| Thu 10 May 2001, 0:00 | | Mdm - Establishment Of Nib-mdm Private Equity Fund |
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MDM Growth Investments Limited
(Registration number 1982/005758/06)
(Incorporated in the Republic of South Africa)
("MDM")
Announcement relating to
* THE PROPOSED DISPOSAL ("THE MDM DISPOSAL") BY MDM OF ITS ASSETS ("THE MDM
ASSETS") TO NIB - MDM PRIVATE EQUITY FUND I ("THE FUND"), A NEWLY CREATED
BEWIND TRUST;
* A PROPOSED SPECIFIC REPURCHASE OF MDM SHARES ("THE SHARE REPURCHASE") at
R2,00 per MDM Share ("The Share repurchase consideration");
* AN ELECTION GRANTED TO MDM SHAREHOLDERS TO RETAIN THEIR EXISTING MDM
SHAREHOLDING, AND AS A CONSEQUENCE, INDIRECTLY INVEST IN THE FUND FAILING WHICH
THEY WILL PARTICIPATE IN THE SHARE REPURCHASE ("THE MDM SHAREHOLDER ELECTION");
* THE AMENDMENT OF THE ARTICLES OF ASSOCIATION OF MDM; AND
* THE PROPOSED DELISTING OF MDM SHARES FROM THE JSE SECURITIES EXCHANGE SOUTH
AFRICA ("JSE") ("THE DELISTING")
(COLLECTIVELY, "THE PROPOSALS")
1. Introduction
Subject to the fulfilment of the conditions precedent referred to in paragraph
13 below ("the conditions precedent"), MDM and Nedcor Investment Bank Limited
("NIB") propose combining the MDM assets, valued in accordance with South
African Venture Capital Association ("SAVCA") valuation guidelines at R65,4
million and the NIB Small Cap Portfolio, valued at R17,3 million into a
non-listed private equity fund, which, with the injection of the NIB cash
referred to in paragraph 7 below will have assets under management of
approximately R103,4 million. The current MDM management team ("management")
through MDM Private Equity Investments (Proprietary) Limited ("MPEI"), will
manage the Fund.
The directors of MDM consider it appropriate to give those MDM minority
shareholders who lodge timeously their forms of election with the transfer
secretaries of MDM, the opportunity to retain their entire existing
shareholdings in an unlisted MDM and consequently be indirectly invested as an
investor participant in the Fund. The proposals have been structured with this
objective in mind.
A diagramatic structure of the transaction is as follows:
GRAPHIC: SEE PRESS FOR DETAIL
2. Rationale
Notwithstanding the growth in private equity globally and in South Africa, MDM,
as with all other listed private equity funds, continues to trade at a
significant discount to its net asset value. Prior to the cautionary
announcement published in the press on Tuesday, 13 February 2001, MDM was
trading at a 70% discount to the stated net asset value. The effect of this is
MDM's scope for fund raising is limited and therefore the desirability to
remain as a listed company has diminished. Given the current market sentiment
towards small capitalisation companies such as MDM and the fact that the MDM
portfolio itself consists of small capitalisation companies, it is unlikely
that MDM will trade at a premium to its net asset value for the foreseeable
future.
With the limitations on MDM's growth prospects, in its current form, the MDM
board of directors has resolved to embark on a strategic initiative that will
result, inter alia, in the formation of the Fund as a more appropriate vehicle
through which to conduct private equity investments, increase its funds under
management to approximately R103,4 million and at the same time provide the
necessary cash resources for further and follow on investments.
The proposals will enable MDM shareholders to realise value for their shares
either by receiving R2,00 cash for each of their shares (an approximate 66,67%
premium to the price at which MDM's shares traded on the JSE early in February
2001 prior to the publication of the cautionary announcement), or to
participate indirectly in the Fund through MDM, in which case their shares will
have a net asset value of R4,10 per share, based on the portfolio valuation at
31 August 2000.
From an NIB point of view, it makes sense to have the NIB Small Cap Portfolio
managed by a dedicated management team.
