| Mon 13 Dec 2010, 9:33 | | PFG - Pioneer Food Group Limited/ KWV Holdings Limited - Joint announcement of |
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PFG
PFG
PFG - Pioneer Food Group Limited/ KWV Holdings Limited - Joint announcement of
the firm intention
Pioneer Food Group Limited
Incorporated in the Republic of South Africa
Registration number: 1996/017676/06
Share code: PFG
ISIN code: ZAE000118279
KWV Holdings Limited
Incorporated in the Republic of South Africa
Registration number: 2009/012871/06
("KWV")
JOINT ANNOUNCEMENT OF THE FIRM INTENTION OF PIONEER FOOD GROUP LIMITED OR ITS
WHOLLY-OWNED SUBSIDIARY ("PIONEER FOODS") TO MAKE AN OFFER TO ACQUIRE THE ENTIRE
ISSUED SHARE CAPITAL OF KWV BY WAY OF A SCHEME OF ARRANGEMENT
1. INTRODUCTION
1.1 Pioneer Foods and KWV shareholders ("Shareholders") are referred to the
previous joint cautionary announcement from Pioneer Foods and KWV which was
published in the press and Securities Exchange News Service ("SENS") of the
JSE Limited ("JSE") on 29 October 2010 and 2 December 2010 respectively.
1.2 The boards of directors of Pioneer Foods and KWV are authorised to announce
that Pioneer Foods has submitted to the board of directors of KWV ("the KWV
Board") a firm intention to make an offer to acquire 100% of the issued
ordinary shares in KWV ("Scheme Shares"), for a total consideration of R827
764 500 (eight hundred and twenty seven million seven hundred and sixty
four thousand five hundred Rand), subject to a potential downward
adjustment as set out in paragraphs 6.7 and 7.1.2 below ("the Proposed
Transaction").
1.3 This announcement serves as a summary of the information provided in the
firm intention offer letter, dated 10 December 2010, addressed by Pioneer
Foods to the KWV Board ("Firm Intention Offer Letter") and includes
additional information required in terms of the Securities Regulation Code
on Takeovers and Mergers and the Rules of the Securities Regulation Panel
("SRP") (collectively the "SRP Code") and the Listings Requirements of the
JSE.
2. PIONEER FOODS` RATIONALE FOR THE PROPOSED TRANSACTION
Pioneer Foods` rationale for the Proposed Transaction is as follows:
2.1 KWV is the owner of iconic international and local brands such as KWV
brandy and Roodeberg wines, which will find a natural home in brand
focussed Pioneer Foods;
2.2 Pioneer Foods shareholders will benefit from the addition of a sizeable
business, which generates revenue in excess of R700 million per annum, and
which is expected to benefit from synergistic cost structures and improved
economies of scale; and
2.3 Pioneer Foods expects to achieve profitable growth in key wine and brandy
markets.
3. BACKGROUND INFORMATION ON KWV
KWV is a commercial business focusing primarily on the wine and brandy industry,
both locally and abroad. The primary activities of KWV are as follows:
3.1 the purchase of grapes and wine; distilling wine for processing and
maturation; selling products in the form of wine, brandy and other
distillates;
3.2 the sale, marketing and distribution of branded wine and brandy products;
and
3.3 the making and managing of investments in associated businesses.
4. MECHANICS OF THE PROPOSED TRANSACTION
4.1 Pioneer Foods is proposing to acquire the Scheme Shares by way of a scheme
of arrangement between KWV and its shareholders ("Scheme Members"), in
terms of section 311 of the Companies Act, No. 61 of 1973, as amended,
("the Companies Act") ("the Scheme").
4.2 The Scheme shall incorporate a substitute offer, which shall be made to KWV
shareholders in the event that the Scheme does not become operative for any
reason, other than a failure to obtain any necessary regulatory approval.
4.3 The Scheme will be subject to the conditions precedent set out in paragraph
7.1 below ("the Scheme Conditions").
