| Mon 22 Jul 2002, 0:00 | | Announcement Regarding The Sale Of The Businesses |
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Announcement regarding the sale of the businesses and a substantial portion of
the assets, and the assumption of certain of the liabilities, of African Harvest
and withdrawal of cautionary announcement
African Harvest Limited
(Incorporated in the Republic of South Africa)
(Registration number 1997/013827/06)
(ISIN: ZA000013538)
(Share code: AHV)
("African Harvest" or "the company")
Announcement regarding the sale of the businesses and a substantial portion of
the assets, and the assumption of certain of the liabilities, of African Harvest
and withdrawal of cautionary announcement
1. Introduction
Further to the announcements published on 13 May 2002, 13 June 2002 and 1 July
2002, African Harvest entered into an agreement on 19 July 2002 ("the
agreement"), for the sale of the businesses and a substantial portion of the
assets, and the assumption by the purchaser of certain of the liabilities, of
the company as a going concern ("the sale"). The businesses and assets will be
acquired, and the liabilities assumed, by Business Venture Investments No. 674
(Pty) Ltd., a company led by certain members of the management of African
Harvest and supported by Mr M G Khumalo and a number of black business people
("the consortium" or "the purchaser").
The sale requires shareholders` approval under section 228 of the Companies Act
(Act 61 of 1973) as amended ("the Act") and is subject to the fulfillment of the
other suspensive conditions referred to in paragraph 4 below.
2. Rationale for the sale
A majority of the Board of Directors of African Harvest ("the Board") is of the
view that the sale is in the best interests of the company and of its
shareholders for primarily the following reasons:
* The company has been negatively affected in recent months by speculation of
uncertainty concerning the commitment of its key shareholders and the stability
of its staff. The Board is of the view that the long term viability of the
company`s businesses requires a clear message to the market and its clients
regarding a committed majority empowerment shareholder and a stable staff base.
This is unlikely to be achieved where the majority shareholder is under
continual pressure to significantly dilute its holding in order to enhance the
company`s empowerment credentials and there is little or no opportunity of
introducing meaningful levels of staff ownership at realistic prices;
* The company`s ability to grow its current businesses and to provide
acceptable returns to shareholders is heavily dependent on its empowerment
credentials. The Board is of the view that company`s businesses will not be
able to optimise returns to shareholders while its businesses are controlled by
a non-empowerment shareholder;
* The returns provided to shareholders over the last 18 months have been
poor, primarily as a result of a number of large asset impairment charges and
the difficult market conditions experienced by the industry. In addressing the
issues it has faced through this period African Harvest has withdrawn from a
number of markets and returned capital to shareholders. Despite the return of
capital to shareholders in February 2002, the company is still over-capitalised,
however, a further return of capital would reduce African Harvest to a size
which is more appropriate to a private entity than a listed public company.
3. Salient features of the sale
3.1 Assets sold and liabilities assumed
African Harvest is selling all of its businesses and assets except the cash and
retained assets (refer below). The sold assets include the name "African
Harvest" and all derivatives thereof. The businesses sold include African
Harvest Capital, African Harvest Securities and African Harvest Fund Managers.
The purchaser will assume all of the company`s liabilities with the exception of
the retained liabilities (refer below). The purchaser will also provide various
indemnities to the company.
3.2 Total Purchase Price
The total purchase price payable for the businesses and assets being sold is the
sum of the net purchase price (refer to 3.3 below), an amount equal to the
aggregate amount of the assumed liabilities (refer below) and the aggregate of
all and any amounts payable by the purchaser to the company in terms of the
indemnities granted to the company by the purchaser.
Should the net purchase price not be payable by 20 August 2002, the amount of
R582,5 million will bear interest from 21 August 2002 at the prime rate less one
per cent.
3.3 Net Purchase Price
The net purchase price is the amount by which R582,5 million exceeds the value
of the net cash and net assets retained by the company at the effective date
(the date on which all the suspensive conditions are met).
Had the sale been effective at 30 June 2002 the net purchase price would have
amounted to approximately R366,1 million, being R582,5 million less R94,8
million (net cash on such date) less R121,6 million (net retained assets).
