| Mon 7 May 2007, 9:00 | | MCU - m Cubed - Stakeholder Update |
|
MCU
MCU
MCU - m Cubed - Stakeholder Update
m Cubed Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1998/014568/06)
Share code: MCU ISIN: ZAE000033353
("m Cubed" or "the company")
m CUBED STAKEHOLDER UPDATE
1. History, background and purpose
In the interest of transparency and in order to provide stakeholders with
a more informed view of m Cubed`s affairs, the Board deemed it appropriate
to share with its stakeholders the progress made, the challenges and
problems we have encountered and the key steps that have been taken and
are being taken in order to address the problem areas.
On 10 November 2004, the board decided that the best way to unlock and
realise maximum value for shareholders would be to dispose of m Cubed`s
business operations, which, following the merger of the m Cubed and
Momentum multi-manager operations lacked critical mass. A summary of the
key transactions concluded is detailed in the table below:
Name of m Cubed Purchaser Agreement Completion Amount
entities date date (`000)
m Cubed Investment Channel 18 Feb 05 13 Apr 05 R 20 000
Life (Pty) Ltd Life
Corporate Money Management 20 Apr 05 13 May 05 R 5 500
Managers (Pty) Ltd
Escher UK Asset Close Bros 6 Jun 05 29 Jul 05 R 40 000
Management Ltd
m Cubed Unit Trust Fidentia 2 Jun 05 6 Dec 05 R 16 500
Management Co Ltd
Policy Exchange Fidentia 2 Sep 05 17 Nov 05 R 10 000
(Pty) Ltd
Automated Fidentia 9 Jun 05 23 Feb 06 R 16 000
Outsourcing Services
Ltd
m Cubed Employee Management 30 Sep 05 12 Mar 06 R 2 000
Benefits (Pty) Ltd
Advantage Asset Momentum 1 Nov 05 29 Mar 06 R 140 000
Managers (Pty) Ltd
m Cubed Life Alternative 21 Dec 06 Effective *R 30 100
Ltd(Reinsurance of Channel date 1
policy book) March 07
m3 Capital PSG Fund 3 Apr 07 Effective *R 11 700
Management(Guernsey) Management date 1
Ltd and AOS Fund March 07
Services Ltd (incl.
cash dividend)
Total value of R 291 800
transactions
concluded
* Completion of certain deal conditions still outstanding.
The primary objective that we initially set out to achieve i.e. disposing
of m Cubed`s businesses in order to convert these assets to cash to unlock
maximum value for shareholders has essentially been achieved.
Key challenges and problems encountered
The key challenges and problem areas we have encountered are as follows:
The state of m Cubed`s administration and record keeping in a number of
areas, in particular on the international side of the business, was not
operating at the desired standard. This, together with the departure of
key staff, has complicated the task of unravelling complex transactions.
However progress has been made in this regard and we expect to have this
behind us by the latter part of this year as explained in paragraph 4
hereunder.
A number of the transactions historically concluded by m Cubed contained
complex structuring elements. A number of these deals and transactions
have been challenged by a certain Regulator and this has complicated the
unwinding of a number of these transactions. In order to resolve this
dispute a settlement levy of R100 million was paid plus a security
deposit of R50 million has been retained by the Regulator for due
performance in unwinding the transactions being the
subject matter of the dispute. In addition to the above m Cubed Life
Ltd and m Cubed Specialised Lending received revised tax assessments from
SARS in respect of an intellectual property sale and leaseback transaction
concluded in 1999. Objections have, however, been lodged against these
assessments and the tax specialist we have appointed to deal with this
matter is of the opinion that we have a strong case against SARS.
3. m Cubed and Fidentia
During the course of 2005, we received offers from Fidentia to acquire
five of m Cubed`s businesses. In the end, Fidentia was successful in
acquiring only three of these businesses, for which they paid m Cubed
R42,5 million in cash, as detailed in the table above. These deals were
concluded after receiving assurances from Fidentia`s bankers and Fidentia
lodging upfront the negotiated purchase price for these transactions in
well known attorneys trust accounts. In addition the disposal of the m
Cubed Unit Trust Management Co Ltd and Automated Outsourcing Services Ltd
was approved by the Financial Services Board ("FSB"). The unsuccessful
transactions negotiated with Fidentia were as follows:
Name of m Cubed Agreement Completion date
entity date
m Cubed Life Ltd 11 Aug 2005 Deal lapsed 31 Jul 2006 as
FSB approval not obtained
AOS Fund Services 9 Jun 2005 Deal lapsed 30 Sep 2006 as
Ltd - Guernsey GFSC approval not obtained
M3 Capital 9 Jun 2005 Deal lapsed 30 Sep 2006 as
Management GFSC approval not obtained
(Guernsey) Ltd
In terms of the agreement initially concluded with Fidentia involving the
sale of m Cubed Life Ltd, Fidentia was entitled to appoint a director to
the board of m Cubed Life Ltd. Mr Steve de Kock was nominated and joined
the m Cubed Life Ltd board on 20 February 2006. We understand from the
Fidentia curator report that some business dealings that were conducted by
Mr de Kock during his tenure at m Cubed Life Ltd are under investigation.
