| Mon 21 Jun 2010, 16:03 | | BFS - Blue Financial Services / Mayibuye Group - Announcement to shareholders |
|
BFS
BFS
BFS - Blue Financial Services / Mayibuye Group - Announcement to shareholders
Blue Financial Services Limited
(Incorporated in the Republic of South Africa)
(Registration Number: 1996/006595/06)
JSE Share code: BFS
ISIN: ZAE000083655
("Blue" or the "Company")
Mayibuye Group (Proprietary) Limited
(Incorporated in the Republic of South Africa)
(Registration Number: 1998/022424/07)
("Mayibuye")
Announcement to shareholders of Blue regarding the proposed recapitalisation of
the Company through the combination of equity and debt funding (the
"Recapitalisation") from Mayibuye and certain ancillary corporate actions
1. Introduction
Shareholders are referred to the detailed cautionary announcement released
on the Securities Exchange News Service ("SENS") of the JSE Limited (the
"JSE") on Thursday, 9 June 2010, in which shareholders were advised that
Blue has entered into a subscription agreement with Mayibuye (the
"Subscription Agreement"). In terms of the Subscription Agreement,
Mayibuye will subscribe, subject to the Key Conditions referred to in
paragraph 4 below, for ordinary shares in Blue by way of a specific issue
of shares for cash (the "Specific Issue") at an issue price of 13 cents per
Blue ordinary share, for an aggregate subscription consideration of R163
million (the "Aggregate Subscription Consideration"). In addition,
Mayibuye will provide debt financing on an arm`s length basis to Blue in
the amount of R300 million (the "Loan") on commercial terms.
In order to implement the Recapitalisation, Blue will be required to
implement all or certain of the following corporate actions:
- Increase its authorised share capital to 3 billion ordinary shares of
0.0001 cent each ("Ordinary Shares");
- In the event of any claim resulting from the breach of any warranty
contained in the Subscription Agreement, the potential specific issue
of Ordinary Shares to Mayibuye ("Warranty Shares") to settle any such
claim;
- The potential specific issue of Ordinary Shares to the current funders
of Blue ("Dilution Shares") to convert, to the extent required, any
debt that may be outstanding at the end of the prescribed period into
Ordinary Shares;
- The potential specific issue of Ordinary Shares to Mayibuye ("Anti-
dilution Shares") to ensure that the shareholding of Mayibuye in Blue
does not reduce to below 51% as a result of the issue of any Dilution
Shares;
- Place all of the authorised but unissued Ordinary Shares under the
control of the directors of Blue for the purpose of the Specific Issue
and the potential issue of the Warranty Shares, the Dilution Shares
and the Anti-dilution Shares;
- Amend the Memorandum and Articles of Association of Blue ("Articles");
and
- Waive the requirement for Mayibuye to make a mandatory offer to the
shareholders of Blue.
At the time of Blue`s listing on the Alternative Exchange of the JSE,
Pinebridge Global Emerging Markets Partners II, L.P. and Pinebridge Capital
Partners LLC ("Pinebridge") (previously AIG Global Emerging Markets
Partners II, L.P. and AIG Capital Partners LLC, respectively) had agreed to
invest US$15 million in cash in three equal tranches by subscribing for
various classes of redeemable convertible preference shares ("Preference
Shares"). As holder of these Preference Shares, Pinebridge had certain
special rights including special voting rights and rights to anti-dilution
relief. The majority of these special rights are retained by Pinebridge
notwithstanding the conversion of the Preference Shares into Ordinary
Shares. In addition, certain of these special rights are contained in the
Articles. Details of the special rights relating to these Preference
Shares were disclosed in the pre-listing statement issued by Blue on 11
October 2006 at the time of its listing on the JSE.
Mayibuye and Pinebridge have reached in principle agreement (subject to the
entering into of a formal agreement), that Mayibuye will acquire any and
all rights and claims by Pinebridge against Blue (including any and all of
the special rights contemplated above) for an amount of R13 million (the
"Pinebridge Settlement Amount"). Mayibuye and Blue, in turn, have agreed
in terms of the Subscription Agreement that any such rights and claims
acquired by Mayibuye against Blue, will be applied in part settlement of
the Aggregate Subscription Price, as contemplated in paragraph 4 below.