3. The disposals
Subject to the fulfilment of the conditions precedent, MDM has, as one of a
series of composite transactions, disposed of the MDM assets for a total
consideration of R31,9 million ("the MDM disposal consideration"), which
equates to R2,00 per MDM share, to the Fund in terms of an agreement entered
into between MDM and the Fund ("the MDM disposal agreement"). MDM has also
disposed of its shares in and the major portion of its claims against MPEI for
a purchase consideration of R100,00 ("the MPEI disposal") to NIB, the MDM
Consortium, and management, in equal shares ("the MPEI disposal agreement").
As the abovementioned disposals are disposals as contemplated in S228 of the
Companies Act, 1973 (Act 61 of 1973), as amended ("the Act") neither the MDM
Consortium nor management may, in terms of the Rules of the Securities
Regulation Code on Take-overs and Mergers, vote on the ordinary resolutions to
approve such disposals.
4.The share repurchase relating to the MDM minority shareholders and amendment
of the Articles of Association of MDM
Following the disposals, MDM proposes repurchasing its shares in terms of
S85(2) of the Act, for the share repurchase consideration, from those MDM
minority shareholders who fail or neglect for whatsoever reason to lodge, by
the election date as defined in paragraph 8 below, their forms of election with
the transfer secretaries ("outgoing minorities"). The share repurchase will be
funded out of the MDM disposal consideration.
In order to authorise and facilitate a share repurchase, it is necessary to
amend MDM's Articles of Association:
- to approve in terms of S85(2) of the Act the acquisition of shares issued by
the company; and
- to approve the automatic acquisition of the shares held by the MDM minorities
who do not expressly elect in terms of the form of election to retain their
shareholding in MDM.
In terms of the Listings Requirements of the JSE, the MDM Consortium, as the
controlling shareholders of MDM, are precluded from voting on the special
resolutions pertaining to the share repurchase.
5. The MDM Growth Investments Limited Share Trust ("the Share Trust")
In terms of the MDM disposal agreement, the Share Trust has agreed to
participate in the share repurchase in respect of all 454 285 MDM shares which
it holds as a consequence of which the rights which MDM executives enjoy in
terms of the Share Trust will lapse or terminate, as the case may be.
6. The MDM Consortium commitment
The MDM Consortium, which collectively owns approximately 72% of the entire
issued share capital of MDM, has agreed to participate in the share repurchase
in respect of all the MDM shares which it owns.
In terms of subscription agreements entered into between the MDM Consortium on
the one hand and the Fund on the other, the MDM Consortium has undertaken to
contribute to the Fund on the closing date the MDM Consortium commitment, being
a minimum of R22,7 million and a maximum of R25,2 million, the precise amount
of which will be determined by reference to the number of MDM minority
shareholders participating in the share repurchase.
7. The NIB commitment
In terms of the NIB subscription agreement entered into between NIB and the
Fund, NIB will, subject to the conditions precedent being fulfilled, make over
to the Fund the NIB Small Cap Portfolio and the NIB cash. The NIB cash
represents a minimum of R22,7 million and a maximum of R29,3 million, the
precise amount of which will be determined by reference to the number of MDM
minority shareholders participating in the share repurchase.
8. The remaining minorities and the MDM commitment
Following the implementation of the transactions outlined herein, MDM will hold
residual funds of a maximum of R9,2 million ("the MDM commitment") (being the
equivalent of R2,00 per MDM share) which represents the number of MDM shares
owned by those MDM minority shareholders who lodge by a date not being later
than 10:00 on Friday, 8 June 2001 or such other date as may be announced in the
press their form of election with the transfer secretaries ("the remaining
minorities"). As a consequence, these MDM shareholders will not participate in
the share repurchase.
In terms of the MDM subscription agreement entered into between MDM and the
Fund, MDM has undertaken to invest the MDM commitment in the Fund. As such, MDM
will be the unlisted vehicle through which the remaining minorities will hold
an investment in the Fund. Being shareholders in an unlisted MDM, the remaining
minority shareholders will have limited opportunity to trade their MDM shares.
The Fund will endure for a minimum period of five years provided that such
period may be extended, at the discretion of the Governing Board of the Fund by
an additional period not exceeding two years, whereafter the Fund will
terminate and be wound up. At such time, MDM will receive it's pro rata share
of the Fund which will in turn be distributed to remaining minorities.
9. Delisting
It is proposed that MDM shares on the JSE will be suspended and subsequently
delisted concurrently with the implementation of the abovementioned
transactions. In terms of the Listings Requirements of the JSE, the MDM
Consortium, as the controlling shareholders, are precluded from voting on the
ordinary resolution pertaining to the delisting of MDM.
