| Thu 23 Oct 2003, 16:26 | | FIRM INTENTION to make AN OFFER TO ACQUIRE THE ENT |
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Pepkor Limited - FIRM INTENTION to make AN OFFER TO ACQUIRE THE ENTIRE ISSUED
SHARE CAPITAL
OF PEPKOR BY WAY OF A SCHEME OF ARRANGEMENT
(Incorporated in the Republic of South Africa)
(Registration number 1965/007765/06)
Ordinary share code: PEP ISIN: ZAE000005344
("Pepkor" or "the Company")
FIRM INTENTION to make AN OFFER TO ACQUIRE THE ENTIRE ISSUED SHARE CAPITAL
OF PEPKOR BY WAY OF A SCHEME OF ARRANGEMENT
1. INTRODUCTION
1.1 Brait Corporate Finance, a division of Brait South Africa Limited, a
wholly owned subsidiary of Brait S.A., is authorised to announce that
Castellina Investments (Proprietary) Limited ("Newco") has presented the
board of directors of Pepkor ("the Pepkor Board") with a letter setting out
a firm intention to make an offer ("Offer Letter") in terms of which Newco
will acquire the entire issued share capital of Pepkor and all of the
issued preference shares in the share capital of Pepkor ("preference
shares") which will be redeemed, by way of a scheme of arrangement in terms
of Section 311 of the Companies Act (Act 61 of 1973), as amended ("the
Scheme") between Pepkor and its shareholders (collectively "the Offer").
The Offer is subject to the suspensive conditions set out in 6 below. The
salient details of the Offer are set out in this announcement.
1.2 Once the Scheme has been implemented, Pepkor will be delisted from the
JSE Securities Exchange South Africa ("the JSE") and will become a
subsidiary of Newco, an unlisted company.
1.3 Newco has provided the Securities Regulation Panel ("the SRP") with the
necessary written confirmations that it and its Underwriters (see 7 below)
have resources available to implement the Offer.
2. CONSIDERATION
The Offer will be at R10 for each Pepkor ordinary share, the details of
which are set out in 5 below.
3. RATIONALE
3.1 Newco has advised the Pepkor Board that its rationale for proposing the
Offer is as follows:
3.1.1 the Scheme will unlock the discount in the market rating of Pepkor"s
ordinary
shares on the JSE;
3.1.2 the Cash Consideration (see 5.1.1 below) to ordinary shareholders
wishing to sell their Pepkor ordinary shares will be at an attractive
premium to the price on the JSE, being a premium of:
3.1.2.1 53,8% to the closing price (R6,50) of Pepkor ordinary shares on
Monday, 11 August 2003, the last trading day before the publication of the
cautionary announcement; and
3.1.2.2 57,8% to the closing price (R6,34) of Pepkor ordinary shares based
on a 30 day weighted average trading price for the period preceding
Monday, 11 August 2003;
3.1.3 the Scheme will facilitate the introduction of Black Economic
Empowerment ("BEE") partner/s once it has been implemented. The
Underwriters have agreed to warehouse between 7,5% and 10% of the entire
issued share capital and relevant Class "A" Loan Claims and the Bridging
Loan Claims (see 5.1.2.2 and 5.1.2.3 below) of Newco for a BEE partner/s subject
to the suspensive condition referred to in 6.1.6 below;
3.1.4 the Scheme will enable Pepkor to grow its offshore operations through
its future association with offshore private equity funds under the
management of Brait S.A and/or other members of the Brait S.A. group
("Brait") by taking advantage of appropriate acquisition and expansion
opportunities as and when they arise.
4. NEWCO
Newco is a newly established private company incorporated solely for the
purpose of acquiring the entire issued share capital of Pepkor. Newco is, at
present, wholly-owned by South African Private Equity Trust III ("SAPET"), a
private equity fund under the management of Brait. Newco will be converted
to a public company.