2. Background on Mayibuye
Mayibuye, a South African company established in 2000, is focused primarily
on equity acquisitions in the credit environment. Investec Bank Limited is
the primary institutional shareholder with an 18% shareholding. Mayibuye
also has access to committed funding lines of R500m. Mayibuye has 206
staff of which 81% are historically disadvantaged and 60% are female.
Mayibuye has a 27% Black Economic Empowerment ("BEE") shareholding and has
been awarded a Level 4 Broad Based BEE rating.
Mayibuye currently has investments in the following credit industry
companies:
CreditEdge (Pty) Ltd (www.creditedge.co.za) is a loan portfolio management
company which provides a sophisticated, full-capability servicing platform.
It is an IP-rich organisation that provides innovative, relevant and
practical business outsourcing solutions, including financial security
evaluation. These solutions meet and exceed the needs of retail-based
credit-granting organisations throughout the credit relationship lifecycle
from initiation to termination, and effectively elevate credit grantors
into a position of credit excellence.
Integer (Pty) Ltd ("Integer") (www.integer.co.za) is a specialised
residential home loan and related financial solutions provider whose
products are innovative, fresh and competitively priced. Its flagship
product is a home loan with transactional banking convenience associated
with a VISA-based debit card. In addition, Integer has a niche-specialised
division, Hlano Housing Solutions, providing housing solutions to
previously unbanked customers in the Financial Services Charter space.
Pholosa Asset Management (Pty) Ltd (www.pholosa.co.za) is an asset
management and credit recovery company that provides structured solutions
to consumer credit grantors through its world-class and `ahead of the pack`
Credit Solutions. Credit Solutions consist of two main components:
Financial Solutions which provide unique and innovative financial options,
and Collection Solutions which provide leading-edge debt collection
services.
3. Background and rationale for the Recapitalisation
Shareholders were advised in the Company`s trading updates released on SENS
on 28 May 2010 and 15 June 2010 as well as in the Company`s announcement of
its reviewed provisional financial results for the year ended 28 February
2010 released on SENS on 21 June 2010 that the Company incurred significant
losses due to the following:
- Reduced levels of funding available to Blue which impacted adversely
on business growth;
- Rapid expansion of the business in prior periods resulting in
increased operating expense levels which are disproportionately high
compared to current trading levels;
- Certain business acquisitions, specifically South African based micro-
financier Credit U Holdings Limited ("Credit U"), not meeting original
expectations;
- The deterioration in the overall performance of loan advances; and
- Weakening of most of the currencies in which the African subsidiaries
operate, against the Rand during the period.
The Recapitalisation by Mayibuye will assist Blue in addressing these
operational issues as follows:
- The cash proceeds from the Specific Issue, the Restructure of the
current funding obligations and the Loan will be used to stabilise the
Company`s financial position and provide the funding required to
facilitate growth in the business;
- Mayibuye has significant experience in turning around financial
services companies, most notably with its acquisition of Integer. With
this turnaround experience, it is expected that Mayibuye will assist
Blue in right sizing its operations to sustainable levels such that
Blue will be able to return to profitability;
- Mayibuye, through some of its existing investments, has significant
experience in:
a. collecting debtors` books. This credit collection experience will
be of particular value when assisting Blue to realise the maximum
value from the Credit U debtors` books; and
b. credit granting and general servicing of loan portfolios and will
be able to assist Blue in improving its credit granting processes
and thus the performance of its loan advances in future.
In addition, the introduction of Mayibuye as a strategic investor presents
Blue with significant potential for synergies, including the introduction
of card-based and mortgage-based lending to Blue`s clients and target
markets in South Africa and Africa.
4. Transaction structure
- The salient terms of the Pinebridge Settlement and the Specific Issue
In terms of an agreement to be entered into between Mayibuye and Pinebridge
(the "Pinebridge Agreement"), immediately, prior to the Recapitalisation,
any and all rights and claims by Pinebridge against Blue will be
transferred from Pinebridge to Mayibuye. In terms of the Subscription
Agreement, Blue has consented to such transfer.
