| Tue 31 Aug 2004, 11:39 | | DISCOVERY - ISSUE OF SHARES FOR CASH FOLLOWING THE |
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DISCOVERY - ISSUE OF SHARES FOR CASH FOLLOWING THE REDEMPTION OF PREFERENCE
SHARES
DISCOVERY HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number : 1999/007789/06)
ISIN: ZAE000022331
Share Code : DSY
(`Discovery` or `the company`)
ISSUE OF SHARES FOR CASH FOLLOWING THE REDEMPTION OF PREFERENCE SHARES
1. Introduction
Rand Merchant Bank is authorised to announce the details relating to the issue
of a total of 12 811 590 Discovery ordinary shares to certain employees, over a
three-year period (`the Issue`), in terms of an authority obtained from
shareholders at the annual general meeting held on 15 November 2001 (`AGM`).
2. Background to the Issue
Discovery Life Limited (`Discovery Life`) was established in 2001. To attract
and retain employees with the entrepreneurial spirit and commitment required for
this new venture, Discovery Life implemented an arrangement to provide effective
ownership of 15% of the new business to management and senior employees by the
issue of redeemable preference shares.
In June 2001, Discovery Life issued 1 500 000 preference shares of 1 cent each
(`Preference Shares`) to certain directors and employees of Discovery Life. The
preference shareholders may opt to redeem their Preference Shares as follows:
- one third of the Preference Shares on 30 June 2004;
- one third of the Preference Shares on 30 June 2005; and
- one third of the Preference Shares on 30 June 2006.
Preference shares not redeemed on these dates may only be redeemed the following
year. It will be compulsory for all preference shareholders to redeem their
Preference Shares on 30 June 2006. On the redemption date, the preference
shareholders will be required to invest the full amount of the redemption
proceeds in Discovery ordinary shares.
At the AGM, shareholders ratified the issue of these Preference Shares as well
as the issue of Discovery ordinary shares after the compulsory redemption of the
Preference Shares.
Since the company`s inception, Discovery Life`s management team have created a
business with tremendous value. Currently, Discovery Life insures the lives of
over 137 000 people, and has created employment for nearly 500 people. The
company`s annual revenue exceeds one billion Rand and so does the value of its
in-force business.
3. Details of the Issue
After following the rigorous process to value the Preference Shares, as set out
in paragraph 5 below, it was determined that each Preference Share will be
redeemed at a premium of R108.44. As described above, the preference
shareholders are obliged to invest the amount received in new shares to be
issued by Discovery. The issue price per Discovery ordinary share, for the
purpose of determining the number of Discovery ordinary shares to be issued
following the redemption of the Preference Shares, is R12.57. This is based on
the volume weighted average share price of Discovery shares over the 30 trading
days to 30 June 2004. Accordingly, a total of 12 811 590 Discovery ordinary
shares will be issued after the redemption of the Preference Shares. The
Discovery ordinary shares will be issued in three tranches as follows:
- The first tranche of 4 270 530 shares was allotted and issued on 31 August
2004;
- The second tranche of 4 270 530 shares will be allotted and issued on 30
June 2005; and
- The third tranche of 4 270 530 shares will be allotted and issued on 30
June 2006.
4. Financial effects
The financial effects presented below have been prepared for illustrative
purposes only and because of their nature, may not give a fair reflection of
Discovery`s financial position nor the effect on earnings going forward.
_____________________________________________________________________
Actual Pro forma Increase/ Increase/
before the after the (Decrease) (Decrease)
Issue(2) Issue(1) (%)
_____________________________________________________________________
Earnings per 83.0 80.9(3) (2.1) (2.5%)
share (cents)
Headline 80.5 78.4(3) (2.1) (2.6%)
earnings per
share (cents)
Net asset value 474.6 493.7(4) 19.1 4.0%
per share
(cents)
Tangible net 467.2 455.8(4) (11.4) (2.4%)
asset value per
share (cents)
Weighted average 504 050 711 516 862 298 12 811 587 2.5%
number of shares
in issue
_____________________________________________________________________
Notes:
1. The pro forma effects are based on the issue of 12 811 590 Discovery
ordinary shares;
2. The `Actual before the Issue` column has been extracted from Discovery`s
financial report for the year ended 30 June 2004; and
3. The pro forma earnings per share and headline earnings per share after the
Issue represents the financial information of Discovery for the year ended
30 June 2004, adjusted for the redemption of the Preference Shares and the
Issue based on the assumption that the redemption of the Preference Shares
and the Issue was implemented on 30 June 2003.
4. The pro forma net asset value per share and tangible net asset value per
share after the Issue represents the financial position of Discovery as at
30 June 2004, adjusted for the redemption of the Preference Shares and the
Issue based on the assumption that the redemption of the Preference Shares
and the Issue was implemented on 30 June 2004.
Process and independent expert opinion
The Discovery board completed a rigorous process to determine the redemption
valuation for the Preference Shares. Deutsche Bank advised the board on the
appropriate valuation methodology and factors to consider in arriving at the
redemption valuation, based on the embedded values of Discovery and Discovery
Life. The statutory actuaries of Discovery Life, QED Actuaries and Consultants
(Proprietary) Limited, and the independent actuaries, PricewaterhouseCoopers
Inc., reviewed the embedded value calculations, under the supervision of the
independent chairman of the actuarial committee. The board considered all these
inputs in their determination.
In addition, Discovery has received an opinion from KPMG Services (Proprietary)
Limited, an independent professional expert, that the valuation of the
Preference Shares is fair and reasonable to the existing Discovery shareholders.
The fair and reasonable opinion statement will be available for inspection at
the registered office of Discovery, 155 West Street, Sandton for a period of 28
days from the date of this announcement.
Sandton
31 August 2004
Merchant bank and sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
CORPORATE FINANCE
Independent professional expert
KPMG Services (Proprietary) Limited
