| Thu 11 Jun 2009, 11:00 | | VKE / SLM - Vukile - Sanlam - The proposed acquisition and withdrawal of |
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SLM VKE
SLM VKE
VKE / SLM - Vukile - Sanlam - The proposed acquisition and withdrawal of
Vukile`s cautionary announcement
Vukile Property Fund Limited
(Incorporated in the Republic
of South Africa)
(Reg. no. 2002/027194/06)
JSE code: VKE NSX code: VKN
ISIN: ZAE000056370
("Vukile")
Sanlam Limited
(Incorporated in the Republic of South Africa)
(Reg. no. 1959/001562/06)
JSE code: SLM NSX code: SLA
ISIN: ZAE000070660
("Sanlam")
THE PROPOSED ACQUISITION BY VUKILE OF THE PROPERTY ASSET MANAGEMENT BUSINESS OF
SANLAM PROPERTIES (PROPRIETARY) LIMITED ("SANLAM PROPERTIES") AS A GOING
CONCERN, CALL OPTION TO ACQUIRE CERTAIN PROPERTIES FROM SANLAM LIFE INSURANCE
LIMITED ("SANLAM LIFE") AND RIGHT OF FIRST REFUSAL IN RESPECT OF THE REMAINDER
OF SANLAM LIFE`S PROPERTY PORTFOLIO
WITHDRAWAL OF VUKILE`S CAUTIONARY ANNOUNCEMENT
1 INTRODUCTION
Vukile unitholders are referred to the renewal of the cautionary announcement,
dated 25 May 2009, as well as the announcement dated 3 March 2009 and the
circular to Vukile unitholders dated 12 March 2009, in which Vukile unitholders
were advised that Vukile was in discussions with Sanlam Properties regarding the
proposed acquisition of the asset management business (including the IT
infrastructure and software, furniture and equipment and certain employees) of
Sanlam Properties directly related to the asset management of the Vukile
property portfolio ("the Vukile ManCo Business"), as a going concern. Nedbank
Capital, a division of Nedbank Limited, is authorised to announce that Vukile,
Sanlam Properties, Sanlam and Sanlam Life have signed a term sheet ("the Term
Sheet"), dated 27 May 2009, approved by the boards of directors of Vukile and
Sanlam, which Term Sheet became binding on 10 June 2009, relating to:
1.1 the acquisition by Vukile of the Vukile ManCo Business and, in addition,
the acquisition by Vukile of the property asset management business of Sanlam
Properties constituted by the IT infrastructure and software, furniture and
equipment and the take-on of employees directly related to the asset management
function of the Sanlam Life property portfolio (collectively "ManCo"), from
Sanlam Properties as a going concern ("the ManCo Acquisition");
1.2 a call option to be granted by Sanlam Life to Vukile to acquire certain
properties valued at approximately ZAR500 million ("the Initial Sanlam Life
Property Portfolio") from Sanlam Life ("the Call Option"); and
1.3 a right of first refusal to be granted by Sanlam Life to Vukile in respect
of the remainder of Sanlam Life`s property portfolio, excluding certain
properties that are subject to rights of first refusal in favour of third
parties ("the Right of First Refusal"), collectively, "the Transaction".
To facilitate the implementation of the Transaction, Vukile and Sanlam
Properties have agreed to extend Vukile`s asset management contract with Sanlam
Properties ("the Extension") for a maximum period of six months to 30 September
2009. The Extension was approved by Vukile unitholders at the general meeting
that was held on Friday, 27 March 2009.
This announcement contains the details of the Transaction as contained in the
Term Sheet. Formal agreements ("the Agreements"), which will contain terms and
conditions normally found in transactions similar in nature to the Transaction,
will be executed in due course.
2 THE MANCO ACQUISITION
2.1 Nature of business
Sanlam Properties is primarily involved in the business of property asset
management and currently has the responsibility, in terms of specific asset
management contracts, to manage Vukile`s and Sanlam Life`s respective property
portfolios. The asset management services performed by Sanlam Properties
include, inter alia, the following:
* appointment of property management companies and managing the property
management contracts;
* preparation of business plans for the properties;
* preparation of budgets for the properties, including benchmarking;
* drafting and updating of the selling strategy;
* management strategies and letting strategies;
* bi-annual property valuations;
* advising on the replacement value of the buildings;
* performance analysis of the portfolio; and
* building life cycle forecasting.
