| Tue 23 Feb 2010, 14:16 | | MKL - Makalani - Announcement Relating To A Proposed Offer Proposed Delisting |
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MKL
MKL
MKL - Makalani - Announcement Relating To A Proposed Offer, Proposed Delisting
And Withdrawal Of Cautionary Announcement
MAKALANI HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
Registration number 2005/000726/06
Share code: MKL
ISIN: ZAE000066700
("Makalani" or "the Company")
ANNOUNCEMENT RELATING TO A:
- PROPOSED OFFER BY MAKALANI TO LINKED UNITHOLDERS TO REPURCHASE THEIR
MAKALANI LINKED UNITS FOR A COMPOSITE PRICE OF R83.97 PER LINKED UNIT (NET
CASH CONSIDERATION OF R82.05 PER LINKED UNIT);
- PROPOSED DELISTING OF MAKALANI FROM THE JSE LIMITED; AND
- WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT.
1. Introduction
Makalani linked unitholders ("Unitholders") are referred to the detailed
cautionary announcement released on SENS on 14 December 2009 ("Detailed
Cautionary") and the renewal thereof dated 1 February 2010.
The Makalani board ("Board") remains of the view that the current listed
structure is no longer optimal for the Company and has decided, at the
request of Makalani Management Company (Proprietary) Limited ("Manco") and
FirstRand Bank Limited, acting through Rand Merchant Bank ("RMB"), to
propose to Unitholders:
- the offer ("Offer") by Makalani to Unitholders to repurchase all of
their linked units for a composite price of R83.97 per linked unit as
calculated and adjusted in terms of 3.2 to 3.6 below ("Offer
Consideration"); and
- the subsequent delisting of Makalani from the JSE Limited ("JSE")
(collectively, "the Proposed Transaction").
The Offer Consideration is at a 14.3% premium to the 30 day volume weighted
average price of a linked 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 a 12.0% premium to the closing price of a linked
unit on 24 November 2009.
In terms of the Proposed Transaction, Unitholders will be provided with the
opportunity to remain invested in Makalani, in its unlisted form, by
electing not to accept the Offer. Each registered Unitholder that wishes
to remain invested in Makalani will be required to elect to remain invested
in Makalani in respect of 100% of his or her linked units, held on the
record date of the Proposed Transaction.
The Proposed Transaction will require Unitholders to make the following
elections:
- to approve the delisting of Makalani;
- to approve the implementation of the Proposed Transaction in general
meeting by passing the requisite resolutions; and
- if they wish to remain invested, to elect to remain invested in
respect of 100% of the linked units registered in his or her name on
the record date or to elect to exit in exchange for the Offer
Consideration.
To the extent that Unitholders do not make a valid election in writing to
remain invested in an unlisted Makalani, they will, subject to paragraph
3.9, be deemed to have accepted the Offer and will receive the Offer
Consideration for all of their linked units.
The Offer will be fully funded by RMB Investments and Advisory
(Proprietary) Limited ("RMBIA"), in that RMBIA will contemporaneously
subscribe by way of a specific issue of units for cash for such number of
new Makalani linked units as is equal to the number of linked units in
respect of which the Offer is accepted or deemed to have been accepted, as
more fully set out in paragraph 3.8 below.
2. Rationale
The nature of Makalani`s business is no longer suited to the listed
environment. Makalani has consistently traded at a discount to its net
asset value ("NAV") as a result, inter alia, of:
- the complexity associated with determining the value of the underlying
investment portfolio;
- the limited liquidity in the traded Makalani linked 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 and may result in Makalani realising a significant discount to
the book value of its assets. This strategy is also likely to take several
years, which may not be preferable for all Unitholders.
To maximise value from the underlying investment portfolio, Manco and the
Board believe that Makalani should hold its investments to maturity (the
majority of the portfolio matures after four years) and Unitholders should
in the interim be provided with the opportunity to exit, if so desired.
