| Mon 20 Aug 2007, 17:00 | | ABL / ABLP - ABIL - Proposed Acquisition By ABIL O |
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ABL ELH ABLP
ABL
ABL / ABLP - ABIL - Proposed Acquisition By ABIL Of The Entire Issued
Ordinary Share Capital Of Ellerines And Cautionary Announcement
AFRICAN BANK INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1946/021193/06)
(Registered bank controlling company)
Ordinary share code: ABL & ISIN: ZAE000030060
Preference share code : ABLP & ISIN: ZAE000065215
("ABIL")
ELLERINE HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1968/013402/06)
Share code: ELH & ISIN: ZAE000022752
("Ellerines")
PROPOSED ACQUISITION BY ABIL OF THE ENTIRE ISSUED ORDINARY SHARE CAPITAL OF
ELLERINES AND CAUTIONARY ANNOUNCEMENT
1. Introduction
ABIL and Ellerines shareholders ("shareholders") are advised that ABIL
has submitted a letter to the board of directors of Ellerines wherein
ABIL has expressed its interest in acquiring the entire issued ordinary
share capital of Ellerines ("the Transaction"). The Board of Ellerines
has considered the letter, is supportive of the strategic rationale,
and believes there is merit in progressing the Transaction.
Accordingly, both Ellerines and ABIL have permitted due diligence
investigations to commence on each other.
Shareholders should note that the abovementioned letter does not
constitute a notice of firm intention to make an offer. The making of
such an offer will be dependent inter alia upon the successful outcome
of the due diligence exercises.
2. Purchase consideration
The proposed purchase consideration for the Transaction has been based
on an offer price of R85.00 per Ellerines ordinary share, which
translates into R9.85 billion. ABIL intends to settle the purchase
consideration by way of an issue of new ABIL ordinary shares.
Based on the 30-day volume weighted average price ("VWAP") of ABIL, as
at close of business on 17 August 2007, of R32.10, the purchase
consideration translates into an exchange ratio of 265 ABIL ordinary
shares per 100 Ellerines ordinary shares.
In order to maintain the current level of BEE ownership in ABIL, after
the new issue of shares, ABIL is proposing to reserve 3.75% of the
purchase consideration ("BEE reserved shares"). These shares are to be
used to facilitate a BEE programme (similar to ABIL`s Eyomhlaba
programme) targeted at the Ellerines business, its preferred BEE
partners and its other stakeholders, which will be implemented shortly
after the conclusion of the Transaction.
Accordingly, after deducting the BEE reserved shares, Ellerines
shareholders would receive a net purchase consideration of 255 ABIL
ordinary shares per 100 Ellerines ordinary shares.
The following table sets out the details of the purchase consideration
Value Exchange ABIL shares
Ratio to be issued
R Millions Note 1 Millions
Gross valuation 9 850 265 307
BEE reserved shares (372) (10) (12)
Net consideration 9 478 255 295
Note 1 - number of new ABIL ordinary shares per 100 Ellerines ordinary
shares
The purchase consideration of R85.00 (R81.81 after the BEE reserved
shares) results in the following premiums to Ellerines shareholders:
Premium based Premium net
on gross of BEE
consideration reserved
shares
Based on Ellerines closing price of 47% 41%
R58.00 on 17 August 2007
Based on Ellerines 30 day VWAP to 17 32% 27%
August 2007 of R64.28
3. ABIL`s rationale for the Transaction
ABIL believes that the recent introduction of the National Credit Act
("NCA") will have a profound effect on the landscape of the credit
markets in South Africa, particularly within ABIL`s target market.
ABIL believes that, over time, the NCA will result in greater
competition, a wider variety of choice and utility, and generally a
lower cost of credit to consumers, which in turn will grow the size of
the market.
It is ABIL`s intention to continue to grow its business to significant
scale so that it can further lower the cost of credit to its clients
and accelerate the innovation of new credit products and risk
underwriting models to be a frontrunner in the changing landscape of
the credit markets. To this end ABIL has been pursuing a growth
strategy in terms of the number of clients it services, and the size of
its advances book. To date, this has been achieved largely through
ABIL`s risk segmentation and price differentiation strategy, (which,
particularly for lower risk clients, has resulted in larger loans for
longer terms being offered), the lowering of the cost of credit to its
clients and an expanded distribution network of branches.
ABIL believes that the credit furniture retail market offers attractive
growth opportunities, and that Ellerines offers a strong strategic fit
to pursue these strategies. The Ellerines group is a successful and
established retail business operating a number of well known household
brands through some 1 300 outlets. In its retail credit divisions, the
Ellerines group sells furniture, appliances and electronic goods
largely on credit to clients that fit within the market that ABIL
targets. ABIL estimates that approximately 70% of Ellerines` profits
are derived from its financial services activities (credit and
insurance) and 30% from its retail activities.
It is ABIL`s belief that over time the credit activities of retailers
will become increasingly disintermediated. At present however, the
retailing of furniture and the provision of related credit are
inextricably linked. Furthermore, whilst vulnerable to change under
the credit markets, the furniture retailers have a strong point-of-sale
advantage and a loyal client base.
The joining of the two businesses under a single ownership structure
will optimise the opportunities to play a leading role in the reshaping
of the retail and financial services offering to this market.
Ellerines has a proven and experienced retail expertise, and ABIL is
confident that the retail business will continue to grow and increase
its market share, powered by an enhanced financial services offering.
