| Mon 27 Oct 2008, 8:04 | | JSE - JSE Limited - Announcement of firm intention of the JSE to make a |
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JSE
JSE
JSE - JSE Limited - Announcement of firm intention of the JSE to make a
conditional offer to acquire the entire issued ordinary share capital of the
bond exchange of South Africa Limited
JSE Limited
(Incorporated in the Republic of South Africa)
Registration number 2005/022939/06
Share code: JSE ISIN: ZAE000079711
("JSE")
ANNOUNCEMENT OF FIRM INTENTION OF THE JSE TO MAKE A CONDITIONAL OFFER TO ACQUIRE
THE ENTIRE ISSUED ORDINARY SHARE CAPITAL OF THE BOND EXCHANGE OF SOUTH AFRICA
LIMITED ("BESA")
1. INTRODUCTION
On Friday 24 October 2008, the JSE informed the Chairperson of BESA of its
intention to make a conditional offer to all the ordinary shareholders of BESA
("Ordinary Shareholders") to acquire the entire issued ordinary share capital of
BESA ("the Proposed Offer").
2. BUSINESS OF BESA
BESA is a public company operating and licensed as an exchange in South Africa
and specialises in interest rate products. The operations of BESA include the
BESA Guarantee Fund Trust of approximately R99 million ("the Fund"). The Fund
is consolidated by BESA in terms of accounting requirements, although its assets
do not belong to BESA or to the Ordinary Shareholders.
BESA has recently completed a rights issue to raise R81 million and, according
to the circular to BESA shareholders dated 5 September 2008 ("Rights Issue
Circular"), BESA`s entire issued share capital following the rights issue will
consist of 1 924 657 ordinary shares ("BESA Shares").
3. RATIONALE AND BENEFITS
The world of capital markets is fast changing and in response exchanges need to
innovate continually to ensure they remain relevant to issuers and investors
alike. It is hard to have a well-performing modern economy without a good
financial system. Strong capital markets are an essential part of such a
financial system, to allow participants to mobilise savings, allocate capital
and manage risk. It is therefore very important from a national interest
perspective that there are deep markets in debt and equity products and, as far
as possible, the trading, clearing and settlement in South African financial
instruments is conducted in South Africa in a globally competitive manner. This
will enable local participants and the local economy to derive the benefits of a
vibrant financial system.
Exchanges such as the JSE and BESA face strong competition for the trade in
South African instruments from both international exchanges and the over-the-
counter ("OTC") market. Various market participants have indicated on numerous
occasions that neither the JSE nor BESA currently offer market participants a
solution that will encourage them to execute a larger percentage of their trades
in South African interest rate instruments through a local exchange or local
infrastructure. As a result a large proportion of trading in spot instruments
continues to take place offshore, and the on-exchange trade in derivative
interest rate instruments in South Africa is low by international standards.
This, in turn, has negative implications for the robustness, efficiency and
competitiveness of the local economy more generally. These are concerning
developments for all South Africans.
In common with many market participants, the JSE believes that the optimal
method to improve the volumes and efficiency of dealings in South African
interest rate products is through the consolidation of BESA and the JSE, which
will enable the exchanges to leverage the best of what BESA and the JSE each
have to offer. This consolidation will enable the exchanges to realise the
following benefits for issuers, investors and market participants:
improved, common risk management processes;
reduction in cost through economies of scale;
enhanced market model funded from existing capital without requiring
participants to fund development; and
increased variety of product and increased liquidity.
The consolidation can be achieved through the implementation of the Proposed
Offer or the acquisition of the business of BESA as a going concern by the JSE.
4. SALIENT TERMS OF THE PROPOSED OFFER
4.1 Proposed Offer and offer consideration
The Proposed Offer will be made in accordance with all applicable requirements
of the Securities Regulation Code on Takeovers and Mergers ("the Code") and the
Companies Act 61 of 1973 ("the Companies Act"). In terms of the Proposed Offer,
the JSE will offer to acquire all the BESA Shares from the Ordinary Shareholders
("the Transaction").
The Offer Consideration payable under the Proposed Offer will, subject to the
price adjustment provisions in paragraph 4.2.1, be R173 219 130 ("Offer
Consideration") and will be settled in cash. On the assumption that the entire
issued share capital of BESA consists of 1 924 657 ordinary shares and that no
options or other rights have been granted to any person for the issue of further
shares in BESA, this equates to a price of R90 per BESA Share and represents a
premium of 106% (or R46.37 per BESA Share) over the net asset value per BESA
Share excluding the Fund and a small discount of 6% (or R5.43 per BESA Share) to
the net asset value per BESA Share including the Fund as stated in the Rights
Issue Circular. The Fund value has been included in determining the price of
the Proposed Offer because the JSE will, on the successful implementation of the
Proposed Offer, establish control over the Fund, continue to utilise the Fund
for investor protection purposes and be obliged to consolidate the Fund for
accounting purposes. Should the above assumption regarding the number of BESA
shares in issue and/or the granting of options or rights be incorrect, the offer
price per BESA share will adjust accordingly.
