| Fri 15 May 2009, 16:43 | | NBK - Nedbank Group Limited - Acquisition by NGL of Old Mutual plc`s and its |
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NED
NED
NBK - Nedbank Group Limited - Acquisition by NGL of Old Mutual plc`s and its
subsidiaries` ("Old Mutual Group") interests in various businesses jointly
held with NGL
Nedbank Group Limited
(Incorporated in the Republic of South Africa)
(Registration number 1966/010630/06)
Share code: NED NSX: NBK
ISIN: ZAE000004875
("NGL" or "the Company")
Acquisition by NGL of Old Mutual plc`s and its subsidiaries` ("Old Mutual
Group") interests in various businesses jointly held with NGL
1. Introduction
Members are referred to the announcement released on the Securities
Exchange News Service on 4 March 2009. Members are advised that NGL has now
entered into agreements to acquire from the Old Mutual Group in exchange
for additional NGL shares to be held by the Old Mutual Group:
- a 29.8% shareholding in Fairbairn Private Bank Limited ("Fairbairn PB"
or "the Fairbairn PB Acquisition");
- a 50% shareholding in BoE (Proprietary) Limited ("BoE") and its claims
on loan account together with the Old Mutual Group`s entitlement,
after the effective date, to 50% of the earnings of BoE Private Bank,
a division of Nedbank Limited ("the BoE Acquisition"); and
- a 50% shareholding in Nedgroup Life Assurance Company Limited
("NedLife" or "the NedLife Acquisition");
(collectively referred to as "the Acquisition" or "the Businesses").
As an integral part of the Acquisition:
- a master distribution agreement has been concluded between Old Mutual
(South Africa) Limited ("OMSA") and NGL (the "Master Distribution
Agreement"); and
- an addendum to the existing name licence agreement has been entered
into between the Old Mutual Group and Fairbairn PB ("Licence
Addendum"),
(which, together with the Acquisition, are referred to as "the Transaction").
Details of the Transaction are set out below.
2. Nature of the Businesses being acquired
2.1 BoE
BoE is one of South Africa`s largest private client wealth management
houses, offering a fully integrated range of financial services and
advice, including private and specialised banking, investment
management, stockbroking and trust and fiduciary services to various
niche markets.
BoE is a strong brand in the Southern African private client sector.
It has assets under management and administration of approximately R64
billion as a result of a compound growth rate in excess of 21% per
annum over the past five years. BoE has also shown strong headline
earnings growth of 31% per annum over the same period, generating
earnings after tax in 2008 of R183 million.
The longer term prospects for growth are favourable; both as a result
of the growth in the number of high-net-worth individuals and the
opportunity to further leverage the strong high-net-worth client base
that exists within Nedbank Limited ("Nedbank"). This growth will be
achieved by delivering on BoE`s value proposition which is centred
around best advice, unequalled service and outstanding investment
management performance.
2.2 NedLife
NedLife is a life assurance company which provides non-underwritten
credit life assurance and other simple risk and investment products
primarily to Nedbank clients. A large proportion of NedLife`s business
is derived from the provision of life cover linked to Nedbank`s
lending activities. NedLife also sells credit life assurance through
two of the largest mortgage originators in South Africa.
The success of NedLife is attributable to its access to and
integration with the Nedbank Group`s existing systems. NedLife has
relatively low client acquisition costs and an ability to package
banking and assurance products into one client offering.
NedLife predominantly markets its range of credit protection, funeral
and savings products to the mass and middle segments of the retail
client base. It works closely with the banking channels to assess and
understand the needs of the client base to maximise distribution
opportunities.
Over the last five years NedLife has increased its product range and
penetration of sales into the Nedbank client base. Current penetration
levels of non-underwritten products are now at industry norms. During
2008 NedLife generated annual premium income of R413.9 million, and
earned R146 million in after-tax earnings. NedLife`s actuarially
assessed embedded value at 31 December 2008 was R565.9 million.
In the longer term, further growth opportunities for NedLife lie in
more fully utilising the scope of its life licence, flexible systems
and experienced skills base.
