| Wed 27 Feb 2008, 8:04 | | IPL / IPLP - Imperial Holdings - Detailed cautionary announcement |
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IPL / IPLP - Imperial Holdings - Detailed cautionary announcement
Imperial Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1946/021048/06)
Ordinary share code: IPL ISIN: ZAE000067211
Preference share code: IPLP ISIN: ZAE000088076
("Imperial" or "the Company")
Detailed cautionary announcement regarding the proposed listing on
the JSE Limited of Imperial`s Leasing and Capital Equipment division
and the unbundling of 100% of Imperial`s interest in the Leasing and
Capital Equipment division and the proposed buy-out of MCC minority
shareholding
Introduction
Further to the cautionary announcements released on SENS on 1
November 2007, 13 December 2007 and 24 January 2008, Imperial is
pleased to announce details of the proposed transaction framework
which, if implemented, will result in listing on the JSE Limited
("JSE") of its Leasing and Capital Equipment division which will have
been incorporated under a single entity, Eqstra Holdings Limited
("Eqstra") followed by the unbundling of 100% of Imperial`s interest
in Eqstra ("the unbundling"), the replication of the Imperial Black
Economic Empowerment ("BEE") structure in Eqstra ("BEE transactions")
and the proposed buy-out of the MCC group of companies` ("MCC")
minority shareholders in exchange for shares in the listed Eqstra
("MCC minority transaction") ("collectively the "transactions").
Rationale for the transactions
Through its decentralized approach, Imperial has proven its ability
to create businesses of considerable scale and with the maturity to
grow independently and attract their own debt and equity investor
bases. The Imperial board is of the opinion that Eqstra, which
comprises Imperial Fleet Services, Imperial Flexi Fleet, Saficon
Industrial Equipment, Impact Forklifts (UK), MCC and the
distributorships for Terex and New Holland earth moving equipment,
being a business of significant scale which lends itself to a high
degree of financial leverage, has reached that point.
The capital structure of Imperial, which is maintained in accordance
with the rating parameters of its debt capital market funding
program, does not allow Imperial to attract the requisite debt
funding to continue to fund the robust growth that is being
experienced by Eqstra. The asset intensive nature of the Eqstra
balance sheet and its strong annuity cash flow stream, allows this
business to adopt and maintain substantially higher gearing
parameters in order to fund its growth on a sustainable basis.
Eqstra as a provider of earthmoving services and equipment is well
positioned as a supplier to the mining and construction sectors.
These sectors offer significant growth potential given global demand
for commodities and the South African infrastructural development
curve. Furthermore, Eqstra is an established leasing company offering
full lifecycle leasing services to the corporate sector, local and
national government. It had an asset base of R 7.6 billion at 25 June
2007, comprising of earthmoving and materials handling equipment,
commercial and passenger vehicles.
The board believes that the unbundling will enhance shareholder value
through:
- unlocking the growth potential of Eqstra by structuring its
balance sheet appropriately;
- unlocking more growth potential for Imperial by the elimination
of the high capital demands of the leasing business from its
portfolio of businesses;
- providing shareholders with direct exposure to a mining and
infrastructure related investment;
- achieving sharper focus in the operations of the two listed
entities; and
- an improved exposure of the intrinsic value of the two listed
entities.
Future prospects of the Imperial Group
Subsequent to the unbundling of Eqstra and the intended disposal of
its aviation leasing businesses, Safair (Proprietary) Limited, Air
Contractors Limited and the 50% interest in Safair Lease Finance
(Proprietary) Limited, and the disposal of its interest in Tourism
Investment Corporation (Proprietary) Limited, Imperial will be
simplified through the removal of its consolidated capital intensive,
quasi-banking activities. It will, however, retain its exposure to
vehicle related banking through its equity accounted share in
Imperial Bank, for which it has no funding obligations. This will not
only ensure management focus but will also create a balance sheet
with sufficient capital to pursue new and related growth
opportunities.
The closure of the heavy truck assembly and distribution operations
of Commercial Vehicle Holdings, which was previously announced,
eliminated another capital intensive business with the long working
capital cycle typical of that business. The group retains its truck
dealerships which are part of its vehicle franchise operations.
