| Wed 20 Aug 2008, 10:00 | | PCN - Specific Repurchases Of Paracon Holdings Limited Shares |
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PCN
PCN
PCN - Specific Repurchases Of Paracon Holdings Limited Shares
Paracon Holdings Limited
Incorporated in the Republic of South Africa
(Registration number 1997/008181/06)
Share code: PCN ISIN: ZAE000029674
("Paracon" or "the company")
SPECIFIC REPURCHASES OF PARACON HOLDINGS LIMITED SHARES
1. Introduction
Shareholders are advised that Paracon has entered into an agreement with
WDB Investment Holdings (Proprietary) Limited ("WDB") ("the WDB
agreement") for the specific share repurchase by Paracon from WDB of 36
300 000 Paracon ordinary shares ("the WDB repurchase shares"), subject to
certain terms and conditions as set out in paragraph 7 below ("the WDB
specific share repurchase"). The WDB repurchase shares will be acquired
and cancelled as issued shares in the capital of Paracon in accordance
with the provisions of section 85 of the Companies Act, 1973 (Act 61 of
1973), as amended ("the Act") and the Listings Requirements of the JSE
Limited ("JSE") and restored to the status of authorised but unissued
shares.
In addition, Paracon has entered into an agreement with Paracon SA
(Proprietary) Limited ("Paracon SA"), a wholly-owned subsidiary of
Paracon ("the Paracon SA agreement") for the specific share repurchase by
Paracon of 16 000 000 of its own shares from Paracon SA ("the Paracon SA
repurchase shares") currently held as treasury shares ("the Paracon SA
specific share repurchase"). The treasury shares will, following their
purchase, be cancelled as issued shares in the capital of Paracon in
accordance with the provisions of section 85 of the Act and the Listings
Requirements of the JSE and restored to the status of authorised but
unissued shares.
2. Rationale
In June 2003, WDB acquired a 25.1% equity stake in Paracon funded by the
Industrial Development Corporation of South Africa Limited ("IDC") in
terms of funding agreements ("IDC funding agreements"). The initial
funding period via the IDC was for a period of three years, however this
was extended to terminate in June 2008. At current market value, WDB`s
investment in Paracon is valued at approximately R160 million while their
indebtedness to the IDC is approximately R49 million. The finance charges
on the IDC funding agreements have been funded by the annual
distributions paid by Paracon. WDB currently holds 99 274 096 shares in
Paracon. The WDB specific share repurchase will enable WDB to settle its
obligations to the IDC in terms of the IDC funding agreements and hold
the remaining Paracon shares as unencumbered. Access to Paracon`s
dividend income stream will facilitate the funding of WDB`s operations.
The directors of Paracon ("directors") believe that the repurchase of
36 300 000 shares from WDB at a price of 135 cents per share, which
represents a 17.7% discount to the 30-day volume weighted average price
immediately preceding the date of the WDB agreement, will enhance
Paracon`s earnings per share going forward and will assist in maximising
shareholder value. The directors also believe that the WDB specific share
repurchase would be in the best interest of Paracon`s shareholders as it
makes effective use of Paracon`s existing cash resources. Furthermore,
the WDB specific share repurchase and subsequent cancellation of the WDB
repurchase shares would significantly limit the possible dilution of
Paracon`s black economic empowerment shareholding. Subsequent to the
cancellation of the WDB repurchase shares, Paracon`s entire black
economic empowerment shareholding will be 27%.
Furthermore, in terms of section 89 of the Act, subsidiaries may only
hold up to a maximum of 10% in the aggregate of the total issued share
capital of their holding company. Due to the fact that subsequent to the
WDB specific share repurchase and cancellation of the WDB repurchase
shares, the number of treasury shares would be close to this 10%
threshold, the directors have resolved to implement the Paracon SA
specific share repurchase and subsequent cancellation of the Paracon SA
repurchase shares.
3. Terms of the specific share repurchases
The consideration for the acquisition of the WDB repurchase shares by
Paracon is R49 005 000, which will be discharged in cash from the
company`s existing cash resources on the second business day after
fulfilment of the conditions precedent.
The consideration for the acquisition of the Paracon SA repurchase shares
by Paracon is R22 240 000, which will be discharged in cash from the
company`s existing cash resources on the first business day after
fulfilment of the conditions precedent.
Subsequent to the implementation of the specific share repurchases, the
WDB repurchase shares and the Paracon SA repurchase shares will be
cancelled, against the distributable and non-distributable reserves of
the company, as issued shares and will be restored to the status of
authorised but unissued shares in accordance with the provisions of
section 85 of the Act.
4. Effective dates
The effective dates of the specific share repurchases are Monday, 29
September 2008 in respect of the Paracon SA specific share repurchase and
Tuesday, 30 September 2008 in respect of the WDB specific share
repurchase.
