| Wed 26 Sep 2001, 0:00 | | Iscor /idc - Unbundling Of Kumba And Separate List |
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UNBUNDLING OF KUMBA AND SEPARATE LISTING ON THE JSE
RECAPITALISATION OF SALDANHA AND INTEGRATION INTO ISCOR
R1,67 BILLION RIGHTS ISSUE IN ISCOR FOLLOWING THE KUMBA UNBUNDLING
1. Introduction
Following the Iscor unbundling announcement published on 1 March 2001,
further cautionary announcements were published by Iscor which confirmed
that Iscor and IDC were in discussions regarding, inter alia, the complete
recapitalisation of Saldanha Steel (Proprietary) Limited ("Saldanha") and
its integration into Iscor, and the long-term supply of iron ore to Iscor,
post the unbundling by Iscor of Kumba Resources Limited ("Kumba"). This
resulted in the postponement of the planned 2 July 2001 unbundling date.
Further to the joint cautionary announcement dated 21 September 2001, the
Boards of Iscor and IDC are pleased to announce that they have now ratified
and approved Heads of Agreement, in terms of which, inter alia:
* Iscor will transfer its mining companies and businesses to Kumba and to
Kumba's subsidiaries, save for ownership of 6,25 million tonnes per annum
("mtpa") of iron ore produced by the Sishen Mine owned by the Sishen Iron
Ore Company Limited ("Sishen"), which will be retained by Iscor;
* Kumba shares will be distributed to Iscor shareholders pro rata to their
existing holdings in terms of the South African unbundling legislation;
* in order to meet their commitments as shareholders, Saldanha will be fully
recapitalised by Iscor and IDC;
* IDC's 50% shareholding in the fully recapitalised Saldanha will be
acquired by Iscor;
* IDC will contribute half of the anticipated operating losses in Saldanha
for the financial year ending 30 June 2002 ("funding requirements"); and
* post the Kumba unbundling, Iscor will undertake a rights issue of R1,67
billion, to be fully underwritten by IDC,
(collectively, "the Transaction").
This announcement sets out the details of the Transaction and provides a
timetable for the Kumba unbundling.
2. Rationale for the Transaction
Iscor's share price has historically tracked the steel price cycle and the
value of its world-class mining assets has not been fully reflected. This
undervaluation provided a compelling reason for a value release strategy.
The strong earnings and quality assets of an unbundled Kumba should result
in the higher ratings associated with a diversified mining business, rather
than the traditionally lower steel multiples which these operations
attracted whilst a constituent part of Iscor.
In order to further unlock the full commercial value of Iscor's mining
and steel operations, these businesses need to be positioned to enable them
to participate in mergers, joint ventures and further industry
rationalisation. The separation of the mining and steel businesses will
expedite this process, and the immediate value release by way of a market re-
rating should set a higher benchmark for further corporate activity.
Iscor will retain ownership rights in respect of 6,25 mtpa of iron ore
from Sishen in order to remain a vertically integrated steel producer. The
refinancing of Saldanha will facilitate the future rationalisation of the
South African steel industry.
The Board of Iscor believes that the Transaction is in the best interests
of all Iscor shareholders.
3. Iron ore ownership
The transfer of mining assets from Iscor to Kumba ahead of Kumba's
unbundling will exclude the rights to 6,25 mtpa of iron ore from Sishen, the
ownership of which will remain with Iscor.
Sishen's total iron ore production capacity is currently 27 mtpa. Subject
to the expansion of the Sishen-Saldanha railway line, Sishen could further
increase its production to 33 mtpa, and it is anticipated that Kumba's
Welgevonden deposit, situated 70 kilometres south of Sishen, will be able to
produce 10 mtpa once fully developed. Kumba is also a partner in the Hope
Downs iron ore project in the Pilbara region of Western Australia, with
potential production of 25 mtpa.
For its ongoing domestic iron ore offtake, Iscor will reimburse Kumba by
an amount equal to the total cost of Sishen iron ore production required by
it plus a management fee equal to 3% of such total cost. For the financial
year ended 30 June 2001, this would, on a pro forma basis, have resulted in
a transfer of R312 million of earnings before interest, taxation,
depreciation and amortisation ("EBITDA") from Kumba to Iscor.
The allocation of Iscor debt to Kumba in the unbundling process will be
reduced, so that the net value of Kumba will not be materially affected as a
consequence of Iscor retaining ownership of the rights to 6,25 mtpa of iron
ore from Sishen. The retention by Iscor of the ownership of the rights to
6,25 mtpa of iron ore from Sishen is expected to ensure Iscor's viability as
a stand-alone entity and to position it advantageously to meet any future
volatility in the global steel markets.
To the extent that Iscor's future iron ore requirements for domestic
production may exceed 6,25 mtpa, Iscor will have the right to participate in
and proportionately fund any future iron ore expansion programmes in South
Africa by Kumba.
