| Wed 22 Sep 2010, 13:11 | | FSR/MET - FirstRand Limited/Metropolitan Holdings |
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FSR MET
FSR MET
FSR/MET - FirstRand Limited/Metropolitan Holdings Limited - Updated financial
information relating to the merger and subsequent transactions
FirstRand Limited
(Incorporated in the Republic of South Africa)
(Registration number 1966/010753/06)
Share code: FSR ISIN: ZAE000066304
("FirstRand")
Metropolitan Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 2000/031756/06)
Share code: MET ISIN: ZAE000050456
("Metropolitan")
Momentum Group Limited
(Incorporated in the Republic of South Africa)
(Registration number 1904/002186/06)
("Momentum")
Updated unaudited pro forma financial effects in relation to the merger of
Momentum and Metropolitan, the subsequent unbundling by FirstRand of its shares
in Metropolitan and the specific repurchase of shares by Metropolitan following
the release of Metropolitan`s interim results on 1 September 2010 and
FirstRand`s annual results on 14 September 2010
1. Introduction
FirstRand and Metropolitan shareholders are referred to the announcement
released on SENS on 26 August 2010 wherein shareholders were advised of the
detailed terms of the proposed merger of Metropolitan and Momentum (the
"Merger") and subsequent unbundling by FirstRand of its shares in Metropolitan
(the "Unbundling"). Shareholders of FirstRand and Metropolitan are also referred
to the FirstRand circular and the Metropolitan circular and revised listing
particulars posted to shareholders on 6 September 2010, which contained
unaudited pro forma financial information of the Merger, the Unbundling and the
specific repurchase of certain Metropolitan shares (the "Specific Repurchase").
The Merger and the Unbundling are collectively hereinafter referred to as the
"Transaction" and the merged entity will be renamed MMI Holdings Limited ("MMI
Holdings").
The announcement, circulars and revised listing particulars referred to above
included the unaudited pro forma financial effects and the unaudited pro forma
financial information of the Transaction and the Specific Repurchase for the
period ended 31 December 2009. Metropolitan and FirstRand undertook to update
the unaudited pro forma financial effects and the unaudited pro forma financial
information following the release of their results on 1 September 2010 and 14
September 2010, respectively. This announcement contains the updated unaudited
pro forma financial effects of Metropolitan and FirstRand following the release
of these results.
The updated unaudited pro forma financial information, from which the updated
unaudited pro forma financial effects has been prepared, is available for
inspection at FirstRand, Momentum and Metropolitan`s registered offices. The
reporting accountants` limited assurance reports on the unaudited pro forma
financial information are also available for inspection.
Metropolitan shareholders are reminded that a general meeting will be convened
to be held at 10:00 on Tuesday, 28 September 2010 in the Auditorium, 7 Parc du
Cap, Mispel Road, Bellville, Cape Town to consider and, if deemed fit, pass,
inter alia, the resolutions required to authorise the implementation of the
Transaction and the Specific Repurchase.
FirstRand shareholders are reminded that a general meeting of FirstRand ordinary
shareholders will be convened to be held at 11:00 on Tuesday, 28 September 2010
in the RMB Auditorium, 1 Merchant Place, Fredman Drive, Sandton to consider and,
if deemed fit, pass, inter alia, the resolutions required to authorise the
implementation of the Unbundling.
2. Unaudited pro forma financial effects
2.1. FirstRand
The unaudited pro forma financial effects relating to the Transaction have been
updated for the year ended 30 June 2010 and are set out below to assist
FirstRand shareholders to assess the impact of the Transaction on certain of
FirstRand`s financial measures based on the published 30 June 2010 audited
annual results of FirstRand and the audited annual results of Momentum.
The unaudited pro forma financial effects are the responsibility of the
FirstRand Directors, have been presented for illustrative purposes only and,
because of their nature, may not fairly present FirstRand`s financial position,
changes in equity, results of operations or cash flows post the implementation
of the Transaction.