After the unbundling the group will operate in logistics in South
Africa and Europe, car rental, and in integrated motor vehicle
importation, retailing and financial services. Its objective will be
to capitalise on the market leading positions and scale in these
areas and enhance its exposure through organic and acquisitive means.
Enabled by the release of capital from the abovementioned strategic
initiatives, expansion into new initiatives related to logistics and
services will be explored. Diversification will be aimed at service
related fields and areas of the economy where Imperial`s
distribution, logistics, and financial services skills and platforms
create an advantage.
Subsequent to the unbundling and disposals Imperial will consist of
three primary divisions, Logistics and Transport, Car Rental and
Related Tourism Services, and Retail and Financial Services.
Details of the transactions
The unbundling will result in the creation of a separately listed
entity.
Eqstra will comply with relevant BEE legislation and anticipates
obtaining an independent assessment from a recognised BEE rating
agency. From an ownership perspective, Eqstra is anticipated to have
approximately 15.7% black equity ownership at the outset (when
considering the impact of the MCC minority transaction as referred to
below).
The unbundling and listing of Eqstra will be accompanied by the
replication of the existing Imperial BEE ownership structure,
consisting of two BEE partners, namely Ukhamba Holdings (Proprietary)
Limited ("Ukhamba") and Lereko Mobility (Proprietary) Limited
("Lereko Mobility"). Furthermore, through the MCC minority
transaction set out below, Nozala Investments (Proprietary) Limited
("Nozala") will become a direct shareholder in Eqstra.
The capital structure of Imperial and Eqstra will be optimised,
including elevating the MCC minorities to the level of the listed
Eqstra and retaining the balance sheet capacity to take advantage of
growth opportunities.
The salient terms of the respective transactions, which transactions
will be implemented consecutively, are set out below:
MCC minority transaction
In anticipation of the unbundling, an agreement has been reached for
Imperial to acquire, subject to the listing of Eqstra, the minority
interests in MCC by issuing new shares in the listed Eqstra to the
MCC minority shareholders ("the minority consideration shares"). As a
consequence, MCC minorities will receive 46,260,000 shares in Eqstra,
representing approximately 16% of the issued shares of Eqstra, as
consideration and MCC will be one of the largest business units in
Eqstra.
The acquisition of the MCC minority interest will better position
Eqstra for growth as it simplifies and strengthens the capital
structure and aligns shareholder interests.
Background on MCC
MCC specialises in opencast contract mining of chrome, platinum, gold
and other base metals. MCC is an industry leader in the opencast hard
rock mining, environmental mining and planning, bulk earthworks and
ground rehabilitation. MCC will design and implement a mining plan
and deliver the final product at an economical cost per cubic meter
or tonnes. In-depth project planning, rehabilitation, surface
blasting, hard rock mining and ore recovery are all part of the
complete mining package offered by MCC. MCC does not take any
operational mining risk, which remains with the mining company.
MCC and its subsidiaries ("the MCC Group") offer one of the largest
fleets of opencast mining equipment in South Africa. The MCC group`s
commitment extends to provide drilling and blasting expertise by
providing explosive technology and products to support the mining and
earthmoving industry. MCC`s project management division offers an all-
in-one service, backed by the most sophisticated software and design
expertise to assist clients in assessing any job and recommending the
right plant at the most economical cost per unit. Project management
is a service that is equipped with experienced qualified
professionals. This division has operated throughout Southern Africa
with projects currently in South Africa, Zimbabwe and Namibia.
Parties to the MCC minority transaction
MCC consists of Civil Finance Company (Proprietary) Limited,
Explotech Marketing Services (Proprietary) Limited, Five Six Seven
Glen Austin (Proprietary) Limited, MCC Contracts (Proprietary)
Limited, Mutual Construction Company (Transvaal) (Proprietary)
Limited, Dorstland Earth Moving (Proprietary) Limited and MCC Mining
(Proprietary) Limited.
The MCC minorities consist of BM Coetzer, SD Coetzer, Topclass
Ventures (Proprietary) Limited (a company controlled by MR Barnes),
Michael Reid Barnes Investments (Proprietary) Limited (a company
controlled by MR Barnes), TJ Adams, RD Bethwaite, NM Claassen,
Newshelf 774 (Proprietary) Limited (a company controlled by Nozala)
and JC Pretorius.