5. TERMS OF THE PROPOSED TRANSACTION
5.1 TRANSACTION CONSIDERATION
5.2 The Proposed Transaction will, once the Scheme Conditions have been
fulfilled and subject to the provisions of paragraphs 6.7 and 7.1.2, result
in the payment to the Scheme Members of a consideration of R12.00 (twelve
Rand) per KWV ordinary share. KWV shareholders are referred to paragraphs
6.7 and 7.1.2 and are advised that based on KWV`s current figures, the
indicated cash consideration will be subject to a downward adjustment.
5.3 The total purchase consideration is the amount of R827,764,500 (eight
hundred and twenty seven million seven hundred and sixty four thousand five
hundred Rand), of which one quarter shall be settled in Pioneer Foods
shares listed on the securities exchange operated by the JSE, valued at
R49.83 per share, being the volume weighted average traded price ("VWAP")
of Pioneer Foods shares, for the 30 days preceding Friday, 26 November 2010
("Consideration Shares"), and the balance of R620,822,875 (six hundred and
twenty million eight hundred and twenty two thousand eight hundred and
seventy five Rand) shall be settled in cash ("Cash Consideration"),
subject to any downward adjustment of the Cash Consideration, if
applicable, in terms of paragraphs 6.7 and 7.1.2 below ("the Purchase
Consideration"). KWV shareholders should take specific note of the likely
adjustment highlighted in paragraph 6.10.
5.4 The cash component of the Purchase Consideration will be finally determined
on the date that the Finalisation Date Management Accounts are agreed to by
Pioneer Foods or finally determined by PricewaterhouseCoopers Incorporated
("PWC") in terms of paragraph 6.8 ("Finalisation Date").
6. BASIS FOR THE PROPOSED TRANSACTION
The Proposed Transaction is proposed on the basis that:
6.1 Pioneer Foods will acquire 100% (one hundred percent) of the issued share
capital of KWV;
6.2 KWV shall be entitled, until the date the Scheme becomes unconditional, to
make dividend payments to KWV Shareholders in the normal course on the same
basis as dividends have been calculated and paid historically ("Normal
Dividends");
6.3 no payments or other distributions to the KWV Shareholders, other than the
Normal Dividends, provided for in paragraph 6.2, will be made, declared or
paid between the date of this letter and the date the Consideration Shares
are issued and Cash Consideration is paid to Scheme participants ("the
Operative Date");
6.4 KWV shall not enter into or undertake any frustrating action, as set out in
Rule 19 of the SRP Code, from the date of this letter until the Operative
Date, without inter alia the prior written consent of Pioneer Foods and the
SRP;
6.5 KWV continues to operate its business in the normal and ordinary course
from the date of this letter until the Operative Date;
6.6 management accounts ("Finalisation Date Management Accounts"), for the
period from 30 June 2010 ending on the last day of the month in which the
Scheme Conditions have been fulfilled or waived. The Finalisation Date
Management Accounts will be prepared in terms of International Financial
Reporting Standards and using the same accounting principles as used in the
consolidated audited annual financial statements of KWV for the year ended
30 June 2010. KWV will be required to produce the draft Finalisation Date
Management Accounts within 14 days of the last day of the month in which
the last of the Scheme Conditions have been fulfilled or waived. The final
Finalisation Date Management Accounts shall confirm that:
6.6.1 the value of the cash holdings of KWV, is equal to or greater
than R200,000,000 (two hundred million rand) ("Cash Holdings");
6.6.2 the value of the stock held by KWV is equal to or greater than
R730,000,000 (seven hundred and thirty million rand) ("Stock");
6.6.3 the value of the debtors of KWV is equal to or greater than
R260,000,000 (two hundred and sixty million rand) ("Debtors");
6.6.4 the value of the creditors and other liabilities of KWV is equal
to or less than R160,000,000 (one hundred and sixty million rand)
("Creditors");
6.6.5 the net working capital of KWV (calculated as the aggregate of
Cash Holdings, plus Stock, plus Debtors, less Creditors) is equal
to or greater than R1,030,000,000 (one billion and thirty million
rand) ("Net Working Capital");
6.6.6 the value of the immovable property of KWV, plus all fixed
assets, is equal to or greater than R200,000,000 (two hundred
million rand); and
6.6.7 the value of the loans payable to subsidiaries of KWV described
in note 8 to the consolidated audited annual financial statements
of KWV for the year ending 30 June 2010, plus shares and loan
accounts, in and against Paarl Valley Bottling Company
(Proprietary) Limited, Vititec (Proprietary) Limited and Solamoyo
Processing Company (Proprietary) Limited, is equal to or greater
than R90,000,000 (ninety million rand) ("Loans and Shares").