2.2 Rationale for the ManCo Acquisition
It is global best practice for property companies to conduct the asset
management functions in-house and the proposed implementation in South Africa of
the Real Estate Investment Trust (REIT) structure will lend impetus to this
practice.
Taking the above factors into consideration, the Vukile board of directors has
decided that Vukile should internalise the asset management function. With this
in mind, Vukile approached Sanlam Properties with a view to concluding the ManCo
Acquisition.
2.3 Terms of the ManCo Acquisition
Vukile proposes to conclude the ManCo Acquisition with effect from the beginning
of the month following the month in which the last of the conditions precedent
set out in paragraph 4 below ("the Effective Date") is fulfilled, for a total
consideration of ZAR331 887 000.00, to be settled by the issue of 36 470 000 new
Vukile units ("Consideration Units") at a price of 910 cents per Vukile unit.
The Consideration Units will only be entitled to participate in distributions
with effect from the Effective Date, and furthermore Sanlam Properties has
agreed to forego distributions of ZAR10 million in relation to the Consideration
Units.
ManCo includes, inter alia, the majority of the relevant Sanlam Properties`
employees, IT infrastructure and software, and its furniture and equipment
required to currently render the asset management services to Vukile and Sanlam
Life. Following the ManCo Acquisition, Vukile will perform its own asset
management services in respect of its property portfolio, as well as enter into
an asset management agreement with Sanlam Life ("the Sanlam Life Asset
Management Agreement") to render asset management services to Sanlam Life in
respect of Sanlam Life`s property portfolio.
The Sanlam Life Asset Management Agreement is proposed to be for an indefinite
period, and will impose certain service levels on Vukile.
3 THE CALL OPTION AND THE RIGHT OF FIRST REFUSAL ("THE PROPOSED PROPERTY
TRANSACTION")
3.1 Rationale for the Proposed Property Transaction
In line with Vukile`s objective to build a quality portfolio of properties with
strong contractual cash flows in order to achieve meaningful capital
appreciation and sustainable growth in its distribution to Vukile unitholders,
Vukile has been granted the Call Option and the Right of First Refusal.
3.2 Terms of the Call Option
Vukile will, subject to the fulfilment of the conditions precedent set out in
paragraph 4 below and the implementation of the ManCo Acquisition, be granted
the Call Option by Sanlam Life for a period of 12 months from the Effective Date
to acquire the Initial Sanlam Life Property Portfolio (either in its entirety or
by individual property) at market value.
Sanlam Life will identify and agree with Vukile the properties that will form
part of the Initial Sanlam Life Property Portfolio. The purchase consideration
will, subject to Sanlam Life`s approval, be settled through the issue of new
Vukile units, failing which, Vukile will settle the purchase consideration in
cash.
The exercise of the Call Option will, where Vukile units are issued as
consideration for the acquisition of the Initial Sanlam Life Property Portfolio,
at the time and if applicable, be subject to the condition precedent that a
waiver of the requirement for Sanlam to make a mandatory offer to Vukile`s
minority unitholders in terms of the Securities Regulation Code on Take-Overs
and Mergers ("the Code") is obtained.
3.3 Terms of the Right of First Refusal
Vukile will, subject to the fulfilment of the conditions precedent set out in
paragraph 4 below and the implementation of the ManCo Acquisition, be granted
the Right of First Refusal by Sanlam Life for a period of five years from the
Effective Date or until the termination of the Sanlam Life Asset Management
Agreement, whichever is earlier, to acquire the balance of the Sanlam Life
property portfolio at market value. The Right of First Refusal will relate to
property sales initiated by Sanlam Life as well as unsolicited third party
offers, and not to properties disposed of by tender or auction. Sanlam Life
will elect the nature of the purchase considerations, whether cash or new Vukile
units.
The issue of new Vukile units as consideration for the acquisition of any
property in terms of the Right of First Refusal will, at the time and if
applicable, be subject to the condition precedent that a waiver of the
requirement for Sanlam to make a mandatory offer to Vukile`s minority
unitholders in terms of the Code is obtained.
4 CONDITIONS PRECEDENT
The Transaction will be subject to fulfilment of the following conditions
precedent:
4.1 conclusion of the Agreements to give effect to the Transaction;
4.2 conclusion of the Sanlam Life Asset Management Agreement;
4.3 the required approval and consents by the Vukile unitholders;
4.4 approval by the relevant competition authority, to the extent required;
4.5 the obtaining of the dispensation detailed in paragraph 5.2 and the passing
of the resolution approving the waiver of the Vukile unitholders` rights to
require Sanlam, the Sanlam group of companies and their concert parties to make
a mandatory offer as contemplated in paragraph 5.2; and
4.6 any other regulatory and other approvals that may be required including,
but not limited to, the JSE Limited ("the JSE") and the Securities Regulation
Panel ("the SRP").