5. MECHANICS OF THE SCHEME and consideration
5.1 In terms of the Scheme, which will comply with the Securities
Regulation Code on Takeovers and Mergers ("the Code"), the ordinary
shareholders of Pepkor will have the opportunity to elect a Cash
Consideration or a Reinvestment Alternative where they may elect either:-
5.1.1 to receive a cash payment of R10 for each Pepkor ordinary share ("the
Cash Consideration"); or
5.1.2 for every 100 Pepkor ordinary shares held, receive :
5.1.2.1 60.885 ordinary shares in the issued ordinary share capital of
Newco issued at R1 per share;
5.1.2.2 Class "A" Loan Claims of R711,894 against Newco;
5.1.2.3 Bridging Loan Claims of R227,221 against Newco,
which will be equivalent to R1 000 for every 100 Pepkor ordinary shares
held (collectively "the Reinvestment Alternative"). Entitlements to a
fraction of a Newco ordinary share, will only be rounded up if the
fractional entitlement is in excess of 0,5 of a Newco ordinary share.
5.2 The detailed terms of the Class "A" Loan Claims and the Bridging Loan
Claims (collectively referred to as "the Loans") will be set out in a
circular to be addressed to Pepkor shareholders (see 11 below) ("the Circular").
The main terms are as follows:
5.2.1 the Loans will attract interest at the prime rate plus 2%;
5.2.2 the Class "A" Loan Claims will be subordinated to the Bridging Loan
Claims and the Bridging Loan Claims will be repaid in full in advance of
the Class "A" Loan Claims;
5.2.3 the Class "A" Loan Claims are subordinated to debt owing to financial
institutions;
5.2.4 interest and capital on the Loans will only be repaid from free cash
flows, in accordance with a formula, details of which will be included in
the Circular;
5.2.5 the Bridging Loan Claims, together with the interest thereon, must be
repaid within 6 months of the Scheme having become operative;
5.2.6 no dividends will be paid to shareholders of Newco until all the
Loans have been repaid.
5.3 As an integral part of the Scheme, Fincom (Proprietary) Limited an
entity under the ultimate control of Dr. C H Wiese ("Fincom"), which holds
all the Pepkor preference shares, will receive R33,3 million ("the Pref-
Consideration") in respect of the loss of the voting rights pursuant to the
redemption of the preference shares by Pepkor, which will occur on the
implementation of the Scheme. Newco will discharge the Pref-Consideration
by allotting and issuing 33,3 million Newco ordinary shares to Fincom.
5.4 Dr. Wiese and entities controlled by him ("the Wiese group") have
undertaken to accept the Reinvestment Alternative in respect of all the
Pepkor ordinary shares held by the Wiese group. In this regard, the Wiese
group has also agreed that the Bridging Loan Claims to be received by it
pursuant to the Reinvestment Alternative will be converted to Class "A"
Loan Claims, which are subordinated to the Bridging Loans.
5.5 Newco will not acquire the 8 067 588 Pepkor ordinary shares held by
Pepkor subsidiaries as treasury shares, and these shares will continue to
be held by the relevant Pepkor subsidiaries.
5.6 Newco will not assume any obligation in respect of the 861 670 share
options granted by certain of the share incentive schemes of the Pepkor
group which entitle participants to acquire Pepkor ordinary shares and/or
options to acquire ordinary shares in Pepkor.
5.7 Pepkor shareholders who accept the Reinvestment Alternative will, in
terms of the Scheme, be bound by a shareholders agreement, details of which
will be included in the Circular.
6. SUSPENSIVE CONDITIONS
6.1 The Offer is conditional upon the fulfilment of certain suspensive
conditions by no later than 30 June 2004, including the following:
6.1.1 Newco and the Pepkor Board concluding an agreement, incorporating the
terms and conditions contained in the Offer Letter;
6.1.2 the Scheme and the Circular being approved by Pepkor and the Newco Board;
6.1.3 Fincom approving, in writing, the terms of the Scheme in respect of
the Pepkor preference shares;
6.1.4 the Pepkor Board obtaining a satisfactory opinion from an independent
third party advisor (see 10 below);
6.1.5 Pepkor securing any third party consents which may be required by
Newco in relation to the transfer of any rights and/or obligations of
Pepkor to Newco, including, if so required by Newco, consents by the
bankers of Pepkor to provide banking facilities to Newco and/or its
subsidiaries on the same terms as currently provided to Pepkor;
6.1.6 the Underwriters being assured of obtaining not less than 30% of the
total issued ordinary share capital of Newco (after taking into account the
Newco ordinary shares which are to be issued to: Fincom; to executives
under the executive incentive plan (see 8 below); and to the Underwriters
to be warehoused for the BEE partner), provided that the Underwriters, in
their sole discretion, may waive this condition, provided that they do so
unanimously in writing; and
6.1.7 the underwriting agreement remaining of full force and effect.
