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PEPKOR LIMITED - FURTHER INCREASE OF THE OFFER PRICE TO R12 FOR EACH PEPKOR
ORDINARY SHARE
Pepkor Limited
(Incorporated in the Republic of South Africa)
(Registration number 1965/007765/06)
Ordinary share code: PEP ISIN: ZAE000005344
("Pepkor" or "the Company")
FURTHER INCREASE OF THE OFFER PRICE TO R12 FOR EACH PEPKOR ORDINARY SHARE
1. INTRODUCTION
1.1 Shareholders are referred to the Pepkor announcement of 23 October 2003
which contained details of an offer by Castellina Investments (Proprietary)
Limited ("Castellina") to acquire, by way of a scheme of arrangement in terms
of Section 311 of the Companies Act, 1973 (Act 61 of 1973), as amended ("the
Scheme"), the entire issued share capital of Pepkor, resulting in the
redemption of all the preference shares of Pepkor ("preference shares"). The
salient dates and times and supplementary information relating to the Scheme
were announced in the press on 26 November 2003, and a circular containing
full details of the Scheme and the actions required by Pepkor ordinary
shareholders was posted to those shareholders on the same day ("the
Circular").
1.2 On Thursday, 4 December 2003, Pepkor announced that Castellina had advised
the board of directors of Pepkor (the "Pepkor Board") that it had increased
its offer price from R10 per Pepkor ordinary share to R11 for each Pepkor
ordinary shares (the "Initial Increase Announcement").
2. FURTHER INCREASE OF THE OFFER PRICE
2.1 On Tuesday, 9 December 2003, Castellina advised the Pepkor Board that it
has increased its offer price from R11 per Pepkor ordinary share to R12 for
each Pepkor ordinary share.
2.2 The payment to the preference shareholder for the loss of rights attaching
to the preference shares due to their redemption by Pepkor is unchanged.
2.3 Shareholders are referred to the Initial Increase Announcement and, in
particular to the reference therein to a R42 million loan from the
underwriters, being South African Private Equity Fund III LP and South African
Private Equity Trust III, both private equity funds under the management of
Brait S.A. and Old Mutual Life Assistance Company (South Africa) Limited
(collectively referred to as "the Underwriters").Castellina, subsequent to
the further increase in the offer price, has reconsidered the capital
structure of the business. Consequently it was decided to no longer borrow the
R42 million from the Underwriters, but to rather issue additional Castellina
ordinary shares and loan claims, as set out in 2.4 below.
2.4 Pepkor ordinary shareholders will still have the opportunity to elect
either:
2.4.1 to receive R12 per share for each Pepkor ordinary share ("the Cash
Consideration"); or
2.4.2 for every 100 Pepkor ordinary shares to receive:
2.4.2.1 61,5 ordinary shares in the issued share capital of Castellina, issued
at R1 per share;
2.4.2.2 class "A" loan claims of R925,50 against Castellina ("Class "A" Loan
Claims"); and
2.4.2.3 bridging loan claims of R213 against Castellina ("Bridging Loan
Claims"), which will be equivalent to R1 200 for every 100 Pepkor ordinary
shares held (collectively the "Reinvestment Alternative").
2.5 As a consequence of the increase in the Reinvestment Alternative, the
number of shares in Castellina that will be issued pursuant to the Scheme may
increase beyond the numbers initially envisaged and accordingly the maximum
numbers set out in paragraph 7 of the Explanatory Statement in terms of
section 312(1)(a) of the Companies Act contained in the Circular ("Explanatory
Statement") are amended to reflect the following:
2.5.1 with reference to paragraph 7.1.1 of the Explanatory Statement, a
maximum of 110 004 310 new Castellina ordinary shares will be allotted and
issued to holders of Scheme Shares or to the Underwriters;
2.5.2 with reference to paragraph 7.2.2 of the Explanatory Statement, a
maximum of 15 900 000 new Castellina ordinary shares will be allotted and
issued to the new executive share incentive trust;
2.5.3 with reference to paragraph 7.3 of the Explanatory Statement, Castellina
shall, subsequent to the implementation of the Scheme and the aforementioned
issues, have a maximum of 159 204 310 ordinary shares in issue.
2.6 In addition, the single shareholder in Castellina, namely South African
Private Equity Trust III, has approved certain consequential amendments to the
shareholders agreement which is binding on Castellina and all shareholders of
Castellina, being the Underwriters and any Pepkor shareholders who elect the
Reinvestment Alternative, of which the following amendments are of any
significance:
2.6.1 the percentage shareholding held by one or more exiting shareholders
which will trigger the tag-along rights in paragraph 15 of the shareholders
agreement is reduced from 40% to 35%;
2.6.2 the percentage shareholding required in order to initiate a listing of
Castellina, as set out in paragraph 28 of the shareholders agreement, is
reduced from 40% to 35%.