5 REGULATORY IMPLICATIONS
5.1 JSE Listings Requirements
As Sanlam Properties and its associates, as defined in terms of the JSE Listings
Requirements, currently hold more than 10% of Vukile`s issued capital, the ManCo
Acquisition is a related party transaction in terms of the JSE Listings
Requirements, which requires, inter alia, a circular to Vukile unitholders and
their approval. Vukile has appointed an independent professional expert
acceptable to the JSE, BDO Spencer Steward (Cape) Inc. ("the Independent
Professional Expert"), to provide it with an opinion on the terms of the ManCo
Acquisition, which will be included in the circular. The circular setting out
the details of the Transaction, and incorporating a notice of general meeting
whereby approval from the requisite majority of Vukile unitholders will be
sought, will be posted to Vukile unitholders in due course.
As the exercise of the Call Option and the acquisition of any properties in
terms of the Right of First Refusal will be solely at Vukile`s discretion, they
will only be categorised in terms of the JSE Listings Requirements upon exercise
by Vukile of the Call Option or the acquisition of any properties in terms of
the Right of First Refusal.
5.2 The Code
As a result of the ManCo Acquisition, Sanlam, the Sanlam group of companies
(including policyholder funds) and their concert parties ("the Group") may
control up to 46% of the voting rights attaching to Vukile units. In terms of
Rule 8 of the Code, the Group would be obliged to make an offer ("Mandatory
Offer") to acquire the Vukile units at 910 cents per Vukile unit held by the
other Vukile unitholders pursuant to the ManCo Acquisition. The SRP has advised
that it is willing to consider an application to grant a dispensation ("the
Dispensation") to the Group, in terms of the Code, which would have the effect
of releasing the Group from any obligation to make the Mandatory Offer. The
Dispensation would, inter alia, be subject to Vukile unitholders, who are
independent from the Group, passing a resolution in general meeting approving a
waiver of the Vukile unitholders` right to require the Group to make the
Mandatory Offer.
6 SUPPORT FOR THE TRANSACTION
6.1 As mentioned in paragraph 5.1 above, BDO Spencer Steward (Cape) Inc. has
been appointed by Vukile as the Independent Professional Expert, in terms of the
JSE Listings Requirements, to advise the Vukile unitholders on whether the terms
and conditions of the ManCo Acquisition are fair.
6.2 The Independent Professional Expert has provided a preliminary written
opinion, which opinion will be formalised at the last practicable date prior to
the publication of a circular to Vukile unitholders. The favourable preliminary
opinion, which may be subject to change, is based on information available to
the Independent Professional Expert up to 29 May 2009 and is subject to review
of, inter alia, the Agreements as well as the limitations and conditions to be
set out in its formal opinion.
6.3 The Vukile board, other than for Messrs UJ van der Walt and AD Botha, who
are directors of Sanlam Properties and Sanlam respectively, and who have
accordingly recused themselves from all meetings and discussions relating to the
Transaction ("Vukile Board"), having taken into account the Independent
Professional Expert`s favourable preliminary opinion, is of the opinion that the
terms and conditions of the ManCo Acquisition are fair, in terms of the JSE
Listings Requirements, as far as Vukile unitholders are concerned. Subject to
the receipt of the final fairness opinion from the Independent Professional
Expert, the Vukile Board recommends that Vukile unitholders vote in favour of
the resolutions required to give effect to the ManCo Acquisition at a general
meeting of unitholders to be convened at a date to be advised.
7 PRO FORMA FINANCIAL EFFECTS OF THE MANCO ACQUISITION
Based on the published audited results of Vukile for the year ended 31 March
2009, the unaudited pro forma financial effects of the ManCo Acquisition on
Vukile`s earnings, headline earnings, fully diluted earnings, fully diluted
headline earnings, net asset value ("NAV") and tangible NAV ("TNAV") per Vukile
unit are set out below.
The preparation of the pro forma financial effects is the responsibility of
Vukile`s directors. The pro forma financial effects have been prepared for
illustrative purposes only and because of its nature may not provide a true
reflection of Vukile`s financial position and results of operations as a result
of the ManCo Acquisition.
