JSE-listed Distribution and Warehousing Network (Dawn) announced on Wednesday that it had sold 51% of its Watertech companies for R880-million cash to international group Grohe.

Dawn CEO Derek Tod said in a statement that the company was “extremely excited about this major step in the group’s strategy”.

He explained that Dawn, for a number of years, had sought to globalise its manufacturing operations; however, to be globally competitive in terms of product manufacturing it was necessary to have full access to global technology, global manufacturing expertise and global dispersion of manufactured product through established channels.

“As Southern Africa cannot always provide the volumes to factories in the longer term to warrant the investment in technologically advanced high-volume equipment to become a truly global manufacturer of product, Dawn decided to bring globalisation to its Southern African factories through the introduction of a global manufacturing partner in the form of Grohe.”

Grohe is Europe’s largest and the world’s “leading” single-brand manufacturer and supplier of sanitary fittings. The effective date of the transaction will be no later than November 30, or an extended date which may be agreed on between Dawn and Grohe, which will be no later than April 30, 2015.

The transaction will be structured within a newly created joint venture (JV) company 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 South Africa, Exipro Manufacturing, Vaal Sanitaryware, Isca and Libra Bathrooms.

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.

Grohe Group CEO and chairperson David J Haines said: “Acquiring [51% of] Dawn’s Watertech businesses is another major step inspired by compelling industrial logic. As part of our sustainable growth strategy, we are excited to be expanding our 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.”

Tod added that, over the last 15 years, Dawn had evolved from its core competency of trading and distribution of building products throughout the geographies of South Africa into a Southern African and Indian Ocean Islands regional manufacturer, trader and distributor of branded building and infrastructure products.

“To achieve our goal of being a force in the distribution of building and infrastructure products, we also have to be a leading trader of the products distributed to ensure maximum volumes of product into the distribution channel.

“This transaction allows us to grow our core distribution competency, enhancing volume throughput and the resulting efficiencies, as well as allowing us to be the leading branded products trader in South Africa for both Dawn brands and brands in which we have no investment. Furthermore, it also strengthens the manufacturing base for South Africa in this sector and allows for additional long-term job opportunities in the country.”

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.

In the event that Grohe exercises the 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 each year, after providing financial debt servicing, should there be 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.