| Wed 30 May 2007, 9:14 | | Investec plc -- share offer for acquisition |
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INL INP
INL INP
INL/INP - Investec - Recommended Share Offer For The Acquisition Of Kensington
Group Plc
Not for release, publication or distribution, in whole or part, in, into or from
any jurisdiction where to do so would constitute a violation of the relevant
laws of such jurisdiction.
Investec Limited
Incorporated in the Republic of South Africa
Registration number 1925/002833/06
JSE share code: INL
ISIN: ZAE000081949
Investec plc
Incorporated in England and Wales
Registration number 3633621
JSE share code: INP
ISIN: GB00B17BBQ50
Press release
As part of the dual listed company ("DLC") structure, Investec plc and Investec
Limited notify both the London Stock Exchange and the JSE Limited of matters
which are required to be disclosed under the Disclosure and Listing Rules of the
United Kingdom Listing Authority (the "UKLA") and/or the JSE Listing
Requirements.
Accordingly we notify of the following:
30 May 2007
RECOMMENDED SHARE OFFER
for the acquisition of
KENSINGTON GROUP PLC
by
INVESTEC PLC
to be effected by means of a Scheme of Arrangement
under section 425 of the Companies Act 1985
Summary
The combined boards of Investec plc ("Investec") and Investec Limited and the
board of Kensington Group plc ("Kensington") are pleased to announce that they
have reached agreement on the terms of the recommended acquisition of the entire
issued and to be issued share capital of Kensington by Investec (the "Offer").
It is intended that the Offer be implemented by way of a scheme of arrangement
under section 425 of the Companies Act.
Under the terms of the Offer, each Kensington Shareholder will receive 0.7
Investec Share plus a special dividend of 26 pence (payable by Kensington) for
each Kensington Share, valuing each Kensington Share at 519.5 pence per share
based on an Investec Share price of 705 pence per share on 29 May 2007, being
the last Business Day prior to the making of this announcement, and the entire
issued and to be issued share capital of Kensington at approximately GBP283
million. The new Investec Shares will not qualify for the final dividend of 13p
per Investec Share that the combined boards of Investec and Investec Limited
have proposed for the financial year ended 31 March 2007.
The new Investec Shares to be issued as part of the Offer are expected to
represent approximately 5.8 per cent. of the aggregate issued share capital of
Investec and Investec Limited as enlarged by the acquisition of Kensington.
Investec`s stronger balance sheet, access to lower cost of funding, and capital
markets expertise, together with Kensington`s recognised brand, established
distribution, innovative product range, prudent risk management and track record
for service excellence, create a strong combination for the growing non-standard
mortgage marketplace.
The Investec Group is an international specialist banking group that provides a
diverse range of financial products and services to niche clients in three
principal markets, the United Kingdom, Australia and South Africa, as well as
certain other geographies. The Investec Group has five core business divisions:
Investment Banking, Capital Markets, Private Client Activities, Asset Management
and Property Activities. Upon completion of the Offer, Kensington will become
part of Investec`s Capital Markets division, which reported strong growth in
operating profit before goodwill and non-operating items of 75.3 per cent to
GBP117.3 million in the financial year ended 31 March 2007.
Founded in 1995, Kensington is a specialist lender offering first and second
charge mortgages. Kensington specialises in lending to people who do not conform
to the rigid criteria of traditional lenders, such as the self-employed,
contractors, older borrowers, temporary employees and those with an adverse
credit history. The Kensington Group includes two wholly-owned subsidiaries
which trade as Kensington Mortgages and Kensington Secured Loans and its Money
Partners joint venture; in addition, Kensington also operates in Ireland through
its subsidiary Start Mortgages Holding Limited and in Sweden through its
associate BlueStep Bostadslan AB.
The combined boards of Investec and Investec Limited expect the acquisition of
Kensington to be earnings enhancing before synergies in the first full year
after completion. This statement should not be interpreted to mean that per
share earnings of the Investec Group for the current or future financial years,
or those of the combined group, will necessarily match or exceed the historical
published per share earnings of the Investec Group.
The Kensington Directors, who have been so advised by Rothschild, consider the
terms of the Offer to be fair and reasonable. In providing its advice to the
Kensington Directors, Rothschild has taken into account the commercial
assessments of the Kensington Directors. Accordingly, the board of Kensington
has unanimously agreed to recommend Kensington Shareholders to vote in favour of
the resolutions to be proposed at the Court Meeting and the Extraordinary
General Meeting, as they have irrevocably undertaken to do in respect of their
own registered shareholdings, and to direct, where possible, or otherwise use
their reasonable endeavours to arrange, that the registered holder should vote
in favour in relation to their other beneficial shareholdings. The aggregate
beneficial holdings of the Kensington Directors amount to 199,566 Kensington
Shares, representing approximately 0.4 per cent. of Kensington`s entire issued
share capital.
Subject to the satisfaction or, where relevant, waiver of the Conditions set out
in Appendix I, the Scheme is expected to become Effective by the end of August
2007.
Stephen Koseff, Chief Executive of Investec, commented:
"The proposed acquisition of Kensington is in line with our stated objectives
and reinforces our successful Capital Markets business. We are confident that
under our ownership, the Kensington franchise will be reinvigorated and that our
combined businesses will be well placed to benefit from the growth of the non-
standard mortgage market."