2.3 Fairbairn PB
Fairbairn PB is an award-winning offshore private bank offering
comprehensive transactional banking, credit, treasury, fiduciary and
corporate services as well as execution and discretionary asset
management. Its client base consists of high-net-worth individuals,
professional intermediaries, non-trading companies, trusts and
institutional investors.
Fairbairn PB has operations in Jersey, Isle of Man and London with a
representative office in South Africa. It has applied for a
representative office licence in Dubai to cover the United Arab
Emirates zone.
Fairbairn PB currently has a credit rating of A3/P2 from Moodys.
Fairbairn PB has received numerous awards including "Top 100 United
Kingdom Best Small Companies to work for" for five consecutive years,
"Best International Private Bank" for seven consecutive years and the
maximum three star United Kingdom Best Companies accreditation. Much
of its success in the high-net-worth private client market stems from
its "single client view" systems, which integrate client information
and are able to report across all its product ranges.
Year-on -year earnings growth for Fairbairn PB in the seven years
since the joint acquisition by the Old Mutual Group and the Nedbank
Group has averaged 15% per annum compound, generating GBP8.8 million
in after tax earnings in 2008. Fairbairn PB has a net asset value of
GBP57.2 million and manages assets on behalf of clients to the value
of approximately GBP136 million.
Fairbairn PB`s principal future growth strategies revolve around the
development of its new London branch, extended access to Nedbank
clients, and the continued development of its existing international
operations.
3. Rationale for the Transaction
The current shareholdings in BoE and NedLife jointly held between NGL and
the Old Mutual Group were acquired in 2003 when NGL acquired BoE Limited.
Fairbairn PB was acquired by NGL and the Old Mutual Group during the course
of 2001. NGL presently owns 70.2% of Fairbairn PB and the Old Mutual Group
the residual shareholding. The Businesses have grown rapidly since these
changes in shareholding and have established themselves in their respective
markets.
Although these Businesses have been governed as joint ventures during the
period of joint ownership, Nedbank has been responsible for the day - to -
day management, operational and reputational risk for the Businesses since
inception of the joint shareholdings. As a result, NGL considers that
there is limited implementation risk associated with the Transaction.
Both NGL and the Old Mutual Group believe that better value for both
parties can be achieved through relinquishing the joint-venture approach to
these Businesses and allowing focused management and governance.
The sale by the Old Mutual Group of its interests in the Businesses to NGL,
will allow the Old Mutual Group to swap its interests in the Businesses
currently managed by Nedbank for additional shares in NGL, thereby
simplifying the structure of its interests in the Nedbank Group and
increasing its holding in the Company by approximately 1.2% post the
Acquisition.
The benefits to Nedbank of acquiring 100% ownership in the Businesses are
as follows:
In general terms, the Acquisition will allow Nedbank to:
- simplify and focus its group structure and create a substantive,
wholly owned Bancassurance and Wealth division;
- facilitate the natural flow and segmentation of clients, products and
services provided by these Businesses to and from the wider Nedbank
Group;
- extend the scope and range of products that Nedbank will sell to its
clients in future, particularly in the competitive Bancassurance
market; and
- acquire a diverse stream of non-banking income which will increase
NGL`s non-interest revenue.
In relation to the BoE Acquisition and the Fairbairn PB Acquisition, these
Businesses are complementary. BoE, as a large South African private client
wealth manager, provides services to its high-net-worth clients, both
domestically and internationally. Fairbairn PB, by virtue of its geographic
presence and full service international offering, is well positioned to
service these clients through its existing operations in London, Jersey and
Isle of Man. By constituting BoE and Fairbairn PB as wholly owned
subsidiaries, NGL and Nedbank will facilitate the integration necessary to
provide a highly competitive international client value proposition to the
high-net-worth market.
In relation to Nedbank`s Bancassurance strategy
- traditionally credit life products are closely linked to the extension
of bank credit within the banking industry. NedLife has previously not
extended its business materially beyond credit life and its products
have been limited to low value sums assured. The full ownership of
NedLife without the existing product mandate limitations will enable
it to selectively extend its products and to service higher sums
assured, thereby deriving further value from life assurance sold into
the Nedbank client base; and
- the constitution of NedLife as a wholly owned subsidiary will allow
Nedbank to benefit from cross-selling efforts emanating from banking
business and align itself with competitor Bancassurance models in the
industry.
