| Tue 20 Jul 2004, 8:48 | | Buy back of GBP 100 million 6% Exchangeable Bonds |
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Alexander Forbes Limited - Buy back of GBP 100 million 6% Exchangeable Bonds
Alexander Forbes Limited
(Incorporated in the Republic of South Africa)
(Registration number 1958/001974/06)
ISIN: ZAE000018230 Share code: AFB
(`Alexander Forbes` or `the Company`)
Buy back of GBP100 million 6% Exchangeable Bonds (`the Bonds`)
1. Introduction
Alexander Forbes, VenFin Limited (`VenFin`) and certain of their respective
group companies (collectively `the Parties`) have entered into separate
agreements concerning, firstly an issue of shares for cash (`the Share
Subscription Agreement`) and secondly the buy back of the Bonds issued by an
Alexander Forbes group company and currently held by a VenFin group company
(`the Bond Purchase Agreement`). The Share Subscription Agreement and the Bond
Purchase Agreement are hereafter referred to as `the Agreements`.
In terms of the Share Subscription Agreement, a VenFin group company will
subscribe for 114.8 million new Alexander Forbes shares (`the Subject Shares`)
for an aggregate subscription price of R1 159.5 million (or R10.10 per Alexander
Forbes share). The Subject Shares will constitute 24.96% of the enlarged share
capital of Alexander Forbes (net of treasury shares held by the group). In terms
of the Bond Purchase Agreement, the Bonds will be purchased by an Alexander
Forbes group company in consideration for cash payments of R1 159.5 million and
GBP12.5 million (`the Purchase Consideration`).
Under their terms, the Bonds are to be redeemed on 15 September 2005 in cash or
through the issue of Alexander Forbes shares as described in paragraph 2 below.
The Agreements will:
- result in a materially stronger Alexander Forbes balance sheet, notably in
its international business, providing a base for further growth; and
- remove the uncertainty for both Alexander Forbes and its shareholders
regarding the potential dilutionary effect on maturity of the Bonds on 15
September 2005.
The Agreements are described more fully below and are subject to the conditions
set out in paragraph 7 below.
2. Key terms of the Bonds
Under their terms, the Bonds currently bear interest at 6% per annum, payable
semi-annually in arrears on 15 March and 15 September each year until the
Maturity Date, being 15 September 2005. The Bonds, if not previously redeemed,
exchanged or purchased, must be redeemed at GBP118 million, being 118% of their
principal amount on the Maturity Date (`the Redemption Right`). The interest
payable of 6% per annum and the GBP18 million premium payable on redemption
provide a yield to maturity on the Bonds of 8.934% per annum (nominal annual
compounded semi-annually (`NACS`)).
The Bonds are exchangeable at the option of the holders thereof into 53.7
million new Alexander Forbes shares at any time during the term of the Bonds
(`the Exchange Right`). At the time of issue, this equated to an exchange price
of R18.96 per Alexander Forbes share. At the current accrued value of the Bonds
and Rand/ Sterling exchange rate, it equates to an exchange price of
approximately R24 per share.
In addition to the Exchange Right, the holders of the Bonds have the right to
use the proceeds of their Redemption Right to subscribe for new Alexander Forbes
shares on 15 September 2005 at a share price based on the 30 day volume-weighted
average market price prior to 15 September 2005 (the `Subscription Right`).
This Subscription Right has a potentially significant dilutionary effect, as the
number of shares that could be subscribed for at 15 September 2005 is not fixed
as it is dependent upon the Alexander Forbes share price over the 30 business
days prior to 15 September 2005 and the Rand/Sterling exchange rate at that
date.
3. Salient terms of the Agreements
3.1 Issue of shares for cash
In terms of the Share Subscription Agreement, a VenFin group company will
subscribe for 114.8 million new Alexander Forbes shares (`the Subject Shares`)
for an aggregate subscription price of R1 159.5 million (or R10.10 per Alexander
Forbes share).
The issue price of R10.10 per Alexander Forbes share represents a premium of
2.4% over the 30 business day volume-weighted average Alexander Forbes share
price (`the 30 day VWAP`) on 5 July 2004 (being the day prior to the release of
the cautionary announcement by Alexander Forbes). However, due to the fact that
the holder of the Subject Shares shall not receive the dividend of 67 cents per
Alexander Forbes share payable on 10 August 2004, the issue price can be more
meaningfully compared to the 30 day VWAP as adjusted for that dividend payable,
which represents an issue premium of 9.8%. As noted in paragraph 1 above, the
Subject Shares will constitute 24.96% of the enlarged share capital of Alexander
Forbes.
3.2 Buy back of Bonds
In terms of the Bond Purchase Agreement, the Bonds will be purchased by an
Alexander Forbes group company in consideration for cash payments of R1 159.5
million and GBP12.5 million determined as follows:
Accrued present value of Bonds - GBPm 115.1
Less: Sterling cash payment - GBPm (12.5)
Sub-total - GBPm 102.6
Rand/Sterling exchange rate 11.30
Rand cash payment - Rm 1 159.5
3.3 Appointment of director
Subject to VenFin and its group companies (`VenFin Group`) holding at least 10%
of Alexander Forbes` issued shares, it shall be entitled to appoint one director
to the board of Alexander Forbes.