Bernard Kantor, Managing Director of Investec, commented:
"We look forward to welcoming Kensington, and its employees led by Alison
Hutchinson, to the Investec group. We have been impressed by the enthusiasm of
Kensington`s management and staff, who share our vision of creating a
distinctive, specialist banking group delivering superior service and products
to our customers."
Peter Birch, Chairman of Kensington, commented:
"This offer secures the future of Kensington within a stronger group with
complementary capabilities and at a fair price, and enables shareholders to
share in the value to be created by the combination.
The Investec Group is a strong specialist lender and will be bringing its
entrepreneurial culture, robust risk management discipline and competitive
funding to boost Kensington`s acceleration into new products, channels and
markets. I am confident that Kensington`s attractive franchise will prosper
under Investec`s ownership, and that it will be well placed to capture the
considerable opportunities in the specialist lending arena."
Citi is acting as sole financial adviser to Investec. Rothschild is acting as
sole financial adviser to Kensington. Merrill Lynch is acting as broker to
Investec. Panmure Gordon is acting as broker to Kensington.
This summary should be read in conjunction with the full text of the attached
announcement. Appendix I to the announcement contains the conditions to the
Offer. Appendix II contains details of the sources of information and basis of
certain information set out in the announcement. Appendix III details those
Kensington Directors giving irrevocable undertakings and Appendix IV contains
definitions of certain expressions used in this summary and in the announcement.
Enquiries:
Investec Tel: +44 20 7597 5546
Stephen Koseff, Chief Executive Officer
Bernard Kantor, Managing Director
Bradley Fried, Chief Executive Officer, Investec Bank (UK) Limited
Citi (financial adviser to Investec) +44 20 7986 4000
Christopher Williams
Andrew Reiniger
David Plowman
Merrill Lynch (corporate broker to Investec) +44 20 7996 1000
Andrew Fairclough
Will Smith
Citigate (public relations adviser to Investec) +44 20 7638 9571
Jonathan Clare
Tom Baldock
Kensington +44 20 7297 7834
Alison Hutchinson, Group Chief Executive
Roger Blundell, Group Finance Director
Rothschild (financial adviser to Kensington) +44 20 7280 5000
Robert Leitao
Stuart Vincent
Panmure Gordon (corporate broker to Kensington) +44 20 7614 8300
Tim Linacre
Financial Dynamics (public relations adviser to Kensington) +44 20 7269 7229
Geoffrey Pelham-Lane
Charles Gorman
Citigroup Global Markets Limited ("Citi"), which is authorised and regulated in
the UK by the Financial Services Authority, is acting exclusively as financial
adviser for Investec and no one else in connection with the Offer and will not
be responsible to anyone other than Investec for providing the protections
afforded to clients of Citigroup Global Markets Limited or for providing advice
in relation to the Offer or any other matters referred to in this announcement.
Merrill Lynch International ("Merrill Lynch"), which is authorised and regulated
in the UK by the Financial Services Authority, is acting exclusively as
corporate broker for Investec and no one else in connection with the Offer and
will not be responsible to anyone other than Investec for providing the
protections afforded to clients of Merrill Lynch International or for providing
advice in relation to the Offer or any other matters referred to in this
announcement.
N M Rothschild & Sons Limited ("Rothschild"), which is authorised and regulated
in the UK by the Financial Services Authority, is acting exclusively as
financial adviser for Kensington and no one else in connection with the Offer
and will not be responsible to anyone other than Kensington for providing the
protections afforded to clients of Rothschild or for providing advice in
relation to the Offer or any other matters referred to in this announcement.
Panmure Gordon (UK) Limited ("Panmure Gordon"), which is authorised and
regulated in the UK by the Financial Services Authority, is acting exclusively
as corporate broker for Kensington and no one else in connection with the Offer
and will not be responsible to anyone other than Investec for providing the
protections afforded to clients of Panmure Gordon or for providing advice in
relation to the Offer or any other matters referred to in this announcement.
Further information on the Offer
This announcement is not intended to and does not constitute an offer or
invitation to purchase, sell or exchange any securities or the solicitation of
any vote or approval in any jurisdiction pursuant to the Offer or otherwise, nor
shall there be any purchase, sale or exchange of securities or such solicitation
in any jurisdiction in which such offer, solicitation or sale or exchange would
be unlawful prior to registration or qualification under the laws of such
jurisdiction.
This announcement does not constitute a prospectus or prospectus equivalent
document.
The Offer will be made solely through the Scheme Document, which will contain
the full terms and conditions of the Scheme, including details of how to vote in
favour of the Scheme. Kensington will prepare the Scheme Document to be
distributed to Kensington Shareholders. Kensington and Investec urge Kensington
Shareholders to read the Scheme Document when it becomes available because it
will contain important information relating to the Offer.
The availability of the Offer to Kensington Shareholders who are not resident in
the United Kingdom may be affected by the laws of the relevant jurisdictions in
which they are located. Persons who are not resident in the United Kingdom
should inform themselves of, and observe, any applicable requirements. Further
details in relation to overseas persons who are Kensington Shareholders will be
contained in the Scheme Document.
Any securities to be offered pursuant to the Offer as described in this
announcement have not been and will not be registered under the US Securities
Act, or under the securities laws of any state, district or other jurisdiction
of the United States, or of Canada, Japan and Australia. Accordingly, such
securities may not be offered, sold or delivered, directly or indirectly, in or
into such jurisdictions except pursuant to exemptions from applicable
requirements of such jurisdictions.