5. Financial Effects
The table below sets out the unaudited pro forma financial effects of the
specific share repurchases on Paracon`s earnings per share, headline
earnings per share, headline earnings excluding the Secondary Tax on
Companies ("STC") charge, net asset value per share and tangible net
asset value per share.
The unaudited pro forma financial effects have been prepared to
illustrate the impact of the specific share repurchases on the reported
financial information of Paracon for the six months ended 31 March 2008,
had the specific share repurchases occurred on 1 October 2007 for income
statement purposes and on 31 March 2008 for balance sheet purposes.
The unaudited pro forma financial effects have been prepared using
accounting policies that comply with International Financial Reporting
Standards and that are consistent with those applied in the results for
the six months ended 31 March 2008 as well as the audited results of
Paracon for the 12 months ended 30 September 2007.
The unaudited pro forma financial effects, which are the responsibility
of the directors, are provided for illustrative purposes only and,
because of their pro forma nature may not fairly present Paracon`s
financial position, changes in equity, results of operations or cash
flow.
Before1 After2 Change
(cents) (cents) (%)
Earnings per share 10.1 9.1 (9.9)
Headline earnings per share 10.1 9.1 (9.9)
Headline earnings per share 10.6 11.1 4.7
excluding STC4
Net asset value per share 64.1 55.9 (12.8)
Net tangible asset value per 35.9 39.7 10.6
share
Weighted average number of 374 214 684 337 914 684
shares in issue
Notes:
1. The "Before" column has been extracted from the reviewed interim
results of Paracon for the six months ended 31 March 2008.
2. The "After" column reflects the financial effects of the specific
share repurchases on Paracon.
3. Based on the assumption that the specific share repurchases were
funded from Paracon`s existing cash resources and assuming an average
interest rate on call funds of 12.5% per annum before tax that would have
been earned on the cash resources utilised to fund the specific share
repurchases. The South African corporate tax rate of 28% has been
applied.
4. Paracon shall incur a STC charge amounting to R4.9 million as a
result of the specific share repurchases.
5. The effects on earnings per share, headline earnings per share and
headline earnings per share excluding STC are calculated based on the
assumption that the specific share repurchases were effected on 1 October
2007.
6. The effects of net asset value per share and net tangible asset
value per share are calculated based on the assumption that the specific
share repurchases were effected on 31 March 2008.
6. Waiver of a mandatory offer to shareholders
Britehouse Holdings (Proprietary) Limited ("Britehouse") currently owns
120 747 452 shares in Paracon, which equates to 32.8% of the issued share
capital of Paracon, net of treasury shares. The specific share
repurchases would result in the effective shareholding of Britehouse in
Paracon increasing from the current 32.8% to 36.4%, which would be an
affected transaction in terms of the Securities Regulation Code on
Takeovers and Mergers and Rules of the Securities Regulation Panel
("SRP") ("Code"). Such a transaction, unless the SRP rules otherwise,
would normally require a mandatory offer by Britehouse to Paracon
shareholders at the repurchase price of 135 cents per Paracon share.
The SRP has advised that it is willing to consider the application to
grant a dispensation to Britehouse in terms of the Code, from the
obligation to make a mandatory offer if independent Paracon shareholders
waive their right in general meeting to require Britehouse to make a
mandatory offer and subject to the SRP considering any representations
(if any) made by shareholders.
7. Conditions precedent
The specific share repurchases are subject to, inter alia, the following
conditions precedent:
- the specific share repurchases are approved and the special
resolutions are passed to such effect by Paracon shareholders in general
meeting;
- the special resolutions are duly registered by the Registrar of
Companies in accordance with the Act;
- all regulatory approvals required for the implementation of the
specific share repurchases and the waiver of the mandatory offer are
obtained;
- independent shareholders of Paracon in general meeting waive their
right to require Britehouse to make a mandatory offer; and
- the IDC funding agreements are amended to, inter alia, enable WDB to
acquire and then sell the WDB repurchase shares to Paracon.
8. Circular to Paracon shareholders
A circular containing full details of the above and incorporating a
notice to convene a general meeting of Paracon shareholders to be held on
or about 26 September 2008 in order to consider and, if deemed fit, to
pass with or without modification, the resolutions necessary to approve
and implement the specific share repurchases and the waiver of a
mandatory offer to Paracon shareholders, will be sent to Paracon
shareholders on or about 4 September 2008.
Johannesburg
20 August 2008
Sponsor
Merchant Sponsors (Proprietary) Limited
Legal advisor
Werksmans Inc.
Auditors and reporting accountants
Grant Thornton
Date: 20/08/2008 10:00:01 Produced by the JSE SENS Department.
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