Accordingly, the Proposed Transaction will, if approved:
- result in the delisting of Makalani;
- facilitate the provision of a liquidity event, which will allow
Unitholders the opportunity to exit at a composite cash price of
R83.97 per linked unit, subject to paragraph 3.2 to 3.6 below; and
- provide Unitholders with the election to remain invested in Makalani,
in its unlisted form, should they so desire.
3. Terms of the Proposed Transaction
3.1 The mechanism by which the Proposed Transaction will be implemented
will be by way of the Company undertaking a specific repurchase
("Repurchase") of Makalani linked units from Unitholders other than
FirstRand Limited (or any of its subsidiaries) ("FirstRand"), Manco
and Makalani Treasury Units (Proprietary) Limited at the Offer
Consideration. The Repurchase will take the form of a settlement of
the debenture in full (together with interest thereon, if any is
payable) with the balance apportioned to the specific repurchase of
the ordinary share linked thereto, 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.
3.2 The Offer Consideration, being a composite amount of R83.97 per linked
unit, has been calculated and will be adjusted as follows:
3.2.1 the initial offer consideration of R83.50 was based on an
expected payment date of 30 March 2010 as set out in the
Detailed Cautionary;
3.2.2 the Offer Consideration will be reduced by the distribution
announced by Makalani of R1.92 per linked unit payable on 23
March 2010, as set out in the interim results announcement
released on SENS on 22 February 2010; and
3.2.3 in order to take account of the expected payment date of 26
April 2010, the Offer Consideration has been increased by an
amount equivalent to notional interest at 8% per annum
(calculated daily) from 30 March 2010 to 26 April 2010,
which escalation amount equates to R0.47.
Accordingly the escalated net cash offer consideration payable on the
expected payment date of 26 April 2010 will be R82.05 ("Net Cash
Consideration"), which, taking into account the distribution of R1.92
results in an effective Offer Consideration of R83.97.
3.3 The Net Cash Consideration will be allocated to firstly redeem the
nominal value of the debenture and thereafter the remaining balance
will be apportioned to the ordinary share.
3.4 If the payment date occurs after Monday, 26 April 2010 (by reason of a
delay in the fulfilment or waiver, if applicable, of the conditions
precedent), the Net Cash Consideration will be increased by an amount
equivalent to 8% (eight percent) per annum calculated daily per linked
unit from 27 April 2010 to the date of actual payment (both dates
inclusive) and shall be allocated in accordance with 3.5 below.
3.5 Insofar as the payment date extends beyond 26 April 2010 as aforesaid,
such escalation amount shall, in relation to the debenture, be
regarded as interest on the debenture and, in relation to the amount
allocated to the ordinary share, be regarded as an increase in the
Offer Consideration for such share.
3.6 For clarity, Unitholders who accept the Offer shall not be entitled to
pro rata interest for the interest period 1 January 2010 to 30 June
2010.
3.7 Amounts due to debenture holders (as part of the linked units) are
currently subordinated to the rights of the preference shareholder in
terms of the debenture trust deed, as amended. RMB as the sole
preference shareholder has waived its rights of priority thereunder to
allow for the repayment of debentures as part of the Proposed
Transaction.
3.8 Unitholders who accept the Offer, and those Unitholders who fail to
make a valid election in writing to remain invested in the Company
(and will therefore be deemed to have accepted the Offer), will be
entitled to receive the Net Cash Consideration on the payment date.
3.9 To the extent that a Unitholder does not receive the circular and/or
notice of general meeting and would not have accepted the Offer but
was deemed to have accepted it by default, and receives the Net Cash
Consideration as consideration for his or her linked units on the
payment date, such Unitholder will be entitled to purchase from RMB
the same number of linked units in the unlisted Makalani as were held
by him or her on the record date of the Proposed Transaction at the
Net Cash Consideration, provided that such Unitholder is able to
demonstrate to the Board, within 60 days of the closing date of the
Offer, that he or she, acting in good faith, did not receive the
circular and/or notice of general meeting regarding the Proposed
Transaction. For clarity, this provision does not apply to
Unitholders who received the circular and/or notice of general meeting
but failed to make a valid election to remain invested in Makalani.