The release, publication or distribution of this announcement in jurisdictions
other than the UK may be restricted by law and therefore any persons who are
subject to the laws of any jurisdiction other than the UK should inform
themselves about, and observe, any applicable requirements. Any failure to
comply with the applicable restrictions may constitute a violation of the
securities laws of any such jurisdiction. To the fullest extent permitted by
applicable law, the companies involved in the proposed Offer disclaim any
responsibility or liability for the violation of such restrictions by any
person.
This announcement has been prepared for the purpose of complying with English
law and the applicable rules and regulations of the Financial Services
Authority, the London Stock Exchange and the Panel and the information disclosed
may not be the same as that which would have been disclosed if this announcement
had been prepared in accordance with the laws of jurisdictions outside the UK.
US Kensington Shareholders should note that the Scheme will relate to the shares
of a UK company that is a "foreign private issuer" as defined under the Rule 3b-
4 under the US Securities Exchange Act 1934, as amended (the "Exchange Act"),
and will be governed by English law. Accordingly, neither the proxy solicitation
nor the tender offer rules under the Exchange Act will apply to the Scheme.
Moreover, the Scheme will be subject to the disclosure requirements and
practices applicable in the UK to schemes of arrangement, which differ from the
disclosure requirements of the US proxy solicitation rules and tender offer
rules. Financial information included in the Scheme documentation will have been
prepared in accordance with accounting standards applicable in the UK that may
not be comparable to the accounting standards applicable to financial statements
of US companies. If Investec exercises its right to elect to effect the Offer by
way of a Takeover Offer, the Offer will be made in compliance with applicable US
securities laws and regulations.
Persons receiving copies of this announcement and all other documents relating
to the Offer (including, without limitation, nominees, trustees and custodians)
should observe the above restrictions and must not mail, or otherwise forward,
distribute or send such documents in, into or from any such jurisdiction in
violation of these restrictions and applicable laws. Any person (including,
without limitation, any custodian, nominee and trustee) who would, or otherwise
intends to, or who may have a contractual or legal obligation to, forward this
announcement and/or the Scheme Document and/or any other related document to any
jurisdiction outside the United Kingdom should inform themselves of, and
observe, any applicable legal or regulatory requirements of their jurisdiction.
Forward-looking statements
This announcement, including information included or incorporated by reference
in this announcement, may contain "forward-looking statements", including for
the purposes of the US Private Securities Litigation Reform Act of 1995,
concerning the Investec Group and the Kensington Group. All statements other
than statements of historical fact included in this announcement may be forward
looking statements. Without limitation, any statements preceded or followed by
or that include the words "will", "may", "should", "continue", "believes",
"expects", "intends", "anticipates" or words of similar substance or the
negative thereof, are forward-looking statements.
The forward-looking statements are not guarantees of future performance and
involve known and unknown risks and uncertainties and other factors which could
cause them to differ materially from the actual results, performance or
achievements expressed or implied by such forward-looking statements. Many of
these risks and uncertainties relate to factors that are beyond the companies`
abilities to control or estimate precisely, such as future market conditions and
the behaviours of other market participants, and therefore undue reliance should
not be placed on such statements. Investec and Kensington assume no obligation
and do not intend to update these forward-looking statements, except as required
pursuant to applicable law.
Dealing disclosure requirements
Under the provisions of Rule 8.3 of the City Code, if any person is, or becomes,
"interested" (directly or indirectly) in 1 per cent. or more of any class of
"relevant securities" of Investec or Kensington, all "dealings" in any "relevant
securities" of that company (including by means of an option in respect of, or a
derivative referenced to, any such "relevant securities") must be publicly
disclosed by no later than 3.30 pm (London time) on the Business Day following
the date of the relevant transaction. This requirement will continue until the
Effective Date or the date on which the Scheme is withdrawn. If two or more
persons act together pursuant to an agreement or understanding, whether formal
or informal, to acquire an "interest" in "relevant securities" of Investec or
Kensington, they will be deemed to be a single person for the purpose of Rule
8.3.
Under the provisions of Rule 8.1 of the City Code, all "dealings" in "relevant
securities" of Investec or Kensington by Investec or Kensington, or by any of
their respective "associates", must be disclosed by no later than 12.00 noon
(London time) on the Business Day following the date of the relevant
transaction.
A disclosure table, giving details of the companies in whose "relevant"
securities "dealings" should be disclosed and the number of such securities in
issue, can be found on the Panel`s website at www.thetakeoverpanel.org.uk.
"Interests in securities" arise, in summary, when a person has long economic
exposure, whether conditional or absolute, to changes in the prices of
securities. In particular, a person will be treated as having an "interest" by
virtue of the ownership or control of securities, or by virtue of any option in
respect of, or derivative referenced to, securities.
Terms in quotation marks are defined in the City Code, which can also be found
on the Panel`s website. If you are in any doubt as to whether or not you are
required to disclose a "dealing" under Rule 8, you should consult the Panel.
Not for release, publication or distribution, in whole or part, in, into or from
any jurisdiction where to do so would constitute a violation of the relevant
laws of such jurisdiction.
