| Fri 11 Jun 2004, 18:00 | | PROPOSED SCHEME OF ARRANGEMENT |
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PUTCO LTD - PROPOSED SCHEME OF ARRANGEMENT
Putco Limited
(Incorporated in the Republic of South Africa)
(Registration number 1945/018672/06)
JSE Share code: PTC
ISIN: ZAE000005716
(`Putco` or `the Company`)
PROPOSED SCHEME OF ARRANGEMENT
1. Introduction
Further to the announcements dated 16 April 2004 and 25 May 2004
respectively, EY Corporate Finance (Proprietary) Limited is authorised to
announce that Putco will propose a scheme of arrangement (`the scheme`) in
terms of Section 311 of the Companies Act, 1973 (Act 61 of 1973), as
amended (`the Companies Act`), between Putco and its shareholders, other
than Lexshell 603 Investments (Proprietary) Limited (`the excluded party`),
pursuant to which Putco is to acquire in terms of Section 85 of the
Companies Act, as a specific repurchase of shares, all of the shares held
by such shareholders (`Putco shareholders`), the details of which are set
out in 3 below. The scheme is subject to the fulfilment of each of the
suspensive conditions stipulated in 4 below.
If the scheme becomes operative Putco will become wholly-owned by the
excluded party and Putco`s listing on the JSE Securities Exchange South
Africa (`JSE`) will be terminated.
2. Rationale
It is the clear intention of government to transform the bus passenger
transport industry of South Africa. Putco understands that government
intends to achieve the following stated aims:
- a minimum of 30% of all tenders are to be awarded to companies which
have at least 50,1% black ownership;
- the remaining 70% of tenders are to be awarded to companies which have
at least 35,1% black ownership; and
- the allocation of 10% of the revenue kilometres relating to each
tender contract granted in terms of the above is to be subcontracted
to black small, medium and micro enterprises.
It was also recently proposed by the National Department of Transport
(`NDOT`) 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 Black Economic Empowerment (`BEE`)
credentials at shareholder level. It is not yet at a level of 35,1% black
equity ownership, largely because of its size and its history as a listed
entity on the JSE.
The proposals by government and more particularly the NDOT would preclude
Putco from tendering competitively, both on current and future business. As
testimony to these assertions, Putco was recently excluded from the 2003
tender process for certain of the old Northwest Star Bus operations by the
Northwest Provincial Government on the basis of the abovementioned grounds.
Although Putco has interim agreements with NDOT, giving it certain rights
in relation to future tenders and a limited right of first refusal in
respect of such, it has had to resort to challenging NDOT in Court on
certain of these contracts. Putco is concerned about a further
deterioration in its relationships with its major customer, namely NDOT.
Putco intends to both ensure its future position with NDOT and within the
industry by significantly restructuring its business so that BEE partners
can actively participate in the shareholding and management of Putco and
its subsidiaries (`the Putco Group`). The proposed restructure is designed
to establish meaningful black participation at shareholder level at an
affordable price and to that end Putco has secured appropriate and highly
credible BEE partners, namely Safika Holdings (Proprietary) Limited and DEC
Investment Holding Company (Proprietary) Limited, to take up a significant
equity interest in Putco. If the proposed scheme is not implemented (and
subsequently substantial black shareholders are not introduced into Putco),
Putco will not, in the future, be able to derive income from its core
business, being government sources. It has therefore become critical for
Putco to restructure at shareholder level to enable it to continue as a
going concern in its current form. In terms of the scheme, a structure
will be put in place which will lead to a situation where the eventual
shareholding in Putco will have an element of black shareholders in excess
of 50% of the total issued share capital of Putco. This attribute will
classify Putco as a black company in terms of the black Economic
Empowerment Commission.
3. Mechanics Of The Scheme And Consideration
3.1 In terms of the scheme, which will comply with the Securities
Regulation Code on Takeovers and Mergers (`the Code`), Putco
shareholders will have the opportunity to elect a cash consideration
or alternatively a partial cash consideration with a reinvestment
alternative. Putco shareholders may elect either:
3.1.1 to receive a cash payment of R5,50 for each Putco share held
by them (`the cash consideration`); or
3.1.2 for every one Putco share held:
3.1.2.1 to receive 2,8 new Putco shares of one cent each
in the issued share capital of the unlisted future
Putco (`new Putco shares`). Entitlements to a
fraction of a new Putco share will only be rounded
up if the fractional entitlement is in excess of
0,5 of a new Putco share; and
3.1.2.2 to receive R5,47 per Putco share, provided that a
Putco shareholder, other than Carleo Enterprises
(Proprietary) Limited, (the controlling
shareholder of Putco (`Carleo Enteprises`)) will
have to provide an indemnity, cession in
securitatem debiti and a bank guarantee to Carleo
Enterprises, in the amount of forty-one cents per
new Putco share subscribed for (collectively `the
reinvestment alternative`), as Carleo Enterprises
has had to provide similar security to the
relevant financial institution in order to raise
the required financing for Putco to implement the
scheme.
3.2 The detailed terms of the basis upon which a Putco shareholder may
subscribe for new Putco shares will be set out in a circular to be
addressed to Putco shareholders (see paragraph 8 below) (`the scheme
circular`).