Related Parties
Certain of the MCC minorities are also directors of MCC companies and
are, therefore, classified as related parties as defined in the JSE
Listings Requirements. Consequently, a fairness opinion from an
independent professional expert acceptable to the JSE, required in
terms of paragraph 10.4(f) of the JSE Listings Requirements is being
obtained.
The relevant directors are as follows:
Director Directorship held in Effective interest in MCC
minority transaction (%)
MR Barnes MCC Contracts 68.5% of the minority
(Proprietary) Limited consideration shares
Explotech Marketing 10.9% interest in Eqstra
Services (Proprietary) with 31 238 650 shares
Limited through Topclass Ventures
Mutual Construction (Proprietary) Limited) and
Company (Transvaal) 450 551 shares through
(Proprietary) Limited Michael Reid Barnes
Civil Finance Company Investments (Proprietary)
(Proprietary) Limited Limited
Five Six Seven Glen
Austin (Proprietary)
Limited
MCC Mining
(Proprietary) Limited
T Adams MCC Contracts 2.4% of the minority
(Proprietary) Limited consideration shares
0.4% interest in Eqstra
with 1 118 400 shares
JC Pretorius MCC Contracts 7.3% of the minority
(Proprietary) Limited consideration shares
1.2% interest in Eqstra
with 3 355 200 shares
S Dakile- MCC Contracts 17.9% of the minority
Hlongwane (Proprietary) Limited consideration shares
(nominated by Mutual Construction 2.9% interest in Eqstra
Nozala) Company (Transvaal) with 8 272 000 shares held
(Proprietary) Limited by Nozala through Newshelf
774 (Proprietary) Limited
SD Coetzer Explotech Marketing 1.0% of the minority
Services (Proprietary) consideration shares
Limited 0.2% interest in Eqstra
with 434 160 shares in
Eqstra
S Vos Mutual Construction 0.8% of the minority
Company (Transvaal) consideration shares
(Proprietary) Limited 0.1% interest in Eqstra
with 367 200 shares
N Claassen Mutual Construction 0.8% of the minority
Company (Transvaal) consideration shares
(Proprietary) Limited 0.1% interest in Eqstra
with 367 200 shares
R Bethwaite Mutual Construction 0.8% of the minority
Company (Transvaal) consideration shares
(Proprietary) Limited 0.1% interest in Eqstra
with 367 200 shares
In addition, as described in 5.2 below, the related parties will not
be allowed to vote on the approval for the MCC minority transaction,
in accordance with the JSE Listings Requirements.
Pricing
The original agreement between Imperial and the MCC minorities
provided for a buy-out in 2010 at a price based on a pre-determined
formula. The parties have agreed, based on the terms of that
agreement and also the anticipated performance of MCC, that a value
of R1 156 500 would be placed on the 49.9% interest currently owned
by the minority shareholders. In consideration for their shares in
MCC, MCC minorities will be issued shares in the listed company,
Eqstra. Based on the agreed terms, MCC minorities will hold
approximately 16% equity interest in Eqstra.
The purchase price payable shall be discharged through the issue of
the minority consideration shares, subject to the fulfilment of the
conditions precedent (contained in paragraph 5 below), by the
allotment and issue to each MCC minority, on the Eqstra listing date,
of the relevant number of Eqstra shares which equates to the value,
of the relevant shareholders` minority interest.
Listing and unbundling
Eqstra will, subject to the fulfilment of the suspensive conditions
of the unbundling (contained in paragraph 5 below), be listed on the
JSE on or about 12 May 2008, upon which Imperial will unbundle 100%
of its interest in Eqstra to all Imperial shareholders. Accordingly,
Imperial will distribute, in compliance with section 90 of the
Companies Act and in terms of section 46 of the Income Tax Act, 212
129 870 Eqstra shares to the Imperial ordinary shareholders in
proportion to such Imperial ordinary shareholders` ordinary
shareholding in Imperial.
Taking into account the 46 260 000 shares issued to the MCC
minorities, as set out above, Eqstra will have a total of 258 389 870
ordinary share outstanding and listed after the implementation of the
transaction.
