| Mon 14 Dec 2009, 16:35 | | MKL - Makalani holdings limited - Detailed cautionary announcement relating to: |
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MKL
MKL
MKL - Makalani holdings limited - Detailed cautionary announcement relating to:
Proposed delisting and a proposed offer
MAKALANI HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
Registration number 2005/000726/06
Share code: MKL
ISIN: ZAE000066700
("Makalani" or "the Company")
DETAILED CAUTIONARY ANNOUNCEMENT RELATING TO:
- THE PROPOSED DELISTING OF MAKALANI FROM THE JSE LIMITED;
- A PROPOSED OFFER BY MAKALANI TO UNITHOLDERS TO REPURCHASE THEIR MAKALANI
UNITS; AND
- FURTHER CAUTIONARY ANNOUNCEMENT.
1. Introduction
Makalani unitholders ("Unitholders") are referred to the recent cautionary
announcement released on SENS on 25 November 2009.
In a prior announcement released on SENS on 2 December 2008 and published
in the press on 3 December 2008, Unitholders were advised that the Makalani
board ("Board") was of the view that the current listed structure was no
longer optimal for the Company.
This decision was based on the consistently low liquidity of Makalani
units, as well as the large discount Makalani units have continued to trade
at relative to underlying net asset value ("NAV") despite a strong
investment performance. Accordingly, the Board indicated that the Company
would follow a wind-down strategy, with no new investments made and that
capital would be returned to Unitholders as underlying investments were
realised or as they matured. This process was anticipated to take at least
three years.
Three options in terms of this wind-down strategy were evaluated by the
Board:
- a disposal of all Makalani`s assets;
- a staggered disposal of all Makalani`s assets; and
- the take-over of Makalani, resulting in a delisting.
After careful evaluation over the last 12 months, Makalani Management
Company (Proprietary) Limited ("Manco") has concluded that a delisting of
Makalani is the best option for the Company. Accordingly, Makalani is
proposing to provide Unitholders with the opportunity to exit Makalani by
selling their units back to the Company for cash, at a premium to the
current unit price, which will also include the delisting of Makalani from
the main board of the JSE Limited ("JSE") ("the Transaction"). In line with
this, Makalani is offering Unitholders the opportunity to exit the Company
at a cash price of R83.50 per unit ("Exit Price").
In terms of the Transaction, those Unitholders who elect not to exit their
investment will be provided with the opportunity to remain invested in the
unlisted Makalani (as detailed in 3 below). The Transaction will be fully
underwritten by Rand Merchant Bank, a division of FirstRand Bank Limited
("RMB").
The Transaction will require Unitholders to make the following elections:
- to approve the delisting of Makalani;
- to approve the implementation of the Transaction in general meeting by
passing the requisite resolutions; and
- to elect to remain invested in an unlisted Makalani or to elect to exit
for cash.
To the extent that Unitholders do not make an election to remain invested
in an unlisted Makalani, they will receive the Exit Price.
2. Rationale
The nature of Makalani`s business is not suited to the listed environment.
Makalani has consistently traded at a discount to its NAV as a result of
inter alia:
- the complexity associated with determining the value of the underlying
investment portfolio and mezzanine markets;
- the limited liquidity in the traded Makalani units, which has further
compromised market pricing; and
- a disconnect between market valuations and the long-term nature of the
investment portfolio.
The Board and Manco are therefore of the view that the Company will be
better placed in an unlisted environment. In addition, the pursuit of a
short-term realisation strategy to facilitate the return of capital to
Unitholders is not likely to capture the inherent value of the investment
portfolio. It may therefore result in Makalani realising a significant
discount to the book value on its assets. This strategy is also likely to
take several years, which may not be preferable for all Unitholders.
Therefore, to maximise value from the underlying investment portfolio,
Manco believes that Makalani should be able to hold its investments to
maturity (the majority of the portfolio matures after four years) and that
Unitholders should be provided with an earlier exit, if so desired.
Accordingly, the Transaction will:
- result in the delisting of Makalani;
- facilitate the provision of a liquidity event, which will allow current
Unitholders to exit in cash at a premium to the current market price; and
- provide Unitholders with the election to remain invested in Makalani, in
its unlisted form, should they so desire (as detailed below).
