| Mon 3 Mar 2003, 9:56 | | Corohold/ African Harvest - Detailed Cautionary An |
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Coronation Holdings Limited African Harvest Limited
(Incorporated in the Republic (Incorporated in the
of South Africa) Republic of South Africa)
(Registration number: (Registration number:
1902/001739/06) 1997/013827/06)
(Ordinary share code: CRH) (ISIN: ZA000013538)
(ISIN number: ZAE000001772) (Share code: AHV)
("N" ordinary share code: CRN) ("African Harvest")
(ISIN number: ZAE000010369)
("Corohold" or "the company")
DETAILED CAUTIONARY ANNOUNCEMENT REGARDING THE PROPOSED RESTRUCTURING OF
COROHOLD AND AN
OFFER FOR AFRICAN HARVEST SHARES
including
- the repayment of share premium by Corohold;
- the unbundling and listing of Coronation Fund Managers Limited ("CFM");
- an offer to the minority shareholders of African Harvest Limited ("African
Harvest");
- the changing of the name of African Harvest to Coronation Equities Limited;
- the sale of certain other Corohold assets to Coronation Investments and
Trading Limited ("CIT");
- the distribution of the majority of the cash of Corohold in anticipation of
its voluntary liquidation and the delisting of the company;
- an offer by CIT to Corohold shareholders to acquire their shares in
Corohold; and
- an election to renounce the right to the repayment of share premium,
distribution proceeds, the proceeds arising from the sale of the Corohold shares
to CIT, and the unbundled CFM shares, in exchange for shares in CIT (together
"the Restructuring")
and
1. A trading update for Corohold.
1.1 Proposed Restructuring
Background and rationale
Corohold commenced business as a financial services company in 1992 and enjoyed
substantial growth during the 1990`s in both the funds management and investment
banking parts of its business. The operations of Corohold and its subsidiary and
associate companies ("the Coronation Group" or "the Group") expanded rapidly and
its asset base grew significantly. During this period the Group also expanded
its operations offshore and these operations now account for over 50% of the
Group`s net asset value.
Since 2000, considerable market volatility, together with particularly depressed
markets, has hampered the ability of the investment banking business, housed
mainly in the Coronation Capital group ("Corocap") and partly in the Investments
segment, to generate consistent and predictable returns over time. Recent
financial results from Corocap and the Investments segment have been
characterised by volatility and substantial impairment charges. These results,
together with continuing negative market perceptions and limited investment
opportunities, have been reflected in the share price of Corohold, which has
consistently traded at a discount to estimated fair value. This has led the
Board of Corohold to propose a restructuring of the Group which will enable
Corohold shareholders to remain invested in the more stable funds management
business of CFM as a listed company, but will remove the other more volatile
businesses from the listed environment and permit shareholders to exit them for
cash if they so desire.
The Board of Corohold believes that both businesses should have improved
prospects as a result of this restructuring in that:
1. CFM will be better placed to continue its growth, and its reputation and
branding will be uninfluenced by trading operations; and
2. The remaining businesses of Corocap and Corohold will be able to operate in
an environment more suitable to the opportunistic nature of their operations and
the irregular nature of their earnings streams. A restructuring of Corocap is
underway, which will lead to a renewed concentration on the core trading and
arbitrage activities.
The Board does not perceive any benefit for the businesses or for shareholders
in maintaining these businesses in a listing and is of the view that they would
continue to trade at a deep discount to net asset value if listed.
As part of the restructuring of the Group, Corohold will also propose a scheme
of arrangement involving a cash offer to acquire the shares of the minority
shareholders in African Harvest.
1.2 Details of restructuring
The details of the proposed restructuring are set out below:
1.2.1 Repayment of the Corohold share premium.
It is proposed that Corohold repay share premium of R16 per ordinary or "N"
ordinary share, in cash, to shareholders.