Entitlement ratio
At 27 February 2008, the number of ordinary shares in the issued
share capital of Imperial was 212 129 870. At the record date, the
number of Eqstra shares which will be held by Imperial will be the
same number of ordinary shares as the issued share capital of
Imperial at that date. Following the fulfilment of the suspensive
conditions of the unbundling, each Imperial ordinary shareholder will
receive one Eqstra share for each Imperial ordinary share held on the
record date of the unbundling.
Due to its holding of treasury shares Imperial will receive 23 864
456 Eqstra shares upon unbundling.
BEE transactions
Imperial has implemented two BEE transactions with Ukhamba and Lereko
Mobility ("existing Imperial BEE shareholders"). It is the intention
that both Ukhamba and Lereko Mobility will be placed in the same
position as before the unbundling.
In addition to the existing BEE shareholders, Nozala, a BEE
shareholder in MCC, will convert its holding MCC Contracts
(Proprietary) Limited and Mutual Construction Company (Transvaal)
(Proprietary) Limited into 8 272 000 Eqstra shares upon listing. This
transaction is dealt with in more detail under section 4.1.
Immediately after unbundling, Ukhamba will subscribe for 16 781 968
"A" deferred ordinary shares in Eqstra and Lereko Mobility will
subscribe for 14 516 617 "B" deferred ordinary shares. These two
classes of shares will give the existing Imperial BEE shareholders a
11% interest in Eqstra. The terms and conditions of these two classes
of shares will be substantially similar to the terms and conditions
they have in Imperial.
Ukhamba
At the last practicable date Ukhamba held 5 973 421 and 16 781 968
Imperial ordinary shares and deferred ordinary shares respectively.
In terms of the unbundling, Ukhamba will receive 5 973 421 ordinary
shares in Eqstra.
In order for Ukhamba to be placed in the same position as it
presently is, Ukhamba will subscribe for 16 781 968 "A" deferred
ordinary shares in Eqstra at their par value of 0.1 cent each. As a
consequence, the hurdle rate which regulates the conversion of the
Imperial deferred ordinary shares to Imperial ordinary shares will be
amended to exclude Eqstra. As a consequence, the hurdle rate which
regulates the conversion of the deferred ordinary shares to Imperial
ordinary shares will be amended to exclude Eqstra while an equivalent
hurdle rate, based on Eqstra`s performance, will apply to the Eqstra
"A" deferred ordinary shares..
The salient terms and conditions of the "A" deferred ordinary shares
will be substantially the same as the current Imperial deferred
ordinary shares except for the hurdle rates that govern their
conversion into ordinary shares.
Lereko Mobility
Lereko Mobility currently holds 14 516 617 preferred ordinary shares
in Imperial. These preferred ordinary shares currently pay a fixed
annual coupon of 535 cents per preferred ordinary share.
As part of the unbundling and in order to ensure that Lereko Mobility
is not disadvantaged by the unbundling, Eqstra will allot and issue
to Lereko Mobility 14 516 617 "B" deferred ordinary shares in Eqstra
at their par value of 0.1 cent each.
The terms and conditions, including the preferred dividend, of the
current Imperial preferred ordinary shares will not be amended.
Therefore, Imperial will still pay the fixed dividend coupon in
respect of the preferred ordinary shareholders.
The salient terms and conditions of the "B" deferred ordinary shares
will be substantially the same as the preferred ordinary shares
except that the "B" deferred ordinary shares will not pay a dividend
until 30 September 2010. As such, the "B" deferred ordinary shares to
be issued by Eqstra to Lereko Mobility will have the following key
features:
will not pay any dividend until 30 September 2010;
will convert on a one for one basis into Eqstra shares on 30
September 2010; and
will rank pari passu with Eqstra ordinary shares in terms of voting.
Lereko Debenture holders
In order for the redeemable equity-linked debenture holders
("debenture holders"), to be placed in the same position as they
presently are after the unbundling, the terms of the debentures will
be amended such that they remain as one single instrument, but with
the equity-linked interest bonus being split, so as to be determined
based on the performance of the Imperial ordinary shares as well as
the Eqstra ordinary shares. The calculation of the equity linked
interest bonus will be split based on the relative Volume Weighted
Average Price ("VWAP") of both an Imperial and Eqstra ordinary share
on the first day of trading immediately after the listing of Eqstra.
