| Mon 2 Apr 2001, 0:00 | | Fedsure - Announcement |
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FEDSURE HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1969/012384/06)
("Fedsure")
Announcement relating to:
* the disposal of the insurance and financial services businesses of Fedsure to
Investec Group Limited ("Investec") ("the disposal");
* the unbundling of Investec shares received as consideration for the disposal
("the unbundling" and, together with the disposal, "the transactions"); and
* the withdrawal of cautionary announcement.
1. Introduction
It was announced on Wednesday, 22 November 2000 that, subject to the fulfilment
of various conditions precedent ("the conditions precedent"), agreement had
been reached in terms of which Investec would acquire from Fedsure all of its
financial services and insurance businesses for a consideration to be settled
by the delivery of Investec shares and the payment of cash.
It was subsequently announced on Wednesday, 27 December 2000 and Friday, 9
March 2001 that the terms of the disposal had been amended and that the
consideration for the disposal would be cash of R250 million and 19 212 204
Investec shares ("the Investec consideration shares").
Following the disposal the assets of the Fedsure Group will comprise:
* Fedsure;
* Fedsure Healthcare (Proprietary) Limited and its subsidiary companies ("the
Fedsure Healthcare assets"); and
* the Federated Employers' Mutual Assurance Company Limited, an independent
mutual company with profits acruing to its policyholders. Fedsure has a
floating indirect interest of between 30% and 40% through The Federated
Employers Trust Limited, (collectively, "the remaining assets").
2. The unbundling
Subsequent to the disposal, and subject to the fulfilment of the conditions
precedent, the Investec consideration shares received by Fedsure (less any
Investec shares sold or retained in respect of the guarantees, liabilities,
obligations and contingent liabilities referred to in paragraph 3 below ("the
potential obligations")) will be distributed to Fedsure shareholders in an
unbundling transaction in terms of section 60 of the Income Tax Act, 1993 (Act
113 of 1993) ("the unbundling").
The unbundling will be effected in two tranches: the Investec consideration
shares, other than those Investec shares retained by Fedsure to support the
potential obligations ("the retention shares"), will be distributed in an
initial tranche ("the initial unbundling") and their number will depend on the
final number of retention shares determined; and the retention shares other
than those sold in order to satisfy the potential obligations will be unbundled
at a later date or dates ("the subsequent unbundling"). The subsequent
unbundling may be effected in more than one tranche.
3. The retention shares
3.1 Certain third party obligations of the Fedsure Healthcare assets are
supported by cross-group guarantees to financial institutions. In terms of the
disposal, Fedsure has undertaken to procure the release of such guarantees. In
order to facilitate this release and to secure continued funding for the
remaining assets, it will be necessary for Fedsure to retain a significant
portion of the Investec consideration shares received until the guarantees are
released or the borrowings are settled utilising the proceeds of the sale of
certain of the Fedsure Healthcare assets or the sale of the retention shares.
The R250 million cash element of the disposal consideration will be utilised to
reduce inter-group obligations to the disposal assets.
Fedsure is at an advanced stage of negotiations to arrange banking facilities
of up to R600 million for the remaining assets which, after the disposal, will
require initial cover of 2,5 times based on the market value of the Investec
consideration shares to be pledged as security. On the assumption that the
market value of Investec shares on the closing date of the disposal ("the
closing date") is R210,00 per Investec share, 7 142 857 Investec shares will
need to be retained by Fedsure as part of the retention shares. Fedsure
management estimates that the net borrowings of the remaining assets that will
remain after the disposal of certain of the Fedsure Healthcare assets will be
approximately R250 million to R300 million, on the assumption that the
investments in the business of Fedsure Health, Mediscor and Mediswitch are
retained. Based on net borrowings of R280 million and R210,00 per Investec
share, this would result in approximately 5 809 524 of the 7 142 857 Investec
shares being unbundled in the subsequent unbundling.
3.2 In addition, Fedsure has agreed to retain responsibility for certain
contingent obligations relating to potential liabilities of TMA Investment
Products Services (Pty) Limited ("TMA") that arose prior to 31 December 2000.
Fedsure has agreed to retain further Investec shares to a value of R75 million
and will discharge such obligations from its own resources as set out in
paragraph 3.4 below if and when they arise. In terms of the agreement between
Fedsure and Investec, the Fedsure liability in terms of the TMA obligations is
capped at R360 million. However, based on updated management estimates, a
conservative provision of R41 million in respect of such obligations was
reflected in the results announcement published on Thursday, 15 March 2001.
