| Tue 19 Apr 2005, 8:57 | | Acquisition Of Interests In Old Mutual And Nedcor |
|
Brimstone - Acquisition Of Interests In Old Mutual Plc And Nedcor Limited In
Terms Of The Old Mutual Group`s Proposed Broad-Based Black Economic Empowerment
Ownership Transactions
BRIMSTONE INVESTMENT CORPORATION LIMITED
(Registration number 1995/010442/06)
(Incorporated in the Republic of South Africa)
Share code: BRT ISIN: ZAE000015277
Share code: BRN ISIN: ZAE000015285
(`Brimstone` or `the Company`)
ACQUISITION OF INTERESTS IN OLD MUTUAL plc AND NEDCOR LIMITED IN TERMS OF THE
OLD MUTUAL GROUP`S PROPOSED BROAD-BASED BLACK ECONOMIC EMPOWERMENT OWNERSHIP
TRANSACTIONS
1. INTRODUCTION
Pursuant to the cautionary announcements dated 1 November 2004, 13 December
2004, 24 January 2005 and 7 March 2005 published by Brimstone on the Securities
Exchange News Services (SENS), holders of ordinary and `N` ordinary shares in
the share capital of Brimstone (`Shareholders`) are referred to the detailed
announcement published today by the Old Mutual Group (including Old Mutual plc,
Old Mutual (South Africa) Limited (`Old Mutual (SA)`), Nedcor Limited (`Nedcor`)
and Mutual & Federal Insurance Company Limited (`Mutual & Federal`)) (`the Old
Mutual Group BEE announcement`) wherein the Old Mutual Group announced a
proposed broad-based Black Economic Empowerment ownership transaction (`the Old
Mutual Group BEE transaction`).
In terms of the Old Mutual Group BEE announcement, Shareholders are informed
that Brimstone has, as part of a consortium led by Brimstone (`the Brimstone
Consortium`), been selected to participate in the Old Mutual Group BEE
transaction as an indirect shareholder in, and Black Business Partner to, Old
Mutual (SA) and Nedcor.
This announcement serves to provide information relevant to Shareholders not
contained in the Old Mutual Group BEE announcement. For further details on the
Old Mutual Group BEE transaction, Shareholders should refer to the Old Mutual
Group BEE announcement.
In terms of the Old Mutual Group BEE transaction, the Old Mutual Group is
proposing three separate but inter-dependent transactions which will introduce
new, direct broad-based black ownership into each of Old Mutual plc, Nedcor and
Mutual & Federal. Brimstone, through the Brimstone Consortium, has been selected
to participate in and acquire:
* An effective 0.47% interest in the issued share capital of Old Mutual
plc post the transaction as part of Old Mutual (SA)`s broad-based BEE
transaction (`the Old Mutual plc BEE transaction`), equivalent to an
effective 1.13% of Old Mutual (SA), for an effective subscription
price of R288 million; and
* An effective 0.61% interest in the issued share capital of Nedcor post
the transaction as part of Nedcor`s broad-based BEE transaction (`the
Nedcor BEE transaction`) for an effective subscription price of R4.9
million (together `the BEE transactions`). Brimstone`s share of the
market value of the subscription shares in terms of the Nedcor BEE
transaction is R198 million.
The BEE transactions will be implemented upon fulfilment of the conditions
precedent referred to in paragraph 0 below.
2. COMPOSITION OF THE BRIMSTONE CONSORTIUM
The Brimstone Consortium is made up of Brimstone (67%) and Mtha-we-Mpumelelo
Investments (Pty) Ltd (`Mtha`)(33%). Mtha is a coalition of South African black
business people tied together through the common thread of entrepreneurial
spirit. Its shareholders include Izingwe Financial Investments (Pty) Ltd,
founded and chaired by Sipho Pityana, Chestnut Hill Investments 211 (Pty) Ltd,
headed by Bulelani Ngcuka, and the broad-based groupings of the South African
Medical and Dental Practitioners, the Black Lawyers Association and the National
Association of Democratic Lawyers.