30 May 2007
RECOMMENDED SHARE OFFER
for the acquisition of
KENSINGTON GROUP PLC
by
INVESTEC PLC
to be effected by means of a Scheme of Arrangement
under section 425 of the Companies Act 1985
Introduction
The combined boards of Investec plc ("Investec") and Investec Limited and the
board of Kensington Group plc ("Kensington") are pleased to announce that they
have reached agreement on the terms of the recommended acquisition of the entire
issued and to be issued share capital of Kensington by Investec (the "Offer").
The Investec Group is an international, specialist banking group that provides a
diverse range of financial products and services to niche clients in three
principal markets, the United Kingdom, Australia and South Africa, as well as
certain other geographies.
Founded in 1995, Kensington is a specialist lender offering first and second
charge mortgages. Kensington specialises in lending to people who do not conform
to the rigid criteria of traditional lenders, such as the self-employed,
contractors, older borrowers, temporary employees and those with an adverse
credit history. The Kensington Group includes two wholly-owned subsidiaries
which trade as Kensington Mortgages and Kensington Secured Loans and its Money
Partners joint venture; in addition, Kensington also operates in Ireland through
its subsidiary Start Mortgages Holding Limited and in Sweden through its
associate BlueStep Bostadslan AB.
Further information on the Investec Group is set out in paragraph 8 to this
announcement and further information on the Kensington Group is set out in
paragraph 9.
Summary of the Offer
It is intended that the Offer be implemented by way of a scheme of arrangement
under section 425 of the Companies Act.
Under the Offer, which will be subject to the Conditions set out in Appendix I
to this announcement and to the further terms and conditions to be set out in
the Scheme Document, Kensington Shareholders will receive:
For each Kensington Share: 0.7 Investec Share plus a
special dividend of 26 pence
payable by Kensington
The terms of the Offer value each Kensington Share at 519.5 pence and the entire
issued and to be issued share capital of Kensington at approximately GBP283
million, based on the closing share price of Investec of 705 pence per share on
29 May 2007, being the last Business Day prior to the making of this
announcement.
The value of 519.5 pence for each Kensington Share represents a premium of
approximately 6.0 per cent. over the closing price of 490 pence per Kensington
Share on 29 May 2007, being the last Business Day prior to the making of this
announcement.
The new Investec Shares to be issued under the Scheme are expected to represent
approximately 5.8 per cent. of the aggregate issued share capital of Investec
and Investec Limited as enlarged by the acquisition of Kensington.
The new Investec Shares will be issued credited as fully paid and will rank pari
passu in all respects with existing Investec Shares and will be entitled to all
dividends and other distributions declared, made or paid by Investec by
reference to a record date on or after the Effective Date, provided that the new
Investec Shares will not qualify for the final dividend of 13p per Investec
Share that the combined boards of Investec and Investec Limited have proposed
for the financial year ended 31 March 2007. The new Investec Shares will be
issued on the Scheme becoming effective to Kensington Shareholders on the
register at the close of business on the day prior to the Effective Date.
Kensington Shareholders will receive the special dividend of 26 pence per
Kensington Share payable by Kensington subject to the Scheme becoming effective.
The special dividend will be paid within 14 days of the Effective Date to
Kensington Shareholders on the register at the close of business on the day
prior to the Effective Date.
Fractions of new Investec Shares will not be allotted or issued pursuant to the
Offer and will be disregarded.
Recommendation
The Kensington Directors, who have been so advised by Rothschild, consider the
terms of the Offer to be fair and reasonable. In providing its advice to the
Kensington Directors, Rothschild has taken into account the commercial
assessments of the Kensington Directors.
Accordingly, the board of Kensington has unanimously agreed to recommend that
Kensington Shareholders vote in favour of the resolutions to be proposed at the
Court Meeting and the Extraordinary General Meeting, as they have irrevocably
undertaken to do in respect of their own registered shareholdings, and to
direct, where possible, or otherwise use their reasonable endeavours to arrange,
that the registered holder should vote in favour in relation to their other
beneficial shareholdings. The aggregate beneficial holdings of the Kensington
Directors amount to 199,566 Kensington Shares, representing approximately 0.4
per cent. of Kensington`s entire issued share capital.
Background to and reasons for the Offer
The Investec Group`s mission is to be a distinctive specialist banking group.
The Investec Group does not seek to be all things to all people and aims to
build well-defined, value-added businesses that serve the needs of select market
niches where it can compete effectively. This distinction is embodied in the
Investec Group`s entrepreneurial culture, which is balanced by a strong risk
management discipline, client-centric approach and ability to be nimble,
flexible and innovative.
The Investec Group aims to pursue a long-term sustainable growth strategy. The
Investec Group aims to deliver on its stated financial targets, through a focus
on organically enhancing and expanding its position where it has significant
scale within its five core areas of activity and three core geographic areas of
operation. In addition the Investec Group has continued to evaluate and consider
"bolt-on" acquisition opportunities that deliver competitive advantages quickly
and efficiently..
In this regard, a core area of focus for the Investec Group has been the
development of specialist principal finance and securitisation activities in the
UK, Europe and South Africa. These activities are conducted by Investec`s
Capital Markets (formerly known as Treasury and Specialised Finance) division,
and have primarily focused on:
- the securitisation of assets originated by Investec`s Private Banking and
Capital Markets division;
- structuring, advising on and implementing third party securitisations; and
- the development of relationships with third party originators in order to
facilitate the warehousing and subsequent securitisation of third party
assets.