TMA, Fedsure's linked product company, encountered substantial administrative
problems during 1999 with the introduction of its new computer system. The TMA
structure has been rationalised and the administration and systems problems
have been addressed and service levels have improved. Due to uncertainties
arising from transaction backlogs, Fedsure granted a guarantee to the
provident, pension and investment funds managed by TMA. In terms of the
guarantee any shortfall arising in these funds will be recovered from Fedsure.
When the backlogs are eliminated the auditors of TMA will certify the amount of
such shortfall. Fedsure management anticipates that the full backlog will have
been eliminated by 30 June 2001, by which time any liability in terms of the
guarantee will have been quantified. To this end it will be necessary for
Fedsure to retain a further amount of Investec consideration shares received
until discharge of these obligations. On the assumption that the market value
of Investec shares on closing date is R210,00 per Investec share, a further 357
143 Investec shares will need to be retained by Fedsure as part of the
retention shares.
3.3 Fedsure has also issued options to purchase Fedsure shares in terms of its
share incentive scheme that are not fully covered by Fedsure shares issued to
the Fedsure share incentive trust. In order to ensure that these obligations
are fully covered in all circumstances, Fedsure will retain a maximum of a
further 350 000 Investec consideration shares. The rights of a Fedsure
optionholder to the Investec consideration shares will be determined on the
same basis as would be determined for a Fedsure shareholder.
3.4 Any retention shares held back in terms of paragraphs 3.1, 3.2 and 3.3
above will be available to settle any shortfall arising from such guarantees,
obligations, liabilities and/or contingent liabilities on an aggregated basis.
3.5 The figures referred to in paragraphs 3.1, 3.2 and 3.3 above are merely
estimates. Negotiations are ongoing and the figures are therefore subject to
change. Based on the assumptions as outlined in paragraphs 3.1, 3.2 and 3.3
above, the combination of the guarantees, obligations, liabilities and/or
contingent liabilities detailed above result in a total amount of approximately
7 850 000 Investec consideration shares being held back as the retention shares
pending the finalisation and resolution of the abovementioned matters. Based on
these assumptions, this would result in an initial unbundling ratio of
approximately 6,4891 Investec consideration shares per 100 Fedsure shares. The
retention shares would not form part of the initial unbundling.
3.6 It may be necessary for Fedsure to sell or retain certain of the retention
shares in due course in order to satisfy the guarantees, liabilities,
obligations and/or contingent liabilities detailed above. To the extent that
the retention shares are not so utilised, they will be unbundled in the
subsequent unbundling.
4. Transfer of sector
Subsequent to the transactions, Fedsure will be constituted as a holding
company for the remaining assets. Certain of the Fedsure Healthcare assets are
potentially subject to disposal and negotiations in this regard are ongoing.
The JSE Securities Exchange South Africa has granted Fedsure 90 days from the
date of the general meeting referred in paragraph 6 below in which to resolve
these issues, after which the sector classification of Fedsure will be
reconsidered. Any potential sector reclassification may include a transfer to
the Industrial - Healthcare, Insurance - Short-Term Insurance, Cash Companies
or the Venture Capital Market sectors.
5. Withdrawal of cautionary announcement
Shareholders are referred to the cautionary announcement, dated 9 March 2001
relating to the retention shares and are advised that caution is no longer
required.
6. Documentation and further announcement
A circular to Fedsure shareholders containing detail on the disposal and the
unbundling ("the circular") will be posted to Fedsure shareholders today.
The circular contains the notice of a general meeting of Fedsure shareholders
to be held at 09:00 on Tuesday, 17 April 2001, for the purpose of considering
and if deemed fit, passing with or without modification, the necessary
resolutions to implement the disposal and the unbundling.
The final terms and salient dates of the initial unbundling will be published
in the press in due course once these are finalised.
Johannesburg
2 April 2001
Merchant bank
Investec Corporate Finance
Investec Bank Limited
(Registration number 1969/004763/06)
Sponsor to the transactions
Investec Securities Limited
Member of the JSE Securities Exchange South Africa
Registration No. 1972/008905/06
Attorneys
Werksmans Attorneys
Sponsoring broker in Namibia
HSBC
Phillip JA van Heerden
Member of the Namibian Stock Exchange
Trading as
HSBC Securities (Namibia) (Pty) Limited
Reg. No. 95/505
Merchant bank and independent adviser to Fedsure
Rand Merchant Bank
Corporate Finance
A Division of FirstRand Bank Limited
Reporting accountants
PricewaterhouseCoopers Inc.
Chartered Accountants (SA)
Registered Accountants & Auditors
(Registration no. 1998/012055/21)