3.10 The Offer will be fully funded through the contemporaneous
subscription for new Makalani linked units ("Specific Issue") by RMBIA
on a unit-for-unit basis, corresponding to the number of acceptances
received by the Company, under the Repurchase. A term of the Offer is
that the Offer will terminate if, at any time prior to the business
day immediately preceding the date upon which the last of the
conditions precedent is fulfilled or waived ("finalisation date"):
3.10.1 Makalani shall have committed an act of insolvency or,
commits an act which would have constituted an act of
insolvency as defined in the Insolvency Act, 1936 if it were
a natural person, or if any of the circumstances referred to
in section 344 of the Companies Act apply to Makalani; and
3.10.2 Makalani shall have been placed into final or provisional
liquidation.
4. FirstRand and Manco participation
FirstRand holds in aggregate 8 651 874 Makalani linked units, which equates
to c. 40.5% of Makalani`s linked units in issue (net of treasury linked
units). Manco holds 32 527 Makalani linked units, which equates to c. 0.2%
of Makalani`s linked units in issue (net of treasury linked units).
Pursuant to the Proposed Transaction, FirstRand and Manco have elected to
remain invested for their entire holding of linked units in Makalani. In
addition, FirstRand (in respect of the ordinary and preference shares held
by them) and Manco have undertaken, and by agreement with all interested
parties, will not exercise their votes at the general meeting of
Unitholders to be convened to vote on the resolutions required to implement
the Proposed Transaction.
Makalani has agreed to pay Manco a transaction fee of R17.5 million, which
only becomes payable on the fulfilment of the conditions precedent to the
Proposed Transaction set out in paragraph 8. The transaction fee
constitutes 1% of the post transaction linked units. Manco has undertaken
to utilise R12.6 million to subscribe for new Makalani linked units at a
price of R82.05 per linked unit (equivalent to 153 740 linked units). The
remaining R4.9 million will be payable in cash to Manco and will be
utilised to fund any tax payable by Manco pursuant to the receipt of the
transaction fee.
5. Call option granted to Manco
Pursuant to the Proposed Transaction, FirstRand is likely to increase its
shareholding to a significant controlling stake in Makalani (in excess of
50% of the linked units in issue post the implementation of the Proposed
Transaction).
Makalani management has approached FirstRand to support the introduction of
potential new long term investors, post the implementation of the Proposed
Transaction, in the delisted Makalani. This will facilitate a reduction in
FirstRand`s shareholding and risk exposure and allow the introduction of
new investors aligned to the long term nature of the fund who understand
the business and the underlying investment portfolio.
Makalani management is also seeking to create a new independent black
controlled unlisted mezzanine fund ("Fund II"). In line with this
objective, Makalani management is seeking new investors in Makalani to also
commit to investing in Fund II.
FirstRand is supportive of both initiatives and has agreed that RMBIA will
sell down a portion of the additional linked units it acquires pursuant to
the Specific Issue, in order to allow Makalani management to identify
potential new long term investors and facilitate a reduction in FirstRand`s
overall shareholding to below 50%, subject to first achieving a minimum
required shareholding of 49%. RMBIA will grant this option to Makalani
management, through Manco as agent for new investors, which will be
exercisable from 1 July 2010 to 31 December 2010 at the Net Cash
Consideration plus the movement in net asset value from the subscription
date until the date that the option is exercised, plus R4.00 per linked
unit.