1.2.2 Unbundling and listing of CFM
It is proposed that the shares in Coronation Fund Managers (Pty) Limited be sold
to Coronation Fund Managers Limited, a holding company and a wholly owned
subsidiary of Corohold, in exchange for shares in this company, which in turn
will be listed on the JSE Securities Exchange South Africa ("the JSE"). The
shares in CFM will be unbundled to Corohold shareholders in the ratio of 5 CFM
shares per Corohold ordinary or "N" ordinary share.
1.2.3 Offer to African Harvest minority shareholders ("African Harvest
offer") and change of name of African Harvest.
African Harvest has recently disposed of its main operating subsidiaries and is
primarily a cash shell company. Its listing on the JSE is due to be suspended
on 31 March 2003. As part of the restructuring, Corohold will propose a scheme
of arrangement between African Harvest and its shareholders in terms of section
311 of the Companies Act (Act 61 of 1973) ("the Companies Act"). In terms of
the scheme Corohold will acquire the African Harvest shares not held by it for a
cash consideration of 192 cents per African Harvest share. It is further
proposed that the name of African Harvest be changed to Coronation Equities
Limited.
1.2.4 Sale of the remaining businesses and subsidiaries, including Corocap,
African Harvest and certain other assets of Corohold to CIT in terms of S228 of
the Companies Act ("the Corohold sale")
It is proposed that all the remaining businesses and subsidiaries, including
Corocap and African Harvest, and certain other assets, be sold to CIT, a wholly
owned subsidiary of Corohold for a cash consideration of approximately R2,10
billion. CIT will fund the acquisition by way of third party borrowings.
Corohold shareholders will be given an election to become shareholders in CIT as
set out in 1.2.7 below.
1.2.5 Members` voluntary liquidation and the distribution in anticipation of
liquidation ("members` voluntary liquidation")
Corohold`s assets after the repayment of share premium set out in 1.2.1, the
unbundling set out in 1.2.2 and the Corohold sale set out in 1.2.4, less R500
million, (comprising a provision for taxation and liquidation costs, and for
remaining liabilities and claims), will comprise cash and will be distributed to
Corohold shareholders in anticipation of liquidation ("the liquidation
dividend"). This dividend will be R14 in cash per Corohold ordinary and "N"
ordinary share. Application will be made to the JSE for the suspension from
trading of the shares in Corohold pending finalisation of the liquidation.
1.2.6 Offer for all Corohold shares
After the repayment of share premium referred to in 1.2.1, the unbundling
referred to in 1.2.2, the Corohold sale referred to in 1.2.4 and the payment of
the dividend referred to in 1.2.5, CIT will offer R5 per share in cash for each
Corohold ordinary or "N" ordinary share. This offer will be made prior to
Corohold being placed in liquidation, to enable shareholders to exit the company
prior to the finalisation of outstanding litigation and without having to wait
for the completion of the members` voluntary liquidation, which is expected to
be a lengthy process. The outstanding litigation includes substantial claims
against the company in relation to contended tacit agreements for the disposal
of portions of a business, claims in regard to bad debt recoveries achieved by
the Group and taxation related matters.
1.2.7 Corohold shareholders` election to acquire shares in CIT
Corohold shareholders will have the right to renounce their entitlements, per
Corohold share, to the whole but not part of, the share premium repayment of R16
in cash, the 5 unbundled CFM shares, the liquidation dividend of R14 in cash,
and the R5 cash consideration, to CIT, in consideration for the allotment and
issue by CIT of 2 new ordinary shares in CIT. The renunciation for the
allotment and issue of CIT shares may only be made upon accrual of the aforesaid
entitlements. CIT will not be listed on the JSE. Corohold directors have made
certain undertakings, referred to in 5, in regard to their rights to renounce
their entitlements.
The separate listing of CFM and the approval of the members` voluntary
liquidation will be inter-conditional. Should either of such conditions fail
then the Restructuring, other than the proposed offer to the African Harvest
minority shareholders, will not be implemented. This inter-conditionality may
be waived by the Board of Corohold.
