GRUPO DE MODA SOMA S

SOMA3
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Grupo de Moda SOMA S A : Material Fact - Combination of Businesses of Cia. Hering and Grupo de Moda Soma S.A.

08/11/2021 | 10:11pm

GRUPO DE MODA SOMA S.A.

Avenida Pasteur, nº 154, Botafogo

CEP 22290-240, Rio de Janeiro, RJ

Corporate Taxpayer Number (CNPJ/ME) 10.285.590/0001-08

Enrollment with the Board of Trade (NIRE) No. 33.3.0031538-1

Listed Company with Authorized Capital Stock

Enrollment with the Brazilian Securities Commission No. 2501-1

MATERIAL FACT

Combination of Businesses of Cia. Hering and Grupo de Moda Soma S.A.

Grupo de Moda Soma S.A. ("SOMA" or "Company" B3: SOMA3), in compliance with the provisions of the Brazilian Securities Commission ("CVM") Rules No. 358/2002 and 565/2015, as amended, and updating the information contained in: (i) the notice of material fact disclosed jointly with Cia. Hering ("Hering", and together with SOMA, "Companies") on April 26, 2021, in which the business combination between the Companies, formalized through the execution, on the same date, of the Association Agreement and Other Covenants ("Association Agreement") and of the Voting Agreement and Other Covenants ("Voting Agreement"); (ii) the notice of material fact disclosed on July 5, 2021, in which the Companies informed about the execution, by them, of amendments to the Association Agreement and to the Voting Commitment, in order to formalize the new structure for the combination of its business ("Transaction"), hereby informs the shareholders and the market in general that, on this date, its Board of Directors approved, at a meeting, the execution of the Protocol and Justification of the Merger of Shares Issued by Cia. Hering by Cidade Maravilhosa Indústria e Comércio de Roupas S.A,, followed by the Merger of Shares issued by Cidade Maravilhosa Indústria e Comércio de Roupas S.A. by GMSH Participações S/A, followed by the Merger of GMSH Participações S/A by Grupo de Moda Soma S.A. ("Protocol"), by means of which the terms and conditions for the Transaction were established, as well as the management proposal to the extraordinary general meeting that will resolve on the Transaction.

The terms and conditions of the Transaction, described below, are contained in the Protocol, submitted together with the appraisal reports and other relevant documents to the board of directors of the Company, and signed by the management of the Companies, and will be submitted to the resolution of the general meetings extraordinary meetings of both Companies.

Terms that are not defined in this notice of material fact shall have the meaning ascribed to them in the Association Agreement.

Main Terms of the Transaction

The main terms of the Transaction, which comprise the Merger of Shares of Hering, are described below:

1. IDENTIFICATION AND ACTIVITIES DEVELOPED BY THE COMPANIES INVOLVED IN THE TRANSACTION

CIA. HERING, publicly-held company, headquartered in the city of Blumenau, State of Santa Catarina, at Rua Hermann Hering, No. 1.790, registered with the CNPJ/ME under No. 78.876.950/0001-71, herein represented in the form of its bylaws ("Hering").

GRUPO DE MODA SOMA S.A., publicly-held company with authorized capital, headquartered in the city of Rio de Janeiro, State of Rio de Janeiro, Avenida Pasteur, no. 154, Botafogo, CEP 22290-240, registered with the CNPJ/ME under no. 10,285 .590/0001-08, herein represented in the form of its bylaws ("SOMA").

CIDADE MARAVILHOSA INDÚSTRIA E COMÉRCIO DE ROUPAS S.A., a privately held corporation, headquartered in the city of Rio de Janeiro, State of Rio de Janeiro, at Rua General Bruce, nº 551, part, São Cristóvão, CEP 20921-030,registered in the CNPJ/ME under No. 09.611.669/0001-94,herein represented in the form of its bylaws ("Cidade Maravilhosa").

GMSH PARTICIPAÇÕES S/A, privately-held company, in the city of Rio de Janeiro, State of Rio de Janeiro, Avenida Pasteur, no. 154, part, Botafogo, CEP 22290-240, registered with the CNPJ/ME under no. 42,542.199/0001-20, herein represented in the form of its bylaws ("NewCo").