4. Integration of Saldanha
Saldanha will be fully recapitalised in equal shares by IDC and Iscor at the
time of Kumba's unbundling, so that Saldanha will be free of debt when
incorporated into Iscor. Saldanha's net debt at 30 June 2001 was R5,8
billion at hedged values.
Iscor will acquire IDC's 50% shareholding in Saldanha. IDC has also
undertaken to contribute 50% of Saldanha's funding requirements for the
financial year ending 30 June 2002, and in this regard IDC will contribute
R250 million in cash to Iscor at the time of the Kumba unbundling.
In consideration for the acquisition of IDC's 50% shareholding in
Saldanha and the IDC's R250 million cash contribution, Iscor will issue 20
million shares in Iscor and procure the issue of 10 million Kumba shares to
IDC at the then current market price.
Furthermore, to the extent that Saldanha's funding requirements may
exceed R500 million during the period up to and ending on 30 June 2002, IDC
shall, if so requested by Iscor, contribute 50% of any such excess in
consideration for the issue to it of Iscor shares priced at the then five-
day weighted average traded price on the JSE Securities Exchange South
Africa ("JSE").
5. Debt allocation
The pro forma debt allocation between Kumba and Iscor as at 1 July 2001,
being the effective date of the transfer of Iscor's mining companies and
businesses to Kumba and its subsidiaries, is set out below:
R' million Note Iscor Kumba
Allocation of Iscor debt as at 30 June 2001 1 183 2 541
Operating leases and guarantees as at 30 June 2001 95 136
Ticor Limited proceeds received after 30 June 2001 (363) -
Refinancing of Saldanha 1 2 900 -
Saldanha funding requirements from IDC 2 (250) -
Iscor rights issue 3 (1 670) -
Pro forma debt allocation as at 1 July 2001 1 895 2 677
Kumba will be allocated AST Group Limited
shares currently worth approximately (400)
Notes:
1. As the exact amount of the Saldanha debt refinancing will only be known
at the date of unbundling, the debt as at 30 June 2001 has been used for
purposes of this calculation.
2. For purposes of this calculation, no account has been taken of IDC's
proposed contributions to Saldanha's funding requirements beyond the amount
of R250 million, more fully described in paragraph 4.
3. The Iscor rights issue will be fully underwritten by IDC, and it is
assumed for the purposes of this calculation that the proceeds have been
received.
6. Kumba unbundling
Subject to the fulfilment of the conditions precedent reflected in paragraph
12, the board of directors of Iscor has declared the payment of a dividend
in specie of 273 056 116 Kumba shares to Iscor shareholders registered as
such on 9 November 2001.
7. Iscor rights issue
Iscor will refinance a portion of the debt allocated to it by way of a
rights issue.
Accordingly, following the release of Iscor's December 2001 interim
results in February 2002, Iscor will undertake a rights issue of R1,67
billion at a price equal to a 25% discount to the lower of the five- or 20-
day weighted average traded price of Iscor shares on the JSE, immediately
prior to the date upon which the underwriting agreement is required to be
signed in terms of the Listings Requirements of the JSE.
IDC has undertaken to underwrite this rights issue in full. IDC shall be
entitled to assign all or part of its underwriting obligations.
8. IDC shareholdings
Before taking into account any additional Iscor shares which IDC may acquire
by way of underwriting the Iscor rights issue, IDC will own 41,5 million
shares in Kumba (14,7%) and 51,5 million shares in Iscor (17,6%), following
the implementation of the Transaction. IDC currently owns 31,5 million
shares in Iscor (11,5%).
9. Iscor strategic equity partner
The establishment of Iscor as a focused steel company should also serve to
facilitate the introduction of an international steel partner, with a view
to further improving standards and securing access to new technology and to
international markets. While Iscor will continue its discussions with
international steel companies, and would welcome the introduction of such a
partner, the introduction of a strategic equity partner for Iscor is not a
pre-condition to the Transaction.
10. Financial implications
PRO FORMA FINANCIAL INFORMATION
The summarised information set out below is unaudited and has been prepared
on the basis that the sale of Iscor's mining assets to Kumba and the
integration of Saldanha had been implemented at the beginning of the period
under review.
Effects on earnings Before After
and net asset Transaction Transaction Increase/
value per Iscor cents per cents per (Decrease)
share as at 30 June 2001 share (1) share (2) (%)
Headline earnings per Iscor share 207,0 179,4 (13,3)
Earnings per Iscor share (265,6) (117,6) 55,6
Net asset value per Iscor share 2615 3319 27,0
Notes:
1. Based on approximately 273 million Iscor shares currently in issue.
2. Based on:
- 20 million additional Iscor shares issued to IDC as consideration for
Saldanha and the issue of 167 million Iscor shares under the rights issue
amounting to a total of 460 million shares.
- additional Kumba shares of 10 million issued to IDC as consideration for
Saldanha amounting to a total of 283 million shares.
