SPAR South Africa Acquisition of Shares

Published on: 2016-03-11
SPAR South Africa Acquisition of Shares in SPAR Switzerland

SPAR SOUTH AFRICA AND SPAR SWITZERLAND ANNOUNCEMENT

Dear SPAR Colleagues,

I wish to inform you about a significant development for SPAR in South Africa and Switzerland.

SPAR South Africa and SPAR Switzerland announced on 9th March the completion of an agreement to become partners. Existing shareholders of SPAR Switzerland AG, Leuthold & Co Ag and ASPIAG (Austria SPAR International AG), will sell a 60% shareholding to the SPAR Group Ltd South Africa with effect from 1st April 2016. Furthermore, SPAR South Africa has an option to acquire the balance of the shares (40%) in five years.

SPAR South Africa stated that the purchase represents an opportunity to invest in an established business in a market with growth potential, and will further diversify the SPAR Group’s business and revenue streams.

SPAR Switzerland will continue to be led by the current management team and long-standing chairman of the board and chief executive officer, Stefan Leuthold. This partnership will enable the business to expand further.

On behalf of SPAR International I would like to take this opportunity to wish Graham O’ Connor, CEO of SPAR South Africa, and Stefan Leuthold, every success with their new partnership.

Best regards,

Tobias Wasmuht,
Managing Director, SPAR International


Spar - acquisition of shares in Spar Holding AG 

09 March 2016

The company has concluded an agreement to acquire, subject to the conditions precedent set out in paragraph 3 below, 60% of the ordinary shares of SPAR Holding AG (“SPAR Switzerland”), for CHF44.5 million (R690.4 million, all CHF figures translated at an exchange rate of R15.5135 per CHF at 17:00 on 8 March 2016) (the “Acquisition”) from the existing shareholders of SPAR Switzerland (the “Sellers”).

The Acquisition
The Business of SPAR Switzerland
 
SPAR Switzerland is the operator and holder of the SPAR licence in Switzerland and has been a member of SPAR International since 1989. The SPAR Switzerland group supplies a wide range of food and beverage products to consumers through a combination of:
* 58 company owned SPAR, SPAR Express and convenience stores;
* 247 independent retailer stores trading under the SPAR, SPAR Express and Maxi brands; and
* 11 company owned Cash & Carry outlets trading under the brand TopCC, the second largest company in the Swiss cash and carry market, with a total selling area of 44 000m2.

In total, SPAR Switzerland supplies and supports 305 stores across the German-speaking part of Switzerland. SPAR Switzerland operates a world-class logistics network based at a group- owned 33,000 m2 centralised warehouse in St Gallen, and also owns two of the cash & carry buildings.

Rationale 
The Acquisition represents an opportunity for the company to invest in an established business in a stable market with growth potential. The company believes that synergies will result from the opportunity to share knowledge, technologies, products and best practice across groups.

Furthermore, the Acquisition will complement the company's recently acquired operations in Ireland and South West England while delivering a more geographically diversified business portfolio and revenue stream. It will allow the company to enhance its scale and provides further foreign currency diversification benefits.

SPAR Switzerland will continue to operate under the current management team led by the existing chief executive officer of SPAR Switzerland, Stefan Leuthold. Stefan has a long history with SPAR Switzerland and SPAR International and is well-known to the company's management team.

The Purchase Price 
The company and the Sellers have agreed to an aggregate purchase price of CHF100.8 million (R1 563.8 million) for 100% of the ordinary share capital in SPAR Switzerland.

On the effective date of the Acquisition (which will be 1 April 2016) (the “Effective Date”), the company will acquire 60% of the issued ordinary share capital of SPAR Switzerland from the Sellers for a price of CHF44.5 million (R690.4 million).

The Sellers will retain the remaining 40% of the issued ordinary share capital of SPAR Switzerland for a period of five years post the Effective Date, following which the company will have the option to acquire from the Sellers, and the Sellers will have the option to put to the company, the remaining 40% of the issued ordinary share capital of SPAR Switzerland for CHF56.3 million (R873.4 million).

Financial effects of the Acquisition
The table below sets out the audited net assets, sales, earnings before interest, tax, depreciation and amortisation (“EBITDA”) and normalised profit after tax (“Normalised PAT”) of SPAR Switzerland for the 12 months ended 31 December 2015 (being the date of the most recent audited financial statements).

SPAR Switzerland selected audited financial results for the 12 months ended 31 December 2015
CHF (million) and ZAR (million)
*Net Assets -- 144.9; 2 247.9
*Sales -- 824.3; 12 787.8
*EBITDA -- 27.7; 429.7
*Normalised PAT -- 7.4; 114.8

Immediately prior to the implementation of the Acquisition, SPAR Switzerland intends to distribute a special dividend of CHF40 million (R620.5 million) to the Sellers (the “Special Dividend”). The Special Dividend will result in a pro forma net asset value for SPAR Switzerland of CHF104.9 million (R1 627.4 million), if applied to the net asset value at 31 December 2015. The company will provide a financial guarantee to secure the CHF40 million loan to SPAR Switzerland to finance the Special Dividend.
Conditions precedent to the Acquisition
The Acquisition is subject to the approval of a loan to SPAR Switzerland to finance the Special Dividend and confirmation of the existing banking facilities available to SPAR Switzerland. In management's view, the conditions precedent to the Acquisition will be satisfied by the Effective Date.

Shareholders are advised that the approval of the Exchange Control Department of the South African Reserve Bank has been obtained for the Acquisition.

The company will release a further announcement on SENS once all the conditions precedent to the Acquisition are fulfilled.

Notice of Extraordinary General Meeting
The company continuously evaluates the optimal capital structure for the business as well as value-enhancing opportunities.

In August 2014, SPAR utilised its balance sheet capacity to acquire 80% of TIL JV Ltd, the holding company of the BWG group of companies, for EUR55 million (R799 million at an exchange rate of R14.5 per Euro). In addition, the company will utilise existing financial resources to fund the Acquisition.

Shareholders are referred to the notice of extraordinary general meeting posted on 24 February 2016, which convenes an extraordinary general meeting on 24 March 2016 at 10:00 at the company's offices. At the extraordinary general meeting, Shareholders will be requested to vote on an ordinary resolution to give management the general authority to issue up to 14 000 000 new ordinary shares for cash (8.1% of issued shares, excluding treasury shares).

The passing of the proposed ordinary resolution will provide management with the tools to optimally manage the business, its capital structure and create capacity for potential future acquisitions.

Withdrawal of Cautionary 
Shareholders are advised that as a result of the publication of this announcement, the cautionary announcement released on 24 February 2016 is hereby withdrawn and that caution is no longer required to be exercised by Shareholders when dealing in their SPAR shares.

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