Net cash
The net cash is the difference between the company`s cash balances and any
overdraft balance it may have at the effective date. Had the effective date of
the sale been
30 June 2002, this would have been approximately R94,8 million.
Net retained assets
The net assets retained by the company comprise a number of liquid investments,
certain of the remaining strategic investments made by the company and a number
of the liabilities of the company at the effective date. Had the effective date
of the sale been 30 June 2002, the net retained assets would have amounted to
approximately R121,6 million. At this date the liquid investments referred to
above comprised approximately R112,1 million of the amount. At 30 June 2002 the
net strategic investments to be retained would have amounted to approximately
R17,4 million. Certain of the retained net strategic investments are valued in
the agreement at amounts below their carrying values in the company`s financial
records for the purposes of computing the value of the retained assets to be
included in the calculation of the net purchase price.
The liabilities retained by the company include the costs of settling share
options in issue, taxation liabilities and amounts payable to shareholders as a
result of previous returns of capital which have not been claimed. (The
purchaser has indemnified the company against all pre-effective date taxation
liabilities, with the exception of any liabilities for Secondary Taxation on
Companies, as well as any liabilities for Capital Gains Taxation arising as a
result of the sale.) At 30 June 2002 the retained liabilities would have
amounted to approximately R7,9 million, for the purposes of the calculation of
the net purchase price. No amount was ascribed to the cost of settling
outstanding share options for the purposes of the calculation of the net
purchase price.
4. Suspensive conditions
The sale is conditional upon the fulfilment of, inter alia, the following
material suspensive conditions:
4.1 the implementation of the security provided by the purchaser to the
company for the liabilities assumed and the indemnities granted by the
purchaser, by not later than the date of fulfilment of the other suspensive
conditions;
4.2 the obtaining of the necessary regulatory approvals;
4.3 the approval of the shareholders of the company in general meeting for
the sale, in terms of section 228 of the Act, by no later than 31 August 2002;
and
4.4 that the amounts placed on deposit, and ceded and pledged to the
company, and referred to in paragraph 5.2, equal or exceed the net purchase
price (refer above) calculated as at the applicable date.
5. Security for the obligations of the purchaser
5.1 The sale agreement provides for the purchaser to cede and pledge
certain assets to the company, as security for the assumed liabilities and all
the indemnities given by the purchaser.
5.2 The payment of the net purchase price has been secured through a
combination of cash placed on deposit and ceded and pledged to the company, and
securities ceded and pledged to the company. The final purchase price will be
paid entirely in cash.
6. Financial effects of the proposed sale
Set out below are the financial effects of the sale, assuming a cash payment by
the Consortium to African Harvest of R366,1 million, as described in paragraph 3
above:
Note(s) Before Pro-forma Percentage
the after change
sale the sale
(cents) (cents)
Headline (loss)/earnings 1 (0.81) 6.72
per share
Net asset value per 2 182.00 206.65 +13.5%
share
Net tangible asset value 3 179.83 206.65 +14.9%
per share
Market value with 4 145 176 +21.4%
reference to the market
price on 10 May 2002
Market value with 5 190 176 -7.4%
reference to the market
price on 19 July 2002
Notes
1. The "Before" column is the headline loss per African Harvest share for the
six months ended 31 March 2002, calculated using the weighted average number of
281 387 308 African Harvest shares in issue throughout the six month period. The
"After" column reflects the effective after tax interest income per share, at an
average tax rate of 30%, that the company would have earned had the sale been
effective on 1 October 2001 and had the illustrative net purchase price of
R366,1 million, calculated as at 30 June 2002, and the cash and liquid
investments of R206,8 million (R94,8 million plus R112 million) held at 30 June
2002, been invested from 1 October 2001 at an interest rate of 9,43%, being the
average rate of interest earned before tax on money placed on call, for the six
months ended 31 March 2002. For the purposes of the calculation it is assumed
that the net strategic investments retained by the company did not generate any
income.
2. The "Before" column is the net asset value per African Harvest share at 31
March 2002, calculated on 281 872 157 shares in issue at 31 March 2002. The
"After" column reflects the net asset value per African Harvest share had the
sale been effected on 31 March 2002. The calculation utilises the illustrative
amounts at 30 June 2002 set out in paragraph 3 above and therefore assumes that
the company would retain cash and net assets of R216,4 million and would receive
a payment from the consortium of R366,1 million. For the purposes of the
calculation, it is also assumed that no capital gains tax will be payable on the
sale. This would result in the net asset value of R511 million at 31 March 2002
being increased by R71,5 million.