Investec has built its principal finance and securitisation activities over the
past two years through the recruitment of a dedicated team and the establishment
of exclusive relationships with two non-conforming mortgage originators,
Infinity Mortgages and Unity Homeloans Group Limited. Investec has a holding of
25 per cent in the latter and has provided these lenders with access to
warehouse funding. In addition to mortgages originated through Infinity and
Unity, Investec has also acquired mortgage portfolios from Amber Homeloans in
order to facilitate the securitisation of these assets. Investec has securitised
mortgages worth GBP550 million since the launch of the franchise. To date
Investec has completed GBP3 billion of securitisations in its UK principal
finance business across the entire range of activities.
The Capital Markets division has successfully leveraged its platforms and
enhanced its capabilities through the introduction of a number of new
initiatives, such as its principal finance and securitisation activities, and
achieved a 55 per cent compound annual growth rate in operating profit before
tax over the past four financial years. In the financial year ended 31 March
2007, the Capital Markets division posted a significant increase in operating
profit before goodwill and non-operating items of 75.3 per cent to GBP117.3
million (2006: GBP66.9 million). Growth was underpinned by a solid performance
from the division`s advisory, structuring, asset creation, trading and
distribution activities, with average advances increasing by 22.2 per cent to
GBP3.0 billion (2006: GBP2.5 billion). A number of the businesses that have been
established over the past two years have generated substantial revenue and have
increased the scale of the franchise..
The combined boards of Investec and Investec Limited believe that the Offer
offers Investec an attractive bolt-on acquisition that, based on the last
reported full year financial results of both companies, would have represented 9
per cent. of the Investec Group`s total assets (excluding loans subject to
securitisation). In addition, Kensington adds a strong mortgage origination
platform and a significantly enhanced presence in the non-standard mortgage
market in the UK, Ireland and Sweden, and will provide Investec`s principal
finance and securitisation activities with a number of attractive opportunities.
Investec has a high regard for the Kensington franchise, in particular:
- Kensington`s strong market position, established distribution capability
and innovative product range has enabled it to complete new advances in
excess of GBP4 billion in the financial year ended 30 November 2006;
- Kensington`s recognised brand and market presence, coupled with its prudent
risk management; and
- Kensington`s track record for service excellence, which has been re-
confirmed by Fitch at the highest residential mortgage special servicer
rating in Europe granted to date.
Investec believes that the transaction represents a compelling strategic fit. It
is a bolt-on acquisition, delivering increased scale in a market in which it is
already present.
Investec has undertaken an extensive due diligence of Kensington`s existing
mortgage book, and operations, and is confident of Kensington`s future prospects
under its ownership. Investec will provide Kensington with access to a stronger
balance sheet, subject to strict allocation criteria, access to lower funding
costs and capital markets expertise.
Investec has identified tangible opportunities for value creation, including the
elimination of head office costs and duplicated functions,, in addition to the
initiatives announced by Kensington today, as well as funding cost benefits. In
addition, leveraging Investec`s stronger balance sheet will provide the option
to write higher quality business and to reduce the proportion of whole loan
sales. Investec believes that integration will be a straightforward process,
leveraging Investec`s extensive integration experience.
The combined boards of Investec and Investec Limited expect the acquisition of
Kensington to be earnings enhancing before synergies in the first full year
following completion. This statement should not be interpreted to mean that per
share earnings of the Investec Group for the current or future financial years,
or those of the combined group, will necessarily match or exceed the historical
published per share earnings of the Investec Group. There will be no changes to
the Investec Group`s financial objectives as a result of this transaction.
Background to and reasons for the recommendation
On 19 February 2007, Kensington announced that it was continuing its review of
the group considering the best options to maximise shareholder value and on 23
March 2007 it confirmed that it was continuing in discussions with a number of
parties who had approached it. The Kensington Directors believe that Investec`s
offer secures Kensington`s future as part of a stronger group with complementary
capabilities at a fair price.
The specialist mortgage market has become increasingly competitive, particularly
from providers with access to lower cost funding Together with the high level
of "teaser" discounts in the UK market - which reduce the margins paid by
customers in the initial lending period - this has put significant downward
pressure on new business margins, whilst at the same time, customer behaviour
has changed with more borrowers waiting until the end of the initial lending
period before switching to another product or lender. This has reduced
Kensington`s income from early redemption charges which has historically been a
significant part of Kensington`s income. Kensington expects that there will be
continued pressure on the Kensington Group`s net interest margin as existing
higher margin mortgages redeem and are replaced by the lower margin loans
currently being written.
Details on Kensington`s trading for the five months ended 30 April 2007 were
released separately by Kensington today. In that announcement, Kensington
stated that "the board is cautious about the short-term prospects for the Group
and expects 2007 total revenue to be significantly below 2006."
As mentioned in that release, the board of Kensington believes that Kensington`s
cost base is too high as a percentage of income. In addition, restrictions under
Kensington`s warehouse funding arrangements have limited Kensington`s ability to
develop new product lines. As a result, Kensington has announced today a number
of immediate important initiatives:
- a cost reduction programme targeting annualised savings in the region of
GBP8 million to be delivered by the end of two years, including the
elimination of certain duplicated functions across the Kensington Group and
the automation of certain business processes;
- a GBP9 million capital investment in information technology to increase
automation, enhance efficiency and improve competitiveness at the point of
sale; and
- entry into a number of market segments where, subject to making appropriate
funding arrangements, Kensington will be able to leverage its existing
distribution platform and underwriting skills.