4. Ellerines` rationale for the Transaction
Expansion of financial services is a stated strategic priority of
Ellerines and the Ellerines group has spent the past 30 months
exploring numerous possibilities in this regard. Identification of an
ideal partner and an optimal structure has proven to be extremely
difficult. Ellerines believes that financial services forms the
backbone of its "customer for life" strategy and that the retail
business can benefit significantly by complementary financial services
offerings.
Ellerines` vision has for some time contemplated the creation of a
powerful consumer finance organisation, capable of offering a wide
range of consumer finance, insurance and banking products. At the same
time, the Ellerines group has been highly concerned about the ongoing
loss of its traditional credit retail customers to the banking sector,
and has been actively seeking ways of taking advantage of this
movement.
The Ellerines Board believes that this Transaction with ABIL offers the
perfect opportunity to fulfil its strategic objectives, stem the loss
of retail credit customers and provides the ideal platform, to address
the growing burden of regulatory compliance and to rapidly expand the
Ellerines group`s reach and range of financial services products.
ABIL`s proven expertise in credit risk optimisation and its highly
effective analytics expertise will provide a significant boost to
Ellerines` credit capabilities. Ellerines also shares ABIL`s views in
striving to lower the cost of credit. The Ellerines` board believes
that ABIL provides an excellent fit with the group.
5. Benefits from the Transaction
The major opportunities and advantages that emerge from the combining
of the two groups are as follows:
- greater critical mass for the financial services business of the
combined group. The combining of the two groups will double the
joint client base to more than two million active credit clients
and increase the gross advances book to approximately R16 billion.
The benefits of this critical mass will allow the group to become
more cost efficient and thereby allow it to further reduce the
cost of credit to the market;
- a greater distribution footprint with over 1 900 branches and
outlets, compared to ABIL`s existing 600 branches and outlets,
improving client accessibility and service;
- the ability to introduce ABIL`s greater price and risk
differentiation underwriting models into the Ellerines
distribution channel. This creates greater credit capacity for
lower risk clients, which in turn creates greater purchasing power
and increased market share;
- improved product offerings and flexibility for Ellerines clients.
ABIL intends to implement and further innovate its card-based
technology to offer retail clients a more flexible credit offering
with greater convenience. This will also give ABIL the
opportunity to achieve critical mass in its card operations;
- Ellerines operates in a wider target market than ABIL and unlike
ABIL has gained experience in lending to clients that are
informally employed and/or who do not have bank accounts. This
will enable ABIL to expand its target market through the increased
distribution footprint and gain experience in these areas; and
- ABIL estimates that there is approximately R2 billion of surplus
capital in Ellerines that can over time be more effectively funded
via debt and Tier 2 capital instruments. This in turn will lower
the weighted average cost of capital, enabling more competitive
product pricing to the credit markets.
6. Conditions precedent
A notice of firm intention to make an offer by ABIL will be subject to
the satisfactory completion of due diligence investigations by ABIL and
Ellerines on each other`s businesses and the initial support of the
Transaction by the Board of Ellerines.
The parties have agreed that there would be no price adjustment if the
results of either due diligence investigation reflect a decrease in the
most recent reported net asset value of either of the respective
businesses of 5% or less of such reported values. In the case of
Ellerines this would amount to approximately R250 million and in the
case of ABIL approximately R100 million.
In the event that ABIL and Ellerines proceed with the Transaction, it
will be subject to, inter alia, the fulfilment or waiver of the
following conditions precedent:
- the independent external adviser to Ellerines expressing an
opinion that the offer is fair and reasonable to Ellerines
shareholders
- obtaining the requisite shareholder approvals;
- obtaining the requisite regulatory approvals to the extent
necessary from, inter alia:
- the Registrar of Banks, who has already given an "in
principle" approval for the Transaction;
- the Financial Services Board;
- the JSE Limited and the Securities Regulation Panel;
- the South African Reserve Bank; and
- the competition authorities.
7. Further announcement and cautionary
A further announcement containing details of the Transaction will be
released on SENS and published in the press in due course.
Shareholders are advised to exercise caution when dealing in their ABIL
and/or Ellerines shares until a further announcement is made.
Conference call
Leon Kirkinis, ABIL CEO, will conduct a conference call for investors on
Tuesday, 21 August 2007.
Participants are invited to download a slide presentation from the company`s
website prior to the conference call at www.africanbank.co.za.
Conference call times:
South Africa: 16:00
United States: 10:00 Eastern Time
United Kingdom: 15:00
Access numbers for participants dialling from their country:
South Africa Toll 011 535 3600
Toll Free 0800 200 648
United States Toll 1 412 858 4600
Toll Free 1800 860 2442
United Kingdom Toll Free 0800 917 7042
Playback
A replay of the recording will be available for 48 hours until 23 August
2007, should you be unable to participate in the call and wish to listen to
the announcement.
Midrand Bedfordview
20 August 2007
Merchant Bank and sponsor to ABIL
Rand Merchant Bank (A division of FirstRand Bank Limited)
Attorneys to ABIL
Prinsloo, Tindle & Andropoulos Inc.
Investment Bank and transactional sponsor to Ellerines
Investec Corporate Finance
Attorneys to Ellerines
Cliffe Dekker
Sponsor to Ellerines
Nedbank Capital
Date: 20/08/2007 17:00:10 Produced by the JSE SENS Department.
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