| Wed 15 Dec 2010, 11:25 | | FSR - FirstRand Limited - Terms announcement relating to the sale of Firstrand`s |
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FSR
FSR
FSR - FirstRand Limited - Terms announcement relating to the sale of Firstrand`s
45% interest in The Outsurance Group to RMBH
FirstRand Limited
(Incorporated in the Republic of South Africa)
(Registration number 1966/010753/06)
Share code: FSR ISIN: ZAE000066304
("FirstRand")
TERMS ANNOUNCEMENT RELATING TO THE SALE OF FIRSTRAND`S 45% INTEREST IN THE
OUTSURANCE GROUP TO RMBH
1. Introduction
Shareholders are advised that the directors of FirstRand and RMB Holdings
Limited ("RMBH") have signed a Memorandum of Understanding ("MOU") regarding the
sale to RMBH, through exercising its pre-emptive right, of FirstRand`s entire
45% interest in FirstRand STI Holdings Limited (the "Sale"). FirstRand STI
Holdings Limited ("OUTsurance Group") is the holding company for OUTsurance and
various other insurance company interests including Youi, Momentum Short-term
Insurance ("Momentum STI"), OUTsurance Namibia and OUTsurance Life.
The Sale is subject to certain conditions, which are detailed in clause 6 below.
For FirstRand, the sale of the OUTsurance Group to RMBH:
- represents an opportunity to realise the value of an asset that is non-
strategic and illiquid;
- allows for the restructure of the existing distribution agreement between
OUTsurance Group and FNB such that it is in line with market practice;
- will have no impact on FirstRand`s current growth strategy; and
- will realise additional capital that will either support further investment
in the available growth opportunities or be returned to shareholders.
2. Details of the Sale
FirstRand is expecting to sell:
- its 45% interest in the OUTsurance Group to RMBH for a cash consideration
of R3 750 million; and
- its preference shareholding in the OUTsurance Group to RMBH for cash at
face value, as at the date of the Sale, of R401 million.
The effective date of the Sale is expected to be on or before 31 March 2011 and
will result in RMBH holding an effective 90% interest in the OUTsurance Group.
The Sale consideration has been based on the assumption that no dividend,
distribution or similar payment, is declared or made by the OUTsurance Group to
OUTsurance Group shareholders between the date of this announcement and the date
on which the Sale becomes effective.
3. Description of the business of the OUTsurance Group
The OUTsurance Group`s principal business is OUTsurance, which is a direct
personal lines and small business short-term insurer that has grown rapidly by
applying a scientific approach to risk selection, product design and claims
management. The OUTsurance Group also owns an Australian personal lines
operation called Youi, which is in an early stage of development. The OUTsurance
Group recently entered the life insurance market in South Africa offering
underwritten life products direct to the public through OUTsurance Life. The
OUTsurance Group also has a joint venture with the Momentum Group, Momentum STI
which provides short-term insurance products through the intermediary market.
OUTsurance Namibia is a joint venture with FNB Namibia Holdings Limited which
offers direct short-term insurance to the Namibian public.
4. Fairness opinion
The Sale is regarded as a small related party transaction in terms of the JSE
Listings Requirements as RMBH is a material shareholder in FirstRand.
Accordingly, the FirstRand board has appointed KPMG as the independent expert to
provide a fairness opinion on the Sale. The fairness opinion will be available
for inspection at the registered office of FirstRand from 19 January 2011 to 21
March 2011.
5. Unaudited pro forma financial information
The table below sets out the unaudited pro forma financial effects of the Sale
on FirstRand for the year ended 30 June 2010, applying figures adjusted for the
merger of Metropolitan Holdings Limited ("Metropolitan") and Momentum Group
Limited ("Momentum") and the subsequent unbundling by FirstRand of its entire
shareholding in Metropolitan to its ordinary shareholders, collectively
hereinafter referred to as the "Momentum Transaction".
These pro forma financial effects have been prepared for illustrative purposes
only and, because of their nature, may not fairly present FirstRand`s financial
position, changes in equity, and results of operations or cash flows. The pro
forma financial information below is the responsibility of the directors of
FirstRand.
FirstRand Unaudited Unaudited Change
audited pro forma pro forma (%)
30 June after after
2010 Momentum Momentum
Transaction Transaction
and the
Sale
Earnings (R million) 9 444 17 105 19 793 16
Headline earnings (R million) 9 453 8 108 8 026 (1)
Earnings per share (cents) 179.9 323.7 374.6 16
Fully diluted earnings per share 178.1 370.8 16
(cents) 320.4
Headline earnings per share 180.1 151.9 (1)
(cents) 153.4
Fully diluted headline earnings 178.3 150.3 (1)
per share (cents) 151.9
Net asset value per share 981 885 6
(cents) 833
Tangible net asset value per 941 844 7
share (cents) 792
Number of shares in issue after 5 245 5 301
treasury shares (million) 5 301
Weighted average number of 5 248 5 284
shares in issue (million) 5 284
Diluted weighted average number 5 302 5 338
of shares in issue (million)
5 338
Assumptions
1. The unaudited pro forma financial effects are based on the published
unaudited pro forma financial information of FirstRand for the year
ended 30 June 2010 after the Momentum Transaction 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 Sale was implemented on 1 July 2009, and the impact on the net
assets of FirstRand is illustrated as if the Sale was implemented on
30 June 2010.
3. The following common assumptions have been used in calculating the pro
forma financial effects:
a. an income tax rate of 28%;
b. a Capital Gains Tax ("CGT") rate of 14%; and
c. a 12 month NCD rate of 6% NACA.
4. Historically the OUTsurance Group`s financial information was equity
accounted in FirstRand`s financial information. The impact of the Sale
on the unaudited pro forma income statement represents the reversal of
equity accounted earnings (R286 million) for the year ended 30 June
2010 and the recognition of a profit on the Sale.
5. The estimated profit after tax referred to above is non-recurring and
is calculated at R2 770 million. This profit has been calculated with
reference to the Sale consideration of R4 021 million (preference
share issued at 30 June 2010 was R271 million) less a historic
accounting carrying value of R1 138 million and estimated CGT of R113
million. The actual profit to be realised on the Sale will be
calculated on the effective date.
6. An assumption was made that the net proceeds were invested at a 12
month NCD rate for 12 months ended 30 June 2010. The impact of this
assumption on the operating results was R168 million (after tax).
7. Total estimated transaction costs to be incurred by FirstRand amount
to R35 million and are non-recurring.
8. An adjustment of R61 million (after tax) was made to account for an
increase in non interest income due to the change in accounting
treatment of certain distribution agreements.
9. The impact of the Sale on FirstRand`s pro forma statement of financial
position as at 30 June 2010 represents the elimination of the
OUTsurance Group`s carrying value, an increase in cash equal to the
net proceeds and an increase in reserves equal to the after tax profit
realised on the Sale.
6. Conditions precedent
The Sale is subject to the fulfilment or waiver (where applicable) of the
following conditions precedent:
- binding documentation regarding the sale being agreed and signed;
- the FirstRand board of directors receiving confirmation from KPMG that
the Sale is fair to the FirstRand ordinary shareholders; and
- in respect of the implementation of the Sale, approval having been
obtained, to the extent required, from:
- the Competition Authorities;
- the Financial Services Board; and
- any and all other regulatory approvals which may be required.
15 December 2010
Merchant bank and sponsor to FirstRand
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Transaction advisor to FirstRand
Greenhill
Legal advisor to FirstRand
Deneys Reitz
Independent expert
KPMG Service (Proprietary) Limited
Date: 15/12/2010 11:25:01 Produced by the JSE SENS Department.
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