6.7 The Purchase Consideration has been based on the values set out in
paragraph 6.6 existing on the Finalisation Date. Therefore in the event
that the values in the final Finalisation Date Management Accounts are not
in accordance with the values set out in paragraphs 6.6.1, 6.6.5, 6.6.6
and 6.6.7, then the Cash Consideration will be reduced on a Rand for Rand
basis for each Rand of such shortfall of the values referred to in
paragraphs 6.6.1, 6.6.5, 6.6.6 and 6.6.7, provided that each separate and
individual reduction in the Cash Consideration shall not be made to the
extent that:
6.7.1 any changes in the minimum amounts set out in paragraphs 6.6.6
and 6.6.7 are less than R5,000,000 (five million Rand) in
aggregate; or
6.7.2 the net variance in Net Working Capital is less than R10,000,000
(ten million Rand), provided that Cash Holdings is equal to or
greater than R200,000,000 (two hundred million rand); or
6.7.3 a decrease in the value of the Loans and Shares can be off-set
against an increase in Cash Holdings as a result of a disposal or
the repayment of loans or the like, during the normal and
ordinary course of business, as determined in the final
Finalisation Date Management Accounts.
6.8 If Pioneer Foods accepts the draft Finalisation Date Management Accounts,
Pioneer Foods shall advise KWV of same within 14 days of receipt of the
draft Finalisation Date Management Accounts from KWV. If Pioneer Foods
disputes the draft Finalisation Date Management Accounts, same shall be
referred to PWC for final determination, which determination shall be made
within 14 days of receipt by PWC of the draft Finalisation Date Management
Accounts from KWV and Pioneer Foods.
6.9 The settlement of the Purchase Consideration will only take place after the
final determination of the Finalisation Date Management Accounts in terms
of paragraph 6.8.
6.10 KWV shareholders should note that, based on the information currently
available to the KWV Board, it is likely that there will be a reduction in
the indicated Cash Consideration of R9.00 per KWV share (which forms three
quarters of the total consideration of R12.00 per share) as a result of the
adjustment mechanism set out in paragraphs 6.7 and 7.1.2 . The KWV Board
estimates the likely reduction to be an amount of 98 cents per KWV share
due to the current financial performance of KWV, which has changed since
the last audited annual financial statements. Furthermore, changes in
market and operating conditions could impact the quantum of any such
adjustment.
6.11 The market value of the Consideration Shares, at the time of issue of same,
is subject to changes in the Pioneer Foods share price. As at 9 December
2010, the date immediately preceding the Firm Intention Offer Letter, the
closing price per Pioneer Foods share was R54.00, while the 30-day VWAP per
Pioneer Foods share on the same date was R50.12. As set out in paragraph
5.3, for purposes of calculating the amount of Consideration Shares to be
issued, the Consideration Shares are valued at R49.83.