6.2 The Scheme is conditional on the fulfilment of certain suspensive
conditions by no later than 30 June 2004, including but not limited to the
following:
6.2.1 all the required regulatory approvals and exemptions, both locally
and abroad, in relation to the Scheme (which shall be required to be
unconditional or subject to such conditions as the Pepkor Board, Newco
Board and the Underwriters may approve in writing) being secured from,
inter alia, the JSE, the SRP and the Exchange Control Authorities in South
Africa;
6.2.2 approval of the competition authorities in terms of Chapter III of
the Competition Act, No. 89 of 1998, to the Offer, either on an
unconditional basis or subject to such conditions as the Pepkor Board, the
Newco Board and the Underwriters may approve in writing;
6.2.3 the Scheme being approved at a Scheme meeting by Pepkor shareholders
eligible to attend and vote thereat, by a majority representing not less
than three-fourths of the votes exercisable by the relevant shareholders
present and voting either in person or by proxy at the Scheme meeting;
6.2.4 the Cape of Good Hope Provincial Division of the High Court of South
Africa ("the High Court") sanctioning the Scheme; and
6.2.5 a certified copy of the Order of Court sanctioning the Scheme having
been lodged with, and registered by, the Registrar of Companies in South
Africa.
7. UNDERWRITING
7.1 Newco has concluded an underwriting agreement with SAPET and South
African Private Equity Fund III LP, a Cayman Islands Limited partnership,
being private equity funds under the management of Brait, as well as Old
Mutual Life Assurance Company (South Africa) Limited (collectively referred
to as "the Underwriters"), in terms of which the Underwriters will, to the
extent that Pepkor ordinary shareholders elect the Cash Consideration:
7.1.1 subscribe for ordinary shares in the issued share capital of Newco;
7.1.2 advance that amount of Class "A" Loan Claims; and
7.1.3 advance that amount of Bridging Loan Claims, on the same terms as the
Reinvestment Alternative,
as may be required in order to ensure that Newco possesses the necessary
funds to discharge the obligations of Newco to Pepkor ordinary shareholders
who have elected the Cash Consideration.
8. EXECUTIVE INCENTIVE PLAN
It is intended that certain senior executives of Pepkor will have the
right to acquire ordinary shares in Newco (up to 10% of such shares) as
part of an executive incentive plan. Further information will be disclosed
in the Circular.
9. FINANCIAL EFFECTS
9.1 The following tables illustrate the financial effects for a Pepkor ordinary
shareholder should the Scheme be implemented.
9.2 Financial effects of the Cash Consideration
Before the After the
Scheme Scheme Change
(cents) (cents)(1) (%)
Market prices:
Monday, 11 August 2003(2) 650,0 1 000,0 53,8
30 day weighted average preceding
Monday, 11 August 2003(3) 633,7 1 000,0 57,8
Wednesday, 22 October 2003(4) 850,0 1 000,0 17,6
Net asset value per share(5) 531,4 1 000,0 88,2
Net tangible asset value per share(5) 489,4 1 000,0 104,3
Earnings per share(6)
Headline earnings 54,0 63,0(7) 16,7
Before exceptional items 53,6 63,0(7) 17,5
Before exceptional items (excluding
finance exchange rate difference) 104,4 63,0(7) (39,7)
After exceptional items 3,4 63,0(7) 1752,9
Dividend per share(6) 34,0 63,0(7) 85,3
1. The "After" column represents the Cash Consideration offered to Pepkor
ordinary shareholders under the Scheme.
2. The closing market price per Pepkor ordinary shares on the last trading
date prior to the publication of the first cautionary announcement on
Tuesday, 12 August 2003.
3. The volume weighted average of the closing prices per Pepkor ordinary
share over the 30 trading days up to the publication of the first
cautionary announcement on Tuesday, 12 August 2003.
4. The closing market price per Pepkor ordinary share on Wednesday,
22 October 2003.
5. As at 30 June 2003 as per the published audited results of Pepkor for
the year ended 30 June 2003.
6. For the year ended 30 June 2003 as per the Pepkor published audited
results for the year ended 30 June 2003.
7. The earnings per share in the "After" column assumes that the Cash
Consideration is invested at an after tax rate of 6,3% per annum for the
year ended 30 June 2003.
8. Capital Gains Tax has been ignored in computing the pro-forma financial
effects set out above.
