| Wed 18 Sep 2002, 12:48 | | Alexander Forbes Limited - Announcement |
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Alexander Forbes Limited
(Incorporated in the Republic of South Africa)
(Registration number 1958/001974/06)
JSE code: AFB ISIN: ZAE000018230
("Alexander Forbes")
Announcement regarding:
- the proposed sale by Alexander Forbes of 30% of its South African business,
excluding certain associates, to an empowerment company controlled by Millennium
Consolidated Investments (Proprietary) Limited ("MCI");
- an offer by Alexander Forbes to acquire the entire issued share capital of
Investment Solutions Holdings Limited ("Solutions"); and
- the Schroder Pensions acquisition in the United Kingdom
1. INTRODUCTION
Further to the cautionary announcements dated 26 July 2002 and 6 September
2002, Investec Bank Limited is authorised to announce that:
- Alexander Forbes has entered into heads of agreement in terms of which it
will, subject to the fulfilment of the conditions precedent set out in 2.3
below, sell 30% of its South African business, excluding certain associates, to
an empowerment company controlled by MCI ("the empowerment transaction").
Details of the empowerment transaction are set out in 2 below;
- Alexander Forbes will, subject to the fulfilment of the conditions
precedent set out in 3.9 below ("the conditions precedent"), propose a scheme of
arrangement ("the scheme") in terms of section 311 of the Companies Act, 1973
(Act 61 of 1973), as amended ("the Act"), between Solutions and its shareholders
other than Alexander Forbes ("the Solutions scheme participants"), for the
acquisition of all their Solutions shares. Further details of the scheme and an
alternative offer to the scheme are set out in 3 below; and
- Alexander Forbes has agreed to acquire Schroder Pensions Limited and
Schroder Pensions Services Limited ("the Schroder Pensions acquisition") in the
United Kingdom ("UK"). Details of the Schroder Pensions acquisition are set out
in 4 below.
2. THE EMPOWERMENT TRANSACTION
2.1 Details of the empowerment transaction
Alexander Forbes has entered into heads of agreement with MCI in terms of
which it will sell 30% of the South African business of Alexander Forbes
("AFSA"), to an empowerment company controlled by MCI ("the empowerment
company"). The sale excludes all the non-South African business interests of
Alexander Forbes. It also excludes Alexander Forbes` South African associates,
Medscheme Limited and Thebe Risk & Benefits Group Holdings (Proprietary)
Limited. AFSA will include 100% of the South African business of Solutions,
subject to the successful conclusion and implementation of the scheme or
substitute offer (details of which are set out in 3.5 below).
MCI will have a controlling shareholding in the empowerment company. The
remaining shareholders in the empowerment company will include a broad-based
empowerment trust to be formed.
MCI is a black economic empowerment investment company headed by Cyril
Ramaphosa who will become a non-executive director of Alexander Forbes with
immediate effect. He will also serve as non-executive chairman of the South
African holding company of AFSA. Other shareholders of MCI include James
Motlatsi, executive directors Ndoda Madalane and Kodwo Mills, as well as other
business professionals and two community trusts representing beneficiaries from
historically disadvantaged groups.
The empowerment transaction is to be concluded at an effective date no later
than 1 April 2003, assuming the fulfilment of the necessary conditions. The
effective sale consideration is approximately R810 million after the
introduction of gearing in terms of the vendor financing structure ("the
transaction value"). The empowerment transaction will be fully vendor financed
by Alexander Forbes. There is a balance in the returns to Alexander Forbes
between the transaction value and the 18% after tax vendor finance return
thereon. The shareholders of the empowerment company have an option to sell
their shares to Alexander Forbes once the transaction value has been fully
repaid, at a price which will be based on the same earnings before interest and
tax multiple applied in the entry valuation. In such case, 50% of the sale
consideration will be deferred and will be payable in two equal annual
installments.
The empowerment transaction is designed to facilitate the long-term
participation of the empowerment company as a shareholder in AFSA.
2.2 Rationale for the empowerment transaction
The empowerment transaction is strategically important for the South African
business of Alexander Forbes. It follows earlier initiatives through which
Alexander Forbes has built skills, capacity and equity participation in its
industry. The empowerment transaction will provide the appropriate ownership
structure to expand certain core businesses into wider markets. In addition,
MCI, as lead empowerment shareholder, is committed to assisting with the
internal transformation of AFSA from an empowerment perspective.
2.3 Conditions precedent to the empowerment transaction
The empowerment transaction is subject to a number of conditions precedent
including, inter alia, the successful conclusion and implementation of the
scheme or the substitute offer (details of which are set out in 3.5 below) and
the conclusion of detailed agreements.