The financial effects are set out below and the unaudited pro forma income
statement and statement of financial position of FirstRand pursuant to the
Transaction for the year ended 30 June 2010, from which the financial effects
have been derived, are available for inspection.
Audited Unaudited Change
FirstRand adjusted (%)
before the FirstRand
Transaction after the
Transaction
Earnings (R million) 9 444 17 105
Headline earnings (R million) 9 453 8 108
Earnings per share (cents) 179.9 323.7 80
Fully diluted earnings per share (cents) 178.1 320.4 80
Headline earnings per share (cents) 180.1 153.4 (15)
Fully diluted headline earnings per share 178.3 151.9 (15)
(cents)
Net asset value per share (cents) 981 833 (15)
Tangible net asset value per share (cents) 941 792 (16)
Weighted average number of shares in issue 5 248 5 284
(million)
Diluted weighted average number of shares 5 302 5 338
in issue (million)
Number of shares in issue after treasury 5 245 5 301
shares (million)
Notes and assumptions:
1. The unaudited pro forma financial effects are based on the published
audited financial information of FirstRand for the year ended 30 June
2010 and are based on the accounting policies adopted by FirstRand,
which are in accordance with IFRS.
2. The financial impact on the earnings of FirstRand is illustrated as if
the Transaction was implemented on 1 July 2009, and the impact on the
net assets of FirstRand is calculated as if the Transaction was
implemented on 30 June 2010.
3. Historically Momentum`s financial information was consolidated into
FirstRand`s financial information. The impact of the Transaction on
the unaudited pro forma income statement represents the reversal of
Momentum`s attributable portion to FirstRand`s earnings for the year
ended 30 June 2010 and the recognition of a profit on the Unbundling,
which is effected at fair value. The impact of the Transaction on the
statement of financial position represents the elimination of
Momentum`s net asset value impact on the FirstRand consolidated
statement of financial position as at 30 June 2010.
4. The profit on the Unbundling referred to above is non-recurring and is
calculated at R8 823 million. This profit has been calculated with
reference to the fair value of the Metropolitan consideration shares,
based on a Momentum embedded value of R17 050 million (adjusted for
the value attributable to FNB Life of R633 million), received less the
historic carrying value of Momentum of R8 227 million. The actual
profit made on the distribution of Momentum will be calculated on the
effective date of the Transaction.
5. The treatment of the FirstRand shares held by Momentum policyholders
as treasury shares, is reversed and impacts the number of FirstRand
shares in issue used to calculate the financial effect.
6. FirstRand will receive 90% of the earnings of FNB Life in terms of the
profit share agreement. For purposes of the unaudited pro forma
adjustments, this amount has been treated as non-interest income,
given that the legal mechanism is yet to be finalised, which results
in a R416 million (after income tax of 28%) adjustment to earnings,
based on the actual earnings of FNB Life for the year ended 30 June
2010. There is no adjustment for any interest received as the non-
interest income is assumed to be received at the end of the year.
7. Total estimated transaction costs to be incurred by FirstRand
(excluding costs incurred by Momentum) amount to R11 million and are
non-recurring. Of the total costs, external costs of R5 million impact
the consolidated earnings of FirstRand. R6 million are internal costs
and are eliminated on consolidation. The impact of the net cash
outflow on interest costs is immaterial.
2.2. Metropolitan
The unaudited pro forma financial effects relating to the Transaction and the
Specific Repurchase have been updated for the six months ended 30 June 2010 and
are set out below to assist Metropolitan shareholders to assess the impact of
the Transaction and the Specific Repurchase on certain of Metropolitan`s
financial measures based on the published 30 June 2010 unaudited interim results
of Metropolitan and the derived results of Momentum for the six months ended 30
June 2010. The derived results of Momentum for the six months are based on the
Momentum audited financial information for the 12 months ended 30 June 2010,
less the published reviewed financial information for the six months ended 31
December 2009.