9.3 Financial effects of the Reinvestment Alternative
Before the After the
Scheme Scheme Change
(cents) (cents)(1) (%)
Net asset value per share 531,4(2) 1 000,0(3) 88,2
Net tangible asset value per share 489,4(2) 406,9(4) (16,9)
Earnings per share
Headline earnings 54,0(5) (22,7)(6) (141,9)
Before exceptional items 53,6(5) (23,0)(6) (142,8)
Before exceptional items (excluding
finance exchange rate difference) 104,4(5) 20,5(6) (80,3)
After exceptional items 3,4(3) (87,1)(6)(2 661,1)
Interest accrued on the Loans (pre-tax) 0 126,5(7) 100
Interest accrued on the Loans (after tax) 0 88,6(7) 100
Dividend per share 34,0(5) 0(8) (100)
Payment of interest on the Loans and
interest earned on the repayment preceeds
of Bridging Loans for six months 0 51,3(9) 100
1. The "After" column represents the position of a Pepkor shareholder after
the implementation of the Scheme on a pro-forma basis.
2. As at 30 June 2003 as per the Pepkor published audited results for the
year ended 30 June 2003.
3. The net asset value per share in the "After" column has been calculated
assuming the Scheme was implemented on 30 June 2003 and that there will be
153,3 million ordinary shares in issue in Newco.
4. The net tangible asset value per ordinary share in the "After column"
has been calculated assuming that the Scheme was implemented on 30 June
2003 and after deducting the goodwill arising from the acquisition by Newco
and that there will be 153,3 million ordinary shares in issue in Newco. In
addition, a proportion of the Loans has been reduced by the net
deficit arising from the elimination of such goodwill.
5. For the year ended 30 June 2003 as per the Pepkor published audited
results for the year ended 30 June 2003 and take into account interest on the
Loans.
6. The earnings are based on the assumption that the Scheme had been
implemented on 1 July 2002 in respect of the year ended 30 June 2003.
7. The interest has been calculated based on the assumptions that the Loans
yielded interest at 14%, that the Bridging Loans were repaid after six
months and that the proceeds therefrom were invested at 9%. For the after
tax effect, a tax rate of 30% has been applied.
8. No dividend will be paid to Newco ordinary shareholders after the
implementation of the Scheme until all the Loans have been repaid.
9. The interest on the payment is based on the pro-forma earnings of Newco
and the formula referred to in 5.2.4 above and the interest on the accrued
proceeds received upon the repayment from the Bridging Loans (including
capital and interest thereon) for six months.
10. Capital Gains Tax has been ignored in computing the pro-forma financial
effects set out above.
10. INDEPENDENT ADVISOR
In compliance with the Company"s obligations under the Code of the SRP,
the Pepkor Board will appoint an independent advisor to advise it on the
fairness and reasonableness of the Offer, which opinions will be included
in the further announcement (see11 below).
11. CIRCULAR AND FURTHER ANNOUNCEMENT
11.1 The circular containing details of all the matters referred to above
will be posted to all Pepkor shareholders on or about 20 November 2003 once
the necessary approvals have been obtained from, inter alia, the SRP and
the JSE and after the Company has received the necessary leave to convene
the Scheme meeting from the High Court.
11.2 A further announcement containing full details of inter alia
irrevocable undertakings received from Pepkor shareholders to support the
Offer, and the relevant dates and times as they relate to the Scheme, will
be published on SENS and in the press on or about 20 November 2003.
Cape Town
23 October 2003
Corporate advisor to Newco
BRAIT
Attorneys to Pepkor
JAN S. DE VILLIERS
Joint attorneys to Newco
Read Hope Phillips Attoneys
Auditors and reporting accountants
PricewaterhouseCoopers Inc.
Chartered Accountants (SA)
Registered Accountants & Auditors
(Registration no. 1998/012055/21)
Sponsor to Pepkor
BARNARD JACOBS MELLET
CORPORATE FINANCE
Corporate advisor to Pepkor
JAVELIN CAPITAL
(Registration number 2000/010500/06)
Tax advisors
Deloitte & Touche Chartered Accountants (SA)
Registered Accountants and Auditors
Joint Attoneys to Newco
MALLINICKS ATTORNEYS
Transaction sponsor
EXCHANGE SPONSORS
Debt Financiers
OLD MUTUAL
Date: 23/10/2003 04:00:12 PM Produced by the JSE SENS Department