2.7 Other than as set out above, the suspensive conditions and other terms
contained in the Circular, will remain the same.
2.8 A revised table of entitlements will be included in the Surrender and
Election Circular, which will still be posted to Pepkor ordinary shareholders
on or about Monday, 26 January 2004.
2.9 A copy of the revised Scheme including details of the increased offer
price is available free of charge at the offices of Pepkor, at 36 Stellenberg
Road, Parow Industria, 7490, Pepkor"s sponsor Barnard Jacobs Mellet Corporate
Finance (Pty) Limited, at 2nd floor, Barnard Jacobs Mellet House, 5 Sturdee
Avenue, Rosebank, 2196 or at the lead and transaction sponsor Exchange
Sponsors (Proprietary) Limited at Hyde Park Manor, 79 Hyde Park Lane, Hyde
Park, 2196.
3. IMPORTANT DATES, TIMES AND VOTING
3.1 The important dates and times remain as previously published. Therefore,
the scheme meeting at which Pepkor ordinary shareholders will be requested to
vote on the scheme, will still be convened at 10:00 on 11 December 2003 at
Pepkor"s registered offices.
3.2 Shareholders who have already submitted a form of proxy indicating how
they wish to vote at the scheme meeting and who do not wish to change their
votes in light of the increased offer price, need not submit new proxy forms
nor take any further action.
3.3 Shareholders who have already submitted, or caused the submission of a
form of proxy and who wish to change their votes in light of the increased
offer price must:
3.3.1 ensure that the appropriate arrangements have been made with their
Central Securities Depository Participant ("CSDP") or broker in respect of a
dematerialised shareholders, other than with own-name registrations, and in
respect of certificated shareholders and own-name dematerialised shareholders
submit a new form of proxy to the Chairperson of the scheme meeting by no
later than 30 minutes prior to the scheme meeting, revoking the previous form
of proxy submitted; or
3.3.2 attend the scheme meeting to vote in person to the exclusion of any
proxy appointed and ensure that, if required, the necessary representation
letter is obtained from the relevant CSDP or broker.
4. REVISED FINANCIAL EFFECTS OF THE SCHEME
The following tables illustrate the financial effects for a Pepkor ordinary
shareholder should the Scheme be implemented.
4.1 Revised unaudited pro forma financial effects of the Cash Consideration
Before the After the
Scheme Scheme Change
(cents) (cents)(1) (%)
Market prices:
Monday, 11 August 2003 650,0(2) 1 200 84,6
30-day weighted average preceding
Monday, 11 August 2003 633,7(3) 1 200 89,4
Wednesday, 22 October 2003 850,0(4) 1 200 41,2
Net asset value per share 531,4(5) 1 200 125,8
Net tangible asset value per share 489,4(5) 1 200 145,2
Earnings per share
Headline earnings 54,0(5) 75,6(6) 40,0
Before exceptional items 53,6(5) 75,6(6) 41,0
Before exceptional items excluding
finance exchange rate difference 104,4(5) 75,6(6) (27,6)
After exceptional items 3,4(5) 75,6(6) 2 123,5
Dividend per share 34,0(5) 75,6(6) 122,4
Notes:
1. The Cash Consideration offered to Pepkor ordinary shareholders in terms of
the Scheme.
2. The closing market price of a Pepkor ordinary share 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 price of a Pepkor ordinary share
over the 30 trading days preceding the publication of the first cautionary
announcement on Tuesday, 12 August 2003.
4. The closing market price of a Pepkor ordinary share on Wednesday, 22
October 2003.
5. Extracted from the published audited results of Pepkor for the year ended
30 June 2003.
6. For purposes of calculating the pro forma earnings per Pepkor ordinary
share, it was assumed that:
* the Scheme was implemented on 1 July 2002;
* interest at an after-tax rate of 6.3% per annum was earned on the Cash
Consideration for the year ended 30 June 2003. A tax rate of 30% has been
applied.
7. No effect has been given to Capital Gains Tax that may be applicable to
Pepkor ordinary shareholders.
