The acquisition of a 51 percent stake in the Watertech companies of Distribution and Warehousing Network (Dawn) for R880 million cash by the international sanitary fittings group, Grohe, 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 yesterday 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.
He confirmed that Dawn had kept an eye on the industrial relations environment in South Africa while negotiating the transaction but stressed Grohe was “in for the long haul and not the short term”.
The transaction will be structured within a newly created joint venture company, Grohe Dawn Watertech Holdings, which will be 51 percent owned by Grohe and 49 percent by Dawn. It will involve all of Dawn’s Watertech companies.
These comprise Cobra Watertech, Apex Valves South Africa, Expiro Manufacturing, Vaal Sanitaryware, Isca and Libra Bathrooms.
The effective date of the transaction will be no later than November 30 or an extended date agreed between parties that is no later than April 30.
The transaction was subject to a number of conditions, including approvals by Dawn shareholders and regulatory and competition authorities. The proceeds of the transaction would be used by Dawn to repay debt and acquire businesses in areas of the group’s core competence.
Tod said this was a major step in the group’s strategy because it had for a number of years sought to globalise its manufacturing operations.
The management teams in the operating companies would remain unchanged, he said.
Dawn and Grohe have, as part of the transaction, entered into a number of exclusive distribution and services agreements that will commence at the effective date.
They include the exclusive distribution of Grohe’s products, and those of major Chinese manufacturer Joyou, in agreed African territories and the distribution of the products of the Watertech companies in all global territories other than the agreed African territories.
David Haines, the chief executive and chairman of the Grohe group, said they were excited to be expanding their activities in Africa’s southern region.
“Dawn’s position of strength in the South African market makes it the perfect partner, also for the continued expansion of the Grohe and Joyou brands. In return, the new company will benefit from our expertise in research and development, as well as design,” he said.
Dawn’s shares rose 9.17 percent to close at R11.90 on the JSE yesterday.