Kensington`s principal funding source of working capital has been to raise debt
secured against the Kensington Group`s retained interests in its securitised
mortgage book. This funding has been used to support writing new business,
contribute to Kensington overheads and finance investments in new initiatives.
Historically, on completion of a securitisation Kensington was able to raise
debt to cover all of the origination costs of the mortgages and the
securitisation costs including a contribution of collateral to the
securitisation vehicles. As the value of new business has reduced, Kensington is
no longer able to raise sufficient debt to cover all of these initial costs and
therefore requires working capital to be found from other sources. As a result
of this financing constraint, Kensington has increased the proportion of whole
loan sales which generate cash on disposal. The Kensington Directors expect
that in the region of 60 per cent. of Kensington`s lending in 2007
(approximately 25 per cent. in 2006) will be sold.
One consequence of the business review is that the board of Kensington has come
to the view that as an independent entity, the Kensington Group may not be able
to raise sufficient capital in the debt markets to support significant growth in
the size of the managed loan book.
The Kensington Directors believe that the combination of Investec`s stronger
balance sheet, access to lower cost of funding and capital markets expertise,
together with Kensington`s recognised brand, established distribution,
innovative product range, prudent risk management and track record for excellent
service will create a strong combination for the growing non-standard mortgage
marketplace.
As the consideration for Kensington is primarily in the form of shares,
Kensington Shareholders will have an opportunity to share in value created from
the combination and will also benefit from Investec`s broader franchise across a
range of markets and geographies.
Directors` irrevocable undertakings
Each of Peter Birch, Alison Hutchinson and Gareth Jones, who are the only
Kensington Directors holding Kensington Shares, has irrevocably undertaken to
vote in favour of the resolutions to be proposed at the Court Meeting and the
Extraordinary General Meeting in respect of their registered holdings of
Kensington Shares, and to direct, where possible, or otherwise use their
reasonable endeavours to arrange, that the registered holder should vote in
favour in relation to their other beneficial shareholdings. Further details are
set out in Appendix III to this announcement.
Implementation Agreement
Kensington and Investec have today entered into the Implementation Agreement
which provides, among other things, for the implementation of the Scheme and
contains assurances and confirmations between the parties, including provisions
to implement the Scheme on a timely basis and governing the conduct of the
business of Kensington. In particular, the Implementation Agreement contains the
following principal provisions:
Termination provisions
The Implementation Agreement may, subject to compliance with the City Code and
the requirements of the Panel, terminate in certain circumstances, including:
- in the event such termination is agreed in writing between Kensington and
Investec at any time before the Effective Date;
- upon service of a written notice by one party to the other party in the
event of a material breach by the other party of any of the obligations set
out in the Implementation Agreement which, if capable of remedy, it has
failed to remedy within seven Business Days of a written notice from the
other party requesting the same;
- upon the delivery of a notice in writing from one party to the other if it
is announced by or on behalf of Kensington that the Kensington Directors
have determined not to give, or to withdraw, modify or qualify its
recommendation of the Offer;
- upon the Offer lapsing;
- if an Alternative Proposal (or any amendment, variation or revision of such
Alternative Proposal) becomes or is declared wholly unconditional or is
completed or a scheme in connection with such Alternative Proposal becomes
Effective;
- if the Kensington Shareholders do not vote to approve the Acquisition at
the Court Meeting or the EGM Resolution is not approved at the
Extraordinary General Meeting;
- if the Court Order(s) are not granted or (save as the parties may otherwise
agree in writing) the Effective Date has not occurred on or before 28
September 2007; and
- if Investec elects, in accordance with the provisions of the Implementation
Agreement, to implement the Offer by way of Takeover Offer, if the Takeover
Offer, once announced under Rule 2.5 of the City Code, lapses in accordance
with its terms or is withdrawn or not made.
Break fee arrangements
In the event that the Implementation Agreement terminates after the release of
this announcement as a result of (a) a material beach by Kensington of any of
the obligations set out in the Implementation Agreement which, if capable of
remedy, it has failed to remedy within seven Business Days of a written notice
from Investec requesting the same; or (b) the occurrence of any of the events
contemplated by (i) paragraph (c) or (e) above; or (ii) paragraph (f) or (g)
above arising as a result of a material breach by Kensington falling within (a),
then Kensington shall pay to Investec a break fee of 1 per cent of the value of
the Offer.
Further information regarding the Implementation Agreement will be set out in
the Scheme Document.
Information on the Investec Group
The Investec Group is an international, specialist banking group that provides a
diverse range of financial products and services to niche clients in three
principal markets, the UK, Australia and South Africa, as well as certain other
geographies. The Investec Group comprises the following business divisions:
Investment Banking
Capital Markets
Private Client Activities
Asset Management
Property Activities
Since the Investec Group was founded in South Africa in 1974, it has expanded
through a combination of substantial organic growth and a series of strategic
acquisitions in South Africa, the UK and Australia, and other geographies in
which the Investec Group operates. The Investec Group`s strategic goals and
objectives are motivated by the desire to develop an efficient and integrated
business on an international scale through the active pursuit of clearly
established core competencies in the group`s principal business areas. The
Investec Group`s philosophy has been to build well-defined, value-added
businesses focusing on serving the needs of select market niches where the group
can compete effectively. The Investec Group employs approximately 5,400 people
world-wide.
