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Just Water agrees to sell Australian business for A$11 million to Waterlogic

Just Water International, the water cooler and supplies business 79 percent owned by founder Tony Falkenstein, has agreed to sell its Australian business to Waterlogic Australia for A$11 million in cash to repay debt and fund growth.

The purchase requires the approval of Just Water shareholders at a meeting on April 28, with the deal expected to be completed about May 1, the Auckland-based company said in a statement. The board of NZAX-listed Just Water supports the sale and unanimously recommend it, it said.

Just Water said it was approached by Waterlogic this year about the acquisition of the Australian water dispenser rental and servicing business. It says the offer values its Australian business at 6 times 2014 annual earnings before interest, tax, depreciation and amortisation, compared with a KordaMentha valuation of the Just Water group at 4 to 4.5 times earnings.

"Retaining the Australian business (if valued at the purchase price of A$11 million) produces a lesser return for the group relative to sale," the company said.

Just Water intends to use the sale proceeds to repay its existing $10.7 million net debt to Bank of New Zealand.

"As a result, Just Water will have no interest bearing bank debt and potentially a small surplus available for potential growth initiatives," it said. "No change in strategic direction or dividend policy is envisaged by the board."

Just Water said growth in its Australian business is limited due to a lack of opportunity for new sites, pressure on rental rates and minimal new product development.

"Based on the relative contribution, size and prospects of the Australian operations, current trading conditions, the competitive environment and further weakening of the Australian dollar relative to the New Zealand dollar, the board has formed the view that the price agreed for the Australian operations at least equals, if not exceeds, a fair attribution of its relative value to the whole Just Water group.

"A sale of the Australian operations to a well-funded and established competitor which can extract synergies from he resulting scale benefits is strategically sound and will reduce operational and financial risk for the group, enabling management to focus on one geography and one set of market dynamics."

Waterlogic, which has operations in 50 countries, was acquired in January by European private equity investor Castik Capital which aims to create a leading global water cooler business.

Shares in Just Water last traded at 13.1 cents.

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