| Wed 10 Aug 2005, 9:50 | | Sanlam - Announcement Of A Firm Intention |
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Sanlam Limited - Announcement Of A Firm Intention By Sanlam To Acquire 100% Of
The Issued Ordinary Shares Of African Life Assurance Company Limited (`African
Life`), Other Than Those Held By The Excluded Parties
Sanlam Limited
(Incorporated in the Republic of South Africa)
(Registration number 1959/001562/06)
JSE share code: SLM
ISIN: ZAE000028262
NSX share code: SLA
(`Sanlam` or `the Company`)
ANNOUNCEMENT OF A FIRM INTENTION BY SANLAM TO ACQUIRE 100% OF THE ISSUED
ORDINARY SHARES OF AFRICAN LIFE ASSURANCE COMPANY LIMITED (`AFRICAN LIFE`),
OTHER THAN THOSE HELD BY THE EXCLUDED PARTIES
1. INTRODUCTION
Sanlam shareholders are referred to the separate African Life announcement
released on SENS today (`African Life announcement`).
Sanlam has submitted to the board of directors of African Life (the `African
Life board`) a firm intention to acquire the entire issued ordinary share
capital of African Life other than those ordinary shares held by the excluded
parties as defined in paragraph 4.3.1 (`the transaction`).
Subject to the implementation of the transaction, Sanlam has also reached
agreement with the shareholders of Umholi Investments (Proprietary) Limited
(`Umholi`), the investment vehicle that holds approximately 13 million
preference shares in African Life, which have attached to them options to
subscribe for the equivalent of 10% of the enlarged ordinary share capital of
African Life on behalf of various black economic empowerment groupings,
whereby Sanlam will acquire all the ordinary shares of Umholi (`Umholi
agreement`).
2. INFORMATION ON AFRICAN LIFE
African Life is a pan-African financial services group, listed on the JSE
Limited (`the JSE`) and which focuses on niche markets and expansion in
Africa. Besides South Africa, it currently has operations in Botswana, Ghana,
Kenya, Lesotho, Namibia, Tanzania and Zambia.
The principal activity of the African Life Group is the provision of life
assurance, asset management and healthcare services. Its operations are
conducted in three divisions:
# Life, which consists of the marketing of life and investment policies to the
emerging market in South Africa and other African countries;
# Health, which offers health risk management and administration services to
the African healthcare market; and
# Fund Management, which offers investment products and investment management
services in Africa`s developing economies.
3. RATIONALE FOR THE TRANSACTION
In the announcement of 11 July 2005 on the utilisation of excess capital in
the Sanlam Group, it was indicated that Sanlam will pursue opportunities to
deploy a portion of Sanlam`s excess capital in areas that will complement the
Sanlam strategy and enhance Sanlam`s earnings and return on embedded value.
Sanlam has identified the entry-level life insurance market as an important
component of its growth strategy. Sanlam resources have therefore been
earmarked to facilitate both organic and structural growth in this market
segment. Satisfactory progress has been made to date in the development of
Sanlam Group Solutions as well as through the acquisition of a controlling
interest in Safrican.
The acquisition of African Life is a further step and a key element in this
growth strategy and will provide Sanlam with, inter alia:
# access to new markets via African Life`s client base and sales force,
providing Sanlam with a meaningful presence and a base from which to
consolidate and accelerate its existing offering in this segment of the
market;
# a management team with experience and expertise in the target market;
# an initial footprint in several African countries, providing Sanlam with a
diversification opportunity; and
# an investment that is expected to exceed Sanlam`s required return hurdles.
4. TERMS OF THE TRANSACTION
4.1 As set out in greater detail in the African Life announcement, African
Life has received an offer from Momentum Group Limited to acquire African Life
Health Limited (`ALH`) for R175.8 million, plus the reimbursement of
transaction costs of R11.1 million (`the Momentum ALH transaction`).
4.2 The Sanlam Group shareholders` funds currently hold 20.5% (`Sanlam
shareholding`) of the issued ordinary share capital of African Life. The
consideration offered by Sanlam, or a wholly-owned subsidiary of Sanlam, to
the scheme participants, as defined in paragraph 4.3.1, is:
4.2.1 R22.50 per ordinary share, consisting of R22.05 per ordinary share (the
`Base Offer Consideration`) plus, in the event that the Momentum ALH
transaction becomes unconditional by no later than 15 February 2006, an
additional R0.45 per ordinary share (combined the `Total Offer
Consideration`). The aggregate purchase consideration, based on the Total
Offer Consideration, is approximately R1 867 million; or
4.2.2 In the event of the Momentum ALH transaction failing to become
unconditional by 15 February 2006, a committee comprising of four directors of
the current African Life board (the `committee`) shall endeavour to dispose of
ALH to a third party for a disposal consideration in excess of R130 million.