10. Write up of MDM assets by the Fund
Simultaneously with the acquisition by the Fund of the MDM assets, the Fund
will write up the value of such assets to their net asset value of R65,4
million (the equivalent of R4,10 per MDM share), as determined in accordance
with the SAVCA guidelines.
11. MDM shareholders election
As set out above, MDM shareholders are required to elect whether they wish to
retain their existing MDM shareholding and form part of the remaining
minorities, and as a consequence, indirectly invest in the Fund. In such event,
it is necessary that these shareholders complete the form of election and lodge
it with the transfer secretaries by the election date. MDM minority
shareholders who make this election are required to make the election in
respect of all their MDM shares.
Those MDM minority shareholders who fail to elect will fall within the category
of outgoing minorities and as such will automatically participate in the share
repurchase which will extend to all of the shares which they hold in MDM on a
date being not later than 10:00 on Thursday, 7 June 2001 or such other date as
may be announced in the press .
12. Financial effects of the transaction
The financial effects of the proposals on MDM's return per share and net asset
value per share as at 31 August 2000 on the basis of participating in the share
repurchase and on the basis of electing to retain an MDM shareholding are shown
below. Notwithstanding the effective date these financial effects are based on
MDM's results for the six months ended 31 August 2000 as there has been no
material change in the financial position of MDM between 31 August 2000 and the
effective date.
After
participating
in the share Increase/
Before repurchase (decrease) Change
(cents) (cents) (cents) %
Return per share (42,8) 1 5,02 47,8 N/A
Net asset value
per share 406,0 1 200,0 (206,0) (50,7)
Market price
per share 120,0 3 200,0 80,0 66,7
Market price
per share 165,0 4 200,0 35,0 21,2
After
electing to
retain an MDM Increase/
shareholding (decrease) Change
(cents) (cents) %
Return per share Note 5 Note 5 Note 5
Net asset value
per share 410,56 4,5 1,1
Market price
per share - - -
Market price
per share - - -
Notes:
1. As reported in the MDM unaudited interim report as at 31 August 2000.
2. Based on the assumptions that an MDM shareholder participates in the share
repurchase and the share repurchase consideration is invested on 1 March 2000
at an after tax rate of 5% per annum for six months.
3. The market price per MDM share in early February 2001, prior to the
publication of the cautionary announcement.
4. The market price per MDM share on 8 May 2001, the last practicable date
prior to the publication of this announcement.
5. It would be meaningless to calculate a "return per share" based on the fact
that NIB has historically accounted differently for the NIB Small Cap Portfolio
than MDM has for its assets
6. Based on the assumption that 50% of the MDM minority shareholders
participate in the share repurchase.
13. Conditions precedent
The proposals are subject to the fulfilment of inter alia the following
conditions precedent before 31 August 2001:
* the passing and registration by the Registrar of Companies of all such
special resolutions and the passing of all such ordinary resolutions as are
necessary, by the members of MDM, in general meeting:
- to approve the transactions which are the subject matter of the MDM disposal
agreement in terms of section 228 of the Act; and
- the share repurchase;
* the JSE and the Securities Regulation Panel ("SRP") furnishing such approvals
as are required of them in relation to the implementation of the MDM disposal
agreement and the share repurchase; and
* all agreements necessary to facilitate implementation of the proposals have
been signed and as a consequence all conditions precedent relevant to the
signature of these agreements have been fulfilled.
14. Documentation
A circular to MDM shareholders, containing inter alia, details of the
proposals, the salient dates pertaining thereto and a notice of a general
meeting, is being prepared and will, subject to the approval of the JSE and the
SRP, be sent to MDM shareholders within 28 days.
Johannesburg
9 May 2001
Investment Bank and Lead Sponsor
Nedcor Investment Bank
Corporate Law Advisers and Consultants
Edward Nathan & Friedland (Pty) Ltd
(Registration number 1999/026464/07)
Advisers to the Shareholders of MDM
Grant Thornton Kessel Feinstein
Corporate Finance (Pty) Ltd
(Registration number 2000/002649/07)
Corporate Adviser and Joint Sponsor
Sasfin Bank Limited
(Registration number 1951/002280/06)