4. Conditions precedent to the Acquisition
The conditions precedent pertaining to the Acquisition are set out below.
4.1 The BoE Acquisition and the NedLife Acquisition are inter-conditional.
4.2 The BoE Acquisition is conditional upon the following suspensive
conditions being fulfilled, namely:
to the extent it may be required, the approval of:
4.2.1 the JSE;
4.2.2 the Registrar of Banks; and
4.2.3 the conclusion of the Master Distribution Agreement;
At the date of the announcement, all the above conditions have been
fulfilled.
4.3 The NedLife Acquisition is conditional upon the following suspensive
conditions being fulfilled, namely:
to the extent it may be required, the approval of:
4.3.1 the JSE;
4.3.2 the Registrar of Banks;
4.3.3 the Registrar of Long-term Insurance; and
4.3.4 the conclusion of the Master Distribution Agreement;
At the date of the announcement, the conditions in 4.3.1, 4.3.2 and
4.3.4 have been fulfilled.
4.4 The Fairbairn PB Acquisition is subject, to the extent it may be
required, to the approval of:
4.4.1 the South African exchange control authorities;
4.4.2 the South African Registrar of Banks;
4.4.3 the Jersey Financial Services Commission; and
4.4.4. the Isle of Man Financial Supervision Commission.
At the date of the announcement, the conditions in 4.4.1 and 4.4.2 have
been fulfilled.
In addition, the Acquisition is also subject to a specific authority being
granted to the board of directors of NGL by its members at a general
meeting to enable it to allot and issue sufficient new ordinary shares to
settle the aggregate purchase consideration.
The Fairbairn PB Acquisition may be implemented independently of the BoE
Acquisition and the NedLife Acquisition. In that case, the number of
consideration shares to be allotted and issued will be 2 697 640 ordinary
shares. The BoE Acquisition and the NedLife Acquisition must be implemented
together but can be implemented independently of the Fairbairn PB
Acquisition. In that case, the number of consideration shares to be
allotted and issued will be 6 200 669 ordinary shares in respect of the BoE
Acquisition and 3 957 050 ordinary shares in respect of the NedLife
Acquisition.
5. Other terms related to the Acquisition
By virtue of the fact that the Businesses have been managed by Nedbank, the
Old Mutual Group does not give to NGL any warranties or representations
relating to the Businesses, save that it is the beneficial owner of the
shares to be acquired and that it is able to give free and unencumbered
title to such shares to NGL.
A Master Distribution Agreement has been entered into which seeks to
facilitate the business co-operation pertaining to the cross selling and
distribution of products The Master Distribution Agreement requires that
the Old Mutual Group and NGL continue to co-operate in distributing each
other`s products, subject to the best interests of their respective clients
being served.
There is an existing name licence agreement between Fairbairn PB and the
Old Mutual Group in terms of which Fairbairn PB is granted a licence for
the use of the name "Fairbairn Private Bank". The Licence Addendum extends
the rights of Fairbairn PB to use this name.
6. Aggregate purchase consideration and effective date of the Acquisition
The aggregate purchase consideration for the Acquisition is 12 855 359
ordinary NGL shares to be issued and allotted to the Old Mutual Group. The
effective date of the NedLife Acquisition and the BoE Acquisition, will be
the 5th day following the fulfilment (or waiver in writing if applicable)
of the last of the conditions precedent to be fulfilled or waived. The
effective date of the Fairbairn PB Acquisition will be the 5th day
following the fulfilment (or waiver in writing if applicable) of the last
of the conditions precedent to be fulfilled or waived.
7. Categorisation of the Transaction in terms of the JSE Limited Listings
Requirements ("Listings Requirements")
Because of the relationship between NGL and the Old Mutual Group, this
Transaction is a small related party transaction in terms of the Listings
Requirements. The JSE does not require the approval of shareholders if a
transaction is a small related party transaction should the terms and
conditions thereof be found to be fair.
In order to comply with the Listings Requirements, NGL was required to
obtain a fairness opinion from an independent professional expert.
J.P. Morgan, acting as independent professional expert, has advised that
they consider the Transaction to be fair to the members of NGL and have
advised the board of directors of NGL accordingly. Since J.P. Morgan
consider the Transaction to be fair, shareholder approval for this
Transaction is not required.