2. Trading update
The Board advises shareholders that in the period since the end of the last
financial year, i.e. from 1 October 2002 to the date of this announcement,
operating results for the main Coronation Group companies, particularly the fund
management business and the trading division of Corocap, have been satisfactory.
The strengthening rand has, however, lead to a substantial decline in the
foreign currency translation reserve and the Group`s investments in the Energy
and Aircraft leasing businesses require impairment provisions.
Specific details are:-
2.1 Rand currency strength from 1 October 2002 to the date of this announcement
has resulted in a R480 million reduction in the foreign currency translation
reserve.
2.2 Additional provisions of R134 million are required against the Group`s
investments in aircraft leasing, primarily as a result of the strengthening of
the rand and hedging decisions.
2.3 Deteriorating conditions in the U.K. energy generating industry, and
difficulty in bringing certain of the Group`s energy assets into operation, have
resulted in further provisions of R90 million against the energy investments.
3. Conditions precedent for proposal
3.1 Conditions precedent to the repayment of the Corohold share premium, the
unbundling of CFM, the Corohold sale, the members` voluntary liquidation, the
offer for the Corohold shares and the election to acquire shares in CIT are,
inter alia:
3.1.1 Approval of Corohold shareholders in general meeting of the ordinary
and special resolutions to effect the repayment of share premium, the unbundling
of CFM, the Corohold sale and the members` voluntary liquidation of Corohold;
3.1.2 Approval by the Securities Regulation Panel ("SRP), the JSE and the
South African Reserve Bank, of all relevant documentation;
3.1.3 Receipt of satisfactory advance rulings, expressions of opinion or the
like from the South African Revenue Service in respect of the unbundling of CFM
and/or the members` voluntary liquidation, to the extent required by the Board;
3.1.4 The raising of a facility of up to R2,10 billion by CIT to fund the
acquisition of Corohold subsidiaries and businesses and certain other assets;
3.1.5 The registration by the Registrar of Companies of all the special
resolutions giving effect to the aforegoing;
3.1.6 Approval by the JSE of the listing of CFM and the delisting of
Corohold;
3.1.7 Approval by the Competition Authorities; and
3.1.8 Registration of the CIT prospectus by the Registrar of Companies.
Conditions precedent for the African Harvest offer are, inter alia:
Approval by the African Harvest minority shareholders of the African Harvest
scheme of arrangement;
Sanctioning of the African Harvest scheme of arrangement by the Courts.
3.3 Where relevant, any of the conditions precedent may be waived by the Board
of Corohold.
FINANCIAL EFFECTS
Corohold
The pro-forma financial effects on a Corohold shareholder, based on the audited,
consolidated financial statements for the 12 months ended 30 September 2002, are
set out below. The effect of the items listed under 2 on the audited net asset
value per share at 30 September 2002 is also detailed.
4.1.1 Corohold shareholder who retains CFM shares and cash:
Cents Before After %
Change
Earnings per share 557 573 3%
Headline earnings per 583 608
share 4%
Net asset value per share 4 728 5 800
23%
Market value 5 100 5 800
14%
4.1.2 Corohold shareholder who elects to acquire shares in CIT in terms of
1.2.7 (assuming shareholders holding 50%, comprising 38 188 993 shares, of the
shares in Corohold make this election):
Cents Before After %
Change
Earnings per share 557 346 (38%)
Headline earnings per 583 364 (38%)
share
Net asset value per share 4 728 7 734
64%
Net tangible asset value 4 716 5 565 18%
per share
Assumptions
All Corohold financial effects are based on the following assumptions:
4.2.1 the headline earnings per share achieved by the Coronation Group for
the 2002 financial year have been used as a base and have not been adjusted to
take account of dividend payments or share repurchases and cancellations in the
period from 1 October 2002 to the date of this announcement;
4.2.2 the Corohold share price on 4 February 2003, the day before the
cautionary announcement was published, has been used as the market value;
4.2.3 a pre-tax interest rate on cash received of 12% p.a.;
4.2.4 a pre-tax interest rate on borrowings of 15% p.a.;
4.2.5 a taxation rate of 30%;
4.2.6 an indicative valuation of the CFM shares of R4,60 per share;
4.2.7 an investment into CIT of R35 and 5 CFM shares, per Corohold share, in
return for 2 shares in CIT;
4.2.8 a market value per CFM share equal to the indicative valuation of
R4,60 per share; and
4.2.9 net tangible asset value per share excludes the goodwill inherent in
the indicative valuation of the CFM shares of R4,60 per share.