In terms of the Subscription Agreement, Mayibuye will settle the Aggregate
Subscription Consideration as follows:
- R150 million thereof by way of a cash payment to Blue; and
- R13 million by setting off Mayibuye`s obligation to pay the balance of
the R13 million of the Aggregate Subscription Consideration to Blue,
against settlement of Blue`s obligations to pay the Pinebridge
Settlement Amount.
As a result Blue will issue to Mayibuye 1 253 846 154 Ordinary Shares at an
issue price of 13 cents per share representing 64.9% of the Company`s
enlarged issued share capital.
The Specific Issue will constitute a specific issue of shares for cash in
terms of the Listings Requirements of the JSE and such issue requires the
approval of shareholders.
The effective date of the Specific Issue will be the first business day
after the date on which the last condition precedent set out in the
Subscription Agreement has been fulfilled or waived.
- The issue of the Warranty Shares
In terms of the Subscription Agreement, Blue has provided a number of
warranties in favour of Mayibuye. Should the Company breach certain of
these warranties during a period of up to 12 months after the date on which
the Specific Issue is implemented, as a result of which Mayibuye suffers
any loss, and upon a final determination of the quantum of such loss (the
"Claim Amount"), Mayibuye will be entitled to the issue of Ordinary Shares
in respect of the Claim Amount. The minimum Claim Amount must exceed R5
million. The maximum amount that can be claimed in the aggregate is capped
at an amount equivalent to the Aggregate Subscription Consideration.
The Warranty Shares will be issued to Mayibuye at an issue price equivalent
to the 30 day volume weighted average price that the Ordinary Shares traded
on the JSE prior to the business day immediately preceding the date on
which Mayibuye first notified the Company of any such loss in writing.
The issue of the Warranty Shares will constitute a specific issue of shares
for cash in terms of the Listings Requirements of the JSE and such issue
requires the approval of shareholders.
- The issue of the Dilution Shares
In terms of the Subscription Agreement, Blue is required to conclude
restructuring agreements with its various current debt funders in respect
of such debt funding (the "Restructuring Agreements"). Following
subscription and the implementation of the Specific Issue, Blue may be
required to issue Dilution Shares in terms of the Restructuring Agreements,
inter alia, to convert any debt that may still be outstanding after a
prescribed period, being three years after the implementation of the
Specific Issue, into equity.
If the Dilution Shares are issued, this will constitute a specific issue of
shares for cash in terms of the Listings Requirements of the JSE and such
issue requires the approval of shareholders.
- The issue of the Anti-dilution Shares
In terms of the Subscription Agreement, in the event that any Dilution
Shares are issued as a result of which Mayibuye`s shareholding in Blue
would fall below 51% of the total issued share capital of the Company,
Mayibuye shall have the right to subscribe for such number of additional
Ordinary Shares, at par value, which will result in Mayibuye holding not
less than 51% of the total issued ordinary share capital of the Company on
a fully diluted basis.
If the Anti-dilution Shares are issued, this will constitute a specific
issue of shares for cash in terms of the Listings Requirements of the JSE
and such issue requires the approval of shareholders.
- Waiver of the requirement for a mandatory offer
If the Specific Issue is successfully implemented, Mayibuye`s shareholding
in Blue will be such that Mayibuye will control 35% or more of the votes to
be cast at any meeting of the shareholders. Therefore the Specific issue
will constitute an "affected transaction" in terms of the Securities
Regulation Code on Takeovers and Mergers and the Rules of the Securities
Regulation Panel (the "Code") and, in terms of Rule 8.1 of the Code,
Mayibuye would be required to make a mandatory offer to all shareholders.
However, Rule 8.7 of the Code allows the Securities Regulation Panel
("SRP") to waive this requirement to make a mandatory offer if such waiver
is supported by a majority of independent Shareholders in general meeting.
The SRP has advised that it is willing to consider an application to grant
this waiver, subject to shareholders who are independent from Mayibuye
passing an ordinary resolution in general meeting approving a waiver of
their right to require Mayibuye to make a mandatory offer under Rule 8.1 of
the Code.