3. Terms of the Transaction
The proposed mechanism to implement the Transaction will be by the Company
undertaking a specific repurchase ("Specific Repurchase") of Makalani units
from Unitholders at the Exit Price in terms of Section 85 of the Companies
Act, Act 61 of 1973, as amended and in terms of the Listings Requirements
of the JSE. The acquisition will take the form of a settlement of the
debenture in full (together with interest thereon, if any) with the balance
apportioned to the repurchase of the ordinary share linked thereto. The
proposed mechanism for the Transaction remains subject to the JSE approval.
The Exit Price is at a 13.6% premium to the 30 day volume weighted average
price of a Makalani unit, calculated at 24 November 2009, being the day
prior to the release of the first cautionary announcement by Makalani on 25
November 2009 and an 11.3% premium to the closing price of a Makalani unit
on 24 November 2009.
The Exit Price is based on a payment date of 29 March 2010, subject to the
fulfilment or, if applicable, waiver of the conditions precedent ("Payment
Date"). The Exit Price will be reduced by any distributions made by the
Company from the date of this announcement to the Payment Date.
Unitholders who participate in the Specific Repurchase ("Exiting
Unitholders") will receive the Exit Price on the Payment Date. If the
Payment Date occurs beyond 29 March 2010, the Exit Price will be increased
by an amount equivalent to 8% of the Exit Price per annum from 30 March
2010 until the date of actual payment (inclusive of interest that may
accrue to the debenture during the period, if any).
The Specific Repurchase in relation to Exiting Unitholders will be fully
funded through the simultaneous subscription for new Makalani units
("Specific Issue") by RMB or its nominee. Following the Specific Repurchase
and the Specific Issue, it is proposed that Makalani be delisted from the
JSE.
4. Unitholder support for the Transaction
Manco has so far secured in-principle support for the Transaction from
47.73% of voting Unitholders. The major Unitholders who have provided their
irrevocable support include inter alia, the Public Investment Corporation
Limited, Visio Capital Management and 36ONE Asset Management.
5. Conditions precedent
The Transaction is subject to the fulfilment or, if applicable, waiver of
inter alia the following conditions precedent by no later than 30 June
2010:
- the appointment of an independent sponsor, as requested by the JSE, for
the Transaction;
- the provision of a cash confirmation to the satisfaction of the
Securities Regulation Panel ("SRP");
- the conclusion of the legal agreements in respect of the underwriting of
the Specific Issue between RMB and Makalani;
- the approval of the Transaction by the relevant authorities, including,
the JSE, the SRP, the Competition Commission/Tribunal and the South African
Reserve Bank;
- approval by Unitholders in general meeting of the special resolutions
required to amend the articles of association of Makalani to implement the
Specific Repurchase;
- approval by Unitholders in general meeting of all other special and
ordinary resolutions required to implement the Transaction; and
- the Board obtaining a fairness opinion from an independent expert on the
terms of the Transaction.
The date by which the conditions precedent must be fulfilled, or if
applicable waived, may not be extended beyond 30 June 2010 without the
written consent of both Makalani and RMB.
6. FirstRand and Manco participation
FirstRand Limited ("FirstRand") group companies collectively hold 8 491 726
Makalani units, which equates to c. 39.8% of Makalani`s units in issue (net
of treasury units). Manco holds 32 527 Makalani units, which equates to c.
0.2% of Makalani`s units in issue (net of treasury units). FirstRand and
Manco have undertaken to remain invested for their entire shareholding in
Makalani. In addition, FirstRand and Manco have undertaken not to exercise
their vote at the general meeting of Unitholders to be convened to vote on
the resolutions required to implement the Transaction.
7. Committee and opinion
As a result of FirstRand and Manco`s participation in the Transaction, the
Board and Manco have established a sub-committee of independent non-
executive directors of the Board ("the Sub-committee"). The Sub-committee
will appoint an independent advisor to opine on the fairness of the
Transaction to Unitholders.
8. Further cautionary announcement
Nothing contained herein constitutes an offer nor a firm intention to make
an offer by any party, as contemplated under the Securities Regulation Code
on takeovers and mergers, nor should it in any circumstances be construed
as such. A further announcement will be released on SENS and published in
the press once the full terms and the salient dates of the Transaction have
been finalised, which is expected to be released around February 2010.
Accordingly, Unitholders are advised to continue to exercise caution when
dealing in the Company`s securities until the further announcement is
released.
Illovo
14 December 2009
Merchant bank and sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Legal advisor
Edward Nathan Sonnenbergs Inc
Date: 14/12/2009 16:35:57 Produced by the JSE SENS Department.
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