3. The "Before" column is the tangible net asset value per African Harvest
share at 31 March 2002, calculated on 281 872 157 shares in issue at 31 March
2002. The "After" column reflects the tangible net asset value per African
Harvest share had the sale been effected on 31 March 2002. The calculation
utilises the illustrative amounts at 30 June 2002 set out in paragraph 3 above
and therefore assumes that the company would retain cash and net assets of
R216,4 million and would receive a payment from the consortium of R366,1
million. For the purposes of the calculation, it is also assumed that no capital
gains tax will be payable on the sale. This would result in the tangible net
asset value of R507 million at 31 March 2002 being increased by R75,6 million.
4. The "Before" column is the closing market price per African Harvest share
on the JSE Securities Exchange South Africa ("the JSE") on Friday, 10 May 2002,
being the trading day immediately preceding the publication of the cautionary
announcement. The "After" column shows the approximate value per share taking
account of the net asset value per share as calculated in paragraph 3 above and
assuming that the share trades at a 15% discount to its underlying net asset
value. The 15% discount applied to the net asset value per share is an
illustrative figure intended to take account of, inter alia, the costs of
administering the company and realising its retained assets and settling its
retained liabilities subsequent to the sale, the time value of money and the
impact of Secondary Taxation on Companies on any distributions to shareholders.
5. The "Before" column is the closing market price per African Harvest share
on the JSE on 19 July 2002, being the trading day immediately preceding the
publication of this announcement. The "After" column shows the approximate value
per share on the same basis as set out in footnote 4 above.
7. Shareholder support
As at the date of signature of the agreement Coronation Holdings Limited
("Coronation") exercised voting control over 55,16% of the company`s issued
share capital.
Shareholders are referred to the announcement published by Coronation on SENS on
19 June 2002 wherein Coronation indicated that it had considered the
announcement on 13 June 2002 by African Harvest of the receipt of an offer to
purchase a substantial portion of the business of the company as a going concern
by the consortium, and that it had indicated to the consortium that, based on
then current information, it would intend to vote in favour of approving
acceptance of the consortium`s offer at any shareholders` meeting convened for
that purpose, subject to the fulfilment of the suspensive conditions set out in
the offer.
8. Opinion of the independent adviser
PricewaterhouseCoopers Corporate Finance (Pty) Ltd ("PWC") has been appointed as
an independent adviser to the Board. The substance of the advice of PWC will be
included in the circular to be sent to shareholders.
9. Salient dates and times for the shareholders of African Harvest
The final date for approval of the sale by all regulatory authorities and
fulfillment of suspensive conditions will be met by Thursday, 31 October, 2002.
10 The future of the company after the sale
The Board is considering various options regarding the strategic direction of
the company subsequent to the sale.
In terms of the agreement the company will forfeit certain of the indemnities
from the consortium should it be placed into liquidation within 18 months of the
effective date of the agreement. The options currently being considered thus
include the provision of a mechanism allowing for an early realisation of cash
by shareholders with this objective, the provision of a mechanism to realise the
retained assets and settle the retained liabilities within the 18 month period
and thereafter to provide for a realisation of cash by shareholders, the use of
the company`s resources to acquire further investments or a new business, or a
combination of the above. Appropriate information will be provided to
shareholders once the Board has finalised its views on the strategic direction
of the company subsequent to the sale.
African Harvest`s listing as a financial services company may change as a result
of the board`s decision on the strategic direction of the company after the
sale.
11. Other offers
The Board is aware that there has been speculation in the media regarding
whether or not the Board has received more than one offer for the company`s
shares or businesses and assets. The Board confirms that it has not yet
received a "firm intention to make an offer from a serious source", as
contemplated by the Securities Regulation Code, other than that received from
the consortium.
12. Documentation
A circular to shareholders, which will be subject to the approval of the JSE and
the Securities Regulation Panel, containing full details of the sale and
convening the required general meeting of African Harvest, is being prepared and
will be dispatched to African Harvest shareholders on or about Thursday, 8
August, 2002.
13. Withdrawal of cautionary
Shareholders are referred to the announcements dated 13 May, 13 June and 1 July
2002, and are advised that further to this detailed announcement by the company,
the Board`s advice to shareholders to exercise caution while dealing in African
Harvest shares is withdrawn.
Cape Town
22 July 2002
Lead Sponsor
Deutsche Securities (SA) (Proprietary) Limited
Registration No. 1995/011798/07
Legal advisers to African Harvest
Sonnenberg Hoffmann Galombik
Joint sponsor and corporate advisor
African Harvest Capital (Proprietary) Limited
Registration No. 1998/001469/07
Legal advisers to the consortium
Hofmeyr Herbstein & Gihwala
Date: 22/07/2002 09:52:15 AM Produced by the JSE SENS Department