6. Pro forma financial effects of the Proposed Transaction
The unaudited pro forma financial effects of the Proposed Transaction on
Unitholders are set out below. The pro forma financial effects are based on
the Makalani results for the 6 month period ended 31 December 2009. The
unaudited pro forma financial effects are the responsibility of the Board
and have been prepared for illustrative purposes only, and because of their
pro forma nature may not give a fair reflection of the Company`s financial
position after the Proposed Transaction.
The unaudited pro forma financial effects of the Proposed Transaction on
reinvesting Unitholders are set out below:
Unaudited Unaudited %
before the after the change
Proposed Proposed
Transaction Transaction
(1) (2)
Earnings per linked (386) (380) (1.6%)
unit ("EPLU")(cents)3
Headline EPLU (cents)3 (386) (380) (1.6%)
Diluted EPLU (cents)3 (386) (380) (1.6%)
Diluted headline EPLU (386) (380) (1.6%)
(cents)
NAV per linked unit 99.09 97.35 (1.8%)
(Rand)4
Net tangible asset 99.09 97.35 (1.8%)
value per linked unit
(Rand)4
Weighted average number 21 353 21 506 0.7%
of linked units in
issue (`000) 5
Number of linked units 21 353 21 506 0.7%
in issue (`000) 5
Notes:
1. Extracted from the unaudited interim results for Makalani for the 6
months ended 31 December 2009.
2. Represents the unaudited pro forma financial effects after the
implementation of the Proposed Transaction.
3. Earnings, diluted earnings and headline earnings per linked unit is
based on the following assumptions:
- The transaction was effective 1 July 2009; and
- Costs of the transaction, estimated at R34.7 million, are
capitalised to equity and are settled as follows:
- R22.1 million in cash. Interest forgone on this cash outflow
is adjusted based on the average rate earned on these funds
during the period to 31 December 2009, being 7.27% pa; and
- R12.6 million through the issue of 153 740 linked units in
Makalani at R82.05 each.
- No tax consequence of the interest foregone on the cash outflow
has been included due to the assessed loss position of Makalani.
4. Net asset and net tangible asset value per linked unit is based on the
following assumptions:
- The transaction was effective 31 December 2009; and
- Costs of the transaction, estimated at R34.7 million, are
capitalised to equity and are settled as follows:
- R22.1 million in cash; and
- R12.6 million through the issue of 153 740 linked units in
Makalani at R82.05 each.
5. All linked units repurchased in terms of the Makalani offer are issued
in terms of the specific issue. The linked units in issue are adjusted
by the Manco issue.
6. No adjustment is made for the general issue as there is currently no
certainty around the number of linked units which may be issued within
the grace period.
7. Unitholder support for the Proposed Transaction
Makalani has so far secured in-principle support for the Proposed
Transaction from 47.7% 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.
8. Conditions precedent
The Proposed Transaction is subject to the fulfilment, or if applicable,
waiver of the following conditions precedent by no later than 30 June 2010:
8.1 approval by Unitholders in general meeting of all special and ordinary
resolutions required to amend the articles of association and
implement the offer and the delisting;
8.2 the waiver by the Securities Regulation Panel ("SRP") and independent
Unitholders of the requirement for FirstRand to make an offer to
Unitholders in terms of Rule 8.7 of the Securities Regulation Code on
Takeovers and Mergers and the Rules of the SRP ("SRP Code");
8.3 by no later than the business day immediately preceding the
finalisation date, the NAV of Makalani has been agreed or determined
in accordance with the provisions of the subscription agreement
entered into between RMB and Makalani ("Subscription Agreement") and
such NAV is not less than R90.00 per linked unit (less transaction
costs); and
8.4 the registration by the Companies and Intellectual Properties
Registration Office of the relevant special resolutions.
No condition precedent shall be capable of being waived unless it is lawful
to do so and unless such waiver is in writing and signed by RMB and
Makalani (with the exception of 8.3 above which may only be waived by RMB).
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 RMB and Makalani. Should any of the conditions precedent
referred to in 8 above not have been timeously satisfied or waived, the
offer shall ipso facto lapse and be of no force or effect.