In July 2002, the Investec Group implemented a dual listed company structure
with listings on the London and Johannesburg Stock Exchanges. The combined
group`s current market capitalisation is approximately GBP4.3 billion.
For the year ended 31 March 2007, the Investec Group reported total profit
before tax (before goodwill and exceptional items) of GBP466.6 million, assets
of GBP26.3 billion and total capital resources of GBP2.7 billion.
Information on the Kensington Group
Founded in 1995, Kensington is a specialist lender offering first and second
charge mortgages. Kensington specialises in lending to people who do not conform
to the rigid criteria of traditional lenders, such as the self-employed,
contractors, older borrowers, temporary employees and those with adverse credit
history.
The Kensington Group includes two wholly-owned subsidiaries which trade as
Kensington Mortgages and Kensington Secured Loans and its Money Partners joint
venture; its subsidiary Start Mortgages in Ireland; and its associate Bluestep
in Sweden.
Kensington completed GBP4,066 million of loans in 2006 and has completed over
150,000 loans and advanced more than GBP14 billion of mortgages since 1995. As
at 30 April, 2007, Kensington had mortgage assets under management of GBP7.1
billion.
For the financial year ended 30 November 2006, Kensington reported total revenue
of GBP202.0 million and generated group profit before tax and goodwill
impairment of GBP65.2 million and earnings per share (excluding tax adjustments
in respect of prior periods and goodwill impairment) of 86.6 pence. Reported
profit before taxation amounted to GBP49.1 million, earnings attributable to
shareholders amounted to GBP36.3 million and basic earnings per share amounted
to 69.5 pence. Kensington reported net assets of GBP180.3 million as at 30
November 2006 and total assets of GBP8,101.4 million. Excluding mortgage loans
subject to securitisation less provision for impairment, total assets as at 30
November 2006 amounted to GBP2,481.6 million.
Management and employees of Kensington
Investec attaches great importance to the skills and experience of the current
management team and employees of Kensington. Accordingly, Investec intends that
Alison Hutchinson and other members of the management team will continue to be
involved in the ongoing business following the completion of the Offer. The
board of Investec confirms that it intends to safeguard the existing employment
rights, including pension rights, of all employees of Kensington.
Kensington Share Schemes
At the same time as, or as soon as practicable following, publication of the
Scheme Document, Kensington will write to participants in the Kensington Share
Schemes to inform them of the effect of the Offer on their rights under the
Kensington Share Schemes and to set out appropriate proposals to the holders of
options.
Structure of the Offer
The Offer is to be effected by means of a scheme of arrangement between
Kensington and its Shareholders under section 425 of the Companies Act. The
procedure involves an application by Kensington to the Court to sanction the
Scheme and to confirm the cancellation of the existing Scheme Shares and the
issue of new Kensington Shares to Investec, in consideration for which Scheme
Shareholders will receive new Investec Shares. The cancellation and subsequent
issue of new Kensington Shares to Investec will result in Kensington becoming a
wholly-owned subsidiary of Investec.
To become Effective, the Scheme requires, amongst other things, the approval of
a majority in number of the Kensington Shareholders present and voting (and
entitled to vote) at the Court Meeting, either in person or by proxy, and
representing not less than three-fourths in value of the relevant Kensington
Shares voted at the Court Meeting (or any adjournment thereof), together with
the sanction of the Court and the passing of the resolutions necessary to
implement the Scheme and sanction the related capital reduction at the
Extraordinary General Meeting.
The Conditions to the Offer are set out in Appendix I to this announcement.
Once the necessary approvals from Kensington Shareholders have been obtained and
the other Conditions have been satisfied or (where applicable) waived, following
sanction of the Court, upon delivery to and, in the case of the associated
reduction of capital, registration of the Court Order by the Registrar of
Companies of England and Wales the Scheme and associated reduction of capital
will become Effective. Upon the Scheme becoming Effective, it will be binding on
all Kensington Shareholders, irrespective of whether or not they attended or
voted at the Court Meeting or the Extraordinary General Meeting, or those who
could not be traced. The Scheme is expected to become Effective by the end of
August 2007.
It is expected that, following the Effective Date, Kensington`s listing on the
Official List of the UK Listing Authority and admission to trading on the London
Stock Exchange will be cancelled and Kensington will be re-registered as a
private company under the relevant provisions of the Companies Act. On the
Effective Date, share certificates in respect of Kensington Shares will cease to
be valid and entitlements to Kensington`s Shares held within the CREST System
will be cancelled.
Applications will be made to the UK Listing Authority for the new Investec
Shares to be issued pursuant to the Scheme to be admitted to the Official List
and to trading on the London Stock Exchange.
A detailed timetable will be included in the Scheme Document.
Disclosure of interests in Kensington
Neither Investec nor any of the directors of Investec nor, so far as the
directors of Investec are aware, any other person acting in concert with
Investec for the purposes of the Offer, owns, controls, holds, or has borrowed
or lent any Kensington Shares or any securities convertible or exchangeable into
Kensington Shares or rights to subscribe for or purchase or options (including
traded options) in respect of, or derivatives referenced to, any such Kensington
Shares. In view of the requirement for confidentiality, Investec have not made
any enquiries in respect of certain parties who may be deemed by the Panel to be
acting in concert with either of them for the purposes of the Offer.