Vukile Vukile
before the after the
ManCo ManCo Percen-
Per Vukile acqui- acqui- tage
unit (cents) sition(1) sition(2) change
Available for
distribution 98.09 100.54 2.5%
Earnings per Vukile
unit(3) ("EPU") 139.17 137.44 (1.2)%
Headline earnings per
Vukile unit(3) ("HEPU") 99.56 101.85 2.3%
Fully diluted earnings
per Vukile unit(3)
("DEPU") 139.17 137.44 (1.2)%
Fully diluted headline
earnings per Vukile
unit(3) ("DHEPU") 99.56 101.85 2.3%
NAV per Vukile unit(4) 906.62 905.02 (0.18)%
TNAV per Vukile unit(4) 880.80 783.91 (11.0)%
Weighted average
Vukile units in
issue for
calculating EPU
and HEPU 295 550 877 332 020 877
Weighted average
fully diluted
Vukile units in
issue for
calculating DEPU
and DHEPU 295 550 877 332 020 877
Vukile units in
issue for
calculating NAV
and TNAV 295 550 877 332 020 877
Notes
1) Based on the published audited results of Vukile for the year ended 31 March
2009.
2) Based on the assumption that the ManCo Acquisition was effected on 1 April
2008 for income statement purposes and 31 March 2009 for balance sheet
purposes.
3) EPU, HEPU, DEPU and DHEPU have been adjusted to include the following:
a) the extract of the ManCo results for the year ended 31 December 2008,
reflecting recurring and non-recurring income of ZAR50.0 million and ZAR26.3
million, respectively, and administrative expenditure of ZAR24.6 million;
b) acquisition costs (ZAR5.1 million) and JSE listing costs (ZAR0.1 million)
funded by way of overdraft at an average interest rate of 12.95% p.a., being an
additional finance cost of ZAR0.673 million from 1 April 2008;
c) an increase in the amortisation of debenture premium, through the income
statement, by ZAR1.1 million as a result of an increase of debenture premium,
following the additional issue of 36 470 000 Vukile units to Sanlam Properties;
d) an increase in tax payable by ZAR7.1 million as a result of an increase in
taxable income of ZAR25.4 million; and
e) the actual distribution of debenture interest of 97.70 cents per linked unit
has been increased by the additional debenture interest on the new issue of
linked units less ZAR10 million debenture interest refundable by Sanlam
Properties in terms of the Term Sheet.
4) NAV and TNAV per Vukile unit have been adjusted for the following:
a) assets have increased as a result of the ManCo Acquisition of ZAR325.4
million plus acquisition costs of ZAR5.1 million, comprising an intangible asset
of ZAR325.8 million, furniture, fittings and computer equipment of ZAR2.2
million and long-term bonus scheme (financial asset-held-for sale) of ZAR2.5
million;
b) an increase in short-term bank finance by ZAR5.2 million to fund the
transaction and JSE listing costs;
c) a and b equate to an increase in NAV of ZAR325.3 million; and
d) TNAV has been calculated by deducting goodwill of ZAR76 million and
intangible assets of ZAR325.8 million from NAV.
5) The pro forma financial information has been prepared in accordance with
International Financial Reporting Standards and in terms of the guide on Pro
Forma Financial Information issued by The South African Institute of Chartered
Accountants, in line with the JSE Listings Requirements.
8 WITHDRAWAL OF VUKILE`S CAUTIONARY ANNOUNCEMENT
As all the details of the Transaction as contained in the Term Sheet have been
disclosed, Vukile unitholders are advised that they are no longer required to
exercise caution when dealing in their Vukile units.
Roodepoort
11 June 2009
Investment bank, corporate adviser and transaction sponsor to Vukile - Nedbank
Capital, a division of Nedbank Limited
Attorneys to Vukile - Webber Wentzel
Independent professional expert - BDO Spencer Steward (Cape) Inc
Reporting accountants and auditors to Vukile - Grant Thornton
JSE sponsor to Vukile - Barnard Jacobs Mellet Corporate Finance (Proprietary)
Limited
NSX sponsor to Vukile - IJG Securities (Proprietary) Limited
Sponsor to Sanlam - Deutsche Securities (SA) (Proprietary) Limited
Attorneys to Sanlam- Cliffe Dekker Hofmeyr Inc
Date: 11/06/2009 11:00:02 Produced by the JSE SENS Department.
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