Details on the calculation of the equity-linked interest bonus will
be contained in the notice to debenture holders.
The debentures will therefore be backed by 14 516 617 preferred
ordinary shares in Imperial and 14 516 617 "B" deferred ordinary
shares in Eqstra. Other than the adjustment to the equity-linked
interest bonus formula and consequential changes arising therefrom,
there are no other adjustments to the terms of the debentures or
financial implications to the debenture holders.
Conditions precedent
The following are the key conditions precedent to the various
transactions:
Conditions precedent applying to all the transactions
The unbundling is conditional upon the following suspensive
conditions being fulfilled:
- the approval of the unbundling by the board of directors of
Imperial;
- approval by the Imperial shareholders in a general meeting of
the various special and ordinary resolutions required to implement
the unbundling and amend the articles of association of Imperial to
accommodate the unbundling as set out in the notice of general
meeting included in the circular to Imperial shareholders;
obtaining the requisite regulatory approvals, including JSE approval,
and third party opinions;
- listing of Eqstra on the JSE;
- approval of the special resolution by the debenture holders in a
general meeting required to effect the amendment of the debenture
trust deed to accommodate the unbundling; and
- the registration by the Companies and Intellectual Property
Registration Office ("CIPRO") of the special resolutions referred to
above.
Specific conditions precedent applying to the MCC minority
transaction
The MCC minority transaction is subject to and conditional upon the
fulfilment of the following conditions precedent:
the approval of the MCC minority transaction by the shareholders of
Imperial, excluding the related parties, in general meeting; and
the final pre-listing statement to be issued to Imperial shareholders
on or about 19 March 2008 does not differ in any material respect
from the draft pre-listing statement which was provided to the MCC
minority shareholders, so as to impact adversely on the value of the
minority specified shares.
Should the conditions precedent not be fulfilled by 25 June 2008, or
such later date as the parties may agree to in writing then, the
provisions of the agreement shall lapse and be of no force and
effect.
Fairness opinions
Fairness opinions from an independent professional expert, in terms
of the JSE Listings Requirements, are required regarding whether the
MCC minority transaction and the issuance of unlisted voting
instruments ("A" and "B" deferred ordinary shares) by Eqstra to both
Ukhamba and Lereko Mobility are fair to Imperial shareholders.
In addition, an expert`s opinion is required in terms of the
debenture trust deed on the impact of the LeaseCo unbundling on the
redeemable equity-linked debentures.
Deloitte & Touche Corporate Finance has been appointed as independent
professional to opine on the fairness to Imperial`s shareholders of
the MCC minority transaction and the issuance of unlisted voting
instruments as well as the impact of the unbundling on the redeemable
equity linked debentures. Their opinions will be contained in the
respective circulars to shareholders and debenture holders referred
to in paragraph 8 below.
Cautionary announcement
A further announcement will be released at the appropriate time and
when the financial effects have been finalised and a detailed
transaction timetable is available.
Accordingly, Imperial shareholders are advised to continue exercising
caution when dealing in their Imperial securities until a further
announcement is made.
Documentation
Pursuant to the aforementioned announcement being released, a
circular will be posted to Imperial shareholders which will record
the detailed transaction terms and the resolutions the shareholders
will be asked to approve in order to implement the transactions.
In addition a circular will be posted to the debenture holders
setting out the impact that the unbundling will have on debenture
holders and the necessary amendments required to the debenture trust
deed to accommodate the unbundling.
Johannesburg
27 February, 2008
www.imperial.co.za
Merchant bank and transaction sponsor to Imperial: Rand Merchant Bank
Legal adviser: Tugendhaft Wapnick Banchetti & Partners
Reporting accountants and auditors: Deloitte & Touche
Independent expert: Deloitte & Touche
Sponsor: Merrill Lynch South Africa (Proprietary) Limited
Date: 27/02/2008 08:04:29 Produced by the JSE SENS Department.
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implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
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