| Tue 13 May 2003, 11:39 | | Johnnic Holdings Limited - Unbundling Of Substanti |
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Johnnic Holdings Limited - Unbundling of substantially all of its shareholding
in MTN Group Limited
Johnnic Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1889/000429/06)
("Johnnic" or "the Company")
ISIN: ZAE000024352
Share Code: JNC
Unbundling by Johnnic of substantially all of its shareholding in MTN Group
Limited
1. INTRODUCTION
Further to the announcements made on 14 February 2003 and 28 March 2003, the
board of directors of Johnnic ("the Johnnic board") is pleased to announce the
details of the proposed unbundling of substantially all of its shareholding in
MTN Group Limited ("MTN Group") ("the Johnnic unbundling").
The rationale for the Johnnic unbundling is to unlock most of the discount at
which Johnnic shares trade to its underlying net asset value ("NAV") and to
enable Johnnic shareholders to hold their shares directly in MTN Group.
2. THE JOHNNIC UNBUNDLING
The Johnnic unbundling will, subject to the fulfillment of the conditions
precedent outlined in paragraph 7 of this announcement, distribute in specie to
Johnnic shareholders registered in the share register on Friday, 20 June 2003
("the record date") approximately 526 743 001 MTN Group shares or 31.9% of the
issued share capital of MTN Group ("the MTN Group unbundling shares") in terms
of section 90 of the Companies Act, 1973 (Act 61 of 1973), as amended, and in
accordance with section 46 of the Income Tax Act, 1962 (Act 58 of 1962), as
amended.
The table of entitlement in respect of the Johnnic unbundling will be as
follows:
Number of MTN Number of MTN
Group shares Group shares
to be to be
unbundled unbundled per
Johnnic share
526 743 001 3.16539
The number of MTN Group shares to be unbundled has taken into account :!
- 32.6 million MTN Group shares sold to cover the equity guarantee furnished by
Johnnic in an amount of R192 million in respect of Durban Add-Ventures Limited
("Durban Add-Ventures") as set out in paragraph 4 below, as well as to settle
R202.5 million debt of Johnnic, Gallagher Estates Holdings Limited and the
Properties division (collectively "Gallagher"); and
- 40 million MTN Group shares retained to cover a corporate guarantee in respect
of Durban Add-Ventures in an amount of R300 million including interest, the
Company"s ongoing working capital requirements, potential funding requirements
for Suncoast Casino and Entertainment World ("the Casino") and the possible tax
liabilities of Johnnic resulting from non!resident shareholders (if any) holding
more than 5% of the issued share capital of Johnnic as set out in paragraph 2.1
below.
The exact number of MTN Group shares to be distributed may alter as a result of
rounding calculations as described in paragraph 2.2 below.
The unbundling ratio has assumed that 1 955 604 additional Johnnic shares will
be issued by Johnnic in respect of Johnnic"s share schemes. Subject to the
fulfilment of the conditions precedent set out in paragraph 7 of this
announcement, the actual number of shares that will be issued in respect of the
Johnnic"s share schemes will be known by the finalisation date, being Thursday,
5 June 2003, on which date the actual unbundling ratio will be announced.
2.1 Non-resident shareholders
To the extent that there are any non-resident shareholders individually holding
more than 5% of the issued share capital of Johnnic on the record date, Johnnic
will not qualify for the various tax exemptions in respect of that portion of
MTN Group shares to be distributed to such non-resident shareholders. If there
is one or more such non-resident shareholder on the record date, Johnnic intends
to sell so many of MTN Group shares which it currently holds as is necessary to
pay such resulting tax liability.
2.2 Rounding
The proposed unbundling ratio disclosed in the above table will be applied to
the aggregate number of Johnnic shares held by each Johnnic shareholder on the
record date and the resultant number of shares will be rounded down to the
nearest whole number if it is less than 0.5 and will be rounded up to the
nearest whole number if it is equal to or greater than 0.5.
