Metair wraps up AutoZone acquisition and advances on Mutlu disposal

Automotive components manufacturer and battery maker Metair has received approval from competition authorities to complete its R278.5m acquisition of AutoZone, promising much-needed relief for SA’s largest privately held retailer of automotive parts, which is undergoing business rescue.

Metair's subsidiary Nikisize has bought AutoZone's entire issued share capital, the company said on Tuesday. It will use a portion of the extended bridge facility from Standard Bank, which was concluded in July, to pay for the acquisition.

The debt-laden retailer entered business rescue proceedings in July after ballooning debt affected its profitability, resulting in its credit provider, Absa, electing not to provide any further debt extensions to its R302m debt pile. As of July 1, AutoZone’s net assets, excluding liabilities covered by the business rescue plan were estimated to be worth R485m, including R421m in net working capital.

Business Day reported in July that the high court in Johannesburg had granted Absa an order to seize control of the retailers’ assets allowing the lender to claim AutoZone’s movable assets and keep them as security.

In early October, JSE-listed Metair agreed to pay nearly R290m to acquire AutoZone, saying the transaction would enable it to grow its automotive aftermarket businesses. That aligns with Metair's strategy to diversify its remaining operations after the looming sale of its Turkish company, Mutlu Akü, targeting growth and expansion into the rest of Sub-Saharan Africa.

This week the group told shareholders it has received approval from SA competition regulators, lenders' consent, and AutoZone contract counterparties to complete the acquisition process. Additionally, all regulatory filings from AutoZone's BRPs have also been made.

“The acquisition enhances Metair's ability to diversify strategically within the mobility and aftermarket sectors,” it said. “It aligns well with the increasingly active used vehicle market in SA as well as the anticipated opportunity for growth in the aftermarket parts market. It provides Metair with an established distribution channel to grow its current automotive aftermarket businesses in SA.”

The deal includes a nominal sum for the purchase of AutoZone's stock and a total advance of R278.5m from Nikisize to AutoZone. Out of this sum, R188.5m must be paid to Absa to resolve its secured claim, R15m to unsecured creditors, and R7m to cover AutoZone's working capital needs.

As the firm led by Paul O’Flaherty implements a turnaround strategy, management has been concentrating on optimising and deleveraging its debt position which totalled R5.5bn at the end of June. This figure included debt and guarantees for Hesto Harnesses, in which it has a 75% share.

In July, Metair's board with the support of external lenders, approved a temporary restructuring of debt through an extension of the existing Standard Bank facility and raised the rand equivalent of $38.2m in the form of a bridge loan to rebalance a portion of the Hesto shareholder debt of Yazaki Corporation.

On Tuesday Metair said the extended bridge would be used to redeem R840m in preference shares, contribute towards the AutoZone acquisition, and funnel an extra $10m to rebalance Yazaki shareholder loans.

The group has promised to present an executable final optimal capital restructuring to the board and the funders before the end of March 2025.

Metair also reported that it was making progress in its third effort to sell its stake in a company that formed part of its Turkish division, Mutlu Akü, but the group conceded that an estimated $5m was expected to be realised from the deal — far lower than the $110m previously touted.

The difference was brought on by Mutlu group’s debt and accounts payable which have grown significantly since September due to the need to support operations in the tough hyperinflationary and high-interest rate environment, it said. 

However, the business emphasised that it was crucial to protect against the growing financial instability of and exposure to the Mutlu group, given that, for the six months ended June , the Mutlu group was responsible for about 73% of Metair's total interest costs and 23% of net debt.

“While the group is disappointed that the final aggregate consideration is expected to be less than envisaged, it believes that the disposal is a critical element of Metair's successful turnaround,” Metair said. “Economic conditions remain challenging but good progress has been made with the closing date now expected before the end of December.” 

It said the disposal was accepted by a majority of shareholders on October 29 while the Turkish Competition Board confirmed that no consent is required for the disposal on November 7.

However, the implementation of the disposal remains subject to the fulfilment or waiver of the last condition, which is the execution of a new finance agreement with Turkish banks to be agreed upon with the purchaser.

gumedemi@businesslive.co.za