Neither Investec nor, so far as Investec is aware, any person acting in concert
with Investec, has entered into any arrangement in relation to relevant
Kensington securities. For these purposes, "arrangement" includes any indemnity
or option arrangement, any agreement or understanding, formal or informal, of
whatever nature, relating to relevant Kensington securities which may be an
inducement to deal or refrain from dealing in such securities.
Overseas shareholders
The availability of the Offer to persons not resident in the United Kingdom may
be prohibited or affected by the laws of the relevant jurisdictions. Such
persons should inform themselves about, and observe, any applicable
requirements. Further details in relation to overseas shareholders will be
contained in the Scheme Document.
General
Investec reserves the right to elect to implement the acquisition of the
Kensington Shares by way of a Takeover Offer as an alternative to the Scheme.
Any such Takeover Offer will be subject to a 90 per cent. acceptance condition
and will otherwise be implemented on the same terms (subject to appropriate
amendments), so far as applicable, as those which would apply to the Scheme and
in compliance with applicable laws and regulations.
The Offer will be made on the terms and subject to the Conditions set out in
Appendix I to this announcement and to be set out in the Scheme Document and
Forms of Proxy. The Scheme Document will include full details of the Scheme,
together with notices of the Court Meeting and the Extraordinary General
Meeting, the expected timetable and the Forms of Proxy. These will be despatched
to Kensington Shareholders and for information only, to holders of options
granted under Kensington Share Schemes, in due course. The Offer will be
governed by English law. The Scheme will comply with the applicable rules and
requirements of the City Code, the Panel, the London Stock Exchange and the
Financial Services Authority and all applicable securities laws.
In deciding whether or not to vote in favour of the Scheme, Kensington
Shareholders should rely on the information contained in, and follow the
procedures described in, the Scheme Document and the Forms of Proxy.
In accordance with Rule 2.10 of the City Code, as at the date of this
announcement, the issued share capital of Kensington comprises 52,606,507
Kensington Shares. Unexercised options are outstanding over a total of 1,853,719
Kensington Shares.
Details of the sources of information and basis of calculation of certain
information set out in this announcement are included in Appendix II. Details of
the directors` irrevocable undertakings received by Investec in relation to the
Offer are set out in Appendix III. Certain expressions used in this announcement
are set out in Appendix IV.
Enquiries:
Investec Tel: +44 20 7597 5546
Stephen Koseff, Chief Executive Officer
Bernard Kantor, Managing Director
Bradley Fried, Chief Executive Officer, Investec Bank (UK) Limited
Citi (financial adviser to Investec) +44 20 7986 4000
Christopher Williams
Andrew Reiniger
David Plowman
Merrill Lynch (corporate broker to Investec) +44 20 7996 1000
Andrew Fairclough
Will Smith
Citigate (public relations adviser to Investec) +44 20 7638 9571
Jonathan Clare
Tom Baldock
Kensington +44 20 7297 7834
Alison Hutchinson, Group Chief Executive
Roger Blundell, Group Finance Director
Rothschild (financial adviser to Kensington) +44 20 7280 5000
Robert Leitao
Stuart Vincent
Panmure Gordon (corporate broker to Kensington) +44 20 7614 8300
Tim Linacre
Financial Dynamics (public relations adviser to Kensington) +44 20 7269 7229
Geoffrey Pelham-Lane
Charles Gorman
Citigroup Global Markets Limited ("Citi"), which is authorised and regulated in
the UK by the Financial Services Authority, is acting exclusively as financial
adviser for Investec and no one else in connection with the Offer and will not
be responsible to anyone other than Investec for providing the protections
afforded to clients of Citi or for providing advice in relation to the Offer or
any other matters referred to in this announcement.
Merrill Lynch International ("Merrill Lynch"), which is authorised and regulated
in the UK by the Financial Services Authority, is acting exclusively as
corporate broker for Investec and no one else in connection with the Offer and
will not be responsible to anyone other than Investec for providing the
protections afforded to clients of Merrill Lynch International or for providing
advice in relation to the Offer or any other matters referred to in this
announcement.
N M Rothschild & Sons Limited ("Rothschild"), which is authorised and regulated
in the UK by the Financial Services Authority, is acting exclusively as
financial adviser for Kensington and no one else in connection with the Offer
and will not be responsible to anyone other than Kensington for providing the
protections afforded to clients of Rothschild or for providing advice in
relation to the Offer or any other matters referred to in this announcement.
Panmure Gordon (UK) Limited ("Panmure Gordon"), which is authorised and
regulated in the UK by the Financial Services Authority, is acting exclusively
as corporate broker for Kensington and no one else in connection with the Offer
and will not be responsible to anyone other than Investec for providing the
protections afforded to clients of Panmure Gordon or for providing advice in
relation to the Offer or any other matters referred to in this announcement.
Further information on the Offer
This announcement is not intended to and does not constitute an offer or
invitation to purchase, sell or exchange any securities or the solicitation of
any vote or approval in any jurisdiction pursuant to the Offer or otherwise, nor
shall there be any purchase, sale or exchange of securities or such solicitation
in any jurisdiction in which such offer, solicitation or sale or exchange would
be unlawful prior to registration