3. NATURE OF THE BUSINESSES OF OLD MUTUAL plc AND NEDCOR
3.1 Nature of the business of Old Mutual plc
Old Mutual plc is an international financial services group, whose
activities are focused on life assurance, asset gathering and asset
management. It has significant business interests in the United States
(where 65% of Old Mutual plc`s funds are under management), South
Africa (23%) and the United Kingdom (12%). Old Mutual plc has smaller
operations in Kenya, Malawi, Namibia and Zimbabwe.
Old Mutual plc, through its life assurance, asset management, banking
(through Nedcor) and general insurance (through Mutual & Federal)
operations, is the largest financial services provider in South
Africa. It is the leading fixed and equity indexed annuity provider in
the United States and is primarily focused on asset management in the
United Kingdom.
Old Mutual plc had approximately R312 billion of funds under
management in South Africa as at 31 December 2004. This part of its
business is focused on fund, property and unit trust management as
well as the provision of specialised finance. Old Mutual plc is also
involved in Group business which includes employee benefits,
healthcare and investment administration.
Old Mutual plc has its primary listing on the London Stock Exchange
plc and has a secondary listing on the JSE Securities Exchange South
Africa (`JSE`). It is also listed on the Malawian, Namibian and
Zimbabwean stock exchanges.
3.2 Nature of the business of Nedcor
Nedcor is a JSE listed bank holding company that conducts its banking
operations through its 100% owned subsidiary, Nedbank Limited
(`Nedbank`). Nedcor is, indirectly, 50.8% owned by Old Mutual plc.
Nedbank, one of the big four banks in South Africa and a significant
participant in the South African financial sector, offers a full range
of wholesale and retail banking services through three principal
business clusters; Nedbank Corporate (which is focused on
transactional banking and the provision of debt facilities to medium
to large sized business clients), Nedbank Retail (which is focused on
micro enterprises and individuals and responsible for Nedbank`s
extensive branch network) and Nedbank Capital (which is focused on the
provision of investment banking services to large corporates, listed
companies, multi nationals, parastatals and other large state
organisations).
Nedbank has more than 3.6 million customers served through a regional
network of 501 retail branches and 262 retail outlets. These branches
are complemented by 1,210 automated teller machines.
4. RATIONALE FOR BRIMSTONE`S PARTICIPATION IN THE BEE TRANSACTIONS
Brimstone, as a reputable and well-managed black investment holding company,
brings its active management style, successful partnership approach and broad-
based empowerment profile to the Old Mutual Group. Brimstone`s impressive
empowerment profile and strong value-adding track record were additional factors
in the Old Mutual Group selecting Brimstone to participate in the Old Mutual
Group BEE transactions through the Brimstone Consortium.
Brimstone is currently invested in the financial services sector through its
investments in The Lion of Africa Insurance Company Limited (short-term
insurance), AON (insurance broking and consulting) and an existing passive
investment in Nedcor. Brimstone`s other investments are primarily in the
healthcare (Afrox Healthcare Limited and The Scientific Group Limited) and
industrial sectors (Lenco Packaging, Sea Harvest Corporation and House of
Monatic).
The company considered the BEE transactions to be opportune in furthering
Brimstone`s strategic growth in its financial services sector strategies and as
complementary to Brimstone`s existing investments in this sector.
For Brimstone, the BEE transactions are the formalisation of a long-standing
relationship with the Old Mutual Group, which goes back almost 25 years in the
case of some of the Brimstone executives.
5. PERFORMANCE AGREEMENTS
As part of the Black Business Partners` participation in the Old Mutual Group
BEE transaction, the Black Business Partners have concluded separate arm`s
length performance memoranda of understanding (`performance agreements`) with
Old Mutual (SA) and Nedcor. These performance agreements will govern the
relationship with, and performance and remuneration of, the Black Business
Partners. In terms of these agreements, the Black Business Partners will work
with Old Mutual (SA) and Nedcor in achieving their respective transformational
and performance objectives.
Brimstone, in conjunction with Mtha, will utilise existing resources and, where
necessary, procure the additional resources required to give effect to the
performance agreements. The Brimstone Consortium will be paid an annual
performance fee in line with the level of its performance in terms of the
performance agreements. Brimstone`s effective portion of the annual fee will
range between Rnil and R8.7 million for Old Mutual (SA) and between Rnil and
R5.9 million for Nedcor, depending on the performance of the Brimstone
Consortium in terms of the performance agreements.
