| Wed 31 Aug 2011, 17:49 | | AFP - Alexander Forbes Preference Share Investments Limited - Terms |
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AFP
AFP
AFP - Alexander Forbes Preference Share Investments Limited - Terms
announcement regarding a transaction between Alexander Forbes Limited and
Marsh and withdrawal of cautionary announcement
Alexander Forbes Preference Share Investments Limited
(Incorporated in the Republic of South Africa)
Registration number: 2006/031561/06
Share code: AFP
ISIN: ZAE000098067
("AF Pref")
Terms announcement regarding a transaction between Alexander Forbes Limited
and Marsh and withdrawal of cautionary announcement
1 INTRODUCTION
AF Pref linked unitholders ("Linked Unitholders") are referred to the
cautionary announcements released on the Securities Exchange News
Service ("SENS") on 3 May 2011, 17 June 2011 and 5 August 2011 and
published in the South African press on 4 May 2011, 20 June 2011 and 8
August 2011, respectively.
Further to these announcements, Linked Unitholders are advised that,
inter alia, Alexander Forbes Limited ("Alexander Forbes"), Marsh Inc.
("Marsh") and Marsh Proprietary Limited ("Marsh SA") have concluded an
agreement (the "Umbrella Agreement") in terms of which:
- Alexander Forbes will merge its Corporate and Commercial broking
business, Alexander Forbes Risk Services (Proprietary) Limited
("AFRS") with Marsh SA, in terms of sections 113 and 116 of the
South African Companies Act, No 71 of 2008, as amended (the
"Companies Act") and section 44 of the South African Income Tax
Act, 58 of 1962, with Marsh SA being the surviving company after
implementation of the merger;
- Alexander Forbes will dispose, to companies within Marsh (the
"Marsh Group"), of its interests in:
- Alexander Forbes iConnect (Proprietary) Limited
("iConnect");
- Alexander Forbes Compensation Technologies Administration
(Proprietary) Limited ("AFCT Admin"); and
- the sub-Saharan insurance broking investments of Alexander
Forbes AfriNet Investments (Proprietary) Limited ("AfriNet
Risk Services") in Botswana and Namibia
- (the "Proposed Transaction").
Subject to the fulfilment or waiver (where applicable) of, inter alia, the
conditions precedent (the "Conditions Precedent") set out in paragraph 5
below, the Proposed Transaction will occur in phases with the Marsh Group
acquiring Alexander Forbes` interests in South Africa, Namibia and Botswana
(AFRS, iConnect, AFCT Admin and Afrinet Risk Services collectively referred
to as "AF Risk Services Africa") in the first instance (the "First
Closing").
Furthermore, MMC UK, subject to inter alia the Conditions Precedent,
satisfactory completion of due diligence by Marsh and the obtaining of the
requisite shareholder and regulatory approvals, may purchase from the
relevant company within Alexander Forbes the share capital and loan account
(if any), certain local and correspondent operations of AfriNet Risk
Services across Sub-Saharan Africa (the "Subsequent Closing"). Further
details of the Subsequent Closing (which will take place in stages and may
not include all of the remaining AfriNet Risk Services` assets post the
First Closing) will be provided to Linked Unitholders in due course.
Post the Proposed Transaction, Alexander Forbes will not retain any
interest in AF Risk Services Africa and Marsh`s South African and Sub-
Saharan African businesses (collectively "Marsh Africa") (AF Risk Services
Africa and Marsh Africa together the "Combined Business"), other than its
right to receive the Deferred Consideration (as defined in paragraph 4.1
below).
2 NATURE OF BUSINESS
2.1 Alexander Forbes
Alexander Forbes was founded in 1935 as Price Forbes. It grew through
the expansion of Price Forbes Life and Pension Brokers, which was
founded in the 1950s. In 1999, after a series of corporate
restructurings and mergers, the global Alexander Forbes brand was
created and adopted.
Today Alexander Forbes is a leading provider of risk, insurance,
health, retirement and multi-manager investment solutions
internationally. Its primary operations are based in South Africa, a
network of correspondents in the rest of Africa and the United
Kingdom. Operating income net of direct expenses for the financial
year ended 31 March 2011 was R4.6 billion, whilst operating profit
before non-trading items amounted to R1.1 billion over the same
period. A signi?cant network of subsidiaries and partners ensures
that Alexander Forbes provides an outstanding level of service to its
clients worldwide, particularly in Africa and Europe.
