| Fri 16 Apr 2004, 17:42 | | Putco Ltd - Disposal of a substantial portion of P |
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Putco Limited - Disposal of a substantial portion of Putco"s existing
unencumbered bus fleet
Putco Limited
(Incorporated in the Republic of South Africa)
(Registration number 1945/018672/06)
Ordinary share code: PTC
ISIN: ZAE000005716
("Putco" or "the company")
Safika Holdings (Proprietary) Limited
(Incorporated in the Republic of South Africa)
(Registration number 1996/001693/07)
("Safika")
Disposal in terms of section 228 of the Companies Act 1973, Act 61 of 1973, as
amended, ("the Companies Act") of a substantial portion of Putco"s existing
unencumbered bus fleet to Putco Services (Pty) Ltd ("Putco Services")
1. Introduction
EY Corporate Finance (Pty) Ltd is authorised to announce that Putco has entered
into a disposal agreement ("the disposal agreement") with Putco Services, a
wholly owned subsidiary of Putco, subject to the fulfilment or waiver of certain
suspensive conditions as set out in 6 below, pursuant to which Putco will sell a
substantial portion of its existing unencumbered bus fleet ("the disposal
assets") to Putco Services.
The disposal is the first step in a series of transactions ("the proposed
restructure")(as set out in 3 below) to introduce Black Economic Empowerment
("BEE") equity shareholders in Putco in line with the transformation
requirements of the industry.
2. Rationale
It is the clear intention of government to transform the bus passenger transport
industry of South Africa. It is believed that it intends to achieve the
following stated aims -
- a minimum of 30% of all tenders to be awarded to companies which have at least
50,1% BEE ownership;
- the remaining 70% of tenders to be awarded to companies which have at least
35,1% BEE ownership; and
- the allocation of 10% of the revenue kilometres relating to each contract
granted to be subcontracted to BEE Small Medium & Micro Enterprises.
It was also recently proposed by the National Department of Transport that all
existing interim commuter contracts be placed on tender. An aggressive stance
has been adopted in progressing the proposed aims. Putco at present lacks the
necessary BEE credentials at the shareholder level. It is not yet at a level of
a 35,1% BEE equity ownership, largely because of its size and its history as a
listed entity on the JSE Securities Exchange South Africa ("JSE"). The above
government proposal would preclude Putco from tendering competitively both on
current and future business. In fact, Putco was recently excluded from the 2003
tender process for certain of the old Northwest Star Bus operations by the
Northwest Provincial Government.
Although Putco has agreements with the transport authorities giving it certain
rights flowing from its interim contracts in relation to future tenders, and
indeed enjoys a limited right of first refusal, it has already had to resort to
challenging the transport authorities in Court on certain of the contracts.
Putco is concerned about a further deterioration in its relationships with the
transport authorities.
Putco intends to enhance its future position with the transport authorities by
significantly restructuring its business so that BEE partners can participate
actively in both shareholding and management of Putco and its subsidiaries ("the
Putco group") thereby enabling the Putco group to compete effectively in the
transport industry. Putco has secured BEE partners, namely Safika and DEC
Investment Holding Company (Pty) Ltd ("DEC"), to take up an equity interest in
Putco. The proposed restructure is designed to establish BEE participation at
shareholder level at an affordable price.
3. The series of transactions
The following is envisaged in terms of the restructure required to introduce BEE
into Putco"s equity structure:
3.1 the disposal (as contemplated in 1 above); and
3.2 the implementation of a new capital structure enabling BEE groups and
existing shareholders to buy into Putco, thereby leading to a situation where
the eventual BEE shareholding in Putco will be in excess of 50% of the total
issued share capital of Putco - which will classify Putco as a "Black" company
in terms of the Black Economic
Empowerment Commission. This will require the following additional transactions,
as part of the series of transactions, to be implemented:
3.2.1. a notarial bond is to be registered by Putco Services over the disposal
assets in order to raise R101 million cash ("the loan agreement");
3.2.2. this cash will be used to repay a portion of the amount owing to Putco
by Putco Services in terms of the loan account referred to in 4 below;
3.2.3. certain properties owned by the Putco group will be used as security to
raise further cash of R9 million;
3.2.4. subsequent to the preceding transactions and utilising the cash raised
as well as internal cash resources, Putco intends to propose a scheme of
arrangement between Putco and its shareholders in terms of section 311 of the
Companies Act, pursuant to which Putco is to acquire, in terms of section 85 of
the Companies Act, as a specific repurchase ("the share repurchase"), all but
100 of the shares of its ordinary shareholders (retained to comply with the
Companies Act) ("the scheme"), full details of which will be outlined in a
circular to Putco shareholders ( "the scheme circular");
3.2.5. the ordinary shares of Putco will be delisted from the JSE;
3.2.6. the unissued shares with a par value of 40 cents each, will be converted
to shares with a par value of 1 cent each;
3.2.7. Putco will issue 200 million new shares at a price of 1 cent each to
those parties identified in 8 below.
Details of the scheme will be set out in the scheme circular and a scheme terms
announcement, the timing of which is set out in 10 below.
Shareholders are advised to refer to and acquaint themselves with the contents
of that circular and terms announcement as soon as they are issued.
Shareholders will not be prejudiced by voting in favour of the disposal as the
disposal is in no way conditional upon the scheme and given that the disposal
does not result in any alienation of the Putco group"s assets, the disposal is
tantamount to an internal group restructure.
4. Consideration
The purchase price payable by Putco Services to Putco in terms of the disposal
agreement is an amount of R243 million, which purchase price excludes VAT ("the
purchase price").
