R880 million deal to globalise manufacturing operations includes Cobra Watertech foundry operations.
Stock exchange listed Distribution and Warehousing Network (Dawn) has announced that it had sold 51% of its Watertech companies for R880 million cash to international group Grohe.
Dawn CEO Derek Tod said the company had, for a number of years, sought to globalise its manufacturing operations. However, to be globally competitive, it was necessary to have full access to global technology, manufacturing expertise and dispersion of manufactured product via established channels.
Grohe is Europe’s largest and the world’s “leading” single-brand manufacturer and supplier of sanitary fittings. The effective date of the deal will be no later than 30 November.
The deal will be structured within a newly created JV entity named Grohe Dawn Watertech Holdings. It will be a holding company in Dawn, which will be 51% owned by Grohe and 49% by Dawn. Proceeds of the transaction will be used by Dawn to repay debt and acquire businesses in areas of the group’s core competence.
The acquisition involves all Dawn’s Watertech companies, which consist of Cobra Watertech, Apex Valves SA, Exipro Manufacturing, Vaal Sanitaryware, Isca and Libra Bathrooms. The acquisition price will be subject to a price adjustment as at the effective date in respect of 51% of the net debt and a 51% net working capital adjustment, should net working capital be less than R500 million on the effective date, or R450 million if the effective date occurs in December 2014.
Grohe will have a call option to increase its share in the JV to 75.1% after ten years, but before the end of the twelfth year and at a minimum price of R9 billion multiplied by the proportionate shareholding acquired. Should Grohe exercise its call option, Dawn will have the right to put its remaining shareholding in the JV to Grohe on the same terms as the call option. The JV will distribute a minimum of 33% of net profits to shareholders annually, after providing financial debt servicing, should there by any.
The transaction is subject to a number of conditions precedent, including shareholders of Dawn approving the transaction at a meeting with the requisite majority and regulatory and competition commission approvals.
The management teams in the operating companies will remain unchanged, while the executive committee of the new company will be led by Tod and Julian Henco, previously VP emerging markets at Grohe.
As part of the transaction, Dawn and Grohe had entered into distribution and services agreements, which would start on the effective date.
These include exclusive distribution agreements that allow the Watertech companies to distribute Grohe’s products in agreed African territories, distribute Joyou’s (a Grohe group company) products in agreed African territories and the distribution of the Watertech companies’ products in all global territories other than the agreed African territories, as well as services agreements between the Watertech companies and Wholesale Housing Supplies (WHS), a Dawn group company, in terms of which WHS will provide certain operational and distribution and warehousing services to the Watertech companies and sell the Watertech companies’ products, which will include the Grohe and Joyou products, in the agreed African markets.
Further, Africa Saffer Trading (AST), a Dawn group company, will allow AST to sell the Watertech companies’ products, which will include the Grohe and Joyou products, in agreed African territories other than South Africa, Lesotho and Swaziland.
The acquisition is expected to create an unspecified number of jobs in Dawn’s domestic manufacturing operations. The transaction is also expected to more than double the estimated R1.5 billion in annual revenue the JSE-listed manufacturer and distributor of local plumbing and hardware brands receives from exports.
Dawn chief executive Derek Tod said the transaction would not require the group to invest in expanding the manufacturing capacity of the Watertech companies.
Tod said most of the companies involved in the transaction had extra capacity, with Cobra, for instance, running at about 65 percent of capacity and bath manufacturers Libra and Plexicor operating at 50 percent.
Vaal Sanitaryware had in the past six months also invested R60 million in increasing its capacity and improving the quality of its products, he said.
Tod said the transaction would help the group to use its available capacity to the full irrespective of what happened to the building industry.
“But in the future, the business plans anticipate further investment in ceramic sanitaryware in about 2016/2017 because of the enormous opportunity Grohe sees for these products,” he said.
Tod said the transaction would help to create and sustain jobs, as it would definitely result in more throughput in Watertech’s factories, but it was difficult at this stage to quantify the number of jobs that would be created.
Grohe is German manufacturer of sanitary fittings, including kitchen and bathroom faucets, and shower systems established by Friedrich Grohe in 1936. The Grohe Group comprises Grohe AG, Hemer, Joyou AG, Hamburg and other subsidiaries in foreign markets.
With its global Grohe brand, the Grohe Group relies on its brand values of quality, technology, design and responsibility to deliver “Pure Freude an Wasser”. With the Joyou brand, the Group covers the fast growing Chinese market.
Spearheaded by Grohe Group S.à r.l., Luxembourg, the group has a global workforce of around 9 300 people worldwide (including some 3 500 at Joyou). There are about 2,400 employees working at Grohe in Germany. The Grohe Group generated consolidated sales of €1.45 billion in 2013.
The Grohe Group has nine proprietary production plants, of which six are located outside Germany, namely in Portugal, Thailand, Canada and China (Joyou). The company currently generates some 85% of its sales outside Germany.
The Grohe Group was taken over by the Japanese LIXIL Group and the Development Bank of Japan in January 2014. The LIXIL Group is the global leader in the building materials and housing equipment industry. Grohe and Joyou remain independent within the LIXIL Group.