Net asset values
The audited net asset value per Corohold share at 30 September 2002 was R58,38.
The net tangible asset value per Corohold share at that date was R58,27.
4.3 Adjusted net asset value per share
If the audited net asset value per Corohold share at 30 September 2002 is
adjusted to take account of the items set out in 2.1 to 2.3, the dividends to
shareholders paid on 9 December 2002, and the share repurchase announced on 14
November 2002, the net asset value per share declines from R58,38 to R47,28.
4.4 African Harvest
The pro-forma effects of the African Harvest offer on an African Harvest
shareholder, based on the audited financial statements for the 12 months ended
30 September 2002, are set out below.
African Harvest shareholder who accepts the African Harvest offer:
Cents Before After %
Change
Earnings per share 69,5 16,1 (77%)
Headline earnings per share 2,6 16,1
619%
Net asset value per share 218 192 (12%)
Adjusted net asset per share 189 192
2%
Market value 175 192
10%
4.5 Assumptions
All African Harvest financial effects are based on the following assumptions:
4.5.1 the headline earnings per share achieved by African Harvest for the
2002 financial year have been used as a base;
4.5.2 the African Harvest share price on 4 February 2003, the day before the
cautionary announcement was published, has been used as the market value;
4.5.3 a pre-tax interest rate on cash received of 12%; and
4.5.4 a taxation rate of 30%.
The adjusted net asset value per share reflects an estimated cash liquidation
value per African Harvest share.
5. OPINIONS AND RECOMMENDATIONS
5.1 The Board of Directors of Corohold has appointed Deutsche Securities (SA)
(Pty) Limited to advise it in respect of the Corohold sale as required by the
Securities Regulation Code on Takeovers and Mergers and the Rules of the SRP.
5.2 The Board of Directors of Corohold will appoint an advisor to advise it is
respect of the offer for all the Corohold shares by CIT as required by the
Securities Regulation Code on Takeovers and Mergers and the Rules of the SRP.
5.3 The Board of Directors of African Harvest has appointed NM Rothschild &
Sons (South Africa) (Pty) Ltd to advise it in respect of the African Harvest
offer as required by the Securities Regulation Code on Takeovers and Mergers and
the Rules of the SRP.
6. DOCUMENTATION
6.1 A circular in respect of the Restructuring, together with a pre-listing
statement in respect of CFM and a prospectus in respect of CIT, and a notice
convening a general meeting of shareholders, will be posted to Corohold
shareholders upon registration of the prospectus by the Registrar of Companies.
6.2 A circular in respect of the African Harvest offer and change of name, and
notices convening a general meeting and a scheme meeting of shareholders, will
be posted to African Harvest shareholders upon the granting of the Court order
convening the scheme meeting.
A further announcement regarding the salient dates and times of the
Restructuring will be made in due course.
Cape Town
3 March 2003
Corporate advisor and sponsor Sponsor to African Harvest
to Corohold Deutsche Securities (SA)
Deutsche Securities (SA) (Proprietary) Limited
(Proprietary) Limited
Legal advisors to Corohold Legal advisor to African
Deneys Reitz Inc. Harvest
Hofmeyrs
Tax advisors to Corohold Independent financial advisor
Sonnenberg Hoffmann Galombik to African Harvest
NM Rothchild & Sons
Date: 03/03/2003 07:49:00 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