3.4 Restriction on disposal of Subject Shares
VenFin Group has undertaken not to dispose of the Subject Shares before the
first anniversary of the date on which it acquires the Subject Shares.
4. Rationale for the Agreements
Management has previously conveyed its intention to address the refinancing of
the group, and particularly the international debt structure, as a priority.
The issue of shares provides a unique opportunity to significantly strengthen
the balance sheet of Alexander Forbes, notably in its international business and
introduces a shareholder with whom Alexander Forbes has had a long and mutually
beneficial relationship.
The debt on the group`s balance sheet will be significantly reduced with the net
gearing ratio decreasing to only 9% (see paragraph 5 below). This will allow
for greater operational and financial flexibility. As a result the group will
be able to continue to pursue growth organically and through selectively
targeting acquisition opportunities, primarily in its international business.
The buy back of the Bonds removes the uncertainty for both Alexander Forbes and
its shareholders regarding the potential dilutionary effect on maturity of the
Bonds on 15 September 2005. In particular it provides definitive terms to
shareholders and removes the risk of further potential dilution, which could
arise from the exercise of the Subscription Right by a member of the VenFin
group.
5. Financial effects of the Agreements
The pro forma financial effects of the Agreements, set out below, are based on
Alexander Forbes` audited results for the year ended 31 March 2004.
Audited Pro forma
Before the After the %
Agreements Agreements change
(cents) (cents)
Earnings per share:
- Headline 151 132 -13%
- Attributable 102 95 -7%
Diluted earnings per share:
- Headline 148 131 -12%
- Attributable 100 94 -6%
Net asset value (`NAV`):
- NAV per share 289 469 +62%
- Tangible NAV per share (257) 60 N/A
Gearing:
- Gross gearing ratio 72% 21% N/A
- Net gearing ratio 51% 9% N/A
Notes:
1. The earnings per share measures are calculated using historically published
information for Alexander Forbes for the year ended 31 March 2004 as if the
Agreements had taken place with effect from 1 April 2003.
2. The earnings per share measures for the year ended 31 March 2004, as set out
in the `After` column of the table, are based on the assumptions that:
- the Sterling cash payment of GBP12.5 million is funded from available cash
resources earning interest at the average deposit rate earned by the group in
the United Kingdom for the year ended 31 March 2004, being 3.8% per annum.
- the weighted average number of Alexander Forbes shares in issue for the year
ended 31 March 2004 of 345 million is increased by the 114.8 million Subject
Shares to 459.8 million shares.
3. The net asset and tangible net asset value per share in the `After` column is
calculated based on the number of Alexander Forbes shares in issue at 31 March
2004 of 344.6 million and the net asset value and tangible net asset value
reflected in the balance sheet at that date adjusted for the subscription for
114.8 million shares on 31 March 2004 at an issue price of R10.10 per share.
4. The gross and net gearing ratios are respectively defined as being Alexander
Forbes` gross and net borrowings, expressed as percentages of ordinary
shareholders funds after adding back goodwill written off and amortised.
5. The gearing ratios in the `After` column have been calculated based on the
ordinary shareholders funds per the balance sheet as at 31 March 2004 (after
adding back goodwill written off and amortised) adjusted for the subscription
for 114.8 million shares on 31 March 2004 at an issue price of R10.10 per share.
The debt in the gross gearing ratio calculation has been reduced by the carrying
value of the Bonds at 31 March 2004, being R1 283 million. The debt in the net
gearing ratio calculation has been reduced by the value of the Subject Shares,
being R1 159.5 million (114.8 million shares at R10.10 per share). These
calculations exclude the effects of the repayment of the Merrill Lynch loan in
the United Kingdom subsequent to 31 March 2004, which further improves the gross
gearing ratio to 15%.
The pro forma financial information has been prepared for illustrative purposes
only and, due to its nature, may not accurately reflect the financial position
of Alexander Forbes subsequent to the implementation of the Agreements.
6. Approval by Alexander Forbes shareholders
The issue of the Bonds and related terms were approved by shareholders on 13
September 2000, in terms of the JSE Listings Requirements relating to the
specific issue of shares for cash. Notwithstanding this authority, the
implementation of the Share Subscription Agreement requires the approval of 75%
of Alexander Forbes` shareholders in a general meeting.
A circular containing details of the Agreements and including a notice of
general meeting will be posted to Alexander Forbes` shareholders in due course.
A further announcement providing the date of the proposed general meeting will
be published on the date of the posting of the circular.
7. Conditions precedent
The agreements are subject to certain conditions including, in respect of the
implementation of the Share Subscription Agreement, approval by 75% of the
Alexander Forbes shareholders present and voting at a general meeting to be
convened for this purpose.
8. Withdrawal of cautionary announcement
The cautionary announcement published by the Company on 6 July 2004 is hereby
withdrawn.
This announcement does not in any manner constitute an offer to subscribe for or
otherwise acquire securities in the Company.
Sandton
20 July 2004
Financial adviser and sponsor Corporate law advisers
Cazenove Edward Nathan & Friedland
Date: 20/07/2004 08:30:09 AM Produced by the JSE SENS Department