- Increase in the authorised share capital of Blue and placing such
authorised Ordinary Shares under the control of the directors of Blue
In order to implement the Specific Issue as well as the issue of the
Warranty Shares, the Dilution Shares and the Anti-dilution Shares, the
authorised share capital of Blue will be increased to 3 billion Ordinary
Shares. The increase in the authorised share capital will require the
approval of a special resolution by shareholders and the registration of
this resolution with the Registrar of Companies.
In addition, authority will be sought from shareholders in order to place
the newly created but unissued Ordinary Shares under the control of the
directors of Blue for the specific purpose of implementing the Specific
Issue as well as the issue of the Warranty Shares, the Dilution Shares and
the Anti-dilution Shares.
- Amendment of the Articles
The Articles of Blue will require amendment as a result of the increase in
the authorised share capital and also to implement the Pinebridge
Settlement by deleting any and all of the special rights of Pinebridge that
are currently contained in the Articles.
The amendment of the Articles will require the approval of a special
resolution by shareholders and the registration of this resolution with the
Registrar of Companies.
- Board and management changes
Following the implementation of the Specific Issue, Mayibuye will become
the majority shareholder in Blue. It is Mayibuye`s intention to make
changes to both the board and executive management of Blue. Details
regarding any such changes will be set out in the circular to shareholders
referred to in paragraph 5 below.
- Key conditions precedent in relation to the Recapitalisation
In terms of the Subscription Agreement, the Recapitalisation is subject to
the fulfillment or waiver, as the case may be, of the following key
conditions precedent:
- Key shareholders of Blue holding in aggregate at least 70% of Blue`s
current issued share capital providing irrevocable undertakings to
support the Recapitalisation and, insofar as they are so entitled, to
vote in favour of the resolutions required to implement the
Recapitalisation;
- Mayibuye concluding the Pinebridge Agreement;
- Blue and Mayibuye concluding a definitive agreement with regard to the
Loan;
- The Restructuring Agreements being concluded;
- The approval of shareholders of all resolutions required to implement
the Recapitalisation including the resolution waiving the requirement
for a mandatory offer in terms of rule 8.7 of the Code, and, where
relevant, the registration of such resolutions with the Registrar of
Companies; and
- Regulatory approvals to the extent required including the approval of
the Competition Authorities, the Exchange Control Department of the
Reserve Bank, the JSE and the SRP.
- Key conditions to the Specific Issue
Notwithstanding the fulfilment or waiver, as the case may be, of any of the
conditions precedent referred to in the paragraph above, Mayibuye will not
be obliged to subscribe for Ordinary Shares in terms of the Specific Issue,
if, inter alia:
- the Net Asset Value of the Company calculated on the basis of the
management accounts of the Company in respect of the calendar month
immediately preceding the Subscription Date, plus an amount equal to
the Aggregate Subscription Consideration, is a negative amount; and
- If between the dates of signature of the Subscription Agreement and
the first business day after the date on which the last of the
conditions precedent to the Subscription Agreement is fulfilled or
waived, a material adverse effect has occurred.
5. Further announcement and circular to shareholders
A further announcement disclosing the pro forma financial effects of the
Recapitalisation will be made shortly. A circular with details of the
Recapitalisation and the ancillary corporate actions, and incorporating
revised listing particulars as well as a notice of general meeting will be
posted to shareholders in due course.
6. Cautionary announcement
Shareholders are advised to continue exercising caution when dealing in
their Blue securities until a further announcement disclosing the pro forma
financial effects of the Recapitalisation is made.
Pretoria
21 June 2010
Financial adviser to Blue
NM Rothschild & Sons (South Africa) (Proprietary) Limited
Designated adviser to Blue
Grindrod Bank Limited
Legal adviser to Blue
Garlicke & Bousfield Inc
Financial adviser to Mayibuye
PricewaterhouseCoopers Corporate Finance (Proprietary) Limited
Legal adviser to Mayibuye
Cliffe Dekker Hofmeyr Inc
Date: 21/06/2010 16:03:03 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
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.