We are, in terms of the information at our disposal, however satisfied
that m Cubed is not exposed financially in respect of any one of them. Mr
de Kock resigned as a director of m Cubed Life Ltd on 23 February 2007.
In the normal course of business towards the end of 2005, a subsidiary of
the Fidentia group took out a linked investment life policy with m Cubed
Life Ltd. By its very nature, the liabilities of a linked life policy
are always equal to the assets underlying the policy. m Cubed recently
terminated the mandate with the asset manager that was appointed by the
policyholder being Fidentia Asset Management (Pty) Ltd and requested that
all assets be returned to m Cubed Life Ltd. Upon receipt thereof, we
intend cancelling the policy and returning the assets to the curators of
Fidentia. As this is a linked policy, we believe that m Cubed Life Ltd is
not exposed should there be a shortfall in any assets.
4. Key steps and actions taken
The board of m Cubed views all of these matters in a serious light and
every feasible action is being taken to resolve these matters and complete
the conversion of assets to cash, as previously reported. Some of the
more notable actions may be summarised as follows -
- It was announced on 22 March 2007 that a reinsurance agreement was
concluded with Alternative Channel Limited, in terms of which the m
Cubed Life Ltd policy book was reinsured for a payment by Alternative
Channel to m Cubed Life Ltd of R30 million less actuarial reserves.
This effectively means that Alternative Channel has assumed
responsibility for the proper administration of the policyholders`
business with effect from 1 March 2007, and ensures that the
policyholders` affairs are being administered by an experienced group
of people and in a truly professional manner;
- no new policies have been written on the m Cubed Life Ltd licence
since late January 2007;
- Mr Leon de Wit, a highly reputable and experienced executive was
appointed on 1 March 2007 to m Cubed Life Ltd as acting managing
director. Leon is a seasoned actuary and life office executive,
whose appointment has had an immediate impact on the business. He
has assumed responsibility, inter alia, for the important liaison
function with the FSB and manages the performance and output of the
third party professionals that have been appointed to assist m Cubed
with the matters raised herein;
- we have effectively reached agreement on the protracted dispute with
the Regulator and have appointed the legal firm of Jan S de Villiers
to work closely with the Regulator`s forensic auditors to unwind and
regularise problematic transactions;
- we have engaged with our insurers through our insurance brokers to
try and recover certain of the damages and losses that have been
suffered by m Cubed.
- we have undertaken to assist the authorities to investigate
instituting legal action against ex m Cubed executives and staff, and
to pursue such claims and action if deemed appropriate;
- we have instructed our legal advisors to investigate instituting
civil claims against ex m Cubed executives and staff, and to pursue
such claims and action if deemed appropriate; and
- in addition to the 13,3 cents cash distribution that was made to
shareholders during February 2005, the board still intends
distributing to shareholders further cash payments as soon as we have
made further progress in resolving some of the key issues noted
above.
5. Way forward and conclusion
We wish to advise stakeholders that we are at this stage unable to
elaborate in further detail on any of the issues noted herein. As m Cubed
is a listed company currently trading under a cautionary, disclosure needs
to be carefully performed within the restrictions imposed by the JSE
listing requirements. The Regulator in question has also prohibited the
Board from divulging further details in respect of certain of the matters
raised herein.
The February 2007 audit is in process and the annual report will hopefully
contain further information when it is sent to shareholders.
However, we wish to ensure all stakeholders of m Cubed that progress has
been made since we first became aware of the extent of the situation, and
that we intend having most of the abovementioned matters resolved during
the course of the year. Further communications will be issued as and when
deemed appropriate.
Board of Directors
m Cubed Holdings Limited
Stellenbosch
7 May 2007
SPONSOR
PSG Capital (Pty) Limited
Date: 07/05/2007 09:00:05 Produced by the JSE SENS Department.