After the Proposed Transaction, the Alexander Forbes Group will be
optimally organised to maximise its growth objectives. The businesses
that will remain include:
- Alexander Forbes Financial Services businesses across Africa and
Europe including Lane, Clark & Peacock;
- Investment Solutions Africa and Europe, a leading multi-manager;
- Guardrisk Group, one of the world`s leading cell captive
insurers;
- Alexander Forbes Insurance, the personal lines insurance company;
and
- Alexander Forbes Compensation Technologies.
The Proposed Transaction enhances Alexander Forbes` continued
commitment to its core business strategies, namely increasing value
for its clients, expanding its brand, investing and innovating for
growth and extending its sales and service capacity.
2.2 AF Pref
AF Pref holds a 26.5% interest in the ordinary shares and 31.8%
interest in the A preference shares of Alexander Forbes Equity
Holdings (Proprietary) Limited ("AFEH"), which company ultimately owns
the entire issued share capital of Alexander Forbes. AF Pref does not
conduct any other business activities. The remaining interest in AFEH
is held by a private equity consortium, various broad-based BEE
partners and two management trusts.
The AF Pref redeemable participating preference shares ("AF Pref
Preference Shares") and the AF Pref unsecured fixed rate debentures
("AF Pref Debentures") are traded on the Johannesburg Stock Exchange
("JSE") as linked units, each unit comprising one AF Pref Preference
Share linked to one AF Pref Debenture.
AF Pref is listed in the "Other Securities" segment of the Main Board
of the JSE as an Asset Backed Security. All of the issued ordinary
shares of AF Pref are held by The AF Management Trust and has no
economic participation rights.
2.3 MARSH
Marsh, the world`s leading insurance broker and risk advisor, teams
with its clients to define, design, and deliver innovative industry-
specific solutions that help clients protect their futures and thrive.
Marsh has over 24,000 colleagues who collaborate to provide advice and
transactional capabilities to clients in over 100 countries.
Marsh is a member of Marsh & McLennan Companies, a global professional
services firm with 52,000 employees worldwide and annual revenue
exceeding US$10 billion. Marsh & McLennan Companies is also the
parent company of:
- Guy Carpenter & Company (risk and reinsurance specialist);
- Mercer (provider of human resources and related financial advice
and services); and
- Oliver Wyman (management consultancy).
Marsh & McLennan Companies (ticker symbol: MMC) is listed on the New
York, Chicago and London stock exchanges.
Marsh SA is 75% owned by Marsh Holdings (Proprietary) Limited, a
wholly-owned subsidiary of Marsh The remaining 25% of the issued
share capital of Marsh SA is owned by Black Economic Empowerment
("BEE") shareholders.
3. RATIONALE FOR THE PROPOSED TRANSACTION
The Proposed Transaction provides an opportunity to combine AF Risk
Services Africa`s large, existing client penetration and strong
regional platform with the network and capability of a significant
global broker. AF Risk Services Africa and Marsh SA will benefit from
an enhanced ability to access national and global resources and deploy
them regionally across the combined footprint of 11 countries and its
network of correspondents to create a highly competitive African
presence.
South African based clients of Marsh SA and AF Risk Services Africa
that are expanding internationally and foreign multinational clients
entering the African continent are encountering an increasingly
complex and demanding business environment and will therefore benefit
significantly from dealing with a broker that offers the combination
of the strength of Marsh`s global footprint and capability with the
strong local and regional presence and expertise of AF Risk Services
Africa.
4. SALIENT TERMS OF THE PROPOSED TRANSACTION
4.1 Proposed Transaction Consideration
The consideration payable by the various subsidiaries of Marsh to
Alexander Forbes in respect of the Proposed Transaction is R808.7
million (the "Initial Consideration").
The Proposed Transaction consideration (the "Consideration") may,
subject to certain conditions and the achievement of specified
revenue, operational and strategic performance targets, increase by up
to R310.5 million payable in tranches up to 24 months from the First
Closing (defined in paragraph 4.5 below) (the "Deferred
Consideration").
Therefore, the maximum Consideration is R1,119.1 billion.
4.2 Debt assumption
Pursuant to the Proposed Transaction, Marsh SA will assume the
approximately R419 million and R37 million of loans (balances as at 31
March 2011) owed by AFRS and iConnect respectively to Alexander Forbes
Acquisition (Proprietary) Limited (the "Assumed Debt").
The balance of the Consideration, net of Proposed Transaction costs
and any working capital adjustments will be paid in cash (the
"Proposed Transaction Proceeds").
4.3 Allocation of the Proposed Transaction Proceeds
In terms of a proposed arrangement between Alexander Forbes and the
holders of the Senior Preference Shares (the "Senior Preference
Shareholders"), the Proposed Transaction Proceeds, to the extent
received in cash, will be applied not only against the Senior
Preference Shares as envisaged in the terms of the Senior Preference
Shares, but may under certain circumstances also result in repayment
of a portion of the high yield term loan (the "High Yield Term Loan").