In such circumstances, the offer consideration shall be the Base Offer
Consideration plus, on a per ordinary share basis, 85.5% of any proceeds (net
of transaction costs) above R130 million; or
4.2.3 In the event that the committee is unable to finalise the disposal of
ALH by 31 March 2006, ALH shall remain a part of African Life within the
Sanlam Group and African Life ordinary shareholders shall receive a total
consideration equal to the Base Offer Consideration. The aggregate purchase
consideration, based on the Base Offer Consideration, is approximately R1 826
million.
4.2.4 The Total Offer Consideration or the Base Offer Consideration, as may be
adjusted in terms of paragraph 4.2.2, is referred to as the `Final
Consideration`.
4.3 The transaction will be implemented either by way of:
4.3.1 a scheme of arrangement in terms of section 311 of the Companies Act,
No. 61 of 1973, as amended (`the Act`) to be proposed by Sanlam between
African Life and the African Life ordinary shareholders (`scheme members`) in
terms of which Sanlam or a wholly-owned subsidiary of Sanlam will acquire 100%
of the African Life ordinary shares (the `acquisition shares`) held by African
Life ordinary shareholders other than the Sanlam shareholding, the African
Life Employee Shareholders Scheme Trust and subsidiaries of African Life,
holding the shares as treasury shares (the `excluded parties`) (`scheme
participants`) in exchange for the Final Consideration (the `scheme`); or
4.3.2 should the scheme not become operative, Sanlam, or a wholly-owned
subsidiary of Sanlam, in its sole discretion, may make an offer to acquire all
of the acquisition shares (the `substitute offer`).
4.4 The transaction is subject to the suspensive conditions set out in
paragraph 5.
4.5 Should the transaction be implemented, African Life will become a
subsidiary of Sanlam and the listing of it`s ordinary shares on the JSE will
be terminated.
4.6 It is expected that the scheme will be implemented on Monday, 5 December
2005. The scheme meeting to approve the transaction is expected to be held on
Monday, 26 September 2005.
4.7 In terms of the Umholi agreement, Sanlam will, on implementation of the
transaction, acquire all the ordinary shares of Umholi at its net asset value.
The Umholi ordinary shares have been valued at R84 million based on the Total
Offer Consideration and R79 million based on the Base Offer Consideration.
An independent financial adviser was retained to express an opinion on the
valuation of the options held by Umholi.
5. SUSPENSIVE CONDITIONS
The transaction is subject to the fulfilment or, where possible, waiver, as
the case may be, of the following suspensive conditions by no later than 31
March 2006:
5.1 African Life and Sanlam informing the Registrar of Long-term Insurance, in
such manner as prescribed in terms of section 26 and section 37 of the Long-
term Insurance Act, No. 52 of 1998, as amended and all regulations thereto, of
the transaction and to the extent that the Registrar of Long-term Insurance`s
approval and/or consent is required, such approval and/or consent is obtained;
5.2 the approval of the High Court of South Africa (Transvaal Provincial
Division) pursuant to Section 37 of the Long-term Insurance Act;
5.3 the approval, either unconditionally or subject to such conditions as are
acceptable to Sanlam, of the Competition Authorities as contemplated in the
Competition Act, No. 89 of 1998, as amended, is obtained;
5.4 approvals being obtained, to the extent required, from the Securities
Regulation Panel (`the SRP`), the JSE and the Exchange Control Department of
the South African Reserve Bank;
5.5 to the extent required, the approval, either unconditionally or subject to
such conditions as are acceptable to Sanlam, of the transaction by the stock
exchange authorities in Kenya and Botswana and the waiver of any requirement
to make an offer to minority shareholders of members of the African Life Group
in Kenya and Botswana;
5.6 to the extent required, the approval of the acquisition of Pan Africa
Insurance Holdings Limited under the Kenyan Restrictive Trade Practices,
Monopolies and Price Control Act (Cap 504);
5.7 the scheme being approved, with or without modification, by a majority
representing not less than three-fourths (75%) of the votes exercisable by
scheme members present and voting, either in person or by proxy, at the scheme
meeting;
5.8 the High Court of South Africa (Transvaal Provincial Division) granting an
order sanctioning the scheme in terms of section 311 of the Act and the
Registrar of Companies registering such order; and
5.9 all other regulatory approvals or consents necessary for the
implementation of the scheme being obtained, either unconditionally or subject
to such conditions as are acceptable to African Life and Sanlam.