4. Suspensive Conditions
The scheme is subject to the fulfilment or waiver, as the case may be, of
certain suspensive conditions by not later than 31 October 2004, including,
inter alia, the following:
4.1 a special resolution having been passed by the necessary majority of
Putco shareholders in general meeting (convened to be held on the same
date and at the same venue as the scheme meeting) in terms of which
Putco is authorised in terms of section 85 of the Companies Act to
repurchase 26 424 900 shares in the issued share capital of the
company and that such special resolution is registered by the
Registrar of Companies in terms of the Companies Act;
4.2 the approval of the scheme by the Competition Authorities in terms of
Chapter III of the Competition Act, 1998 (Act 89 of 1998), as amended,
either on an unconditional basis or subject to such conditions as the
Putco board may approve in writing;
4.3 the scheme having been approved by a majority representing not less
than three-fourths of the votes exercisable by Putco shareholders
present and voting (either in person or by proxy) at the scheme
meeting (other than the excluded party);
4.4 the Witwatersrand Local Division of the High Court of South Africa
(`the High Court`) sanctioning the scheme;
4.5 a certified copy of the Order of the High Court sanctioning the scheme
having been lodged with, and registered by, the Registrar of Companies
in terms of the Companies Act; and
4.6 the approval of the South African Reserve Bank being obtained.
5. Cash Confirmation
The Securities Regulation Panel (`SRP`) has received confirmations from
Investec Bank Limited and ABSA Corporate & Merchant Bank (a division of
ABSA Bank Limited) that Putco has sufficient cash resources available to
satisfy the consideration payable in terms of the scheme.
6. Financial Effects
6.1 The following table has been prepared for illustrative purposes only
and as such it sets out the unaudited pro forma financial effects of
the scheme per Putco share both before and after the implementation of
the scheme based on each of the parameters outlined:
6.2 Unaudited pro forma financial effects
A1 B2 C3 D5
Per share Reviewed % Pro % Pro % Pro
change forma change forma change forma
prior to after
issue of issue
new of new
Putco Putco
shares shares
Earnings 121,2 (8,4) 111,02a (26,9) 81,13a (86,8) 10,75b
Headline earnings 127,7 (8,1) 117,42a (25,5) 87,53a (86,7) 11,65b
Net asset value* 522,3 - 522,32c(119,0) (99,0)3b (87,8) (12,0)5b
* As the Putco Group has no intangible assets on its balance sheet, the net
tangible asset value (`NTAV`) is equal to the net asset value and all pro
forma calculations in the table above as reflected in the NAV line are
fully representative of the effects on NTAV.
Notes:
1. Column A is based on the reviewed interim results of Putco for the half-
year ended 31 December 2003.
2. Column B illustrates the impact of the assets sale agreement concluded
between Putco and Putco Services (Proprietary) Limited (`Putco Services`)
dated 16 April 2004 (`the disposal agreement`), relating to the disposal
(`the disposal`) of a significant portion of Putco`s existing unencumbered
bus fleet (`the disposal assets`) assuming the disposal took place at 1
July 2003 (the beginning of the financial year) for income statement
purposes and at 31 December 2003 for balance sheet purposes.
2a 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 (to be registered as a VAT vendor) from Putco (who
primarily makes VAT exempt supplies).
2b Putco and Putco Services have, in terms of the disposal agreement
elected that section 45 of the Income Tax Act apply to the disposal
which has the effect of providing roll-over relief to Putco in terms
of which no income tax or capital gains tax (`CGT`) will be payable as
a result. Conversely, Putco Services will inherit the original tax
profile of the disposal assets for income tax and CGT purposes.
2c 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. Column C illustrates the impact of the scheme (via the repurchase of all
but 100 Putco shares) and related costs.
3a The headline earnings and earnings for the Putco Group decreases by:
(i) the after tax interest cost on the R110 000 000 debt raised in
order to give effect to the repurchase in terms of section 85 of
the Companies Act, of all except 100 of the Putco shares, as well
as
(ii) the costs related to the transaction.
3b The net asset value of the Putco Group decreases as a result of the
repurchase of all except 100 of the Putco shares at R5,50, as well as
the Secondary Tax on Companies payable as a result of the
aforementioned repurchase.
4. The unaudited pro forma financial effects in columns A, B and C above, are
based on the 26 425 000 Putco shares currently in issue.
5. Column D illustrates the impact of the issue by Putco of 200 000 000 new
Putco shares of one cent each.
5a The unaudited pro forma financial effects in column D are based on 200
000 000 new Putco shares being in issue.
5b Earnings, headline earnings and net asset value per share are all
negatively affected by the issue of the new Putco shares.
7. Opinions And Recommendations
7.1 KPMG Services (Proprietary) Limited, acting as independent financial
advisor, has been appointed to advise whether the terms and conditions
of the scheme are fair and reasonable.
7.2 The Putco board`s favourable opinion in this regard will be included
in the scheme circular referred to in paragraph 8 below.
8. Circular And Further Announcements
A scheme circular containing details of, inter alia, the matters referred
to above will be posted to all Putco shareholders on or about Friday, 25
June 2004 once the necessary approvals have been obtained from, inter alia,
the SRP and the JSE and once Putco has received the necessary leave to
convene the scheme meeting from the High Court. Further announcements
pertaining to the scheme will be published in the press in due course.
9. Withdrawal Of Cautionary
Further to the preceding cautionary announcements, the last of which was
published in the press on 30 March 2004, the company`s announcements
published in the press on 19 April 2004 and 26 May 2004 as well as this
announcement, shareholders are advised that caution is no longer required
to be exercised by shareholders when dealing in their Putco securities.
Sandton
11 June 2004
Corporate advisor to Putco
Ernst & Young Corporate Finance (Pty) Ltd
(Registration number 2000/031575/07)
Attorneys to Putco
Werksmans Incorporated
(Registration number 1990/007215/21)
Sponsor to Putco
Ernst & Young Sponsors (Pty) Ltd
(Registration number 2000/031843/07)
Auditor and reporting accountants
Ernst & Young
Chartered Accountants (SA)
(Registered Accountants and Auditors)
Independent advisor to Putco Minorities
KPMG
Date: 11/06/2004 05:55:05 PM
Produced by the JSE SENS Department