Pursuant to this proposed arrangement, the first R350 million of the
Proposed Transaction Proceeds and Assumed Debt payments, will be
applied to repay the Senior Preference Shares (as and when cash is
received). Any further cash proceeds from the Initial Consideration,
including any payment of the Assumed Debt, will be applied against the
High Yield Term Loan. Therefore, in the event that Marsh SA elects to
settle the Assumed Debt, the additional cash proceeds received from
such early settlement will have a material positive cash impact on the
position of the High Yield Term Loan Holders and thus on the Linked
Unitholders. In addition, any of the Deferred Consideration received
in cash will be allocated 35% to the Senior Preference Shares and 65%
to the High Yield Term Loan interest accrual.
4.4 Proposed Transaction agreements
In addition to the Umbrella Agreement, inter alia Alexander Forbes and
Marsh SA have entered into various agreements typical for a
transaction of this nature in relation to inter alia the terms,
conditions, representations, warranties, indemnities and
implementation of the transactions contemplated in the First Closing,
transitional services agreement, licensing and branding agreement and
sub-lease agreements.
4.5 First Closing
Unless otherwise agreed by the parties to the Umbrella Agreement, it
is expected that the First Closing will be on the first day of the
calendar month immediately following fulfilment or waiver (where
applicable), of all the Conditions Precedent.
5. CONDITIONS PRECEDENT
The Proposed Transaction is subject, inter alia, to the fulfilment or
waiver (where applicable) of the following material Conditions
Precedent:
5.1 The becoming unconditional of the agreements in relation to the
First Closing;
5.2 All applicable regulatory and statutory approvals having been
granted including from the:
5.2.1 South African Competition Commission established in terms of
the Competition Act, 89 of 1998;
5.2.2 Namibian Competition Commission;
5.2.3 Non-Bank Financial Institutions Regulatory Authority of
Botswana;
5.2.4 Relevant Competition and Insurance Authorities in each of
the AfriNet countries applicable to the Subsequent Closing,
which will be relevant to the Subsequent Closing only; and
5.2.5 Exchange Control approval in South Africa.
5.3 The written consent for the Proposed Transaction being obtained
from each of the financiers of Alexander Forbes; and
5.4 Other conditions typical in a transaction of this nature.
6. PRO FORMA FINANCIAL EFFECTS OF THE PROPOSED TRANSACTION ON AFEH
The table below sets out the pro forma financial effects of the
Proposed Transaction on the published audited financial results of
AFEH for the financial year ended 31 March 2011.
The unaudited pro forma financial effects have been prepared for
illustrative purposes only, in order to provide information about how
the Proposed Transaction might have affected the Statement of
Comprehensive Income and Statement of Financial Position of AFEH for
the financial year ended 31 March 2011 had the Proposed Transaction
been effected on 1 April 2010 for the purposes of earnings per share
and headline earnings per share and on 31 March 2011 for the purposes
of the net asset value ("NAV") per share and tangible net asset value
("TNAV") per AFEH share ("AFEH Share") and does not purport to be
indicative of what the financial results would have been had the
Proposed Transaction been implemented on a different date. The
unaudited pro forma financial effects, because of their nature, may
not fairly present AFEH`s financial position, changes in equity, and
results of operations or cash flows.
The Board of Directors of AFEH are responsible for the preparation of
the unaudited pro forma financial information.
The pro forma financial effects have not been reviewed or audited by the
Alexander Forbes` auditors.
Before the After the % Change
Proposed Proposed
Transaction(1) Transaction(2)
Attributable loss per (20.0) (25.0) (25.0)%
AFEH Share (cents)(3)
Headline loss per AFEH (14.0) (22.1) (57.7)%
Share (cents)(3)
NAV per AFEH Share 6.1 6.0 (1.9)%
(cents)(8)
TNAV per AFEH Share (12.4) (10.7) 13.9%
(cents)(8)
Weighted average number 377.4 377.4
of AFEH Shares
(millions)(9)
Number of AFEH Shares as 377.4 377.4
at 31 March 2011
(millions)(9)
Notes:
1. AFEH "Before the Proposed Transaction" results were extracted
from the published, audited annual results of AFEH for the year
ended 31 March 2011 as released on SENS on 14 July 2011 and in
the annual financial statements released subsequently.
2. Represents the pro forma financial effects of the Proposed
Transaction, which have been accounted for in terms of IFRS3
(revised): Business Combinations.
3. The negative impact on the pro forma financial effects is largely
attributable to the once-off Proposed Transaction costs of R37
million which includes warranty insurance cover.