2. DESCRIPTION AND OBJECTIVE OF THE TRANSACTION

The Transaction will comprise the following steps, all interdependent and connected to each other, the completion of which will be subject to the applicable corporate approvals and compliance (or waiver, as the case may be) of the Conditions Precedent, and all steps must be coordinated in order to occur on the same date:

  1. Merger of all shares issued by Hering by Cidade Maravilhosa, at their economic value, resulting in the issuance, by Cidade Maravilhosa, in favor of the shareholders of Hering, holders of the merged shares
    ("Hering Shareholders"), of common shares and redeemable preferred shares issued by Cidade
    Maravilhosa, provided that, for each common share issued by Hering, Cidade Maravilhosa will deliver 3 common shares and 1.20545623904904 redeemable preferred shares issued by Cidade Maravilhosa (considering the adjustments mentioned in the Protocol) ("Merger of Shares of Hering"). After the Transaction is completed, Hering will preserve its own legal personality and equity, with no legal succession;
  2. on the same date, as a subsequent and interdependent act of the Merger of Shares of Hering, redemption of all preferred shares issued by Cidade Maravilhosa, with the payment, in total, of the Final
    Value of the Portion in Cash (as defined below) ("Redemption of Shares"). Once redeemed, the preferred shares issued by Cidade Maravilhosa will be canceled against the capital reserve. For clarification purposes, Cidade Maravilhosa will make, upon Redemption of Shares, the payment of the Final Value of the Portion in Cash proportional to the whole and fractional parts of the redeemable preferred shares issued by Cidade Maravilhosa established in the exchange ratio of the Merger of Shares of Hering;

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  1. on the same date, as a subsequent and interdependent act of Redemption of Shares, the merger of all shares issued by Cidade Maravilhosa by NewCo, at their book value (already considering the effects of the Merger of Shares of Hering and the Redemption of Shares), resulting in the issuance, by NewCo, in favor of the shareholders of Cidade Maravilhosa, including the Hering Shareholders who became holders of shares issued by Cidade Maravilhosa as a result of the Merger of Shares of Hering, of common shares issued by NewCo , and for each common share issued by Cidade Maravilhosa, NewCo will deliver 1 (one) common share issued by NewCo (considering the adjustments mentioned in the Protocol and Justification and disregarding the shares issued by Cidade Maravilhosa held by NewCo prior to this step) ("Merger of Shares of Cidade Maravilhosa"). After the completion of the Merger of Shares of Cidade Maravilhosa,
    Cidade Maravilhosa will preserve its own legal personality and equity, with no legal succession; and
  2. on the same date, as a subsequent and interdependent act of the Merger of Shares of Cidade Maravilhosa, the merger of NewCo by SOMA, at the book value of NewCo (already considering the effects of the Merger of Shares of Hering, the Redemption of Shares and of the Merger of Shares of Cidade Maravilhosa), with the consequent extinction of NewCo and succession, by SOMA, of all its assets, rights and obligations, with the consequent migration of NewCo shareholders, including Hering Shareholders who became owners of shares issued by NewCo as a result of the Merger of Shares of Cidade Maravilhosa, to SOMA's shareholding structure, resulting in the issue, by Soma, in favor of NewCo shareholders, of common shares issued by Soma, for each share common shares issued by NewCo, 1.84603229202754 common shares issued by SOMA will be delivered, totaling the Final Quantity of SOMA
    Shares (as defined below) ("Merger").

Although the steps occur subsequent to each other, they are all part of a single legal transaction, provided that each of the steps is not effective, individually, without the others also having it and being, in their entirety, implemented, or that is, all steps of the Transaction must be approved at all shareholders' meetings of the Companies.

As provided for in the Association Agreement, the obligation of the Parties to proceed with the Closing of the Transaction is subject to the satisfaction of certain Conditions Precedent.

3. MAIN BENEFITS, COSTS AND RISKS OF THE TRANSACTION

The Transaction will allow the Company to continue its plan to expand its portfolio of brands, expanding its product offering in a way that complements its businesses in the fashion and retail sector, enabling (i) the expansion of its operating potential in the fashion market , national clothing and accessories; and (ii) the consolidation of a brand platform in fashion retail, expanding its total addressable market, connecting different audiences and opening a new space and avenue for growth given the complementary portfolio.

The Company's management understands that the Transaction will allow the exchange of knowledge and expertise between the companies involved, boosting the development of the brands that make up its portfolio and the consequent increase in revenue. In addition, the Company believes that the integration

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will allow the capture of synergies between the parties, mainly derived from the reduction of operational, logistical and administrative costs and risks, with significant efficiency gains for the Company.