The signed fairness opinion by J.P. Morgan will be available for inspection
during normal business hours at NGL`s registered office for 28 days from
the date of the announcement.
8. Articles of association ("Articles")
The BoE and NedLife Articles do not currently comply with Schedule 10 of
the Listings Requirements pertaining to the content of articles for
subsidiary companies of listed entities, and NGL will procure that these
are amended or replaced so as to comply with the Listings Requirements.
9. Pro forma financial effects
The table below sets out the unaudited pro forma financial effects
("Financial Effects") of the Acquisition. These Financial Effects are for
illustrative purposes only, to provide information on how the Acquisition
affects the financial information presented by NGL and due to their pro
forma nature, may not give a true reflection of NGL`s financial position.
These Financial Effects are the responsibility of the board of directors of
NGL.
Before the Pro forma After the change %
Acquisition adjustment Acquisition
(1) s (2)
EPS (cents) 1 581 113 1 694 7.15
EPS (cents) - diluted 1 558 110 1 668 7.06
HEPS (cents) 1 422 (6) 1 416 (0.42)
HEPS (cents) - diluted 1 401 (6) 1 395 (0.43)
NAV per share (cents) 8 521 126 8 647 1.47
NTAV per share (cents) 7 179 (249) 6 930 (3.47)
Number of shares in 409.7 12.9 422.6 3.14
issue (`million)
Weighted average number 3.18
of shares in issue 405.1 12.9
(`million) 418.0
Diluted weighted average 3.13
number of shares in issue 411.5 12.9
(`million) 424.4
Notes:
1. Based on IFRS audited consolidated financial information of the
Company for the year ended 31 December 2008.
2. In calculating the Financial Effects on EPS, diluted EPS, HEPS,
diluted HEPS, NAV and NTAV it was assumed that the Acquisition was
implemented on 31 December 2008 for balance sheet purposes and 1
January 2008 for income statement purposes.
3. The NGL share price per ordinary share used to quantify the purchase
consideration for the Acquisition was R86.00, being the closing share
price on 13 May 2009.
4. The purchase price allocation required in terms of IFRS (3) Business
Combinations is an estimate arrived at by NGL and has not yet been
reviewed by NGL`s joint auditors.
5. The Transaction results in the recognition of goodwill of R1 114
million and intangibles assets of R639 million across the Businesses.
6. BoE and NedLife, which were previously accounted for as associates,
are now accounted for as subsidiaries and are fully consolidated. The
valuation placed on the net assets of BoE and NedLife as a result of
the Acquisition`s purchase consideration for these entities results in
a once-off recognition of a capital profit of R602 million and a
corresponding deferred tax liability of R84 million.
7. As a result of Fairbairn PB already being controlled by the Company,
the acquisition of the remaining shares in Fairbairn PB results in a
reduction of all minority interests related to Fairbairn PB. The
excess portion of the purchase consideration in excess of the minority
interest has been recognised directly in equity.
8. The costs incurred and directly associated with the completion of the
Transaction amount to approximately R3.5 million, or 0.3% of the
aggregate purchase consideration and have not been included in the
Financial Effects.
10. Convening a general meeting of NGL members
In terms of the Companies Act, 61 of 1973, as amended, the board of
directors of NGL requires the authority of members to allot and issue the
consideration shares.
A circular, incorporating a notice of general meeting, convening a general
meeting of members to consider the resolution necessary to give the board
of directors such authority will be posted to NGL members in due course..
Old Mutual Group has indicated that it is in favour of the proposed
resolution. The Old Mutual Group intends to abstain from voting at the
general meeting in relation to the resolution.as it is a related party.
Sandton
15 May 2009
Investment bank, corporate adviser and Independent lead sponsor
sponsor -Merrill Lynch-
- Nedbank Capital, a division of Nedbank
Limited -
Independent professional expert Attorneys
- JP Morgan Chase Bank N.A. (Johannesburg
branch) - -ENS-
Sponsoring broker in Namibia Independent reporting
-Old Mutual Investment Services- accountants
- KPMG Inc -
Date: 15/05/2009 16:43:38 Produced by the JSE SENS Department.
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