A portion of this fee will be used to cover pre-agreed working capital
requirements of the Brimstone Consortium. The balance, in the case of Old
Mutual(SA), will be applied to satisfy the amounts remaining due in respect of
the balance of the subscription price of the Old Mutual plc shares issued to the
Brimstone Consortium in terms of the Old Mutual plc BEE transaction. In the case
of Nedcor, the balance of this fee will be utilised to subscribe for new Nedcor
shares at market value.
Shareholders are referred to paragraph 2.4.2 of the Old Mutual Group BEE
announcement published today for further details on the Black Business Partner`s
obligations under the performance agreements.
6. STRUCTURE AND FUNDING OF THE BEE TRANSACTIONS
6.1 Structure and funding of the Old Mutual plc BEE transaction
In terms of the Old Mutual plc BEE transaction, Old Mutual plc shares
will be issued to a UK incorporated SPV (`UK SPV`) (set up for and
wholly owned by a South African holding company (`SA Holdco`), which
in turn is wholly owned by the Brimstone Consortium) for the rand
equivalent of 10 pence per share (the par value of the Old Mutualplc
shares) in cash and a cash undertaking given by the Brimstone
Consortium to pay a further amount in cash (in rand) as part of the
subscription price to Old Mutual plc on 1 May 2015. Brimstone`s
effective portion of the subscription price amounts to R288 million.
Brimstone will make an initial capital contribution of 2.5% of the
subscription price of R7.2 million out of its existing cash resources
to SA Holdco, which together with Mtha`s initial capital contribution,
will be used to capitalise UK SPV. UK SPV will procure rand-
denominated third party loans to settle the balance of the par value
of the Old Mutual plc shares.
Dividends received by UK SPV from its holdings of Old Mutualplc shares
and the major portion of the performance fees earned by the Brimstone
Consortium will be used, first to repay the third party loans in UK
SPV, and thereafter will be paid to Old Mutual plc towards discharge
of the Brimstone Consortium`s obligations (in part) under the cash
undertaking part of the subscription price.
The payment due on 1 May 2015 to discharge the balance of the cash
undertaking will (subject to a minimum of one rand) be the lesser of:
- the difference between the rand equivalent of the market price of
the shares shortly before the allotment date and the rand
equivalent of 10 pence par value per share plus an escalation
factor of 8.16% per annum and less any amounts paid by UK SPV in
partial satisfaction of the cash undertaking. This amount will be
calculated on an annual basis and will be increased annually by
1.5% of the market value at inception; and
- the rand equivalent of the market value of the Old Mutual plc
shares at the highest price quoted on the London Stock Exchange
during the period between 1 January 2015 and the business day
before 1May2015.
Shareholders are referred to paragraph 3 of the Old Mutual Group
BEE announcement published today for a description of the Old
Mutual plc BEE transaction and to paragraph 3.8 for a description
of the mechanism used by the Old Mutual Group to implement the
Old Mutual plc BEE transaction.
6.2 Structure and funding of the Nedcor BEE transaction
In terms of the Nedcor BEE transaction, Nedcor has developed a
mechanism which involves it issuing Nedcor ordinary shares (`Scheme
Shares`) at 2.5% of their market value to the Brimstone Consortium. On
the applicable termination date for the scheme, Nedcor will be
entitled to call back as many of the Scheme Shares as, based on their
then market value, equate in value to the terminal balance of a
notional calculation model. The terminal balance will be calculated at
pre-agreed notional rates.
Essential features of the Brimstone Consortium`s participation in the
Nedcor BEE transaction are:
- The creation of a separate black-controlled vehicle (`Nedcor
SPV`);
- The subscription by Nedcor SPV for Scheme Shares in Nedcor at a
small premium to par value representing a 2.5% downpayment paid
by the Brimstone Consortium. Brimstone`s effective share of this
downpayment is R4.9 million, which Brimstone will fund from its
own available cash resources;
- Nedcor SPV granting Nedcor a call option against Nedcor SPV for a
formulaically determined number of Scheme Shares held in Nedcor
SPV, exercisable on the termination date of the particular scheme
at the same price per share at which the shares were issued to
Nedcor SPV;
- Nedcor SPV will be granted a call option to subscribe for the
same number of shares as was acquired by Nedcor in the exercise
of its call at the then market value; and
- the effective obligatory re-investment of cash receipts
(dividends and a portion of performance fees) by the Brimstone
Consortium into Nedcor shares. In the case of dividends, Nedcor
will, throughout the period of the scheme, undertake semi-annual
capitalisation awards with a cash dividend election, and the
Brimstone Consortium will waive their cash dividend election
upfront. In the case of the performance fees, the Brimstone
Consortium will be obliged to re-invest a portion in subscribing
for new Nedcor shares at market value.