The expected benefits of the Transaction are necessarily based on projections and assumptions, which may not materialize as expected. The ability to achieve the expected benefits will depend on the Company's ability to successfully and efficiently integrate Hering's businesses and operations with its businesses and obtain the expected synergies. The Company may encounter significant challenges in integration and in its ordinary management before and after the Transaction, such as:

  • Potential disruption or reduction in the growth of the Company's business due to diversion of management's attention and uncertainty with Hering's current supplier relationships;
  • difficulties in consolidating and integrating corporate, information technology, financial and administrative infrastructures, and in integrating and harmonizing business and other back-office systems, which may be more challenging than anticipated;
  • difficulties in achieving projected cost savings, synergies, business opportunities and growth prospects from the Hering business combination;
  • limitations arising from the antitrust regulations, prior to the closing of the Transaction, prevent the Company from having access to Hering's information, and vice versa, so planning the integration of the two companies will be a challenge;
  • increase in the scale and complexity of our operations resulting from the Transaction, which will bring management, coordination and integration challenges;
  • difficulties in anticipating and responding to actions that may be taken by competitors in response to the transaction; and
  • Hering's assumption and exposure to unknown or contingent liabilities.

If the Company fails in successfully manage these issues and the other challenges inherent in integrating an acquired business, then the Company may not achieve the anticipated benefits of the Transaction, incurring in unforeseen expenses and adversely affecting its operating results.

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There are no relevant costs involved in the Transaction. The Company estimates that the costs and expenses incurred by it, including fees of legal advisors, appraisers and auditors, related to the Transaction, amount to approximately R$13,500,000.00 (thirteen million and five hundred thousand reais).

4. CALCULATION AND ADJUSTMENTS OF THE EXCHANGE RATIO OF HERING-CIDADE MARAVILHOSA AND OF THE FINAL QUANTITY OF SHARES OF SOMA PER NEWCO COMMON SHARES

The Transaction will result (a) in the ownership, by Cidade Maravilhosa, of all shares issued by Hering; and (b) assuming that the total share capital of Hering is represented, on the Closing Date of the Transaction, by 158,224,925 (one hundred and fifty-eight million, two hundred and twenty-four thousand, nine hundred and twenty-five) common shares, ex-treasury, disregarding the shares arising from vesting of stock options plans, and the total share capital of SOMA is represented, on the Closing Date of the Transaction, by 527,614,940 (five hundred and twenty-seven million, six hundred and fourteen thousand, nine hundred and forty) common shares, ex-treasury, and subject to the adjustments mentioned below, upon receipt, by the shareholders of Hering, for each common share issued by Hering that they own on that date, of:

  1. a portion in national currency of R$9.630957 ("Portion in Cash"), adjusted as provided for in the Protocol (after the adjustments, the "Final Value of the Portion in Cash"), to be paid in cash, in a single installment, within 10 (ten) business days from the Closing Date of the Transaction, and this amount must be adjusted by the CDI rate from the date on which the general meetings of the Companies that approve the steps of the Transaction are held until the actual payment ("Financial Settlement Date"); and
  2. 1.625107 common share issued by SOMA ("Exchange Ratio"), adjusted as provided for in the Protocol (after the adjustments, the "Final Quantity of SOMA Shares"), and the shares to be issued into SOMA as a result of the Transaction will have the same rights as the other common shares currently issued by SOMA.

The Exchange Ratio will be adjusted in the amount of (a) any dividends, interest on equity and other proceeds declared and/or paid by SOMA and/or Hering from the date of execution of the Association Agreement and until the date of closing of the Transaction ("Closing"), including; (b) any payments and/or receipts related to long-term incentive programs of Hering and/or SOMA, including stock options or restricted shares, arising from the Closing of the Transaction; (c) any bonus payments, commissions, incentives or any kind of extraordinary compensation that exceed the total amount of R$20,000,000.00 (twenty million reais); and (d) costs eventually incurred by Hering for hiring financial advisors, for the valuation or otherwise, in the context of any Competing Transactions (as defined in Clause 7.1(ii) of the Association Agreement), which exceed R$ 5,000,000.00 (five million reais).

Any change in the total outstanding shares issued by SOMA and the total shares that can be converted based on the Hering Plans will impact, equally and in the same proportion, the Final Value of the Portion

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Grupo de Moda SOMA SA published this content on 11 August 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 12 August 2021 02:10:07 UTC.

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