7. THE SCHEME CONDITIONS
7.1 The Scheme will be subject to (and will become operative on the relevant
operative date upon) the fulfilment of the following conditions precedent:
7.1.1 the KWV Board must ensure, on or before 31 January 2011, that the
internal due diligence process currently being undertaken by
Edward Nathan Sonnenbergs Incorporated ("Due Diligence"), is
completed, and the outcome of same must not result in a Material
Adverse Change ("MAC") as contemplated in paragraph 7.1.2, unless
otherwise agreed by Pioneer Foods in writing;
7.1.2 no MAC occurs in relation to KWV, prior to 28 February 2011 and
as finally determined in terms of paragraph 7.4, which taken as a
whole, results in a material adverse effect on the condition
(financial or otherwise) of KWV and its underlying businesses,
where a material adverse effect means an effect in an amount or
with a value above R5,000,000 (five million Rand), provided that:
7.1.2.1 where the effect of such MAC is less than R35,000,000
(thirty five million Rand), the Scheme Condition contained
in this paragraph 7.1.2 will be regarded as having been
fulfilled and Pioneer Foods shall be entitled to reduce the
Cash Consideration on a Rand for Rand basis, for each Rand
of the amount or value of such effect;
7.1.2.2 where the effect of such MAC exceeds R35,000,000 (thirty
five million Rand), Pioneer Foods shall be entitled, at its
discretion, to;
7.1.2.2.1 deem this Scheme Condition as not having been fulfilled in
which event the Scheme will fail; or
7.1.2.2.2 deem this Scheme Condition as having been fulfilled and
elect, with the prior consent of KWV, which consent shall
not unreasonably be withheld, to issue a revised scheme of
arrangement circular on such revised terms and conditions it
deems appropriate;
7.1.3 the Scheme having been approved, on or before 30 April 2011, by a
majority representing not less than three-fourths of the votes
exercisable by the Scheme Members present and voting, either in
person or by proxy, at the Scheme meeting;
7.1.4 the relevant Court having sanctioned the Scheme, on or before 16
May 2011;
7.1.5 a certified copy of the order of Court sanctioning the Scheme
having been registered by the Registrar of Companies in terms of
the Companies Act, in this regard the parties shall procure that
same is submitted to the Registrar of Companies within 5 (five)
business days of the relevant Court having sanctioned the Scheme,
which registration shall not be later than 1 June 2011;
7.1.6 in respect of the implementation of the Scheme, the approval, on
or before 30 June 2011, of the Competition Authorities (either
unconditionally or subject to conditions acceptable to both
Pioneer Foods and KWV), the JSE, the SRP and any other relevant
regulatory authorities (either unconditionally or subject to
conditions acceptable to both Pioneer Foods and KWV) having been
obtained; and
7.1.7 the JSE approving the listing of the Pioneer Foods shares
referred to in paragraph 5.3, on or before by 30 June 2011, with
or without any conditions.
7.2 Pioneer Foods will be entitled to waive the Scheme Condition in paragraph
7.1.2 upon written notice to KWV, prior to the date for fulfilment of the
relevant Scheme Condition.
7.3 Pioneer Foods will be entitled to extend the date of the fulfilment of any
of the Scheme Conditions, by up to 60 days, in its own discretion, upon
written notice to KWV, but shall not be entitled to extend the date to a
date later than the aforesaid 60 day period without the prior written
consent of KWV.
7.4 In the event that the Parties dispute the occurrence of a MAC or the
quantification of same for purposes of paragraph 7.1.2, same shall be
referred to PWC for final determination, which determination shall be made
no later than 14 (fourteen) days after the referral to them. In the event
that the Parties agree on the occurrence of a MAC and the quantification of
same for purposes of paragraph 7.1.2, they shall confirm same in writing to
each other within 5 (five) days of Pioneer Foods becoming aware of the MAC.
8. SOURCES OF FUNDING AND AUTHORISED SHARE CAPITAL
Pioneer Foods, in terms of Rules 2.3.2(b) and 21.7 of the SRP Code, has
sufficient cash resources and facilities available to meet its obligations in
terms of the Scheme and confirmation in respect thereof has been provided by
Nedbank Limited and Standard Bank of South Africa Limited to the SRP. In
addition, Pioneer Foods has sufficient authorised share capital under the
control of its directors to meet its obligations in terms of the Scheme.
9. OPINION AND RECOMMENDATION
9.1 The KWV Board has appointed an independent advisor acceptable to the SRP to
provide the KWV Board with external advice regarding the Scheme and to make
appropriate recommendations to the KWV Board for the benefit of Scheme
Members, as required in terms of the SRP Code. The substance of the
external advice and the views of the KWV Board will be detailed in the
circular that will be posted to KWV shareholders in due course.
9.2 The KWV Board will only render an opinion on the Scheme after they have
considered the opinion of the independent advisor.
10. EXISTING SHAREHOLDING IN KWV
As at the date of this announcement, Pioneer Foods does not hold or control any
shares in KWV and does not hold any options to purchase any shares in KWV.
As at the date of this announcement, directors of Pioneer Foods, who are deemed
concert parties of Pioneer Foods, hold or control 1,551,521 shares in KWV (or
2.25% of the issued share capital of KWV). No director of Pioneer Foods holds
any options to purchase any shares in KWV. Save for the deemed concert parties,
Pioneer Foods is not acting in concert with any other party in the Scheme.