The unaudited pro forma financial effects are the responsibility of the
Metropolitan Directors, have been presented for illustrative purposes only and,
because of their nature, may not fairly present Metropolitan`s financial
position, changes in equity, results of operations or cash flows post the
implementation of the Transaction and the Specific Repurchase.
The financial effects are set out below and the unaudited pro forma income
statement and statement of financial position of Metropolitan pursuant to the
Transaction and the Specific Repurchase for the six months ended 30 June 2010,
from which the financial effects have been derived, are available for
inspection.
Before the After the (%)
Transaction and Transaction and Change
Specific Specific
Repurchase Repurchase
Earnings (R million) 218 566
Diluted earnings (R million) 260 608
Headline earnings (R million) 232 658
Diluted headline earnings 274 700
(R million)
Core headline earnings 414 1 086
(R million) (1)
Diluted core headline earnings (R 454 1 131
million) (1)
Earnings per share (cents) 40 38 (5%)
Diluted earnings per share (cents) 40 38 (5%)
Headline earnings per share (cents) 42 44 5%
Diluted headline earnings per share 42 44 5%
(cents)
Core headline earnings per share 75 73 (3%)
(cents)(1)
Diluted core headline earnings per 70 71 1%
share (cents) (1)
Net asset value per share (cents) 1 187 1 418 19%
Tangible net asset value per share 1 107 602 (46%)
(cents)
Diluted embedded value per share 1 809 1 805 -
(cents)
Number of shares in issue (million) 549 1 491
Diluted number of shares in issue 653 1 595
(million)(2)
Weighted average number of shares 549 1 491
in issue (million)
Diluted weighted average number of 652 1 594
shares in issue (million)(2)
Notes and assumptions:
1. Core headline earnings are a measure of performance that has been used
by Metropolitan historically in addition to earnings and headline
earnings as it is seen by the directors of Metropolitan as an
appropriate measure. Core headline earnings eliminate items of both a
once-off and an inherently volatile nature, such as changes to the
valuation basis, investment variances, capital
appreciation/depreciation and the amortisation of any intangible
assets recognised due to business combinations.
2. Includes the conversion of 100 081 139 preference shares held by
Kagiso Trust Investments (Proprietary) Limited.
3. Intangible assets have been recognised as a result of the preliminary
purchase price allocation performed on Metropolitan in terms of IFRS 3
(Revised) - Business combinations. Additional amortisation relating to
these intangible assets has been recognised in the pro forma financial
information and consists of value of business acquired (R110 million),
customer relations, being the value of in-force of Metropolitan Health
Group and Metropolitan Asset Management (R50 million) and other
intangible assets (R35 million); totalling R195 million. The following
table demonstrates the impact of the additional amortisation of the
intangible assets recognised as a result of the Transaction:
Before the Additional % change
Transaction and amortisation of
Specific intangible
Repurchase assets
Earnings per share (cents) 40 (13) (33)
Diluted earnings per share 40 (12) (30)
(cents)
Headline earnings per share 42 (13) (31)
(cents)
Diluted headline earnings 42 (12) (29)
per share (cents)
There is no impact on core and diluted core headline earnings as these
already exclude the impact of amortisation of any intangible assets
recognised due to business combinations.
4. The unaudited pro forma financial effects are based on the published
unaudited consolidated financial information of Metropolitan for the
six months ended 30 June 2010 and the derived financial information of
Momentum for the six months ended 30 June 2010, adjusted for the
alignment of accounting policies, which are in accordance with IFRS
and which are to be adopted by MMI Holdings.
5. Embedded value information is based on the published unaudited
financial information of Metropolitan as at 30 June 2010 and the
published annual financial information of FirstRand as at 30 June 2010
and is in accordance with the embedded value guidance of the Actuarial
Society of South Africa (Practice Guidance Note 107).