It is the intention of the JSE to invoke the provisions of section 440K of the
Companies Act should the Proposed Offer be accepted by Ordinary Shareholders
holding not less than nine-tenths of the BESA Shares.
4.2 Adjustments to Offer Consideration and retention payment
4.2.1 The Offer Consideration will be adjusted under the following
circumstances:
4.2.1.1 Should the net asset value of BESA, including the Fund ("BESA NAV"),
at the date on which the Proposed Offer becomes or is declared wholly
unconditional ("the Final Date"), be less than R170 000 000, the Offer
Consideration will be adjusted downward, on a Rand for Rand basis, with the
amount of the difference. The BESA NAV will be calculated in a manner
consistent with the format and accounting policies applied in respect of the
preparation of BESA`s audited financial statements for the year ended 31
December 2007.
4.2.1.2 Should the JSE within 30 days after the Final Date find that:
4.2.1.2.1 BESA is party to any agreement of whatever nature with any third
party, other than the lease agreement in respect of the premises occupied by
BESA in Melrose Arch, in terms of which BESA has or will have any financial
obligations exceeding R5 000 000 per annum per agreement or which will endure
for longer than 3 years after the Final Date, the Offer Consideration will be
reduced by the present value, calculated at a discount rate of 12.5%, of (i) the
amount by which each such financial obligation exceeds R5 000 000 during the
relevant 3 year period; and/or (ii) all the amount(s) payable by BESA after the
expiry of the relevant 3 year period;
4.2.1.2.2 BESA is party to any agreement which contains a termination clause
that will be triggered as a result of the Proposed Offer, the Offer
Consideration will be reduced by the amount of any penalty and/or damages that
may be payable or become payable by BESA pursuant to the enforcement of such
termination clause;
4.2.1.2.3 the Fund has any outstanding tax liabilities (including penalties and
interest) of whatever nature as at the Final Date, the Offer Consideration shall
be reduced by the amount of such liabilities, irrespective of whether such
liabilities are then due and payable.
4.2.2 The calculation of any adjustment in the Offer Consideration will be
performed by the auditors of BESA at the JSE`s cost within 60 days after the
Final Date and the results of their findings will be disclosed to the Ordinary
Shareholders as soon as reasonably possible after such results become available.
4.2.3 Notwithstanding the possible adjustment of the Offer Consideration,
R105 856 135 of the Offer Consideration (or R55 per BESA Share) will be paid to
Ordinary Shareholders within 7 days of the Final Date, while the balance will be
retained in trust pending the finalisation of the amount of the adjustment to
the Offer Consideration. The amount due to Ordinary Shareholders following the
finalisation of the adjustment to the Offer Consideration (if any), will be paid
within 5 business days of the auditors having made their determination, as
contemplated in paragraph 4.2.2.
4.3 Conditions precedent to the Proposed Offer
4.3.1 The Proposed Offer will be subject to the fulfillment or waiver, as
the case may be, of the following conditions precedent ("Conditions Precedent"):
4.3.1.1 the Proposed Offer being accepted by Ordinary Shareholders in respect
of at least 50% plus one of all the BESA Shares by no later than 60 days after
the date on which the offer document detailing the Proposed Offer is posted to
Ordinary Shareholders ("Posting Date");
4.3.1.2 the approval of the Transaction, to the extent required, by the
Financial Services Board, by no later than 60 days after the Posting Date;
4.3.1.3 the JSE obtaining the necessary exchange control approval for the
Transaction from the South African Reserve Bank by no later than 60 days after
the Posting Date;
4.3.1.4 the unconditional approval of the Transaction by the competition
authorities, in terms of the Competition Act 89 of 1998, by no later than 120
days after the Posting Date, and if such approval is granted subject to
conditions, the JSE confirming to BESA, in writing, within 125 days of the
Posting Date, that the conditions are acceptable to the JSE;
4.3.1.5 BESA has not within 60 days of the Posting Date disposed of the BESA
Business (as defined in paragraph 5) to the JSE, in terms of a written sale of
business agreement, which agreement -
4.3.1.5.1 has become unconditional in accordance with its terms, save for any
conditions relating to regulatory approval; and
4.3.1.5.2 has been authorised or ratified by a special resolution of Ordinary
Shareholders in general meeting as required by section 228 of the Companies Act;
and
4.3.1.6 the Securities Regulation Panel ("SRP") approving the circular
detailing the Proposed Offer.
4.3.2 The Conditions Precedent in paragraph 4.3.1.1 and 4.3.1.5 are for the
benefit of the JSE and can be waived by the JSE at any time.
4.3.3 Subject to the prior approval of the SRP, the JSE shall be entitled to
extend any of the dates for fulfilment of the Conditions Precedent.
