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GNDE - GRINDROD LIMITED - Grindrod Ships Agency Merger With Sturrock Shipping

26/10/2012 13:15:00

GND GNDP 201210260026A
Grindrod Ships Agency Merger With Sturrock Shipping

GRINDROD LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1966/009846/06)
Share code: GND & GNDP
ISIN: ZAE000072328 & ZAE 000071106
(“Grindrod” or “the Company”)


GRINDROD SHIPS AGENCY MERGER WITH STURROCK SHIPPING


Introduction

Grindrod shareholders are hereby advised that Grindrod Holdings (South Africa) (Pty)
Limited (“GHSA”), King & Sons (Mozambique) Limitada (“King & Sons”) and Grindrod
Ships Agencies (Pty) Limited (“GSA”) (together the “Grindrod Parties”) have entered into a
sale of shares agreement dated 7 September 2012 with JFM Sturrock Holdings (Pty) Ltd
(“JFM”) and Calulo Investments (Pty) Limited (“Calulo”), whereby JFM will acquire 100% of
the issued share capital of GSA and King & Sons (together the “Sale Shares”) from GHSA
(the “Transaction”). As consideration for the Sale Shares, JFM will issue 1,000 ordinary
shares in its share capital to GHSA, constituting 50% of the issued share capital of JFM
(the “Consideration Shares”), thereby establishing a 50:50 joint venture between GHSA
and the ultimate indirect shareholders of JFM, namely Calulo and the JFM Sturrock Trust,
which will hold a 30% and 20% indirect shareholding in JFM following the Transaction.

Description of the business

The business to be carried on by the combined ships agency is vessel husbandry
services, integrated ships agency services and marine services (the latter of which refers
to the procurement, installation and servicing of onboard equipment, spares, technical
stores and provisions on behalf of commercial, offshore exploration, mining and
recreational vessel operators for which the combined ships agency acts as accredited
marine equipment agents.

Rationale for the transaction

The rationale for the transaction is the formation of an empowered joint venture with
exposure across a broader range of sub-segments and geographic regions than either
entity in its individual capacity.

The combined ships agency business will be represented across Africa and Australia
through long established brands, with both Grindrod and Sturrock Shipping having brands
that are over 100 years old, which brands will continue to be operated under the combined
business. Where Grindrod traditionally has a strong market presence in the dry bulk
space, providing services to both liner and non-liner clients, Sturrock Shipping is primarily
involved in non-liner wet bulk activities, and whereas Sturrock Shipping has greater
representation in Africa and Australia, Grindrod's ships agency operations are conducted
in southern Africa only. As a result, significant synergies and market opportunities are
expected to arise from the merger of these two businesses.

Purchase consideration

The market value of each of the JFM and GSA businesses is R143 million. Therefore the
purchase consideration of R143 million will be settled through an issue of shares in JFM
which is equal to 50% of the issued shares in JFM.

Pro forma financial effects

The table below sets out the pro forma financial effects of the transaction on the earnings,
headline earnings, per ordinary share of Grindrod based on the unaudited financial
statements of Grindrod for the 6 months ended 30 June 2012. The effect of the acquisition
on net assets and net tangible assets per share is less than 3% and is accordingly not
shown. The financial effects are the responsibility of the directors of Grindrod and are
prepared for illustrative purposes only and, because of their nature, may not fairly present
the financial position of Grindrod, changes in its equity or the results of its operations or
cash flows after the transaction.

Before the After the Notes Change
transaction (Note 1) transaction (Note 2) (%)
Basic earnings per 103.1 111.6 3,4 8%
share (cents)
Diluted earnings per 103.0 111.6 3,4 8%
share (cents)

Notes:

1. The “Before the transaction” column reflects the unaudited consolidated results of
Grindrod for the six months ended 30 June 2012.
2. The “After the transaction” column reflects what the results would have been, had the
Transaction been effective for the six months period ended 30 June 2012 for the
statement of comprehensive income purposes.
3. The profit on disposal of the 100% of Ships Agencies has been included in the
statement of comprehensive income as Grindrod will no longer control the Ships
Agencies businesses. Grindrod will jointly control JFM and the consolidated results
of the jointly controlled entity have been included in the statement of comprehensive
income.
4. The carrying value of 100% of Ships Agencies net assets at 30 June 2012 amounted
to R42 million. The attributable profit of Ships Agencies for the six months ended 30
June 2012 was R6 million. The Transaction will result in a profit on disposal of
approximately R48 million as at 1 January 2012. The profit on disposal of Grindrod's
interest in Ships Agencies has been included in statement of comprehensive income
as Grindrod will no longer control Ships Agencies. Grindrod, in conjunction with JFM,
will have joint control. The statement of comprehensive income includes 50% of the
combined profit of JFM, the newly formed joint venture, for the six months ended 30
June 2012 of R8 million.
Conditions precedent

All conditions precedent to the transaction are expected to be met by 31 October 2012,
which comprise the following:
• All transaction documents to become unconditional;
• All requisite internal authorisations from each party to be provided;
• Transfer of unrelated businesses currently held by Grindrod Ships Agencies to
another holding company within the Grindrod Group;
• Counterparties to material contracts to provide consent to the transaction;
• Relevant trademarks to be assigned where not already in the name of the trading
entity(/ies);
• All necessary Regulatory approvals to be obtained;
• Remuneration package for the CEO to be agreed and concluded.


Related party

The major shareholder of JFM (indirectly via Calulo Investments (Pty) Ltd and various
subsidiary companies) is Mkhuseli Faku, who is also a non-executive director of the
Company.


Fairness opinion

The transaction is considered by independent expert, BDO Corporate Finance, to be fair to
the Company's shareholders. The fairness opinion will be available for inspection at the
registered office of the Company for 28 days from today.


By order of the board.

26 October 2012

Sponsor
Grindrod Bank Limited

Date: 26/10/2012 01:15:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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