| Thu 28 Oct 2004, 18:31 | | AVASA - PROPOSED RECAPITALISATION AND FORWARD STRA |
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AVASA - PROPOSED RECAPITALISATION AND FORWARD STRATEGY WITHDRAWAL OF CAUTIONARY
ANNOUNCEMENT
AVASA HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1998/013637/06)
Share code: AVA ISIN: ZAE000040622
(`AVASA` or `the company`)
PROPOSED RECAPITALISATION AND FORWARD STRATEGY WITHDRAWAL OF
CAUTIONARY ANNOUNCEMENT
1. Background and current situation
During September 2002, AVSA Management Limited (`AVSAM`) created AVASA by way
of a reverse listing through the Dectronic Limited shell, a company listed on
the JSE Securities Exchange South Africa (`the JSE`). Brian Myerson and Julian
Treger were appointed to the board of directors of AVASA (`the board`) as joint
chairmen and AVASA adopted a strategy to invest in opportunities in South Africa
where it could enhance shareholder returns by acting as a catalyst for change.
During April 2003, AVASA led a R350 million recapitalisation of Sage Group
Limited (`Sage`). AVASA currently holds 1,6% of Sage directly and manages a
further 18,6% on behalf of third-party investors. These investors have agreed to
pay AVASA a carried-interest participation on any profits that are made on their
investments in Sage. The Sage investment is the company`s only investment. The
board believes that Sage is undervalued and intends working with the board of
Sage to assist in the business` future development.
In August 2003, AVASA announced the proposed merger of the company and African
Harvest Capital Holdings (Pty) Limited. A dispute arose regarding the fulfilment
of certain conditions precedent and the company recently announced the
withdrawal of all parties from the arbitration process and the cancellation of
the proposed merger. The arbitration process was a costly exercise and, in
addition to other factors, severely depleted the company`s cash resources.
On 4 October 2004, Brian Myerson informed the board that he was working on new
ventures in the United Kingdom, which would require such time commitments that
he could not remain an executive director of AVASA or enable him to dedicate the
personal time to AVASA that he would otherwise have liked to. He therefore
tendered his resignation, which the board accepted.
At the same time, Mark Barnes, with the support of a majority of shareholders,
joined the board of AVASA as Chairman. Under Mark Barnes` chairmanship, the
board decided to terminate the arbitration process and devise a strategy to
recapitalise AVASA.
2. The recapitalisation
It is the board`s intention to raise capital in the company in the amount of
R8,0 million by way of a rights offer of R4,4 million to all AVASA shareholders
(`the rights offer`) and a specific issue of shares for cash to Mark Barnes, the
new Chairman, of R3,6 million (`the specific issue`) (collectively, `the
recapitalisation`), details of which are set out in paragraph 4 below.
The recapitalisation will result in an injection of new capital into the
company and will align Mark Barnes` interests with AVASA through a meaningful
shareholding in the company.
3. Forward strategy
AVASA will be established as the nucleus of a group of financial services
entrepreneurs.
Over the past few years a number of successful teams and individuals have
emerged in various specialist financial services operations. These specialist
entities have been characterised by their ability not only to survive but also
compete, in often difficult market conditions, with their ingenuity and drive
more than compensating for the relative lack of capital, although a stronger
base could significantly improve their prospects.
AVASA will set out to align like-minded financial specialists in a structure
that can at once offer the benefits of association, not stifle independence and
improve access to efficient capital.
AVASA will position itself as:
* a listed company with access to the public equity and debt markets;
* a central treasury for the efficient raising, management and allocation of
capital; and
* a group centre for support services and cost efficiency.
AVASA will grow by taking stakes in entrepreneurial financial service entities,
complementary to AVASA`s overall structure. These relationships will be governed
by shareholders` agreements dealing with, inter alia, dividend and capital
policies. Discussions have already begun with a number of players. Key
shareholdings will be in:
* corporate finance - in the listed and private market including sponsor
capabilities;
* asset management - from personal financial planning to corporate pension
funds;
* debt and equity origination and instrument design;
* private equity investment - through the establishment of specific funds
managed by, and housed within, AVASA; and
* elements of treasury - including corporate exposure management and trading.
AVASA shareholders will earn returns principally from attributable income,
dividend flows and capital appreciation in these companies but also from agreed
profit sharing or capital raising and management arrangements and any of AVASA`s
own on-balance-sheet activities.
The objective of AVASA will be to provide an attractive environment and
structure within which entrepreneurs in financial services can flourish and
benefit from critical mass, efficient capital access and group synergy, without
the constraints of being part of a large institution.