6. The financial impact on the earnings of Metropolitan is illustrated as
if the Transaction and Specific Repurchase were implemented on 1
January 2010, and the impact on the net assets and embedded value of
Metropolitan is calculated as if the Transaction was implemented on 30
June 2010.
7. The "Before the Transaction and Specific Repurchase" column has been
extracted from the published unaudited interim financial results of
Metropolitan for the six months ended 30 June 2010.
8. The "After the Transaction and Specific Repurchase" column reflects
the pro forma financial position after the implementation of the
Transaction and Specific Repurchase.
9. Tangible net asset value is the net asset value less goodwill and
other intangible assets.
10. The number of shares in issue before the Merger represents the number
of shares Metropolitan had in issue at 30 June 2010.
11. Metropolitan will be issuing 951 million Metropolitan shares in
exchange for all the shares in Momentum, referred to as the
Metropolitan consideration shares.
12. The Merger has been accounted for as a reverse acquisition under IFRS
3 (Revised) - Business combinations and Momentum is therefore assumed
to be the accounting acquirer and Metropolitan the accounting
acquiree.
a. Assets, liabilities and shareholders` equity of Momentum are
carried forward into MMI Holdings at their historic values (after
aligning accounting policies to the policies to be adopted by the
merged entity).
b. A preliminary purchase price allocation was performed on
Metropolitan and the assets and liabilities of Metropolitan are
consolidated at their fair values based on the preliminary
purchase price allocation.
c. The fair value of the purchase consideration of Metropolitan is
considered to be R11 811 million (with reference to
Metropolitan`s published embedded value at 30 June 2010) giving
rise to the recognition of intangible assets and fair value
adjustments to assets and liabilities totalling R5 295 million.
d. A formal valuation of Metropolitan`s assets and liabilities will
be performed at the acquisition date. This will impact the
eventual fair value and nature of identified assets, intangible
assets and the value of the resulting goodwill, if any, as
applicable.
13. 9 million Metropolitan shares held by Momentum at 30 June 2010 have
been treated as treasury shares. The market value at 30 June 2010,
dividend income and realised and unrealised gains for the six months
ended 30 June 2010 relating to these shares have been eliminated.
14. Total estimated transaction costs to be incurred amount to R34 million
for Metropolitan (accounted for as part of the purchase price
allocation as assumed pre-acquisition) and R38 million for Momentum
(reducing earnings) and are all non-recurring. The net impact of
interest and tax is calculated at R2 million.
15. In terms of the profit share agreement with FirstRand, FirstRand will
receive 90% of the earnings of FNB Life in the future. For purposes of
the pro forma adjustments, this amount has been treated as a R225
million (after income tax of 28%) adjustment to earnings based on the
actual earnings of FNB Life for the six months ended 30 June 2010.
There is no adjustment for any interest expense as the fee is assumed
to be paid at the end of June 2010.
16. Embedded value after the Transaction and Specific Repurchase has been
adjusted for the 90% of the embedded value of FNB Life at 30 June 2010
attributable to FirstRand, transaction costs incurred by Metropolitan
and Momentum and accounting policy adjustments made to align the
accounting policies to those to be adopted by MMI Holdings.
22 September 2010
Merchant bank and sponsor to FirstRand and merchant bank to Momentum
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Legal advisors to FirstRand and Momentum
Webber Wentzel
Independent sponsor to FirstRand
PricewaterhouseCoopers Corporate Finance
Financial advisors to Metropolitan
JP Morgan
Fidelis Partners
Sponsor to Metropolitan
Merrill Lynch South Africa (Pty) Limited
Legal advisors to Metropolitan
Edward Nathan Sonnenbergs
Sponsor in Namibia to FirstRand and Metropolitan
Simonis Storm Securities (Pty) Limited
Actuaries to the transaction
Deloitte & Touche
Date: 22/09/2010 13:01:02 Produced by the JSE SENS Department.
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