The purchase price shall be credited to the loan account of Putco in the books
of account of Putco Services on the third business day after the date of
fulfilment or waiver of the last of the suspensive conditions of the disposal
agreement ("effective date"). The loan account shall bear interest at prime and
is repayable on or before the fifth anniversary of the effective date or such
other date as may be agreed upon in writing between Putco and Putco Services.
5. Rental agreement
To ensure that Putco"s operating activities continue at their existing levels,
Putco will rent the disposal assets from Putco Services, whose business will be
to lease buses to Putco, with effect from the effective date, subject to the
fulfilment or waiver of the suspensive conditions set out in 6 below.
6. Disposal agreement suspensive conditions
The proposed transaction is subject in its entirety to the fulfilment or waiver,
as the case may be, of the following suspensive conditions:
- the rental agreement, referred to in 5, is signed by all of the parties
thereto and thereafter becomes unconditional; and
- Putco shareholders pass a resolution in terms of section 228 of the Companies
Act, ratifying and approving the disposal.
7. Financial effects
The following table has been prepared for illustrative purposes only and sets
out the pro forma financial effects of the disposal per Putco ordinary share.
The pro forma financial effects are based on the reviewed interim results of
Putco at 31 December 2003 and a total of 26 425 000 Putco ordinary shares in
issue.
A B C
After the Increase/
Before the disposal (decrease)
disposal (cents) (cents) between A and B
(SA GAAP) (SA GAAP)1 (percentage)
Net asset value2 522.3 522.3 -
Headline earnings3 121.2 111.0 (8.4)
Earnings3 127.7 117.4 (8.1)
Notes
1 Column B illustrates the impact of the disposal of buses to Putco Services
assuming the disposal took place at the beginning of the financial year for
income statement purposes and at 31 December 2003 for balance sheet purposes.
2 The disposal has no material impact on the net asset value of the Putco group
as all transactions between Putco and Putco Services are eliminated on
consolidation at balance sheet date, as Putco Services is a wholly owned
subsidiary.
3 The headline earnings and earnings for the Putco group decreases by the after
tax effect of the output VAT on the bus rental received by Putco Services from
Putco.
4 Putco and Putco Services have, in terms of the provisions contained in the
disposal agreement, elected that section 45 of the Income Tax Act apply to the
disposal which has the effect of providing rollover relief to Putco in terms of
which no income tax or Capital Gains Tax ("CGT") will be payable as a result of
the disposal to Putco Services. Conversely, Putco Services will inherit the
original tax profile of the assets transferred from Putco for income tax and CGT
purposes.
8. Shareholders" agreement ("the shareholders" agreement")
(
Further to the cautionary announcement by Putco on 30 March 2004, in line with
the rationale detailed in 2 above and subject to the fulfilment or waiver, as
the case may be, of the suspensive conditions as set out in 9 below, Putco has
entered into a shareholders" agreement in order to obtain a BEE equity
shareholding in Putco in excess of 50% and achieve the status of being a "Black"
company as defined in terms of the Black Economic Empowerment Commission. The
shareholders" agreement will become effective on the first business day after
the date upon which the last of the outstanding suspensive conditions contained
within the shareholders" agreement is fulfilled or waived (to the extent
allowable in law) and is intended to regulate the relationship between Putco
and:
- Carleo Enterprises (Pty) Ltd;
- Safika,
- DEC,
- Putco Services,
- Lexshell 603 Investments (Pty) Ltd ("Lexshell 603") (representing the
interest of the Putco Employee Share Trust),
- Lexshell 609 Investments (Pty) Ltd ("Lexshell 609") (representing those Putco
minority shareholders who elect to reinvest in Putco once it is delisted. Any
percentage of the shares allotted to Lexshell 609 not taken up by the Putco
minority shareholders will be taken up by the Putco Employee Share Trust), and
- certain members of Putco"s management including BEE management, namely:
* Mr Basil Anthony Holford,
* Mr Matthys Hendrik Heyns,
* Mr Rapesha Meshack John Ramela,
* Ms Alet du Plessis,
* Mr Andrew Petros Lumka Wanda, and
* Mr Melatjeng Andries Sefala.
The shareholders" agreement stipulates that Mr Moss Ngoasheng, the executive
chairman of Safika, will become the non-executive chairman of Putco after the
implementation of the scheme.
9. Shareholders" agreement suspensive conditions
The shareholders" agreement is subject to the fulfilment or waiver, as the case
may be, of, inter alia, the following suspensive conditions:
- the shareholders of Putco pass a resolution in terms of section 228 of the
Companies Act, ratifying and approving the disposal;
- the necessary approvals which may be required from the JSE, the Securities
Regulation Panel and/or any other regulatory approvals that may be required,
insofar as may be necessary, are obtained in writing in respect of the
transactions recorded in the shareholders" agreement and/or any ancillary
agreements to the shareholders" agreement; and
- the scheme becomes operative.
10. Circulars and further announcement
A circular detailing the disposal will be issued on or about 30 April 2004.
An announcement setting out salient features of the scheme will be issued on or
about 31 May 2004 and a scheme circular providing full details of the scheme
will be issued on or about 11 June 2004.
Johannesburg
16 April 2004
List of advisors:
Corporate advisor to Putco
EY Corporate Finance (Pty) Ltd
Attorneys to Putco
Werksmans Attorneys Inc
Sponsors to Putco
Ernst & Young Sponsors (Pty) Ltd
Auditor and reporting accountants of Putco
Ernst & Young
Chartered Accountants (SA)
Registered Accountants and Auditors
Joint corporate legal advisors to Safika
Derek H Rabin & Associates (Pty) Ltd
Moss Morris