5. THE POSSIBLE ACQUISITION OF THE BESA BUSINESS AS A GOING CONCERN
Notwithstanding the Proposed Offer, the JSE has expressed to the BESA Board that
it is the preference of the JSE to acquire the entire business of BESA
(including all its assets and liabilities, as well as the Fund) ("the BESA
Business") as a going concern because the acquisition of the BESA Business,
rather than the BESA Shares, will significantly accelerate the ability of the
JSE to integrate the BESA Business with its own related businesses, thereby
bringing forward the synergy benefits and cost savings for market participants.
The JSE is, however, mindful of the fact that the disposal by BESA of the BESA
Business will, in terms of section 228 of the Companies Act, have to be
authorised or ratified by the Ordinary Shareholders by way of a special
resolution. Due to the constraints placed on the JSE by the Code, the JSE has
up to the date of this announcement been unable to adequately canvas the
Ordinary Shareholders to determine with certainty that there will be the
requisite support for such a special resolution. The JSE has therefore elected
to structure the Transaction as an offer for the BESA Shares, while creating,
through the conditionality attaching to the Proposed Offer, the opportunity for
the JSE, BESA and the Ordinary Shareholders to conclude and approve the
acquisition of the BESA Business.
6. PRO FORMA FINANCIAL EFFECTS OF THE PROPOSED OFFER
The table below sets out the unaudited pro forma financial effects of the
Proposed Offer on earnings per share ("EPS"), headline EPS, net asset value
("NAV") and net tangible asset value ("NTAV") per share of the JSE, based on the
audited results of the JSE and BESA for the 12 month period ended 31 December
2007. The latest interim results of the JSE have not been used, as the BESA
interim results are not publicly available. If the BESA interim results become
available, the pro forma effects will be calculated and released on SENS if
materially different from the numbers disclosed below.
The unaudited pro forma financial effects are the responsibility of the
directors of the JSE and have been prepared for illustrative purposes only, to
provide information about how the Proposed Offer may have affected JSE
shareholders on the relevant reporting date. Because of its nature, the
unaudited pro forma financial effects may not give a fair reflection of the
JSE`s future earnings or of the JSE`s financial position, changes in equity,
results of operations or cashflows after implementation of the Proposed Offer.
Before the After the Change
acquisition(1) acquisition(3,6) (%)
(cents) (cents)
EPS 321.3 317.2(4,5) (1.3%)(2)
Headline EPS 292.1 275.7(5) (5.6%)
NAV per share 1 302.2 1 314.5 0.9%
NTAV per share 1 302.2 1 313.7 0.9%
Number of 85 140 050 85 140 050 -
shares in issue
Weighted 85 038 891 85 038 891 -
average number
of shares in
issue
Notes:
Extracted from the audited annual financial statements for the JSE Limited for
the twelve months ended 31 December 2007. Balance sheet adjustments have been
determined assuming that the acquisition occurred on 31 December 2007, while
income statement adjustments were made assuming that the acquisition occurred on
1 January 2007.
The EPS dilution does not fairly represent the effect on the JSE`s earnings.
BESA incurred a loss in 2007 and, based on the statement in the Rights Issue
Circular, a further loss will be incurred for the 2008 financial year. This will
therefore reduce both the net asset value and the negative goodwill at the date
of acquisition, which is not reflected in the pro forma financial effects as
they are calculated on historical results. The effect of the Proposed Offer on
earnings per share of the JSE is more accurately reflected by the 5.6% dilution
in Headline EPS, which excludes the effect of negative goodwill on the income
statement.
Income Statement Adjustments
Includes 100% of the audited results of BESA for the twelve months ended 31
December 2007.
Accounting for negative goodwill, computed as the difference between the
purchase price and the consolidated net asset value of BESA.
Accounting for interest foregone, at a rate of 10%, on the cash utilised to fund
the acquisition and the resultant tax impact.
Balance Sheet Adjustments
Includes 100% of BESA`s assets and liabilities at 31 December 2007, as extracted
from the pro forma balance sheet at 31 December 2007 included in the Rights
Issue Circular.
7. STAFF AND MANAGEMENT OF BESA
BESA`s staff is critical to its operations and the JSE is therefore committed to
retaining all BESA`s staff on terms and conditions that are no less favourable
than those they currently enjoy should the Transaction be implemented
successfully.
8. CONFIRMATION OF FINANCIAL RESOURCES
First National Bank of South Africa Limited has furnished confirmation to the
SRP that the JSE has sufficient resources available to satisfy full
implementation of the Transaction.
9. HOLDING OF SECURITIES IN BESA
Neither the JSE nor any of its directors currently hold or control any shares in
BESA.
10. DOCUMENTATION AND SALIENT DATES
A circular, containing full details of the Proposed Offer, will be posted to
Ordinary Shareholders no later than 30 days after the date of this announcement.
A further announcement setting out the salient dates of the Proposed Offer will
be made in due course.
Sandton
27 October 2008
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Attorneys
Webber Wentzel
Date: 27/10/2008 08:04:02 Produced by the JSE SENS Department.