3. RATIONALE FOR THE JOHNNIC UNBUNDLING
Over the past 5 years, Johnnic has transformed itself into a focused
telecommunications, media and entertainment group. The focus on these sectors
was based on a convergence model whereby value would be created by the media and
entertainment assets providing the content that would be packaged for
distribution on various platforms including the telecommunications platform.
In the initial roll out of the strategy, control of the entities through the
holding company was necessary. The convergence strategy has matured and no
longer requires central control.
The control structure also served as a vehicle through which the underlying
companies obtained their empowerment credentials. The management and staff of
MTN Group, through Newshelf 664 (Proprietary) Limited, have acquired
approximately 18,7% of MTN Group. This has enhanced empowerment within MTN
Group. The Johnnic board has therefore determined that there is no longer a
need to maintain the control structure with regard to the telecommunications
assets for the purposes of perpetuating empowerment.
In contrast with the benefits that the holding company structure provided, the
structure also created a value trap in that Johnnic shares traded at a discount
to the value of the underlying listed and unlisted assets. The Johnnic board has
taken a decision to unlock a substantial part of this value to shareholders by
unbundling its shareholding in MTN Group.
4. FUNDING REQUIREMENTS OF THE JOHNNIC GROUP
Johnnic"s wholly owned subsidiary, The Millennium Casino Limited, has a 62%
shareholding in Durban Add-Ventures, which in turn has a 40% shareholding in
Tsogo Sun KwaZulu - Natal (Proprietary) Limited ("Tsogo Sun KZN"), which
operates the Casino.
At the date of this announcement, Johnnic has funding requirements of R631
million, made up of long and short term debt of Gallagher amounting to R139
million and guarantees in respect of the Casino obligations comprising an equity
guarantee of R192 million and a corporate guarantee of R300 million including
interest.
In addition, as a result of the unbundling, Johnnic may have a tax liability
arising out of the distribution of shares to non-resident shareholders who own
more than 5% of the issued share capital of the Company as more fully described
in paragraph 2.1. A provision of R60 million has been made for this. As at the
date of this announcement Johnnic is not aware of any such shareholders.
Johnnic also requires to make allowance of R60 million for the funding of the
Company"s ongoing working capital requirements and potential funding
requirements for the Casino.
In order to fund the above obligations Johnnic has sold 32.6 million MTN Group
shares realising an amount of R394.5 million. Part of the proceeds from this
disposal will be used to settle the Gallagher debt of R139 million and to
provide a cash collateral in respect of an equity guarantee of R192 million in
favour of the funders of Tsogo Sun KZN.
In addition, Johnnic has retained 40 million MTN Group shares in order to cover
the rest of its funding requirements, including the corporate guarantee in
favour of Tsogo Sun KZN, working capital requirements and potential funding
requirements for the Casino.
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5. PRO FORMA FINANCIAL EFFECTS
Financial effects of the disposal of MTN Group shares
The pro forma financial effects of the disposal of 32.6 million MTN Group shares
are set out below.
5.1 Assumptions
- The earnings per 100 Johnnic shares, as set out in the "Before" column of the
table below, is based upon the published financial results of Johnnic for the
six month period ended 30 September 2002. The earnings per 100 Johnnic shares,
as set out in the "After" column of the table, is based upon the assumption that
Johnnic sold R394.5 million worth of MTN Group shares on 1 April 2002 (realising
a surplus of R164.5 million at that date on the disposal of these shares) and
the cash proceeds are assumed to have been utilised to repay debt on this date,
realising an interest rate saving of 1.7% per annum.
- The NAV per 100 Johnnic shares, as set out in the "Before" column of the
table, is based upon the published financial results of Johnnic for the six
month period ended 30 September 2002. The NAV for 100 Johnnic shares, as set out
in the "After" column of the table, has been based on the assumption that
Johnnic sold R394.5 million worth of MTN Group shares with effect from 30
September 2002.
