60 days after the effective date.
The purchase consideration will be funded from current Hardware
Warehouse resources.
2.4 Conditions precedent and effective date
The acquisition is subject to the remaining suspensive condition that
Competition Commission approval for the acquisition be obtained.
Warranties and representations as are normal in transactions of this
nature have been provided.
The effective date of the acquisition is 1 December 2008 or the
earliest date agreed between the parties once confirmation of approval
of the above mentioned suspensive condition has been obtained.
3. PRO FORMA FINANCIAL EFFECTS OF THE ACQUISITION
The table below sets out the unaudited pro forma financial effects of the
acquisition on Hardware Warehouse`s earnings per share, headline earnings
per share, net asset value per share and tangible net asset value per
share.
The unaudited pro forma financial effects have been prepared to illustrate
the impact of the proposed acquisition on the reported reviewed results of
Hardware Warehouse for the year ended 30 June 2008, had the proposed
acquisition occurred on 1 July 2007 for income statement purposes and on 30
June 2008 for balance sheet purposes.
The unaudited pro forma financial effects have been prepared using
accounting policies that comply with International Financial Reporting
Standards and that are consistent with those applied in the audited results
of Hardware Warehouse for the year ended 30 June 2008.
The unaudited pro forma financial effects, which are the responsibility of
the directors, are provided for illustrative purposes only and, because of
their pro forma nature may not fairly present Hardware Warehouse`s
financial position, changes in equity, results of operations or cash flow.
Before After Percent
the the age
acquisit acquisi change
ion tion (%)
Basic earnings per share (cents) 15.69 17.43 11.09
Headline earnings per share 15.49 17.24 11.29
(cents)
Net asset value per share (cents) 40.46 40.46 -
Tangible net asset value per share 27.18 20.78 (23.55)
(cents)
Weighted average number of shares 66 667 66 667 -
in issue (`000)
Notes:
1. The amounts in the "Before the acquisition" column have been extracted from
the reviewed results of Hardware Warehouse for the year ended 30 June 2008.
2. The amounts in the "After the acquisition" column reflect the financial
effects of the acquisition on Hardware Warehouse.
3. The effects on basic earnings per share and headline earnings per share are
calculated based on the assumption that the acquisition was effected on 1
July 2007.
4. The effects on net asset value per share and tangible net asset value per
share are calculated based on the assumption that the acquisition was
effected on 30 June 2008.
4. CLASSIFICATION OF THE ACQUISITION
The acquisition is classified as a Category 2 transaction in terms of the
Listings Requirements of the JSE Limited.
5. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
The cautionary announcement is accordingly withdrawn, caution is no longer
required to be exercised by shareholders when dealing in the company`s
securities.
14 November 2008
Designated Adviser
Merchantec (Proprietary) Limited
Auditors and reporting accountants
Charteris & Barnes CA (SA)
Date: 14/11/2008 15:06:01 Produced by the JSE SENS Department.
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