| Wed 30 Jan 2002, 0:00 | | Alexander Forbes - Proposal To Acquire Up To 80% O |
|
ALEXANDER FORBES
(Incorporated in the Republic of South Africa)
(Registration number 1958/001974/06)
Share code AFB ISIN ZAE000018230
("Alexander Forbes")
Proposal to acquire up to 80% of Lane Clark & Peacock ("LCP")
1. Introduction
Investec Bank Limited is authorised to announce that Alexander Forbes has
been granted options to acquire an interest of up to 80% in LCP, a leading
independent firm of consulting actuaries in the United Kingdom ("UK").
2. Rationale
The proposed acquisition is in line with Alexander Forbes' international
expansion strategy. LCP operates in the UK and is part of the Multinational
Group of Actuaries & Consultants ("MGAC") network of consulting actuaries,
which is located across Europe, North America and Australia. LCP therefore
fits well with Alexander Forbes' existing businesses, in particular its
actuarial consulting operations in South Africa and Mexico and its
Independent Financial Advisory operation in the UK, which provides
independent financial advice and employee benefit services to individuals
and small/medium size corporations.
LCP has 40 partners and over 250 staff, including more than 60 qualified
actuaries, operating out of offices in the West End of London, Winchester
and Manchester. LCP specialises in providing actuarial and other related
services to occupational pension schemes, companies and insurance related
organisations. In the five years to 31 May 2001, LCP grew its revenues and
profits at a compound annual rate of 22% and 24% respectively.
3. Terms of the proposed acquisition
3.1 Consideration and effective date
In terms of the agreements relating to the proposed acquisition:
- the business and assets of LCP would be transferred to a new limited
liability partnership to be known as Lane Clark & Peacock Limited Liability
Partnership ("the LLP") which Alexander Forbes will join as a member;
- Alexander Forbes has been granted an option to acquire an initial 60%
interest in the LLP ("the initial acquisition"), exercisable from 5 June
2002, which will also be the effective date of the initial acquisition;
- the consideration payable in respect of the initial acquisition is a
maximum of GBP27,6 million, which includes a working capital contribution of
GBP1,2 million; and
- Alexander Forbes has, as part of the arrangements, placed GBP12 million on
deposit with an escrow agent for the purposes of the proposed acquisition.
This amount may be forfeited if, under certain circumstances, Alexander
Forbes does not exercise the option to acquire the initial 60% interest in
the LLP.
The initial acquisition will be funded from existing funds and bank
borrowing facilities.
3.2 The call option
Alexander Forbes has a further option ("the call option") to acquire an
additional 20% share of the LLP from 13 June 2005. The consideration payable
by Alexander Forbes on exercise of the call option will be based on a 12
times multiple of the pre-tax profits attributable to the members of the LLP
per the audited accounts of the LLP for the year ending 31 March 2005,
limited to a maximum amount of GBP23 million.
3.3 Affecting transaction
In addition, LCP could require Alexander Forbes to acquire up to a maximum
of the remaining 40% of the LLP or, if the call option has already been
exercised, up to a maximum of the remaining 20% of the LLP, if any of the
following events occurs before 1 April 2011:
- Alexander Forbes sells its stake in the LLP to a third party; or
- Alexander Forbes acquires a consultant actuary business in the UK which
competes with the LLP and has two thirds or more qualified actuaries than
the LLP ("a competing business"); or
- a competing business acquires more than 50% of Alexander Forbes;
(each defined as an "affecting transaction").
The maximum potential amount payable by Alexander Forbes on the occurrence
of an affecting transaction will be based on a pre-determined multiple
(which will decrease over the period to 1 April 2011) times the pre-tax
profits attributable to the members of the LLP per the audited accounts of
the LLP for the financial year preceding the occurrence of the affecting
transaction as follows:
- a maximum potential amount of GBP70 million if the call option has not
been exercised; or
- a maximum potential amount of GBP70 million less the amount paid in
respect of the call option if the call option has been exercised.
4.Financial effects
LCP reported revenues of GBP23,2 million and pro forma pre-tax profits
attributable to members of the LLP of GBP3,8 million for the year ended 31
May 2001. Based on these unaudited results, an estimated pre-tax funding
cost of 6,75% and the current exchange rate of R16,20:GBP1 and on the
assumption that the initial acquisition had been in effect for the year
ended 31 March 2001, Alexander Forbes' headline earnings for the year ended
31 March 2001 would have increased by 1,4 cents (1,14%) from 123,2 cents to
124,6 cents. In addition, based on the aforementioned assumptions, the
initial acquisition would also not have had a material effect on the
headline earnings of Alexander Forbes for the six months ended 30 September
2001 or on the net asset value per share of Alexander Forbes at 31 March
2001 and at 30 September 2001. The initial acquisition is expected to make a
positive contribution to Alexander Forbes' future earnings.
Johannesburg
30 January 2002
Merchant bank
Investec Corporate Finance
Investec Bank Limited
(Registration number 1969/004763/06)
Sponsor
Investec Securities Limited
Member of the JSE
Registration No. 1972/008905/06