2.4 Financial effects of the empowerment transaction
On the assumption that the empowerment transaction had been effective from 1
April 2001, it would not have had a material effect on the earnings, headline
earnings or core headline earnings per Alexander Forbes share for the year ended
31 March 2002. On the assumption that the empowerment transaction had been
effective on 31 March 2002, it would not have had a material effect on the net
asset value at that date.
3. THE SCHEME TO ACQUIRE THE ENTIRE ISSUED SHARE CAPITAL OF SOLUTIONS
3.1 Rationale for the scheme
The implementation of the empowerment transaction would dilute Alexander
Forbes` effective interest in Solutions` South African business from 59,6% to
41,7% (being 70% of 59,6%). This would constitute a level of economic interest
in Solutions which is unacceptable to Alexander Forbes. For this reason, the
board of directors of Alexander Forbes ("the Alexander Forbes board") considers
it necessary to implement the scheme or the substitute offer (details of which
are set out in 3.5 below) and include this as a condition precedent to the
empowerment transaction. Subsequent to the empowerment transaction and the
scheme becoming operative, Alexander Forbes will have a 70% effective interest
in the South African business of Solutions and AFSA will have a 30% empowerment
shareholder.
A further consideration is that the basis of calculating a company`s
investibility weighting for inclusion in the relevant FTSE/JSE indices changed
from June 2002. Owing to this change and Alexander Forbes` 59,6% shareholding in
Solutions, Solutions` investibility weighting for index purposes is currently
only 40% of its market capitalisation. This diminishes the likelihood of
Solutions` future inclusion in various indices. This issue cannot be addressed
without Alexander Forbes diluting its shareholding in Solutions.
Alexander Forbes shareholders should also benefit from:
- cost savings which result from a delisting of Solutions; and
- full participation in the offshore development of the Solutions business
which has commenced with the Schroder Pensions acquisition detailed in 4 below.
3.2 The scheme consideration
The consideration payable to Solutions scheme participants, registered as
such on the record date for the scheme, will be as follows:
- an amount of R6,10 in cash per Solutions share ("the cash alternative"); or
- 0,40667 of an Alexander Forbes share per Solutions share ("the share
alternative").
The Solutions scheme participants will be able to elect either the cash
alternative or the share alternative or a combination thereof.
The receipt by a Solutions scheme participant of the share alternative will only
occur if such scheme participant elects the share alternative.
The total amount payable in terms of the cash alternative and the share
alternative is hereinafter collectively referred to as "the scheme
consideration".
3.3 Employee share incentive arrangements
In terms of the scheme, the interests of Solutions` employees in the
Investment Solutions Share Trust ("the Solutions Share Trust") will be dealt
with substantially as follows:
3.3.1 all Solutions shares and options subject to the Solutions Share Trust
which vest on or before 30 April 2003 will be deemed to have vested for purposes
of the scheme and may accordingly be disposed of under the scheme;
3.3.2 participants in the Solutions Share Trust will be obliged to transfer at
least 50% of their unvested Solutions shares and options into Alexander Forbes
shares and options with loan positions and effective strike prices being
maintained. Participants may elect that more than 50% of their unvested
Solutions shares and options become subject to this arrangement. To facilitate
this, Alexander Forbes shareholders will be required to approve that the
resultant Alexander Forbes shares and options will exceed the limits for the
existing Alexander Forbes Share Schemes. The net value of the balance of the
unvested Solutions shares and options will be settled in cash which will be
released to participants on the original vesting terms under the Solutions Share
Trust.
3.4 Pro forma financial effects of the scheme on Alexander Forbes shareholders
The table below sets out the pro forma financial effects of the scheme on an
Alexander Forbes shareholder:
The cash The share
alternative alternative
(Note 1) (Note 2)
Before After After
the the the
Per Alexander scheme scheme % scheme %
Forbes share Note (cents) (cents) change (cents) change
Earnings 3 160,4 152,1 (5,2) 152,1 (5,2)
Headline earnings 3 185,0 176,6 (4,5) 173,6 (6,2)
Core headline
earnings 3 153,2 145,0 (5,4) 145,8 (4,8)
Net asset value 4 222,2 229,7 3,3 385,1 73,3
The pro forma financial effects have been prepared for illustrative purposes
only, to provide information on how the scheme might have affected the financial
information presented and, because of its nature, may not give a true reflection
of the financial position to an Alexander Forbes shareholder. The pro forma
financial effects have been based on the following:
Notes:
1. The cash alternative assumes that all Solutions scheme participants elect
the cash alternative other than those Solutions Share Trust participants obliged
to elect the share alternative as detailed in 3.3.2 above and that the debt
raised by Alexander Forbes to settle the cash amount due in terms of the scheme,
being a total consideration of R729 million, bears interest at an after tax
interest rate of 10,2% per annum.