Further notes to the "after" column
* Assumes Saldanha fully consolidated into Iscor, with an appropriate
adjustment for cost plus procurement. Interest on 50% of Saldanha's debt
incurred at Iscor's average lending rate.
* Marginal tax charges assumed at 30%.
* Full AST Group Limited and Ticor Limited equity accounted earnings
assigned to Kumba.
* Net asset value increase due to consolidation of debt free Saldanha net
assets, profit on sale of assets to Kumba, rights issue, R250 million cash
injection and the issue of 20 million Iscor shares to IDC.
11. IDC voting and disposal rights
Certain undertakings relating to IDC's ability to exercise the voting rights
attaching to its original Iscor shares and its rights of disposal in
relation to such shares, were given by or on behalf of IDC in Iscor's
Prospectus dated 1989. IDC is of the opinion that the legal validity of
these undertakings, if any, has fallen away. In the context of the
restructuring and unbundling of Iscor, the board of directors of Iscor has
agreed, on behalf of Iscor, that Iscor will irrevocably and unconditionally
waive any rights it may have to place any reliance on the undertakings given
by or on behalf of IDC in the aforementioned Prospectus and to release IDC
from the aforesaid undertakings. Accordingly, insofar as it is able to do so
in terms of the Listings Requirements of the JSE, IDC will be entitled to
exercise the votes attaching to the Iscor shares held by it at the general
meeting of Iscor shareholders and in future intends to exercise its right to
dispose of its Iscor shares without restriction.
12. Conditions precedent
The unbundling by Iscor of its entire shareholding in Kumba is subject to
the fulfilment of the following conditions precedent:
* the passing by Iscor shareholders in general meeting of the resolutions
necessary to approve the acquisition of Saldanha, and the unbundling by
Iscor of its entire shareholding in Kumba;
* such consents, rulings and approvals of the JSE, the South African Reserve
Bank and any other regulatory body as may be necessary in respect of the
unbundling by Iscor of its entire shareholding in Kumba; and
* the formal consent of Iscor's lending banks to the proposed debt
allocation between Iscor and Kumba, post the unbundling.
These conditions precedent are subject to fulfilment or waiver by no
later than 16 November 2001, or such later date as may be determined by the
directors of Iscor. If the conditions precedent are not fulfilled or waived
as aforesaid, the unbundling will not be implemented.
The acquisition by Iscor of IDC's 50% shareholding in Saldanha is subject
to the fulfilment of the following conditions precedent:
* the passing by Iscor shareholders in general meeting of the resolutions
necessary to approve the acquisition of Saldanha, and the unbundling by
Iscor of its entire shareholding in Kumba; and
* the approval of the implementation of the acquisition by the relevant
competition authorities.
The resolution for the acquisition by Iscor of IDC's shareholding in
Saldanha, together with the resolution for the unbundling by Iscor of its
entire shareholding in Kumba, will be proposed as one, indivisible
transaction at the general meeting of Iscor shareholders convened for that
purpose.
13. Related party transaction
As IDC is a related party in relation to Iscor, Iscor has appointed an
independent financial adviser, to confirm that the terms of the proposed
acquisition are fair and reasonable as far as the shareholders of Iscor are
concerned. In addition, the validity of the ordinary resolution to approve
the acquisition of Saldanha will be subject to a simple majority of votes,
other than IDC and its associates, being cast in favour of such resolution.
14. Timetable and documentation
A circular, giving full details of the Transaction will be dispatched to
Iscor shareholders, together with a notice convening a general meeting of
Iscor shareholders, at which the resolutions necessary to approve the
Transaction will be proposed. In addition, shareholders will receive revised
listing particulars for Iscor and a pre-listing statement for Kumba,
prepared on the assumption that all the resolutions proposed at the general
meeting of Iscor shareholders are passed and that the unbundling of Kumba is
implemented.
The salient dates for the Transaction are as follows:
Posting of circular to Iscor shareholders, including
revised pre-listing particulars for Iscor and a
pre-listing statement for Kumba on or about 23 October 2001
General meeting of Iscor shareholders to approve,
inter alia, the unbundling of Kumba on or about 15 November 2001
Date upon which Iscor shareholders must
be registered as such in order to participate
in the unbundling on or about 16 November 2001
Share statements or certificates in respect
of Kumba shares posted to Iscor shareholders,
on or about 19 November 2001
Expected listing of Kumba on the JSE 19 November 2001
Pretoria and Sandton
26 September 2001
Financial adviser and sponsor to Iscor
JP Morgan
Independent accountants to Iscor
KPMG
Registered Chartered Accountants (SA)
(Registration number 1999/021543/21)
Financial adviser to IDC
HSBC
Attorneys to IDC
Werksmans Attorneys
Corporate law advisers and consultants to Iscor
Edward Nathan & Friedland (Pty) Ltd
(Registration number 1999/026464/07)
CLS Consulting Services (Proprietary) Limited