4.2 Revised unaudited pro forma financial effects of the Reinvestment
Alternative
Before the After the
Scheme Scheme Change
(cents)(1) (cents) (%)
Net asset value per share 531,4 1 200(2) 125,8
Net tangible asset value per share 489,4 394,2(2) (19,5)
Earnings per share
Headline earnings 54,0 (36,7)(3) (168,0)
Before exceptional items 53,6 (37,0)(3) (169,1)
Before exceptional items excluding
finance exchange rate difference 104,4 5,2(3) (95,0)
After exceptional items 3,4 (106,9)(3) (3 243,0)
Interest per share
Interest received - 49,8(5) 100
Interest accrued on the Loan Claims (pre-tax) - 154,7(4) 100
Interest accrued on the Loan Claims (after tax) - 108,3(4) 100
Dividend per share 34,0 -(6) (100)
Notes:
1. Extracted from the published audited results of Pepkor for the year ended
30 June 2003.
2. For purposes of calculating the pro forma net asset value and net tangible
asset value per Pepkor ordinary share, it was assumed that:
* the Scheme was implemented on 30 June 2003;
* there will be 186,1 million Castellina ordinary shares in issue at 30 June
2003;
* a Pepkor ordinary shareholder will receive 0,615 Castellina ordinary shares
for every Pepkor ordinary share held, a Class "A" Loan Claim of R9,253 per
share and a Bridging Loan Claim of R2,13 per share;
* the net tangible asset value per Pepkor ordinary share was calculated after
taking into account the net shareholders deficit that arose after eliminating
the goodwill arising from the acquisition of Pepkor by Castellina.
3. For purposes of calculating the earnings per Pepkor ordinary share it was
assumed that:
* the Scheme was implemented on 1 July 2002;
* a weighted average number of Castellina ordinary shares in issue of 159,2
million;
* the goodwill is written off over a period of 20 years;
* the loan from Old Mutual Specialised Finance taking into account refinancing
bears interest at an average after tax rate of 7,04%;
* the Class "A" Loan Claims and Bridging Loan Claims bear interest at an after
tax rate of 9,8%
* the Bridging Loan Claims were repaid after six months and the proceeds
therefrom were invested at an after tax rate of 6,3%;
* cash received from the management subscription was invested at an after tax
rate of 6,3%;
* a tax rate of 30% was applied.
4. This represents the interest that will accrue to a Castellina ordinary
shareholder in terms of his Class "A" Loan Claims and Bridging Loan Claims.
For the after tax effect a tax rate of 30% has been applied.
5. Interest received is calculated as follows:
* On the Bridging Loan Claims at a pre tax rate of 14% for the first six
months and after the repayment of the Bridging Loan Claims at a pre tax rate
of 9% for the last six months (on the capital and interest);
* On the Class "A" Loan Claims at a pre tax rate of 14% based on the pro-forma
earnings of Castellina and the formula referred to in the Circular, Annexure B
to the Scheme.
6. No dividend will be paid to Castellina Ordinary Shareholders after the
implementation of the Scheme until the Loan Claims have been repaid.
7. No effect has been given to Capital Gains Tax that may be applicable to
Pepkor ordinary shareholders.
5. FAIR AND REASONABLE AND RECOMMENDATIONS
5.1 Absa Corporate and Merchant Bank, Corporate Finance, a division of Absa
Bank Limited ("ACMB") has considered the increased offer price and in respect
of the Cash Consideration of R12 per Pepkor Ordinary Share and in respect of
the Reinvestment Alternative, after considering the significant factors
addressed by ACMB in its fair and reasonable opinion letter of 20 November
2003, is of the opinion that the revised offer price is fair and reasonable.
5.2 In respect of the payment of R33,3 million for the Pepkor preference
shares, and after giving cognisance to the ruling by the Executive Director of
the SRP, ACMB is of the opinion that this payment is fair and reasonable.
5.3 The Pepkor Board agrees with the opinion of ACMB and, accordingly,
recommends that scheme members vote in favour of the scheme.
Cape Town
9 December 2003
Corporate advisor to Castellina
BRAIT
Corporate advisor to Pepkor
JAVELIN CAPITAL LIMITED
(Registration number 2000/010500/06)
Attorneys to Pepkor
JAN DE VILLIERS ATTORNEYS
Auditors and reporting accountants
PricewaterhouseCoopers Inc.
Chartered Accountants (SA)
Registered Accountants & Auditors
(Registration no. 1998/012055/21)
Joint attorneys to Castellina
Read Hope Phillips Attorneys
Joint attorneys to Castellina
MALLINICKS ATTORNEYS
Independent advisor to Pepkor
ABSA
Corporate & Merchant Bank
Transaction and lead sponsor
Exchange Sponsors
Sponsor to Pepkor
Barnard Jacobs Mellet
Corporate Finance
Tax advisor
Deloitte & Touche Chartered Accountants (SA)
Registered Accountants and Auditors
Debt financier
OLD MUTUAL
Specialised Finance
Date: 10/12/2003 07:14:35 AM Produced by the JSE SENS Department