2. The share alternative assumes that all Solutions scheme participants elect
the share alternative and that Alexander Forbes issues 50 649 989 Alexander
Forbes shares at R15,00 per share being the closing price of an Alexander Forbes
share on the trading day immediately preceding the publication of the first
cautionary announcement ("the Alexander Forbes consideration shares") to settle
the total scheme consideration of R760 million.
3. The earnings per Alexander Forbes share, headline earnings per Alexander
Forbes share and core headline earnings per Alexander Forbes share for the year
ended 31 March 2002 as published in the audited results of Alexander Forbes and
based on a weighted average of 346 million Alexander Forbes shares in issue for
the year ended 31 March 2002, compared to the earnings per Alexander Forbes
share, headline earnings per Alexander Forbes share and core headline earnings
per Alexander Forbes share which an Alexander Forbes shareholder would have
earned had the scheme been operative on 1 April 2001.
4. The net asset value per Alexander Forbes share at 31 March 2002 as
published in the audited results of Alexander Forbes and based on 346 755 986
Alexander Forbes shares in issue at 31 March 2002, compared to the net asset
value per Alexander Forbes share which would have been recorded had the scheme
been operative on 31 March 2002.
3.5 The substitute offer
Provided Alexander Forbes shareholders have given the requisite approval for
the substitute offer in terms of 3.9.2 below, if any of the other conditions
precedent to the scheme are not fulfilled, Alexander Forbes intends to extend a
substitute offer to Solutions shareholders in terms of which Solutions
shareholders will be entitled to accept a substitute offer in respect of their
Solutions shares for the same consideration as the consideration payable to
Solutions scheme participants in terms of the scheme ("the substitute offer").
Should the substitute offer be accepted in respect of 90% or more of the
Solutions shares held by Solutions shareholders other than Alexander Forbes,
Alexander Forbes will elect to invoke the provisions of section 440K of the Act
and the listing of Solutions will terminate once the relevant period as
envisaged by section 440K of the Act has lapsed.
3.6 Confirmation of sufficient resources
The Securities Regulation Panel ("SRP") has been provided with proof of the
availability of funding for Alexander Forbes to meet its full financial
commitment in terms of the scheme.
3.7 Alexander Forbes shareholder approval
Neither the scheme nor the substitute offer require the approval of
Alexander Forbes shareholders in terms of the Act and the Listings Requirements
of the JSE Securities Exchange South Africa ("the JSE"). However, in the
interests of good corporate governance, the Alexander Forbes board has decided
to request such approval and to make it a condition of the scheme (or the
substitute offer) being implemented given the existence of common directors in
Alexander Forbes and Solutions and Alexander Forbes directors` shareholdings in
Solutions.
Full details of Solutions directors` shareholdings in Solutions, including
common directors in Alexander Forbes and Solutions, were disclosed in the
audited financial statements of Solutions for the year ended 31 March 2002. Full
details of Alexander Forbes and Solutions directors` shareholdings in Solutions
will be disclosed in the scheme documentation referred to in 5 below.
3.8 Opinions and recommendations
All the members of the Alexander Forbes board deliberated on the scheme and
substitute offer ("the Solutions proposals"). However, members of the Alexander
Forbes board who are also directors and/or shareholders of Solutions recused
themselves from voting on the Solutions proposals. The two non-executive
directors who have no financial interest in Solutions and who are not directors
of Solutions, namely John Robins and Peter van Niekerk ("the independent sub-
committee"), were mandated to engage an independent advisor to provide a fair
and reasonable opinion before taking the decision on whether or not to propose
the Solutions proposals. The independent opinion has been received from Cazenove
South Africa (Proprietary) Limited ("Cazenove") confirming that the terms of the
Solutions proposals are fair and reasonable insofar as the Alexander Forbes
shareholders are concerned.
The independent sub-committee, after considering the terms of the Solutions
proposals, the fair and reasonable opinion of Cazenove and taking all
circumstances into account, recommend that Alexander Forbes shareholders vote in
favour of the resolutions to be proposed at the general meeting of Alexander
Forbes shareholders to be held to approve the scheme, the substitute offer and
the amendments to the Alexander Forbes Share Schemes ("the Alexander Forbes
general meeting").