4. The pro forma financial effects of the Proposed Transaction have
been prepared assuming receipt of the Initial Consideration of
R808.7 million only and do not include the Deferred Consideration
of R310.5 million.
5. The pro forma financial effects further assume that the Assumed
Debt will not be settled prior to the due repayment date by Marsh
SA (as set out in note 6 below) and that the remaining portion of
the Proposed Transaction proceeds received in cash will be
utilised by Alexander Forbes to repay the Senior Preference
Shares only.
6. As set out in paragraph 4.3 above, in terms of the loan agreement
in relation to the Assumed Debt (the "Assumed Debt Loan
Agreement"), Marsh SA may elect to settle the Assumed Debt before
the repayment date set out in the Assumed Debt Loan Agreement.
To the extent that Marsh SA elects to early settle the Assumed
Debt, the cash proceeds received by Alexander Forbes will be
applied to result in an overall cash allocation of the first R350
million to the Senior Preference Shareholders and the remainder
may, subject to approval, be applied to the High Yield Term Loan
Holders (up to R350 million), after which cash proceeds will be
shared on an equal basis between the Senior Preference
Shareholders and the High Yield Term Loan Holders.
In the event of early settlement by Marsh SA, the net impact on
the pro forma financial effects set out in the table above, will
result in a reduction in interest paid and investment income.
The net result does not have a material financial impact on the
pro forma financial effects as presented. However, the
allocation of cash flows to the High Yield Term Loan will have a
material positive cash impact on the position of the High Yield
Term Loan Holders and thus on the Linked Unitholders.
7. Attributable loss and headline loss per AFEH Share effects are
based on the following assumptions:
7.1 the Proposed Transaction was effective on 1 April 2010;
7.2 the Proposed Transaction does not result in synergies and/or dis-
synergies resulting from Alexander Forbes Corporate and
Information Technology charges. Alexander Forbes` Corporate
charges currently allocated to AFRS, will be reallocated to
remaining divisions within the Alexander Forbes Group and a
transitional services arrangement has been entered into with
Marsh SA in respect of information technology and facilities
costs;
7.3 the adjustment to finance costs is due to the net Proposed
Transaction Proceeds (after Capital Gains Tax) of R309 million
being utilised to repay the Senior Preference Shares. A saving
on Secondary Tax on Companies at the statutory rate of 10% has
also been accounted for;
7.4 tax has been calculated based on the applicable statutory tax
rates and, where there are tax losses, deferred tax assets have
been assumed; and
7.5 profit on disposal of R3 million based on a cash consideration of
R309 million, add the negative post acquisition reserves of R425
million, less the value of the original investments of R38
million, less goodwill and intangible assets of R693 million.
8. NAV and TNAV per AFEH Share effects are based on the following
principal assumptions:
8.1 the Proposed Transaction was effective on 31 March 2011; and
8.2 goodwill attributable to the cash generating units of R553
million and intangible assets of R127 million.
9. The number of shares in issue used to calculate the NAV and TNAV
is 377 358 491.
10. The pro forma financial effects have been prepared using the same
accounting policies as those applied in the most recently
published annual financial statements of AFEH.
7. AFEH SHAREHOLDER APPROVAL
As the Proposed Transaction is a "Reserved Matter" as defined in the
AFEH Shareholders` Agreement, and does not require shareholder
approval in terms of the Companies Act, AF Pref is not required to
vote on the Proposed Transaction. AFEH Shareholder approval in
relation to the Reserved Matters (as defined) has been obtained from
the AFEH Shareholders.
In terms of paragraph 19.27 of the JSE Listings Requirements, AF Pref
is not required to comply with sections 8, 9 and 10 of the JSE
Listings Requirements. Accordingly, a general meeting for the Linked
Unitholders will not be held.
8. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
The AF Pref cautionary announcement released on SENS on Friday, 5
August 2011 and published in the press on Monday, 8 August 2011 is
hereby withdrawn. Accordingly, Linked Unitholders are no longer
required to exercise caution when dealing in AF Pref securities.
1 September 2011
Sandton
Financial Adviser to Alexander Forbes and AF Pref and
Transaction Sponsor to AF Pref
DEUTSCHE SECURITIES (SA) (PROPRIETARY) LIMITED
Legal Adviser to Alexander Forbes
Edward Nathan Sonnenbergs Inc
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Adviser to Marsh
Merrill Lynch SA (PTY) Limited (a subsidiary of Bank of America
Corporation)
Legal Adviser to Marsh
Bowman Gilfillan
Date: 31/08/2011 17:49:10 Produced by the JSE SENS Department.
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