Shareholders are referred to paragraph 4 of the Old Mutual Group
BEE announcement published today for a description of the Nedcor
BEE transaction and to paragraphs 4.7 and 4.9 for a description
of the mechanism used by the Old Mutual Group to implement the
Nedcor BEE transaction.
7. FINANCIAL EFFECTS
The combined pro forma financial effects of the BEE transactions, and the
individual pro forma financial effects of the Old Mutual plc BEE transaction and
the Nedcor BEE transaction, on Brimstone`s earnings, headline earnings, net
asset value and net tangible asset value per share for the year ended 31
December 2004 are not material, and have therefore not been disclosed.
8. OPINION OF THE BRIMSTONE BOARD OF DIRECTORS
The Brimstone board of directors (`Board`) is of the unanimous opinion that the
terms and conditions of the BEE transactions are favourable to Shareholders.
Accordingly, the Board recommends that, to the extent required, Shareholders
vote in favour of the resolutions to be proposed at the general meeting to be
held to consider the BEE transactions. In respect of their personal holdings in
Brimstone, and to the extent required, the relevant Board members intend to vote
their shares in favour of the resolutions to be proposed at the aforementioned
general meeting.
9. APPOINTMENTS TO THE BOARDS OF OMLACSA AND NEDCOR
Professor Jakes Gerwel, chairperson of the Brimstone board of directors,
currently serves on the board of directors of Old Mutual Life Assurance Company
(South Africa) Limited (`OMLACSA`) as an independent non-executive director.
Professor Gerwel will continue to serve on the OMLACSA board as an independent
non-executive director post implementation of the Old Mutual Group BEE
transactions.
Brimstone has been informed that Mustaq Brey, Chief Executive Officer of
Brimstone, will be invited to serve on the Nedcor board of directors as a non-
executive director once the Old Mutual Group BEE transaction has been effected
and all the conditions precedent to which the Old Mutual Group BEE transaction
is subject, have been fulfilled.
10. CONDITIONS PRECEDENT
Brimstone`s participation in the BEE transactions is subject to the fulfilment
of, inter alia, the following conditions precedent:
- the Old Mutual Group BEE transaction becoming unconditional in
accordance with its terms, which conditions include approvals of the
shareholders of Old Mutual plc, Nedcor and Mutual & Federal and, to
the extent required, the necessary regulatory approvals (including, as
necessary, the approval of the JSE and the South African Reserve Bank)
being obtained; and
- to the extent necessary, obtaining the approval of 50% of Shareholders
in a general meeting held to approve Brimstone`s participation in the
BEE transactions.
11. CATEGORISATION OF THE BEE TRANSACTIONS AND RELEVANT DOCUMENTATON
The Issuer Services Division of the JSE has been approached regarding the
categorisation of the BEE transactions in terms of section 9.5 (a) of the JSE
Listings Requirements. To the extent that the BEE transactions are categorised
as Category 1, a circular containing full details of Brimstone`s participation
in the BEE transactions, and incorporating a notice of general meeting, which is
subject to the approval of the JSE, will be prepared and posted to Shareholders
in due course.
12. WITHDRAWAL OF CAUTIONARY
As the terms and financial effects in respect of the BEE transactions have been
announced, Shareholders are no longer required to exercise caution when dealing
in their Brimstone ordinary and `N` ordinary shares.
Johannesburg
19 April 2005
Investment Bank and Sponsor to Brimstone:
Nedbank Capital, a division of Nedbank Limited
South African Legal Advisers to Brimstone:
Hofmeyr Herbstein & Gihwala Incorporated
United Kingdom Legal Advisers to Brimstone:
Linklaters