3.9 The conditions precedent
The scheme is subject to the fulfilment of, inter alia, the following
conditions precedent:
3.9.1 the approvals, insofar as may be necessary, of the appropriate
documentation by the JSE, the SRP and any other approvals that may be required;
3.9.2 the approval of the proposing of the scheme, as well as amending the
Alexander Forbes Share Schemes in so far as required for purposes of the scheme,
and the making of the substitute offer by the requisite majority of the
Alexander Forbes shareholders present or represented and voting at the Alexander
Forbes general meeting to be convened for this purpose and who are entitled to
vote thereat;
3.9.3 the convening by the High Court of South Africa of the requisite meeting
of Solutions shareholders in terms of the Act;
3.9.4 the approval of the requisite majority of those Solutions shareholders
entitled to vote on the scheme, present or represented and voting at the scheme
meeting to be convened in terms of the Act;
3.9.5 the sanctioning of the scheme by the High Court of South Africa; and
3.9.6 registration of the Order of Court sanctioning the scheme by the
Registrar of Companies.
The above conditions precedent are to be fulfiled by no later than 31 January
2003.
3.10 Listing of the Alexander Forbes consideration shares
Application will be made for the commencement of listing of the Alexander
Forbes consideration shares to be issued pursuant to the acceptance by Solutions
scheme participants of the share alternative or in terms of the substitute
offer.
4. THE SCHRODER PENSIONS ACQUISITION
Alexander Forbes PLC ("AFPLC"), a wholly-owned subsidiary of Alexander
Forbes, and Lane Clark & Peacock LLP ("LCP"), in which AFPLC has a 60% interest,
have agreed to acquire Schroder Pensions Limited ("SPL") and Schroder Pensions
Services Limited ("SPSL") (collectively "the Schroder Pensions Group") from
Schroder Financial Services Limited for a consideration equal to the net asset
value of the business at 31 August 2002 which is limited to a maximum of 22,5
million. On completion of the Schroder Pensions acquisition AFPLC will
effectively own 75,05% and LCP 24,95% of Schroder Pensions Group. AFPLC have
granted a call option over 50,1% of Schroder Pensions Group to Solutions at the
original transaction price agreed, which may be exercised should either the
scheme or the substitute offer not proceed for any reason.
Following completion, SPL will be renamed Investment Solutions Limited,
whilst SPSL will be renamed LCP Defined Contribution Solutions Limited. SPL is
an authorised life insurance company authorised by the Financial Services
Authority ("FSA") in the UK to provide pension products and services. The
Schroder Pensions acquisition is subject to the approval of the FSA.
This strategic investment provides the Alexander Forbes group with a platform
to enter the specialist investment product market in the UK by combining
Solutions` experience gained in the South African market with LCP`s actuarial
skills and research to develop Solutions for Defined Benefit and Defined
Contribution pension plans.
In addition, LCP`s existing pensions administration business, combined with
the newly acquired systems and capabilities of SPSL, will enable Alexander
Forbes group to provide pensions administration services across the full range
of pension scheme arrangements.
Further details of the Schroder Pensions acquisition will be provided in the
circular to Alexander Forbes shareholders referred to in 5 below.
5. FURTHER ANNOUNCEMENTS AND DOCUMENTATION
Alexander Forbes shareholders are referred to the announcement by Solutions
giving details of the scheme and the substitute offer appearing elsewhere in the
press today.
The scheme documentation is in the course of preparation and will, subject to
the approval of the JSE, SRP and South African Reserve Bank and the Order of
Court for the convening of the scheme meeting being granted, be posted to
Alexander Forbes shareholders and Solutions shareholders. In addition, a
circular to Alexander Forbes shareholders, convening the Alexander Forbes
general meeting to vote on the scheme or the substitute offer, as the case may
be, and the employee share incentive arrangements detailed in 3.3 above, is in
the course of preparation and will be posted to Alexander Forbes shareholders in
due course.
Further announcements, including the salient dates pertaining to the scheme,
will be published in due course.
6. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Alexander Forbes shareholders are referred to the further cautionary
announcement dated 6 September 2002. Such announcement related to the matters
dealt with herein and Alexander Forbes shareholders are advised that the
cautionary announcement is withdrawn.
Sandton
18 September 2002
Merchant bank
Investec Corporate Finance
Investec Bank Limited
(Registration number 1969/004763/06)
Corporate law advisors and consultants
Edward Nathan & Friedland (Pty) Ltd
Corporate Law advisers & Consultants
(Registration number 1999/026464/07)
Sponsor
Investec Securities Limited
Member of the JSE
(Registration number. 1972/008905/06)
Independent advisor to Alexander Forbes
Cazenove
Attorneys to MCI
Prinsloo, Tindle & Andropoulos Inc. Attorneys
(Registration number 1998/021593/21)
Date: 18/09/2002 08:01:00 AM Produced by the JSE SENS Department
