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Johnnic - Disposal of its remaining MTN shares
JOHNNIC HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1889/000429/06)
Share code: JNC ISIN: ZAE000024352
(`Johnnic` or `the Company`)
JOHNNIC - DISPOSAL OF ITS REMAINING MTN SHARES
The concerns raised by shareholders regarding the recent disposal by Johnnic of
its remaining 40 million MTN shares revolve around three issues:
1. Whether Johnnic was properly authorised to dispose of the MTN shares;
2. The timing of the announcement advising shareholders that Johnnic had
disposed of the MTN shares; and
3. Rationale for the timing of the MTN disposal
1. Authority to dispose of the MTN shares
In order to address the first issue it is important to remind shareholders
of the reasons for holding these MTN shares. Shareholders are referred to
the circular to Johnnic shareholders issued on 16 May 2003 regarding the
unbundling by Johnnic to its shareholders of substantially all of its
shares in MTN. Throughout that circular, shareholders were advised that 40
million MTN shares would be retained to cover a corporate guarantee,
Johnnic`s ongoing working capital requirements, potential funding
requirements for the Casino and possible tax liabilities. (References:
Paragraph 1 in the `Salient Features` on page 3, paragraph 3 in the
`Salient Features` on page 4, paragraph 2 of the circular headed the
`Particulars of the Johnnic Unbundling` on page 13, paragraph 3 of the
circular headed `Funding Requirements of the Johnnic Group` on page 17) The
unbundling was approved by shareholders on 3 June 2003 and thereafter the
40 million MTN shares were shown as a current asset (i.e. short term) in
Johnnic`s balance sheet. This disclosure as a current asset was published
in the interim report to shareholders for the six months ended 30 September
2003 and in the Annual Report for the year ended 31 March 2004, which was
adopted by shareholders at the Annual General Meeting held on 27 October
2004. It was never Johnnic`s intention to retain these MTN shares in the
long term.
In light of the uses for which these shares were retained, Johnnic made it
clear to shareholders that it was Johnnic`s intention to dispose of these
shares in the short term without reverting to shareholders for authority.
Given the aforementioned, it was understood that further shareholder
approval was not required to deal with what was effectively a current asset
held for working capital and funding requirements purposes.
2. Timing of the announcement
It is of note that the unbundling referred to above resulted in the
creation of a pyramid company with respect to Johnnic`s holding in Johncom.
Shareholders were advised in the aforementioned circular that Johnnic would
be taking steps to address this issue in the short term. On 22 September
2004, Johnnic issued a cautionary announcement to shareholders regarding a
restructuring to eliminate the pyramid structure. This cautionary was
renewed on 26 October 2004. At the time of the MTN disposal, therefore,
shareholders had been warned to exercise caution when dealing in Johnnic
shares.
The MTN shares were sold in the market. To effect the disposal in an
orderly manner and without creating the perception of an overhang in MTN
shares, Johnnic was advised not to notify the market prior to effecting the
disposal. At the time, it was anticipated that the announcement of disposal
of the MTN shares would be made simultaneously with the restructuring
announcement. Subsequent developments relating to the timing of the
restructuring announcement made it necessary to issue a separate
announcement. In the circumstances Johnnic believes that it has acted
reasonably and responsibly.
3. Rationale for the timing of the MTN disposal
Johnnic management implemented an equity monetisation plan after being
advised of impending changes and the uncertainty in the telecommunications
sector. In view of Johnnic`s further anticipated working capital and
funding requirements, it was deemed judicious to cap the company`s exposure
to a potential downside in the MTN share price. The advice given was that
the results of MTN had already been factored into the current share price
and that MTN`s impending results announcement was not predicted to have a
material impact on the MTN share price.
In deciding to replace one form of current asset that had a potential
downside with another in the form of interest generating cash, Johnnic
management believed that it was acting in the interest of shareholders in
preserving value. The subsequent run in the MTN share price could not have
been anticipated.
Johnnic is also currently in discussion with the JSE Securities Exchange in
respect of these issues.
Date: 29/11/2004 07:25:02 AM
Produced by the JSE SENS Department
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