11. PRO FORMA FINANCIAL EFFECTS OF THE PROPOSED TRANSACTION ON PIONEER FOODS
The pro forma financial effects of the Proposed Transaction on Pioneer Foods are
presented for illustrative purposes only and because of their nature may not
give a fair reflection of Pioneer Foods` financial position after the Scheme.
The directors of Pioneer Foods are responsible for the preparation of the
unaudited pro forma financial information.
Set out below are the unaudited pro forma financial effects of the Proposed
Transaction, based on the audited results for the year ended 30 September 2010
for Pioneer Foods. The audited results of KWV for the year ended 30 June 2010
was used to illustrate the effect of the Proposed Transaction on the financial
position of Pioneer Foods after the Proposed Transaction.
Audited Unaudited Change (%)
before the Pro Forma
Proposed after the
Transaction Proposed
(cents) Transaction
(cents)
Basic earnings 132.5 151.3 14,2%
per share
("EPS")
Diluted EPS 130.2 148.8 14,3%
Headline 133.5 145.4 8,9%
earnings per
share ("HEPS")
Adjusted HEPS 503.0 506.4 0,7%
Diluted HEPS 131.2 142.9 8,9%
Net asset value 2667.9 2720.6 2.0%
per share
("NAV")
Net tangible 2280.7 2322.8 1,8%
asset value per
share ("NTAV")
Notes and assumptions:
1. The EPS, diluted EPS, HEPS, adjusted HEPS and diluted HEPS figures in
the "Unaudited Pro Forma after the Proposed Transaction" column have
been calculated on the basis that the Proposed Transaction was
effected on 1 October 2009.
2. The NAV per share and NTAV per share figures in the "Unaudited Pro
Forma after the Proposed Transaction" column have been calculated on
the basis that the Proposed Transaction was effected on 30 September
2010.
3. The applicable taxation rate is assumed to be 28%.
4. The EPS, HEPS and adjusted HEPS are calculated based on weighted
average number of shares in issue of 177.0 million at 30 September
2010.
5. The diluted EPS and diluted HEPS are calculated based on weighted
average number of shares in issue of 180.2 million at 30 September
2010.
6. The NAV per share and NTAV per share have been calculated based on
177.0 million at 30 September 2010.
7. An additional 4,2 million shares must be added to the respective
numbers of shares used in notes 4,5 and 6 above to calculate the
effect after the Proposed Transaction.
8. The pro forma financial effects have been prepared on the assumption
that a Scheme consideration of R827 764 500 (eight hundred and twenty
seven million seven hundred and sixty four thousand five hundred Rand)
is paid to KWV shareholders. The consideration will be paid by the
issue of 4 152 943 listed Pioneer Foods shares at R49.83 per share or
a total amount of R206 941 125 and the balance of R620 823 375 in
cash.
12. JSE LISTINGS REQUIREMENTS CATEGORISATION
The Proposed Transaction is regarded as a Category 2 acquisition in terms of the
Listings Requirements of the JSE and therefore no action is required by Pioneer
Foods shareholders.
13. FURTHER DOCUMENTATION AND SALIENT DATES
Full details of the Scheme will be included in a circular to KWV shareholders,
containing, inter alia, a notice of the Scheme meeting, an order of Court
authorising the convening of the Scheme meeting, a form of proxy, a form of
acceptance, surrender and transfer and the substitute offer, which will, subject
to the approval of all regulatory authorities, be posted to KWV shareholders in
due course.
The salient dates in relation to the Scheme will be published prior to the
issuing of the aforementioned documentation.
14. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Following the release of this announcement, caution is no longer required to be
exercised by Shareholders when dealing in KWV or Pioneer Foods shares.
13 December 2010
Transaction advisor and sponsor to Pioneer Foods: PSG Capital (Proprietary)
Limited
Legal advisors to Pioneer Foods: Cliffe Dekker Hofmeyr Incorporated
Merchant bank to KWV: RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Legal advisors to KWV: Edward Nathan Sonnenbergs Incorporated
Date: 13/12/2010 09:33:01 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.
