| Thu 25 Nov 2010, 14:05 | | FWD - Freeworld Coatings - Statement by The Freeworld Board regarding the |
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FWD
FWD
FWD - Freeworld Coatings - Statement by The Freeworld Board regarding the
approach by Kansai, and renewal of cautionary
FREEWORLD COATINGS LIMITED
(Incorporated in the Republic of South Africa)
Registration number 2007/021624/06
Share code: FWD ISIN: ZAE000109450
("Freeworld" or "the company")
STATEMENT BY THE FREEWORLD BOARD REGARDING THE APPROACH BY KANSAI, AND RENEWAL
OF CAUTIONARY
For some months the Board of Freeworld ("the Board") has been in discussions
with Kansai Paint Company Limited ("Kansai") with regards to their proposal to
acquire ownership of Freeworld ("Kansai proposed transaction"). The approach
follows the unsuccessful attempt, led by Brait, to acquire the company by way of
a scheme of arrangement ("Brait scheme").
The Board has constructively considered, and will continue to do so, any
approach emanating from a serious source proposing a change of control of the
company, and do so in a way that not only protects the interests of the present
owners but also enables shareholders to make the final decision on any serious
offer that is capable of implementation.
The Board has formed a committee consisting exclusively of independent non-
executive directors to guide the full Board in regard to the Kansai proposed
transaction.
In respect of both the Brait scheme and the Kansai proposed transaction the
Board has sought to ensure, as far as possible, that the transaction in question
is inherently capable of being implemented and that the risk of failure is
mitigated. In respect of the Brait scheme this involved particular attention to
ensuring that the proposal was funded and ensuring that information supplied
during the process of due diligence would be maintained as confidential and not
disclosed to trade competitors or otherwise to the detriment of the company.
These concerns were dealt with in a Transaction Process Agreement agreed between
Freeworld and the sponsors of the Brait scheme.
Kansai Paint is a trade competitor with Freeworld. The Board has identified
some serious potential competition and related public interest concerns
including the following -
* in relation to unilateral effects, the Kansai proposed transaction would
appear to significantly exacerbate existing high levels of concentration in the
relevant markets;
* Freeworld has reason to be concerned that the Kansai proposed transaction
will give rise to significant concerns of increased risk of co-ordinated conduct
between competitors in the South African market post-transaction; and
* the related public interest ramifications of the Kansai proposed
transaction include, but are not limited to, the fact that if the DuPont
Freeworld JV is dissolved post-transaction, that hundreds of jobs could be at
risk at the Freeworld Port Elizabeth plant.
After unsuccessful attempts to explore these concerns directly with Kansai the
Board determined that the best and most expeditious way of definitively
determining whether the proposed merger was indeed capable of execution, in
light of these concerns, was to put the concerns before the Competition
Commission by way of the notification of the proposed merger. Kansai has
argued that they have not yet made an offer and that there is no proposed
merger. They are therefore arguing it is premature for the Competition
Commission to rule on these issues. The matter (that is, whether Freeworld is
entitled to commence the formal filing process) is now before the Competition
Tribunal and a ruling is expected imminently.
The Board believes that it is in the interests of all parties, including Kansai,
to resolve the identified competition and related public interest concerns
before taking further steps, such as giving a trade competitor access to
commercially sensitive information in the course of a due diligence, in
circumstances where the proposed transaction may not be capable of completion,
potentially giving rise to irreparable harm to the company and its shareholders.
Kansai remains free to confirm its offer, or to proceed with an offer direct to
shareholders, at any time. Should it do so the Board will consider the offer,
both in the light of the competition concerns and also mindful of the rejection
of the Brait scheme by shareholders at a value of R10.45 per Freeworld share.
The Board will then provide shareholders with its views on such offer.
In all of the above, subject to the statutory role of the regulators, the key
decision makers are Freeworld`s shareholders, who will ultimately have to
approve any proposed transaction that is capable of implementation. The Board
will continue at all times to exercise its duties in good faith to ensure that
any offer is capable of execution and that the risks of failure are mitigated.
In addition the Board will offer its view as to whether the offer represents
fair value, and will protect the interests of the company, including its
commercially sensitive information.
The Board remains ready to meet with Kansai, as it has done on several occasions
over the last months.
In light of the above, shareholders are advised to continue exercising caution
when dealing in the company`s securities until a further announcement is made.
Johannesburg
25 November 2010
Merchant bank and sponsor to Freeworld
RAND MERCHANT BANK (a division of FirstRand Bank Limited)
Attorneys to Freeworld
Read Hope Phillips Thomas & Cadman Incorporated
Date: 25/11/2010 14:05:36 Produced by the JSE SENS Department.
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