6. FINANCIAL EFFECTS
The table below sets out the unaudited pro forma financial effects of the
transaction on Sanlam ordinary shareholders based on a Final Consideration of
R22.50 and the assumptions set out below. The unaudited pro forma financial
effects have been prepared for illustrative purposes only, in order to provide
information about how the transaction may have affected Sanlam ordinary
shareholders, had the transaction been implemented on the dates indicated in
the notes below. Due to their nature, the unaudited pro forma financial
effects may not be a fair reflection of Sanlam`s financial position after the
transaction or its future earnings. The pro forma financial effects are the
responsibility of the Sanlam Board.
The pro forma financial effects are illustrated based on South African
Standards of Generally Accepted Accounting Practice, effective as at 31
December 2004, and do not take account of any potential effects as a result of
the implementation of International Financial Reporting Standards effective 1
January 2005.
Unaudited pro forma financial information
Audited Unaudited Unaudited
before pro forma pro forma Unaudited
the Absa after the adjustments pro forma
disposal and Absa iro the after the
the transaction(1) disposal(2) transaction transaction
Diluted earnings
per share
(cents)(3),(4)
Core earnings 122.3 101.3 6.4 107.7
Headline earnings 116.6 95.6 4.8 100.4
Attributable earnings 120.2 295.8 6.2 302.0
Adjusted
headline earnings
based on the LTRR 151.6 149.9 3.8 153.7
Basic earnings per
share (cents)(4)
Core earnings 123.8 102.5 6.5 109.0
Headline earnings 118.0 96.7 5.0 101.7
Attributable earnings 121.7 299.4 6.3 305.7
Adjusted
headline earnings
based on the LTRR 153.5 151.7 3.9 155.6
Shareholders`
funds after
adjusting for
subsidiaries
at fair value
(R million)(5) 29 982 30 932 (22) 30 910
Net asset value
per share
after adjusting
for subsidiaries
at fair value
(cents)(5) 1 100 1 135 - 1 135
Net asset value
per share (cents)(5) 1 014 1 049 - 1 049
Tangible net
asset value
per share (cents)(5) 946 981 (44) 937
Embedded value
of shareholders`
funds (R million)(5) 36 682 37 632 (22) 37 610
Embedded value
per share
(cents)(5) 1 346 1 381 - 1 381
Return on
embedded value
per share (%) 22.5 25.7 - 25.7
Weighted
average number
of ordinary
shares (million) 2 698.3 2 698.3 (1.9) 2 696.4
Diluted weighted
average number of
ordinary shares
(million) 2 731.3 2 731.3 (1.9) 2 729.4
Adjusted
shares issued
(million) 2 725.9 2 725.9 (1.9) 2 724.0
Notes:
1. Extracted from the audited published results of Sanlam for the year ended
31 December 2004.
2. Extracted from the circular to Sanlam Shareholders, dated 19 May 2005,
relating to the sale of Sanlam`s shareholding in Absa to Barclays. The effect
of a disposal of 100% of the Sanlam shareholders` funds` investment in Absa
has been included in this pro forma financial information.
3. Based on basic earnings adjusted for shares still to be issued under the
Sanlam Share Incentive Trust and the conversion of deferred shares to the the
extent that conversion rights have vested.
4. For the purposes of calculating the pro forma basic and diluted core
earnings, headline earnings, attributable earnings and adjusted headline
earnings based on the LTRR per Sanlam ordinary share it was assumed that:
(A) the transaction was effected on 1 January 2004;
(B) African Life`s earnings for the year ended 31 December 2004 are equal to
its earnings for the year ended 31 March 2005;
(C) the acquisition consideration of R2 566 million, being the acquisition
consideration in respect of 100% of the African Life ordinary shares, was
withdrawn from a balanced portfolio;
(D) Negative Rand Reserves (NRR`s) are eliminated from the net asset value
acquired, with a corresponding increase in the value of in force business
(VIF) acquired;
(E) the excess of the acquisition consideration paid over the fair value of
the net shareholders` fund assets acquired is regarded as a Value of Business
Acquired (VOBA) intangible asset, which is amortised over a period of 25
years;
(F) core earnings increased by R173 million, comprising:
(i) the after-tax operating surplus and investment income earned by African
Life during the year ended 31 March 2005, after adjustment for the transfer of
NRR`s to VIF, amounting to R262 million; and
(ii) a reduction of R89 million in the actual investment income return of 3,5%
after tax (4,1% pre tax) earned during the year ended 31 December 2004 on the
balanced portfolio from which the acquisition consideration was withdrawn;
(G) headline earnings increased by R130 million, comprising:
(i) the increase in core earnings of R173 million (refer note f); and
(ii) an expense of R43 million in respect of the amortisation of the VOBA
intangible asset (refer note e);
(H) attributable earnings increased by R164 million, comprising:
(i) the increase in headline earnings of R130 million (refer note g); and
(ii) net realised investment surpluses of R34 million earned by African Life
during the year ended 31 March 2005;
(I) LTRR earnings increased by R101 million, after taking the following into
account:
(i) LTRR earnings increased with African Life`s net operating profit of R215
million for the year ended 31 March 2005, after adjustment for the transfer of
NRR`s to VIF;
(ii) Secondary Tax on Companies and the reversal of prior year tax
overprovisions amounting to R33 million in aggregate are included in the
calculation of LTRR headline earnings;
(iii) LTRR headline earnings reduced with the expected long-term rate of
return earnings of 9% after tax (11% pre tax) on the acquisition consideration
withdrawn from the balanced portfolio; and
(iv) LTRR headline earnings increased with the expected long-term rate of
return earnings of 9% after tax (11% pre tax) on the investment assets of the
African Life shareholders` fund of R1 294 million; and
(J) Sanlam Limited shares held by the African Life shareholders` funds are
accounted for as the acquisition of treasury shares by Sanlam. The adjusted
number of shares in issue as at 31 December 2004 is accordingly reduced by 1.9
million.