5.1.2 Pro forma financial effects
Before After
Per 100 Per 100 %
Johnnic Johnnic change
shares shares
held held
Headline earnings 23 400 24 652 5
(cents)
Attributable 21 700 33 011 52
earnings (cents)
NAV (Rand) - total 3 397 3 405 -
- tangible (4 246) (4 238) -
- intangible 7 643 7 643 -
5.2 Financial effects of the unbundling
The effect of the Johnnic unbundling for a Johnnic shareholder will be that:
- the shareholder will receive 3.16539 MTN Group shares for each Johnnic share
held at the record date; and
- the shareholder will retain existing shareholding in Johnnic which will reduce
in value to reflect the remaining assets of Johnnic after the unbundling.
The pro forma financial effects of the Johnnic unbundling for a Johnnic
shareholder holding 100 Johnnic shares at the record date, is set out below.
5.2.1 Assumptions
- For the purposes of calculating the pro forma financial effects per 100
Johnnic shares, as set out in the "Before" column of the table below, it has
been assumed that the disposal of R394.5 million worth of MTN Group shares was
implemented on 1 April 2002 and the cash proceeds were utilised to repay debt on
that date, as per the "After" column of the table in paragraph 5.1.2 above. The
earnings per 100 Johnnic shares and 316.539 MTN Group shares, as set out in the
"After" column of the table below, is based upon the assumptions that the
Johnnic unbundling was implemented on 1 April 2002, unbundling costs of R15
million were incurred, Johnnic retained 40 million MTN Group shares in order to
cover the rest of its funding requirements and that 1 955 604 additional Johnnic
shares will be issued by Johnnic in respect of Johnnic"s share schemes with
effect from 1 April 2002. In terms of generally accepted accounting practice
the MTN Group unbundling shares have been revalued from a book value of R7.75 to
R13.30 per share (being the market value of an MTN Group share at 1 April 2002).
This resulted in a revaluation gain of R2 938 million.
- For the purposes of calculating the pro forma NAV per 100 Johnnic shares, as
set out in the "Before" column of the table, it has been assumed that the
disposal of R394.5 million worth of MTN Group shares was implemented on 30
September 2002, as per the "After" column of the table in paragraph 5.1.2 above.
The NAV for 100 Johnnic shares and 316.539 MTN Group shares, as set out in the
"After" column of the table below, has been based on the assumptions that the
Johnnic unbundling was implemented on 30 September 2002, unbundling costs of R15
million were incurred, Johnnic retained 40 million MTN Group shares in order to
cover the rest of its funding requirements and that 1 955 604 additional Johnnic
shares will be issued by Johnnic in respect of Johnnic share schemes with effect
from 30 September 2002.
5.2.2 Pro forma financial effects
Before After
Per 100 Per 100 Per Total %
Johnnic Johnnic 316.539 Chang
shares shares MTN e
held held shares
held
Headline 24 652 1 853 19 277 21 (14)
earnings 130
(cents)
Attributable 33 011 190 624 13 548 204 518
earnings 172
(cents)
NAV (Rand) - 3 405 974 3 156 4 130 21
total
- tangible (4 238) 999 512 1 511 136
- intangible 7 643 (25) 2 644 2 619 (66)
6. IMPACT OF THE JOHNNIC UNBUNDLING ON SHAREHOLDERS
At 14 February 2003, being the last day Johnnic shares traded on the JSE before
the first cautionary announcement, Johnnic shares were trading at a price of 5
068 cents per Johnnic share and 100 Johnnic shares were worth R5 068. This
represents a discount of 10% to the underlying NAV of 5 575 cents per Johnnic
share based on the market value of listed shares and directors" value of
unlisted investments. On the basis that Johnnic shareholders will receive
316.539 MTN Group shares for every 100 Johnnic shares held and on the assumption
that the discount of 10% will continue to be applied to the remaining underlying
NAV of Johnnic shares, the value of 316.539 MTN Group shares plus the 100
Johnnic shares being held directly, had the Johnnic unbundling occurred on 14
February 2003, would have been R5 435, representing an increase of 7.2% to the
share price of 5 068 cents.