4. Details of the recapitalisation
4.1 The rights offer
AVASA proposes to undertake a rights offer in the amount of R4,4 million, by
offering shareholders the right to subscribe for new shares in AVASA at a price
of 1,5 cents per share. This price is approximately equal to the company`s net
asset value per share at 31 August 2004 (as published in AVASA`s results
announcementwhich appears elsewhere in this publication) and is at a deep
discount to the market price at 27 October 2004. The rights offer has been
priced to allow existing shareholders an entry-level re-investment in the
forward strategy of the company. The rights offer will be fully underwritten.
4.2 The specific issue
An additional amount of capital of R3,6 million will be raised through a
specific issue of shares to Mark Barnes at 1,5 cents per share, the same price
as the rights offer. The specific issue is classified as a related party
transaction in terms of the JSE Listings Requirements, and therefore requires an
opinion from an independent professional expert and the approval of the AVASA
shareholders, excluding the related party, in general meeting. The independent
directors of AVASA will appoint an independent professional expert shortly.
4.3 Irrevocable undertakings
Shareholders holding 59,3% of the company`s issued share capital have
irrevocably undertaken to follow their rights in terms of the rights offer and
holders of 33,0% of the company`s issued share capital have irrevocably
undertaken not to follow their rights as set out below.
AVSAM, in respect 125 million AVASA shares in which Brian Myerson has a
potential beneficial interest, and the AVSAM Share Incentive Scheme, in respect
of 25 million AVASA shares, together representing 25,8% of the company`s issued
share capital, have undertaken not to follow their rights.
Julian Treger, a non-executive director of AVASA, also has a potential
beneficial interest in AVSAM, in respect of a further 125 million AVASA shares
owned by AVSAM, has undertaken to
follow his rights in respect of only two-thirds of this shareholding. The
purpose and effect
of this is to enable increased participation by local investors.
In addition, shareholders holding 80,0% of the company`s issued share capital,
excluding the indirect beneficial shareholding of Mark Barnes held through
Calajero (Pty) Limited, who is precluded from voting on this matter, have given
irrevocable undertakings to vote in favour of all the resolutions necessary to
give effect to the recapitalisation and the company`s forward strategy.
4.4 Share incentive scheme
The board proposes to cancel the company`s current share incentive scheme and
has obtained the irrevocable acceptance thereto from all existing scheme
participants. It is the company`s intention, subject to shareholder approval, to
implement a new share incentive scheme which will align the interests of the
executives with the company`s objectives.
4.5 Change of name
Subject to shareholder approval, the company`s name will be changed to reflect
its new beginnings and proposed forward strategy.
5. Financial effects of the recapitalisation
Set out in the table below are the pro forma financial effects of the
recapitalisation based on AVASA`s published audited results for the year ended
31 August 2004. The pro forma financial effects have been prepared for
illustrative purposes only to provide information of how the recapitalisation
may have impacted on the results and financial position of AVASA. Because of
their nature, the pro forma financial effects may not give a fair reflection of
AVASA`s financial position after the recapitalisation or the effect on future
earnings.
Before the After the
recapitalisation recapitalisation Change
Note (cents)1 (cents) (%)
Loss and headline loss per share 2 (3,49) (1,82) 48
Net asset value and tangible net
asset value per share 3 1,36 1,42 5
Notes:
1. Extracted from the published audited results of AVASA for the year ended 31
August 2004 which appear elsewhere in this publication.
2. Loss and headline loss per share are based on the following assumptions:
* the recapitalisation was effective 1 September 2004;
* the R8 million capital raised earned interest at 7% after tax;
* recapitalisation costs of R600 000; and
* the weighted average number of shares in issue during the year was 580 750
000 and 1 114 083 333 before and after the recapitalisation, respectively.
3. Net asset value and tangible net asset value per share are based on the
following assumptions:
* the recapitalisation was effective 31 August 2004; and
* the number of shares in issue at 31 August 2004 was 580 750 000 and 1 114 083
333 before and after the recapitalisation, respectively.
6. Documentation and withdrawal of cautionary announcement
A circular containing full details of the recapitalisation and including, inter
alia, the opinion from the independent professional expert and a notice of
general meeting of shareholders will be posted in due course.
As the details of the recapitalisation have been announced shareholders are no
longer required to exercise caution when dealing in their AVASA shares.
Johannesburg
28 October 2004
Corporate advisor and transaction sponsor
BRIDGE CAPITAL
Sponsor
JAVACAPITAL