5. For the purposes of calculating the pro forma net asset value, net tangible
asset value and embedded value per Sanlam ordinary share, it was assumed that:
(A) the transaction was effected on 31 December 2004;
(B) African Life`s shareholders` funds, VIF and embedded value as at 31
December 2004 is equal to its shareholders` funds, VIF and embedded value,
respectively, as at 31 March 2005;
(C) the excess of the acquisition consideration paid over the fair value of
the net shareholders` fund assets acquired is regarded as a VOBA intangible
asset; and
(D) Sanlam Limited shares held by the African Life shareholders` funds are
accounted for as the acquisition of treasury shares by Sanlam. Sanlam`s
shareholders` funds are accordingly reduced by R22 million and the adjusted
number of shares in issue as at 31 December 2004 by 1.9 million.
7. SUPPORT FOR THE TRANSACTION
7.1 KPMG Services (Pty) Ltd (`KPMG`) has been appointed by the African Life
board as the independent professional expert for the purposes of the scheme
and the Momentum ALH transaction to advise the African Life board on whether
the terms and conditions of the scheme and the Momentum ALH transaction are
fair and reasonable to the ordinary shareholders of African Life.
7.2 At the request of an independent committee of the African Life Board (`the
independent committee`), KPMG has provided a preliminary, verbal opinion,
which opinion will be formalised at the last practicable date prior to the
publication of a circular to African Life shareholders. This favourable
preliminary opinion, which may be subject to change, is based on information
available to KPMG until 5 August 2005 and is subject to a review of, inter alia,
the final agreements and circular as well as the limitations and conditions to
be set out in its formal opinion.
7.3 The African Life board, having taken into account KPMG`s favourable
preliminary opinion and the advice from the independent committee, is of the
opinion that the terms and conditions of the scheme and the Momentum ALH
transaction are fair and reasonable to African Life shareholders. Subject to
the receipt of the final fair and reasonable opinion from KPMG, the African
Life board recommends that African Life shareholders vote in favour of the
resolutions required to give effect to the scheme and the Momentum ALH
transaction.
7.4 Those African Life directors who hold African Life ordinary shares intend
voting in favour of the scheme and the Momentum ALH transaction in respect of
their African Life ordinary shares.
7.5 African Life shareholders who have given written irrevocable undertakings
to vote in favour of the scheme in respect of the African Life shares
beneficially owned by them, are set out in the table below:
Number of Percentage
African Life of exercisable
ordinary shares votes in terms
Name of ordinary shareholder beneficially owned of the scheme
Momentum 39 206 833 43.8
African Life Employee
Shareholders Scheme Trust 6 464 524 7.2
Total 45 671 357 51.0
7.6 In addition to the shareholders referred to in the table above,
shareholders holding in aggregate 19.7% of the exercisable votes in terms of
the scheme have provided expressions of support for the transaction.
Bellville
10 August 2005
Corporate adviser and transactional sponsor to Sanlam
ABSA Corporate & Merchant Bank
Reporting accountants
ERNST & YOUNG
Chartered Accountants (SA)
(Registered Accountants and Auditors)
Attorneys to Sanlam
JOWELL GLYN & MARAIS
Date: 10/08/2005 08:11:59 AM
Produced by the JSE SENS Department