7. CONDITIONS PRECEDENT
The unbundling is subject to the fulfilment of the following conditions
precedent:
- the passing, at the general meeting, of the ordinary resolutions required to
implement the unbundling; and
- the approval of the unbundling, insofar as may be necessary, by the relevant
regulatory authorities.
8. FUTURE OF JOHNNIC
The Johnnic unbundling will result in the creation of a pyramid company with
respect to Johnnic"s shareholding in Johnnic Communications Limited. In terms
of the JSE Listings Requirements, Johnnic will have to take necessary steps to
eliminate such pyramid structure within a period of six months from the
effective date of the unbundling. Shareholders will be informed of any further
developments in this regard.
9. TRANSFER OF LISTING
Subsequent to the unbundling, Johnnic"s revenue and earnings will largely be
generated from media and entertainment assets. As a result, Johnnic"s listing
will be transferred from the "Telecommunications Services - Wireless
Telecommunications Services" sector to the "Media - Photography - Publishing &
Printing" sector of the JSE lists.
10. OPINIONS AND RECOMMENDATIONS
The Johnnic board is of the opinion that the terms and conditions of the Johnnic
unbundling are fair and reasonable and will be to the long-term benefit of
Johnnic shareholders and recommend that Johnnic shareholders vote in favour of
the ordinary resolutions necessary to implement the Johnnic unbundling.
11. GENERAL MEETING
A general meeting of Johnnic shareholders will be held at Gallagher Estate, 19
Richards Drive, Midrand at 09:00 on Tuesday, 3 June 2003 for the purpose of
considering and, if deemed fit, passing, with or without modification, the
resolutions necessary to implement the unbundling.
12. SALIENT DATES AND TIMES
2003
Posting of circular to shareholders Friday, 16 May
Last day for lodging forms of proxy in Friday, 30 May
respect of the ordinary resolutions to be
proposed at the general meeting by no later
than 09:00 on
General meeting to be held at 09:00 on Tuesday, 3 June
Results of the general meeting and final Wednesday, 4 June
terms of the unbundling announced on SENS
on
Results of the general meeting and final Thursday, 5 June
terms of the unbundling announced in the
press on
Last date to trade in Johnnic shares on the
JSE in order to participate in the Thursday, 12 June
unbundling on
Johnnic shares trades ex-rights to the MTN Friday, 13 June
Group unbundling shares on
Shareholders will be entitled to trade MTN
Group shares (in anticipation of receipt of
unbundling shares) from the commencement of Friday, 13 June
business on
The record date in order to participate in
the Johnnic unbundling at close of business Friday, 20 June
on
Transfer of sector on Monday, 23 June
Share certificates in respect of MTN Group
shares posted to certificated Johnnic
shareholders or credited to their CSDP or Monday, 23 June
broker accounts in respect of
dematerialised shareholders on
Note:
The dates and times in this announcement are subject to amendments, which
amendments, if any, will be published in the press. All times referred to
throughout this announcement are South African times. Share certificates in
Johnnic may not be dematerialised or rematerialised between Friday, 13 June 2003
and Friday, 20 June 2003, both days inclusive.
12. DOCUMENTATION
A circular setting out full details of the proposed unbundling will be posted to
shareholders on Friday, 16 May 2003.
Midrand
12 May 2003
Merchant bank and Attorneys Tax advisers
transactional
sponsor
SCMB Webber Wentzel Deloitte & Touche
Bowens
Auditors Information agents Sponsor
Deloitte & Touche Georgeson Merill Lynch
Shareholders
Transfer
secretaries
Computershare
Investor Services
Date: 13/05/2003 07:59:19 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