9. Independent sub-committee and fairness opinion
As a result of FirstRand and Manco`s participation in the Proposed
Transaction, the Board and Manco have established a sub-committee of
independent non-executive directors of the Board ("the Sub-committee").
The Sub-committee has appointed Java Capital (Proprietary) Limited ("Java
Capital") as the independent advisor to Makalani. Java Capital will
consider the terms and conditions of the Proposed Transaction and whether
such terms and conditions are fair to Unitholders. The full opinion of the
independent expert and the basis for their conclusion will be included in
the circular to Unitholders to be posted on or about Friday, 5 March 2010.
The opinion of the independent sub-committee after taking into
consideration the opinion of the expert will also be published in the
circular.
10. Cash confirmation
FirstRand Limited has provided the SRP with appropriate written
confirmation, as contemplated in the Securities Regulation Code, that RMBIA
has sufficient funds available for the sole purpose of meeting its
obligations under the Subscription Agreement, which in turn ensures that
Makalani has sufficient cash resources and/or facilities available to meet
the cash commitments to Unitholders in relation to the Proposed
Transaction.
11. Salient dates and times
The salient dates and times regarding the Proposed Transaction are set out
below.
2010
Offer opens at 09:00 on Friday 5 March
Last day to lodge objections with the SRP with Tuesday, 23 March
respect to waiving Rule 8.7 of the SRP Code on
Last day to lodge forms of proxy for the general Thursday 25 March
meeting by 10:30 on
General meeting to be held at 10:30 on Monday 29 March
Results of the general meeting released on SENS on Monday 29 March
Results of the general meeting published in the Tuesday 30 March
South African press on
Finalisation date Thursday 8 April
Last date to trade in order to participate in the Friday 16 April
Offer is
Makalani linked units suspended from trading on Monday 19 April
the JSE on
Record date for the Offer on Friday 23 April
Offer closes at 12:00 on Friday 23 April
Results of Offer released on SENS on Monday 26 April
Dematerialised Unitholders will have their Monday 26 April
accounts credited with the Net Cash Consideration
on
Certificated Unitholders will have the Net Cash Monday 26 April
Consideration posted to them on
Results of the offer published in the South Wednesday 28 April
African press on
Makalani linked units delisted from the JSE at Wednesday 28 April
commencement of trade on
Notes:
1. All times shown are South African local times.
2. The above dates and times are subject to change. Any material change
will be released on SENS and published in the South African press.
3. Makalani linked units may not be dematerialised after Friday 16 April
2010.
4. Dematerialised Unitholders are required to notify their duly appointed
CSDP/broker of their election to remain invested in Makalani, in the
manner and time stipulated in the custody agreement governing the
relationship between the Unitholder and his/her CSDP/broker.
12. Circular
A detailed circular will be posted, by prepaid registered post, to all
beneficial Unitholders regarding the Proposed Transaction on or about 5
March 2010. A general meeting of Unitholders will be convened, in terms of
the Notice of General Meeting to be attached to the circular, on or about
29 March 2010 to consider and, if deemed fit, pass the resolutions required
to implement the Proposed Transaction.
13. Withdrawal of cautionary
Unitholders are advised that, as a result of the publication of this
announcement, the Detailed Cautionary renewed on 1 February 2010 is now
withdrawn and caution is no longer required to be exercised by Unitholders
when dealing in their linked units.
Illovo
23 February 2010
Merchant bank and sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Legal advisor
Edward Nathan Sonnenbergs Inc
Legal advisor to the funders
Cliffe Dekker Hofmeyr Inc
Independent sponsor
Deloitte and Touche Sponsor Services (Proprietary) Limited
Independent expert
Java Capital (Proprietary) Limited
Reporting Accountants
PWC
Date: 23/02/2010 14:16:01 Produced by the JSE SENS Department.
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employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
